Expedia Group Inc (EXPE) — Q4 2015 Earnings Call Transcript

Thank you, good afternoon, everybody, and welcome to Expedia's financial results conference call for the fourth quarter and full year ended December 31st, 2015. Pleased to be joined on the call today by Dara Khosrowshahi, Expedia's CEO and President, and Mark Okerstrom, our CFO and EVP Operations. The following discussion, including responses to your questions, reflects management's views as of today, February 10, 2016, only. We do not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to today's press release and the Company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements. You will find reconciliations of the non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release which is posted on the Company's IR website at ir.expediainc.com. I encourage you to periodically visit our Investor Relations site for important content including today's earnings release and an updated investor deck. As a reminder, we sold our 62.4% ownership stake in eLong on May 22, 2015, which was previously a consolidated entity of Expedia, Inc. For GAAP accounting purposes the results of eLong are included in our results through the date of the sale. But in order to allow investors to compare our current results on a like-for-like basis with our historical results, our commentary in the earnings release and on this call is principally focused on our results excluding eLong which should be considered in addition to the GAAP results on a fully consolidated basis. Finally, unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative expense, and technology and content expense also exclude stock-based compensation and depreciation expense. And all comparisons on this call will be against our results for the comparable period of 2014. With that, I would like to turn the call over to Dara.

Thanks, Alan. I wanted to start right upfront thanking our employees all over the world for another strong year for Expedia Inc. Mark, Alan and I get to tell you about and take public credit for the success of the company, but it's the amalgamation of everyone's dedication and good work that adds up to the figures that we’ll review today. And figures tell a consistently strong story. Gross bookings for 2015, up 24% to $59.7 billion and total revenue up 19% to $6.6 billion. Our customers bought 35% more airline tickets, 36% more room nights totaling more than $200 million for the year and 37% more car days in 2015 versus 2014. We delivered nearly $1.2 billion of adjusted EBITDA for the year, impressive in its own right, but especially so when you consider the huge headwinds from foreign currency, the significant investments we are making in resetting our contracted marketing structure with our hotel partners and the deal-related costs that we incurred in connection with our busy year of M&A activity. Speaking of M&A, 2015 was an unprecedented year for Expedia as we completed over $6 billion of strategic acquisitions which included Travelocity and a majority stake in our AirAsia joint venture, a significant minority investment in Decolar, Orbitz Worldwide, and most recently our largest acquisition ever in HomeAway. These transactions have consolidated and scaled our U.S. operations, extended our international reach, and have opened up a new leg of growth in the alternative accommodation sector. We also divested our stake in eLong for a nice profit and entered into a long-term alliance with Citra. Briefly on Orbitz, the integration is progressing well, with nearly all of the direct traffic of Orbitz.com and CheapTickets already on the brand Expedia platform. It's early, but results so far are promising. The migration work will continue into the first half of 2016, followed by optimizing the sites and tuning our variable marketing channels post-migration. We’re also actively working on other parts of the Orbitz business, including eBookers, Hotel Club, Orbitz Partner Network, and Orbitz for Business. Our goal is to migrate the vast majority of our Orbitz for Business clients onto the Egencia platform before year-end. We’re also in active dialogue with our OP and private label partners on expanding our relationship with them, and we see these efforts carrying through 2016 and into 2017 for certain partners. Moving forward, we’re planning to invest aggressively in our private label and partnership capabilities, and consider this area highly strategic for our company. I’ll also add that we’re very pleased with the talent level and execution capability of our Orbitz teams all over the world. The people and the brands we’ve added to our family will play an important role in our future success. It’s very early, but we’re encouraged with HomeAway’s Q4 performance coming in a bit ahead of our expectations, and have been consistently impressed with the level of talent there. HomeAway will be operated largely as a standalone business and will serve as the end-to-end vacation rental and home-sharing platform for the Expedia, Inc. family. That said, we plan to be highly involved with the HomeAway team helping them expand aggressively and move from their traditional listings model to a fully online transaction model. The team is beginning to introduce a service fee to travelers, and we expect that it will be fully launched on its U.S. vacation rental listings in the coming months slightly ahead of schedule. Around the same time, we’re rolling out lower supplier commissions for paper booking listings as well as a book with confidence guarantee, which is designed to encourage travelers to book on HomeAway and give them increased peace of mind when they do. We started an integrated marketing campaign in some of our major markets and intend to reinvest incremental upside from traveler fees back into the business. Particularly in product technology and marketing, we remain confident in our estimate of $350 million in adjusted EBITDA for HomeAway in 2018. We continue to see strong growth for Trivago into Q4 and in fact for all of 2015. We’ve had some investor questions regarding Trivago’s core growth and profitability, and we’d like to share some numbers for European markets versus the rest of the world. To take out the noise created by foreign exchange fluctuations, the numbers here are stated in euros. Trivago delivered 2015 standalone revenue of roughly €490 million, up nearly 60% year-over-year, with adjusted EBITDA of a few million euros. Now within these numbers, their most mature European markets collectively had revenue of over €250 million, up 20% year-over-year and with the contribution margin after direct marketing costs of about 25%. Trivago’s rest of the world markets had revenue of €235 million, up nearly 130%, and contribution margin just above breakeven. Know also that overhead costs for Trivago have been running in the neighborhood of 10% of revenue. While we expect Trivago to achieve healthy top and bottom-line growth in 2016, we’ll continue to reinvest profits from core markets to further scale in expansion markets on a worldwide basis. The Trivago seems first-rate and we believe that the global growth run rate for this brand continues to be substantial. Lastly, underpinning our active M&A strategy in investment in high growth businesses is a core organic business that has never been stronger. Brand Expedia, Hotels.com or Expedia Affiliate Network business all had terrific years delivering healthy room night and adjusted EBITDA growth. Egencia, our corporate travel business, had another excellent year, signing up over $1.1 billion of new client business and delivering 12% adjusted EBITDA growth. Supporting all of our brands, our lodging supply team is also firing on all cylinders, signing up nearly 60,000 new directly contracted hotel properties in 2015, up over 30% year-on-year. Since I opened my remarks with our accomplishments of the company, I’ll close with some thoughts about key challenges. Competition for consumer attention is as strong as ever, as our competitors and in some cases our partners invest and innovate aggressively. We’re also jumping into the alternative accommodation space where there is already a sizeable competitor and where we have a significant business model transition to undertake at HomeAway. As I described, we have heavy integration work with Orbitz. These matters, along with the volatile global macro-economic climate, together create a very dynamic and challenging environment to say the least. That said, our businesses and our teams are no strangers to these types of challenges. We’re focused, we’re hungry, we have an established execution and capital allocation record and we take these challenges ahead on and with confidence. With that, I’ll hand it to Mark.

Thanks, Dara. One quick reminder before I get started. As was the case last quarter, in order to help with comparability, our comments today are focused on Expedia results excluding eLong since we sold our 62% in eLong last May. Financial results for that business are included in our GAAP results on a consolidated basis through that date of the sale. We are quite pleased with our financial performance in the fourth quarter and for the full year 2015, excluding an estimated headwind of $10 million to $15 million from the impact of the terrorist attacks in Paris and the negative impact of HomeAway in the quarter, not contemplated in our prior guidance. Our full-year 2015 adjusted EBITDA growth exceeded the guidance we gave on our Q3 call. In the fourth quarter, top-line growth was driven by solid unit growth across products, geographies, and major brands. But first, we are getting a boost as we consolidate Orbitz, but despite the law of large numbers, our organic growth rates continue to be very healthy and comparable to the rates of growth we’ve seen for the last couple of years. In hotel revenue grew 24% on room night growth of 39%. The inorganic contributions to hotel revenue and room night growth were 14 and 15 percentage points respectively. We estimate the negative impact on Paris with around 300 basis points for both measures. Revenue per room night was down 11% in Q4 and a 5% decline in average daily rates. Note that the gap between revenue per room rate and ADR has narrowed this quarter compared to Q3, principally on reduced foreign exchange impacts. We do expect to see continued year-over-year pressure on revenue per room in 2016 if you trade some of our unit economics to drive volume in global scale. Air revenue was up 61% on ticket growth of 70%, partially offset by a decline in revenue per ticket of 5%. Expedia continue to grow ticket volume at a healthy organic rate, along with sizable contributions from recently acquired companies. Excluding acquisitions, Air revenue grew 6% on ticket growth of 22%. Key to our strategy is to grow additional travel products alongside air tickets and room nights. We are pleased to see some good examples of this in Q4, including 66% transaction growth for our local activities business and 43% revenue growth for insurance product. We also continue to see solid growth in our advertising and media business with Trivago growing standalone revenue 27% or approximately 43% currency neutral, fairly consistent with the year-over-year growth we saw in Q3. Media solutions also grew revenue nicely with the boost from the addition of Orbitz. HomeAway finished 2015 strongly and a bit ahead of their plans as measured on a standalone basis. For Speedy Inc., HomeAway contributed revenue this quarter for approximately $20 million which has been classified as other revenue in our product classification. We are breaking out HomeAway as a segment, so you will be able to see their standalone performance on an ongoing basis. Because HomeAway is in the process of moving to an online booking model and a fair bit of the bookings still occur outside of the platform, we are not planning to report gross bookings or unit growth for that business at this time. Although the seasonality for business can cause the shape of our P&L to vary quarter-to-quarter, we continue to drive to results that use leverage achieved in key expense categories to fund aggressive selling and marketing investments around the world. In Q4, excluding the impact from Orbitz and HomeAway, the P&L we delivered was largely consistent with this approach. Selling and marketing grew a bit faster than revenue, while cost of revenue in G&A grew slower providing leverage. Our technology and content expenses did grow faster than revenue and nearly 6 percentage points faster than Q3, on the combination of higher personnel costs along with lower capitalization rates. We continue to scale up our core infrastructure and Brand Expedia technology teams to support organic growth and to drive the integration of our new OTA brands. As such, we are expecting elevated technology and content expense growth at least through the first half of 2016. Importantly, our results for Q4 included the first full year of Orbitz and the layering in of the HomeAway standalone financials for the 17 days of the quarter that we own the business. The operations of Orbitz for the full quarter along with deal related and integration costs resulted in an approximate break-even adjusted EBITDA contribution for that business in Q4, which included a purchase accounting revenue headwind of approximately $27 million. Overall, the Orbitz results were a bit better than we had expected on a combination of lower integration cost and better overall performance. HomeAway had a negative impact on adjusted EBITDA of $14 million in Q4 not contemplated in the guidance we gave on our Q3 call. This included the results of the business, the negative impact of deal related costs, and a purchase accounting revenue headwind of approximately $6 million. Briefly, as we enter a new year, I would like to remind folks of a few keys aspects of how we manage the business. We are committed to striking a balance between delivering healthy profit growth in the near and mid-term while making key investments in our business that will allow us to grow sustainably over many years to come. From a practical perspective, this means that we only see certain upside and/or outperformance for month-to-month, for quarter-to-quarter including from acquisitions. We have a bias to reinvest at least a portion of that upside back into the business. As part of this approach, we do not guide to quarterly results, and investors should not expect to see the full amount of organic over-performance or M&A-related windfalls drop immediately to the bottom line. This is an important tenet for how we are running our business, and we want investors to fully understand this approach. Turning to our financial expectations for 2016. On a consolidated basis, including all the businesses we own today, and excluding eLong, we are expecting full year adjusted EBITDA to grow in the range of 35% to 45% year-over-year. The contribution to this result from a full year of Orbitz and HomeAway combined is expected to be in the range of $275 million to $325 million. In terms of the shape of the year, we are expecting particular pressure on Q1 adjusted EBITDA. Due to the seasonal nature of our business, back-end loading of adjusted EBITDA dollar growth is not unusual, but we do expect the impact will be especially acute in 2016. This is due primarily to the integration of Orbitz and the timing of synergy realization which will ramp in the back half of the year along with the transition at HomeAway. As a further reminder, note that we lapped our acquisition of Wotif in the fourth quarter 2015, and we’ll lap booked the Travelocity acquisition and the consolidation of the AirAsia-Expedia joint venture in Q1, which will create tougher comps. Further, the roll-out of TripAdvisor's instant book product will also likely continue to be a small headwind on room night growth in 2016 with an insignificant impact on profitability. From an expense standpoint, including Orbitz and HomeAway, while we will see leverage in costs of revenue and general and administrative expenses in 2016, we expect technology and content expenses to grow faster than revenue, primarily driven by integration efforts and the inorganic impacts of our recent acquisitions. Regarding taxes, as you might imagine, there are lots of moving parts, especially related to newly acquired companies and our international versus domestic mix. However, we currently expect effective tax rates in the mid-20% range. Finally, some directional color on our CapEx trends. In 2015, we saw significant CapEx growth, with about half of the dollar growth attributable to the purchase of our future headquarters. Spending for real estate in general also was elevated as we continued to grow our market management team aggressively and built out new office space around the world. In addition, we invested heavily in servers and other hardware in anticipation of future organic growth and upcoming integrations. To a lesser extent, an increase in capitalized software development costs also contributed to year-over-year CapEx growth. For 2016, we expect a much more moderate pace of CapEx growth, most of which will be driven by the inorganic impact of recent acquisitions. With that, let’s move to Q&A. Operator, will you please remind participants how to queue up for questions.

Thanks. Maybe two quick ones for Dara and one for Mark, housekeeping. First Dara, can you talk about the macro environment? Obviously, a lot of fears with some of the RevPAR data out there? What you’re seeing in maybe U.S. and Europe. And then the S4, a lot of us have read it, really interesting commentary on the HomeAway acquisition. And there is a 2018 number of $2.34 billion in EBITDA. Can you comment on that number at all, how important that is, is that something a target or how you think about that number? And then Mark, just to confirm your guidance. Is the number you’re suggesting 35% to 45% growth, is that off the $1,165 or the $1,103 in EBITDA this year? Thank you.

Sure. Thanks Justin. As far as the macro environment goes, we listen to the same news that you do, and certainly the news suggests that the macro environment is pretty uncertain, and the stock market downright scary. That said, when we look at the macro environment and how it affects our business, one important factor in our business is the air business. And air ticket prices are down pretty significantly year-on-year, it’s obviously some of the savings of oil prices that are being passed on by the airlines to consumers. And that’s an unambiguous positive for us; the more lower air ticket prices go, the more travelers tend to fly, and the more travelers we have flying, the more opportunity we have to sell hotels and insurance and cars and everything else to them. So to some extent weakness in oil and air side is a pretty big positive for us. On the hotel side, while we have seen ADRs weaken a bit from the beginning of the year to Q4. When we look at Q4 trends into January, we don’t see anything of note one way or the other. There are some spot issues obviously – Paris is weak, which is perfectly explainable. New York ADRs continue to be down year-on-year, although they improved over Q4, and that’s European travelers really traveling into the U.S. and affected foreign exchange. In Asia, we see certain markets like Hong Kong and Macau down as far as ADRs go. But again, no significant shifts when we look at Q4 trends into January that are of note. So it’s something that we’ll watch, and to the extent that we see anything, we’ll certainly share it with our investors. But we’re not seeing any material movement one way or the other right now.

And then Justin, on your question on 2018 consolidated EBITDA that was contained in the S4. Listen, at the time of the acquisition, we put forward some forecast for what we believed were possible outcomes for consolidated Expedia, Inc. results over the course of the next three years; we did not account any upsides or any significant investments; it’s a possible outcome. So I wouldn’t put a lot of weight on that. That was then combined essentially with the HomeAway projections, and we did not at that time contribute to the combination of those results. Listen, I think you can look at it as a possible outcome, but it’s certainly not something that I would use as guidance, and I think as you know, we make discrete discussions for month-to-month, quarter-to-quarter. So there’s a lot that can change between now and 2018, and we’re just really focused on continuing to have a business where we can deliver consistently strong growth rates over a long period of time. In terms of the guidance, the 35% to 45% growth is off of the $1,165, which is the Expedia, Inc. full year 2015 number excluding eLong.

Thanks. I have two questions. First, I wanted to follow up on Justin’s question. If your growth is in the range of 35% to 45%, it suggests that the core business is expected to grow. Your guidance indicates a low end of around 9% or 10% and a high end of 19%, so let’s call it 10% to 20% for simplicity. This seems more ambitious compared to the guidance for the core business you provided for 2015, which suggests that overall business conditions are improving for Expedia. I just want to confirm that I am interpreting the numbers correctly. Secondly, regarding your guidance on revenue per room night continuing to decline in 2015, I would like to know if you expect it to decrease at the same pace, at a faster pace, or at a slower pace. In other words, during the quarter, the 11% year-over-year decline was slightly less severe than in the previous couple of quarters. Are we starting to see some relief from the downward pressure on revenue per room night? Thank you.

Mark, I'll let Mark take most of that question, but one thing I will remind you as far as the core business is that foreign exchange was a really, really significant headwind for our core business this last year, and while they will continue to be a headwind in Q1 and Q2, it eases up in the back half of the year. So all things being equal, that will be a benefit in 2016 versus 2015.

Yeah. I’ll just say, just again to clarify on the guidance. I would take that as core implied guidance, so of course from 8% to 13%, I would take the high on the Orbitz-HomeAway impact and subtract it from the high on the total and the low from the lower side. I wouldn’t take our guidance as being up to 19%. And then also our revenue per room night, we've been saying for a while that the gap between revenue per room night – you can think about that as call it the 300 to 800 basis points range – and it moves around. I think what you will see in 2016 is you are going to continue to see that range of movements towards the back half; I think there is possibility as we start the comp over some of the margin reductions we did this year, that start to ease, and then I think you'll start to see I would expect some more easing in that as we move through 2017. And again, this is with regards to the gap between revenue per room night and ADRs. Of course, ADRs are one of the biggest drivers of overall revenue per room night movements.

Yeah thanks two questions. Just on HomeAway, I know it's still early days for the transition to the online booking, but can you just talk about what kind of penetration rate you think you can reasonably get to by the end of this year in terms of the percentage of bookings happening online versus enabling the business? And then I had a follow-up on the guidance, so I think Mark you called out the contribution from the two acquisitions, Orbitz and HomeAway, to the EBITDA numbers, but I think previously you talked about Orbitz seeing synergies of up to or in excess of $75 million, is there any update to that number?

Sure, why don’t I take the last question first and then Dara can chime in on HomeAway. So just again on $275 to $325 million of adjusted EBITDA contribution for the two acquisitions combined. First of all I'll just remind people that on a standalone basis we had said Orbitz was on track to do around a $135 million of adjusted EBITDA in 2015; it came in a little bit ahead of that, but I think that is a decent base, and HomeAway, a little bit better than $120 million in adjusted EBITDA from 2015. They will both have purchase accounting headwinds in 2016, both around $10 million each. So, you can think about that as about $20 million combined. So take that as your base, and then the way that we get to obviously the higher number is synergies, and a lot of that is going to come from Orbitz and it's going to come in the back half of the year. In fact, in the first part of the year, we are going to be in a position not unlike where we were with Wotif, where we were essentially carrying almost double costs. We've built up teams to support the integration of the Orbitz businesses onto the Brand Expedia platform, for example, at the same time as maintaining the Orbitz existing platform, and that is really once we get the platform transition done, which is really happening in the first half of the year for the big consumer businesses. That’s when you start to see synergy realization come in, and that’s really starting again in the back half of the year, and we're hopeful that by the end of the year we should be pretty close to a run rate number, but we are not going to be even close to that in the middle of the year, and we'll probably be sub that; there will be a detriment in the first part of the year.

And as far as HomeAway goes, as of the end of the year we had about 60% of our total listings online bookable; we don’t disclose the actual percentage of bookings that run through our listings, and we are going to be working on increasing the percentage of online bookable listings in 2016 and get it much closer to 100% as much as we can. Really, we're going to be pushing online booking, offering it to our partners, and that along with the book with confidence guarantee for travelers, we think it's going to be a win for the travelers and it’s also going to be a win for our supply base as well, and that’s really the focus of the business. We will try to obviously drive the online booking volume, but that is really much more of a long-term goal for us as a company, and I think 2016 is going to be about kind of setting the base, making sure the technology infrastructure is right and making sure that we’re taking any and all kinks out of the online booking process to make it incredibly easy for travelers and incredibly easy for our subscribers as well. We don’t have a specific target for the percentage of bookings going over the trends so to speak for 2016.

Just first on room night growth, you talked a little bit about headwinds from the booking.com instant booking implementation. Could you maybe comment on what sort of headwind that was to room night growth in the quarter? And then just a follow-up on HomeAway and moving ahead with instating this consumer booking fee. I guess, when HomeAway was independent, we could see how that extra margin would really help them from the seat, but would be really helpful in terms of competing and investing against Airbnb. But now that’s part of bigger Expedia, how do you guys sort of weigh the benefit of that booking fee in terms of increased monetization versus the possibility that it negatively impacts the consumer experience? Thanks.

Thanks, Tom. I'll begin by discussing room night growth and then hand it over to Dara for HomeAway. We faced several challenges regarding room night growth this quarter. We experienced a tougher comparison due to a 400 basis points harder comp, partly because we were comparing against strong growth in Travelocity following the implementation of a commercial agreement, as well as Wotif, which we were also comparing against. Furthermore, we estimate a 300 basis points impact on room night growth from the terrorist attacks, making these significant hurdles for us. Regarding the impact of instant booking, I'd suggest considering it in the range of 100 to 200 basis points as a good estimate. Looking ahead to 2016, we anticipate some slowdown in room night growth throughout the year, as we will again be comparing against acquisitions and consolidations, like the ramp-up of marketing for Wotif and the integration of Brand Expedia Asia. Also, if TripAdvisor expands its instant booking feature as expected, and we do not participate, that could create an additional headwind, potentially causing a greater impact than 100 to 200 basis points—perhaps around 200 to 300 basis points. However, this should have a negligible effect on profitability.

And as far as HomeAway and the booking fee goes, we’re going to be watching it very closely; we obviously want the consumer experience to be great, and we are obviously going to be watching the percentage of bookings running over the system. We think with the 'book with confidence' guarantee, we are going to give our consumers, our travelers a lot of confidence as far as booking with HomeAway and making sure that they get what they expect, making sure that if they have any issues regarding quality or the deposits, et cetera, they’re taken care of. And then we will be watching other metrics such as the traffic to the sites. The conversion rate of consumers coming and who look at listings, the renewal rate of our subscribers. So there are a host of other metrics that we are going to watch and meter in order to measure kind of what is a balanced approach, which is, we do think that we are under-monetizing relative to our volume and making sure that as we move to call a market monetization rate, we are providing a great experience for travelers who are coming and looking for a great place to stay on HomeAway, and we are bringing great value to our supply as well. I will also remind you that the booking fee is something that has been widely expected as far as Airbnb and TripAdvisor go. Airbnb always had a booking fee; TripAdvisor introduced the booking fees last year. Those transitions have gone very, very smoothly. Our pricing is going to be quite competitive. So this is something that has already been market tested, and we feel pretty good moving into this model based on the competition already being there.

Thanks, everyone. I'd like to ask about the secondary effects you're experiencing. You're discussing an integration process where you first connect the infrastructure and systems, then the machines learn from that, and you use those insights for optimization. Can you share if this process is taking longer due to the scale of the integrations, perhaps with Orbitz or HomeAway? How is this process currently unfolding?

I’d say Brian, on the Orbitz side actually, while we haven’t gone through the full process, I would anticipate that Orbitz would actually be a bit quicker than Travelocity and Wotif, because the Orbitz team that was already employees, they had an online marketing team that was very sophisticated, they have an analytics team that is just excellent. So, a number of the folks have been there with Orbitz, they understand these optimizations, this is something they've done before; we are just hoping that as we move them over to our supply base and as we move them over to tech stack they’re just going to have a machine that is much smoother and better than the machine that they had to work with in the past. So, we don’t anticipate any hiccups, as it relates to Orbitz – you never know. And at least the trends that we’re seeing early on are encouraging; I think most will be on track. HomeAway is a very different animal; HomeAway is not an integration and that team is going to be largely independent, and the activity with HomeAway has been to make sure frankly that team is not distracted as being part of Expedia. I think we’re freeing up a bunch of their time to focus from call it public company activity, to value-added activity, building a great consumer experience, building a great subscriber experience, and because we are very, very familiar with this transactional model our product and technology teams are already working with them to make sure that the roadmaps are what they should be. I think the second area where we can add value is making sure that as this volume comes online or as these listings come online, we are not only pushing HomeAway traffic to them but also Expedia and Hotels.com traffic to them, which I think is a significant value both for the HomeAway subscriber base but also for the Expedia and Hotel.com consumer base as well.

Well, I'll just say one thing on Orbitz, since that we do have in addition to the Orbitz, the CheapTickets business which is the big consumer business. We also have a number of other businesses that are going to take a little bit longer to integrate; Orbitz’s partner network for example. We’re super excited about that business and we’re taking the steps necessary to do that right, making sure we work with partners and come to the right outcome. For example, Orbitz for Business is another one we’re pretty excited about the speed at which we are going able move those clients over to the Egencia platform, but again it is going to take a little bit longer and both of these transitions are new and we haven't done a lot of these before unlike the core consumer business. So, in terms of synergy realization I would just keep in mind that until those businesses are migrated you don’t get to see the full platform of retirement benefits that you would if it was only Orbitz, CheapTickets and eBookers that were transitioning over.

Hey good afternoon. Just two questions here. You mentioned TripAdvisor in support impacting room nights in 2016 to the extent that you don’t participate. So could you talk about how you’re thinking about the model or other similar models and why Expedia may or may not be interested in participating? And then secondly, do you expect the impact of the Paris attacks will continue beyond a one or two-quarter time period or is that relatively short-term issue that you wouldn’t expect to impact the business beyond Q1?

Hi Mike. I'll answer the second one first, which is you never know. Historically, these kinds of attacks have resolved fairly quickly. I’d say Paris in general, we saw immediately kind of an effect on broader European destinations. That effect looks like it disappeared, but there continues to be an effect in Paris; it’s getting better, but trends in Paris are certainly poor compared to the trends that we had seen before Q4 of last year. I think that Paris is going to continue through the year; it was a horrific event, and I think it was the kind of event that stays in people's memories. So, I think that there will be some effect going into the balance of the year, and we’re going to do our best to make up for it. We’re going to do our best to work with our partners over there and really continue to promote Paris as a wonderful destination that it is. So, hopefully it won't last long, but my personal feeling is that there will be some effect going into the balance of the year. As far as the TripAdvisor instant book and how we view that channel, we've been very consistent about how we view any variable channel, including instant book, in that we look at the economics of a channel based on the immediate transaction, and then we look at the economics of the transaction based on the right sum of value of the customer, both in terms of customer repeat rate and the percentage of the time in which those customers repeat directly with us second third time around. Obviously, the latter is much, much more valuable. The initial let's say version of instant book was I think quite unsatisfactory as far as branding, et cetera, and representation of where the customer was really transacting with, and the latest iterations that we've seen with booking.com and with some of the supply direct partners, for example Marriott, look a lot better; they look much clearer. So, I would say at this point instant book looks better to us than it did when instant book was initially launched. But we don’t have any comments as to what the ultimate decision is going to be down the road.

Thank you for taking our question. I have a follow-up regarding HomeAway. You mentioned that the traveler fee will be introduced in the coming months. Could you provide more details on the timing and rollout plan? Additionally, could you discuss your marketing strategy for HomeAway in 2016 and what gives you confidence in reaching the $150 million EBITDA target in 2018? Thank you.

Yes, I think as far as HomeAway goes, we are rolling out now in the U.S., and the speed of the rollout is going to depend on the reaction of customers, conversion rate, how it’s working out with subscribers, et cetera. So the rollout will move quickly to the extent that we see things working out, and we will be debugging actively. We will then once we’re done with the U.S. or once we’re well underway with the U.S., we’ll look at the rest of the world. But listen, these rollouts are live rollouts, and we don’t want to hard-code a specific rollout cadence. Obviously, we want to roll it out as quickly as possible, making sure that our customer experience and our subscriber experience is terrific. As far as the marketing approach for HomeAway, we do plan a significant year-on-year increase in Brand Marketing and HomeAway for 2016 that’s included in the numbers that Mark related to you. It’s the marketing campaign is already started, and the early signs – and we’re about five markets in – the early signs as far as visits to the HomeAway sites look really good, and we’re encouraged by the trends that we see. Once online booking really starts to expand, we will be able to throw up variable marking channels as we get variable economics on the revenue side. One of the issues with the subscription listing product is that, you don’t earn money on every single transaction; you’re earning money on kind of annual subscription. So, you can’t necessarily bid for the incremental transaction. Once we have online booking extended along with the traveler fee and volumes rollout there, we do think that we will be able to increase variable marketing channels. But we think that’s something that’s going to happen in the back half of the year as opposed to the front half of the year. On the question of the confidence in the $350 million EBITDA in 2018, we made those estimates based on a set of assumptions, early set of assumptions, and so far in the couple of weeks that HomeAway has been a part of the family. We are more impressed than we were when we made those assumptions. It’s 2018; it’s a long time from now, but I think what we wanted to communicate is that you kind of go into a company, you meet the people, you take a look at the technology stack and the product roadmaps, and either it’s good news or bad news, and at this point with HomeAway, it's good news for us.

I have a couple of questions. First, if I missed this, when you mention the 2016 contribution from Orbitz being between $275 and $325, what portion of that is tied to deferred revenue that won't be recognized? I understand that in the S4, HomeAway alone could account for as much as $107. Can you share any assumptions about what might be excluded from that? Secondly, could you provide insight on what you're observing from early beta hotels regarding the accelerator product's take rate, and when you anticipate a broader rollout? Additionally, what impact do you expect this might have on the revenue per room night challenges you have been facing? Thank you.

Sure Lloyd, I’ll take the first one and then turn it over to Dara. On the $275 to $325 million, there is about $20 million of purchase accounting impact embedded in that. About half of it's Orbitz, half of it's HomeAway. The bulk of it will unfold in the first quarter, with some of the HomeAway stuff taking a little bit longer to bleed off. It’s – the HomeAway impact is a fair bit lower than we had anticipated/feared at the time of the acquisition. We dug in very deep with our auditors and advisors and came to the conclusion that there was a significantly larger portion of it that we can recognize than we had anticipated, so good news on that front.

And as far as accelerator goes, it’s very, very early. We are training our market managers who are now going out there and explaining the accelerator in the market. And we’re seeing in certain markets, we are seeing engagement with our hotel partners; the partners who have engaged with accelerator products are pretty darn happy, which is great. You want clients who like the product. And so we see accelerator starting to contribute to our overall numbers. In general, accelerator is a move in the direction of having much more of a marketplace model for our margins. So that hotel of yours can bid up when they need volume, they can go to base bid when they don’t need volume, and also along with kind of bidding you get the quality of content of the hotel, the high lease Hotel, treat our customers to the quality of service, et cetera. And user reviews, all mixing into a combination of the best hotel for the best customer and also economics that hotelier want to bid at and obviously hopefully economic that work out for us. So, we are very early on this journey, the signs that we’re seeing with accelerators so far are encouraging; we are not making aggressive assumptions in our 2016 plans for accelerator, but if any of our market manager teams are listening, we expect you to do better than the conservative plans that we have. So, we are hoping for the best, we are not counting the best.

I noticed Barry Diller recently gave an interview saying that Expedia was far from done on M&A. So, Dara, one for you would be on capital allocation, how you think about the mix of assets you have now, geographic, as well as sort of capabilities under the broader Expedia, Inc. umbrella, and so how you think about allocating capital going forward towards M&A and continuing the strategic vision. And then number two would be, there's been a lot of comments of late from some of the inventory side like Hilton and Marriott with respect to lower commission rates and last room availability. Wanted to get your take on how the industry dynamic is playing out around lower commission rates, more stable commission rates versus last room availability as a theme. Thanks.

Sure, as far as the M&A front, we will be opportunistic as far as our capital allocation goes. I think that the team is more inwardly focused right now looking to go out and aggressively acquire; although we have a terrific corporate development and strategy team who are constantly talking to anyone and everyone. When we look at the portfolio of assets that we have, especially with HomeAway as part of our family, we feel like we have a full portfolio, we feel like we don’t have any competitive holes, and if we don’t engage in any M&A for the next two to three years, we'll be perfectly happy. That said, we do want to extend our international coverage; I think we are in general too U.S. dependent at this point; it’s a really good thing because the U.S. economy is the strongest economy in the world. So it is positive now, but five to ten years from now, shame on us if we haven't grown significantly more outside of the U.S. and in all the markets – Asia-Pacific, Latin America, Europe, etc. The second area where we absolutely want to grow in scale is in the corporate travel market. Obviously, we are very strong in leisure travel; corporate travel we think is an enormous opportunity. It's a higher yield customer set that our suppliers favor. The demand patterns are quite complementary of leisure demand patterns, and we want to get bigger; we want to scale, and we see growth ahead for Egencia that is a combination of organic as well as inorganic growth, and we think that’s going to continue for some time going forward. And then we’ll also look for kind of innovative new companies out there. Trivago obviously was a terrific one and it's a very, very value part of the family; we've made some investments in Alice for example on the supply technology front. So, we will be opportunistic wing; as far as transport goes, we’ll continue to be opportunistic; we’ll continue to shoot bullets, so to speak, and see when opportunity is out there in the world. That said, the business throws off a lot of cash flow and historically, I think before this year, there was a fair amount of capital allocation going to buybacks, and to the extent that we don’t see anything external and to the extent that we like our own stock – and typically we have liked our own stock – we will look to allocate some capital internally as well. So, it's kind of the world is our oyster, and we're throwing off a lot of cash and we will try our best not to waste it. As far as the noise and the chatter with the chains, etc., we continue to be strong partners with the hotels, in general our volumes with independents and chains have grown significantly, and our strategy with our chain partners is no different than our overall strategy, which is to lower our base commissions so that there is very little friction in working with us. And then really any hotel, whether they are a chain or independent, can compete in our marketplace for share and this is a big marketplace; the marketplace is only growing, and if you got competitive pricing and you got great content and you treat our customers really well and you provide excellence availability along with margins, you will do well in the marketplace. So I think that the ultimate performance of the chains and the relationship with the chains and the volumes that we do with chains is really going to be based on chain bidding in our marketplace against independents, and in general we see our chain volumes – they've been healthy for a number of years, and we expect to see them healthy on a go-forward basis.

Can you touch on what HomeAway subscriber churn has been since the acquisition, and what is your current plan around subscription pricing? And then a follow-up: have you seen an increase with vacation rental CPCs, particularly in regards to Airbnb closing its recent funding route?

As far as the one that I can make a comment on is that renewal rate in Q4 actually improved, and where the highest renewal rates for the year. So we are very happy about that. As far as an increase in vacation rental CPCs, we haven’t seen any one way or the other. So I can’t really comment on that.

Dara, you continue to very quickly add supply to your property portfolio as you adjust your fee structures. So setting aside the removal of about 20,000 indirect relationships for the fourth quarter, I think you added about 73,000 in 2015. So just wondering if there's a way for you to accelerate the pace there? Additionally, I was wondering if you could give us some color on the type of incremental properties you are adding. Are these larger properties, smaller properties, and is the room count per property similar to what's already on the platform? And secondarily, I almost hate asking this question, but directionally, are you seeing any impact from steps on countries maybe taking Europe to tighten their borders due to the refugee crisis? Thanks.

Okay. As far as a supply question and the pacing of our supply adds, we’re pretty happy with the pacing. So we tend to accelerate the pacing of ads to the extent that we see higher penetration in certain markets. A higher penetration means that we’re sending plenty of demand into a specific market, which means that we can acquire more hotels. And at this point, we are seeing kind of the growth of demand into the marketplace and the growth of supply be about right. So I would expect the same in 2016, and as we are adding more supply and as the new inventory contributes revenue into our marketplace, we then go on a higher more market managers. It’s a formula that we’ve had in place for about 18 months, and I see no reason to change it; it certainly looks like it’s working. As far as the kind of supply that we are adding, as we are adding more supply, we are tending to add supply in secondary and tertiary markets, and the average number of rooms per hotel is going down. So when we look at contribution from new hotel adds, it’s not something we disclose, but it’s certainly something that we look at internally. The contribution per hotel add is going down, and it’s going down because of the kind of supply that we’re adding, and it’s kind of working exactly to formula, so it’s exactly what we would expect to see. As far as the impacts from countries and the refugee crisis, etc., we haven’t seen significant impacts other than travel to I would say broad areas that are affected by the refugee crisis or directly affected; it is obviously down. But we haven’t seen kind of second orders stuff, so travel into Europe in general has continued to be pretty healthy, and we’re not seeing any significant step changes in demand patterns there.

Just wanted to follow up on two, please. Dara, you may have mentioned I think on Eric's question around hotel commissions and really the readiness of the marketplace. I wanted to understand a little bit more as commissions come down, as the marketplace takes into account how that relates relative to your comment on the accelerator program being very, very early. And then also, just another follow-up on Orbitz and the contribution to EBITDA, could you quantify maybe, Mark, or help us understand the cost savings related to the charges you took around $130 million to $150 million related to employee severance and comp benefits that were announced in November on Orbitz? Thank you.

As far as the comment on accelerator program being early, it’s literally because we’ve just launched the program. So this is a product that we completed in Q4, and we’ve been working with the market managers and hotel partners on launching it officially, and that something that will kind of continue as we move through the year. It is a bidding type of product. So as you can imagine, this marketplace type product tends to grow over a period of time as you get more players engaging in them. So it’s early; we like what we see, but again, we’re not making any heroic assumptions financially as it relates to the accelerator program. But it certainly is a good start, and we think it’s a terrific product that is going to be a real winner for our hotel partners.

And then Ron just on the restructuring charges and how that flows through to EBITDA contribution. I would just say that in the $75 million run rate synergy estimate that we initially put out, a big chunk of that was headcount-related cost reductions essentially; there is a little bit of revenue in there as well. But predominantly headcount-related. So, I would look at the severance changes as being related very closely to that number. I would also say that in the overall big number, there is a fair bit of equity-related compensation which does not show up in adjusted EBITDA obviously, so it’s harder to translate and add them to adjusted EBITDA impact, and lot of that related to senior team that’s not there. So, I hope that gives you a little bit more color.

Hi, thank you this is Connor on for Ken. Just to clarify, was there a FX impact disclosed for the adjusted EBITDA guidance? Thanks.

Yeah Connor, there wasn’t. But directionally, I could say that it is a bit more than the impact to revenue; I’d think about 600 to 700 basis points range maybe a little bit higher.

Following up, I guess, on an earlier question you discussed the outlook for travel and for leisure travel, what's the outlook for business travel in the US, particularly thinking in the oil country ought and outside the U.S. Also, one thing that hasn't been discussed is car rental. What do you see as the impact of Uber on the car rental business in the U.S. and Europe? And finally, just I kind of missed the 35%, 45% EBITDA guidance is compared with what particular number for 2015? Thank you.

Sure as far as the corporate travel and the trend that we are seeing, we got some caution. I think the teams are cautious about client sales in general because of the macroeconomic environment; the most clear trend that we can point to relating to oil pricing is in terms of our business in the Nordics. As you know, we acquired Via and integrated into Egencia, and we do see volumes in the Nordics regions in general weak, and that is very much related to oil prices being down significantly on a year-over-year basis. In general, transactions, corporate transactions look good; we're not seeing significant spend cuts one way or the other like we saw a couple of years back. We are seeing some trading down, so the revenue per transactions or gross booking per corporate transaction is down a bit and we think that’s just cautious practice from some corporations out there trading down, call it from premium class to economy class or taking a train instead of taking a plane. But those are I would say on the edges; we’re not seeing some big theme one way or the other as far as corporate travel changing significantly one way or the other. As far as the car rental and impact of Uber, you know our car rental business is we think very early in its development. The volume in car days is up very significantly on a year-on-year basis, over 30% on a year-on-year, and most of that business is in the U.S. and we think we have a ton of potential as far as our car rental business in Europe goes. So, I just think we are on a growth path at this point that is not going to be affected by Uber; we are not going to feel market numbers one way or the other just because the growth rates that we have are so high. If I were to generalize in Q4 other trends that we saw on the car business on the Hotwire side, we saw a higher concentration, I’ll call it, agency booking versus opaque bookings. We tend to make more money on opaque bookings, so that was one trend that we saw. But otherwise nothing to say, hey this is Uber who is having a material effect on the business to speak off. Mark, do you want to talk to the other question? Yeah, Michael on the guidance, the 35% to 45% full year year-on-year growth including HomeAway and Orbitz is in relation to the $1.165 billion and adjusted EBITDA for 2015 which is Expedia Inc. excluding eLong.

Great. Thanks, everybody, for joining the call today. Dara, do you have any closing comments?

Yes, just great job to the Expedia team on the worldwide basis and in particular to the teams that are working on the Orbitz migration; it's a lot of work we appreciate it and a big welcome to the HomeAway team. So, thank you very much. Look forward to an exciting 2016. Thank you.