Booking Holdings Inc.

Welcome to Booking Holdings' first quarter 2022 conference call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guaranteed of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied, or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical facts are intended to identify forward-looking statements. For a list of factors that could cause booking holdings' actual results to differ materially from those described in the forward-looking statements, Please refer to the safe harbor statements at the end of booking holdings earnings press release, as well as booking holdings most recent filings with the Securities and Exchange Commission. Unless required by law, booking holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. A copy of Booking Holdings earnings press release together with an accompanying financial and statistical supplement is available in the For Investors section of Booking Holdings website, www.bookingholdings.com. And now I'd like to introduce Booking Holdings speakers for this afternoon, Glenn Fogle and David Goulden. Go ahead, gentlemen.

Thank you, and welcome to Booking Holdings. first quarter conference call. I'm joined this afternoon by our CFO, David Gould. I am pleased to begin by reporting that our first quarter was a record. Our customers booked $27 billion in gross bookings, the highest quarterly amount ever. The continued improvement in our room night trends, increased accommodation ADRs, and significant growth in our global flights products all contributed to achieving this gross bookings record. In our accommodations business, we saw meaningful improvement from last year with first quarter room nights declining only 9% versus Q1 2019, which was an improvement of 12 percentage points from our fourth quarter 2021 results. Our bookings continued to strengthen in April with room nights increasing 10% and gross bookings up over 30% versus 2019, making April a record month for gross bookings and the first month that global room nights exceeded 2019 levels. At Booking.com, I'm encouraged by the strong gross bookings already recorded for the summer period, which are over 15% higher than at this same point in 2019. In Western Europe and North America, gross bookings for the summer period, are now over 30% ahead of where we were at this point in 2019, though I note that a high percentage of these bookings are cancelable. Across our brands, our other brands, we are seeing the benefits of a global recovery from the pandemic with strong travel demand in the U.S. for Priceline, a rapid recent improvement in trends in Asia for Agoda, an uptick in international flight searches at Kayak, and the return of diners to restaurants for OpenTables. In many countries, especially across Europe and Asia, travel restrictions were eased in the first quarter, which we believe has contributed to the strengthening of travel demand trends. As we have said before, when leisure travelers believe it is safe to travel and restrictions are lifted, people book travel. With that being said, there are still restrictions and inconveniences imposed on travelers today by some countries. though we believe that the industry is moving in the right direction and progressing back to normalcy. While we are pleased with the trends we are seeing right now across our brands, as we look towards the rest of the year, we are cognizant of the potential for macro uncertainty and are aware that inflation or other macro factors may have an impact on consumer demand. Now, before providing further updates on our business, I want to address the devastating war in Ukraine. Since first hearing the terrible news of Russia's invasion of Ukraine, our first priority was the safety of our colleagues and supporting them through this time. We worked closely with our employees and their families in Ukraine to provide them with safe refuge, and we have continued to support humanitarian efforts in the region. As we previously disclosed in early March, we suspended travel services in Russia and Belarus. By mid-March, Booking.com developed and launched a no-commission initiative that enabled properties in select European countries to offer free or heavily discounted accommodations to refugees fleeing Ukraine. We believe that about 30,000 refugees have been provided with places to stay through this initiative so far. We continue to work closely with our hotel and home partners and expect to expand this program to more properties in the region. As an example, Booking.com has partnered with Hilton and the UN Refugee Agency to make it easy for NGOs to book temporary accommodations on behalf of refugees fleeing the war in Ukraine. These rooms have been made available for free by Hilton at hundreds of their properties across Europe, which we in turn are providing through our platform. I am very proud of our team's quick actions to help our employees, customers, partners, and the many people impacted by these tragic events. And, of course, we all hope this barbaric violence ends soon. Let's now turn to the progress we're making in our business. We continue our work strengthening our core accommodation business by driving benefits to our traveler customers and to our supply partners. For our customers, we are focused on their critical needs of value, choice, and convenience. With this high degree of customer focus, we aim to increase loyalty, frequency, spend, and direct relationships with our customers over time. In March, our unique active customers at Booking.com were within 95% of 2019 levels, driven by strong growth in returning customers who had not made a previous booking in over a year. In the first quarter, we saw a higher mix of customers booking directly with us than in any of the last three quarters first quarters three years first quarters we see the strongest direct repeat customer behavior in our mobile app when compared to other platforms like desktop or mobile web we continue to see more of our business shift to the app with over 40 percent of our room nights book through our apps in the first quarter Booking.com's app hit a new record in terms of monthly active users in Q1 and continues to be the number one downloaded OTA app globally according to a third-party research firm. As I said before, the app is a critical platform as it allows us more opportunities to engage directly with travelers and, ultimately, we see it as the center of our connected trip experience. We will continue our efforts to enhance the app to build on the recent success we have seen here. For our supporting partners, we strive to be a valuable partner to all accommodation types on our platform, which primarily means bring incremental demand to properties from the broad audience of potential customers on our platform. For alternative accommodations, our global mix of room nights in the first quarter increased to about 31%, a couple of points higher than in Q1 2021. We continue to work on improving our alternative accommodation product globally with an additional focus on the U.S. market. We've been working closely with property partners to identify opportunities to improve our platform to better fit their needs. Related to these efforts, we launched partner liability insurance for our alternative accommodation supply partners with global coverage in the first quarter. In addition, we are making progress on an enhanced payment solution for professional property managers that were rolling out in the U.S. In the first quarter, we saw the largest sequential net increase in alternative accommodation properties on Booking.com since the start of the pandemic. While the net increase in Q1 was still a modest number of properties, we are aiming to build on this growth throughout 2022 by continuing to improve our alternative accommodation offering and attracting more partners to our platforms. And this week, we launched a new campaign in the U.S. to promote Booking.com to alternative accommodation owners and managers who want to grow their business with us. Let me now talk about the progress we've made in our interrelated strategic priorities of payments and the connected trend. We believe both of these priorities will further enhance the strength of our core accommodations business and support its continued growth. On payments, 34% of Booking.com's gross bookings were processed through our payment platform in the first quarter, which is our highest quarterly level ever. This year, we are focused on continuing to increase supplier adoption of payments while introducing new products and features that, over time, will improve the customer and partner experience and bring new revenue streams to our platform. We will continue to position Booking.com as an attractive and trusted payment service for both travelers and our supplier partners across hotels, alternative accommodations, cars, flight, and attractions. Furthermore, Booking.com's payment platform helps deliver a more seamless and frictionless booking experience, which are important elements of our larger Connected Trip vision. On our Connected Trip vision, we continue to make progress as we work on the foundations. such as developing a flight offering on Booking.com, which is now live in 40 countries. This flight offering gives us the ability to engage with potential customers who choose their flight options early in their discovery process and allows us an opportunity to cross-sell our accommodation and other services to these flight bookers. We have seen that in over 70% of our flight bookings on Booking.com, the flight was the first or only product that was booked. This helps confirm the value of flights as the starting point in many people's booking journey, and is an anchor product that we can utilize to cross-sell accommodations and other products. A meaningful percentage of bookers who first book a flight then book an accommodation. We will continue our work to further optimize the cross-sell opportunity and build on the early positive signals that we're seeing so far. flights continues to be a source for new customers, with about one quarter of all flight bookers in Q1 being new customers for Booking.com. We've also seen recent success driving incremental room nights in experiments where discounts were applied to non-accommodation products that were attached to the transaction. To put it simply, we believe having more products on the shelf increases our merchandising opportunities and helps us sell more room nights. Finally, As I previewed on our last earnings call, we published our 2021 sustainability report and our climate action plan in March. In our climate action plan, we highlighted the significant emission reductions we've already achieved in part driven by sourcing 100% renewable energy for our offices by the end of last year. And we are committed to more than halving our emissions by 2030 and achieving net zero emissions by by 2040. We are proud of the emissions reduction achieved and ambitious targets set for our own business. But as I said before, we believe our greatest influence on sustainable travel is through making it easier for travelers to find and book sustainable options. We are addressing this opportunity through our work with our Travel Sustainable Badges program, which now includes over 100,000 properties that can highlight their sustainable practices to customers on Booking.com. In conclusion, I am encouraged by the strength we are seeing in bookings, the level of summer travel on our books, and the potential for a very busy travel year ahead. As we discussed last quarter, in this recovering environment, we will continue to lean into performance marketing channels and appropriate ROIs as we look to bring more customer demand to our platform. Overall, we believe we are well-positioned to continue capturing this returning travel demand, and we will continue our work executing against our strategic priorities. As I said before, we are focusing on building a larger and faster growing business with more products that is sustainable and generates more earnings dollars for the long run. I'll now turn the call over to our CFO, David Goldman.

Thank you, Glenn, and good afternoon. I'll review our results for the first quarter and provide some color on trends we've seen so far in the second quarter. All growth rates for 2022 are relative to the comparable period in 2019 unless otherwise indicated. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. Now onto our results for the first quarter. Our February earnings call, we discussed the improvement in trends we've seen so far in 2022. with room nights getting back to about flat versus 2019 in the first half of February after declining 21% in January. Just hours after our earnings call on February 23rd, the terrible news broke that Russia had invaded Ukraine. As a result, we saw an immediate negative impact on our room night trends, particularly in Eastern Europe. Despite this impact towards the end of the month, room nights for the full month of February came in about in line with 2019 levels. In early March, we suspended the booking of travel services in Russia and Belarus. This led to a loss of new bookings as well as significantly elevated levels of cancellations of reservations for these countries. Additionally, we saw some slowdown in booking trends within Europe as travelers took in the news of the invasion. We disclosed that total room nights for the week ending March 6th, were down about 10%. And that slowdown was driven by Eastern Europe, primarily Russia, and to a lesser extent by Western Europe, which remained modestly above 2019 levels. I'm pleased to say that compared with the first week in March, we saw our overall trend improve during March, driven mainly by Europe, resulting in room nights being down about 4% for the month, which is only a modest pullback from where we were in February. For the first quarter, room nights were down 9%, an improvement from down 21% in Q4, and our best quarter results since the onset of the pandemic. Excluding Russia, Ukraine, and Belarus, our room nights were down about 2% in March and down about 6% for the first full quarter. But Q1, on a regional level, room nights in Europe and the rest of the world were both down mid-single digits. Asia was down about 35%, with all three improving from Q4 levels. The US has strong growth versus Q1 2019, similar to what we saw in Q4. Mobile bookings, primarily through our apps, represented about 60% of our total room nights in the first quarter. Our apps were over two-thirds of our mobile bookings and over 40% of total room nights. In the first quarter, we continued to see an increased mix of our total room nights coming to us through the direct channel versus Q1 2019 and Q1 2022. The international mix of our total room nights in Q1 was about 40%, an encouraging increase from about 33% in Q4. Q1 international room nights were down about 30%, compared to Q1 2019 levels and improvement from the almost 50% decline in Q4. The improvements in international bookings we saw continue to be driven mainly by travel plans within Europe. And these cross-border bookings continue to have, on average, longer length of stay and a shorter booking window than comparable bookings in 2019. We saw strong growth in our domestic room nights for the first quarter, also an improvement from Q4. Our cancellation rates were about in line with 2019 levels in Q1, despite the impact of the Russian invasion of Ukraine. The booking window in Q1 of Booking.com contrasted less versus 2019 than it did in Q4. And this booking window expanded versus the first quarter of 2021. For our alternative accommodations at Booking.com, the global mix of room nights increased to about 31% in Q1, a couple of points higher than 2021. Within Europe, our mix of alternative accommodation continues to be meaningfully higher than the global average. Gross bookings increased 7% in Q1 versus 2019 and were up 10%, excluding Russia, Ukraine, and Belarus. This 7% increase in gross bookings, with 16 percentage points better than the 9% room-night decline due to 18% higher accommodation constant currency ADRs, and also due to strong flight bookings across the group, partially offset by about 4 percentage points of negative FX movements. As Glenn mentioned in his remarks, the $27 billion of gross bookings in Q1 is a new record for us, higher than the previous record of $25 billion in Q1 2019. And March 2022 was the first month our gross bookings exceeded $10 billion in a single month. This was up 17% versus March 2019 and compares to up 80% in February and down 11% in January. Our accommodation constant currency ADRs benefited by about 3 percentage points from regional mix and about 15 percentage points from rate increases in most of our regions. notably most notably europe and north america and especially in higher demand leisure oriented destinations constant currency agr growth versus 2019 accelerated from 13 in q4 to 18 in q1 primarily due to higher rates in europe airline tickets booked in the first quarter were up 152 percent versus 2019 and up 69 versus 2021 driven by continued expansion of Booking.com's flight platform as well as continued flight ticket growth at Priceline. Consolidated revenue for the first quarter was $2.7 billion, which was down 7% versus 2019 and down about 2% on a constant currency basis. Revenue as percentage of gross bookings was about 150 basis points below Q1 2019 in line with our expectations due primarily to differences between gross booking, the timing differences between gross bookings and revenue recognition. Our underlying accommodation take rates were about in line with Q1 2019 levels. Marketing expense, which is a highly variable expense line, decreased 4% versus Q1 2019. Marketing expense as a percentage of gross bookings decreased about 50 basis points versus Q1 2019, which is better than our expectations, mainly due to high unexpected marketing ROIs. Sales and other expenses were up 58% versus Q1 2019 due to a higher volume of merchant gross bookings and higher third party call center costs. About 34% of Booking.com's gross bookings were processed through our payments platform in Q1, up from 13% in Q1 2019. Compared to Q1 2021, sales and other expenses as a percentage of gross bookings were about 30 basis points higher. Our more fixed expenses in aggregates were about in line with our expectations, up 12% versus Q4 and up 17% versus Q1 2021. Adjusted EBITDA was $310 million for the quarter, which was better than our expectations due to higher than expected ADRs and for better than expected leverage on available expenses. However, sequentially, EBITDA was down 67%, which is significantly more than the seasonal declines we saw pre-COVID, and aligns with our commentary in February. Non-GAAP net income of $161 million results in non-GAAP EPS of $3.90, which is down 65% versus Q1 2019. Our Q1 non-GAAP tax rate of 16% was lower than 90% in Q1 2019, due to a great impact from a discrete tax benefit on a lower base of earnings. On a GAAP base, we had operating income of $174 million in Q1. We recorded a GAAP net loss of $700 million in the quarter, which included an unrealized loss on our strategic investments of about $987 million and a $36 million loss on assets held for sale related to the major L strategic partnership we discussed last quarter. Now onto our cash and liquidity position. Our Q1 ending cash and investment balance, about $12.8 billion, was down versus our Q4 ending balance of $14.3 billion, primarily driven by the payments of $1.1 billion for a margin debt maturity, about $950 million in sharing purchases in Q1, and the decline in value of our strategic investments. These factors, which reduced our cash and investment balance, were partially offset by positive free cash flow of about $1.6 billion, which is driven almost entirely by changing working capital, resulting from an increase in our deferred merchant bookings balance. As we disclosed on last quarter, we started returning capital to shareholders in early January, and in addition to share purchases in Q1, we repurchased about $325 million of our shares in April, which brings our outstanding authorization to just over $9 billion. As we said before, we expect to complete our main organization within the next three years. Now moving on to our thoughts for the second quarter. April room nights increased about 10% versus 2019, an improvement from the 4% decline in March, driven primarily by Europe. Excluding Russia, Ukraine, and Belarus, April room nights increased about 16% versus 2019. All regions showed improving room night growth in April. Europe was up high teens percent in April and up about 30% excluding Russia, Belarus, and Ukraine. Growth in the US was very strong. The rest of the world had double-digit growth, and Asia recurred to down high teens percent all versus 2019. The international mix of our room nights in April was over 45%, an encouraging increase from the 40% in Q1. April international room nights were down slightly compared to 2019 levels, an improvement from down 30% in Q1. International demand, driven mainly by travel plans in Europe, accounted for most of the improvements in room nights in April versus Q1. Domestic room nights also improved in April to very strong growth versus 2019. April growth bookings increased over 30% versus 2019, driven by growth in room nights continued accommodation ADR strength, as well as continued strength in flight bookings. April gross bookings increased to almost $11 billion, which was a new monthly record. April gross bookings typically declined from March pre-COVID. Whilst it's encouraging to see continued improvements in trends into April, the environment is still uncertain and difficult to predict with confidence how room lights for the remainder of the quarter will develop. While many countries are lifting a list of travel restrictions, COVID is still a factor which can impact travel. And of course, the war in Ukraine continues to create volatility and macro uncertainty. We do expect the recent strength in ADRs to continue for the remainder of the quarter. And as a result, we expect the difference between the level of room-night growth and gross bookings growth for the full second quarter to be around 20 points, which is similar to what it was in April. In April, the overall booking window, booking.com, continued to move back closer to 2019 levels. We continue to see strength in our summer booking trends, and our gross bookings for summer are now more than 15% higher than they were at this time in 2019, and within Western Europe and North America, both up over 30%, albeit with a higher mix of cancel bookings. If the current trends continue, we could see a record summer travel season, and we're gearing up to prepare for that across all parts of our business. Turning back to Q2, given recent booking trends combined with lengthening booking window, we expect Q2 revenue as percentage of gross bookings to be about 200 basis points lower than it was in Q2 2019. This 200 basis points of difference in revenues percentage of gross bookings is mainly timing related, and the impact could be greater if booking trends accelerate from April especially if a high percentage of these bookings stays in future quarters. The timing impact on take rates in Q2 is driven by a combination of the acceleration in gross bookings from up 7% in Q1 to up over 30% so far in Q2, coupled with the lengthening booking window from Q1 to Q2. We expect our underlying accommodation take rates to remain stable. We expect market expense as percentage of gross bookings to be slightly higher than in Q2 2019, which is consistent with our prior commentary about the opportunities for us to lean into a recovering travel market in 2022. We expect Q2 sales and other expenses as percentage of gross bookings to be about 60 basis points higher than it was in Q2 2021 due to a higher merchant gross booking mix, and higher third-party call center costs. We expect our more fixed expense in aggregate to be about 15% higher than in Q2 2021, with personnel down slightly and both G&A and IT up meaningfully versus Q2 last year. The overall year-on-year increase in G&A is driven by higher digital sales taxes, which are tied to revenue, as well as increased office expenses due to return to hybrid work environments. We expect IT to increase year over year at similar rates to what we saw in Q1. If we were to see similar top line growth rates for the rest of the quarter as we saw in April, we'd expect adjusted EBITDA to be over $900 million per quarter. The expected timing difference between gross bookings and revenue, which is a primary driver of our expected 200 basis points lower take rate than Q1 2019, will have a significant native impact on EBITDA in Q2, as our more variable expense lines are linked to bookings. If we normalize the timing impact on our take rates in Q2 2022, to be the same as it was in Q2 2019, adjusted EBITDA in Q2 2022 will be slightly higher than it was in Q2 2019. Now turning to the enhanced strategic partnership with Major REL we discussed last quarter. As a reminder, Majorelle, one of our most trusted long-term external customer support partners, will begin employing most of the customer service representatives and previous work for Booking.com outside of the Netherlands and the UK. We currently anticipate finalizing this partnership around the middle of the year. And following the anticipated closing on a quarterly basis in the second half of 2022, we expect the personnel expenses will be lowered by about $25 million a quarter, that G&A expenses will be lowered by $6 million a quarter, and our S&O expenses will increase to offset the lower personnel and G&A expenses. As we said last quarter, we do not anticipate much of an impact on adjusted EBITDA in 2022 from this initiative. Beyond 2022, we believe this partnership will help reduce further expense growth and enable a more efficient ramp-up of our customer service functions. Outside of the P&L geography changes to the personnel, G&A, and sales expense line from major L, we are maintaining the four-year P&L commentary we provided last quarter. As a reminder, the expected timing, we expect timing to negatively impact take rates. The precise impact of timing on take rates for the year is difficult to predict, as it's impacted by the rate of recovery bookings coming into and during the year, and also by the length of booking windows during the year. We do know that relative to 2021, there was a negative impact on our take rates due to timing in Q1 2022. Our current best estimates of take rates in 2022 is just below 15%, which is lower than 2019 primarily due to timing. We expect that our underlying accommodation take rates will remain stable. Timing also negatively impacts adjusted EBITDA and EBITDA margins for the year. If not to the impact of timing, our expectations for four-year EBITDA margins would be a few points higher than our guidance for the year. We're encouraged by our better than expected Q1 results and the strengthening trends we've seen in April. And we're confident that our focus on customer acquisition and expanding our product offerings is the right approach for 2022. We'll now take your questions. Shawn, over to you, please, for Q&A.