Booking Holdings Inc (BKNG) — Q2 2020 Earnings Call Transcript

Thank you. And welcome to Booking Holdings' second quarter conference call. I'm joined this afternoon by our CFO, David Goulden. We felt the full impact of COVID-19 during the second quarter, with reported room nights, which includes the impact of cancellations, declining 87% year-over-year. Newly booked room nights, excluding the impact of cancellations, declined 68% in the quarter. The high cancellation rate of pre-COVID bookings, which we witnessed in March and April, combined with the overall weak travel demand environment, significantly impacted our revenue and EBITDA this quarter. Revenue declined 84% versus last year, and we recorded an adjusted EBITDA loss of $376 million. This is the first time we have produced a quarterly EBITDA loss since 2001. We witnessed the greatest negative impact from the virus in April as newly booked room nights in that month declined over 85% year-over-year. After April, room night trends have steadily improved with newly booked room 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 improvement. In July, we reached slightly positive year-over-year growth for overall domestic newly booked room nights, though, of course, there are many countries that still have negative year-over-year growth rates. In addition, it is an obvious point that our domestic business is benefiting from prohibitions and restrictions on international travel, which forces consumers who want a holiday to travel domestically. While almost all of our global markets showed improvement throughout the quarter, Europe and the United States had the highest contribution to the improved domestic booking trends. As a reminder, a very high percentage of our new bookings have been made with flexible cancellation policies and may be canceled in the future. As we see new outbreaks of COVID-19, cancellations may increase again. While we are pleased to see signs of recovery in domestic travel, we want to emphasize that it is impossible to tell how the coming months will unfold. Unfortunately, many areas of the world continue to have very high infection rates, and in some regions, they are dealing with new outbreaks after having significantly lowered their infection rates. As a result, after a period of relatively steady improvement in many geographies, we are seeing these growth rates worsen in some countries. We continue to believe that in order to recover to pre-COVID levels, we will need to have a vaccine or effective treatment, which will take time to produce and distribute globally at the scale needed. We are pleased to have 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-COVID volumes. In those countries and regions where shelter-in-place rules were relaxed and economies reopened, we witnessed booking trends improve quickly. We believe part of this initial burst of demand is due to people's pent-up desire to go somewhere after being in a lockdown situation. It also demonstrates people's deep desire to travel, provided it is safe. Throughout this initial reopening phase, we have seen new customer booking and travel patterns emerge. In line with our growth in domestic travel, we are seeing that bookers are choosing to stay closer to home and are more interested in less urban areas than pre-COVID. The share of these types of bookings on our platform has increased meaningfully this quarter. We also see that our customers are booking more alternative accommodations than in the past, which often have the benefit of reduced potential interaction with other travelers. In Q2, Booking.com alternative accommodations represented about 40% of all new bookings in the quarter. We've all seen an increase in travelers booking stays with more flexible cancellation policies due to the uncertain travel environment 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 rate types. We have adapted our marketplace to operate more efficiently in this new travel demand environment to benefit both our supply partners and customers. We are working closely with our supply partners, so they can more effectively market on our platform to capture the growing travel demand. As our partners seek assistance to better respond to these new domestic and intra-regional demand patterns, we are working to provide more information and insights into the nature of the demand and offering the best programs on our platform that will help them capture this demand. We are also helping our partners more effectively communicate and showcase the steps that 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 continue 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 plans to help navigate the company through these challenging times. The 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. The final phase is focused on positioning 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 phase. These actions have allowed us to lay the important groundwork that will set us up to emerge from the pandemic in a 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. We completed this work at KAYAK, OpenTable, and Agoda in the second quarter and recently completed at Priceline in July. The restructuring charge we took in the second quarter only relates to the rightsizing activities at KAYAK, OpenTable, 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 costs will be modest this year, we expect that these cost reductions will produce over $80 million of annual personnel savings. With respect to Booking.com, we have further developed our intentions for the appropriate level of personnel and other cost reductions in light of expected business loss. Booking.com is in the process of consulting with its works councils and employee representatives and working through local labor 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.com's global workforce could be impacted by these actions, with functions most closely tied to transaction volumes being impacted the most. At this time, and subject to our consultation with the Dutch Works Council, employee representatives, and other organizations, we estimate that these cost reductions at Booking.com could produce annual personnel savings between $250 million to $300 million. This preliminary estimate may change and we will update you in the coming months on the expected restructuring costs associated with these reductions. It is our hope to make all announcements to employees about these cost reductions by the end of 2020. In conclusion, we have learned from when we could not travel, how important travel is to our lives, whether to see 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 from millions of customers about the accommodations they would want to visit, affirms the innate desire or demand that will always endure forward travel. This campaign reiterates the energy and passion that we know remains for travel. This has been a challenging quarter, and we've had to make some very difficult decisions. We believe it will take years for travel to fully recover, but I have great confidence in our employees and our capabilities, and I cannot be more proud of how our entire team has handled themselves during these trying times. I will now turn the call over to our CFO, David Goulden.

Thank you, Glenn, and good afternoon. I'll review our operating results for the second quarter and provide some color on the trends we saw through the quarter and into July. All growth rates are relative to the prior year comparable period, unless otherwise indicated. Information regarding the reconciliation of non-GAAP to GAAP can be found in our earnings release. Now on to our results for the quarter. In our last earnings call in May, we discussed the trends we saw early in the second quarter, including a year-over-year decline in newly booked room nights of about 85% in April. As a reminder, newly booked room nights exclude the impact of cancellations. April ultimately proved to be the low point for newly booked room night declines in Q2 as we 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, and across Asia. However, we saw less improvement in the domestic declines in South America, the Middle East, and Africa. Newly booked room nights for 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 received more cancellations than new bookings. We saw a continued improvement in the cancellation rate since April as we worked through the cancellations for bookings made prior to COVID-19. Although we're now getting closer to pre-COVID levels of cancellation rates, this improving trend could easily reverse if we see continued outbreaks of the virus or new impositions of travel restrictions, especially considering the very high percentage of our recent bookings that are being made with flexible cancellation policies. Gross bookings declined 91% in Q2, which is greater than the decline in reported room nights due to the average daily rates for accommodations decreasing by about 35% year-over-year on a constant currency basis. Note that the high level of cancellations in the quarter significantly distorted ADRs. As a point of comparison, our newly booked ADRs, excluding the impact of cancellations, declined year-over-year by only a couple of percentage points in Q2. An increasing mix of bookings in the high ADR markets like the U.S. and Western Europe helped offset the pressure of the broader lodging industry ADR declines. Consolidated revenue for the second quarter was $630 million and decreased 84% year-over-year. Revenue in the quarter was less negatively impacted than reported room nights and gross bookings due to the fact that some of the cancellations we received in Q2 were for check-ins expected to occur in later quarters. This dynamic created by cancellations in the quarter also substantially increased the ratio of revenue as a percentage of gross bookings in the quarter. 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, the 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, sales, and other, our more fixed expenses decreased to a lesser extent in Q2. As we mentioned, we've taken actions across the quarter to reduce operating expenses as we optimize and align our cost structure with the new demand environment. However, the cost benefit of these actions was not fully realized in Q2, and the cost reductions net of restructuring charges are expected to be modest in 2020. Marketing expenses, which are a highly variable expense item, decreased 85% year-over-year as we saw a significant reduction in demand in paid channels. Additionally, we substantially reduced our brand marketing spend in response to the diminished travel demand environment. We expect our marketing expenses will remain significantly below 2019 levels for the remainder of the year. Sales and other expenses decreased 47% year-over-year due primarily to a reduction in expenses associated with payment transactions and lower outsourced customer service costs as we moved through the quarter and needed less support in processing reduced levels of cancellations in May and June. Bad debt and other credit losses were up about 25% year-over-year in the quarter. However, we saw a far smaller increase in provisions in Q2 than what we recognized in Q1. We expect sales and other expansion will continue to be down year-on-year in the second half of 2020. However, the extent of the decline will be impacted by the level of volume we see in the business. Personnel expenses decreased 18% year-over-year on a non-GAAP basis, primarily due to a $100 million benefit from government aid packages, primarily in the Netherlands and the U.K. Currently, we do not anticipate further material benefits to personnel expenses from government aid in future quarters. We expect personnel expenses in the second half of 2020 will decline less than we saw in Q2, as we'll no longer see the benefit from government aid. We expect the personnel cost reductions we made in Q2 at Agoda, KAYAK, and OpenTable, plus the reductions we made early in Q3 at Priceline, to produce over $80 million of annualized personnel savings starting in the second half of 2020. As Glenn mentioned, we have further developed our intentions for the appropriate levels of personnel at Booking.com and are in the process of reviewing these potential reductions with works councils, employee representatives, and other organizations. We estimate that the potential cost reduction at Booking.com could produce annual personnel run rate savings between $250 million and $300 million. Because of the processes we have to go through at Booking.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 any required amendments to our 8-K. G&A expenses decreased 43% year-over-year, largely driven by reduced discretionary spending such as T&E and other personnel-related expenses, as well as lower office expenses due to employees working remotely. We expect that G&A will continue to be down meaningfully year-over-year in the back half of the year. However, the level of decline may be less than what we saw in the second quarter. Information technology expenses decreased 1% year-over-year due to lower outsourced data center and cloud costs. We expect the IT expenses will remain roughly flat versus the prior year in the back half of the year. Finally, we have broken out restructuring charges separately in the operating expenses in the P&L. The $34 million of restructuring charges to be recorded in the second quarter only relates to the rightsizing activities at KAYAK, OpenTable, and Agoda. I note these restructuring charges are included in our non-GAAP results. On a GAAP basis, we incurred an operating loss of $485 million in Q2. We recorded GAAP net income of $122 million in the quarter, as we benefited from an $835 million pretax gain on our equity investments, primarily related to our investments in methane. This gain was partially offset by $55 million of FX remeasurement losses on our euro bonds. We excluded these gains and remeasurement losses from our non-GAAP results. Now on to our cash and liquidity position. Our Q2 end cash investment balance increased to $13.4 billion from a March ending balance of $9.2 billion, primarily due to the $4.1 billion bond and convertible note offering we completed in early April. Our 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 cash settlements at one of our convertible notes in June. We had $122 million in positive operating cash flow and $52 million in positive free cash flow in the quarter. Changes in working capital were a source of about $300 million of cash in the quarter compared to $820 million used in cash in Q1. The improvement from Q1 was largely driven by a Q1 prepayment of taxes in the Netherlands of about $720 million that was subsequently refunded in April. The small reduction in Q2 relative to Q1 in our deferred merchant bookings and other current liability balances were mostly offset by a small reduction in our accounts receivable balance in the quarter. Our improved liquidity position is the result of efforts we took to stabilize our business for the immediate shock of the crisis. We will continue to focus on a strong liquidity position given the high level of uncertainty created by the COVID pandemic. As part of these efforts to bolster our liquidity and consistent with our clients from last quarter, we've halted our approaches of stock and will not initiate repurchases to have better visibility into the shape and timing of a recovery. Now on to 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 top line trends. As Glenn mentioned, our newly booked room nights in July were down about 35% year-over-year. Of course, these new bookings may be canceled in the future, especially as a very high percentage of new bookings continue to be made with flexible cancellation policies. The year-over-year decline in reported room nights in July was about 45%, which is worse than our newly booked room night decline in the month as the cancellation rate remained above prior levels. Bookings for the full third quarter may vary from July's results depending upon the level of travel demand and cancellations we experienced in August and September. We expect gross bookings in the third quarter will decline year-over-year by several percentage points more than our reported room nights due to negative pressure on local currency ADRs. We also expect revenue declines for the quarter to be roughly in line with 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 the assumption we do not see a meaningful increase in travel restrictions, shelter-in-place rules, or a decrease in consumer willingness to travel as a result of continued or increased outbreaks in the quarter. As we noted, we've seen an improvement in our newly booked room night trends continue into July, largely driven by domestic travel. Our newly booked domestic room nights increased slightly year-over-year in the month of July for the first time during the COVID pandemic. Domestic room nights represented over 70% of our newly booked room nights in both Q2 and July, up significantly from 2019, which was about 45%. Our Booking.com domestic, alternative accommodation newly booked room nights increased nicely year-over-year in July, and its domestic core accommodation newly booked room nights were down slightly. We continue to monitor other changes in Booking.com's customer booking behavior. We have seen the length of the booking window begin to return to prior year levels in June after expanding versus the prior year in both April and May. Mobile bookings, particularly through our app, continue to gain share in the second quarter into July. And finally, we continue to see greater than 50% of our newly booked room nights coming to us through the direct channel. On a regional basis, Europe and the United States have been the largest contributors to the improvement in newly booked room night trends since April. However, as Glenn mentioned, in the past weeks, we've witnessed a plateau or deterioration of new booking trends in several places that have seen increasing outbreaks of COVID-19 cases, including Spain, Belgium, Australia, Japan, Vietnam, Taiwan, and the U.S. We've also seen an associated increase in cancellation rates in many of these places. These recent trends are a reminder we're still in the very early days of a fragile recovery that will likely be uneven for some time to come. As Glenn emphasized, this has been a challenging quarter that has involved some very difficult decisions and a number of other actions that will ultimately help us optimize our business with expected levels of market demand. We have confidence that through these actions, we'll be well-positioned to come out of the crisis and extend our leadership role in the global travel marketplace. With that, we'll now take your questions.

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 those July numbers? And if so, what are the key drivers there? Thanks.

Hi, Kevin. It's Glenn. No, we don't go around trying to gauge what we think our share is up or down. Obviously, you probably have a very good idea of what you think of our competitors and where they are. I will say what David said is, we are pleased with what we saw in July. What I think is very, very important for everybody to keep in mind is that this is a very volatile recovery and the countries that David listed that we have seen increased outbreaks. That was not a complete list. We would use up the entire time if we listed every single place that has seen increases in COVID. So I would caution, again, just what David said, yes, we were pleased with what we saw in July, but we have to be careful about the future.

Thanks. And then if I could ask one other question on the cost cuts. You mentioned $250 million to $300 million in personnel; 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 to cut back?

Yes. Kevin, we gave you two numbers. We gave you $80 million annualized for the brands apart from Booking.com. And then $250 million to $300 million for the potential savings of Booking.com based on all the process points that we talked about. So those would directly impact the personnel line. So those we've broken out. We've mentioned in some other areas of the business, our expenses are down, but we haven't really worked through all the details exactly what those are going to be as we are focused on our employee-related costs first. But obviously, with fewer people, there will be less expense to come with it in other areas. As we work through those plans as well, we'll make them available. But the biggest change is going to be to personnel cost.

Thanks, David. Thanks, Glenn.

This is Chris on for Lloyd. Can you just first talk about the performance of your alternative accommodation business in the quarter in July? Just curious if that was growing. And yes, whether or not you guys are testing new distribution channels in the quarter.

So Chris, one of the things I think -- and let me go to the Q2, that 40% number that I gave in my opening remarks, and as we said, that is an increase. It's a big number compared to what we had seen in the past. It's something that we're pleased with. But of course, we all have a good sense of what's going on. And that is a change in demand because people are concerned about being in a large group and in a hotel lobby. I think the thing that we really have to think about is what 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 talked about in the past is how we want to continue to build out alternative accommodations. We thought it was an important thing for us to continue to build out all types of alternative accommodations, and we recognize that we are probably short in certain types, particularly the single property, home-type property, and we want to continue to build that. We also talked that we thought that we were perhaps under-indexing in terms of awareness in certain geographies like the U.S., for example, and we want to continue to improve upon that. So we're going to do that. And we're certainly going to use every single marketing channel we can to get that information out to consumers that we have a great product, and that is something that they can look to us to get a great deal. That's something that I think is important. I am very pleased, of course, with the numbers we saw, but I also like the fact that we are perhaps unique in terms of all the types of accommodations we are able to provide throughout the world. That's given us, I think, a great opportunity going forward.

Got it. And if I could just squeeze in there a quick follow-up here. Just thinking about marketing ROIs here. Could you just talk about what you guys are seeing in the performance marketing channels? Yes, it looked like you had gained a lot of share in Trivago. I was curious if there were any other channels you guys were seeing similar results?

Well, I think, I'll confine myself saying, look, we're always looking for high-quality traffic at the right price. When I say, high-quality, we want conversions that are one of the low probability of cancellation. I want them to come back to us later directly. That's what we're going to continue to do, and we've always done that. That's no change from our previous way of running our business.

Hi. This is Alex Wang on for Brian. First question, can you just talk to us about the new growth opportunities like the U.S. or in destinations, in areas you're focused on improving the go-to-market strategy, particularly in the U.S.?

Alex, you say -- so you're asking what is our -- just in general, you’re saying -- again, our go-to-market in the U.S., you're saying?

Yes, that's right. So the ability to sort of maybe, yes, improve the brand and then growth opportunities in the market like the U.S. and then any difference in the go-to-market strategy?

Yes. Okay. So we have said this in the past, and I’ll repeat clearly more so now. We think the U.S. is a great opportunity for us. We think we underindex; we've got great partners. I was just saying, we have all types of accommodations. With what we're building with our connected trip, we think we're going to offer an incredible value proposition to consumers. So we are absolutely excited about the long-term future of this right now. Yes, people are traveling a little bit more, certainly than they were in April. But we all know what the situation is right now. What you don't want to be doing is spending a lot of money pushing out a brand message if people are not ready to travel or can't travel. We want to be careful about that. So I think we're going to have to wait. Until we have a healthier environment, where more people are ready to listen to that message before we're going to start spending money on it.

Got it. And just as a follow-on. With the reported or stated reduction in headcount at Booking.com, can you give more color around the areas of the company that you're looking into here? Particularly, given, I think, Booking.com has been run pretty lean in the past. Higher level, how does this change your investment priorities beyond hotels now compared to where they were pre-COVID?

We made it very clear in our discussions with our employees, our works council, our employee organizations, and everyone we have to have these conversations with. There are different regulations around the world in terms of potential conversations to have. We made it very clear that the higher wages are going to be on volume-related positions because our volumes are way down. Those are the ones. I made it very clear how much I believe in the future of the connected trip, the investments we're making, and the things that we believe in the long-term will give us a competitive advantage over everybody. I'd think I’d be doing the wrong thing if I were to say that we should stop trying to invest in those areas. I think they're important for the long run. This is a 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.

Thanks so much for taking the question. Maybe two, if I can. Glenn, 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 towards alternative accommodations to some degree on what people are booking. Is there anything you're doing in terms of changing some of the strategy of partnering on supply or trying to bring supply on against the demand environment you find yourself in? That's number one. And then maybe on the buyback, I know you need to see a better environment to come back to the capital return policy, can you give us a little bit of sense of what that environment might have to look like? Like what should we be looking for from the outside in that you would need to see in the business before you're back to returning capital? Thanks so much for any color. Appreciate it.

Sure. I'll take the first one, and I'll let David talk about our potential capital return at some point, balance sheet in general. One thing we've talked about in the past a great deal is if there was a recession, what would happen in terms of the supply relations? Would they be more willing to lean in with us? Would they be more open to conversations? What would they do? We've been seeing, and it's pretty much what we thought would happen, that when demand goes away and supply is looking for demand, they're looking to do it anyway they can, and they are open to conversations that perhaps they weren't in the past. Our teams are out there talking with the supply side whether it be alternative accommodations, properties, or in the big hotel brands or anybody who is in our business. Right now, they need demand, and they're looking to us for that. Our teams are coming up with creative different ways to try and provide something that will help them because we now look at this as a two-sided marketplace. We've got to do good for both sides. That's what we're doing right now, and I think we're making progress with it. We're having some very good conversations that we may not have had in the past, but I think that in the future, we will hopefully have this be a long-term better relationship with some of our partners as we continue to develop ways that we show their win-win for everybody.

Yes. And Eric, on the buyback side, just to elaborate a little bit on what I said. So, I said we certainly would not initiate until we have better visibility into the shape and timing of a recovery. So, what do we mean by that? We mean having best certainty as to what the future looks like. When it's going to happen, and what the shape of the recovery is going to look like. Nobody is predicting a V-shaped recovery now; that's not what people are looking at, but we're looking at some period of uncertainty right now. Until we figure out more about what's happening with the vaccine and how that would impact people's comfort, and then, of course, the economic impact of the COVID crisis and what that does to people's ability to travel and spend money, so all these things go into it. There isn't a single milestone to look for. But if you ask me to characterize the environment, which we will consider reinitiating capital returns, it would be an environment where we have much more visibility and confidence into the shape of the future.

Yes. Thanks a lot. Maybe, Glenn, can you shed some light on the mix of direct versus paid bookings? I think historically, you talked about how direct had already crossed 50% market. How does it look today? And do you think that an elevated level of direct bookings can continue to occur on a go-forward basis? Or would you think of that as a temporary shift? And then I have a follow-up.

Sure. We've said this and we will continue to say how important we believe direct booking is really where we want to be in the future. We want to provide such great value that our customers, once they learn about this, come back to us directly. They don't want to think about going somewhere else. Through the connected trip and building up all different types of, let's say, lower friction type ways to travel, that it makes it so that we are the first thought always. I'm not sure, David, if you want to give me more color to where we are now. I'll let him do it. I will say the system is important to us.

I think, Glenn, as we said, we continue to be over 50% direct. There are some important things that are driving that, which are good indicators. We mentioned them briefly a little bit on the last call as well. I mentioned in my remarks earlier that we continue to see the app being an important contribution because that is really our stickiest kind of touchpoint with our customers, because that is not only a place you go to book travel, but increasingly, it's way of interacting with us during the travel experience, which is very important as well. We also see, as we mentioned last quarter, we also see things like an increasing percentage mix from our Genius customers this quarter as well. These are positive things that correlate long-term to a higher mix of direct bookings. Just this ability to create, as Glenn has said a few times, the connected trip, where you're not just booking with us and then going on the trip, but you're really booking multiple verticals. You're interacting with us during the trip, we're providing things like dynamic customer support, etc., a very different environment in the future, powered by big data, machine learning, AI, etc. We think these are important signs that we're moving in the right direction.

Great. And the follow-up I had is really just to clarify the domestic mix you gave us, Glenn, 70% domestic. How does that treat the EU -- treat it as a single entity? Or are you looking at country levels?

It's by country domestic. We do -- we sometimes look at our regional, intraregional. But if you're an Italian tourist and you went to France, that's not domestic travel.

Great. David, can you help us quantify the pressure on new bookings from the mix shift towards domestic ADRs? Obviously, on a comparable basis, they are lower in various markets. But are there any other variables either from consumer spending less or staying fewer nights that will keep the bookings growth below the trends on the new room nights? And then what is the equal and dollar bookings comparable metric for the down 35 room nights during the month of July? Thank you.

I'm going to ask you to clarify the second part, Deepak, let me answer the first part. Yes, there's obviously many moving parts with ADRs this quarter. As I mentioned, for newly booked room nights, the ADRs actually, in total, only off a couple of points, even though there's a mix shift, obviously, within that too domestic. So we see a number of things going on. What we see is, in some cases, obviously, some people are substituting what would have been an international booking for a domestic booking, and those can potentially be higher ADRs because historically, international travel typically resulted in a higher ADR and longer stay. And to the extent that some of that is substituting into domestic, that could be helping our ADRs on a country-by-country basis because in some of our core countries in Europe, we actually saw ADRs up quite meaningfully in the quarter. So there's a number of mix-related things going on within the whole ADR environment. As I said, it's essentially flat, just down a couple of points in total in the quarter despite the fact that we know that like-for-like, there are certainly ADR pressures in the marketplace. And Deepak, I missed the second part of your question; could you just repeat that, please?

Yes. No, I was just going to ask, how should we think about the down 35 in room nights on an equal and dollar bookings basis? Is that -- to your point, should we view that as fairly close?

No, no, we took -- well, in terms of -- well, no, there's still going to be an ADR pressure on that. So what we said was we're down 35 in July in room nights on a newly booked basis, down 45 on a reported basis; the cancellation rates are running a little higher than they were last year. A few points more than that down in terms of gross bookings and revenue.

This is Dave on for Doug. Thanks. Thank you for taking the questions. First one, could you talk about the profile of the people who are still traveling? For example, would you consider them to be avid travelers with higher LCVs? And they're traveling despite all that is happening? Or just people who are traveling because they have to? Could you just tie that to how important you think it is to gain shares early in the recovery? 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 volume returning? Do you think margins will look meaningfully different when volumes return to pre-COVID levels?

Why don't you take the first one, and I'll take the second.

Yes. In terms of profile, I have not looked at any sort of customer segmentation recently in terms of the write-down. So I can't speak specifically in terms of deep debt on the profiles. But it would not surprise me if I did it now next week, it would show not that different in terms of what it was pre-COVID. People still want to travel, people still sometimes have to travel, and sometimes do it voluntarily, but the change is where they're traveling and how they're traveling. So, for example, because people can't travel internationally from the U.S. to Europe, those people are traveling domestically. We've seen that in terms of people very much wanting to travel close to home at first because they want to be able to drive there, 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 of anything, except for one thing that I think is very, very critical to talk about, and that is business travel. We've always been a much more leisure-oriented company. We all know that business travel has been significantly curtailed or stopped. What does that do? Certain properties, certain supply chains, for example, high-end hotels are no longer able to get that high ADR revenue. That, of course, is helping in terms of a distributor like us because we have leisure customers to help fill those things. How long will this go? This is a long-term trend. I think that this could be helpful to us, and it may be helpful to us in the long-term as the shift from business to leisure 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 and beds.

Yes. On the cost side of things. So yes, we said the majority of the personnel reductions will be in volume-related functions. Obviously, those will, over time, come back. We look to continue to drive efficiency in many of those areas throughout our business, over time, through automation and other areas. They don't necessarily have to come back for jobs as volume returns; they will come back. In terms of our expectation for the longer-term when we get to pre-COVID levels, which as we said, is not about quarters but is about years. We expect the business to have very attractive margins when demand fully recovers. All things being equal, we expect to have industry-leading margins in the long-term. Obviously, the business in the future will look a little different than it did pre-COVID. For example, we're building out new products like air, which will be dilutive to margin rate, but will also be important to our business and our strategy in the connected trip and selling more accommodations. There'll be puts and takes, but we expect to have industry-leading margins in the longer term.

Okay. Thank you. So Glenn, have you seen any impact from the cut back in performance marketing spend by Expedia in the North American market? Does that -- have you seen any interesting dynamics? Or is the overall just dramatic decline in travel demand just making that impossible to really call out? And then I want to ask a long-term question about -- I think if you hadn't had COVID this year, there would have been more evidence that booking was building out kind of an operating system for lodging worldwide. I think that was part of your strategy for payments, website development, etc. If I interpreted it right, could you talk about how much that's been pushed back because of this COVID crisis and your thoughts on if we can possibly look out two or three years how far you are towards building an operating system for lodging globally? Thank you.

Hi, Mark. So I can't comment much about Expedia or what they're doing. I'm sure you see more Google puts out in terms of numbers, etc. We're pleased with what we're doing. It's the same strategy that we've had. We're looking for high-quality traffic. We're trying to do it. It's harder now for us just in terms of the miles we use in the past obviously are not as valuable now because cancellations are so affected by government changes. It's a more difficult thing. We're trying to do it the way we've always done it; we're not doing anything foolish. I can't talk about Expedia strategy on what they're doing. In terms of the 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 a very integrated benefit for the hotels that makes it so they're getting great value from things that we're doing with them. For example, you mentioned the issue of building websites for hotels. That's been pulled back significantly. Some of that is no longer being pushed forward. What we are doing, though, is working with them as we build out our connected trip. For example, let's go with ground transportation and working with them perhaps, in a way that they don't have a way for their customers to get there from the hotel. We can still create something that would enable them to also be part of that to getting that ground transportation and such. We're looking good for the future as travel comes back, which we know it will. It always has and will; the more we read about some of these vaccines possibly coming out in the not-so-distant future, we're pretty positive about the long term.

Great, thanks for taking my question. I apologize if it's already been asked, but just thinking about hotel recovery and the hotel industry as they try to get back on their feet. First, how do you think about air capacity? Are the airlines going to be even more dependent on leisure travel? Or is there going to be a little bit less capacity out there? Secondly, as the hotels go to market and start filling their rooms, about maybe 2021 or 2022, what advantages -- offering discounts or promotions on booking, could they have versus maybe going to Google or your competitors? How are you thinking about building booking out as a great place to go to find deals and help hotels fill inventory? Thank you.

Yes. So two separate things. The first thing about airlines, 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 when everybody is up in the front of the plane. If that's not there, that's not going to happen. On the other hand, though, we know that places like Ryanair have been extremely successful, and Southwest has been extremely essential long-term without having a very high, very expensive first-class or business-class product. Overall, I believe this could be a change in terms of leisure, it does become more important and that generates tilts favorable to us because we are a more leisure-oriented company. In terms of the hotels, I said, I don't -- same type of thing with some of our partners who are more dependent on the business traveler. As they continue to come back or recover, it's going to be a little bit harder for some of them because they're not going to get that very high ADR business person, and they will be looking for someone like us. You mentioned that going to a Google direct or hotels are going to do anything that can be cost-effective. They will do it. Over the years, we have established something that is more cost-effective, that is an easier way for most of the hotels around the world; they cannot get anywhere near our capabilities to bring them demand around the world. They don't operate in the number of languages we do. They don't provide customer service in those languages. They don't have the sophistication with machine learning. There are so many that we do, and we do it at a fraction of the cost that will cause them to even try to do that. It's financially advantageous for them to work with us to get that demand. As one of the biggest demand platforms in the world for travel, there's no hotel in the world discussing, 'Well, I just don't want to do that.' No, they're going to do that. If there's a marginal benefit to go into another channel, they'll use that too. But I'm not concerned about hotels not coming to us even more so nowadays.

Okay, thanks. Two questions, please. Glenn, have you seen any impact from the cut back in performance marketing spend by Expedia in the North American market? Does that -- have you seen any interesting dynamics? Or is the overall just dramatic decline in travel demand just making that impossible to really call out? And then I want to ask a long-term question about -- I think if you hadn't had COVID this year, there would have been more evidence that booking was building out kind of an operating system for lodging worldwide. I think that was part of your strategy for payments, website development, etc. If I interpreted it right, could you talk about how much that's been pushed back because of this COVID crisis and your thoughts on if we can possibly look out two or three years how far you are towards building an operating system for lodging globally? Thank you.

Hi, Mark. So I can't comment much about Expedia or what they're doing. I'm sure you see more Google puts out in terms of numbers, etc. We're 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 for us right now, just in terms of the number of users in the past obviously are not as valuable now because cancellations are so affected by government changes. It's a more challenging environment. We're trying to do it the way we've always done it; it's not going to change. I really can't talk about Expedia's strategy and what they're doing. In terms of the operating system, 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 a very integrated benefit for hotels that makes it so they're getting great value out of the things that we're doing with them. For example, you mentioned the issue of building websites for hotels. That's been pulled back significantly; some of that is no longer being pushed forward. What we are doing, though, is working with them as we build out our connected trip. For example, let's go with ground transportation. We're working with them perhaps in a way that they don't have a way for their customers to get there from the hotel. Well, we have a way with our customers who come to us first to book but we can also work with them. If a customer booked with some other distributor, we can still develop something that will enable them to also be part of that in getting the transportation and such. So, we're going to continue to work on this and I believe this will provide value and competitive advantage as we move forward.

Great, thanks for taking the questions. Two, if I may. On the first, I want to come back to the direct bookings proportion and you 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 constrained from a marketing perspective and from a scale perspective?

Yes. So, hypothesize why it's not a higher number. I'm not going to try and do that. I'll say that we're pleased with 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'd like -- we've seen that and like that. We're going to continue at the steady pace that we're on. Certainly, we could have increased it, perhaps if we were willing to spend a huge amount of money on brand marketing. But I 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 at an incredible cost. We always want to make sure that we're getting the right bang for our buck, so to speak, and we're pleased with the pace we're going at.

I think, Glenn, as we said, we continue to be over 50% direct. There are some important things that are driving that, which are good indicators. We mentioned them briefly a little bit on the last call as well. I mentioned in my remarks earlier that we continue to see the app being an important contribution because that is really our stickiest kind of touchpoint with our customers; that is not only a place you go to book travel but increasingly, it's how we interact with our customers during the travel experience, which is very important as well. We also see, as we mentioned last quarter, things like an increasing percentage mix from our Genius customers this quarter as well. These are positive things that correlate long-term to a higher mix of direct bookings. This ability to create, as Glenn has said a few times, the connected trip, where you're not just booking with us and then going on the trip, but you're really booking multiple verticals, you're interacting with us during the trip, and we're providing things like dynamic customer support, etc., are very important signs that we're moving in the right direction.

Great. Thanks so much for the detail.

Great. Thanks for taking the question. Just one, I'm wondering if we could dig in a bit on the July trends across Europe. David, you talked about deterioration plateauing in countries like Spain or Belgium, but you didn't mention some of the other regions in the area. Is it fair to think that the region as a whole continues to improve? Then Glenn, you talked about the demand pull forward for alternative accommodations. I guess, is it fair to think that you're looking at this as perhaps a stickier trend, a structural shift that's being pulled forward from COVID? Or do you think it's mostly just a sign of the times? Thanks so much.

Yes, let me answer the room night growth question trend first. We saw continued improvements into July in Europe. We saw continued improvement in June and into July in the aggregate. As I mentioned, we called out a couple of countries where we are seeing things slow down or go down a little bit towards the end of July. But in aggregate, July was up for newly booked room nights compared to June in Europe. In the U.S., the biggest improvement was in June, and then things basically flattened out in July in the U.S. So Europe, where things were still improving in the U.S., they flattened out with June and July being about the same.

Lee, I'm not trying to say -- I don't think it's a step change, but it's just an extension of a long-term trend. When you think about some of the other trends that have been happening that have been accelerated, the idea of vacations where people say, 'Okay, I don't want to go to work on a Friday. I'm going to treat me to a long weekend around a place or something.' With so many people who have learned that they can work remotely, this increase in that, 'I'll take Friday off and go down to the beach or get something' like ultra recommendations or whatever. I see all those trends accelerating, and they really help 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, you want something more than a double occupancy hotel property. So all of these things are coming together. I think it's going to continue for a long time. We feel pretty good about the fact that we're positioned very well to continue to grow our alternative accommodations. At the same time, for people who want that hotel. They want the resort. They want somebody else changing the sheets; we've got that too. For me, we're looking good for the future. Travel is going to come back, which we know it will; it always has. 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.

Thank you. I want to just give you some concluding remarks. I just have to absolutely thank all of our employees again; they have been working so hard since the beginning of this crisis, helping our partners, helping our customers in these incredibly difficult times, doing it from home. The near-term may be volatile. It's going to be volatile. As I just said, I am confident, though, about the long-term value proposition that we're putting together. I'm focused on the steps we're taking today to make sure we have a better company tomorrow. Please be safe, and good night.