Booking Holdings Inc (BKNG) 2010 Q1 法說會逐字稿

Welcome to Priceline's first quarter 2010 conference call.

Priceline 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 forecast 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'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'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 statements whether as a result of new information, future events or otherwise.

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

Now I would like to introduce Priceline's speakers for this afternoon, Jeff Boyd and Dan Finnegan.

Go ahead, gentlemen.

Thank you very much and welcome to the Priceline Group's first quarter conference call.

I'm here with Priceline's CFO Dan Finnegan.

I will make some opening remarks, Dan will give a detailed financial review and then I will sum up.

After the prepared portion, we will take questions.

The group, consisting primarily of Booking.com, Priceline.com and Agoda.com, reported consolidated gross bookings for the first quarter of approximately $3 billion, up 53% year over year.

Pro forma net income was $87.2 million, or $1.70 per share versus $1.09 the prior year.

First quarter results surpassed first call consensus estimates of $1.66 per share, in the high-end of our guidance for the quarter.

Worldwide hotel room night sales were $20 million for the quarter, up 57% year over year.

We are pleased that growth in room nights continue at high levels, showing only modest sequential deceleration, while gross bookings growth rates were flat with Q4, reflecting improved international room rates and favorable currency exchange rates.

Our international business performed well with 73% gross bookings growth on a local currency basis, a slight increase from 70% in the prior quarter.

International gross bookings benefited from geographic expansion, growth in hotel inventory and growth in new markets, including results from Agoda, and from a slight year-over-year improvement in hotel ADRs.

Booking.com continues to build its supply platform worldwide with a hotel count of approximately 86,000 hotels in over 80 countries.

Agoda continues to build its business in the Asian region and is contributing to the overall international and merchant growth we are reporting.

Priceline.com's domestic gross bookings grew 16% in the first quarter, slightly above the high end of our range of guidance, aided by strong hotel results and a significant year-over-year increase in airline ticket prices.

Merchant gross bookings increased 25% as merchant hotel gross bookings, both at Priceline and Agoda, offset year-over-year decreases in opaque airline ticket and rental car sales.

Where reduced industry capacity squeezed inventory available for opaque discounting.

While consolidated operating margins improved during the quarter, domestic margins were pressured as airfare increases drive bookings growth but not revenue growth.

The mix of online ad spend increase and advertising revenue declined year over year.

I wanted to comment on a few macro externalities facing the business.

Number one, as you all know, the eruption of the Iceland volcano severely disrupted travel in Europe in April and is still causing limited air space closures.

With widespread flight cancellations, Booking.com's call centers were flooded with requests for cancellations, changes and the like.

Dan will discuss the estimated impact of this incident on our second quarter forecast.

While current booking trends remain solid, future material air space closures could adversely impact results going forward.

Number two, civil unrest has reemerged in Thailand, severely disrupting certain sections of Bangkok and forcing Agoda's team to relocate to temporary offices.

As a result, business for Bangkok and other Thai destinations is under pressure for both Agoda and Booking.com.

Nevertheless both businesses continue to grow their overall Asian pacific businesses at impressive rates.

Finally, while global economic conditions have improved, concern about the weaker sovereign credits in the euro zone has intensified with downgrades of Portugal, Greece and Spain.

To date we have not noticed an impact on demand tied to these concerns, but the weakening of the euro creates a headwind for the coming quarters and any destabilizing of the common currency or the broader European economies would clearly create challenges for the business.

All that said, the business performed well in the first quarter, and is showing demand and pricing trends consistent with improving economic conditions.

I would like to thank my colleagues around the world for their hard work and dedication.

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

Thanks, Jeff.

I'll discuss some of the highlights and operating results and cash flows for the quarter and then provide guidance for the second quarter of 2010.

Gross booking dollars grew by 53% for the first quarter, essentially maintaining the year-on-year growth rate achieved in Q4.

Hotel room nights booked grew by 57% in the first quarter versus last year, which represents a modest level of sequential deceleration compared to the 60% growth rate we reported in Q4, 2009.

ADRs, or average daily rates, for Q1, 2010, compared to the prior year first quarter, were up by about 2% for our international hotel service and were down by about 2% for our domestic hotel service.

The prevailing exchange rates when we reported our Q1 guidance on February 17 of $1.38 per euro and $1.58 per British pound formed the basis for our forecast for the remainder of the quarter.

Actual FX rates for the remainder of the first quarter were slightly unfavorable to those rates.

However when comparing our first quarter results to the prior year, FX rates provided a favorable impact.

The average exchange rates for the euro and the pound versus the dollar were up by 6% and 9%, respectively, in the first quarter of 2010 versus first quarter of 2009, which contributed to our year-on-year growth rates.

Airline tickets booked were up by 3% and rental car days booked were down by 1% versus first quarter 2009.

As Jeff mentioned, our opaque rental car and air gross bookings were down year on year due to supplier capacity reductions impacting inventory availability.

In summary, room-night growth and ADRs were favorable to the assumptions used for guidance, resulting in performance that exceeded the top end of our range of guidance in all key operating metrics from gross bookings to EPS.

Gross profit was $319 million, and grew 53% as compared to prior year.

Our domestic business generated gross profit of $104 million, which represented 10% growth versus prior year.

Gross profit for our international operations amounted to $215 million, and grew by 89% as compared to the prior year.

Total operating expenses were generally in line with guidance.

Online advertising expense as a percentage of gross profit increased versus the first quarter of 2009, principally due to mix, as our international business, which relies primarily on online advertising, grew at a faster pace than the domestic business.

And the online channel in the domestic business also grew relative to the offline channel.

On a year-over-year basis, we increased pro forma operating expenses by 43%, as we continued to invest in marketing, people, and new offices to support the growth of our business.

We recorded below the line income in the quarter of about $1.4 million, which is favorable to the expense of $500,000 that we had assumed in our guidance.

The variance relates to FX hedging gains resulting from the strengthening of the US dollar versus the euro from the date we gave guidance through the end of the quarter.

In summary pro forma EBITDA for Q1 amounted to $112 million, which exceeded our guidance range of $97 million to $107 million, and represents 75% growth versus prior year.

EBITDA leverage, or EBITDA expressed as a percentage of gross profit expanded by 440 basis points in the quarter.

In terms of cash flow, we generated approximately $105 million of cash from operations during first quarter 2010, which represents a 41% increase versus prior year.

We spent about $5 million on CapEx in the quarter.

As we announced in March, we completed a $575 million convertible debt offering during the first quarter.

We believe this represents attractive financing for the Company, with a coupon interest rate of 1.25% and a conversion price of $303 per share.

The debt has a five year maturity date and generally cannot be converted prior to maturity unless our stock trades above $455 per share.

We use $100 million of the proceeds to repurchase shares of Priceline common stock concurrent with the offering.

The remaining proceeds, as well as our other cash and investments totaling $1.2 billion, are available for general corporate purposes, including additional share repurchases, acquisitions, and debt repayment.

We repaid $98 million of principal in the quarter related to conversions of other previously outstanding convertible debt tranches, which leaves us at quarter end with about $98 million outstanding from those convertible bonds.

We received conversion notices to date for an additional $17 million principal amount of convertible debt that will be processed in second quarter 2010.

As of March 31, our cash and investments exceed our outstanding debt balance by about $563 million.

We also have our $175 million revolving credit facility that is undrawn and doesn't expire until September of 2012.

Our pro forma fully diluted share count was 4.2 million shares higher than first quarter 2009 due to a year-over-year increase in our primary outstanding share count resulting mainly from shares issued due to debt conversions over the past year, and also due to the impact of higher share prices on fully diluted shares related to our in-the-money convertible notes.

Now, for second quarter 2010 guidance.

As Jeff mentioned, our Q2 guidance is significantly impacted by two negative external factors.

First, due to sovereign debt concerns, we have seen a significant devaluation in the euro and British pound relative to the dollar, compared to the $1.38 per euro and $1.58 per British pound exchange rates that prevailed when we last reported earnings on February 17.

Our forecast assumes that exchange rates remain at the same $1.275 per euro and $1.48 per British pound as Friday's closing rates.

At or near these rates, exchange rates will have an adverse impact on our year-over-year financial results as expressed in US dollars.

Specifically, euro and pound average FX rates for the second quarter would be down by approximately 5% and 3%, respectively, as compared to the prior year.

We have hedge contracts in place to substantially shield our second quarter net earnings from any further deterioration in the euro or pound between now and the end of the quarter, but these hedges do not offset the impact of translation on our gross bookings, revenue and gross profit.

The second external factor that negatively impacted our guidance for Q2 was the volcano in Iceland which caused numerous flight cancellations.

As a result, we experienced a significant uptick in hotel room cancellations, no shows and other related costs in April.

Our Q2 forecast includes an estimate of these costs, resulting in a $10 million reduction to pro forma EBITDA.

Our estimate does not include foregone bookings, and our guidance assumes that there will not be any further significant volcano related travel disruptions.

Obviously, this is a changeable situation, and it is impossible to predict what the impact of the volcano will be throughout the remainder of the quarter.

That said, we are forecasting total gross bookings to grow by 32.5% to 37.5% with domestic gross bookings growing by approximately 15% to 20%.

We expect international gross bookings expressed in US dollars to grow by 45% to 50% as compared to last year.

And to grow on a local currency basis by approximately 55% to 60%.

Our second quarter guidance assumes a similar rate of increase to Q1 for international hotel ADRs, and an improvement to year-over-year increase for our domestic business.

We expect Q2 revenue to grow year over year by approximately 18% to 23%, and gross profit dollars to grow by approximately 34% to 39%.

For Q2 operating expenses, we are targeting consolidated advertising expenses of approximately $141 million to $146 million, with approximately $10 million of that amount being spent for offline advertising.

The deleverage in online advertising expense, as a percentage of gross profit as compared to prior year Q2, is caused mainly by the same business mix factors I mentioned while discussing Q1 results.

In addition, the increase in cancellations related to the volcano has a negative impact on this metric.

We expect sales and marketing expense of between $28 million and $31 million.

We expect personnel costs, excluding stock based compensation, to come in between $43 million and $46 million.

We expect G&A expenses of approximately $19 million to $21 million.

We expect information technology costs of approximately $6 million, and depreciation and amortization expense excluding acquisition amortization of approximately $4 million.

We expect total below the line negative impact of approximately $1 million which is comprised primarily of net interest expense, partly offset by foreign exchange hedging income.

Pro forma EBITDA is expected to range between $170 million and $180 million which represents 39% growth versus prior year Q2 at the mid-point.

We are targeting pro forma fully diluted EPS of approximately $2.50 to $2.70 per share, which represents 29% growth year over year at the mid-point.

Our pro forma EPS forecast includes an estimated cash income tax of approximately $35 million comprised of international income taxes and alternative minimum tax in the US.

Our pro forma tax rate is increasing as compared to prior year due to more significant growth in international earnings as compared to domestic earnings.

Our pro forma EPS guidance is based upon a pro forma diluted share count of approximately 51.2 million shares, which is based on Friday's closing stock price of $225.39 per share.

This is higher than our share count of 49 million in Q2, 2009 due to a year-over-year increase in our primary outstanding share count, resulting mainly from shares issued due to debt conversions over the past year.

Also due to the impact of higher share prices on fully diluted shares related to our in-the-money convertible notes.

As a result of those early conversions, the difference between primary and fully diluted share count has been narrowing.

And our fully diluted share count will be less impacted by changes in our stock price going forward.

No shares will be included in our fully diluted share count related to our recently issued 1.25% convertible debt unless our stock price exceeds $303 per share.

As for expected GAAP results, we expect to report a GAAP EPS of $1.87 to $2.07 per share.

The difference between our GAAP and pro forma results is driven by pro forma adjustments to exclude stock based compensation, acquisition related amortization, non-cash interest expense for amortization of debt discounts, including amortization of debt discount from our convertible debt issued in March, non-cash gains or losses related to early debt conversions, and certain income tax expenses, all of which are non-cash in nature to arrive at pro forma earnings.

We also intend to adjust pro forma results to exclude charges or benefits, if any, related to hotel occupancy tax, judgments, rulings or settlements.

As we have highlighted in recent quarterly earnings releases, the strong results in unit growth we have achieved for the past several quarters is to some extent helped by relatively easy comps caused by the impact of the global recession on the prior year periods.

More difficult comps, in tandem with the sheer size of the business, make it highly likely we will see a pattern of decelerating unit growth rates.

We believe our comps become progressively more challenging throughout each quarter of 2010, and therefore our unit growth rates will sequentially decelerate in each quarter.

We have seen deceleration in hotel unit growth rates thus far in Q2, 2010 as compared to Q1 and our guidance assumes this trend will continue throughout the remainder of the quarter.

Our guidance assumes that macro economic conditions in general, and conditions in the consumer travel market in particular, remain relatively unchanged.

I'll now turn the call back over to Jeff for some closing comments.

Thanks, Dan.

We are pleased with our results for the first quarter, and the current trajectory of our international hotel business.

In the face of numerous challenging external events that over time affect all international travel businesses, our business has been resilient because of the underlying forces that make the business grow.

The growth in global internet usage and the move from offline to online travel bookings, the growth in our hotel supply and geographic expansion, and the scale of our network of hotels and customers with three strong brands operating in 94 countries.

We intend to continue our investment in building out our global hotel platform and in customer acquisition and brand development and believe we are well positioned to do so, while delivering earnings growth to our shareholders.

We will now take your questions.

(Operator instructions).

Our first question comes from Ingrid Chung of Goldman Sachs.

Thanks, good afternoon.

You mention in your release that the weaker euro has an impact on your financial results.

I was wondering if you could speak to the fundamental impact.

Do you think the weaker euro will dampen bookings for US destinations from Europe?

And I was wondering if you could speak to what percentage of your bookings for Bookings.com are for US destinations?

I think the much larger portion of the Booking.com bookings are Intra-Europe, and so changes in the relative value of the euro to the dollar does not have an impact on that.

There certainly is an amount of the business that is westbound from Europe to the United States, but it is really quite a bit smaller than the business in Europe.

As I said in my prepared remarks, we really haven't seen a significant impact in overall booking trends tied to the economic concerns that really in the last week or so have come to the forefront.

The other thing I'll say is that with respect to the group's consolidated business, we've got a fairly significant diversification in terms of a large business in the United States of Priceline.com, as well as Booking.com, and large Asian business for Booking.com and Agoda.

So I think the portfolio of the consolidated businesses is fairly diverse.

Okay.

And would that also apply for southern Europe too?

Would you not see much exposure to southern Europe travel?

There is a significant portion of the European business that is travel within southern Europe and from northern Europe to southern Europe.

But again, as I mentioned in my prepared remarks, we really haven't seen a material overall impact tied to the more recent economic concerns.

Great.

Thank you.

Our next question comes from Imran Khan of JPMorgan.

Thank you very much for taking my questions.

Two questions.

One, tickets volume growth rate decelerated from 16% to 2.8%.

[Was trying to understand] -- if you can help us understand the mechanics that negatively impacted this air ticket volumes growth and how did that impact US and Europe hotel bookings, if any?

And secondly, you talked about $10 million EBITDA impact from volcano.

Can you give us some impact -- sense of how much it impacted the revenue or bookings?

I'll answer the first one and Dan can answer the second one.

With respect to airline ticket growth, I think in the case of priceline.com's domestic airline ticket business, one of the principal drivers of decelerating growth is very significant increases in air fares.

Consumer demand, and we really are a consumer leisure demand brand, is very much driven by changes in ticket prices.

And unlike our competition, we did not have a countervailing conversion benefit of having eliminated processing fees.

That is something we did many years ago, so we didn't have that tail benefit that our competition has enjoyed now really for the last full quarter for them.

And there really isn't much hotel carryover.

The domestic hotel results were very strong in the first quarter and we're very pleased with them.

And with respect to the second question, the impact of that $10 million EBITDA variance, the impact on revenues?

The impact of the volcano was primarily related to cancellations, Imran, and we would estimate that the impact on gross bookings was about $50 million of lost gross bookings resulting from cancellations.

We didn't build in any estimate related to foregone bookings because it was just too difficult to try and quantify that.

There's a lot of other factors going on in that month of April, there's different timing for Easter, and the business is performing well.

So it was difficult to attribute any lost gross bookings to the volcano.

Although no doubt there were some, we were able to quantify the cancellation impact.

But, like I say, about $50 million is our estimate.

Thank you, Jeff and Dan.

Our next question comes from Justin Post of Bank of America.

One big picture question and then a couple other things.

On big picture, are you seeing any changes in your marketing costs or effectiveness of your marketing as far as conversion rates or cost per click on your US or international business?

And then two other things.

I think your competitor had a bigger improvement in ADRS.

I think you said 1% to plus 2%.

Any reason why you might trail the industry on the improvement there?

And lastly, when you look out to June, is there a chance that some of the bookings that were cancelled come back to you as we work through the summer?

Thank you.

Let me hit the first one in terms of marketing costs.

I think Dan mentioned the most significant trend in terms of our overall business, which is that the international business continues to grow more rapidly than the US business.

And that's generally been the case for the last several years.

And as a result, online marketing costs become a larger portion of our total marketing spend.

And because that's, in a sense a variable cost, that has an impact on your marketing efficiencies, expressed as gross profit dollars and the percentage of marketing costs as a percent of gross profit dollars.

The same thing is happening in terms of the mix in the US business.

We are having greater growth in online marketing in the United States than the growth in off line marketing.

Off line has been pretty steady.

So there is a little pressure on margins from that mix.

With respect to ADRs, I don't -- I can't comment on what some of our competition has said.

But to the extent you are seeing a difference, obviously, the mix of our business geographically is very, very different from the mix of business that our competition has and that always has an impact on ADRs because they vary by region and sometimes very significantly.

And secondly, our competition typically has a much higher mix of business travel.

So their ADRs, may be reflecting an improvement in the business environment that we are not really participating in because we're mostly a leisure business.

And lastly on --.

Cancelled bookings coming back.

With respect to cancelled bookings coming back, that is not something we are particularly counting on.

I think a lot of the businesses is last minute, within a week or two of departure and typically that business doesn't come back.

The cancellations within that time frame were to a degree for travel within the impacted time frame, so those are just lost.

Thank you.

Our next question comes from Mark Mahaney of Citi.

Thank you.

Two questions, please.

First, could you comment a little bit more on the Asia business, particularly the Agoda asset?

In the past you've said that has been growing close to triple digits year over year.

Were the disruptions in the March quarter significant enough to take that growth rate materially below that level?

Secondly, in terms of access to hotel room inventory, is there anything that we should -- that you look out for in terms of a cyclical recovery that could dampen your access to that hotel inventory in any way analogous with what you are seeing with rental cars and airline tickets?

Thank you.

Okay.

With respect to Asia and Agoda, as I mentioned in my prepared text, Mark, the disruptions had a very significant impact on business for Bangkok and Thai destinations.

While I don't want to give a specific growth rate for Agoda, their business, notwithstanding those disruptions, is still growing at a faster rate than our overall business, for sure.

And at rates that we are very, very pleased with.

I will also add that the Booking.com business is growing, again as I said in my prepared remarks, at impressive rates in Asia.

So Thailand is certainly having an impact, but the business is diverse within the region and the region is having very strong growth for us just in general.

With respect to access to inventory, I think one of the principal reasons that we have had shortages of inventory in rental car and opaque air is because the suppliers in both those industries have done a very good job of dramatically downsizing their fleets.

And in the case of airline capacity, you had three solid years of capacity cuts in the last couple of years now, being aided by merger and acquisition activity, and those capacity cuts do have an impact.

Even though there are still available seats on the aircraft, it does, it has an impact on the margin.

The same thing has happened, there's been consolidation in the rental car business.

You've seen fleets downsized and I think they are being very careful in up-fleeting to take into account the fact that business is picking up a little bit.

The hotel business is different.

It is not easy to downsize available hotel capacity, and you just don't have that same dynamic of inventory being constrained by reduced capacity.

That being said, there is no question that occupancy is up, and yields are moving up.

And I think what that means over time is you probably have less promotional pricing and discounting, to a certain degree, but on the other hand, you have increased pricing.

So the units you do sell are being sold at higher gross bookings and bringing higher gross profit dollars because it is a percentage of the booking price.

Those are the two offsetting factors.

And on opaque hotels, if you look back to prior to the downturn that business was performing well, even in a better occupancy environment.

So we'd be hopeful we'd still have reasonable access to inventory.

Thank you Jeff, thank you Dan.

Our next question comes from Douglas Anmuth of Barclays Capital.

Great, thanks for taking the question.

A couple of things.

First, in terms of the international hotel business you obviously saw very good growth there again.

Can you talk about what you are seeing in terms of the competitive dynamic there?

We did see some good numbers out of the two larger competitors there.

And following up on the question regarding Agoda, can you talk about how much of an impact the Thailand situation is on the Q2 guidance?

Thanks.

I'll do the first one and Dan can do the second one.

With respect to the competitive dynamics in the international hotel business, I agree that the competition's international hotel numbers have been good and they have been good for awhile, in my opinion.

It is a giant market.

It's under penetrated in terms of online versus off line, compared to the United States, and it really doesn't have the same degree of fully developed OTA competition at work there.

So I think it's possible and it has been the case that a number of companies have been able to show pretty good results there.

With respect to our principal couple of competitors, I still think we've maintained a fairly significant lead in terms of year-over-year growth.

One point I would make is we are operating on a business that's really quite a bit larger, at least in the first quarter, than either of the businesses.

We did 20 million room nights worldwide in the first quarter, and I think our nearest competitor did 16 million.

Orbits had some very impressive growth rates for e-bookers, but if you do the math on the numbers they reported there, they are growing on what's a very, very small basis compared to the size of our business or Expedia's business.

Not to disparage those results there.

They are excellent and it is a good turnaround for e-bookers, but we think we are still maintaining a very significant lead and are proud to be able to take share when our business is selling as many more room nights, at least in the first quarter, than the others did.

And in terms of the impact, of the civil unrest in Thailand on the Agoda results, we didn't see a material enough impact that we've called anything out separately.

The business continued to perform well, as Jeff pointed, out and continued to grow in Thailand.

It's more a matter of could it have grown even faster, if not for the disruptions.

But we haven't quantified or highlighted the significant impact in the quarter related to that.

Thanks very much.

Thank you.

Our next question comes from Mike Olson of Piper Jaffray.

Going one level deeper on hotel inventory, how would you describe any differences between potential for inventory constraints in the US opaque channel versus in Europe?

And maybe, how does the disaggregation of hotels in Europe impact the potential changes in access to inventory in an improving environment versus in the US where chains are more dominant?

Thanks.

We don't look at the European market and the opaque market as having a lot of similarities.

I think that the couple of dynamics that I would mention, and I hope this is responsive to your question, is that hotels have a couple of different ways that they can discount in the marketplace.

In the United States, they -- during the recession, when fundamental demand was very, very weak, there was a lot of published promotional discounting that is available on the hotel's website and that is available across OTA channels as well.

That is, buy three nights and get one free, 20% off for certain states at certain times.

There was a lot of discounting out there over time.

And I think as business improves and as prices move up, those kinds of published discounts are reduced and you don't see as much of that and they definitely are stimulative of demand.

In the United States, the hotels have the opaque channel as an alternative and that's a channel they can use even as business improves and they're raising their prices.

They can push prices up and provide discounts in an opaque channel which is unpublished, doesn't have an impact on their published pricing and it just allows them another revenue management tool to try to push up yields, while at the same time protecting occupancy gains.

In Europe, there definitely has been some promotional pricing and discounting in published channels throughout the recession.

And I think you are seeing and will see less of that.

But in general, and I think this was part of the premise of your question.

It is a very, very fragmented market and the hotels, many of them, are not using highly sophisticated system driven revenue management models.

And it is really a question of working with distributors that can drive demand to them, allow them to control their own rates and so forth.

And I think that is the service we provide to hoteliers and I think we will be well positioned to continue to participate in online reservations there, even if the level of discounting is significantly reduced compared to what it was last year.

Thanks very much.

Thank you.

Our next question comes from Ross Sandler of RBC Capital Markets.

Just two quick questions.

First, on the international front, you said that the lost bookings from the volcano was $50 million.

We stripped that out.

And you strip out FX, you are talking about 12 percentage points of deceleration in the second quarter.

Is that just a tough comp issue?

What hotel room night growth are you assuming on the international side?

And then, second, one of your competitors talked about deceleration in domestic opaque hotel in the first quarter.

Can you just talk about the volume trends you are seeing currently in domestic opaque versus non-opaque?

Thanks.

Okay.

Ross, I can't comment on the math you did in terms of the absolute percentage points of deceleration.

And Dan will correct me if I'm not stating this accurately.

But the guidance we gave for the second quarter does imply deceleration in room night growth.

And that's intended, and that is what we guided to.

And we have been guiding to deceleration for some time now and especially as we get to the stronger comps in the second half of the year.

With respect to the domestic opaque business, while I can't give you a quantitative comment on that, we also expect deceleration in the growth rate in domestic opaque business.

And I think that is probably consistent with the comment our competitor made.

We have been enjoying very high rates of growth in that business over the past quarters and it's not a big surprise to us that growth in that line would decelerate a little bit here as we get into 2010.

That is it.

We are -- we don't give the actual forecast for hotel room nights, but we do, as we have been reporting for a few quarters, expect some sequential deceleration as we have progressed throughout the year.

And so far, we have been pretty pleasantly surprised by the gradual slope of the deceleration.

Okay.

Thank you.

Our next question comes from James Cakmak of Sidoti & Company.

Can you talk about the progress made on sharing supply inventory across your multiple brands and sites?

Also you mentioned opaque hotels have historically performed well during periods of high occupancy.

But any detail you can provide on efforts to enhance awareness for your domestic retail price disclosed hotels.

Thank you.

Sure.

With respect to sharing supply, we now have, on Priceline.com, Booking.com inventory available not only in Europe, but also in North America.

And Agoda has been selling for several quarters inventory of Booking.com to its customers in Asia.

I think that we have made very good progress in getting that integration up and running, and we believe it's been additive to the business.

The next phase of that is really one of optimization, to make sure we're able to display the inventory in a way that is additive to the group as a whole.

And to understand the relationships between how various inventory performs in different marketing channels.

It is not a trivial exercise, but in our view we have got plenty of time to get it just right because, as we optimize over time, it will be beneficial to our results.

So we are encouraged by our progress on that front, but there is plenty of work left to do in that regard.

With respect to opaque business and how we can, in effect, try to support it and build it during times of improving occupancy and yields.

There are a number of things that we traditionally have done and can do, and will do.

Importantly, while we have a lot of hotels in our opaque inventory, we don't have all of them, and we certainly don't have all that we want.

So we are continuously trying to increase the number of hotels that are participating -- independent hotels, secondary and other destinations.

And that's important.

And it drives the business.

We can demonstrate that adding hotels to our inventory helps us grow the business.

The second thing is related, which is to make sure we are doing the best possible job of communicating with the hotels where the demand opportunities are.

So that they are actively managing their inventory and pricing and making the most out of conversion from the suppliers' standpoint.

We are also continually working on our advertising, both off line and online to drive awareness of the deals that are available through Priceline.

And then obviously the blocking and tackling of website conversion making sure our presentation to the consumers are optimized.

So the level of work going on here to build the business is unchanged.

Depending on where the economy is, we are at it all the time, and we think we've got a lot of good things that we are working on now.

And we think that every year and hopefully we are right.

Okay.

Thank you.

Next question comes from Michael Millman of Millman Research.

Thank you.

Can you give us some idea of the transactions you get from customers, depending upon how long they have been a customer?

For example, first year customers, fifth year customers, et cetera?

Regarding particularly the rental cars, you've talked about tightening of fleet.

Do you see this continuing in the summer?

And can you talk a little bit about what you are seeing in retail car rental business on your sites?

With respect to transactions from customers, based on how long they have been customers, I really don't have anything to share with you on that front.

We've said for years that we have very high repeat rates in our opaque rental car and hotel business here in the United States, and that continues to be the case.

The deals people get seems to drive good customer loyalty.

And we certainly measure and monitor that in our businesses around the world.

But it is not something we give any real quantitative color to.

With respect to the rental car fleeting, while there has been some discussion among some of the rental car companies in their public statements about adding to fleet to take care of expected strong summer demand.

Our expectation is that, with respect to most discounted channels, that fleet, like last summer, will be tight this summer.

With respect to retail rental car, one thing that we do see on our website is that in times when inventory is tight in opaque channels, we usually see an uptick in our retail channels and that relationship remains intact.

Michael, for the international business, a lot of the growth there is coming from new customers, just given the dramatic growth rate, a lot of that is new business coming from the website and the continued secular shift from off line to online.

Regarding the opaque repeat business, has that business -- as inventory tightens, do you see shift from those opaque customers to retail customers?

Or are they two separate universes?

I think with respect to rental car, the dynamic I mentioned means there is some back and forth between the two.

With respect to the hotel business, our conversion has been pretty good fairly consistently over time.

So we just don't see the same dynamic of customers shifting back and forth between the opaque and the retail channel.

Thank you.

Thank you.

Our final question comes from Imran Khan with JPMorgan.

Your line is open.

He may have stepped away.

Gentlemen, did you have any closing remarks?

No, just thanks to everybody for participating in the call.

Thank you, ladies and gentlemen, for your participation.

This does conclude your program and you may disconnect your lines at this time.

Have a great day.