Expedia Group, Inc.

Good day everyone and welcome to the Expedia Group Q1 2023 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 one on your telephone keypad. If you change your mind, please press start followed by two 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 first quarter of 2023 that ended March 31st. I'm pleased to be joined on the call today by our CEO, Peter Kern, and our CFO, Julie Whalen. The following discussion, including responses to your questions, reflects management's view as of today, May 4th, 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. As I mentioned last quarter, this year marks the final phase in our major platform transformation journey. and I'm pleased to have started the year with strong performance. We posted our highest ever quarter for lodging gross bookings and free cash flow and our best first quarter for revenue. Throughout the quarter, we saw strong consumer demand with acceleration and international and big city travel and more of Asia reopening. The reemergence of major international cities has meant increased hotel demand, offset in part by flattening demand in vacation rentals as travel demand mixed to shorter-stay urban destinations over extended beach and mountain trips. Similarly, air has continued to mix towards international travel and away from COVID-era concentration and domestic. By and large, prices have held up quite well after several years of inflation. We've seen lodging ADRs hold fairly steady across geos. Air ticket prices, however, continue to increase as strong demand continues to outstrip capacity. The only area where we have seen any meaningful decline in average daily rate is in the car rental space, where larger inventories have allowed rental companies to drive more volume at the expensive price. Overall, we are pleased to see broad travel demand remain strong in what appears to be a more structural post-pandemic environment of people prioritizing travel above most other categories of spend. This has held up despite inflation and recession worries and even more recently bank system concerns. While economists continue to debate potential recession outcomes, and clearly many unknowns are still out there, consumers have so far shaken it off and continue to travel. Against this backdrop in our consumer business, we continue to invest in our strategy of acquiring and retaining high-value loyalty members and app users across our three leading brands. As I have explained before, these cohorts drive higher production and repeat rates versus other customers, ultimately leading to higher lifetime value. Q123 was another step in this journey as we saw our active loyalty member base for our core OTA brands grow over 25% year over year, and the percentage of gross bookings coming through our app roughly doubled what it was in 2019. This continued growth in our base of valuable customer cohorts obviously bodes very well for our future. I've also talked for a number of quarters about our platform journey, and in particular about the drag we had last year on our business, resulting from the migration of Hotels.com to the brand Expedia stack. I'm pleased to say that with that migration fully behind us, Hotels.com is now back in growth mode. We are already seeing higher conversion, increased feature velocity, and higher bookings. In fact, year-over-year bookings growth for Hotels.com was nearly 20% in Q1 23, which is beginning to approach the almost 30% we saw in brand Expedia. This inflection back towards growth was exactly what we had expected, and we were pleased to see the pivot come so quickly. As you may recall, we are following the same migration path with Vrbo, which has now started taking some traffic on the Expedia stack in our largest markets. Just as we saw last year with Hotels.com, this work has slowed conversion and feature work on Vrbo for the past few quarters. And as we cut over, we expect some inevitable degradation and conversion due to the switch. But as we get this migration finished in the coming months, Vrbo2 will be in prime position to benefit from the Expedia platform. And just like Hotels.com will benefit from re-accelerating testing, conversion, and feature improvements. Our tech journey hasn't been easy, but we had to have conviction to give up some short-term gratification to get to the promised land. With a couple of big last lifts finishing this year, we will finally be in position for all of our business to accelerate their velocity of innovation and deploy more traveler features as widely as possible. In particular, I'm excited about the power to deploy AI and machine learning to all corners of our product to enhance the customer experience and move towards our north star of true personalization. To that end, you probably noticed our launch of the Expedia plugin for ChatGPT and the launch of ChatGPT in our own Expedia iOS app. This would not have been possible at this speed or with this efficacy in our prior world. And it's just a small piece of what the future will hold. It is yet to be seen how impactful large language models will be in facilitating travel shopping. But for us, this is just one step in a journey to bring the best technology to our members and partners at an accelerated pace. And to be clear, we have already been at the cutting edge of deploying AI and ML across almost all experiences for our consumers. When they land on our site, we use AI to customize the sorting and filtering options and the images we render to make the shopping experience most relevant to them. AI allows us to deliver price predictions and enable comparison shopping so they can book the right product with confidence. Then post-booking, we use AI in our service stack to help consumers self-serve their problems, and it even helps our customer service agents more quickly address issues. While we have been using AI and ML for some time to make the experience better for consumers, we will go much further this year to continue to deliver the best technology and online travel. Another exciting milestone ahead of us is our unified loyalty program, One Key, which will be released in July in the United States. It reflects the culmination of years of work on the technology side to get to a solution that enables earn and burn across multiple products and brands in our portfolio. We've been busy testing this program and sourcing preferred deals for our members, all with great results to date, and we cannot wait to launch it this summer. I discussed many times how our broad investment in technology not only benefits the B2C traveler experience, but how it also enhances our B2B partner experience. This includes the over 400 million loyalty members we serve through our template partners, the more than 35,000 offline travel agencies we power across more than 30 countries, all the way to our numerous API partners who take our inventory and certain tech capabilities to build their own experiences. On the back of this, demand in our B2B business continues to accelerate worldwide. We had yet another quarter of impressive growth, with revenue growing approximately 55% year over year. We continue to sign new business, including SoFi, who has launched our full template product to their customer base. And as we look to enhance our partnerships with our biggest suppliers, We went live with both Hilton and Accor, who will use our capabilities to sell packages on their sites. These are just a few examples, and we have many more wins coming this year. We continue to innovate for our supply partners and equip them with highly differentiated solutions. Last year, we spoke about our optimized distribution product that gives our lodging partners greater control of their wholesale business. This product has helped some of the biggest hoteliers in the world and over the past two years we have tripled the number of participating chains using this capability. There are significant innovations coming this year to give more control to our partners and allow smaller partners to participate in the product. I'm particularly proud of this product as it truly represents a winning technology for the entire industry and allows us to provide much more than just a marketplace for our partners. Finally, though somewhat more nascent, we have talked about our ambitions to externalize our tech in the form of microservices to help any kind of travel company use our tech to enhance their business. Our first pilot of our fraud capability started late last year, and I'm proud to say we now have our first paying customer on the service. We also have other products in beta testing with a number of partners, including our best-in-class service technology and our revenue management API. While still early days, we believe that by delivering our technology as microservices, we are greatly expanding the addressable market for our tech and cementing our technology as the core operating system for the travel industry. Next week, we will host our Explore Partner event at our Seattle campus, where we are excited to showcase what we've been working on for our partners and how we are helping our partners sell more, operate more efficiently, and ultimately better serve travelers around the world. Overall, I'm really pleased with our progress. I'm excited that we're in the final innings of our tech transformation, and I'm encouraged by the incremental momentum we achieve with every step. We've been willing to take some short-term lumps in order to get these moves finished, but the rewards are now clearly becoming visible in the Hotels.com re-acceleration and the sheer velocity of our tech delivery. And in our B2B business, where we have not had disruption and have only enriched our offerings, our growth has been phenomenal. No company is doing more to move travel tech forward and make the entire experience better for travelers. And ultimately, that is how we will win. And with that, let me hand it over to Julie.