Booking Holdings Inc (BKNG) 2003 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Priceline.com's first quarter 2003 conference call.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session, and instructions will follow at that time.

As a reminder, this conference call is being recorded.

At this time Mr. Boyd has asked that we read the following statement.

Priceline.com would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict.

Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements.

Expressions of future goals and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements.

For a list of factors that could cause Priceline.com's actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Priceline.com's earnings press release as well as Priceline.com's most recent filings with Securities and Exchange Commission.

Unless required by law, Priceline.com will takes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

A copy of Priceline.com's earnings press release, together with an accompanying financial and statistical supplement, is available in the investors relations section of Priceline.com's website located at www.priceline.com.

I would now like to introduce your host for today's conference, Mr. Jeffrey Boyd, President and Chief Executive Officer of Priceline.com.

Mr. Boyd, you may begin.

Thank you very much and welcome to our first quarter conference call.

I'm here with Priceline's CFO, Bob Mylod.

Priceline.com's first quarter results came in at the top end of our range of guidance despite the adverse impact of the war with Iraq on travel-related businesses, including ours.

For the quarter, we had a GAAP net loss of $8 million or 4 cents per share on revenues of $200 million.

Excluding the noncash effect of the warrant we issued to Marriott and our preferred stock dividend, the first quarter loss was $1.1 million, which rounds to zero cents per share, beating first call estimates of a 1cent loss.

Improved performance was primarily driven by record hotel sales, improved gross margins, expense management and improved results in packages, retail, and rental car businesses.

Revenues for the quarter were adversely affected by the war in Iraq by an estimated $10 million to $12 million.

We also decided at the end of last year to reduce the subsidiaries we apply for certain opaque airline ticket sales given the new availability of retail choices for these customers.

This cost was approximately $12 million in revenue but was margin and contribution positive.

Those factors as well as continued airline industry challenges contributed to a first quarter sequential reduction in opaque airline revenues, which was offset by strong hotel performance.

Priceline.com sold over 1.2 million room nights in the first quarter and hotel revenue was up 37% over last year and 30% over the fourth quarter of 2002.

Priceline's renewed hotel growth was driven by the success of our new TV campaign, launched in January, which emphasizes our fop of the line hotel quality and savings of up to 40% greater than those found at Expedia, Travelocity and Hotels.com.

In the first quarter, Priceline gained share on both Expedia and Hotels.com in merchant room night sales as our 28% sequential growth outperformed Expedia at 12% and Hotels.com at 3%.

Priceline added more than 268,000 merchant room nights in the first quarter compared to 303,000 for Expedia and 67,000 for Hotels.com, both of which start from a much larger base.

Strong hotel results continue with revenues up 35% in April compared to last year despite a slow start due to the effects of the war in Iraq.

Priceline had strong gross margins in the first quarter, 16.5% versus 16% in the first quarter of 2002 and 15.5% in the fourth quarter of 2002.

Higher margins for opaque travel products, including airline tickets as I previously mentioned, and rapid growth in agency retail sales drove this margin improvement.

Priceline had agency gross bookings of $21 million in the first quarter, up 103% sequentially and an increase of $17 million over last year.

Total Priceline gross travel bookings, which is the total dollar value purchased by consumers for our merchant, opaque and agency retail products inclusive of taxes and fees, was $248 million for the first quarter.

We are very pleased with the results of our retail offerings in the first quarter.

The growth in Priceline's retail sales contributed to our higher reported gross margins and represents more satisfied customers, demostrating consumer acceptance of this significant product extension.

Our progress in building retail offerings, together with hotel results, show that we are making strides in our strategy to diversify our revenues and broaden Priceline's customer appeal.

Package sales also increased significantly in the first quarter with the launch of additional in pack bundling options.

Over 900 hotels now participate in Priceline packages.

Despite the continuing difficulties in our opaque air business and a challenging travel environment generally, we are meeting our bottom line objectives on the growing strength of our hotel, packages, rental car and retail businesses.

We are seeing significant growth in bookings for these businesses and a positive impact on our margins and there are more enhancements on deck for the coming months, including a relaunch of our rental car products with faster response and much-improved retail integration, the launching of travel inventory on lowestfare.com, integration of retail for vacations and more.

We announced two important hotel initiatives last quarter, which I will mention briefly.

First, our partnership with Travel Web allows Priceline to offer our customers the best merchant hotel inventory from the nation's finest and largest hotel chains and our investment and our partnership in Travel Web strengthens our relationships with our key hotel suppliers.

Second, is the preferred relationship we signed with Marriot which, together with our other preferred hotel and supplier arrangements, provides Priceline with a competitive advantage on both price and selection and underscores our position as the most supplier-friendly model for hoteliers.

We continue to have the best inventory on the Internet at savings up to 40% off the leading on-line sites.

Finally, our board approved a reverse stock split subject to shareholder approval ranging from 1 for 6 to 1 for 9 shares of common stock.

Priceline has a market value in excess of $500 million with a very large number of diluted shares outstanding at over 230 million.

We believe the reverse split will expand investor interest in Priceline, reduce transaction costs for our shareholders, make our results more comparable with peer companies that have far fewer outstanding shares than we currently have and allow Priceline's earnings per share on a post-split basis to more precisely reflect our operating results.

We are satisfied that the steps we're taking to address our challenges in the opaque airline businesses are showing positive results and our other businesses are delivering solid financial performances despite a challenging world environment.

We remain confident in the strength of our brand and the fundamental value of our business.

As stated in our press release or share repurchase authorization remains in place, and we are in a position to use that authorization from time to time.

I will now turn the call over to Bob for the financial review.

Thanks, Jeff.

Before I get to the numerical details of the quarter, I wanted to first apprise you of several changes that we have made to our reporting format, centering principally on the way in which we report our segmented revenue and gross profit.

You will recall that in prior years and quarters we have segmented revenue between travel revenue on the one hand and non-travel revenue on the other.

As those of you who have followed Priceline for a period of years know, we use this methodology historically because of our pursuit of businesses beyond travel.

But with the closings of our long distance products and new car products in the fourth quarter of 2002, our ongoing plan to keep Priceline's core strategic focus on the on-line travel industry and our recent commitment to agency-based retail products to supplement our core opaque products, we decided to adopt a new and hopefully more meaningful presentation of our revenues.

Specifically, our new format provides revenue and gross profit detail broken out into three categories, merchant, which encompasses principally all of our opaque travel service, agent, which encompasses principally all of our price disclosed retail services, including services sold through both Lowest Fare.com and Priceline.com, and finally other, which encompasses all remaining revenue, the single largest component of which is advertising revenue.

The new presentation should be familiar to those of you who have followed other publicly-traded companies in the on-line travel space.

This new presentation format, coupled with the collusion of our new gross bookings metric, which we are providing today and going forward will hopefully provide investors in Priceline with greater numerical insight into some of the key drivers in our changing business mix that Jeff mentioned in his remarks.

We are also providing additional operating expense detail to include specific line items for depreciation, amortization and advertising expense in addition to all the line items that we have reported in the past.

As a part of adopting our new disclosure format, we no longer plan to provide data that might be considered so-called non-GAAP financial measures as defined by recently adopted regulation G rules.

These include items such as proforma results and EBITDA.

While we no longer will report these calculations, we are certain that the additional disclosure that we are providing will give investors and analysts all of the data that they need to do analytics and make their own judgements to our reported GAAP earnings as they see fit.

With that little proviso, let me quickly go through the financial results of our first quarter.

We stated on our last earnings call that our January revenues, representing the first month of Q1, came in at $52 million and that we expected to experience monthly sequential increases in revenue for each of the two remaining months of the quarter.

Our Q1 revenues of $200.5 million reflect that the quarter played itself out according to that guidance.

In fact, we were pleased that March was our best performing month of the quarter despite the overhang of war during the latter half of the month, which caused a material decline in our results during that period, particularly within our airline service.

We also mentioned on our last earnings call that we expected to experience a quarterly sequential decrease in our airline revenues in Q1, which is highly atypical of the seasonal pattern of the airline business but obviously is reflective of the challenges that we have faced and continue to face with our opaque airline product.

Not only did we experience this expected decline, but as I mentioned, the decline was particularly severe in March with the commencement of war.

Despite all of these challenges, we were extremely gratified to deliver the strong hotel results that Jeff reviewed earlier, and that performance, when combined with our ongoing growth in retail and our over performance on the gross margin, variable operating expense and fixed operating expense lines, allowed us to come comfortably within our previously announced estimates.

Our results also exceeded estimates of the analysts who cover Priceline.

Our four-cent loss includes the effect of a previously announced charge that we recognized in connection with the issuance of the common stock warrant to our hotel partner, Marriott International.

The $6.6 million charge was non-cash in nature and will not affect future quarterly results.

As for cash and cash flow, we began the quarter with $149.6 million of cash of marketable securities and closed with $139.8 million of cash and marketable securities.

In addition to our operating loss, the decrease in cash was driven principally by the $8.5 million investment in Travel Web that we made during the quarter and to which Jeff referred earlier.

We expended $500,000 of cash on capital expenditures during the quarter, representing by far our most efficient quarter in the history of Priceline, and we did this without sacrificing any of the many ongoing development activities that Jeff referred to in his remarks.

And now I'd like to go over our guidance, and I'm going to use the same format that we have used on our last two earnings calls.

Our April revenues, representing the first month of results for the quarter, came in at roughly $68 million, and we expect to experience monthly sequential increases off of this base of revenue for the remainder of the quarter, consistent with the overall seasonal pattern of our business.

I mentioned on our last call that we expect to experience year-over-year decreases in our opaque airline business for each quarter of 2003.

This remains our forecast, however, on a positive note, we do expect that our unit sales of opaque airline tickets will be roughly flat on a quarterly sequential basis, which would represent an improvement from the 6% quarterly sequential decline that we experienced in the first quarter.

As for our other main revenue driver, we said we expected our hotel business to grow by 25% for each of the four quarters of 2003.

Obviously we are well ahead of that target based upon our 37% year-over-year growth in revenues in Q1 and our 35% year-over-year growth in revenue in April.

This performance puts us in a position to feel comfortable that we will exceed the 25% annual increased targets and hotel revenue for the second half of 2003.

We expect Q2 gross margins to come in at or slightly higher than the 16.5% gross margin that we experienced in Q1.

As for Q2 earnings, we expect to report GAAP earnings per share of between two and 3 cents per share on a prestock split basis.

We expect our cash balance to increase by approximately 5 to 10 million dollars during the quarter.

This number could change depending upon the extent, if any, to which we employ some of our cash to buy back stock during the quarter in connection with the stock buy back program that was authorized by our Board of Directors last year.

As Jeff just mentioned, we are in the process of obtaining shareholder approval to complete a reverse split of our stock.

We will update our Q2 EPS guidance to reflect the effects of the stock split after shareholder approval has been obtained and the split has been completed, which we tentatively expect to occur sometime in mid-June.

As for full year EPS, without getting into specific numerical targets, a practice we have adopted for several years now, we are comfortable that despite our first quarter losses and the effects of the war in Iraq, it is our goal to deliver improved year-over-year bottom line results.

Finally, I want to point out that all of our aforementioned forecasts are based upon the assumption that we will continue to operating in the consumer travel market that is roughly similar to the current one.

And any further geopolitical instability, terrorist event or the acceleration of the spread of SARS, particularly within the United States, would in all likelihood have a negative impact on the travel market in general and our operating results in particular.

With that, we would be happy to answer your questions.

Thank you, sir.

If you have a question at this time, please press the one key on your touch-tone telephone.

If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Again, if you have a question, please press the 1 key.

And our first question is from Jean Affuso of Goldman Sachs.

Hi.

This is actually Jean on behalf of Anthony.

Can you talk about how the availability of hotel room supply is trended and if this has been helped at all by Travel Web?

I think the best way to look at hotel room availability in terms of our results is to look at our bind rate, which has been very strong in the hotel business in the past couple of quarters and was very strong in the first quarter at 65.9%.

There really isn't any direct connection between the Travel Web transaction and our hotel availability or the bind rate that we have for hotels, although, as we've said previously, the five major hotel chains that are the founding sponsors of Travel Web do participate in Priceline and are among our most valued suppliers.

Great.

Thanks.

Thank you.

Our next question is from Tom Underwood of Legg Mason.

Thanks a lot.

Congratulations, a good quarter in a challenging environment, guys.

And actually I'm pleased to see the pursuit of a stock split at this point to make the numbers more comparable to the competitors out there.

A couple of questions.

One, just was wondering if you could comment on what your plans are for advertising expenditures near term, second quarter, et cetera?

Sure, Tom and thanks, I appreciate yat the comments on the stock split.

As for advertising, we're not giving specific guidance going forward on advertising revenue other than to say that, as you know, all of our advertising on television and principally most of our advertising on radio and a lot of our advertising on-line is focused around our hotel product.

And we have been very carefully monitoring our advertising spend to manage to the growth numbers that we've put on the table for ourselves and for the street.

I think so far, through the first four months of the year, we've been very, very pleased for what we are getting per dollar spent and we're looking at that literally on a monthly basis.

I think if you were to look at the amount of money that we spent in each of the quarters of last year, you could look at that as sort of a guidepost, but again, that number could come in lower depending upon efficiently our advertising is working for us.

So, our goal would be actually to spend less than we did last year but without sacrificing any of the growth targets that we've set for ourselves for hotel.

Great.

And secondly, I just was wondering if you could comment, I notice that, well, probably due to the war, et cetera, Europe continues to be very weak, but operating losses there for several quarters haven't really been improving.

Just was wondering what your plans are with Europe?

Tom, I think the one thing to mention with respect to Europe, the income statement there now reflects a change in the mix of business we're doing through Europe.

We really are focused much more on the hotel business there and are outsourcing the balance of most of the other travel products.

So, I think that's the principal reason for the change in merchant revenue that you see in the first quarter.

We've also been successful, you recall we were running at about a penny a share loss for Priceline, a quarter for Europe, and our fourth quarter mission was to get that down significantly and I think the results show we've been successful at doing that.

In fact, Tom, you can see, and we do break out in our statistical supplement the results for Europe because we know investors care deeply that we continue to manage Europe in a way that does not deplete our income statement.

And again, as Jeff mentioned, I think we've been very successful at that.

When we first brought Europe onto our income statement, we were losing a penny a share.

In Q1, we lost roughly $800,000 per share, which is a small fraction of a penny.

And we obviously continue to manage that business to get towards at least a break even line and that is- I'm not going to put a target on it, but that is absolutely our goal.

Great.

Thanks a lot.

Thank you, and our final question is from Ron Rubin of Raymond James, please go ahead.

Hi.

How are you doing?

And congratulations a great quarter.

I want you to please explain again what benefits you're going to have out of doing the reverse stock split?

Sure.

I think there are a couple of important benefits.

The first is we think that having a stock price below $5 a share or below $10 a share, given the fact that we've got over 230 million shares outstanding, even with a high market cap you end up with a low stock price.

We think that prices in that range actually take some investors and analysts and institutions out of the market just on the basis of rules and practices that have nothing to do with Priceline.

They really aren't dealing in stock of -- having a low stock price like that.

Secondly, for people who are trading our shares, having a very low stock price means that to trade at size, you have to trade a large number of shares, and transaction costs are high.

And finally, because we have such a large number of shares outstanding, when you look at some of our peer companies with much lower numbers of shares outstanding, you really can't compare our earnings per share results in a meaningful way with their results.

And we think all of those things will benefit from doing a reverse stock split.

But don't you think that doing it is -- 6 to 1 is a little too drastic?

It's going to make the volatility of the stock much more than it already is.

I don't think -- I don't think that the stock price having an increase in our share price is necessarily going to increase the volatility.

No, not the share price, but the less amount of shares.

If your question relates to the float --

Yeah.

The market value of the float for Priceline is not going to change.

Well, that I know.

But I'm saying the shares -- less shares that are outstanding, if it keeps the same volume that it has right now, it's going to have more volatility, just knowing from experience.

Well, look, I guess -- as it relates to volatility, as we've looked at the way our stock has traded versus some of our comparable on-line travel companies, clearly our stock has been every bit as volatile or every bit as little volatile, depending upon your point of view, as those that had far fewer shares.

So, we certainly don't think that's gonna happen.

And I would just add to Jeff's remarks that, you know, from a from a financial reporting perspective, we think this is going to give investors much greater visibility into our earnings per share.

And just -- you know, I'll take first quarter here as an example.

Because of the number of shares we have outstanding if you were to actually look at the first call estimates of the net income of Priceline, it actually on a rounded basis, rounded to a loss of 1.4 cents per share, which rounded down to a first call mean estimate of a penny per share, and we actually delivered slightly under a half a penny, which rounds down to zero.

Just sort of taking it sort of simplistically, if we were doing a 1 for 10, we'd be sitting here talking about first call estimates being a loss of 14 cents and us delivering an actual loss of 5 cents.

So, we just think by bringing the number of shares down it's going to bring greater insight into what our EPS actually is and the amount of net income we are making.

And when do you plan on doing this, is the last question?

We've submitted this for shareholder approval in connection with the filing of our proxy statement, and we expect it will be complete sometime after our shareholder meeting in June.

Okay.

Thank you.

Thank you.

And I'd like to turn the program back over to you.

Thanks very much, everybody, for participating in the call.

Good night.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

You may disconnect at this time and have a great day.