Expedia Group Inc (EXPE) — Q1 2020 Earnings Call Transcript

Good afternoon. And welcome to Expedia Group’s financial results conference call for the first quarter year ended March 31, 2020. I am pleased to be joined on the call today by our Vice Chairman and CEO, Peter Kern; and our CFO, Eric Hart. The following discussion including responses to your questions reflects management’s views as of today, May 20th, 2020 only. We do not undertake any obligations 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, we are optimistic or confident that, or similar statements. Please refer to today’s earnings 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 non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company’s Investor Relations website at ir.expediagroup.com. And I encourage you to periodically visit our IR website for other important content including today’s earnings release. Unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative expense and technology and content expense exclude stock-based compensation and all comparisons on this call will be against our results for the comparable period of 2019. Please note that depreciation expense is now reported in a separate line item and prior periods have been restated to reflect this change. Starting in the first quarter, we have updated our segment reporting to reflect our platform operating model and align our reporting with customer segments. Our new segments are retail, which includes our consumer-facing brands, B2B, which includes Expedia Partner Solutions and Egencia, trivago and corporate. Services provided by our technology platform and supply organization are primarily allocated to the retail and B2B segments. Please see the 8-K we issued earlier this week for restated segment data for the prior two years. And with that, let me turn the call over to Peter.

Thanks very much Michael and good afternoon everyone. I hope you are all safe wherever you are and your families and loved ones are likewise. Let me start by saying this is our first virtual earnings call. So, if we have any technical difficulties, I apologize in advance and likewise apologies that our Chairman will not be joining us. Eric and I will do our best to be as informative and transparent, but we may not be quite as quotable. So, I hope you can live with that. As for Eric and I, we are doing our first formal call today. And I want to first say that the company is lucky to have Eric in his seat as CFO. He’s been with the company for quite a long time in a number of roles and has been a great partner for Barry and me, as we set up on this journey late last year in trying to simplify and reorganize the company to be as effective as possible and we are lucky to have him. And as for me, first of all, I am grateful to the Board for their support in putting me in the role. I am really excited about the opportunities ahead of us. I am not crazy. I know it seems like an odd time to take on running a travel company, but the opportunities I saw, as Barry and I dug into the business, are just tremendous and I think great things are ahead for us and I’m looking forward to telling you more about that. First off, I’d like to talk about COVID and our response to it. It goes without saying that as a company and as human beings, we are obviously keenly aware of the health and societal impact of the virus. And of course, that is the most important thing going on in the world. But the human side goes beyond that because many of our partners, people in the lodging business and the travel industry are suffering mightily. In addition to the health issues, we have a lot of partners and friends with issues of their business survival, their jobs, etc. and we have been trying to do whatever we can to help however many people we can. Our primary focus was, of course, on the health of our people and on our customers and our supply partners, we did everything we could to try to make that easy on everyone as possible, though, of course, it was not easy on anybody. We saw enormous cancellation levels come in as did the entire travel industry. We had customers stranded. We had supply partners who had all kinds of issues with cancellations and policy issues and we were scrambling like everybody else. But our teams did tremendous work, I would say on a number of fronts, not least of all, trying to help the customers. I would just point out, we had levels of cancellations that were many multiples of our highest cancellation levels on any day ever experienced, and at the same time, at certain points just because of government closures and the inability for our teams to get to the office and our service people to get to the phone centers, we had as low as 30% of our available call center capabilities. So it was a real struggle. But our teams on the technology side did a great job of helping to solve that and quickly put in place a number of cancellation tools, self-cancel tools. We deployed our voice platform more widely and really helped a lot of people took the burden off of our customer service representatives, and frankly, installed a lot of great work in a very short time that will pay huge dividends down the road for us. We have also been working closely with our supply partners and I would commend them all for working through a terribly difficult time with us. We are trying to smooth the customer experience and make the policies work in a really unheard-of time, when no one knew exactly what to do. We were not perfect. We certainly learned a lot from this. I don’t think any company could have been prepared for this. And it is frustrating that we could not make every customer perfectly happy or service everybody at the speeds we wanted. But I think we learned a lot and we will be in much, much better shape for the future. And as I say, we will reap a lot of benefit from what was done. And finally, our other sort of immediate response to the virus was to raise additional capital. You all saw our announcement last month, we raised close to $4 billion of incremental capital, which we believe gives us ample resources to survive whatever might come from the virus. I am not going to belabor the first quarter. I know you have seen the numbers. Suffice it to say that the first couple of months we were looking pretty good. We were feeling quite good about the business. From a performance standpoint, we were installing a new cost plan to take out significant costs. And then the virus became quite real for us as it started to shut down the globe and we, of course, suffered like everybody else as those shutdowns sort of dominoed through the globe. But as it spread, the numbers started to become less and less meaningful. And really, the response was the only thing that mattered and so I would encourage you not to get terribly caught up in the noise of the first quarter. Only that we were in a good spot before it happened. The virus has been painful. We will talk a little bit about how much damage it did and where the trough was, but I’d encourage you not to focus too much on those numbers. On the plus side, we had begun, as we mentioned in our last conversation at the end of last year to make changes to simplify the company. We have done a large re-org of our tech capabilities and created a platform to serve both our consumer and business-to-business facing enterprises. And that work has been terrific. Our teams have done a great job. We are already starting to see significant benefit from that. And that’s not just on the bottom line, on cost savings, but that’s also in capabilities. Our data teams have done remarkable work. And again, all of those things will be hugely powerful on the other side of this virus. But we were ahead of the game, because we also, as I mentioned in February again installing our plan to save on the cost side. You will remember that this was a plan that went across the waterfront. It was people, real estate licenses, you name it. We were looking at every part of the business. And at the time, we scoped that at about $300 million to $500 million annualized savings. And all I would say about that is that since the virus hit, it obviously created even more urgency and focus in the organization. I would say our ambition has increased significantly and our speed has increased significantly and let me just head off questions for later. We are not going to put a new number on it. We are focused on going as fast as we can and taking out as much as we can wherever access exists, but we are not going to re-scope that number for you this quarter. And when we know more, you will know more about the scale of that opportunity. We also began pushing the organization to drive change as fast as it could. What we saw was, as everyone has seen that our volumes have been significantly impacted. And we have had a history of being quite careful about changing technology, pushing technology changes through as one would expect with very high volumes and very high throughput all the time. But since we have had these lower levels of throughput, we felt the unique opportunity to try to push through significant technology change and things that might have taken months or years to push through and put them on an agenda to push then through much more quickly. So the company is just way more focused on changing, changing quickly and getting to the other side of a lot of what had been thorny technology issues as rapidly as we can. We also, last week, announced that we were reorganizing our retail group. This is the next stage in our simplification. It’s a big step for us. You all know that we have operated as brands for a long time. And beginning last week, we are operating as one retail facing organization. We will have a marketing group that is focused entirely on marketing the whole suite of brands in the most effective way possible all over the globe and we have a product and tech group on retail, which is focused entirely on building the best products, the best consumer interfaces and the best tools for our consumers that can be marketed down through the retail group. So we have taken down those boundaries. Again, we think there’s efficiency there. But as much as there may be efficiency, we think there’s this huge opportunity to have the product teams working together to build the best products, deploying them as widely as possible across our consumer-facing fronts. We think that our marketing teams will have a great opportunity to stop competing with each other and start optimizing for the group of brands instead of for a single brand against another. You will note, as Michael said, that we have changed our segment reporting to reflect that our real view of things today is that there’s consumer-facing retail business, there’s a B2B-facing business and then there’s the platform and the corporate organization that serves all of that. And I will say, for the record, we believe that all of those revenues and all those pockets of demand are equally valuable. We think both businesses fill gaps in the market. And we think that we can reach as the most demand possible by having those big chunks of business in retail and B2B to find all the demand all over the globe. On the marketing point, I just want to amplify. You have heard a lot of conversation about direct customer relationships. It’s a nice thing to say. We believe in it. But this is more than just an emphasis point. This is about building better products, doing better brand and direct marketing, better merchandising, which has not been a great strength of ours. And in general, using the data we have, which again had never been pulled together as a company and has only been together for the last few months to power our ability to do all of those things: to understand our customer better, to serve them better, to serve up choices for them better, everything. So we believe we have huge opportunities on that front. We have been overly reliant and we have heard this before on performance marketing. We have not been disciplined about it. We have chased unhealthy growth over the years. Google and other performance marketing channels have tried to disintermediate us and we have made some not terribly smart choices along the way. We believe that this reset of the virus will give us an opportunity. I mean, we have been talking about this for a while, but as we wave back into the marketplace, we aim to be much more disciplined, to only chase real growth, real valuable growth, healthy growth and not be stuck chasing performance marketing and entering into dis-economical auctions. So we intend to be much better about that. We intend to keep those customers longer. We intend to serve them better and keep those direct relationships going strong. Finally, I am sure you are all interested in the recent business trends. Like some of the other companies in our space, you probably heard that late March into April was the trough of the business. That is true for us. We saw gross bookings, new lodging bookings down about 85% year-on-year, which of course was terrible. Cancellations were extremely high. Since then, I am pleased to say, but I would not get overly excited about it, that we have seen nice growth coming into May. Essentially, what we have seen is both growing out green shoots in the areas you would expect, places where movement has become possible, where people can now start to think about their summer holidays, etc. We see that very quickly when that happens and cancellations have settled down. They are still at elevated levels, but they have stabilized. So the combination of those things has made looking considerably better than the trough. We are not making any predictions. We, of course, cannot control the virus. So we are merely adapting to it as it comes and trying to be smart about where the business is. What we can do to help the business along in places where it exists and be smart again about how we attract the demand that is out there. I’d say it’s important to keep in mind that, because we have a global footprint and because we are essentially in every line of travel business that’s significant, we get demand wherever it lives. So I know there’s been a lot of questions about international versus domestic, local, regional, etc. The truth is we have a way to capture whatever demand is out there, wherever it exists in the world and we have a way to participate. So I would say we are well-hedged against however it comes back. What we are seeing clearly is what you have been hearing that local, regional, domestic is certainly coming back stronger sooner. I would just point out a bright spot for us has been Vrbo, where we have seen really markedly better performance and that clearly seems to be around people who have been stuck in their city dwellings or wherever and are looking forward to being able to get away from those cities to some place for a vacation with their families this summer. We are pleased to see the demand. It’s clear that the Vrbo focus on the whole home experience is a real advantage over the competition right now. Vrbo is not big in cities. It’s not big in rooms in other homes and those kinds of things. That is really a fort wall whole home experience and we have seen some really nice signals out of that vacation rental business. So with that, I would pass it over to Eric and say thank you for your time. Again, don’t get too focused on the quarterly numbers, I don’t think they are meaningful. We are entirely internally focused right now, trying to do the most good we can to both navigate the situation, help our customers, help our partners reignite their businesses, and most importantly, from our perspective, get our business right and our product right and our offerings right. So when we come out of this, as tired as it is, we will be stronger and better than we were before. So with that, Eric?

Great. Thank you, Peter. I appreciate it and the kind words as well. Before I get started, I also wanted to echo Peter’s comments around thanking the employees. It’s a very stressful time. It’s quite difficult. And I have seen heroic efforts across the organization to tackle some pretty difficult problems for fellow employees and customers and partners as well. So thank you to all those involved that have really put in tons of effort during this stressful time. Coming into the year, and as I mentioned in Q1, driving margin expansion and improving unit economics were key priorities for us. With COVID hitting, we moved with even more urgency on these efforts and took additional actions to further improve our cost structure and preserve capital in the near-term. I want to tick through the major cost items, just to give you a sense of what we are seeing and some of the actions that we are taking. From an overhead perspective, the cost savings initiative that we started earlier this year is driving significant savings in overhead costs and it’s putting us on a path to reset our fixed cost basis. In addition to that, shifting to the platform operating model that Peter talked about, really positions us to scale the business far more efficiently going forward. During COVID, we have made additional cost cuts to help preserve capital, but that’s within the context of trying to reset the cost basis of our business. From a cost of revenue standpoint, those are mostly variable or semi-variable expenses. So as you can imagine, as our volumes have decreased, there’s a natural offset due to COVID and those reduced volumes. We have unlocked significant cloud savings through optimization efforts, benefiting from centralizing the cloud management in our platform, which we talked about last quarter. We have also made temporary changes to lower cloud costs as well during COVID and now expect cloud costs for 2020 to be well below 2019 levels for this year. We are also accelerating progress on vertical agent and self-service tools to make customer service more efficient. If you take the cloud plus the customer service efficiencies, we do expect those to continue to contribute to better unit economics as volume comes back. From a direct marketing standpoint, it’s clearly our largest expense and it’s almost entirely variable. Starting in mid-March we cut expense to nearly 0. Now as we started to see green shoots and we expect the market to go down and we start marketing efforts, we will remain very disciplined and run performance marketing channels at much higher ROIs going forward, as Peter mentioned. Regarding cash burn, the headcount reduction that we have talked about previously as part of the overall cost plan, it also drives savings and capitalized labor. So that’s incremental to the P&L benefit. In addition, we did defer several real estate capital projects, another non-essential CapEx to preserve liquidity. However, we recently restarted construction on our new headquarters, since it is more efficient to do so and we now expect it to complete in the first half of 2021. Across overhead, CapEx, and interest expense a pro forma for the recent debt issuances, we expect our monthly cash usage during the COVID crisis to be below $275 million within the next couple of months. If COVID were to have a protracted impact, we do have additional cost waivers that we can pull and will do so at the appropriate time. Our Q1 results did not fully reflect this cost structure, given the impact of COVID and timing of our cost initiatives. A couple of specific areas I want to call out: costs of revenues grew 28% due to a higher provision for bad debt related to future collection risk from the impact of COVID-19 on customers, as well as inorganic impact from bodybuilding.com and higher cloud expenses. We recently sold bodybuilding.com as part of our simplification effort and the savings as I mentioned previously will roll in through the year. Overhead costs were roughly flat in Q1 as the benefit from our cost savings initiative did not kick in until March. We expect overhead expenses to decline at a double-digit percent starting in Q2. So turning to cash flow and the balance sheet, free cash flow was negative $1 billion in Q1, primarily due to the use of cash for working capital. The working capital charge largely related to lower merchant account payables from the significant stayed room night decline late in the quarter and an increase in prepaid assets, including deposits to fund future refunds. Deferred merchant bookings increased modestly in the quarter due to an increase in Vrbo merchant bookings. Our typical seasonal patterns, deferred merchant bookings increased in the first half of the year as customers book, travel and then decline in the second half of the year as more customers are staying than actually traveling. This year, started with a similar pattern through mid-to-late February and then as new bookings dramatically decline and cancellations spiked in March, deferred merchant bookings declined significantly. This dynamic continued in April as customers canceled travel plans, mostly for near-term travel dates that were impacted by COVID-19. As of the end of April, our total deferred merchant booking balance is $4.3 million and excluding deferred loyalty, the balance was approximately $3.5 million. As we manage through this near-term liquidity capital headwind, in addition to cost cuts, we have taken steps to preserve liquidity including suspending REIT purchases and dividends. We closed a few transactions which totaled nearly $4 billion in capital. The $1.2 billion preferred equity investments Apollo and Silver Lake have a dividend that can be paid in time, first three years, as well as redemption options. We also issued a total of 8.4 million warrants as part of that transaction. We also raised $2.75 billion in unsecured to senior notes. The notes were issued in two tranches, one of which is callable after two years. We plan to use proceeds from this debt raise to repay the $750 million in senior notes that mature in August. Performing for these transactions, as of the end of April, our total cash balance was $6.5 billion. In addition to cash, across restricted cash, accounts receivable, and prepaid and current assets, we held amounts covering 40% of outstanding deferred merchant bookings, excluding deferred loyalty. As travel begins to recover on booking trends rebound further, we expect to see immediate cash flow benefits from the merchant model, even with new booking levels well below 2019. We believe our liquidity affords us flexibility to navigate a prolonged impact from COVID and position a leader as travel recovers. While we have a higher debt balance and pro forma leverage that we historically carried, we remain committed to investment-grade credit ratings and fully intend to work back toward our historical leverage levels as the business recovers. In addition to the $750 million notes due this year, we have a tranche of notes maturing in 2022, notes callable in 2022 and the borrowings under our revolver, all of which gives us a lot of flexibility to quickly get on a path back to desired capital structure in the coming years. Given the uncertain environment, we are not providing guidance for 2020. In the second quarter, we currently expect revenue declines to more closely mirror recent booking trends and our adjusted EBITDA loss to be significantly higher than in Q1 as we will have a full quarter of the global impact from COVID. While we remain optimistic that travel will bounce back, we know it could take time to return to prior levels. We are going to keep driving efficiencies and we are going to position the business to operate faster and more effectively in the past, as Peter talked earlier. When travel demand returns, we expect to emerge with better margins and be in a position to drive the level of growth we plan for as we enter 2020. Operator, we are ready to take our first question.

So May was looking significantly better than the lowest point. Can you provide some quantification on that? That would be helpful. Secondly, you mentioned reassessing the business and potentially reducing performance-based marketing expenses, particularly Google spend, which has been a crucial part of the OTA narrative for about twenty years. How confident are you that you can manage the transition? Can you discuss how you're mitigating the risk that alternative marketing channels might not be as effective? When do you expect to gain clear insights? I understand it’s challenging to conduct marketing experiments in this environment. Is it likely to take a year or more to optimize your marketing strategy away from performance marketing? Thank you.

Sure. Thanks, Mark. So first of all, on May, no, I am not going to give you much to quantify that, except to say that we have seen week-by-week improvement. Again, we are a many product business. So some businesses like Vrbo are considerably off the bottom. Others are more modestly off the bottom, all the assumptions and all the prognosticators about the comeback of travel locally recently. Is it vacation rental or hotels? I think we are seeing improvement everywhere. We are seeing marked improvement in vacation rental right now. I would say we are fortunate in that we are relatively heavily weighted towards the U.S. and the U.S. is relatively stronger. There are places all over the world that are beginning to open up, be it parts of APAC, parts of EMEA, etc. So I think we are seeing week-by-week improvement. It’s encouraging, but we are still at greatly reduced levels. The numbers, candidly, are not terribly meaningful right now. Directionally, they are meaningful and they are hopeful. But the delta between minus 85% and minus some other big percent is not really terribly telling. I think the question will be how long does it sustain itself? Does it continue to grow? And frankly, do all of us do our part to make travel safe so that we don’t end up with any future constraints that stop the improvement. So I think that’s all I can really give you on May. As far as the bigger cutting back marketing OTA story, I recognize, as Google and others have pushed their way to intermediate all of us. That has created challenges. I think there’s also been challenges as we have all tried to continue to drive growth and weren’t finding other ways to drive it as effectively. I would say the things that give me encouragement are, first of all, while we don’t have the volumes to test it right now, we do have an opportunity for an entire reset because we have essentially gone to virtually no marketing. As we weigh back in, we are able to be more precise, be more constrained, watch and learn and grow into it and not just dive back in head first and spend back to the levels we were at. I also think we have not done our job on a couple of fronts. One is, as I mentioned, as our own brands competed, whether that’s broadly or locally, we were creating our own dynamics in the marketplace, but I think we probably never fully understood. We are now an integrated marketing team, led by two great executives who will figure out how to make sure that we will spend appropriately and not be pushing price against ourselves. Secondly, we have done precious little with all the data we have and all the merchandising capabilities we have and we haven’t done an exceptional job of retaining our customers and giving them reasons to want to come back directly to us, directly to our app, etc. It has been a growing area of business. We have done a good job, but if you think about not having all the data on your customers aligned in one place, not having the tools to tell them, "Hey, you went to Vegas last year. At this time, would you like to go to Vegas again?” We just have a lot we can do to continue to drive the business without the only idea being, how about we spend a little more in performance marketing. So I think we have a lot of opportunity there. We have also seen that as we have gone through these very low levels of performance marketing that our brand is quite effective. People come back looking for our brands because our brands have importance and it’s an imprecise science, but knowing what your brands can drive themselves without performance is an important part of this. I think this low will give us more insight into that as we climb out.

Okay. Thank you very much, Peter.

You bet.

Hi. Thanks a lot. Just a couple of questions. Can you maybe talk a little bit about what the integrated marketing effort does in terms of the trade-up between growth versus just marketing more effectively and profitably? And then, if I had to just think about the margins in the business over the medium term or maybe longer term. And considering what you have done over the last several months in terms of just cost takeout and streamlining, where do you think margins can be in the business?

I will let Eric take the second part of that. However, I want to highlight that with the recent significant changes, we are not constrained by a fixed growth rate. Instead of debating whether to prioritize profit or growth, we aim to be more strategic as we re-enter the market. We remain committed to simplicity, profitability, and efficiency, but we also intend to continue our growth. We believe that it's possible to grow on a more profitable and healthier foundation, enhancing customer retention and lifetime value, which are fundamental aspects of our strategy. We are optimistic about achieving both goals. We won't pursue top-line growth recklessly; rather, we will focus on growth where it aligns with our strategy. As we improve our customer retention and build stronger long-term relationships, our approach to performance marketing may evolve based on how many customers we can retain over time. These strategies are developing, and our performance will speak for itself. As for margins, I will let Eric address that, but I want to emphasize that much of our effort is aimed at not only increasing efficiency but also uncovering genuine opportunities. Many initiatives we have undertaken and will pursue will boost efficiency while also creating top-line opportunities.

We are not providing guidance at this moment regarding our margin profile, but we are actively addressing costs throughout the company. Historically, our business operated with independent brands competing in the market, resulting in similar operations occurring in different parts of the organization without adequate central management. For example, we have centralized the cloud management team, which has aggressively worked to reduce expenses, particularly during COVID. The nature of that spending has significantly changed as a result. In customer service, we have started utilizing technology to better meet customer needs, which we have accelerated during COVID. We are investing in this area, and our teams are motivated, producing impressive returns, with positive feedback from customers reflected in our NPS scores. In summary, we are identifying cost efficiencies and margin opportunities while enhancing customer experience. Regarding fixed costs, we are still working through our executed plans, continuously seeking opportunities with vendors to consolidate contracts to achieve lower costs while maintaining efficiency. We expect to emerge from this process leaner and more agile, with improved margins.

Great. Thank you, Peter. Thank you, Eric.

Thank you.

Thanks so much. Maybe a long-term question on supply. Peter, you already mentioned sort of continuing to work with suppliers through this difficult period. What are some of the long-term goals about aligning your goals with supplier goals? And how do you see the supplier landscape evolving and what that might mean for the OTA business over the medium long-term? And then maybe a second part, historically, the OTAs have generally benefited from returns to normal from economic shocks, as suppliers are looking to sort of fulfill yield and inventory? Do you expect that this time as well? Thanks so much.

Thank you, Eric. I'll address that in reverse order. I believe there’s no reason to think it won't resemble past events, where suppliers generally turn to platforms like ours to maximize their volume and fill their planes, hotels, and other offerings. It's difficult to predict how that market will evolve; it largely depends on the duration of the virus, its severity, and the eventual recovery. From our perspective, there are several areas where we aim to collaborate more effectively with our partners. One such area is improving our service. Both Eric and I have mentioned the importance of making the service experience more seamless to enhance customer satisfaction. Some of this is due to our own shortcomings, while some relates to how we engage with partners. We've learned valuable lessons and have room for improvement, and I hope we seize this opportunity to do better. This period has also focused our efforts on helping our supply partners enhance their product offerings, data, and information to optimize their performance on our platforms and maximize their opportunities with existing demand. During this downtime, we've been working with many suppliers on fundamental aspects, such as needing better images and ensuring all rates are loaded. We aim to assist everyone with these details. We're also committed to developing improved tools for better collaboration with our suppliers and enhancing the customer experience. Our suppliers are eager to upsell and need clarity about their current safety practices and other future offerings. We must present this information effectively to enhance both the customer experience and our suppliers' success. Therefore, our ongoing work to improve data, supply-side tools, and consumer-facing tools is crucial, and we're dedicated to pushing this forward. We hope to contribute to the industry’s rapid recovery.

Great. Thanks for taking the questions. Two questions from us. First, historically, Expedia has benefited from being a full-service OTA. Now coming out of COVID-19 shock, as we think about travel rebounding first to a more local or even regional basis, do you think you are a little bit of a disadvantage from a market standpoint, from a consumer awareness and recognition areas? For certain Expedia brands, if we were in this, an intermediate phase, where air travel remains muted for a long time? And then I was going to ask a second question about the retail versus B2B business. Some of the B2B assets have been strong growth opportunities for you in the more recent few years, like particularly the partner for Solutions area. And as we come out of COVID, do you expect to see a trajectory difference between retail and also the B2B assets? Thank you.

Thank you, Deepak. Regarding your first question, I believe Expedia hasn't fully capitalized on the advantages of being a full-service OTA. Many consumers view Expedia, hotels.com, and Travelocity as similar when looking for a hotel. We're actively working to differentiate our brands, which is why we've consolidated our brand group to clarify our brand proposition and how we communicate it. Long-term, I see significant potential in the full-service OTA model. While international air travel may face challenges and domestic travel may be slightly better off, we remain committed to the full-service OTA approach. We are focused on where we can allocate resources effectively to support growth, whether that's in domestic markets or Vrbo. Over time, we believe each of our brands can achieve success, including the full-service OTA model. On the B2B side, particularly our partner services business has experienced substantial growth in recent years. A key aspect of our long-term strategy is to move away from the notion that retail is superior to B2B or that some brands are more valuable than others. A profit dollar is valuable no matter its source. We view the B2B model as a strong opportunity to meet unmet demand, whether geographically or through offline travel agents. Our partner services business has proven resilient, and we anticipate continued opportunities for growth. Of course, like in lodging and other sectors, the business environment may lead to some partners facing difficulties. We acknowledge the human impact of these disruptions, but we believe our B2B business will be a significant contributor moving forward, and we'll pursue it with the same enthusiasm as our retail initiatives.

Okay. That’s helpful. Thank you very much.

Sure. Thank you.

Great. Thank you. A couple of quick questions, maybe I will start with a high-level strategy. When you made your comments about becoming more efficient, are you thinking about maybe Expedia being a little smaller market share, but much higher margins? Or do you think you can have it all where you kind of maintain your share but also get the margins up? I know you are not going to give us a target, but how are you thinking about that? And then secondly, I am just wondering, when you look back to last year, how inventory-constrained were you, were there markets where you just didn’t have any inventory availability? And going forward, do you think a lot of that would open? And would you see start seeing some really good deals or maybe unique deals on Expedia? Thank you.

I don’t believe we need to sacrifice market share to enhance profitability. If we were operating at the same volumes as before, our profitability would be significantly higher than last year. My expectation is that as we continue to realize benefits and improve our marketing and product efficiencies, as well as conversion rates, we should be able to maintain and ideally increase our share. I don’t see this as a trade-off; there is still much to be done internally to reach our goals. We are not at a point where we have optimized everything and are simply choosing between making more profit or losing revenue. We have ample opportunities to improve efficiency in our processes and products, which should lead to higher margins and greater investment potential in various growth areas, not just performance marketing but also branding and merchandising. There’s no reason to assume that achieving better margins requires us to compromise on growth. While we might encounter fluctuations along the way, especially in the aftermath of the pandemic, we believe we can pursue both objectives simultaneously. Regarding inventory, I don’t think we were constrained last year. There are always opportunities and gaps, often related to information and collaboration. Hotels may not have their rates fully represented everywhere, or they might have a deal available only in certain locations that goes unnoticed elsewhere. Our concern isn’t about lacking inventory but ensuring our supply partners are engaged and making the most of every opportunity. I believe we didn’t face inventory constraints as if there was just nothing to sell. It really comes down to our supply partners being fully involved in maximizing their participation. Looking ahead, if we provide better information, they can respond more swiftly, enabling everyone to capitalize on opportunities more effectively.

Thank you.

Thanks a lot. I had a quick update, a quick follow-up question on working capital dynamics. Given May has been considerably better, has the working capital outflows stabilized at this point? And how do you see that playing out? Thanks.

Sure, I'll take that one, Peter. May has shown improvement. We're not ready to share specific details about that yet, but I would say we're still in a survival mode due to COVID, while also focusing on recovery. We're at a stage where we are still experiencing cash burn. Peter, do you have anything to add to that?

I am ultimately trying to avoid providing specific numbers associated with it, but we are still starting from a very small base. We are noticing positive signs that give us hope to move forward with marketing and build confidence that consumers are returning. I believe these are all encouraging developments, but we are not completely out of difficulties yet.

Okay. Thanks. That’s very helpful.

Yeah. I would just add, Kevin, when I say it’s considerably better, it’s obviously percentage improvement off the low number is considerably better, though not awesome. We would rather have double and triple-digit improvements. So it’s not better is better and we are glad to see the trends. The working capital issue, obviously, a lot to do with what’s happening on cancellations, what’s happening on the nature of the bookings and whether they are merchant or agency, etc., but and there have been some mix changes in the short-term. But I would say, it’s definitely improving. But for Eric and I and the company, we still are on fairly defensive posture as we watch it play out. We are glad to have the incremental capital on the balance sheet to protect us.

Thanks.

Thank you.

Thanks. Two questions, if I can. First trivago suggested on their call that they expect paid search marketing to be structurally less competitive going forward. So curious, beyond your company-specific plans to increase ROI targets as part of a broad brand consolidation. Do you think there can be structural performance marketing advantages coming out of this across the broader OTA space? And then secondly, you talked about already starting to see the benefit of the tech re-org. I was wondering if you can just give us some examples of some things you have been able to achieve, as we think about the ability over time to continue to squeeze benefit out of that?

On the first point, I can’t speak for the entire industry, but it seems to me that the travel sector has been somewhat limited in capital due to the virus, and in some cases, severely restricted. Consequently, the strong performance marketing auction environment we experienced earlier may take some time to return because many do not have the funds for direct marketing. While I'm not certain, I can envision this being the situation, and perhaps trivago is alluding to it. We will certainly adhere to our own discipline and ensure we do what’s best for us, just as I expect everyone else will do. However, there may be variations in the number of competitors and the available capital for investment in direct relationships in the near-term among other players, including direct hotel services. Regarding the benefits of our platform, there are numerous advantages, many of which are quite detailed. Eric mentioned the efforts our team has made in optimizing cloud services. Previously, we hadn’t prioritized cloud optimization, as the focus was primarily on transitioning to the cloud. Our team took this opportunity to adopt a more structured approach to cloud usage across not just the platform, but throughout the enterprise, leading to significant cost savings. We are tackling many cost-related initiatives. On the data front, we likely possess more data than almost anyone in the travel industry, but we hadn’t centralized it efficiently. We had multiple separate data storage systems, leading to inefficiencies where everyone was working with different data sets. Now that we have consolidated, simplified, and standardized this data, everyone can access it. This allows our algorithms and machine learning tools to learn more rapidly and be applied across a wider scope of our business much quicker. We are likely to see numerous benefits from this, though it’s difficult to quantify them precisely. The opportunities are not always straightforward, such as simply consolidating teams and saving on personnel. While there are measurable opportunities we’ve pursued, I believe the more significant, albeit less definable, opportunities lie in the potential unlocks ahead of us. Our organization is large and complex, and we didn’t make things easy for ourselves. I am optimistic about the possibilities in merchandising, and we are actively working on improving our CRM tools and data management. All these developments will need to come together to realize that potential, and it is substantial, and we are committed to pursuing it.

Thank you.

Commentary in merchandising better to your customers, presumably this means better cross-selling of products and packaged tours and things of that nature. But I think some of your consumers are used to shopping on Expedia in a certain way. So do you think this requires any sort of retraining or awareness marketing efforts to reeducate folks? Or do you think you will be able to just take advantage of existing behavior? Thanks.

Thank you for the question, Stephen. I would divide this into two parts. First, we can improve our basic operations and enhance our core product, making it easier for users to navigate. We’ve discussed our voice platform, which primarily serves as a service tool, but we see potential in using that technology to assist customers throughout their buying journey, helping them make informed decisions and possibly increasing upsells. It's not about a complete overhaul; rather, our product should perform at its best without needing drastic changes. Much of it revolves around providing fundamental functionalities and creating appealing products that are both engaging and useful to customers during their journey. The second aspect is merchandising. Once we have a deep understanding of our customers and their journeys—what they’ve done on our site, what they’ve purchased, and their future preferences—we can significantly enhance their experience. This could include informing them about relevant offers through various channels like email or text and personalizing the site’s content based on their previous interactions. There’s considerable room for improvement here, and we see ourselves just starting this journey. Prior to having a consolidated view of customer data, executing such strategies was challenging. We're still in the early stages, and while we do some of this, it isn't efficient yet. We need to reach a level where we can effectively implement these strategies at the scale we're operating. I believe there’s much more we can achieve beyond our core offerings.

Thank you.

Yeah. Well, thank you, everybody. I hope Eric and I covered as much territory as we could in an hour. Obviously, again, I think our first quarter numbers don’t mean a whole lot. Frankly, our numbers for a while won’t mean a whole lot. We have got a lot of work to do to come out of this in a great place. We think it’s there for us, as you have heard and that’s what we are focused on. We are honestly not trying to talk anybody into anything. We are just trying to focus on what we can affect and you will have to judge us by what we deliver. In the meantime, we wish you all safe and happy and same time through the virus, be careful out there and wear a mask and we look forward to talking to you again. Thank you.

Thank you, everyone.