TripAdvisor, Inc.

Good day and thank you for standing by. Welcome to the TripAdvisor second quarter 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Angela White, VP of IR. Please go ahead.

Thank you, Tess. Good morning, everyone, and welcome to TripAdvisor's second quarter 2023 financial results conference call. Joining me today are Matt Goldberg, President and CEO, and Mike Noonan, CFO. Last night after the market closed, we filed and made available our earnings release. In that release, you'll find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measure discussed on this call. Before we begin, I'd like to remind you that this call may contain forward estimates and other forward-looking statements that represent managers' views as of today, August 3rd, 2023. TripAdvisor disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to our earnings release as well as our filings with the SEC for information concerning factors that could cause actual results to differ materially from these forward-looking statements. With that, I'll turn the call over to Matt.

Thanks, Angela, and thanks to all of you for joining us this morning. For the second quarter, on a consolidated basis, we delivered healthy revenue growth of 18% across the group, driven by our experiences offerings, which outperformed our expectations and notably surpassed our branded hotels revenue in size for the first time. We believe this is a reflection of our advantaged position as we leverage the complementary nature of our Viator and TripAdvisor brands to lead the market in this high-growth, under-penetrated, and fragmented travel category. Group-adjusted EBITDA was $90 million, or 18% of revenue, within the range we provided last quarter. Importantly, our teams continue to make progress across our segment strategies. At TripAdvisor Core, we are executing on our engagement-led strategy by reinvigorating our focus on world-class guidance products to fuel our diverse monetization paths. At Viator, we are reinforcing our leadership position and experiences by investing in awareness, enhanced products, and repeat bookings to capture more market share. At The Fork, we're focusing on driving healthy growth with significant margin improvement this year by delivering value to both diners and restaurants as the leader in the European dining market. Within the TripAdvisor core segment, we delivered results that were in line with expectations, with the exception of a shortfall in branded hotels revenue related to a lower seasonal pickup in European hotel meta. Mike will cover the details in his remarks, but I think it's important to note this up front to place our quarterly performance in the context of our strategy. We are five months into a multi-year strategy at TripAdvisor, And as we've shared previously, the financial impact will take time to materialize. While we're still in the early days, we're already seeing encouraging momentum as we execute, and we will continue to reinforce our focus on our highest conviction priorities. At the same time, we will balance operating with financial discipline with how we deliver on our longer-term plans. To provide flexibility to invest in our strategic priorities this year and next, We have initiated actions to achieve cost savings within the organization. This is expected to result in an estimated $35 million of annualized savings. These actions are aligned with our strategy and we believe will help position us for the future. We're making meaningful progress on our strategic initiatives. In late June, we launched a significant upgrade to TRIPS, our core trip planning and itinerary product. This includes the introduction, of a new generative AI powered travel itinerary feature which leverages a combination of best in class LLMs along with our proprietary data and trusted content. We've been pleased to receive positive consumer feedback which we believe highlights our unique opportunity to deliver better recommendations based on the advice of real travelers and to integrate AI fully into our overall trip planning experience. While the feature is still in public beta, Our early metrics are promising, with user satisfaction scores already approaching nearly 70% positive feedback on individual recommendations and meaningful conversion to saved trips. The completion rate at which travelers are providing inputs to generate an itinerary is approximately two times higher than our historical average for other similar structured inputs. And travelers are signing in as members to engage with this feature at approximately four times our site-wide average. We know from our internal data that when casual visitors to our site convert to members, they visit four times more often and monetize at ten times the rate of non-members. And this is only the beginning. Going forward, we have a robust product roadmap that includes extending these features to our mobile app in both iOS and Android, and integrating hotel and tour recommendations. The rollout of our trip planning tool is an example of delivering on our strategy to drive deeper engagement with travelers. We've also scaled improvements to our content submission flow UX and expanded to additional destinations, leveraging AI and ML tools to bring together guidance from our community and our editorial team. As a result, we have seen a lift in traveler saves, new itinerary creation, and membership sign-ups. We also continue to make progress on our group-wide customer data platform, which now has nearly 2 billion profiles, double the number from last quarter. We tested initial use cases, including how we retarget shoppers across both TripAdvisor experiences and Viator, and saw meaningful uplifts in traffic, engagement, conversion, and revenues. We continue to see strong momentum in our TripAdvisor experiences marketplace, where much of the Q2 growth came from our ability to guide travelers to the experience that best meets their needs. Specifically, we redesigned attraction pages and improved product discovery, exposing over 30% more travelers to bookable experiences than we did in the same period last year. This is consistent with our strategy to lean harder into TripAdvisor's unique strengths, our breadth of supply across free and paid things to do, combined with our guidance content, while exploring ways to fully leverage Viator's depth of complementary capabilities as the leading bookable experiences platform. We expect that we will be able to extend our ability to match our traveler demand with relevant suppliers to other marketplace categories in the future. Let's shift to Viator, our high-growth business. where we've been on a mission to drive market leadership and the significant value creation that we believe is available to the category leader. Our teams are executing on this path, leveraging all our assets and capabilities across the group to do so, and delivering results that speak for themselves. Across all points of sale, we saw tremendous growth in Q2. Revenue grew 59% year over year, which came in higher than our expectations. with gross booking value growing to approximately $1.1 billion, or 40% year over year. Adjusted EBITDA loss was just $2 million, which was even better than we expected despite the incremental investments we are making. Our investment at Viator is delivering immediate and significant revenue growth and puts us in a position to sustain long-term category leadership. One of our areas of focus has been on driving Viator brand awareness and customer acquisition, We're also delivering meaningful improvements in our repeat rates with repeat bookers driving outsized growth, which gives us increasing confidence in our unit economics and margin potential over time. We have a tremendous opportunity to drive awareness for the OTA category and experiences and to build our brand alongside it. We believe we can shift traveler behavior from an often disjointed booking experience to Viator, a single convenient place to see, sort, and book experiences. We're early into our brand investment, but the signs are positive. Since the launch of our brand advertising last fall, we're seeing growth in awareness and related metrics like direct traffic and branded searches. The spend is a clear example of our decision to build scale and long-term customer economics despite delayed profitability. We're also focused on enhancing the traveler and operator experience. We're investing to deliver more value across the board, in programs aimed at travelers, partners, and suppliers. Ongoing improvements to the critical points in the traveler experience, such as a faster, easier checkout and app improvements, are contributing to improved conversion. We're exploring ways to leverage these gains for our TripAdvisor experiences point of sale, as well as we lean into the complementary strengths of our brands. We're also listening to operator feedback and making improvements to how we drive value to suppliers. We've previously mentioned our supplier program Accelerate, which now represents more than half of our GBV and contributes to higher take rates. Finally, at the Fork, the team achieved 19% revenue growth combined with meaningful year-on-year margin improvement, putting the business on a path to achieve profitability in the back half of 2023. On the supply side of our marketplace, one of our priorities is to increase the number of quality restaurants on the Fork platform, by demonstrating clear value to our restaurant partners. The fork differentiates through a trusted brand and a loyal relationship with diners. In addition, our ERB software provides restaurants with purpose-built tools, analytics, and marketing promotions that help them drive incremental revenue and margin improvement. Successful sales execution in priority geographic markets combined with improved market conditions relative to last year have driven multiple consecutive months of net restaurant growth. On the demand side, we continue to focus on enhancements to diner acquisition and repeat engagement that will increase usage on the Fork platform. Our app continues to be a key channel for profitable growth, and so far this year we've seen installs grow at over 30% year-on-year. In addition, the portion of bookings from repeat diners across the Fork network is now more than three-quarters of our bookings. which we believe will contribute to profitability over time. As we look to the back half of the year, we're monitoring the health of the consumer closely. We continue to see consistent patterns that indicate health and travel. Our data from customer behavior on the TripAdvisor site reflects stability across room rates, quality of hotels, and length of stay. Most encouragingly, we continue to see a meaningful opportunity to serve the traveler in search of experiences, which is increasingly core to travel planning, with more travelers indicating they plan to book experiences ahead of their trip. We believe this continued interest in travel and experiences bodes well for our vision, strategy, and market position. Before I close, I want to take a moment to thank our teams for their ongoing commitment as we continue to transform our business together. We have encouraging proof points at TripAdvisor strong growth and market leadership in the experiences category at Viator, and a clear path to profitability at the fork. We have conviction about the road ahead. None of these paths is easy, and I'm grateful to all our colleagues who continue to demonstrate strong execution. With that, I'll turn the call over to Mike.

Thanks, Matt, and good morning, everyone. I will review the results of the second quarter, including segment commentary, and provide some color on expectations for the second half of the year. All growth rates for 2023 are relative to the comparable period in 2022, unless otherwise indicated. Now on to Q2. We delivered results that were in line versus our expectations for the quarter. Consolidated revenue was $494 million, reflecting an 18% growth rate, or 19% on a constant currency basis. and an adjusted EBITDA was $90 million and represented a margin of 18%. Our results reflect continued strong performance in experiences both at Viator and TripAdvisor Core. Turning to the segment performance for the second quarter, TripAdvisor Core delivered revenue of $279 million, which represented 2% growth. This was in line with our expectations, though branded hotels declined more quickly than anticipated, decreasing 7% year-over-year. Within branded hotels, our hotel B2B offering performed slightly better than expected. However, in Hotel Meta, we did see some uneven performance across the geographies. In U.S. and APAC, we performed in line with our expectations of low single-digit declines, which reflected the anticipated tougher year-over-year comparison. In the U.S., we continue to see strong pricing as a result of solid execution from our team, as well as a healthy domestic travel market. In our European hotel meta, revenue declines were larger than expected due to delayed and lower seasonal peak and increased competition in the paid channels. Although we saw healthier volume trends in July, we did not see our typical season patterns in May and June. Because summer peak season is generally driven by paid channels, the more competitive environment had a greater impact on paid click volumes on our European meta revenue in the quarter. We specifically chose to maintain our ROAS and prioritize profitability over growth. Our unpaid channels in Europe followed similar seasonal patterns, but to a lesser extent. Experiences in dining had another strong quarter, growing revenue 43%, with experiences growing over 50%. The performance we see with this offering underpins the growth in the category and provides strong evidence of our ability to monetize the diverse traffic at TripAdvisor Core. Display and Platform had a solid quarter with revenue growth of 14%, marking another period of consistent backlog growth. Our other offerings revenue declined by 7% due to continued de-emphasis of our rentals, flights, and cars offerings, while a cruise offering grew at well over 20% in the quarter. Adjusted EBITDA in TripAdvisor Core was 96 million, or 34% of revenue, which was slightly below our expectations for the quarter, and approximately eight percentage points lower than last year's comparable period of 42%. A little over half of the margin to leverage is due to the impact of phasing of hiring last year as headcount increases were weighted to the back half of the year. The remaining margin pressure is due to increased performance marketing from continued growth experiences as well as the lower hotel meta revenue. Turning to VITOR. Revenue was $216 million, reflecting growth of 59% or 61% on a constant currency basis, which was meaningfully higher than our expectations. Gross booking value was approximately $1.1 billion and grew approximately 40%. Revenue growth was higher than gross booking growth, primarily due to the gross bookings to revenue recognition timing, as well as increased take rates year over year. These results were driven not only by strong demand across geographies, but also conversion rate improvements as our teams continue to refine and optimize the customer journey. Adjusted EBITDA loss at Viator was 2 million, or negative 1% of segment revenue, one percentage point lower versus Q2 of last year. The deleverage of one percentage point comes largely from the investment in brand spend, which offsets the impact of lower performance marketing and headcount costs as a percent of revenue. We started our brand campaigns in the second half of last year, and we expect to continue for the back half of the year. We're very pleased with the performance of our marketing spend, which is continuing to deliver new customers at a greater pace than expected. These larger cohorts of new customers are contributing to a rapidly expanding foundation of reliable repeat bookers. We see that each successive new cohort has higher revenue retention rates, plus With reliable repeat booking behaviors, the result is that we can deliver stable, predictable revenue growth and increasingly profitable bookings. Repeat bookers tend to spend more as well. A repeat booker on average purchases more items than the first booker and at a higher average item value. And repeat bookers come to us through unpaid channels at a higher rate with each successive booking. This customer behavior gives us great confidence that we can achieve very solid long-term margins at Viator. However, today we're focused on building a large and durable leader in the experiences sector. We will continue to invest across all areas of the business, not only in building large, profitable customer cohorts, but also in user experience, supply, and in mobile. We're making great progress in all these areas. At the fork, Revenue was $38 million and grew 19% or 16% on a constant currency basis. Booking's growth of approximately 5% was impacted by tougher comparison versus last year due to the timing of brand campaigns, as well as strong recovery and post-pandemic dining in last year's comparable period. We are very pleased with the improved trend in profitability. Adjusted EBITDA loss in Q2 was $4 million or negative 11% of segment revenue. which is a meaningful improvement over last year's margin of negative 22%, especially in light of a COVID subsidy benefit we received during the same period last year of 11 million. Drivers of this leverage were lower sales and marketing as a percent of revenue due to the timing of planned brand investment between Q1, Q2 versus last year. Turning now to consolidated expenses. Costs of revenue delivered by about 100 basis points due to the increased weighting of Viator-related COGS as a percent of consolidated revenue. These costs include credit card processing fees, which increase with Viator's transaction volume. Sales and marketing expenses delivered by approximately 260 basis points, primarily due to an increase in Viator performance marketing and brand spend. Technology and content expenses delivered by approximately 160 basis points driven by increase in people costs. General and administrative expenses delivered by approximately 280 base points driven by people costs and a combined benefit in Q2 of 2022 of $13 million from the forked COVID subsidy and, to a lesser extent, a non-income tax-related benefit in TripAdvisor Core. Now onto our cash and liquidity position. Free cash flow for the quarter was $90 million, which was down versus $282 million in Q2 of 2022. This year-over-year decline was primarily due to a $113 million payment related to the previously disclosed tax settlement with the IRS for the periods of 2009-2011, in addition to a $64 million U.S. federal tax refund related to the CARES Act received during Q2-22 of last year. As we discussed last quarter, we expect to receive a tax refund of approximately $45 to $55 million from a foreign tax jurisdiction during 2023 as part of the tax settlement. Regarding total cash flow, we repurchased 4.7 million shares in the quarter, totaling $75 million. We ended the quarter with a strong balance sheet with just over $1.1 billion in cash. Finally, during the quarter, we amended our credit facility of $500 million, extending its maturity to 2028. I will provide a bit more color on the cost-saving initiatives Matt mentioned in his commentary. As we continue to drive operational transformation across our business, we are embarking on a broad plan to reduce costs. We recently initiated a series of actions that we estimate will yield approximately $35 million in annualized savings, primarily from headcount reductions across various roles at TripAdvisor Core, which includes corporate G&A. Due to the timing of these actions, we expect only modest savings this year as they will more fully benefit us next year, but will allow us to more effectively execute on our stated segment strategies. As we move through the rest of the year, we will continue to explore areas across the segments for additional savings, which include other discretionary costs and our real estate footprint. Turning now to thoughts for Q3 and the rest of the year. Starting with Q3. For TripAdvisor Core, we expect a low single-digit year-over-year revenue decline driven by the trends we saw in Q2, in particular in branded hotels. In Viator, we expect year-over-year revenue growth in the low 30% range driven by the monthly step down through the quarter from Q2 growth rates as we comp very high growth rates last year. In the Fork, we expect year-over-year growth rates to marginally accelerate from the second quarter's levels. On a consolidated basis for Q3, we expect the above assumptions to result in year-over-year growth of close to 10%. In TripAdvisor Core, despite the meaningful improvements we observed in July within branded hotels, we're taking a prudent approach and planning for greater headwinds based on the trends we saw in Q2 and across hotel meta globally. For Q3 consolidated adjusted EBITDA margin, we're expecting a sequential seasonal improvement in margin but about a 250 to 350 basis point step down year over year due to lower margins at TripAdvisor Core, as well as a higher contribution of Viator in the group's consolidated results. For Q3 adjusted EBITDA margin at TripAdvisor Core, we're expecting to see a sequential seasonal improvement, but a step down of approximately 200 to 300 basis points in margin year over year, largely due to branded hotels, where we are taking a more prudent outlook based on Q2 trends. For the full year, we continue to expect mid-teens consolidated revenue growth. However, this is now driven by a different segment mix with buy-store accounting for more of the growth than previously expected. Finally, we expect consolidated adjusted EBITDA margin to be approximately 150 to 350 basis points lower versus 2022. This implies margin at TripAdvisor core to be approximately 200 to 400 basis points lower than 2022 levels, Viator margin to be approximately flat year over year as they reinvest upside to drive revenue and market share growth, and the fork to continue to significantly improve margins year over year. Lastly, we expect the in-year impact from the previously mentioned cost savings initiatives to be largely realized in Q4 and thus will have a minimal benefit to the 2023 fiscal year. With that, I'll hand the call over to the operator for Q&A.

Thank you very much. We will now conduct question and answer session. As a reminder, to ask questions, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the question and answer roster. And now we will have Navit Khan from B. Riley Securities. Please go ahead.

Yeah, thanks. Just a few questions for me. Maybe just on the core TripAdvisor side of things. Given the outlook for the back half of low to mid single digit decline, how should we be thinking about kind of this segment kind of coming back to growth beyond 2023? Just your high level thoughts there. I know you're not guiding. And then on AI, it's great to see the deployment there and the trips. I'm just wondering about the commercialization opportunities and how aggressively would you look to get that into the motion as well? Or are you just looking at engagement first, follow that commercialization maybe in a year from now or something like that?

Thanks, Navit. It's Matt. You know, we believe that we are managing through a transformation of our business. And many of the trends we've seen are trends that have been long known. and we understand them, and we put our strategy in place precisely to deliver a diversity and stronger business through a more consumer-focused engagement strategy that we really believe is gaining traction. Now, when we first communicated our strategy in February, we noted that we didn't expect to see incremental revenue impact in 2023 from the strategy. We expect to have more concrete information to share as we start to look towards 2024, how our investments are beginning to drive both that engagement and the KPIs, which we started to share, the early green shoots and things that are giving us really strong confidence that that engagement can then relate to a financial profile that begins to show the kind of growth that you just asked about. And I would just note that we believe that these strategies are going to have a better use case for the consumer, which will bring them to our site more frequently to stay longer and to repeat with us more than they have in the past. So we're really looking at a more targeted, more valuable user and audience. And we believe that as we leverage the product innovation that we've been doing. And as we really think about the way that we deliver that world-class guidance experience, we can then deliver that user into a set of revenue streams, which will include our media business, which is outperforming the market today and continues to make progress. Our meta business, which we believe can be sustained over a long period, although we understand it's not the growth driver. and through our marketplace business, which we believe we've already proven what we can do to fuel growth at Viator. And we think we can match our demand with supply in multiple categories over time. I think the second question was related to AI. And, you know, we have a strong focus with urgency to execute on AI across our business. And ultimately, we started to show that with the launch of our new trip planning tool. We think engagement will result from that. I mentioned we're starting to see really good early signs around completion rates, member sign-in, user satisfaction. This is, in fact, the beginning of how we will integrate AI into all of our products and services as we deliver a more personalized, more relevant, more predictive, and more contextual experience that will get people coming back. Now, we're leveraging AI in multiple ways. Obviously, we're using it for our products and our tools. We're also using it in the way that we power our content. And we're delivering authentic insights that enhances the user experience and are having a positive uplift. We think we can use AI in a number of different ways in a differentiated fashion. First of all, we've got proprietary first-party data. We have every interaction from hundreds of millions of visitors that's tracked across multiple touch points and, frankly, is proprietary to us. We have human insights from real travelers and a billion reviews, and we have a trusted brand, and we're known for that world-class guidance in our traveler community. We think we are unique in our ability to connect those things. and combine our first party data, our reviews, and create a user graph that will be unique and make that experience better over time. And so when we think about delivering in our product, we think about three things. We think about the authentic content, first party data, a trusted brand. We have all three and we think it makes us unique. We will also leverage AI in other ways. We will leverage AI to be more productive. We're already improving our productivity, testing with our engineers. We are going to look at other opportunities in customer service, translation, how we think about marketing and creative optimization. We think there's a lot of potential there. And of course, we want to influence the ecosystem. And so we are partnering with OpenAI, Microsoft, Google to be there, understand how this ecosystem evolves, and frankly influence it so that we get our fair share of value. The urgency is in our organization. We are staffing this to do it. And it's one of the reasons we wanted to create the flexibility to make sure that we are focused on our highest priority initiatives where we have real conviction. So thank you for asking about that. We're very excited about it.

Thank you.

Thank you.

Thank you.

And one moment for our next question.

And now we have Lloyd Wamsley from UBS.

Great. All right. Great. Thank you. I wanted to just ask about some of the European weakness in the meta business. Can you give us a sense of how much of that is kind of on the user side versus the customer side in bidding levels? I think the 10Q made it seem like CPCs are strong, so maybe more a function of engagement. And then... Just going back to the AI question, it sounds like you're seeing some pretty big upticks in sign-ins and saves. Maybe you can elaborate on what you mean by the completion rate getting better, and then what have you seen in terms of these cohorts of people ultimately migrating into the hotel funnel? Are you seeing those people eventually monetize, or is that more just something you need to to do to, um, you need to integrate hotels to, to get that level of, to connect them, connect to monetization. Anything more you can say there would be great. Thanks.

Hey Lloyd, it's Mike. I'll take the first part. And I think Matt will take the second part. Yeah. Just a few big points about the meta business overall. And then I'll get to your European, um, You know, I'd say, you know, as a reminder, we were expecting declines, right, in the business as we're facing a tough comp. That's point one. Two, U.S. and APAC performed as expected and really was this more unusual pattern we saw in Europe. And it really did, you know, stem from a very delayed and a more muted seasonal pattern. Our seasonal, as I said in prepared remarks, the seasonal decline peak season tends to be more paid traffic driven. And where we saw was just a much more competitive environment in those paid channels. So it was more of a volume, certainly a volume impact in the quarter in EMEA. We saw some price pressure too, but it was more of a volume in the paid channel. We reacted accordingly. We chose very specifically to maintain our ROAS and really, you know, really solve for profitability over growth in this region. I will say that, you know, we, as I said, in July, we saw a nice return, you know, really globally, but we saw it as well in July, in Europe as well. But, you know, we very much based our outlook for the year on a more view of kind of what we saw for the majority of Q2. And Matt, I'll let you take the second piece.

Yeah, thanks, Lloyd. Remember, we just recently launched our AI-driven trip planning tool. It went out at the end of June. We scaled it across the US through the web in July. So it's in early beta. And we're really excited and think that we have a very strong foundation to build on. And we're going to lean into that, stay with it. Our teams are excited about the product. and we will continue to push it forward. In terms of what we're seeing, we have seen that I mentioned completion rates. What that means is the rate at which users are providing the full set of inputs to generate an itinerary has been double what we've seen in the historical average for things like quizzes and other times where we are asking consumers to provide structured inputs. Now the sign-in, you have to be a member to use it. So the sign-in rate at which users are coming in is four times the site-wide average. And this is really good because if it drives membership login, that is core to our strategy. That provides us with an understanding of the consumer. We can be more personalized. We understand how to deliver a better overall experience. And of course, with these kinds of tools, the more that they get used, the better the models are, and they are trained. We have a mix of of LLMs and we're trying to approach it to deliver the best experience we can training it on our data and our content. And so the user satisfaction is promising. You asked about monetization. We believe starting with engagement will drive monetization and the more time that people spend on the site, the better we can connect our demand to supply. In the beta version, we did not focus initially on monetization, so we will add over the coming quarters hotels, bookable tours, and we'll be able to drive that user into the hotel flow. Whether it be to look at prices and meta, or to think about hotel as a category and serve up multiple products and services that get the consumer to the right hotel and really benefit our partners. So we think this is a really good first step, and as we collect more learnings, as we roll it out, we think the monetization opportunities will be meaningful.

Okay, if I can sneak in a follow-in, Mike, you know, are you seeing any impact of the European search competition? Is any of this from the Google search changes? Is that something you're seeing?

Yeah, I think, you know, we've seen some of the chatter on this. You know, from our perspective, there's nothing really new there. If you talk about the carousel ads, that's a product that's been around for a while that we've been participating in. So that's kind of point one that leads us to say that's not. You know, point two, that's a global product. And as we said before, you know, U.S. and rest of the world acted, you know, was in line with expectations. It's really more of a European thing. So we didn't see anything from a product, Google product perspective that we attributed the European performance to. Okay. Thanks, guys.

Thank you. We will have our next question. Now we will have Richard Clark from Bernstein.

Please go ahead with your question.

Hi, thanks. Good morning. A couple of questions, if I can, on margin. Just firstly on the missed your prior guidance on core, just trying to square that with your comment about focusing on return on advertising spend. Is that therefore more down to mix to the E&D division within core? How much of a headwind does that give you? And then secondly, just wanted to ask about the Viator kind of long-term margin outlook. And the prior management team used to talk about 20% margins when we try and run cost versus revenue for Viator. It looks like maybe you're heading more towards sort of, you know, 10 or low double-digit margins. Just any thoughts on where you think Viator ultimately might be able to come out on margin.

Great. Hey, Richard. Yeah, just on the core myth, I would say while we were, you know, targeting and did have stable ROASs globally in our metaproduct, you know, we did see, you know, from a contribution margin perspective, right, lower dollars, right, from the meta, particularly in Europe. So that had an impact on the margin, as well as, as you said, from a secondary perspective, some incremental investment or investments in the mix from the experiences of business at core. But it was really more around those lower dollars that's contributing to the margin. In terms of Viator long-term outlook, when we sit and look at this business, we see no reason why this business can't achieve OTA-like margins in the long term. When you think about the marketplace and we look at the correlations with other similar OTAs in the market, we don't see that there's really a difference in margin structure. I think we're going to stop short of saying when that happens. Because we do recognize, and I think we've been consistent on this, is that we really want to be thinking about how we create a long-term durable player and leader in this category. And we're very focused on thinking about what we've talked about several quarters. We know there is an investment in a new user. We see the data that that new user, if they come back to us, is more profitable. and they stick with us longer, right? So that is a pattern that we think is very important. We do recognize that scale is very important in this business. It's a key way we are able to leverage our cost structure, and not just fixed costs, but variable costs. When you think about payments, credit card processing, customer service, that really are scale benefits that are very, very important to, I think, unlocking those long-term margins. So we are very focused on the unit economics of the acquisition cohorts we are engaged in today, and we'll continue to manage this, we believe prudently, along a long-term glide path to getting to achieving those margins. Makes sense. Thanks very much. Thanks, Richard.

Thank you. One moment for our next question.

Ronald Josie from City.

Hi, this is James Michael. I'm for Ron.

On Viator, in context of the strong growth you've seen in experiences clearly backed by brand investments, can you talk about the ROAS you're seeing on these ad dollars? And then second, any changes to the competitive landscape or experiences overall?

Sure. Hey, I'll take the brand question. Putting brand investment in ROAS is very, very difficult. You know, brand is an investment, we think, more of a mid-term to long-term investment in awareness. That awareness benefits us along many dimensions. But it doesn't drive necessarily users right away to our platforms. But it does promote, again, awareness. effectiveness in the pay channels. It promotes direct behavior, all of which are very, very important for long-term health. And quite frankly, it helps us think about, you know, how we diversify our channel mix over time, right? So we're making investments in brand today for long-term channel diversification, which we think is very important. So in traditional sense, measuring ROAS is very challenging. How we do measure it, we do measure it across various categories, some qualitative, some quantitative. On the quantitative side, we certainly are looking at how does our branded search terms, how are they trending, which they are trending favorably. We do look at performance statistics of conversion rates, because there are added benefits, as I said to that before, of awareness and coming into the funnel and actually converting in the funnel, which is very important. We look at qualitative things, which are around, you know, brand surveys, unaided, aided brand awareness. All of these things we use really as a mosaic to think about effectiveness of this brand spend away from, you know, a kind of a traditional ROAS. But we are very focused on measurement of brand spend, and we'll continue to do so.

And on the second point, I'll... Yeah, on the competitive context, there's no doubt that the experiences space is a competitive space with a dynamic that there are a number of players going after a very big TAM. Now, it's a difficult space, and you've seen competitors come in and back off. What you've seen is the emergence of a number of regional players who are starting from one region and thinking about how they want to get global. You know, we believe that we are very well positioned with the combination of two brands that can serve the experiences traveler in different ways, right? So TripAdvisor and our strategy is all about doing guidance that gets you to the place that you want to make it happen. At that point, and that's a broad, by the way, that's a broad experience, multi-category experience. but when somebody's looking for experience, we should be able to understand it, and you're looking for a place to go, we should be able to offer you the things that are most relevant to you and what you're looking for, given your behaviors of the past and your stated intent. What Viator delivers is that depth right, that ability to be the preeminent booking platform. And the two together, I think, is reflective of that kind of marketplace economics we've been talking about. And we're starting to see how together they are really driving meaningful growth. So, you know, I'm not surprised that the competitive dynamic and what everybody else chooses to do doesn't influence what we are trying to do, because we are trying to use all of our capabilities and manage prudently and thoughtfully so that we can be the leader in the category and bring it together on behalf of the traveler. We think we'll get rewarded for that over the long term.

Very helpful. Thank you.

Thank you. One moment for our next question. Jed Kelly from Oppenheimer. Please proceed with your question.

Hey, great. Thanks for taking my question. Just on the headcount reductions, can you speak to just how this will impact your ability to make Viator better and to innovate around TripAdvisor Core? And then just with Viator, can you talk about the difference between Gap and gross booking growth and revenue growth, that gap has widened. Can you speak to those trends? Thank you.

Thanks, Ted. Let me start with the cost savings. This is part of our transformation work. And it is very much about creating the flexibility to invest in our strategic priorities this year and next. And so, you know, we are looking at how we allocate resources, and creating the space to go after the biggest market opportunities. It has no impact on Viator. We are focused on our core business and making sure that we can continue to deliver the promising momentum that we have shared over the last quarter or two. And so that is the most important piece of this. And we have conviction in our strategy. This action reflects how we want to continue to support it, and of course, we want to be disciplined in the choices that we make.

Yeah, Jed, on the gap at Viator between gross booking growth and revenue, we touched upon a little bit in my prepared remarks, but the two drivers are the book rev rec timing as well as the margin piece. Now, the margin piece that Matt alluded to, we have seen continued year-over-year improvements in the take rates, and that is across various reasons. The biggest reason is what we've talked about is the Accelerate program, a very important tool for our suppliers to utilize how they advertise on our platform and are purposely choosing to manage how they want to pay and advertise. So that's a very important tool that has been very productive for our suppliers. That's been a piece of this, of the gap. The other piece is just the timing, right? And I think, you know, we've been, our growth rates have been coming down from very high growth rates. And with that, you will see that difference in the booking to the RevRec timing. So it's really just the accounting timing between the booking and the actual experience itself. Thank you. Yep.

Thank you. We will have our next Mario Liu from Barclays, please proceed with your question.

Great. Thanks for taking the questions. The first one is on TripAdvisor Core. I was just curious if you could help us frame how we should think about the long-term EBITDA margins, especially after layering in the announced cost savings when we compare that to say, you know, pre-COVID levels. Is it just structurally different now going forward now since trip experiences is a larger percentage?

Yeah, hey, Mario. I think that's right. I'll stop short of giving anything specific as we move in the back half of the year, and obviously we're getting into next year and longer-term planning. If you're really comparing against pre-pandemic, which I would say is many years ago, and we have talked about this business is different in a lot of ways, for those two factors that you've mentioned, right? One, from the auction perspective, you know, just that mix between, you know, the paid and free traffic has been a headwind in margins. And that has been structural in the business since, you know, pre-pandemic. And two is the growth in experiences, where we certainly have been making more investments at TripAdvisor Core for paid traffic to come and come to the site. So those are the two factors, as you mentioned, that would be, you know, have caused a headwind versus pre-pandemic times.

And I would just add, the mix coming into the business is different. And over time, our strategy will deliver a mix that we think will be healthy in terms of profit and revenue growth.

Just a little bit on Viator. It was a pretty large outperformance this quarter on the revenue side. not as much deceleration in the last couple months of the quarter. So any, you know, key geos or categories to call out that kind of drove this outperformance?

Yeah, I'll just say we were very pleased with performance in the quarter. It did outperform expectations. Yeah, I think, you know, the Vitro brand is obviously, you know, its biggest market is the U.S. and North America. And we continue to see a very healthy travel market here in the US. We saw a very healthy international travel, North America to Europe. That was a very strong area for us. And I think that Vitor did a very good job of leaning into that demand and fulfilling customer needs and helping its suppliers advertise effectively on its platform to find that customer demand. Yeah, I think that's right. I think, listen, as we move in the back half of the year, we are going to comp, you know, 100 plus percent growth rates last year. We think that we acknowledge that those are tougher comps, and you're moving into the back half of the year away from peak travel. And so our guide reflects that. Otherwise, very healthy business, and we're very pleased with performance.

I would just add a couple of things for texture. You know, the experienced traveler is increasingly, they're taking bigger, more expensive trips, right? So that's some of the international stuff that we've seen. And so that's been driving some growth. And I think there's some categories that are really exploding, which I find fascinating, you know, cultural and theme tours, food and wine, outdoor activities, all really good growth. And so, you know, it's, It's when you can offer the largest set of inventory of experiences in the world, you can really allow those categories to drive a really healthy growth for the traveler.

Great. Thank you both.

Thanks.

Thank you. One moment for our next question.

Steven Ju from Credit Suisse.

Okay, thank you so much. So I wanted to follow up about your commentary about the rise in repeat transactions for Viator. That does sound like an increase in customer lifetime value. So, you know, just wondering if you can elaborate a little bit in terms of specific product updates you have done to drive that or do you think you are benefiting from increased awareness from the brand campaigns you're running? Thanks.

Yeah, I'll start, and I'll let Matt chime in at the end if he needs. But yeah, I think Steven's a great question. It is a very important stat that we are very focused on here in the company, because it does inform how you think about bidding for new users, as you said, on an LTV basis. And it all stems from, at the most basic level, it's around everything in the product. So when we bring you in and you sign up for a product, it's having a great experience. It's ease of payment. It's great customer service if there's a problem. So all these things, we have to nail the product experience first and foremost. And that person exits that experience with a great experience. And to say that this is something that I really enjoyed and want to do again. Then I think it is important around the brand awareness and how we are then ability to remarket and re-engage with those users. So it really goes across all the things that Viator is doing, product experience, customer experience, and then how we then keep engaged with that user. And I'll tell you, the more we're doing. It ties into the CDP work we're working on. The more data we have around the individuals, the more customized we can be. The more customized we can be, that means we're just going to offer unique and differentiated things on a personalized, customized basis that others just can't do in the category. So we're very excited about that.

Yeah, the Viator team is so focused on making sure people know who they are and how they can serve them, Once they get them in, they're making the experience easier, more enjoyable to book across the whole booking life cycle, no matter the device. They are doing foundational work to make sure that the power and speed of our tech is delivering. They're removing friction. They are thinking about loyalty and making sure that people come back over and over. And so I think they are very focused. And their strategy is clear. They're focused on conversion, repeat, making sure that experience is great, creating more value for operators, and delivering an affiliate program that is the best in the world. So they really are clear on what they're aiming to deliver, and I think the results are materializing.

Thank you.

Thank you. One moment for your next question. Brian Fitzgerald, Wells Fargo.

Yeah, I'll just riff a little bit off of Stephen's question. I think he said in the prepared remarks, Mike, more Viator bookings come from paid channel right now. Did I hear that right? Is the second derivative increasing or decreasing? I assume it's decreasing, so it's decelerating. And so if you could unpack that a bit, just what are you seeing in terms of travelers and or events that are coming through the pay channel? Because you clearly have really good repeat rates, and so I would imagine the pay channel is getting less important to Viator?

Yeah, I think, Brian, let me clarify this statement. I think, yeah, I don't think we said we had more through the pay channel. What we did say, when you repeat through us, you tend to come back to us through non-paid channels, right? You skew the non-paid channels, just to be clear on the statement. And just overall, from a channel philosophy, the paid channels are important, right? It's a great way to us find that new incremental user. And that's where we're very focused on having effective acquisition of that new user. realizing that that gives us a chance to bring that user back on a repeat basis through what we hope and what we've seen in the data through more effective and efficient channels. So I wouldn't necessarily say there's a difference in the channels with, I think, with different products or different experiences, but just wanted to clarify, I think, what we said on the call. Okay. Thank you. Thanks, Brian.

Thank you, one moment for our next question. Kevin Copelman, TD Cohen.

Great, thanks. I had a follow-up on an earlier question. Just a question on the $35 million. cost savings or cost cut that you have that you'll get the benefit of that next year. Do you see that as a way to make up the core EBITDA shortfall next year and get that core margin back into that kind of 35%, 36% range, or is it more just to pave the way for more reinvestment in core advertising to get that segment going again?

Thanks. Yeah. Hey, Kevin. Yeah, I would say, I guess, more of the latter. I mean, we weren't The headcount reduction was really more around how do we preserve flexibility, how do we preserve investment in the strategy that we believe is transformative to the business. I'm going to stop short of trying to say what margins are going to be next year. There's time to develop that and talk about that later. But, you know, it's really not around a margin solve. It's around how do we create the space and flexibility to continue to operate in this strategy and execute on that strategy.

Thanks, Mike. That's helpful.

Appreciate it.

Appreciate it, Kev. Yep.

So I would now like to turn the conference back over to Mike Goldberg, CEO, for closing remarks. Thank you.

Thanks everyone for joining us today. We believe we're making good progress on our stated strategies across each of our segments, and we look forward to sharing our next update with you next quarter. Have a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.