Good day everyone and welcome to the Expedia Group Q2 2024 Financial Results Teleconference. My name is Elliot and I will be your operator for today's call. [Operator Instructions] For opening remarks, I will turn the call over to Senior Vice President, Corporate Development, Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Good afternoon and welcome to Expedia Group's second quarter 2024 earnings call. I'm pleased to be joined on today's call by our CEO, Ariane Gorin; and our CFO, Julie Whalen. As a reminder, our commentary today will include references to certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our earnings release. And unless otherwise stated, any reference to expenses excludes stock-based compensation. We will also be making forward-looking statements during the call which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions which are subject to risks and uncertainties that are difficult to predict. Actual results could materially differ due to factors discussed during this call and in our most recent Forms 10-K, 10-Q and other filings with the SEC. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. Our earnings release, SEC filings and a replay of today's call can be found at our Investor Relations website at ir.expediagroup.com. And with that, let me turn the call over to Ariane.

Thanks, Harshit and thank you all for joining us today. I've been CEO for about a quarter now and have spent most of my time in 3 areas: First, refocusing our team on the basics and execution to accelerate growth in our consumer business; second, sharpening our long-term strategy; and third, making sure we have the right leadership team in place. All with the goal of delivering better experiences to travelers and more value to our partners. I'm really pleased to already see some signs of progress as demonstrated by our second quarter results. We grew room nights by 10% and grew gross bookings and revenue by 6% versus last year. This was at the high end of our expectations and was driven by substantial improvement of Vrbo as well as continued strength in Brand Expedia in our advertising business and in our B2B segment. We also executed well in controlling our costs with cost of sales and overheads both declining year-over-year. The travel environment was healthy in the second quarter. And like the last few quarters, we saw stronger demand internationally relative to the U.S. Compared to last year, we grew room nights mid-single digits in the U.S. low double digits in Europe and in the high teens in the rest of the world. Prices held up for both hotel and vacation rentals but we saw continued pricing pressure for air and car. In terms of trends so far in the third quarter, we've seen some softness in demand and Julie will provide more details on this in a few minutes. But regardless of the market environment, we're focused on executing what's in our control and what we know will drive long-term value. Now, let me talk a little bit about the second quarter results themselves. In our Consumer…

Thank you, Ariane and good afternoon, everyone. We are pleased with our second quarter results including double-digit room night growth, a sequential acceleration in our B2C business, driving gross bookings to 6% and EBITDA margins expanding approximately 70 basis points in the first half. As far as the financial details for the second quarter, total gross bookings of $28.8 billion were up 6% versus last year, driven by total lodging gross bookings which grew 8%, led by our hotel business growing 11% and the improvement in our Vrbo business. We were happy to see that we have held or grown hotel gross booking share in virtually all of our key markets. In our Vrbo business, we saw a significant acceleration as we moved through the quarter which drove our total gross bookings sequential acceleration of approximately 300 basis points from the first quarter. Revenue of $3.6 billion grew 6% versus last year, led by our B2B business, Brand Expedia and our advertising business. Total revenue margin was flat year-over-year as the uplift from advertising growth was offset by fewer stays given the lower gross bookings in the first quarter, the shift of Easter stays into the first quarter and the contra revenue arising from pricing actions. As a reminder, pricing actions from prior periods negatively impacted both revenue and revenue margins this quarter as it is recorded as contra revenue at the time of the stay. Cost of sales was $358 million for the quarter and $45 million or 11% lower versus last year which combined with our strong revenue growth, drove approximately 190 basis points of leverage as a percentage of revenue year-over-year. We continue to see our ongoing initiatives are delivering transactional efficiencies. Direct sales and marketing expense in the second quarter was $1.8 billion which was up…

[Operator Instructions] Our first question comes from Mark Mahaney with Evercore ISI.

Two questions, please. First on Vrbo. It sounds like that's started to recover to growth exiting the quarter. Any thoughts on what that trajectory is like? And I know you've got headwinds going into the back half of the year but if you can isolate out the headwinds, just talk about what that growth recovery path looks like. And then real quick hit on advertising revenue, expectations for how that's trending? Are you able to kind of maintain the growth you've had there. And I think that was sort of solid 20%.

Yes. I mean, for Vrbo, obviously, it's hard to make that call right now because we're staring at this July trends. But certainly, our expectation is to drive that business to growth and get it back to where it used to be. And so as we said, we saw substantial acceleration as they move from the beginning of the year. So basically, as we ended the quarter with some modest growth but now we're in this moment in July, where it's a little bit hard to read the business. But certainly, long term, that is our expectation. As far as the advertising business, I mean, that business is on fire. We have got a lot of opportunity with that business to continue to drive its growth. I mean, if I think if you look back, it's been at least in the high 20s for a while now and we don't have any reason to believe that that's going to significantly change going forward.

And I would just add that on the advertising business, when the market gets soft, actually, you could imagine that some of our supply partners will want to spend more in advertising where they know that the travel demand is going to be. So as we're looking at how the market evolves, obviously, I think our teams will be looking at how can we help our supply partners in getting the volume.

Our next question comes from Eric Sheridan with Goldman Sachs.

Maybe 2 questions, if I could, a bit more of a bigger picture in nature. In terms of the role of CEO that you've now had for a couple of months, wanted to know if you could just reflect on some of the key learnings you've had and go a little bit deeper on the turnaround of some of the brands like Vrbo and Hotels.com. And what you've learned about the ability to possibly speed up some of that recovery or some of the aspects that might take longer pieces of time to sort of implement leaving the side or isolating some of the macro variables from your insights there. And then the second, you come out of the B2B business. As you continue to move out of B2B and into this broader CEO role, what do you think remains relatively underappreciated or misunderstood about the B2B business, now it sits inside Expedia?

Thanks for the question, Eric. In terms of the consumer business, as I stepped in, I think I had always appreciated the work that we had done on the platform that was going to allow us to accelerate innovation across the Board. So for example, in the second quarter, we were able to release flexible date search in all 3 of our big brands at the same time. And we wouldn't have been able to do that, had we not done the platform work. That being said, when we did the work to move Vrbo and Hotels.com onto our common front end, we did give up some of the things that made those brands a bit more unique. On Vrbo, collaboration was a big -- it was sort of something that was used a lot in Vrbo. And when we migrated it, the good thing was we got the trip planning collaboration onto Brand Expedia but we lost some of the functionality in Vrbo. Now the good news is, we've added a bunch of it back and there's still work to be done. But it just meant that we went through a period of time in the migration where we moved back. Similarly with Hotels.com, when we move to One Key, we sort of downplayed an advantage that Hotels.com had. It had a really big differentiator and its loyalty program. So the good news is that both of those brands have great brand awareness, have people who love to come back to them. But I've just realized it's going to take work to get them back to where we want. And so as I think about sort of the months and the quarters ahead, it's how do we take all the capabilities that we've built in the platform across the…

Our next question comes from Lee Horowitz with Deutsche Bank.

Two, if I could. So you clearly have a number of marketing priorities ahead of you as you look to take share in Vrbo, lean back into international markets, while also facing some building ADR pressures, as you called out which have their own margin impact. I guess with that in mind, how do you think about the levers that you have at your disposal to drive margin expansion sort of on a go-forward basis given those investment priorities? And then maybe, Ariane, another one on the B2B business. I guess, how do you think about sort of the interplay between B2B and B2C? Is there a world where the success of your B2B business can actually prove cannibalistic to your B2C business? If you help partners create super compelling travel rewards programs, presumably that's a piece of the pie that core Expedia doesn't have access to any more. How do you think about managing those 2 in that sort of environment?

Okay. Thanks for the question, Lee. Julie, do you want to take the first one and I'll take the second.

Sure. So from a leverage perspective, obviously, we have been able to do a really great job with cost of sales, where costs have actually been down year-over-year, much less leveraging. And while over time, that will start to moderate because obviously, that can't go on in perpetuity. We still expect to drive incredible leverage on that line. We've got a lot of opportunities to continue to drive efficiencies there across our merchant fees and our operations, whether it's on AI and technology and all sorts of things that we're looking at to further drive efficiencies there. At the same time, you can see, although this quarter is a little bit of anomaly, we did have overhead that was down to last year as well. And so we're still -- we did several cost actions as we announced earlier in the year and so we're benefiting from those. That's helping that line drive leverage to help the total P&L. And certainly, we are very focused on looking at every line in the P&L to see what the opportunity is and how we can go after it. So we can take that money either deliver it to the body [ph] or to reinvest it in the business. We did say this year, however, that as you alluded to, we are making the investments in marketing, in Vrbo and international markets because we want to reinvigorate those businesses. And clearly, by what we saw in the second quarter, it works. So it's important that we continue to do that and keep that momentum going. So as we've guided to and as we said, this year, we don't expect much leverage. But longer term, we're certainly not guiding to '25 at this time. But longer term, we absolutely expect to have margin leverage…

Our next question comes from Trevor Young with Barclays.

First question, can you just expand a bit on the cadence of growth throughout the quarter? Was it steady and then July saw the step down? And was there any nuance around that step down in July across geos? And then second question, more of a bigger picture one. We're now a few quarters in from the completion of the tech platform migration. What gives you confidence that all the transformation work that you've done in the past few years is working and will pay off?

Julie, do you want to take the first one? I'll take the second.

Yes, sure. In the second quarter, we basically saw comps accelerating and that's because, as we've said, the main accelerating driver was Vrbo. And so we basically came from a low, so to speak, at the beginning of the year and accelerated by quarter and was the main driver to drive the full acceleration of the business. So we saw accelerating comps in Q2 and then like I said, in July, there's just a lot going on that's hard to understand with precision. And so we saw sort of this noise in the P&L in our business. And really, when you look at it from a geo perspective, to answer your question, it's a lot in U.S. that we're seeing. We're seeing a couple of other areas but mostly it's U.S. focused.

In terms of the replatforming, as I said earlier, it's really unlocked a lot of capabilities that we didn't have before. One of them, for example, is our testing platform. Already this year, we've done more tests on Vrbo than we did all of platform migrations, we've been able to put something like One Key in place where we have a view of a customer across all of our brands. We -- as I said, we're able to release the ability to do flexible date shopping in the second quarter across all of our brands. So there are a number of, I would say, e-commerce basics that we're able to roll out across all of our brands without having to do the work multiple times. Now going forward, what we're digging into is where are their configurations or maybe even some brand-specific features that we need to build on top because it's true that the last few years, so much of our capacity went to sort of rebuilding some of the foundations and to migrations.

Our next question comes from Conor Cunningham with Melius Research.

Just on B2B, I think your growth in the quarter was over 20%, a pretty tough comp sort of in process. But I think in the prepared remarks, you mentioned a deceleration. Just curious if you could unpack that a little bit, what's driving the slowdown. And then just on the implied guide for fourth quarter, I realize that you don't have a lot of visibility but can you just talk about how you see the booking window kind of evolving from here?

Yes. So on B2B, yes, we've seen a little bit of deceleration. And as you alluded to, of course, we're still at 20%. So it's still really a strong business. And we alluded to the fact that as global demand normalizes, that, that business would see some of that growth come down as it also normalizes. So that's not too unusual for us to see. Obviously, in the July period that we've alluded to, they also are impacted by a lot of the dynamics that I mentioned as far as what's going on in July. And so they can have a little bit more of an impact than what was sort of just the global normalization but we're really excited about that business. Ariane spoke about it. There's just so much opportunity there. And given our leadership position and all the opportunities we see going forward, it should continue to drive strong growth. It's just that we've got this moment right now, where we're seeing some of this macro impacting it. But the underlying health of the business is incredibly strong. As far as the booking windows, it's interesting, we have been seeing for a while now in our B2C hotel business that the windows have actually been expanding slightly year-over-year. But as we entered July, they actually or during the month of July, they actually shortened just a little, not a lot but just a little bit in that month. And that's the first time we've seen that in a while. On the Vrbo side, they've been shortening for a while and they're kind of just doing a similar thing. So there wasn't anything material that changed in July but we did see a little bit of that in the hotel side of things.

And maybe I'll just add a little bit on the first part on B2B. As Julie said, B2B is a much more geographically diverse business than our consumer business. And so over the last few quarters, it's really benefited from a lot of the travel demand, in particular, in Asia. And so the deceleration we've seen a couple -- for the last couple of quarters which still was a very strong growth, was coming from the normalization of that growth, in particular, in Asia. Now as Julie said, as we headed into July, we saw some slowdown and that was more with the U.S. part of the business.

Our next question comes from Naved Khan with B. Riley.

Yes. I just wanted to double click on the annual guide, Julie a little bit. So I think the prior guidance was mid- to high single digits for both bookings and revenue and now you're guiding to revenue of 6% and bookings were 4%. So -- and you also noted some weakening in the airfare. So I'm just trying to figure out how I should think about the lodging business, you talked about ADR weakening. So room night is going to grow faster than maybe the 6% or just give us some goal post there or just your thoughts on how to think about the lodging business and room nights and ADRs.

Yes. I mean, fortunately, we haven't -- we don't guide to that level by the line item. And obviously, all of that has been assumed in the numbers that we have presented here for the full year. But certainly, everything I mentioned impacts the lodging business. So there will be an impact to that on all those metrics for the lodging business but we're not providing guidance on those right now.

Okay. And then I have a follow-up on the cost side of things. So of the restructuring that you announced earlier this year, how much of that has been action and how much has yet to follow in the second half?

Yes. The majority of that has been action. There were some that we took action on in Q1, some that we took action on Q2 and so that's why you're seeing the favorability in overhead because you're getting the full quarter of the Q1 action and then you're getting the additional Q2 action that's coming through. There's a little bit that's left on that but not significant. But of course, it doesn't mean we're stopped looking at every single line and where we can find efficiencies elsewhere. It's just on that particular cost action that we mentioned, we're almost through it.

Our next question comes from Kevin Kopelman with TD Securities.

Just one, so quickly on the macro. You called out ADR softness. Are you seeing any softness in nights? And then could you just give more color on how you're managing the B2C advertising expenses in the second half given the backdrop?

Sorry, you said -- can you repeat the first part of the question?

The first part was on the macro softness that you're seeing quarter-to-date, you called out the ADR softness but are you also seeing a slowdown in kind of underlying nights activity, particularly with stays.

Yes, we are. In particular, stage, you said?

Well, just kind of separating out the window versus how much we actually look like they're going to be traveling.

Yes. No, we're definitely seeing a reduction in nights. I mean it's not just a booking window play, if that's what you're talking about or just an ADR play. There's definitely, as we said, there's been some softening in travel demand which is impacting the transactions side of it. But it's a combo of all, right? I mean there's certainly -- all those other factors are also true. As far as your B2C advertising expense question, I mean, obviously, that's what our plans are been assumed that's from the guidance that we gave and we said that we are guiding to on the year EBITDA margins to be relatively in line with last year. So we're managing to that, while still investing in Vrbo international markets. And so certainly, we will be looking at advertising, seeing what makes sense relative to the top line and any other variable costs associated with that depending on where that top line goes. But that what we're managing to is the full year EBITDA margins relatively in line with last year.

And I would just remind you and as Julie said, obviously, looking very closely at what are the macro trends, what are the demand trends, where do we want to spend in marketing and advertising. And we look at marketing, promotions and pricing and loyalty all sort of in the same bucket to then say which of these is going to be most effective given the environment. And then even within marketing, are we going to put money more into performance or into social or into other channels. And I spent a lot of time with our marketing team just looking at where we're getting the best returns, where we're leaning in, where do we need to pull back and the like.

And you noted maybe rationalizing some marketing spend. What were you referring to there? If you could share any more color?

So we -- I mean, one of the things we've been doing in the last bit of time is really interrogating every dollar of our marketing spend. And for example, looking at nonworking versus working marketing spend, understanding the returns on each because we -- especially if we're going into an environment that is a bit more volatile. It's just so important that every dollar. We understand the returns when we're investing more in international and Vrbo, we need to be making up for efficiency elsewhere.

Our next question comes from Ken Gawrelski with Wells Fargo.

Just two, if I may. First, could you've talked about the EXPLORE Conference in May a lot about your marketing plans and your advertising and media plans, I should say, not your marketing plan, sorry. Could you talk about opportunities, not necessarily in the short term but over the kind of next 1 to 2 years, how you can continue to grow that business robustly and what the opportunities look like? And then second is just more tactical. As you think about the One Key expansion to the U.K. Do you expect that to be a material and how material do you expect that to be on Hotels.com in the back half of the year?

Thanks for the question. Let me start with the first one. So you're right, we talked about the travel media network at EXPLORE and we're really excited about the opportunity to grow advertising and to bring value to our advertisers. Today, a lot of our advertising business happens on the shopping and booking moments of the travel funnel. So when someone's in the search results or when they're in the booking process, there's not as much sort of when they're in the dreaming and very upper funnel and there isn't as much, for example, in post booking. So we think that there's an opportunity there. We also think that there's an opportunity to expand in the number of partners who are using our advertising tools. So whether it's the sponsored listings and having more hotels or airlines using sponsored listings, or new products that we can bring to destination, management organizations think that there's a lot of growth and opportunity there as well. I'd also call out that we're doing some interesting work on providing more tools to these advertisers. So making it easier for them to sort of self-serve on some of our advertising products, self-serve on sort of getting -- letting us do more of the targeting for them, we're about to introduce some video into our ads which we think will make those perform better. So I would just say for the long term, we think there's a lot of opportunity here. On the question about One Key and expansions in the U.K., I don't think it's going to have a material impact at the company level. Certainly, you learned from the One Key rollout in the U.S. on how to treat the sort of higher value of Hotels.com customers who might feel like they're getting a sort of downstep in their value and we're using that in the U.K. but I think at a company level, it's not material.

Our next question comes from Richard Clarke with Bernstein Societe Generale Group.

Just a question on the pause on the rollout of One Key. Does that mean that the Hotels.com buy 10 nights get 1 free. That will remain in all markets, apart from North America in the U.K.? And is that awkward to your sort of supply partners that they've got to deal with you in multiple different loyalty schemes. And what does it mean for your sort of B2B rollout? I think One Key was one of the things you were offering as part of the B2B rollout. So how would that affect the rollout of B2B in sort of non-U.S., non-U.K. markets?

Yes. Okay. Thanks for the question. In terms of whether the Hotels.com 10 for 1 will remain the same outside of the U.S. and the U.K., the answer is yes. It's a simple program. For now, it's remaining that way as we work to figure out what would the path forward be. For our supply partners, our hotels, for example, it's completely transparent to them. They participate in member deals where they provide different levels of discount for different tiers of members and we actually translate that into our Hotels.com rewards program. So if I'm a hotel, I'm able to reach those Hotels.com rewards members, whether they're in a country that has the existing 10 for 1 stamps or whether they're in the U.S. In terms of B2B, actually, One Key is not rolled out to the B2B business. That's a business where we're providing inventory and technology but a lot of our partners have their own loyalty program. You may be thinking about -- we've talked about rolling out One Key to our advertising partners and allowing them to use some of their advertising dollars to accelerate One Key earn for their hotels. And that, again, won't really make a difference. They can do that in the U.S. and the U.K. It won't be something that we can do outside of that. But again, this is why we are going to take the time to think about what is the value proposition for our loyalty programs in countries where we only have one big brand at scale.

Our next question comes from John Colantuoni with Jefferies.

Great. Two quick ones for me. First, on the 3Q outlook, does your outlook for the third quarter assumes there's a recovery in night in August and September relative to July? And second question, just talk to some of the pricing reductions you started making last quarter and how that impacted conversion. And now that you're seeing some trade down, whether you might have to lean in a little bit more there.

Yes. As far as the first question on the 3Q outlook, we have not sort of baked in any upside or something in September. We've looked at obviously run our various scenarios and what the information that we have based on what's happening in July and ran that out as to where we think the quarter will land. Certainly, it's also you have to take into consideration for revenue at least what happened in prior quarters because then the states come to fruition in the third quarter. So we already have some of that data and that's just going to play out. But certainly, based on all the new data in July, we've just run our scenarios and let it play out for Q3 accordingly but there wasn't any sort of step-up in September that we assumed. As far as the pricing actions, yes, we had made a call, you probably remember from last quarter that we had done some pricing actions towards the end. That then we're going to be coming into this quarter, we did see that come in. And we only do those pricing actions if we get the returns. And so certainly, they are driving conversion for us. And so as we have been doing, we're going to continue with that, going forward as it is a good returning marketing lever for us.

Our next question comes from Jed Kelly with Oppenheimer.

Great. Just going back to the B2B opportunity. Is there any way you can sort of give us a backlog or just frame like the amount of contracts you think are up that can potentially drive growth there? And then just on Vrbo, just thinking of the fourth quarter marketing strategy, that's usually when you have like a large brand campaign. If this softness continues, can you just talk about how that impacts your marketing strategy?

So on the first one, so thanks for the questions. On the first one, I'm not going to share details about the pipeline. What I will say is we're thoughtful about which deals we want to bid for. I think often when you have an B2B team, it's as important which deals you decide not to bid for and which ones you decide to bid for. And we have a super experienced team, a great business development team that's being thoughtful about where do we want to play and where do we not. I'd also say that growth can come from finding new partners but growth also comes from our existing partners. So sometimes you might have a partner that we're powering 3 of their points of sale and then they decide that they're going to expand into another couple of countries and it's incumbent on our team to make sure that we're the ones powering them as they're growing their business. So when you think about the B2B business, it's not just that sort of the pipeline of new business, it's also what are all the actions we're doing in our existing partners in order to either win share or to just grow along with them.

As far as the Vrbo marketing strategy, certainly, we learned from last year that you don't want to pull back too much on the marketing spend because Q1 -- sorry, as you're entering in Q1 is a really big time for Vrbo. So that's part of the reason why we're even guiding in Q3 to pressure on EBITDA because we want to continue investing in Vrbo for that very reason because we're investing for the longer term. And so we would continue to invest in Vrbo. I mean, obviously, it depends if there's some massive level of softness that all things are off the table. But we're not expecting that but it's not how we've been guiding. And so our expectation is we continue to invest in to Vrbo and that's assumed, obviously, within our margin guidance on the year to be relatively in line with last year.

Our final question comes from Ron Josey with Citigroup.

Maybe, Ariane, a follow-up to your comment there on investment in marketing. I thought the 20% growth in room nights in Brand Expedia was a really key highlight. So I wanted to understand just the drivers here, maybe a little more on geographic mix. And really, the benefits from the advertising side of the brand continues to evolve. And then I think I heard you say conversion rates improved in the quarter as in multiproduct attach rates. And so again, just wanted to dive a little bit deeper on the product to hear how the funnel, how transactions are going on Expedia overall.

Yes. Thanks, Ron, for the question. As you said, I mean, Brand Expedia has been a great highlight for us. And it's also what gives me confidence because it was the least disruptive of all of our brands and it's the brand that's gotten all of our innovation going into it. We've also, over a number of years, really built up the brand value there. We spent quite a bit in marketing over time and now we're seeing leverage with it because we have a great app installed base, strong repeat, a great member base and the value proposition on Brand Expedia to shopping and booking multi-item scripts, whether it's directly through the package path or buying a flight and then later coming back and buying a hotel at a discounted rate, is really strong for travelers. So I would just say, in general, we feel good about it. It's still to my liking to U.S. focused. I mean, as is our whole consumer business, we'd like to see more growth internationally. But as you say, Expedia is really a highlight. So thank you for the question.

I will now hand the call back over to Ariane Gorin for closing remarks.

Okay. Well, so I just want to thank you all again for joining us. Julie and I appreciate the questions. I just want to leave you with the thought that, we know the environment is becoming more volatile. But regardless, we believe we have a lot of opportunity ahead. We have great consumer brands that travelers love, a differentiated B2B business, diverse supply, the strongest it's ever been and a really powerful tech platform. So as we look to the future, we're going to use these assets to drive profitable growth. Thank you, all.

That concludes today's call. You may now disconnect your lines. Have a nice day.