Booking Holdings Inc (BKNG) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to Priceline's fourth quarter 2006 conference call.

Priceline would like to remind every one, that this call may contain forward-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 risk, 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 facts, are intended to identify forward-looking statements.

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

Unless required by law, Priceline undertakes no obligation to update publicly any forward-looking statement whether as result of new information, future events or otherwise.

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

And now I'd like to introduce Priceline's speakers for this afternoon.

Jeff Boyd and Bob Mylod.

Go ahead, gentlemen .

Thank you very much.

This is Jeff Boyd, welcome to Priceline's fourth quarter conference call.

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

Priceline reported solid gross bookings growth in both our domestic and European operations for the fourth quarter.

Gross bookings of $742 million were up 38% year-over-year.

Pro forma gross profit of $100 million was up 53% and pro forma net income was $22 million or $0.58 per share.

Fourth quarter results surpassed the high-end of our guidance, due to better than forecast results in Europe and the U.S., and exceeded First Call consensus estimates of $0.41 per share.

For the full-year Priceline reported gross bookings of $3.3 billion, up 49% versus 2005 and pro forma net income of $2.03 per share, a 48% increase over last year.

Priceline Europe had an excellent quarter with $319 million of gross bookings and a growth rate of 101%, still significantly in excess of that reported by our competitors.

As expected the growth rate decreased from 121% in Q3 but not as much as we guided to as November and December bookings growth rate exceeded our expectations.

Note that the organic growth in Europe is as reported since we have lapped the acquisitions of bookings in July of 2005.

Priceline's domestic growth rate was 12% in the fourth quarter, a slight decrease from 13% in Q3.

Merchant gross bookings were up 18% in the fourth quarter an improvement from 13% growth in Q3.

Again we are discontinuing the organic reporting here since the adjustment to exclude the retail hotel business on Orbitz only represents a few points of the total domestic business.

Improving merchant results were attributable to strong growth in retail hotel merchant room night sales, despite the negative impact of losing most of the Orbitz retail hotel business and growth in unit sales of OPEG Services.

I mentioned in our last two calls that we intended to focus in the second half on improving domestic operating margins.

I am pleased to report that while our bottom line earnings growth earlier this year has been principally driven by our European results, fourth quarter earnings growth was driven by a more balanced contribution of earnings growth from both sides of the Atlantic.

Our business in Europe continues to show high growth rates in the large continental markets, which are accounting for a growing portion of the total sales.

We also continue to see benefits from integration activities, including combining the hotel inventory of bookings inactive and creating European demand for U.S. hotels and U.S. demand for European inventory.

Priceline Europe is also benefiting from growing repeat business to booking.com and other booking branded sites, where we continue to focus our online brand building.

We are also bringing our supplier-friendly model to more destinations and hotels, with a network now including over 25,000 hotels.

Priceline's domestic business had another good quarter.

In addition to the solid growth in retail merchant hotels, our OPEG air, hotel, and rental car services all experienced improving growth rates, which led to the accelerating growth reported in our merchant bookings.

Our OPEG services showed improving results as our supplier partners continued to use our product to exploit revenue management opportunities and protect hard earned yield improvements.

In terms of total gross bookings, Priceline is the fourth largest of the major U.S. based online travel agencies.

However, consider that in 2006, first, total annual gross bookings growth of 49% led this market.

Second, global sales of 18.7 million hotel room nights put Priceline second only to Expedia in what we believe is by the far the most attractive segment of the online travel market.

And finally, we believe online hotel sales in Europe of 10.9 million room nights leads the market.

While Bob will give the detailed guidance, I wanted to make a few comments about the outlook for 2007.

In Europe, our goal is to be the leading online hotel reservation service.

We are building our flagship European brand Booking.com, on a foundation of outstanding inventory, true pay in European demand, and a differentiated business model that we believe is better for both customers and suppliers.

Specific initiatives intended to maintain momentum include geographic expansion, integration opportunities in Europe and with the U.S., and building the Bookings.com brand to enhance repeat business.

In the United States, our objective is to be the leading online destination for value-conscious leisure travelers.

While U.S. growth rates for OTAs have slowed somewhat and the competition from suppliers, meta search and others to capture sales of planes and airline tickets has intensified and the compensation for doing so has diminished.

To be sure, weakness in retail airline ticket sales will likely impact our domestic gross bookings in 2007.

And as we have said before, the termination of both our OPEG and travel web relationship with Orbitz will have a meaningful downward affect on year-over-year gross bookings comparisons.

Despite these headwinds, our forward guidance implies solid domestic earnings growth.

We are not nearly as reliant on retail airline ticket sales as the larger OTAs.

Priceline's retail services are not an end unto themselves rather Priceline's full service travel offerings add choice and context to our deeply discounted OPEG services creating a unique customer experience and we believe the best travel value available.

The growth in higher margin merchant products represents a favorable shift in mix, which grows gross profit dollars and earnings.

We also believe our decision to seek greater efficiencies in our online marketing spend has been and will continue to be incrementally contributory to our earnings and margins.

While this will probably come at the cost of some gross bookings in 2007, we think it is a trade-off well worth making, especially given the fact that we still expect to have market-leading growth rates in gross bookings on a worldwide basis.

Ultimately, we believe our distinctive product line and brand complemented by a fresh new ad campaign, the Negotiator, starring William Shatner are very unique assets and we intend to leverage those assets more fully in 2007 and beyond.

With a differentiated suite of services in the U.S. and Europe, we are entering 2007 with solid momentum in our core businesses, one of the leanest cost structures in our space, and a capable team of highly experienced employees with a strong commitment to achieving our objectives.

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

Thanks, Jeff.

The fourth quarter was one of those rare quarters when almost every facet of our business on both sides of the Atlantic exceeded our financial expectations.

This was particularly true during the latter half of the quarter, which in turn gave us good business momentum as we turn toward 2007.

These Q4 results plus our early read on current business trends have imbued us with the confidence to increase our 2007 earnings guidance, which I'll review in a few moments.

As Jeff just touched upon, perhaps the most gratifying aspect of Q4 was the strong performance of our domestic business.

For those of you who have been following our company for the past year, our story was almost exclusively about the exceptional results coming out of our European operations, all while our domestic business went through a transitional period of merchandising and marketing in a somewhat difficult domestic online travel market.

In Q4, our European operations once again delivered another tremendous quarter of financial performance, which in and of itself would have driven consolidated earnings results well above our range of guidance.

However, for the first time all year, our domestic bottom line results also came in substantially above our forecast and, in fact, grew at a faster year-over-year rate in Q4 than our European business.

With that little provisal, let me quickly go through some of the details of the quarter and then get to the guidance.

I'll start with our total gross bookings 742.4 million which grew by 30% year-over-year.

As for the components, in our last earnings call, we projected that Priceline Europe would generate $280 to $300 million of gross bookings in Q4.

That guidance was based upon the monthly decelerating growth trend we had observed in October, which we had forecast to continue in November and December.

In fact, the November and December annualized growth rates maintained themselves at the October level and as a result our European annualized organic gross bookings growth rate exceeded 100% for the fourth consecutive quarter and drove gross bookings that came in substantially above our forecast.

As for our domestic business, we were basically able to maintain the double-digit growth rates that we had been able to achieved in Q3.

However, we achieved this result with a fairly dramatic and favorable change in our business mix.

As Jeff mentioned, our lower margin retail agency services, particularly our airline ticket service came in below our expectations.

On the other hand, each and every one of our higher margin merchant services, which encompass our retail hotel and OPEG services came in above forecast, even our OPEG airline ticket service, a part of our business which has consistently shrunk by double-digit percentages since the year 2000, finally grew at a very respectable double-digit growth rate in the quarter.

We believe that these domestic results demonstrated and validated our long-held strategy of diversifying Priceline away from the airline ticket business and not investing too heavily in chasing gross bookings in the commodity end of the market.

As for revenues, the strong gross bookings performance coupled with the favorable mix shift toward our OPEG products whose revenues are reported on a gross basis led to a 28% revenue growth, substantially in excess of our 15% guidance.

As for gross profit dollars, again, gross bookings over performance coupled with the favorable mix shift towards the higher margin merchant products including retail merchant hotels, allowed us to deliver pro forma gross profit dollars and growth that also came in substantially ahead of the high end of our guidance.

In fact, our gross profit growth of 53% actually represented a quarterly sequential increase from our Q3 growth of 51%.

As for our Q4 operating expenses, our Q4 advertising expense of $33.8 million was in-line with our prior guidance though with a slightly lower online mix as we continue to more proactively manage our online spend toward higher ROIs.

Personnel cost, excluding stock based compensation of $17.9 million came in above our prior guidance due entirely to higher than forecasted accruals for employee performance bonuses that are accrued throughout the year and paid at year end based upon full-year profit results.

Our Q4 general and administrative results of $9 million also came in above our prior guidance.

This was principally driven by litigation expenses related to hotel occupancy taxes and professional fees related to our recapitalization and the secondary offering of the remaining stock held by our former two largest shareholders, Hutchison, Whampoa and Cheung Kong during the quarter.

All of our other operating expenses came in within or below our prior guidance.

Our pro forma income tax expense actually came in lower than expected despite the strong pretax income performance out of European operations.

This was due to a cash tax benefit of approximately $580,000 that was recognized in Europe and we also incurred approximately $900,000 of losses associated with foreign exchange hedging activities due to the increase in the value of the euro and the pound relative to the dollar.

The euro and the pound are the two principal foreign currencies with which we transact in Europe.

These losses were generally offset by favorable FX earnings translations for our European operations, which flowed through each line item of our income statement.

We haven't spoken much about our FX hedging strategy in the past, but our general goal is to hedge a substantial portion of our expected near-term earnings, mainly through the use of fairly plain vanilla forward contracts.

Therefore, while the FX gains achieved by the euro and the pound against the dollar during the quarter and the full-year 2006 were material, the impact to our 2006 EPS was not material due to our hedging activities.

Having said that, our European gross bookings metric was certainly positively impacted by FX in 2006, and we have updated our statistical supplement to also show our European gross bookings growth rate on a local currency basis.

We reported pro forma net income of $0.58 per share, which as Jeff mentioned, represented more than 100% year-over-year growth and handily bested both our guidance and First Call estimates of $0.41 per share.

Full-year pro forma net income of $2.03 per share grew by 49% year-over-year and with the closing of 2006, we have completed a five-year run during which our pro forma earnings per share have grown at a compounded annual growth rate of 70.5%.

We reported GAAP net income of $0.33 per share for the quarter, which also came in substantially above the high end of our prior range of guidance.

GAAP results were primary negatively impacted by approximately $6.3 million of acquisition-related amortization and $4.7 million of stock based compensation expense, which reflected the impact of the adoption of FAS 123R earlier in the year.

All of these expenses were non-cash in nature.

GAAP results were also negatively impacted by the inclusion of 2.6 million shares of unissued common stock primarily associated with the $225 million of convertible notes that were exchanged during the fourth quarter.

Those shares reflect the pro rata impact of the 5.76 million shares we've excluded from our pro forma share count in past quarters, prior to the note exchange.

GAAP results also reflected very slight dilution related to our two new convertible notes with stated conversion prices of $40.38 per share that we are required to use in the calculation of GAAP EPS.

As I mentioned in very significant detail on our last earnings call, net of the impact of our convertible note hedge, none of the shares underlying our two new convertible notes begin to become dilutive unless and until our stock reaches a trading price of $50.40 per share.

And so they are eliminated from our pro forma share counts.

The average trading price of our stock during the quarter was $40.46 per share.

As for cash and cash flow, we generated approximately $32 million in operating cash flow during the quarter, thereby bringing our full-year operating cash flow to $112 million, which represents a 79% year-over-year increase and a three-year compounded annualized growth rate of 63.3%.

We have always strived to present our pro forma net earnings in a manner that most closely reflects the cash earnings of our business, but it is worth noting that our GAAP cash flow from operations minus capital expenditures actually significantly exceeded our pro forma net earnings for the full-year 2006.

As for our cash balances, we began the quarter with $359.2 million of cash and marketable securities and we closed the quarter with $434 million of cash and marketable securities, representing an increase in cash of $74.8 million in the quarter, $39 million of which were the proceeds from the Green Shoe over allotment from our Q3 convertible note offering, net of issuance costs and the cost of our note hedge transactions.

Total capital expenditures in the fourth quarter were approximately $3.2 million.

And now for a few comments on our guidance.

We're looking for first quarter gross bookings to grow by approximately 25 to 30% on a year-over-year basis, with gross bookings from Priceline Europe growing approximately 75 to 80% on a year-over-year basis.

We expect revenue to grow by approximately 15% on a year-over-year basis.

We expect pro forma gross profit dollars to grow by approximately 30 to 35% on a year-over-year basis.

As for Q1 operating expenses, we are targeting consolidated advertising expenses of approximately $43.5 to $46.5 million with approximately 70 to 75% of that amount being spent on online advertising.

We expect sales and marketing expense of between 11 and $12 million.

We expect personnel cost, excluding stock-based compensation to come in between $17.5 to $18.5 million.

We expect G&A expenses of approximately $8 to $8.5 million, information technology costs of approximately $3 to $3.2 million and depreciation and amortization expense excluding acquisition amortization of approximately $2.9 million.

We expect a total below-the-line positive impact of approximately $2.6 million, which comprises net interest income, foreign exchange, equity and income from Priceline mortgage, and minority interest expense.

We are targeting pro forma EPS of approximately $0.22 to $0.30 per share and our pro forma EPS forecast includes an estimated cash income tax of approximately $1 million comprised of alternative minimum tax in the United States and income taxes in Europe.

The midpoint of our pro forma EPS range represents a 37% increase versus last year's first quarter and please keep in mind that Q1 is the quarter in which our income statement bears the seasonal burden of significant current period marketing costs, particularly in Europe, that generate current period gross bookings, but who's revenues are not recognized until future quarters.

As for expected GAAP results, we expect to report between a GAAP net loss of $0.06 per share and GAAP net income of $0.03 per share.

The difference between our GAAP and pro forma results will be driven primarily by the inclusion of acquisition-related amortization, stock-based compensation, and certain income tax expenses, all of which are non-cash in nature, as well as the inclusion of approximately 900,000 shares of unissued common stock associated with our new convertible note offerings that we are required to use in the calculation of GAAP EPS.

As I just mentioned, because of the convertible note hedges that we have in place, these shares do not begin to become dilutive unless and until our stock price reaches a level of $50.47 per share.

While we're not going to give detailed line item guidance for full-year 2007, we are comfortable giving the following bookings and pro forma EPS guidance.

To summarize where we were before today's call, we had been forecasting full-year 2007 pro forma EPS of between $2.37 per share and $2.67 per share.

We're now targeting pro forma EPS of approximately $2.60 per share to $2.90 per share.

This is based on a pro forma income tax rate that is roughly equivalent to the 2006 rate of approximately 15.5%.

GAAP EPS is expected to be approximately $1.35 to $1.65 per share, primarily as a result of the same non-cash items that will impact Q1.

We expect to achieve full-year gross bookings of approximately $4.0 billion.

The pro forma EPS guidance for Q1 is based upon an estimated diluted share count of approximately 40.3 million shares and the pro forma EPS guidance for the full year 2007 is based upon a diluted share count of approximately 40.6 million shares to reflect estimate stock option exercises and the issuance of restricted stock during the year.

Those share counts are also based upon a calculation of the dilutive impact of all of our outstanding convertible notes and stock options based upon today's closing stock price of $45.93 per share.

On our last call, we spent quite a bit of time talking about the potential dilutive impact that our outstanding convertible notes could have on our pro forma diluted shares outstanding, and therefore our pro forma EPS.

Given the current trading levels of our stock and the recent issuance of additional convertible notes, more than ever before, our share count will be significantly affected by the trading price of our stock.

We certainly do not want to get into the business of projecting our stock price, so instead we wanted to give you some numerical guide posts to use to allow investors to better understand the potential dilutive impact that our convertible notes could have on our share count.

Specifically, at a stock price of $40 per share, the share counts that I just quoted for full-year 2007 pro forma EPS guidance would be reduced by approximately 700,000 shares and therefore our diluted share count would be approximately 39.9 million shares.

At a stock price of $50 per share, the share counts would be increased by 400,000 shares and therefore our diluted share count would be approximately 41 million shares.

Finally, at a stock price of $60 per share, the share counts would be increased by 2.5 million shares and therefore our diluted share count would be approximately 43.1 million shares.

Finally, I'll point out as I've done on previous calls that all of our forecasts are based upon an assumption that we will continue operating in a consumer travel market that is roughly similar to the current one.

Any terrorist event, particularly within the United States or Europe, would in all likelihood have a negative impact on the travel market in general and our operating results in particular.

With that, we'd be happy to answer your questions.

[OPERATOR INSTRUCTIONS] Our first question or comment comes from Anthony Noto with Goldman Sachs.

Your line is open.

Thank you very much.

Jeff and Bob, I was wondering if I could get a comment on the OPEG air business in the United States.

Obviously, the business has assumed resurgence here, and I was wondering, is it related to anything other than just the high retail prices, or are you also getting more inventory?

I'm trying to understanding what's driving better conversion and then are you seeing those trends continue into the first calendar quarter of this year and do you think they could last for a while, or is it a one quarter benefit?

And then I have one follow-up, thanks.

Sure.

Anthony, the OPEG air business has done well in the last couple of reported quarters and we mentioned last time and I'll mention here again that everybody should keep in mind that our comparables from a year ago are not particularly stellar, so we are now comparing ourselves to the third and fourth quarter of 2005, which were not strong quarters for that business, but nevertheless the business has seen a resurgence and it's associated with both high retail prices as well as good inventory and the combination of the two basically is increasing the amount of savings that we're able to offer consumers.

And I think that what's really behind it is that the airlines are taking advantage of the revenue management opportunity that our product affords them.

They've seen real progress in getting their yields up and this allows them to supplement their load factors without publishing lower retail prices.

So the product is being used the way it should be and I think it's obviously good for us, but we think it's good for our suppliers too and we're expecting the business to continue to perform well in the first quarter.

I can't give you a long-term outlook on it, because we just don't have that much visibility on broad market travel conditions going later into the year.

The conditions for it now are favorable.

Great.

Thanks, Jeff.

Bob, I was wondering if you could comment at all about the use of your balance sheet further for buybacks from the standpoint that estimates continue to go up pretty meaningfully in your stock price.

Obviously it's showing some reflection of that, but do you think there is an opportunity to be more aggressive with buybacks than you were earlier in the year?

Thanks.

It would be hard for to us say that we are going to be more aggressive given that we bought so much of our stock back in one big chunk when we did our recapitalization and converts.

Other than saying I don't expect that in 2007 we buy as much stock in 2006, I wouldn't want to comment anymore about what our plans are.

We have an authorization in place that has a remaining dollar amount of -- I don't know the exact amount, but it's roughly 20, $30 million.

You could at least use that as a guide post in general in terms of what our availability is and then in term of when and if we would be in the market we generally don't comment on that.

What's your philosophy on at least offsetting the dilution of the convert if you, in fact, get your stock price above that level.

Are you willing to at least say you would like to do things that would eliminate the dilution?

It certainly represents an option if we become concerned about the dilution.

I think we would look at it as a combination of factors of how the business is doing and what the outlook for the business is, as well as how that outlook is translating into movement in our share price.

Great, thanks.

Thank you, Mr. Noto.

Our next question or comment comes from Aaron Kessler with Piper Jaffray.

Your line is open Mr. Kessler.

Good quarter, first of all.

Couple questions.

First, Bob, can you give us an update on what the agency revenues were for international?

Either on the net revenue basis, I think you reported on two different ways there for agency merchant for international?

And then while you're looking for that, if you don't have it, can you give the sense internationally if you think it's share gains that's driving the growth, or a combination of market strength overall, what's your sense for what we're seeing in the international markets?

Thanks.

Aaron, let me hit the international question first.

I think that our growth rate continues to be higher than some of the competition, so you could define that as share gains, but I think really what's driving it is not necessarily taking away from the competition as much as there being significant room for growth in what's a very, very large market and a market in which the trends for travel and eCommerce are just very, very favorable.

I expect that our competition has very attractive growth rates for their hotel business in Europe as well.

I think there's room for everybody to grow, but I think we're growing a little bit faster because we've got a better model and a better inventory.

And you also seem to be de-emphasizing the Active brand, is that correct in going more towards the bookings.com. is that how you're doing that?

Yes, booking.com is our primary brand in Europe now.

We're using it in the U.K., as well as in continental Europe.

While we'll continue to support the Active brand, Active reservations, and some of the other brands we own in Europe, our primary marketing thrust will be behind Bookings.com.

I don't know if Bob had any of those numbers?

Yes, the revenue Aaron, the agency revenue in Europe was $47.4 million, as I think you know, that's basically pure gross profit.

So that would also be the gross profit in Europe.

Great.

Thanks so much.

Thank you, Mr. Kessler.

Our next question or comment comes from Michael Millman with Soleil Securities.

Your line is open, sir.

Thank you.

That's Soleil.

In terms of Europe, maybe you can parse it a little bit.

Give us an idea of how much ADR increases represented the increase in room nights per hotel and looking for something on comparable growth in terms of hotels that you had last year versus this year.

Without getting into too much detail, I think I'd feel comfortable saying that our room night growth generally has been higher than growth in number of reservations, so we have seen some benefit from higher room nights per reservation.

I wouldn't want to get into any further detail than that.

The only thing I would add is that ADR has probably had very little impact on the room nights.

It's had an impact on gross bookings, but not on room nights, and we don't publish average ADRs by product.

Okay.

Can we just assume it would have been something like 12% -- western Europe was up about 12%.

Can we assume that was similar to Continental Europe, ADRs?

Again, we didn't -- we do not provide ADR data for any of our products including Europe.

So that 12% number is not our number.

Okay.

Can you talk about now with some of your at least U.S. competitors, but they're also international becoming private, how do you think that could affect the competitive environment, how they might invest in certain areas and what that impact could be on your business?

I think that the -- these going private transactions could have a couple of impacts.

Some of them might be beneficial for us if a primary thrust is to cut cost, for some of these to generate immediate increases in annual EBITDA.

That could potentially have a positive impact on us to the extent that these transactions imply consolidation and integration of operations, that also could take the focus away from trying to build the business organically and perhaps that could be good for us.

On the other hand, private companies may feel more free to invest in marketing and to try to build long-term growth in a business.

If that were one of the impacts, potentially that could be a negative for us.

Just a couple quick bookkeeping.

On the tax, should we assume that a normal rate in the fourth quarter should have been this 15% pro forma normal rate?

I'm not sure I understand the question.

Are you trying to get to the guidance number for 2007?

No.

I was trying to look at the fourth quarter '06 --

Yes, as I mentioned in my remarks, our Q4 cash taxes were favorably impacted by a $580,000 benefit.

So if you wanted to come up with a quote/unquote normalized, you would add that and then come up with your tax rate.

Okay.

Relatedly, there was $100 million gained in cash between the third and fourth quarters.

Wasn't quite clear how you got there?

That would have just been a change in the maturities of marketable securities relative to cash equivalents.

That would be the first point and the second point would be you may have noticed it on our balance sheet.

We did have a fairly material restricted cash balance and in the quarter that cash balance went down quite a bit to roughly $2 million and change.

And that's really as a result of the continuing credit improvement in our credit profile.

Historically, to the extent that we had to issue letters of credit to some of our venders, we had to back that up by posting cash collateral.

Now, obviously given the profitability, we're no longer having to do that, and so therefore the restricted cash designation has been eliminated.

Great, thank you.

Thank you, Mr. Millman.

Our next question or comment comes from Justin Post with Merrill Lynch.

Mr. Post you line is open, sir.

Thank you.

Can you talk about the deceleration implied in the guidance in the first quarter.

Are you seeing anything in January or are you just kind of trying to be conservative like last year?

Bob, we've talked a lot about the inventory benefits in Europe, the two different sites helping each other out and you're kind of coming to the end of that.

Does that factor into your guidance at all for next year?

Maybe I'll take the first one and Jeff can take the second one.

The deceleration, if you're asking about Europe, I don't want to comment on the relative conservatism of the number.

Anytime you're guiding to 75 to 80% year-over-year growth in any metric, let alone a metric that's already over $1 billion from the prior year, we view it -- these are big numbers and so yes, we've said on at least two or three of our last calls that the year-over-year growth rates of triple-digit rates in Europe are going to come down.

And so that's more representative of just what we view as a mathematical certainty as their European business gets bigger and bigger and as we comp against increasingly difficult quarters from the prior year.

And the second thing I would say is for our domestic business, we mentioned on our last call and Jeff mentioned in his remarks that we don't have the Orbitz private label business this year as we did last year.

And we mentioned that was going to be a negative impact on our merchant revenues, and so our guidance implies that.

As to the benefits of inventory integration in Europe, we did start to capture some of those benefits in the last half of last year and in the fourth quarter of last year, so we will get to a point where we're going to anniversary some of those benefits, but I think there's a lot to be gained in the first part of the year, and I think that's implicit in the high growth rates we projected for the business for the fourth quarter.

Last question, anything going on in marketing efficiency side in Europe?

Are you seeing better conversion rates?

Are you getting more revenues per dollar search spent?

Anything you can comment there?

I really don't want to get into comments like that, because we view them as competitively sensitive.

All right.

Thank you.

Operator, any other questions?

Is the operator there?

I think that's it for questions.

Thank you all for participating in our call.

Thank you very much.