Booking Holdings Inc.

Welcome to Booking Holdings' fourth quarter and full year 2022 conference call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made 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 fact 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' fourth quarter conference call. I'm joined this afternoon by our CFO, David Goldman. I am pleased to report a strong finish to 2022 as we delivered fourth quarter revenue and adjusted EBITDA of approximately $4 billion and $1.2 billion respectively, which were both ahead of our previous expectations. Room night growth versus 2019 of 10% in the fourth quarter improved from 8% growth in Q3. And for the first time, we saw room nights across all of our major regions above 2019 levels for the quarter, which was another important milestone for our recovery. Room night growth trends have further strengthened in 2023, with January room nights up 26% compared to 2019, or up about 60% year over year. We're encouraged by the continued strength and resiliency of travel demand last year and into the new year, which speaks to consumers' strong desire to travel. However, as we stated last year, month-to-month trends can be volatile, and we recognize that there is uncertainty regarding the future path of the world economy. David will provide further details on our fourth quarter results and on the recent trends we have been seeing in 2023. Looking back at the full year of 2022, I am proud of our company's performance during what was a challenging and very competitive environment. Our customers booked an all-time high of nearly 900 million roommates on our platforms in 2022, which was an improvement of 52% versus 2021 and 6% higher than in 2019. Gross bookings of $121 billion exceeded the $100 billion mark for the first time in our history and increased 58% versus 2021 and 26% versus 2019 or 73% and 36% on a constant currency basis. These record levels of room nights and gross bookings were achieved despite travel restrictions still in place in many parts of the world at the onset of 2022. And I note that most of Asia did not begin to open until towards the end of the year. And Russia's invasion of Ukraine negatively impacted our business. In terms of our P&L last year, we reached a new revenue record of slightly more than $17 billion. which was 56% higher than 2021 and 13% higher than 2019, or up about 71% and 24% on a constant currency basis respectively. We achieved this strong top line result while improving our profitability with adjusted EBITDA of $5.3 billion, increasing 82% versus 2021, and margins expanding by four percentage points year over year. Adjusted EBITDA was 10% below the 2019 levels. However, on a constant currency basis, it was actually 6% higher after accounting for the FX headwinds we faced in 2022. I believe these results demonstrate that we are making significant progress against our goal to build a larger and faster-growing business that generates more earning dollars than it did prior to the pandemic. While there is more work to be done to achieve this long-term goal, I am encouraged by the progress we have seen so far. Regarding our long-term outlook for travel, we are pleased with the position of our business and are positive about the future. This, coupled with our strong balance sheet, led us to return $6.5 billion to shareholders during 2022 by purchasing our shares. At year end, our share count was 8% lower versus the prior year, and returning capital to shareholders will remain a high priority for the company going forward. David will provide further thoughts on our approach in his remarks. In addition to our strong financial results in 2022, we made meaningful progress against the key strategic priorities that I highlighted on our earnings call two years ago. These are expanding payments at Booking.com, building out our connected trip capabilities, and strengthening our position in the US market. Let me address the progress we've made in each of these areas. On payments, in the fourth quarter we processed 42% of Booking.com's gross bookings on a merchant basis and are pleased with our progress in this area. As mentioned in the past, moving Booking.com's model from agent to merchant drives important benefits for both our supplier partners and our travelers. For our supplier partners, offering a payment solution adds value in several key ways, including providing access to additional travel or demand by enabling alternative payment methods, reducing cancellations, decreasing operational workloads, and enabling fraud protection. For our travelers, Booking.com's platform allows many consumers to pay how they want to pay, and we believe ultimately helps deliver a more seamless and frictionless booking experience. On the connected trip, Our long-term vision is to make booking and experiencing travel easier, more personal, and more enjoyable, while delivering better value to our traveler customers and supplier partners. We've expanded our offering into travel verticals other than accommodations with a focus on flights. And in the future, we will work to link relevant travel components together to provide a more seamless and flexible booking and travel experience. We believe that as a result of this initiative and the improved consumer experience, we will drive increases in customer engagement and loyalty to our platform over time. We continue to make progress in further developing our flight offering on Booking.com, which is now available in over 50 countries. This flight offering gives us the ability to help our consumers book another important component of their travel in one place on our platforms. and allows us to engage with potential customers who choose their flight options early in their travel discovery process. We continue to see that over 20% of all of our flight bookers globally are new to Booking.com. We will continue this important work to provide our customers the best possible trip experience we can offer. In the U.S., both our Priceline and Booking.com brands continue to execute well and contributed to U.S. room night growth of almost 30% and gross bookings growth of about 60% in 2022 versus 2019. On a volume and consumer spend basis, we have grown our U.S. business to be meaningful larger than it was prior to the pandemic. And we believe that our growth rate has outpaced the recovery in the broader market for U.S. accommodations, which means we believe we gained market share. At Booking.com, we've taken steps to improve our offering in the U.S. by utilizing marketing to improve awareness of our brand, introducing and ramping up our flights products, scaling adoption of payments, and working closely with our accommodation partners to ensure we are delivering incremental value to them. We are encouraged by our achievements in strengthening our positioning in the U.S., but there is much more work ahead as we continue to execute against this priority over the long term. In terms of our core accommodation business, we continue to drive benefits for our traveler customers and for our supply partners. For our supply partners, we strive to be a valuable partner for all accommodation types on our platform, by delivering incremental demand and developing products and features to help support their businesses. For example, as I mentioned earlier, payments brings an important benefit to our partners. In the area of alternative accommodations, Booking.com alternative accommodation roommates for the full year grew about 56% versus 2021 and about 11% versus 2019. and represented about 30% of Booking.com's total room loans. During the year, we made progress with our alternative accommodation offering for the full spectrum of property types by rolling out an enhanced payment solution for professionals, launching partner liability insurance, introducing a damage policy, and piloting request to book functionality, which is an important feature for some individual partners. We have seen improvements in the time to first booking, and better retention rates for new partners. At the same time, we are incorporating our alternative accommodation offering in some of our recent brand advertising to help raise awareness, customer awareness, of this product. We aim to build on this progress by continuing to improve the product offering to our supply partners and travelers, particularly in the United States. We remain focused on building a better experience for our customers and increasing loyalty, frequency, spend, and direct relationships over time. Our mix of customers booking directly on our platforms reached its highest level ever in the fourth quarter. Our goal over time is to further increase our direct mix through several initiatives, including continued efforts to enhance the benefits of our Genius Loyalty Program. further building out our connected trip vision to increase engagement with our customers and driving more of our customers to download and utilize the mobile app. The mobile app is an important platform as it allows us more opportunities to engage directly with travelers. And ultimately, we see it as the center of our connected trip vision. About 45% of our room nights were booked through apps for the year. which is about 13 percentage points higher than in 2019. For 2022, Booking.com's app remained the number one downloaded OTA app globally and for the first time moved into the number one position in the U.S. according to one of the leading third-party research firms. We will continue our efforts to enhance the app experience to build on the recent success we have seen here. We believe providing attractive prices on accommodations is very important because we aim to deliver value to our travelers. Our first priority as we think about providing attractive prices is to work directly with our supply partners to source competitive rates. In addition to sourcing competitive rates directly from our partners, we have built up our ability to selectively offer discounts and incentives at Booking.com over the last few years. This ability to merchandise is another lever that we can now pull as we look to deliver value to our customers when we cannot directly access the most competitive pricing. We have been pleased with the levels of incremental return we have seen in 2022 from merchandising and will continue to selectively utilize this tool going forward. In conclusion, I am encouraged by the progress our teams have made in delivering strong results in 2022 while executing against our key strategic priorities. These initiatives will help us deliver a better offering and experience for our customers and partners, which strengthens both sides of our marketplace. We are as confident as ever in the long-term growth of travel and the opportunities ahead for our company. Now, before I turn the call over to David, I want to share the news. that David has let us know that he plans to retire from his role as CFO in early 2024, after which he will be involved with us for up to two more years to help initially with the transition, and then with other projects and initiatives as needed. As you can see by this timeline, he's not going anywhere for quite some time. So now, let me turn the call over to David.

Thank you for those comments, Glen. And as you said, I'm not going anywhere for some time. Over the next year in my CFO role and when involved beyond that, I will remain as focused as ever on continuing to help deliver strong results from the business and creating value for our stakeholders. Now turning to our results. I'll review our results for the fourth quarter and provide some color on the trends we've seen so far in the first quarter and our thoughts on 2023. All growth rates for 2022 are relative to the comparable period in 2019, unless otherwise indicated. All growth rates for 2023 are on a year-on-year basis, unless otherwise indicated, but we will be making some references to the comparable periods in 2019 where we think these are helpful. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings books. Now, on to the fourth quarter. We were encouraged to see room-light growth of 10% in the fourth quarter, up from 8% room-light growth in the third quarter, with the improvement driven by Asia and the US. For the fourth quarter, the US was up more than 35%, rest of the world was up more than 10%, and Europe and Asia were both up mid-single digits. Q4 was the first quarter of room-light growth in Asia versus 2019. Growth in total room nights on a year-on-year basis increased from 31% in Q3 to 39% in Q4. Our mobile apps represented over 45% of our room nights in the fourth quarter and about 45% for the full year. We continue to see an increasing mix of our total room nights coming to us through the direct channel. direct channel increased as a percentage of our room nights in the fourth quarter and for the full year relative to 2021 and 2019. The international mix of our total room nights in Q4 was about 48%, which was higher than Q3, but still a few percentage points below Q4 2019. Our cancellation rates were slightly above 2019 levels in Q4, but were slightly below 2019 levels for the full year. In Q4, the booking window at Booking.com remained shorter than in 2019, similar to what we saw in the third quarter of 2020, of 2022. This booking window expanded meaningfully versus the fourth quarter of 2021 when we saw a higher mix of near-term bookings during the COVID-19 Omicron variant wave. For alternative accommodations at Booking.com, Our room night growth rate was about 15% in Q4 versus 2019, and the global mix of alternative accommodation room nights was about 29%, which was a couple of percentage points higher than Q4 2019 and Q4 2021. Q4 growth bookings increased 32% versus 2019, or 47% on a constant currency basis. The 32% increase in growth bookings was 22 percentage points better than the 10% room-night increase due to 29% higher accommodation constant currency ADRs and also due to five points from strong flight bookings across the group, partially offset by 15 percentage points of negative impact from FX movements. Our accommodation constant currency ADRs benefited by about 1 percentage point from regional mix and about 28 percentage points from rate increase across all our regions. Despite the higher ADRs in the fourth quarter, we have not seen a change in the mix of hotel star ratings being booked or changes in length of stay that could indicate the customers are trading down. We continue to watch these dynamics closely. Airline tickets booked in the fourth quarter were up about 249%. versus small base in 2019, and up about 61% versus 2021, driven by the continued expansion of Booking.com's flight product. Revenue for the fourth quarter was up 21% versus 2019, and up about 35% on a constant currency basis. Revenue as a percentage of gross bookings was about 130 basis points below Q4 2019, and was about in line with our expectations. our underlying accommodation take rates were about in line with Q4 2019 levels. The marketing expense, which is a highly variable expense line, increased 32% versus Q4 2019. Marketing expense as a percentage of gross bookings was about in line with our expectations and with Q4 2019. Sales and other expenses as a percentage of gross bookings were up about 40 basis points compared with Q4 2021 and was in line with our expectations. About 42% of Booking.com's gross bookings were processed to our payment platform in Q4, up from about 30% in Q4 2021. Our more fixed expenses in aggregate were up 24% versus Q4 2021, which was higher than our expectations, primarily due to changes in FX in the quarter. adjusted EBITDA was over $1.2 billion in the fourth quarter, which was 3% below 2019, and would have been about 16% above 2019 on a constant currency basis. Non-GAAP net income of $957 million results in non-GAAP EPS of about $25 a share, which was up 6% versus Q4 2019. On a GAAP basis, we had net income of over $1.2 billion in the quarter, which includes a $240 million pre-tax gain related to sale of our office building for Booking.com's future headquarters in a sale-leaseback transaction, as well as $179 million unrealized gain in our equity investments primarily related to Metra, DD, and Grab. When looking at the full year, we're pleased to report that our 2022 room nights were 6% higher than 2019, and our gross bookings were 26% higher and about 36% higher on a constant currency basis. Our full-year revenue was over $17 billion, which was 13% above 2019 and up about 24% on a constant currency basis. Full-year revenue as percentage of gross bookings was 14.1% in 2022, which was lower than the 15.6% in 2019 due to almost a full point of negative impact on timing, about 40 basis points from the slow recovery in advertising and other revenues, which have no associated gross bookings, and about 30 basis points from an increased mix in flights. The benefit of take rates in 2022 from increased revenue from payments was offset by our increased investments in merchandising, each of which impacted our reported take rates by about 1 percentage point in 2022 compared to about half a percentage point each in 2019. These changes in payment for revenue and merchandising costs versus 2019 are mainly at booking.com. Our full year adjusted EBITDA was about $5.3 billion, which was 10% below 2019 and up about 6% on a constant currency basis. Adjusted EBITDA margin was 31%, which was four points higher than our EBITDA margin in 2021 and better than our expectations for a few points higher at the start of the year. Now onto our cash and liquidity position. Our Q4 ending cash and investment balance of $15.2 billion was up versus our Q3 ending balance of $11.8 billion, driven primarily by the $3.6 billion bond offering we completed in Q4, the $2.1 billion of free cash flow generated in the quarter, and about $600 million in proceeds from the sale-leaseback transaction I mentioned previously. This increase in our cash balance was partially offset by about $2.3 billion in share we purchased in Q4, and by the payment of about $780 million for a November debt maturity. For the full year 2022, we generated almost $6.2 billion in pre-cash flow, which was 38% higher than in 2019. We repurchased over $6.5 billion of our shares in the year, and reducing our year-end share count by about 8%, versus 2021 and by 22% over the last five years. We are proud of this accomplishment because it reflects both our commitment to return capital to shareholders and how carefully we've managed our stock-based compensation expense and its dilutive impacts. We continue to see many publicly traded companies perform out the very real expense associated with stock-based compensation. We strongly disagree with this approach, and therefore every profit metric we report includes the native impact of stock-based compensation expense. We view SBC expense as a very real cost of doing business, a cost that every stakeholder should fully count when evaluating the performance and returns of our business or any business. If anything, we view SBC dollars as even more valuable than cash dollars because of our long-term expectation that dollars worth of stock today would be worth more in the future. It's the same expectation that serves as a rationale for pursuing our share repurchase program, a program that has meaningfully reduced our share count over time and has not just served to offset dilution from SBC. Simply offsetting dilution does not represent a return on capital to shareholders, but actually represents a cash drain on a business that does not get counted in many companies for former reporting of profits. In 2022, our stock-based compensation resulted less than 0.7% of shareholder dilution. And during the last five years, it's resulted in less than 3% of cumulative dilution. As I mentioned, during the same period, we reduced total share count by a net 22%, inclusive of the shares that were added as a result of our stock-based compensation activities. Our future practices will continue to be guided by the same two philosophical approaches that have guided us for decades, namely, number one, the stock-based compensation counts, and two, that our stock repurchases, first and foremost, are actively meant to return capital to shareholders in the form of share count reductions. In January, we started to sell down our investment in MetOne and completed the sale of our position in February. Total proceeds of $1.7 billion from a sale represent a $1.2 billion, or over 250% increase in the value of our regional investments. On an after-tax basis, we expect this to increase our available cash position by about $1.4 billion. Our business partnership with Methuen continues. As we think about our capital structure and allocation framework going forward, we have focused on growing returns for our shareholders, whilst appropriately investing in our business and maintaining our strong investment-grade credit ratings. We will target maintaining a gross leverage ratio of about 2%, which is about in line with historic levels. On a net leverage basis, we've historically run the business with negative net leverage. However, we plan on moving gradually to an addition of positive net leverage, targeting about 1x net leverage over time. We believe managing our capital structure with these targets will allow us to maintain our strong investment grade credit ratings whilst also generating additional capacity for returning capital to shareholders as our EBITDA increases. Given these considerations and our current outlook for the business, we expect our annual total return of capital to shareholders to be at least equal to our free cash flow over the next few years. In 2019, we started the year with $4.5 billion remaining under our share repurchase authorization that was approved in the prior year. And in the second quarter of 2019, our board of directors approved a new $15 billion authorization. Since the start of 2019, we repurchased the full $4.5 billion under the prior authorization and repurchased $11.1 billion under the $15 billion authorization, leaving us with $3.9 billion remaining at the end of last year. We're announcing today that our board of directors has approved a new share repurchase authorization of $20 billion that we will begin utilizing after we complete the current authorization. We expect to complete the share repurchases under cumulative 24 billion authorization within the next four years, assuming that travel continues to recover and grow from here.