Expedia Group, Inc.

Good day everyone and welcome to the Expedia Group Q4 2022 Financial Results Teleconference. My name is Emily and I'll be the operator for today's call. If you wish to ask a question at the end of the presentation, please press Start followed by 1 on your telephone keypad. If you change your mind, please press Start followed by 2 to cancel your request. For opening remarks, I will turn the call over to Senior Vice President, Corporate Development, Strategy and Investor Relations, Harshit Varsh. Please go ahead.

Good afternoon and welcome to Expedia Group's earnings call for the fourth quarter of 2022 that ended December 31st. I'm pleased to be joined on the call today by our CEO, Peter Kern, and our CFO, Julie Whelan. The following discussion, including responses to your questions, reflects management's view as of today, February 9th, 2023 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 plan, 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 reconciliation 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 consistently visit our IR website for other important information. Unless otherwise stated, any reference to expenses excludes stock-based compensation. And with that, let me turn the call over to Peter.

Thank you, Harshit, and good afternoon, and thank you all for joining us today. This past year was an important one in our company's journey. We did a ton of work and made great progress on many transformational initiatives, all while delivering record EBITDA. Q4 was yet another step in that journey, despite the impact to our P&L from the severe weather. Hurricane Ian in early October and the winter storms in late December drove up cancellations, causing bookings and revenue for the quarter to come in behind our expectations despite demand otherwise accelerating through the quarter. The good news is that we have seen those booking trends come back much stronger in January post the disruptions, so 23 is off to a great start. And we were really pleased that our investment over the last several years in service technology and capabilities allowed us to deliver best-in-class service through these difficult travel circumstances. As I've said many times before, when your strategy is centered around long-term retention of valuable customers, every element of the work must deliver for the traveler. So a big thanks to our service team for all their hard work, especially over the holidays. Now as we launch into 23, I'm particularly pleased with how our strategy of investing in and retaining high lifetime value members is showing accelerating improvement across our business. For the fourth quarter of 22 versus 19, our new customers that became loyalty members grew over 60%. And we entered 23 with a record number of active loyalty members, which is 10% higher than any prior year. And just as importantly, our quarterly active app users increased by approximately 40%. For us, these are the most important metrics to gauge the progress of our strategy. Just to remind you, our loyalty members each drive two times the gross profit and repeat business over an 18-month period as compared to non-members. And our app users each drive two and a half times the gross profit and repeat business over the same period. When you combine these two and have a loyalty member who also uses the app, This drives the highest production of all and that group represented the fastest growing customer cohort for us in 2022. But as strong as those numbers are for our overall business, they're even better in our Expedia brand in the US. This is extremely important because Expedia US is the business where we've been able to make our fastest product and marketing improvements and where we have the most complete set of capabilities to support our strategy. And the evidence is clear. In the fourth quarter of 22 versus 19, Expedia US grew new customers that became loyalty members by over 300%, and enters 23 with nearly 70% more active loyalty members than any prior year, and almost 60% more active app users. Expedia US was able to deliver almost 20% revenue growth in 22 as compared to 19, and there's still plenty of improvements yet to come. Of course, when you look at our all-up B2C numbers, the accelerating performance of Expedia US has been largely offset by our intentional de-emphasis of some smaller, non-core brands, our pullback in certain geographies where we did not have the right model, and of course, our much-discussed technical migration, which required significant work, and like all migrations, resulted in some short-term friction. But what I'm really excited about is that with the proof now very clear that our strategy is working, we will begin more aggressively rolling it out to our other brands and our non-US markets. After years of democratizing travel, we are now taking a leap forward to use cutting-edge technology, a better marketplace, a broader rewards program, and best-in-class service to drive true customer benefit and loyalty. Because when you take care of customers and give them great experiences, they keep coming back, and that's how you win. In support of this long-term strategy, you will see us maintain a higher mix of marketing spend to channels that attract desirable long-term customers rather than just chasing short-term transactions. Therefore, the parameters of when and who is worth marketing to and winning as a customer will be different. We have clearly proven the value of attracting and retaining the right customers, and increasingly our P&L will reflect that. We're starting 23 with the highest number of active loyalty members and app users for any year, and we will see further momentum in the business this year thanks to a much larger base of loyal customers. Of course, our confidence in our strategy is ultimately only possible because of the underlying technology that we have invested so much in over the last several years. This is what has enabled Expedia US to go faster, and all of our brands and geographies begin to ride on that same tech stack. We will expand our ability to compete and win in more places. Work that created a drag on our business in 22, like the migration of Hotels.com to our core platform, become big unlocks for us in 23. As one example of this, we expect our test velocity around optimizing our sites to grow roughly fourfold with the same resources this year, as more engineers and product team members are freed up post-migration and our tests can be run across our entire base of core OTA traffic. In other words, we will have many more tests where the winners get deployed across a much larger base. And as we continue to invest further in product and technology and new features and capabilities to take online travel to the next level, These improvements increasingly impact more and more of our customers more rapidly worldwide. No travel player in the world has done more over the last few years to innovate around the shopping and service experience to improve the travel journey for the consumer. And just to emphasize the point, all of our advances in technology, in product, and in customer service not only benefit our direct customers, but continue to benefit our expanding base of B2B partners as well. Our B2B business is one of the largest in the world and continues to grow rapidly. The breadth and depth of our products are expanding, as is our partner base, reinforcing the importance of our supply and our technology as the core operating system of the travel market. To that end, we added many new partners and grew significantly in 22, despite Asia still being greatly constrained. With the return of travel into and out of China in 23 and a robust pipeline of new partners around the world, we anticipate significant growth and a great year for our B2B business. So, as we wrap up what was the most profitable year in our history, we begin what will be another exciting year of growth and the last in our major technical overhaul. This coming year, we will finish moving all of our brands onto one front-end stack. Vrbo, the last major brand to come across, has already been testing traffic on the new front end, and will make the final migration in the coming months. This last step will then allow us to launch our new one key loyalty program, which will span all of our main brands. It will be the broadest, most flexible loyalty program in the world, and for the first time, give vacation home renters the benefits of a loyalty program. And importantly, it will complement our many partners' loyalty programs as well. So overall, I'm confident that with more technical tailwinds than headwinds this year and with a proven strategy that we will be expanding on, we will once again drive strong financial growth while completing the last of our major changes. It has taken several years and a lot of hard work, investment, and patience, but we are extremely gratified about where we are and what we know we can deliver going forward. And I'm even more excited about moving the last big boulders of our plan across the line and driving greater acceleration in the future. And with that, let me hand it over to Julie.