PCLN Transcript 1Q-11

8/6/2019 PCLN Transcript 1Q-11

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Priceline.com, Inc. PCLN Q1 2011 Earnings Call May 5, 2011Company Ticker Event Type Date

www.Call Street .com 1-8 77-FACTSET Copyright 2001-2011 CallStreet 1

PARTICIPANTS

Corporate Participants

Jeffery H. Boyd President & Chief Executive OfficerDaniel J. Finnegan Chief Financial & Accounting Officer

Other Participants

Mark S. Mahaney Research Analyst, Citigroup Global Markets (United States)Ingrid Chung Research Analyst, Goldman Sachs & Co.Justin Post Founder & Analyst, Bank of America Merrill LynchHeath P. Terry Managing Director, Canaccord Genuity, Inc.Scott R. Davis CFA Research Analyst, Morgan Stanley & Co., Inc.Jeetil Patel Research Analyst, Deutsche Bank Securities, Inc.Bill Lennan Research Analyst, Monness, Crespi, Hardt & Co., Inc.Michael Millman CFA, MBA Principal, Millman Research Associates

MANAGEMENT DISCUSSION SECTION

Operator: Welcome to the Priceline Groups First Quarter 2011 Conference Call.

Priceline would like to remind everyone that this call may contain forward-looking statements, whichare made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of1995. These forward-looking statements are not guarantees of future performance and are subjectto certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual resultsmay differ materially from those expressed, implied, or forecasted in any such forward-lookingstatements. Expressions of future goals and similar expressions reflecting something other thanhistorical fact are intended to identify forward-looking statements. For a list of factors that could

cause Pricelines actual results to differ materially from those described in the forward-lookingstatements, please refer to the Safe Harbor statements at the end of Pricelines earnings pressrelease, as well as Pricelines most recent filings with the Securities and Exchange Commission.

Unless required by law, Priceline undertakes no obligation to update publicly any forward-lookingstatements, whether as a result of new information, future events, or otherwise. A copy ofPricelines earnings press release, together with an accompanying financial and statisticalsupplement, is available in the Investor Relations section of Pricelines website located atwww.priceline.com.

And now, Id like to introduce the Priceline Group speakers for this afternoon, Jeff Boyd and DanFinnegan. Please go ahead, gentlemen.

Jeffery H. Boyd, President & Chief Executive Officer

Thank you, and welcome to Pricelines first quarter conference call. Im here with Priceline CFODan Finnegan. I will make some opening remarks, Dan will give a detailed financial review, andthen I will sum up. After the prepared portion, we will take questions.

Priceline reported consolidated gross bookings for the first quarter of approximately $4.7 billion, up57% year-over-year. Non-GAAP net income was $137 million or $2.66 per share, up 57% versusprior year. First quarter results surpassed First Call consensus estimates of $2.46 per share and


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our guidance for the quarter. Worldwide hotel room night reservations were $31.2 million for thequarter, up 56% year-over-year.

Growth rates for our international business increased during the quarter, with 78% gross bookingsgrowth on a local currency basis. Growth rates benefited generally from increased ADRs and from

growth at Agoda and the Asian and South American business of Booking.com, which wasseasonally strong in Q4 and Q1. International gross bookings also benefited generally from growthin new markets, growth in hotel supply, and inclusion of TravelJigsaw results.

Booking.com continued to build its worldwide hotel supply platform with over 135,000 hotels in 101countries. Booking.com continues to build inventory in sales in Asia, South America, and NorthAmerica, delivering growth in reservations to those destinations and growing demand in thoseregions for hotels around the world. As those businesses have achieved greater scale, they arecontributing to high reported consolidated growth rates. Bookings execution in expandinggeographically and building share of online hotel demand has been, in my opinion, exceptional, asunderscored by high international growth rates this quarter.

Pricelines domestic gross bookings grew 14% in the first quarter, due primarily to growth in retailand opaque hotel room night gross bookings, aided by improved ADRs and a return to growth inairline ticket sales and higher airfares. Solid growth in opaque airline tickets helped the domestictop and bottom line as airlines used the opaque channel as a revenue management tool while theyincreased fares generally. Ticket sales also benefited as American Airlines tickets were unavailableon Expedia and Orbitz for the quarter, but were available on Priceline.

Merchant gross bookings growth of 50% continues to reflect growth in the domestic retail andopaque hotel business, but even more so, growing contributions from Agoda and TravelJigsaw.Agoda continues to report impressive year-over-year growth in gross bookings, contributing to theoverall international and merchant growth we are reporting. TravelJigsaw delivered solid growth inrental car unit sales in the quarter and is building availability as it approaches the high summerseason.

In summary, the growth in the Groups international hotel business exceeded our forecast in thefirst quarter, and we are pleased with the progress of our brands in Asia Pacific and other newmarkets. I commend my colleagues around the world for their focus and execution.

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

Daniel J. Finnegan, Chief Financial & Accounting Officer

Thanks, Jeff. Ill discuss some of the highlights in operating results and cash flows for the quarter,and then provide guidance for the second quarter of 2011.

Q1 top line performance was exceptional, reflecting acceleration in unit growth rates. Hotel roomnights booked grew year-over-year by 56% in the first quarter, as compared to 51% in the fourthquarter. Average daily rates, or ADRs, were up by about 4% for our international hotel service, andby about 7% for our U.S. hotel service for Q1 2011, compared to the prior-year first quarter. FXrates for the first quarter were slightly favorable to the rates we assumed in our guidance and forthe prior-year first quarter FX rates.

The strong performance in unit growth and increasing ADRs caused total gross booking dollars togrow by 57% for Q1 compared to the prior year. Our international gross bookings grew by 79%,and by 78% on a local currency basis, for Q1 2011 compared to the prior year. These growth ratesexceeded the top end of our guidance range, as our international hotel business deliveredoutstanding results that exceeded our expectations. The sustained outstanding performance of our


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international hotel business is a tribute to the hard work and operational excellence of our teams atBooking.com and Agoda.

We saw strong growth rates in our key markets in Q1. Our newer faster-growing markets in AsiaPacific and South America, which experience peak seasonal travel in the first and fourth quarters of

the year, also contribute to our growth rate.TravelJigsaw, the UK-based merchant rental car reservation service we acquired in May 2010,contributed $96 million in gross bookings in Q1. Rental car days booked were up by 65% versusfirst quarter 2010, including the impact of TravelJigsaw. Gross bookings growth for our U.S.business of 14% exceeded the top end of our guidance range, and also exceeded the [ph] 9%(6:56) growth rate posted in Q4. Strong growth in hotel room nights booked and higher ADRs werekey drivers.

Airline tickets booked were up by 2% in the quarter, resulting mainly from strong growth in NameYour Own Price airline tickets. The 12% increase in average retail ticket prices also contributed togross bookings growth. The strong performance in gross bookings helped drive bottom lineperformance that exceeded the top end of our range of guidance and First Call consensus.

Gross profit was $506 million, and grew 59% as compared to prior year. Our internationaloperations generated gross profit of $388 million, and grew by 81% as compared to the prior year.Gross profit for our U.S. business amounted to $118 million, which represented 13% growth versusprior year.

Total operating expenses came in slightly above the midpoint of our guidance, driven primarily byhigher-than- forecasted online advertising expense, which resulted from gross bookings over-performance. Online advertising expense as a percentage of gross profit was slightly favorable toour guidance but came in higher than the first quarter of 2010.

As I mentioned in February when we gave guidance for the quarter, each year in the first quarter,we have significant ad spend related to bookings for travel that takes place in subsequent quarters,when the related gross profit is recognized. Moreover, our international business, which relies moreon online advertising spend, grew faster than our U.S. business. Consequently, we have seen adspend increase as a percentage of gross profit in Q1, even though we saw strong ad efficiency forour brands.

Personnel expense was lower than forecast for the quarter, due to hiring at a slower pace thanassumed and lower-than-forecasted bonus expense. Non-GAAP other expense recorded belowoperating income in the quarter amounted to $8 million, which is higher than the $5.5 million ofexpense we assumed in our guidance. The variance relates mainly to more FX hedging andtransaction losses than assumed for guidance as the euro strengthened after we gave guidance.The strengthening euro had a favorable impact on the translation of our Booking.com results intoU.S. dollars.

Id like to remind you how our hedging program works. We enter into hedge contracts during the

early part of each quarter to hedge against the impact of foreign currency exchange rate volatilityon the guidance that we give for non-GAAP EBITDA and net income. The hedges are short-term innature and do not offset the impact of translation on our gross bookings, revenue, and gross profit.This year, the euro strengthened during the quarter after we entered our hedge contracts, and werecorded hedge losses as a result. Last year, the euro weakened during the first quarter after weentered our hedge contracts and we therefore recorded gains on the contracts.

In the first quarter of 2010, we had non-GAAP other income of $1.4 million, compared to the $8million of expense in Q1 of this year. This year-over-year swing in other expense resulted inEBITDA deleverage. Non-GAAP EBITDA for Q1 amounted to $173 million, which exceeded our


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guidance range of $147 million to $157 million, and represents 55% growth versus prior year.EBITDA leverage, or non-GAAP EBITDA expressed as a percentage of gross profit, declined by 70basis points in the quarter versus prior-year Q1.

In terms of cash flow, we generated approximately $276 million of cash from operations during first

quarter 2011, which represents a 164% increase versus prior year. Operating cash flow for thequarter was favorably impacted by the timing of approximately $124 million of withholding taxpayments which were accrued in the first quarter and paid in the second quarter.

We spent about $8 million on CapEx in the quarter, and paid about $62.6 million in the quarter,representing the earn-out amount due based upon the performance of our Agoda business sincewe acquired it in 2007. We repurchased approximately $157 million of our common stock during thequarter.

As of March 31st, our cash and investments of $1.7 billion exceed our outstanding debt balance byabout $1.2 billion. We also have our $175 million revolving credit facility that is undrawn anddoesnt expire until September 2012.

Now for second quarter 2011 guidance. Our forecast reflects exceptional top line performance,driven primarily by the continued strength of our worldwide hotel room reservation business, as wellas the inclusion of TravelJigsaw. I highlight that we bought TravelJigsaw in May 2010, andtherefore in Q2 2011, it is now starting to appear in our prior-year comparable results from the dateof acquisition.

Our forecast also assumes that exchange rates remain at the same $1.48 per euro and $1.65 perBritish pound at yesterdays closing rates. At or near these exchange rates, our euro- and pound-denominated results will be substantially higher expressed in U.S. dollars than they would havebeen at the prior year average exchange rates. Specifically, average exchange rates for the secondquarter of 2011 would be stronger by 16% for the euro and by 10% for the British pound ascompared to the prior year.

As I mentioned earlier, our hedge contracts are in place to substantially shield our second quarterEBITDA and net earnings for any fluctuation of the euro or pound between now and the end of thequarter, but these hedges do not offset the impact of translation on our gross bookings, revenue,and gross profit.

We are forecasting total gross bookings to grow by 53% to 58%, with U.S. gross bookings growingby approximately 8% to 13%. We expect international gross bookings expressed in U.S. dollars togrow by 76% to 81% as compared to last year, and to grow on a local currency basis byapproximately 53% to 18%.

Our second quarter guidance assumes that the rate of year-over-year increase for ADRs will beless than the increase we experienced in Q1 for both our international and U.S. hotel services. Weexpect Q2 revenue to grow year-over-year by approximately 36% to 41%, and gross profit dollarsto grow by approximately 57% to 62%.

For Q2 operating expenses, we are targeting consolidated advertising expenses of approximately$233 million to $243 million, with about $10 million of that amount being spent for offlineadvertising. Online advertising expense as a percentage of gross profit is assumed to increasecompared with prior-year Q2. The increase is driven principally by brand mix rather than a changein the fundamental efficiency of our online advertising by brand. Our international brands aregrowing substantially in Q2, and spend a higher percentage of gross profit on online advertisingthan our U.S. business.


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We expect sales and marketing expense of between $36 million and $41 million. We expectpersonnel costs, excluding stock based compensation, to come in between $75 million and $80million. We expect G&A expenses of approximately $26 million to $31 million. We expectinformation technology cost of about $8 million, and depreciation and amortization expense,excluding amortization acquisition, of about $5 million. We expect total non-GAAP other income

expense recorded below operating income to amount to expense of approximately $9 million for Q22011, compared to income of about $2 million in Q2 2010. The other income expense is comprisedprimarily of foreign exchange losses, net interest expense, and the charge for net income allocatedto non-controlling interests.

Non-GAAP other income expense excludes non-cash interest expense and gains or losses on earlydebt extinguishment, if any, related to cash settled convertible debt, and includes the additionalimpact of other non-GAAP adjustments on net income attributable to non-controlling interests.

Non-GAAP EBITDA is expected to range between $310 million and $320 million, which at themidpoint, represents 54% growth versus prior year. Our guidance assumes that we will experienceEBITDA deleverage, caused principally by the $11 million negative year-over-year variance in otherincome and expense. We are targeting non-GAAP fully-diluted EPS of approximately $4.70 to$4.90 per share, which at the midpoint, represents 56% growth over prior year.

Our non-GAAP EPS forecast includes an estimated cash income tax rate of approximately 20%,comprised of international income taxes and alternative minimum tax and state income taxes in theU.S., where we have a sizable NOL to reduce our cash tax liability. Our non-GAAP tax rate hasgenerally been increasing as compared to prior-year periods due to more significant growth ininternational earnings as compared to U.S. earnings.

Our non-GAAP EPS guidance assumes a fully-diluted share count of 51.7 million shares based onWednesdays closing stock price of $537.56. We expect to report GAAP EPS of $4.03 to $4.23 pershare for Q2.

The difference between our GAAP and non-GAAP results is driven by non-GAAP adjustments toexclude stock-based compensation, acquisition-related amortization, non-cash interest expense foramortization of debt discount, non-cash gains or losses related to early debt conversions, certainnon-cash income tax expenses, and to include the impact on net income attributable to non-controlling interests of certain of the aforementioned non-GAAP adjustments, to arrive at non-GAAP earnings. We also intend to adjust non-GAAP results to exclude charges or benefits, if any,related to hotel margin tax, judgments, rulings, or settlements.

We are very pleased with the top line performance of the business delivered in Q1 and inherent inthe guidance for Q1. However, as we have emphasized in previous earnings releases, we believe itis highly likely that we will experience sequential deceleration in quarterly year-on-year unit growthrates in the future due to the shear size of the business and progressively more difficult comps aswe report against prior-year periods which had improving economic conditions, hotel occupancyrates, and ADRs.

Our Q2 guidance reflects deceleration in the unit growth rate per hotel room night reservationsbased upon actual results to date and assumed deceleration as we proceed throughout theremainder of the quarter. Our guidance also assumes that macroeconomic conditions in general,and conditions in the consumer travel market in particular, remain relatively unchanged.

Ill now turn the call back over to Jeff for some closing comments.


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Thanks, Dan. We believe the Priceline Group is off to a good start in 2011. Each of our brandsdelivered high rates of growth compared to the competition, and are, I believe, well positioned tocompete going forward.

We will now take your questions.


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QUESTION AND ANSWER SECTION

Operator: [Operator Instructions] Our first question comes from Mark Mahaney of Citi. Please goahead.

: Thanks. I want to ask aquestion about the EBITDA leverage in the margins going forwards. Do you think that theres along-term, say the next two to three years, a change in the pattern youve had of rising EBITDA asa percentage of gross profit dollars? Is there something thats changed structurally in the businessthat would deter that trend, or are you feel like you are close to a capping out of how high thosemargins can get to? Thank you.

: Mark, I think that weve said a coupleof things about this in the last couple of calls. The first is that were in a period of some investmenthere in the last couple of quarters, which is why we havent been delivering increased leverageacross the consolidated income statement. Part of that is at Booking.com, who is building out theinternational platform to accommodate the high growth rates theyve experienced. But also we haveAgoda and TravelJigsaw that are at earlier stages of their development and also requiring

investment.I would not take the position that we dont foresee the possibility of earnings leverage goingforward. What youre seeing now really reflects our judgment in terms of how to manage thebusiness to make sure were investing to capture the opportunity, especially in these rapidlygrowing markets in Asia and elsewhere, where were still a relatively new entrant.

: Thank you, Jeff.

Operator: Thank you. Our next question comes from Ingrid Chung of Goldman Sachs.

: Thanks. Good afternoon. So I know that you donttalk specifically about what your market share is in specific markets, but youve obviously gained alot of share in Europe over the last few years. I was wondering if you think theres much moreheadroom for market share gains in Europe for Booking.com?

: We absolutely believe there is. If youlook at the our total international hotel business as a percentage of all of the hotel rooms booked,its still very, very small, and I dont have a percentage to quote for you. But in terms of marketshare of all the hotel room nights booked, its very, very small. And I think we certainly believe thattheres still a very substantial amount of business that is coming from offline channels in theEuropean market and in the well-developed Western European markets, and we think were in agood position to gain share of that.

: Okay. And in terms of share of online, do you thinktheres much more headroom in terms of online hotel bookings in Europe?

: We dont particularly look at whatsbeen going on in our marketplace as a share-shift game yet. We just dont. Our principal effort is tobring new hotels on. You saw the significant increase in hotel count for Booking.com in the quarterand certainly year-over-year. So were not viewing this as a share-shift situation. And if you look atthe results that have been reported by our competition, it appears to us that theyre also gainingshare by penetrating that offline channel.

: Okay. All right, great. Thanks, Jeff.

Operator: Thank you. Our question comes from Ross Sandler of RBC Capital Markets.


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: Hey, guys. Just two quick questions. You mentioned, in the part about theguidance, that youre seeing a little bit of unit growth deceleration early in the quarter. And your53% to 58% guidance ex-FX, or bookings growth guidance ex-FX, implies a little bit of a little bitmore of deceleration than what weve seen previously. Is it just conservatism, or is there any more

color you can provide in what youre seeing?And then second question is, you mentioned on the online marketing that youre doing a little bitmore brand promotion, versus seeing different levels of efficiency. Can you just explain what youmeant by that? Thank you.

: Well, why dont Ross, Ill do thefirst one, and Dan can address the second one. With respect to the growth deceleration, I think theprincipal thing that happened here, and we would encourage investors to look at this more over alonger period of time, just from one quarter to another, is we basically had a spike in the growth ratein the first quarter, little bit off trend of what we were reporting at the end of last year. And if youlook at the growth rates over two or three or four quarters, its actually a much more steady and, inour view, relatively modest deceleration of whats a pretty large business.

Dan, do you want to comment on the online marketing?

: In online marketing, Ross, ourbiggest spend is for pay-per-click. Nothing has changed there. So what I was referring to was thatwe have a little bit of an increase in our online advertising as a percentage of gross profit on aconsolidated basis, just because our international brands are growing so fast, and they spend aproportionately larger amount on online advertising, partly because theyre growing so fast andtheyre bringing new customers into the website, and then secondly, because theyre not doing anyoffline advertising like we do in the U.S.

Operator: Thank you. Our next question comes from Justin Post of Bank of America. Please goahead.

: Thank you. Getting back to the bookingsdeceleration, to go from kind of high 70s to mid-50s this quarter, anything abnormal outside ofTravelJigsaw? Maybe you could explain the impact of that. And it was an easy comp against lastyears volcano. So when we think about the quarters the third quarter and fourth quarter, do youforesee kind of the similar declines, or do you think this is kind of the new stable level in kind of the50s as you look out to the back half? Thanks.

: Well, were not giving any guidancebeyond the guidance weve given for the second quarter, and our overall guidance to investors isthat we will see continued deceleration of the growth rate for this business. So I wouldnt wantanybody to think that somehow were walking away from that general premise.

Again, I think that if you look at theres a lot of in every quarter, there are a lot of things that are

outside the business that affect our growth rate. And so if you try to look at sequential growth ratesfrom quarter to quarter, I think its very easy to get a mistaken impression about what the long-termtrend is. And if you look at hotel room night growth, local currency growth over the last three, four,or five quarters, its been occurring within a reasonably tight range. And as I said previously, I thinkthat the first quarter growth rate is a little bit off trend, and that its a much better way to look at it, tolook at it over longer period time.

One thing that weve pointed out in our prepared remarks is that we do have a bigger business inAsia and in South America where the seasonality is a little bit different, and those businesses havegrown at higher rates than the rest of our businesses. And so the first quarter growth rate be could


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be benefiting from the positive results in those markets and from the different seasonality, wherethey just have a stronger results in the fourth and first quarter, whereas our North American,Western European, U.S. business, the strongest seasonality is in the second and third quarters.

: Great. Thank you.

Operator: Thank you. Our next question comes from Sandeep Aggarwal of Caris & Company.Please go ahead.

[06MCYV-E Sandeep Aggarwal] Thanks for talking my question. Jeff, can you maybe separate outfor us how growth was a contribution of American Airlines inventory available only on Pricelineversus your competitor?

And then in terms of are there further earnout you are budgeting for Agoda? Thank you.

: Okay, so for the first part, I cant giveyou an exact figure of the benefit to Pricelines U.S. airline ticket business from the absence ofAmerican on the other websites, but we do think that the business benefited, and we did see that inour results for the quarter.

There are no further earnouts for the folks at Agoda. Theyre subject to normal performancecompensation plans like everybody else at the group.

Operator: Thank you. Our next question comes from Heath Terry of Canaccord. Please go ahead.

: Great, thanks. I was wondering if you could giveus a sense of what youre seeing in the competitive environment within Asia. I know you generallykind of draw a distinction between China and Asia specifically. But if you could give us an idea ofkind of where Agoda is building, you think, the most significant competitive advantages, and whereyou feel like your hotel count penetration is versus your competitors, that would be particularlyhelpful.

: I think, Heath, if you look at thebusiness in Asia Pacific, you have to look at not just the Agoda business, but the Booking.combusiness, and I think both brands are doing very well in Asia outside of China. Thailand, Singapore,for example. I think Malaysia. I think both brands are working hard to build a presence in Australiaand New Zealand. Theres a very strong competitor in that market in Wotif, and were working hardto gain ground on Wotif.

With respect to the Asian market in general, Ctrip is obviously one of the biggest players there.Weve heard Expedia say some positive things about eLong, and that eLong is now mostly focusedon the hotel opportunity. From what we read in Expedias announcement, it looks to us that theirprimary emphasis in the hotel space in Asia is going to be Hotels.com, because the Expedia brandin a lot of those markets is now going to be operated through a joint venture with a low-cost airline.

So theres a lot of companies in the space, but theres also a rapidly growing market and a lot ofrunning room there, and were focused on all of it. Were building hotel inventory in China andmaking some headway there, but the large majority of our business is outside of China.

: Great. Thank you.

Operator: Thank you. Our next question comes from Scott Davis of Morgan Stanley. Please goahead.


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: Hi. Thanks. Jeff, you launched the pay-as-you-stay hotel option U.S. I think about a year ago, and I was just wondering if you could talk about thepercent of your U.S. hotel inventory that now offers that option, and the mix of your domestic hotelbookings that are coming via pay-as-you-stay now? Thanks.

: Sure. So the pay-as-you-stay, foreverybody on the phone, is typically the Booking.com inventory that has been integrated and is nowoffered via the Priceline website. Booking.com has been building its hotel supply in the UnitedStates over the last couple of years primarily for European customers that are traveling inbound.But we felt it was a good opportunity to provide a little more diversity to the inventory, some morebuying choices for Priceline.com customers. That project has worked well.

A couple of comments that I would make. First of all, Booking.com still has a ways to go to have afull complement of hotels across all the markets in the United States. The team has done a great

job of building inventory quickly, but its a very, very large market, and theres still a ways to go. So Ithink there still is more opportunity and potential to the project.

Im not going to break out what the percentage is. All I will say is that the program is successful, itsdriving a number of reservations thats significant to the U.S. business, and we think its additiveand that our customers are voting with their clicks and their wallets to take advantage of the optionwhen it makes sense for them.

: Thank you.

Operator: Thank you. Our next question comes from [ph] Angelique Long of Deutsche Bank.Please go ahead.

: Actually, Jeetil Patel. Question around justthe international business. Can you talk about just the rapid growth that youve been seeing andkind of this really nice step-function over the last year? Do you think its more of a function of higherpurchase frequency among consumers that have been kind of gotten more comfortable or familiarwith the brand and kind of the operation of the business? Or do you think its generally moreaggressive step-up in marketing spend that has driven the fairly robust transaction growth?

: The step-up in advertising spend isreally coincidental with the growth in the business, so we havent done anything differently in howwe approach our advertising spend. We will spend to whatever extent we can, because customersare looking to come to our website, and as long as were successful in converting them to abooking, and were making positive ROI on that advertising spend, were all for as much of it as wecan get.

The business has been growing because its mostly new customers coming into the website andbooking in new geographic markets, and then also through continued shift from offline to online.Weve also seen nice trends though in repeat business, so people coming back to the site andbooking directly. So its a combination of both. But with growth rates so high, you know that a lot of

it is new customers coming to the website.

: Is that overall kind of repeat businesspicking up even more so in the past year, or has it been fairly steady-state over the last coupleyears?

: We dont get into a lot of detailabout the repeat business. But I think its fair to say, as the business grows, the absolute number ofcustomers you get through the repeat channel has to grow, and substantially, to support this kind ofgrowth in the business.


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Operator: Thank you. Our next question comes from Bill Lennan of Monness, Crespi.

: Hi. Good afternoon. I have a questionabout Asia and competition as well. We took a look during the quarter at hotel signings in the top 10

leisure travel destination markets in Asia, and were kind of astounded by what we found. We onlyhave sequentially, we just start doing this, we dont know the year-on-year. But your family ofbrands looked to be up, on hotel signings, more than 50%. Expedias family was up about 7%, andOrbitz and Travelocity were actually down.

So my question is, what do you think the competition is? Is the competition going to get hungrierand more aggressive in Asia? They seem to be standing still while you are racking up prettyaggressive hotel signings, at least in Q1. So what do you think their response will be?

: Yeah. I mean, I dont I cant reallycomment on your research. I think our competition has been very aggressive in signing up hotels. Idont know if they have as many people on the ground as we do. I dont know if theyre pursuing itas effectively as we are.

Were not the only group with a couple of brands there. Expedia has got at least three brands outthere that could be working on hotel signings. So they have outlined that as a very importantstrategic imperative for them. Im sure theyre working on it very hard. Theyve certainly got thescale of their worldwide business to get the international chains on board.

So we view the market as very, very competitive. We do think our teams at Agoda andBooking.com are doing an outstanding job of building the inventory, and thats not just happening inAsia. Thats happening around the world.

: Okay, thank you.

Operator: Thank you. Our next question comes from Michael Millman of Millman Associates. Yourline is open.

: Thank you. Following up on oneprevious question, on new customers and such. I was wondering where your rank conversion, interms of your growth?

And then secondly, given what looks like a worldwide tightness in retail rental fleets, how you thinkthats going to affect both your U.S. market for rent car rental and Jigsaw?

: Why dont I talk a little bit aboutconversion, Michael, and Dan can talk about the rental car fleets? We if your question is, how dowe think about conversion in terms of it being a driver of business growth, we absolutely view it asan important driver of business growth for us. All of our brands spend a lot of time trying to improveconversion on the website. It allows you to market more aggressively, so theres a virtual circle kind

of a concept involved there. So we think its very important.

: Wasnt so much the importance, but Iwas trying to rank it in terms of the growth against new customers and repeat customers and such.

: I dont think you can tease it apart,because ultimately, good conversion improves your ability to get a transaction from all customers,whether they be new or repeat.


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: And Michael, in terms of rentalcar fleets, in the U.S., for our opaque business, its been a variable situation. Weve had quarterswhere we have significant challenges in getting access to sufficient discounted inventory. We haveother quarters where we have a little more success. Certainly cases where inventory is tight, itcreates challenges for that business.

We look to be having some decent access to inventory for Q2 thus far, but that can change prettyquickly. The crisis in Japan certainly doesnt help the situation, and for our TravelJigsaw business,its one of their key imperatives is to try and make sure they get good access to inventory duringpeak season. And so, even in the best of times thats challenging, and maybe even a tougherchallenge for them this year.

: Thank you.

Operator: Thank you. And our final question comes from Justin Post of Bank of America. Your lineis open.

: Great. Were seeing Booking.com a lot insearch activity in the U.S. I dont think it came up a lot on the call, but how is that model doing in theU.S., and how receptive are hotels to the take rates youre offering on the Booking.com platform?Thanks.

: The hotels are very amenable to thecompensation and commission structure that Booking.com is offering here in the United States. Ithink they also find the ability to control their pricing and availability in Booking.coms system to bevery, very attractive. And they find the access to customers, not just in the United States butoutside the United States, to be a very important benefit of participation. So weve had very goodacceptance from the hotels in terms of signing up with Booking.com.

The Booking.com absolutely advertises in the United States and in English language webchannels that are broadly available in the United States, and its a great product for U.S. customers,and their business with U.S. customers is growing.

: Great. Is it growing like you are in Asia, oris it a little bit slower to kind of gain traction?

: Im just not going to comment sort ofon the relative growth rates between regions. We look at the United States as a new market forBooking.com, and its got growth rates that were happy with. But I dont want to get into one regiongoing faster than the other.

: Great. Thank you.


I guess thats the last question. Thank you all very much for participating in our conference call.


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PCLN Transcript 1Q-11