Expedia Group, Inc.

Good afternoon. My name is Frederica and I'll be your conference operator today. At this time, I would like to welcome everyone to the Expedia Group second quarter 2020 conference call. Our lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Michael Ceno, Vice President, Investor Relations, and Treasurer.

Thank you. Thank you. Good afternoon, and welcome to Expedia Group's Financial Results Conference Call for the second quarter ended June 30th, 2020. I'm 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, reflect management's views as of today, July 30th, 2020 only. We do not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate, we are optimistic or confident that, or similar statements. Please refer to today's earnings release and the company's filings with the SEC and 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. 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. And with that, let me turn the call over to Peter.

Thank you very much, Michael, and good afternoon, everyone. I hope everyone has been safe and sound during this difficult time. As we said in our release, the second quarter was obviously a very challenging one for the travel industry and for us, but we were pleased to see, generally speaking, that after April, we had consistent growth out of the trough, and May and June got considerably better. I would point out that we view this not simply as a positive for the business in the short term, because obviously our numbers remain very challenged relative to prior periods. But I think it speaks to humanity's demand and desire to travel and that when they can and when the opportunity avails itself and when they feel safe and there are no restrictions, people are really dying to travel. And we've seen that this summer. And I have every expectation that we'll continue to see that, hopefully, as the world opens up more. But we will have a bouncy recovery. There's no question. We've seen virus numbers go up in certain places. We've seen new restrictions come into certain geographies. And it appears like that will be the state of the union until things change scientifically. And so we expect this not to be a linear recovery, obviously, and we expect some bumps in the Having said that, there's a lot of things there we can't control. And so, as I said in our last call, we are keenly focused on everything we can control. We're focused on helping our customers and suppliers obviously get through a challenging and complicated time. We're focused on our own cost structure and making sure we are being efficient. But more broadly, we're just focused on our internal functioning, our structure, our speed and agility, and building for the future. And while we recognize it will take time for all of you to see the benefits of all that effort, that is really our focus. So in a little bit here, Eric, we'll take you through our second quarter numbers. They are noisy, obviously. And frankly, I don't think terribly telling. I would not try to dissect them. I think it's a waste of a lot of energy. Most of what's happened is really a function of whatever's going on in the macro world. And we are a reflection of that. And we are keenly focused on our long-term fixes and strategy and less focused on the day-to-day tactics of finding another dollar in the marketplace. It doesn't mean we don't care. We just think there's so much more upside in doing the real foundational work that we need to do. So if you don't see us chasing every last dollar, that's why we're doing that work. As far as the work goes, and I just want to spend a little time on the things you can't see through the numbers, which is, you know, we talked about simplifying. We talked about accelerating our business. We talked about pushing through initiatives during the COVID time that might be harder to do in regular times. And we've made a lot of progress on this front and there are threads all over our company working towards this. But just to give you a sense, we took down our HomeAway brand in the U.S., which was something that was scheduled to take probably another year to do. And we deprecated it just a few weeks ago. and have moved all that traffic to Vrbo, and now we will be a single brand in the U.S., and that will allow us to go much faster and do more around Vrbo. We've folded our car rentals business in Europe into brand Expedia. Again, a smaller initiative, but just a way to simplify and allow us to go faster and put our talent against more important projects. We sold bodybuilding.com and shut down Pillow and Apartment Jet, which were in our Vrbo business. Again, just small projects. distracting, you know, interesting things we tried, but but didn't have long term benefit, we believe. And so we took the action to simplify the company. And that's really on the brand side and the business side on the tech side. Perhaps even more importantly, we were able to accelerate a lot of technical projects we had in the works. And just to name a few here, our media solutions business had relied on a third party vendor for its auction technology. We brought that technology onto our own platform just a couple weeks ago here. That was about a quarter earlier than we expected to, and our teams were able to push that across the line, and now we have that much more time to optimize that platform, and that's not just a cost savings from no longer licensing a third-party platform, but it also gives us much more latitude to grow that business, and we believe there's a lot of upside there. Our Hotels.com brand was able to move its mobile traffic to a new platform. Again, a project that was scoped to take up to another six months that we finished in about a month ago. Again, another opportunity to just accelerate, get things done during the virus, and get to the other side. And finally, just to name one more, we've talked about the opportunity for our virtual agents to help us on the cost and the customer satisfaction side. It's something you'll hear again and again because it's a big opportunity for us and one of our better platform technologies. But we launched that on our Agencia corporate brand. We launched it in the US and France, and that was literally two years, practically two years ahead of schedule. So we've just been moving on every front we can to try to accelerate. And that's really all about being faster, getting simpler, and being able to move the business much more quickly and agilely. And that's because we really want to be able to attack our big strategic goals, and those revolve much more around how we use our platform, particularly data, where we have a unique competitive advantage with the best data set of travel data in the world, where we believe we can help our customers, our B2B partners, and our suppliers make much better decisions, be more happier and drive their own businesses where the business customers and help the customer, the end customer, just make better decisions that make them happier, make our products stickier, and generally drive the long-term appeal of our business as third parties. So we are keenly focused on that. That is our long-term goal, and we have a bunch of tactical work we are pushing through to clean up the runway, if you will, to get there. And on the supplier side, of course, we continue to push to help our supply partners get stronger and come out of the COVID times. It's obviously been a challenging time for hoteliers and airlines. We've put in a relief and recovery program for hotels to help them get back up and running, to help them better utilize our tools. And likewise, we are looking at at air and we're rebuilding our own air product in large part to make it just a better, more, more fulfilling, uh, product for our suppliers. So we are driving a lot there and, um, we believe in obviously helping our supply partners get out of it, but longer term, again, we believe in, in helping these partners all make better decisions and drive their business through our platform, uh, on the more nuts and bolts of it. Uh, we, we know you're all interested in the cost side. Um, We continue to drive our efficiency programs throughout the company. We've told you before that we had a target of $500 million that we expected to exceed. We've achieved about $400 million of that on a run rate basis. And again, we expect to do much better than our targets. The reason we're not being highly specific about how much better is that we're really attacking everything. And there are timing implications to a lot of what we're doing. Contracts would need to be run out things like releasing real estate and other things that just take time to come into effect. So rather than get caught up in some debate about how much and over what period, we feel strongly that we'll do better than the 500. And I would point out that there is much more to it than just the 500 of cost savings that we scoped to you before, because that doesn't really take into account the variable side of our business. And that's a place where we have the opportunity to drive efficiency through bringing down customer service costs with our virtual agents that we've talked about, bringing down transaction costs by focusing on our payments platform technology and opportunities there. And then, of course, bringing down our variable marketing costs where we have recently put these teams together. As we told you before, we've merged our brand groups. We've merged their performance marketing groups. And there's big opportunities ahead, we believe, in doing the work as a portfolio of brands and optimizing for that portfolio as opposed to optimizing each brand by itself. Now, that is hard work. It is foundational. Some of you may have noted that we gave up some share in some of the performance marketing lines and meta and SEMs. That is something we willingly have done. As I said, we are not worried about the nickels right now in a market where there isn't a lot of volume. We are much more focused on the long-term foundational work to drive the long-term benefits when the volumes really are back at full scale. But we will continue to refine that. I wouldn't get used to scale the share we were at. I know there is often debate about can we grow and still be more profitable on the performance side. We believe absolutely we can, but there is a lot of foundational work to get these brands together, to get their strategies unified and their data unified. And we are doing that work right now as fast as we can. So as we come out, we will be in the best position to take advantage of that. And finally, what is probably the main event to most of you, which is what is the recovery really looking like? And is there anything to glean from what we've seen? I would say, by and large, we've seen exactly what you'd expect. April was very tough for everybody. It was the bottom of the trough. We have seen consistent growth coming out of that. We were down on a net basis 90% for the quarter, but by June that was less than down 70%. And the lodging side of that was considerably better, down less than 60%. All of that is a very good trend, but still obviously well below anything we'd like to see in the business. As for July, I would say it's roughly in line with June, slightly off those numbers. And just, Eric, we'll get into it some more, but just to give you some flavor, what we've seen is Vrbo had a ton of business and has been a great leader for us in the recovery. As we got into summer, people obviously increased. have a real interest in the whole home model and being able to have their families alone and not in shared space. And so Vrbo really led the way for us. There was a lot of compression in the early part of the booking window in the early part of the summer. And so as we've gotten to July, there's just a lot of, it's still quite a strong business for us and way ahead of our other businesses, but that compression has softened a little bit. On the flip side, the hotel business, has been slightly stronger even into July. So there are some puts and takes and there's some geographical differences, but in general, July has plateaued. Cancellation rates have stayed consistent, so we haven't seen a real rise in those in July. So I think the world has sort of stabilized here and we'll see what the next few months bring in terms of restrictions, virus growth, et cetera. And I think that will largely tell the tale On the good side, I would just say, in addition to Vrbo being a great driver and the strongest part of our story, we also saw terrific new customer growth, which is just this has proven a great opportunity to introduce a whole new group of people to the Vrbo experience. And I think that will pay longer term dividends and help cement the Vrbo brand, which, as you know, we pivoted to not that long ago. And I think that's, again, a great opportunity longer term. So to wrap up, I would just say, you know, again, we've seen nice recovery from the bottom. It was strong through May and June and flattest through July. We expect it to be bumpy. Hopefully we'll have some good and some bad in there. And it won't be linear. I happen to be a huge believer in the scientific community and expect them to, with all the great minds working on this, save us all from ourselves. and we have seen clearly that the world wants to travel again, wants to get back out and move around, and we believe every time those opportunities become greater and safer that people will indeed take the opportunity to travel. So with that, again, I would encourage you not to get too caught up in the ups and downs of small numbers. Broadly, we are focused on the longer term. And we believe we're making real headway, even though we acknowledge it will take a little while for all of you to see it in the numbers. And I will turn it over to Eric. Thank you.