Match Group Inc (MTCH) 2003 Q1 法說會逐字稿

Good afternoon and welcome.

All participants will be able to listen only until question-and-answer session of the call.

This call is being recorded.

If there are any objections, you may disconnect at this time.

I'd like to turn today's meeting over to Mr. Victor Kaufman.

Sir,?

Thank you, operator and hello everyone.

Before we get started, once again, our lawyers insist that we say that we may discuss on this call our outlook for future performance.

There are of course risks and uncertainties associated with these forward-looking statements and our results could be materially different from what we currently anticipate.

We also refer you to information regarding these risks contain in you are public represents filed with the SEC.

We'll also discuss today certain non-GAAP measures and I refer you to our earnings release and budget for the comparable GAAP measures and a full reconciliation.

In addition to strong financial results, we're probably also breaking a record today of the greatest number of participants from a company on a quarterly earnings call.

The primary reason for this record relates to our recently announced buy-ins of our public subsidiaries.

So joining me on the call today are Barry Diller, our Chairman and CEO;

Dara Khosrowshahi, Executive VP and CFO;

John Pleasants;

President of Information and Services;

Tom McInerney, President , Electronic Retailing;

Anne Busquet, President, USA's Travel Services;

Erik Blachford, President and CEO of Expedia; and Gregory Stanger, CFO of Expedia.

Dave Litman, CEO of Hotels.com;

Bob Diener, President; and Mel Robinson, CFO of Hotels.com; and Roger Clark, VP of Investor Relations and Finance.

Now to substance and very brief.

As you know, we will no longer have any publicly traded subsidiaries.

And this is a very important development for us.

We started on this process to simplify the company exactly one year ago.

And now the process is complete.

And USA is in its strongest financial and operating position in our 7 1/2 year history.

Our first quarter results very much punctuate this fact.

We grew EBITA and adjusted EPS by over 100% on a comparable basis to last year and quite significantly we realized over $400 million in cash flow which equals about 50% of our budgeted free cash flow for 2003.

While some of this expansion in pre cash flow relates to working capital and seasonality, it's an extraordinary number that bodes well for us to significantly exceed our yearly budget.

We're very cognizant to run our business on a true cash basis and obviously this deal is showing in our results.

It's possible, even though it's a stretch, and although we're not making any predictions, that we could achieve a billion dollars in free cash flow for this year.

And correspondingly, somewhat in excess of a billion two in net cash provided by operating activity, which is the GAAP measure for this year.

That becomes a nice goal for us, large round number, but achieving it would really show the true strength of our operating assets.

When you look at our cash flow from operations, as stated on a GAAP basis for the first quarter, in comparison to other companies, it's potency is truly obvious.

We achieved a result two times E-bay, well in excess of 10 times Amazon, four times Yahoo, and two-thirds of Viacom, a company that's four times our size.

With that thought, we think that's a significant one, I'm going to ask Dara Khosrowshahi to run through with you some of the metrics that relate to the first quarter.

Thanks, Victor.

As you mentioned, we had a great quarter.

Travel revenue was up 93% and EBITDA for travel was up 86% over last year.

This is despite the war which affected bookings in March and early April.

Some of which will be recognized in our revenue in Q2 in addition to what was recognized in Q1.

Excluding interval and TVTS, travel revenue and EBITDA increased 74% and 56% respectively.

The decrease in EBITDA margin is mainly due to increased marketing spent for the hotels.com brand which now accounts for 36% of hotel.com's bookings.

Expedia also grew dramatically on all measures, including international which increased its revenue 129%.

And revenue from packages which grew 137%.

Travel properties collectively generated more than $2.3 billion in gross bookings of 75% increase, including booking more than 5 million hotel room nights for the quarter.

That's an average of 55,000 room nights every day.

Ticketing also had a phenomenal quarter.

Revenue and EBITDA were up 27% and 72% respectively, with Ticketmaster selling over 10 million tickets in March which was a new record in online ticketing percentage over 50% for that month, again a new high.

International results were excellent with a 30% increase in the number of tickets told overseas, now we do think that some of the domestic growth that we saw was driven in part by promoters who are looking to sell tickets in advance of the war.

So we don't expect these kinds of results for the rest of the year for time Ticketmaster.

Electronic retailing had good results thanks largely to HSN International, which increased revenues by 78% and reversed an EBITDA loss of $5.5 million in [INAUDIBLE] to a positive $15 million this year.

International results were driven by [INAUDIBLE] and Germany which continued its turnaround and increased its gross margin 330 basis points compared to its prior period, and very strong results from Euvia, not fully consolidated in the prior year period.

We also benefited internationally from the Euro dollar exchange rate for the quarter.

Domestically, despite the difficulty retail environment on the war's impact on our business, HSN posted single solid single digit growth rates and basically hit its target. [INAUDIBLE] strong revenue increase of 61% but EBITDA fell short of our budget, this was principally due to our marketing campaign which required more investment than we had previously budgeted.

We also closed our acquisition of [INAUDIBLE] on April 4 and on a pro forma basis would have 918,000 subscribers pro forma for that deal at the end of Q1.

We also completed our acquisition of EPI and their integrated offerings with Citysearch as well as our other properties.

Citysearch launched paper performance model in local markets and we're looking for that model to start to translate into revenue later this year.

Overall, our EBITDA margin increased 460 basis points, to 12.4% from 7.8% of the year ago period, which is obviously a great trend.

With that, we'll take your questions.

Before we go to questions, Mr. Diller would like to add a few comments.

Very few, as they say, it's definitely been a quarter.

This hyper growth, obviously reflects what it reflects.

I don't think there's nothing that is particularly extraordinary about it, other than its basics.

But we should not get ahead of ourselves.

Life is not built in a quarter.

I think in a sense, this is the accumulation of an awful lot of detail and it's also the obvious strength that you get when you look at all of our operations in one unified security.

I think the real thing for us to do is answer your questions, which we will do for about 40 minutes or so, as long as they last.

And as usual, ask us anything with any toughness that you can muster.

So with that, questions.

Thank you, sir.

Our first question is from Anthony Noto with Goldman Sachs.

[INAUDIBLE] -- trends that were nice positive surprises, the first is at Expedia, it was believed going into the quarter, based on management's planned discretionary spending and investments in international and corporate travel as well as a timing issue with gross bookings revenue in marketing, that the margins would contract sequentially from the fourth quarter.

In fact, the margins not only did they not contract to the low 20s, they actually expanded.

And it looks like a big piece of that expansion was not actually cost savings but gross margins.

I was wondering if you could comment on the driver of the gross margin and whether you think that's sustainable.

The second question I had was specifically for Barry.

Barry, prior to bringing in Expedia and Room, I I'm sure there were many things you would have liked to have done with the two companies, but not having complete operating control may have been limited.

What's the number of one or to two things that you'll be able to do over the next couple of years with both of these assets under your operating control and complete control with free cash flow?

Thanks.

Erik Blachford, CEO of Expedia is -- I'll say he's far better qualified than me to answer this question.

I'm going to let Gregory Stanger take it, Barry.

--a vast understatement.

But go ahead.

With respect to the margins, Anthony, you know, it's hard to point to a single thing.

We actually had sort of a across the board a number of areas in which things worked out for us a little bit better than we had expected when we created our operating budget from a gross margin perspective.

You know, one thing I'd point to is on the air side, we benefited from some override payments from airlines which, as we've said in the past, are very difficult to predict in advance.

We also continued to see very strong performance within our call centers in terms of how many calls we are receiving and how efficiently we're telling where dealing with them.

Our ADRs came in above plan on the hotel side, that contributed as well.

And there were a couple of other things that sort of filled in the pieces from there.

Greg, do you think that's a 70-plus number?

Because the mix actually shifted more towards agency to merchant, that's an obviously lower margin business.

Do you think 70-plus is a number you can sustain?

Are those things maintainable?

I think at this point we are not in the position to be updating our budget.

Other than to communicate that we think we're very much on track with that budget for the remainder of the year.

Okay.

Or the second -- what was the second question?

Barry, now that you will fully own Expedia and Room, not just really focused on timing--

I got it, I heard it, you want me to answer it or repeat it?

I thought you were asking me to repeat it, sorry.

No.

No no no.

As far as operations were concerned, what we have said is certainly in the near term, we're going to operate these businesses separately.

But they have already begun to talk about life post the closing of the transaction and there's been an immense amount of enthusiasm, collegiality, and cooperation to figure out what now is possible when they are combined into one security and there are no conflicts of interest with minority shareholders.

So we've certainly looked for opportunity there.

As far as the cash flows that we have, it's -- it goes on to the pile we already have.

Which we've said before is building up at some would say an alarming rate, and others would say just fine for now.

We will, in the next six months or so, probably resolve our kind of plot for what to do with it.

As we said before, you do three things with it, you either acquire, you invest in your own businesses, or you shrink the capitalization.

I would suspect we would do a mix of all three, with probably the least activity on the acquisitions front in terms of cash, more than likely.

But again we're really now just hitting the kind of absolutism of the fact that we just have a great deal of cash that is not working best for us, i.e., it is not deployed and it will get deployed through one of those -- a mix of those three options that I just spoke about.

Great, thank you very much.

Pleasure.

Next?

One moment.

Our next question comes from Victor Miller one moment.

One moment.

Hello?

Victor?

Yes, hi.

In your -- in the letter that you.

Are you watching the box or what were you doing?

No, he said one moment, so I was waiting for the cue, sorry.

That's okay.

In your letter that you wrote, you said from a structural standpoint, there's only one lingering piece of the puzzle, the DUE securities, and you talked about the importance of making them not passive, but more active in terms of your balance sheet.

Could you talk a little bit about what you see there?

And secondly, could you have the Ticketmaster/HSN and domestic international travel services side of your business talk about the impact of the war on the pace of business you saw in first quarter and second quarter in terms of changing buying patterns and how business looks in first and second quarter?

And whether you have comfort still, given the SARS and these other things war, on second quarter budget that you released in February of 2003.

Thanks.

Sure.

As it relates to DUE and the securities, what we have said is that it's, you know, kind of dead capital so to speak.

I mean, we think it's safe.

It does pay current coupon.

But we'll be paying the taxes that are appropriate, that will be resolved, we think in the fairly near term, but it's safe.

But it's sort of [INAUDIBLE] dead money.

What we will do, assuming nothing else happens and we think something else probably will happen, so as we've endlessly said, we are not anxious in regard thereto but if things stay exactly the same, there are various ways for us to convert back or -- sorry, I don't want to use the word "convert" -- there are ways to monetize that and get us the value -- get us the cash so we can make it living rather than not.

As far as SARS, the war, et cetera, one of the things that I found, and I certainly invite John Pleasants and Erik or David Litman, Bob Diener, to talk about this relative to ticketing and travel, what we've seen, despite war, despite fears of SARS, which certain affected us in Canada, but not for very long, that we are able to, because we are able to surmount these issues that go beyond normal commerce, normal life, and we now have done it in -- we think it's quite remarkable since 9/11, the after effect of 9/11 in terms of our travel, people going to outdoor, indoor venues, to -- for entertainment, sports and things.

The effect was sharp but incredibly short.

So I don't think -- I don't know what might have colleagues have to say, but I say it by certainly holding our breath by saying well, you know, you could get some terrible event that would happen and react to that obviously differently.

But I don't see any of these events as having an appreciable impact upon what we do.

Any differing opinion from my colleagues?

Victor, this is John Pleasants, I would only add to that, in terms of the ticketing business, it actually served as kind of an accelerator for the first quarter.

The one thing we did see is many of our clients and promoters took some of the on-sales that they were planning on launching the beginning of the second quarter and accelerated them to the timing just before the war.

And some of that contributed to the really bang-up quarter that we had in time period Ticketmaster.

There was a timing shift did due to the war, but ticketing has proven to be resilient both during this war as well as 10 years ago during the first Gulf war.

I think we may have in our Match business seen a slight effect.

We had a strong first quarter in match but we did see the back end of the first quarter fall off in Match a little bit in terms of the amount of new subscribers coming in.

It's hard to prove, you've got advertising going off and on in different cities, a lot of difficulty to pin the causality, but I would say the war mood, I think, made people not so eager to go run and consider their dating initiatives and desires.

It wasn't a pick fall off, but got softer right when the war started.

I think it had a slight impact on the match making business but in terms of local services, it really didn't affect us at all.

From the Expedia side, if you like, it's Erik Blachford.

We think that our bookings our gross bookings in March probably would have been about $75 million higher absent the war, and towards the very end of the month, I guess, SARS as well.

So that's not all going to be reflected in terms of revenue in the first quarter because of the way we recognized revenue on Merchant is on stay, not on bookings.

Some of that will be in Q2.

Also the impact of SARS for us has been pretty small.

Business going in and out of Asia is not a big part of our Expedia's business.

I don't think we'll see a lot.

In general, as Greg said before, we're not really updating the budget we're tracking well against it.

Despite all those.

Hotels.com, it's Bob Diener here, a very similar comment, we saw some effects due to the war, they were fairly small, somewhere in the 2 to 3% range of revenues, mainly affected international travel.

But the demand for online hotel bookings is so strong that despite the war, despite SARS, despite the economy, we continue to do well.

We're continuing to track on budget.

And the SARS effect is very minimal.

So Barry, is the summary that your business is resilient and, therefore, your budget is resilient?

Victor, this is Victor Kauffman, just to add to that, we're not kind of updating quarterly budgets.

We don't think that that's appropriate.

We really feel, as you know, that we want people to think in terms of the long haul and what we've said is we expect to equal or exceed our budget for the year.

--for now.

Thank you, Victor.

Very helpful, thanks.

Next question.

Our next question comes from Naraj Gupta of Citigroup Smith Group.

Good morning.

That's an interesting name.

Good morning everybody.

Naraj Gupta from Citigroup Smith Barney.

I guess for Erik and Barry, could you expand on what you view as the significance of the recent agreement with Hilton hotels and what that means if anything for how business will be done in the future?

And secondly, I was hoping John Pleasants could update us on the model for Citysearch.

Thanks.

Go ahead, Erik.

Sure.

I would say that the interesting thing about the Hilton deal is that mostly we've got a really good strong partnership with one of the leading hotel brands in the world.

And that's a sort of an exciting development for us.

Is, you know, it's been an interesting time dealing with both the franchisees and also the franchisors and we're happy with the fact that we've come to an agreement with [INAUDIBLE] that we think makes a lot of sense.

I think it's worth pointing out a couple of things, because it's gained a lot of attention, firstly, recall that the hotel market overall is extraordinarily fragmented and even a brand that's got household name penetration like Hilton represent as small fraction of our sales.

It is a little bit -- the sizzle that we're looking for in getting a relationship in place with that.

It's also worth pointing out the 18% margin that's gotten a lot of attention, it only applies to the hotels that accept the terms that Hilton corporate negotiated.

And we're not going to see that accepted by every single hotel.

You know, now that we're owned 100% by USAI and hotels.com is also, I think it's very unlikely that we would strike any further deals that look like this because a big part of this deal was exclusivity which we don't think is appropriate any more for obvious reasons.

John, do you want to take the second part briefly?

Sure.

Let me start with Citysearch and the pay-for-performance question.

I think the strongest thing we can say is we began this year with a little under 8,000 paying customers on Citysearch.

And today we have over 13,000.

There has never been a quarter like that in the years that we've been reporting on Citysearch would where we've seen that kind of growth.

It's very much tied to the reception that the pay-for performance model has been received from merchants who we rolled it out to.

We started on the ground rolling it out on April 15.

The productivity we've had in the first two test markets as well as now across the country is running at about four times the sales productivity that we had in the past.

And we are on a run rate to achieve our goal of having 25,000 paying customers by the end of this year.

So again, selling side of it is working well.

On the discount side, we've done a lot of things since we've now had Entertainment in house for about a month.

We've been working on integration plans for sometime.

The most substantive thing we've done is Entertainment has entered into an agreement with hotels.com whereby they will be fulfilling the hotel section of the discount membership and program.

We believe that Entertainment drives about half a billion dollars of hotel business on an annual basis.

And historically, Entertainment has had no revenue stream coming from the actual transaction value that has been generated.

Now working in partnership with hotels that will change and it's a new source of revenue for both Hotels and ourselves.

So we're excited about that.

We are selling the Entertainment book on HSN now.

We have integrated 275,000 line listings into Citysearch where we are offers the line listing deals.

We'll be launching in the next 30 days a travel package that will be merchandised on Expedia.

So the integration is going full bore and we are in the early midst of developing and getting really to roll out in the third and fourth quarter our new electronic program, credit card enabled.

That's the work going on in Entertainment.

Thank you very much.

Next question, please.

Thank you, our next question comes from Safa Rashtchy with Piper Jaffray.

Hello.

Can you hear me?

We hear you well.

Ok, thanks I wasn't sure.

A couple of quick questions for you.

First, can you talk a little bit about the integration plans between Expedia and hotels.com?

And I might have missed part of it, I can certainly follow-up off-line on this, I apologize for that.

But I'm curious if you have a time line and series of plan integration models, kind of along the lines of what John was talking about with Citysearch.

And second, just kind of follow up on the previous quarter's questions about HSN.

It continues to underperform the budget, at least on the revenue side.

While it appears to be fairly profitable in national catching up.

It does appear to be a drag on your overall growth rate.

And I'm just wondering, Barry, do you have a timeline as to how long you would wait to see if it can be integrated to the degree that it will offset the growth or you would consider other options?

Thanks.

I think we can deal with the integration of hotels and Expedia and there are no timelines here.

But you will see as the year goes, obviously the opportunity that we have now, that we didn't have before, will come into play.

As it relates to HSN, I mean, HSN, in a very difficult environment, is actually performing satisfactorily.

And I'm going to ask Tom McInerney to speak directly to the first part of your question and I'll return for the second.

As Barry said, Q1, while we missed our top line budget, it was really pretty solid quarter.

I think we had two effects that I'd point to in Q1 which hurt us.

One is for the first two weeks of the quarter a year ago, it was actually pre-disengagement so we had many more homes.

We didn't pro forma that out, because it was only two weeks.

Then the second was the March and the war effect.

I think both of those things combined probably cost us about two to three points of year-on-year growth if you calculate it out.

I think the business adjusted for those effects, was really performing in kind of the higher single digits, seven, 8% type year-over-year.

While that was a couple of points over our budget, I think a significant improvement over some of the trends we saw last year.

As you said, we only missed our EBITDA budget by a couple hundred thousand, few hundred thousand dollars.

While it's certainly the business, given its stage of life does not grow at the rates that some of our other companies, we think it very much has the potential to grow at a 10% type range for the year, top line.

Leveraging into a mid-teens double digit year-over-year growth on the EBITDA line.

And generating a lot of free cash with a lot of up side because of the activities we're pursuing on HSN.com and new technologies and things like that.

So we are quite optimistic about it.

Just to add to that, even though our resulted HSN are kind of mixed in the sense that it's kind of a, you know, a product-driven business over the last three years, we've still grown our EBITDA line by more than 20%.

We anticipate that we're going to be able to continue to grow by more than 20% for the years to come, and we think it's a good business.

We do think it's a good business.

I don't want people to -- we've talked about this in the past, we've been asked questions and we kind of cracked a little light more than I think -- I don't know if that's either a small baby or a coyote -- but in any event, we've let a little light on to this, we don't want it to be a blast of headlights because we have not gotten disheartened about the electronic retail business.

We're obviously in some very, very high-growth businesses.

But, you know don't forget that this electronic retail, this primitive convergence is the gateway to everything that came after it for us.

And don't forget that what HSN.com does, which is still in its infancy, and is going to have sales of, you know, a quarter of a billion dollars this year, and it, the Dot-Com part of it that Tom alluded to and all the things that are going to come out of that, sort of backwards, the influence that prosaic video, one item at a time business, are going to be substantial.

So I don't want people to think, having said that it's not a core critical asset, to USA and we would not consider all sorts of configurations for it in the future, for people to think that we're either in discussions to do something with it, which we are not, or that we're somehow compelled to because we are also not.

Next question.

Our next question comes from Rich Biloti with Morgan Stanley.

Good morning, following up on the last shot about home shopping in looking for the future of the business, is this business that is driven off of the [INAUDIBLE] of online properties?

In other words, you use the branding of all of the different USA entities to funnel traffic into HSN.com is that the primary growth strategy or is it to try to reinvigorate the off-air sales and, therefore, is it really about merchandising?

Because it seems to me that the single largest differential between HSN and QVC is the two levels of sales for FTE.

If you disagree that that's the primary difference, that in itself is interesting.

But how do you rectify the difference?

You do it one way, through better merchandising, and better execution throughout.

But the real key is real merchandising.

And that's where it is -- it does come down to what is the product.

And the emphasis on that and the focus on that, I think, Tom McInerney would say is intense.

It had been has not been for a whole host of reasons previously, as intensely focused or well-executed as it has needed to be.

But it is in the product primarily because we have fixed all of the other, we think, competitive issues with QVC.

And we have, you know, we don't have parody with them on distribution but we have enough to make a difference as you say, within the individual home and how much sales per home are generated.

And so there's real opportunity there.

And on the Internet side, the Dot-Com side, I think what you'd have to look for from us is beyond just the linkage to our other properties, is how we will get into other retail categories that we think have off-to-online leverage and scaleability that we are not in, that we intend to get in within the next six months to a year.

That's where we think the growth really comes.

So it's not a question of scale in other words, it's a question of picking the right products?

Well, it's a question of -- on HSN on air?

Yes.

On on-air, I really believe, Tom, please disagree if you wish, it is now nothing structural any longer.

Look, we lived through the disengagement, we understand what disengagement means, people who know about us, understand what it means, the world at large doesn't.

But for us, we had shifting distribution that affected us for the first really six years of, you know, HSN in our seven-year life so we are through all of that.

I don't think there are any structural issues left at HSN.

The only issue left is what the product is at the very -- you know on a minute by-minute basis and how competitive is it, how well merchandised it is, et cetera.

It's all, I think, in the product.

I don't think it's in marketing, I think it's in the product.

Thank you.

Next question, please.

Our next question is from Jatile Patel with Deutsche Banc Securities.

A couple of questions.

I was curious, just looking at HSN, you know, it looks like gross margins have been moving higher while the revenues have come in slightly lighter.

Seems like just gross profit dollars per, in general, came in in line even despite the kind of top line coming in slightly lighter.

It seems like the merchandising strategy is working.

So from that standpoint, where do you think the health and beauty and jewelry percentage goes to by year-end and over the next two years?

It seems like you're driving the frequency of visitors or buyers on the -- on air and online.

And it seems like that's playing out well.

How do you expect the mix of the business to play out in the higher turning categories over the course of this year?

Second is on acquisitions, I guess as you look out into 2003 now, and going to '04, if you were to prioritize one area, which one would you think is probably a bigger acquisition opportunity, whether it be international, other vertical markets in e-commerce or transactions, or new services, such as subscriptions.

In looking at Expedia and Room together, you sold 5 million plus room nights, what kind of buying power do you have there, is there any opportunities to improve margins continually over the next few years, but how much of an opportunity is there from a margin improvement standpoint as you leverage the collective kind of scale of both these franchises together?

Tom, why don't you take a crack at the first piece.

Okay.

Just on the mix issue, I think as you noted, we did skew a little higher towards some of the higher gross margin items in Q1.

I think in general you will see our mix be reasonably constant with current levels.

It moves around quarter-to-quarter depending on how our programming schedule plays out.

But I don't think there are any dramatic, what I'll call strategic moves to shift the mix in any one direction.

We're very cautious right now with apparel in particular because that's the most hard hit of the retail categories.

The hard home area where we capture electronics, tends to be very item-specific.

So where we have great items, as Barry said, we will air them.

And if we don't, we will be cautious.

And health and beauty where we're very strong in jewelry, we think are more resilient than other categories of retail so.

If anything, there's a bias towards increasing air time to those but it is very much of an item-specific, day-specific strategy as opposed to any overall strategy to move mix on a category basis basis.

As to acquisitions, the only thing I would say is stay tuned, which is all you can say about that.

We've talked broadly about what we're interested in, that has not changed.

But anything that narrows that down is not do-able.

Not discussible.

As it relates to margins, I think that what I would say about this, my colleagues can chime in this if they like, is that I think they're stable.

I think that they're sustainable.

And I don't think that there's anything more, at this stage, to say about them other than that, which is what we think will be true throughout the balance of this year and beyond.

Next question?

Our next question is from Peter Mersky with Oppenheimer.

Thanks very much.

Two areas.

First on HSN international, it seems like we've been talking about that underperforming, this time it looks like it did very well.

Can you go into what happened, tell us what maybe we can extrapolate to the rest of the year? and the second on the warrants that you disclosed that you talked about, you haven't historically bought back shares but in the instance of large amounts of warrants being exercised, do you think you might do that?

Tom, do you want to take the first part of this?

Sure.

In the international retailing area, we really have two businesses our Home Shopping business in Europe and the Euvia business.

I think we have good trends, very strong trends in both of them.

The German business was very much of a turnaround business last year fixing a host of issues that had arisen in part because of the operating and ownership structure.

Which was subsequently restructured so so now we roll control and run the business.

All of those issues or the vast majority of them have been addressed and solved.

So the business right now is very much where it should be which is focusing on driving the top line.

The German opportunity, we don't talk much bit, because we tend to focus on the domestic business in some of these calls, but, you know, the German Home Shopping opportunity we think is very significant.

It's well underpenetrated relative to the U.S.

So we see opportunity for very strong top line growth and growing profitability in that business.

And in the Euvia business, we've had just a tremendous run of success with our Nine Lives station, which is a gaming network where our expectations have far exceeded our own expectations.

And I think I said already, we're not going to comment on the budget specifically, only to say we think we have good trends in both of those businesses that we look forward to continuing.

I would just add that in Euvia we did get a one-time commission override payment in the quarter so there is a bit of a one-time payment coming in.

So we don't see that continuing on for the rest of the year.

As it relates to warrants and buyback warrants don't really get so to speak cashed in.

So they trade among themselves.

But we do have, I think it's today or tomorrow, we do have a small swatch of buyback, I think it's about 30 million.

30 million shares.

Up until now, from the day we announced it, we could not pursue that basically until we really did our -- these earnings as well as file our proxy statements for Expedia and Hotels which we plan on doing early next week.

And at that time we do anticipate that we would kind of start our buyback program.

And I think there's going to be be, you know, I have enough time for the people who are historical to us on these calls, I have swatted back the questions and pressures on everybody saying why don't you buy your stock back.

But I think we will, without doubt, have a plan, we're just starting, in place, but we will have an ongoing plan in this area and I think it will be part of our life from now on as far as I can see.

I think it will be one of the pieces of the puzzle that now kind of ought to be in place on a formal basis.

So I think you can look to that, as I said, developing with increasing clarity over the next six months.

Next question?

Thank you.

Our next question comes from Kathy Stipinias with Prudential Securities.

It's Kathy Stuponias.

With respect to -- when you think about how you run your businesses, I know there are certain noncash charges that don't play into certain decisions that you make.

But could you talk about how some of these noncash charges will evolve over time?

In particular, the noncash marketing charges which seem to be a deal between USA and some of the media properties.

At what point do the noncash charges become cash charges? and second, with respect to some of the businesses that you're developing, and the 5 million or so that you have budgeted, could you talk a little bit about how -- what part of that development is at HSN?

It would seem there's potentially incredible opportunities with HSN and new technologies evolving like video on demand and/or, you know, things like breaking the E-bay model to television that would seem to be a natural area that HSN could fall into, and something that it seems like E-bay has been trying to do in fits and starts.

Thanks.

The first one, on noncash charges,specifically relates to Vivendi and media arrangements, that was the transaction that was part of our sale of our media assets.

It's short short term and should be going away over the next, I'd say, year to two years at the most.

We do have noncash charges relating to restricted stock, which we've fully disclosed and will always reconcile for you.

And the other kind of main area of a noncash charge relates to using warrants or other types of securities to enhance affiliate deals, particularly in the travel area, and it is possible that that may be done again.

But however, at any time that's done, we treat those warrants which are usually on a performance basis, in our fully diluted treasury method shares outstanding.

The other thing is that I think to the essence of this, which is I think what you're suggesting is that once the noncash portion goes away, we will have to replace it with a cash portion.

No, we won't.

It was gravy, so to speak, in this transaction and we don't -- once it goes away, it's gone.

And we'll do whatever we would just normally do in terms of marketing.

We didn't need that extra marketing and I don't even know how much has been implemented so far.

Probably 6 to 7 million a quarter.

As far as the R&D piece, which we call -- what do we call that thing?

Interactive development.

Okay.

Because we can't call it R&D for some strange reason.

Called the accounting rules.

Oh, those.

Well, when they mask, which they often do, when they mask reality, it's irritating but we live with what we have to live with.

But as far as that, and we don't want to take ours overly seriously here about, the fact is that we're the only company that is looking at interactively across the whole spectrum, I'm talking in size, a company that is actually seriously in business.

I mean, it is these wonderful business models, whether it's E-bay, they are sole business models.

But we really do cover the waterfront and realize fairly recently that we've got to do much more work in the spaces between our business.

And what we've got to do and ought to do is think about the applications of interactivity, not ones that are, you know, shooting Internet rockets to outer space, not things that are that impractical.

But ideas such as the one that you say, what is going to happen in terms of broadband and what are the possibilities of different forms of auctioning that tie together on-air and off-air, different kinds of games you can play, all sorts of things you can do on the retail side.

But we think there are lots of areas for us to judicially invest in, not -- God knows it isn't pure R&D and it isn't serious commitment of funds, but what it is is looking at this area and saying well, there are areas like what are the cross-marketing things that are parts of interactive life.

What can you do with points programs and membership programs and things that will tie together our various businesses.

All of those things for us are things for us to look at and judicially invest in.

So that's what we're doing and we think that it's going to -- it's an important part of what we do and it's not so much the funds, it's the thinking, really the operating group level that is going to get employed in determining where we look, what we invest in, what the near term future is going to be.

For us, this really is near term futures, we're not thinking of things five to 15 years out, we're thinking of things zero to five years out.

I think we've got time for one more question.

Our next question is from Gordon Hodge with Thomas Weisel Partners.

Good morning.

Two questions, one is on John on the ticketing side, volume was up a lot, I was wondering if the secondary market activities, whether that contributed much there or if that's something we look forward to in the future.

And also a question on Liberty's preemptive rights, if at what prices could they buy your stock and how many shares are we talking about as it relates to Expedia and rooms?

Thanks.

Yeah, Gordon, on the exchange front, we have about 25 teams, sports teams now up on the exchange product.

We've sold about 12,000 tickets consumer-to-consumer a little over a million dollars of gross ticket value.

So we're pleased that the progress is continuing, but I'd say it's not a driver in the top or bottom-line revenue numbers being posted for the quarter.

Great.

Do you want to answer the question on preemptive rights?

Hello?

Have we lost?

Dara, are you there?

Well, I would ask is anyone there?

Sir, this is the operator.

Everyone is still connected on the speakers' end.

While we wait, can I ask another question?

Sure.

This is a bigger question, and that is, with the higher marketing spending.

I'm worried that our corporate staff which is in New York is lost in space somewhere.

But in any event, go ahead, Gordon.

The higher marketing at Match and Room, a little higher than we expected, I'm wondering does that raise the strategic question of owning more, you know, broader online distribution much along the lines of what you were thinking about, you know, several years ago with Lycos and so forth, does it make since as you compete with Yahoo!, that has its own inventory to compete with you on Match, be thinking along those lines?

No, we talk about it, but we do not want to change our semi-Switzerland state in dealing with all portals.

What we do want to do and deeply believe in, is Citysearch, very unique portal because it's obviously local, but we believe over time we will build up its traffic, its voice, its audience to equal everyone else's.

And in the meantime, we also believe, as hotels.com has shown so extraordinarily, that, you know, if you say it, they will come.

Come directly.

Hotels.com direct connect is what, Dave and Bob now?

About 36% and spiked as high as 39% of sales.

You know, it did not exist a year ago.

That's right.

So our ability to tell people about a service and have them directly connect to it is really the answer to everything.

And we do not believe we are never going to be captive of distributors.

So and that does not mean we have to become in our opinion a distributor ourselves.

One of the great things about the Internet is it has not been captured by distributors putting a toll bridge between a product and its customer.

And everything that we can do in that regard we will continue to do.

But by the way, on our very, very own, I don't think we have to change the dynamics.

The dynamics are there.

And if you -- as Hotels that is proven and Ticketmaster, certainly Expedia, what's Expedia's direct connect, Erik?

It's not something we usually break out but the vast majority are Expedia.com branded.

So if you've got brand and God knows we have some brands and we will have more brands, that's the answer, in our opinion to, so to speak everything provided that in kind of geo political terms that, in fact, these distribution types don't get captured by, for instance, cable operators where they have, you know, cable modem growth that's vastly moving, satellite operators, they get into this or anybody else who wants to get between you and the ultimate customer.

But so far for us, it's been just fine.

Barry, this is Mel Robinson, a minor clarifying point for hotels on the quarter.

Our advertising and marketing spend was slightly under budget by nine to 10%, even though revenues were 13% in excess of budget.

So we tracked very well.

Terrific.

Gordon, on the preemptive,off the number but my guess would be on both Expedia and hotels together is probably 20, 30 million shares.

I think the relevant fact is if Liberty were to exercise any significant preemptive we will go into the market and buy back those shares to make it as a totally or as close to totally neutral transaction for us as possible.

So it will not be -- you should not look at it in any way as dilutive.

We're not going to let that happen.

Their price is effective?

the price I think on those transactions are probably something like 25, $26 that it's based on, the price when we announced the transaction.

At months announcement, okay.

Thank you.

Next question, please?

Our next question comes from Darryl Smith with JP Morgan.

Good morning.

Relative to to the travel vertical, we've seen some hotels deals signed with relatively lower gross margins than your average.

How sustainable is your 20, 25% trend.

When the travel market improves, can you continue to maintain higher take rates on the merchant model relative to hotel properties but still be able to return unpurchased room nights? and and I have second question as well.

I think I'll let Dave Litman answer that.

I think the travel margin has been sustainable for the last 30 years.

It's a traditional model that's been brought to the Internet.

And as both Expedia and hotels have shown, over the last five to six years, as we scaled up on this model, it's certainly been a sustainable margin and it's sustainable going forward because of the fragmented nature of the industry.

There are thousands of hotel providers around the world and the amount of hotels and hotel companies is vast.

So I think that overall, if we -- as long as we provide value to our hotel partners, which is provide them distribution and customers and growth and putting people in hotels who would not otherwise stay at hotels, I think we maintain our value and I think we are able to maintain margins over a long period of time.

Thank you.

We'll do one final question and turn you back to your daily lives.

Thank you, sir.

Our final question comes from Bob Simonson with William Blair.

Yes, good afternoon.

Is there -- can you add anything to the timing of the closing on the two acquisitions, the roll-ups? and secondly, could you give an update on the Travel Channel?

Sure, on the closing?

First on the closing, I would say probably midsummer is our best estimate.

Okay.

As far as the Travel Channel is concerned, which we are supposed to call the Travel Network, and so, therefore, I will call it the Travel Network, so that Mr. Hendricks and the Discovery people don't get angry with us, but we're making careful but slow protocol on this, which is we think okay because we never did anticipate this is as a fast development , you've got to organize a lot of stuff to make for a cable program service.

We have kind of moved this now under the responsibility of our colleagues at Expedia.

And they've just started on this process.

We had a little discussion yesterday about it.

I think you would look for developments in this that will take place probably in this calendar year where we will have some kind of a beginning but this is -- this is a long-term development, the Travel Network and does not mean that our interest in it has dimmed, or our belief that a commerce travel service, not just like the one we acquired in the U.K., but is going to be a reality in the United States.

And a good significant activity for us.

So with that, thank you all very much.

Thank you for being with us this morning and we look forward to talking with you all either next quarter, when we do this again or in the interim, answering whatever questions you may have in whatever ways you want to pose them.

So thank you all for being with us.

Thank you, sir, and thank you for attending today's conference call.

Everyone may disconnect.

Once again, thank you and everyone may disconnect at this time.

Have a good day.