Q2 2012 Earnings Call
July 26, 2012 5:00 pm ET
Dara Khosrowshahi - Chief Executive Officer, President, Director and Member of Executive Committee
Mark D. Okerstrom - Chief Financial Officer and Senior Vice President of Corporate Development
Tom White - Macquarie Research
Stephen Ju - Crédit Suisse AG, Research Division
Heath P. Terry - Goldman Sachs Group Inc., Research Division
Shelby Taffer - JP Morgan Chase & Co, Research Division
Michael Millman - Millman Research Associates
Lloyd Walmsley - Deutsche Bank AG, Research Division
Tracy B. Young - Evercore Partners Inc., Research Division
Deepak Mathivanan - Susquehanna Financial Group, LLLP, Research Division
Andrew D. Connor - Piper Jaffray Companies, Research Division
Previous Statements by EXPE
» Expedia's CEO Discusses Q1 2012 Results - Earnings Call Transcript
» Expedia's CEO Discusses Q4 2011 Results - Earnings Call Transcript
» Expedia's CEO Discusses Q3 2011 Results - Earnings Call Transcript
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Expedia, Inc. Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Alan Pickerill, please go ahead.
Thank you. Good afternoon and welcome to Expedia, Inc.'s Financial Results Conference Call for the second quarter ended June 30, 2012. I'm pleased to be joined on the call today by Dara Khosrowshahi, Expedia's CEO and President; and Mike Okerstrom, our CFO. The following discussion, including responses to your questions, reflects management's views as of today, July 26, 2012, only. We do not undertake any obligation to update or revise this information.
As always, some of the statements made on today's call are forward looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to today's press release and the company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements. You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company's IR website at expediainc.com/ir. I encourage you to periodically visit our IR site for important content, including today's earnings release.
Finally, unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative expense, and technology and content expense, excludes stock-based compensation. And all comparisons on this call will be against our results for the comparable period of 2011.
And with that, let me turn the call over to Dara.
Thanks, Alan. Expedia's second quarter proves to be another good one, coming in ahead of our expectations. On the top line, gross bookings grew up to 13% and revenue growth up 14% were driven primarily by strength in our hotel business with global room nights growing a robust 22%, 24% including the AirAsia-Expedia joint venture.
Adjusted EBITDA grew 18% to $223 million, aided by a better-than-expected top line and lower-than-expected expenses. It's worth noting that second quarter results were helped by that acquisition of VIA Travel, which we completed in late April and contributed roughly 2 percentage points of growth in gross bookings and revenue, and 3 points of adjusted EBITDA growth for the quarter. VIA Travel is the leading travel management company in the Nordics, and we're happy to have them as part of the Egencia team. In addition, we had an out-of-period adjustment of $8 million to help both revenue and adjusted EBITDA that Mark will explain in his remarks.
We continue to see healthy results across virtually all of our brands, with brand Expedia also improving sequentially, but still down year-on-year. Our technology migration remains on track and stand-alone hotel room nights for brand Expedia accelerated again and grew faster than 10% on a book basis for Q2, compared to mid-single-digit growth in Q1. The air product has been moved to the new platform as planned and work continues on the packages' path, which should be substantially complete by year-end.
You'll see more product innovation from us in the hotel and aircraft in the second half of the year, and we'll be ready to rollout packages as we move into 2013. As previously indicated, we plan to increase selling and marketing for brand Expedia as we move further along the technology migration, and just recently launched a brand marketing campaign in the U.S. called Find Yours, featuring 100% user-generated content from consumers explaining how travel has transformed them. Though very early for the campaign but initial responses has been quite good. But to be clear, brand Expedia continues to face certain environmental challenges outside of our control. Airline load factors and air ticket prices continue to grow year-over-year which is not good for the leisure traveler. Hotels continue to report tighter occupancies and higher rates, which make it more difficult for us to grow our package business. These factors are likely to remain as headwinds for air and package products for the foreseeable future.
Over the past few years, we've talked about our key brand re-platforming efforts. In addition to these efforts, we're also actively improving our entire technology stack from front-end, to middle works to supply services, to customer service, as well as our financial systems. Part of these efforts will allow us to introduce new technology to our hotel supply partners, which will enable much closer integration of the agency hotel product with our core merchant offering.
Specifically, for participating hotels, we'll be able to offer customers the choice of whether to pay Expedia in advance or pay at the hotel at the time of the stay. So far the reaction from our suppliers has been positive, and our initial testing indicate that customers really like this flexibility. We believe that these innovations, if and when rolled out on a broad basis, would be likely to drive back the growth in our agency hotel business, which could result in a blended hotel margin as well as our merchant hotel flow trending down over time.