ETFMG Travel Tech ETF
Q1 2015 Earnings Call Transcript

Published: 24 Apr 2015

[Operator:]

Greetings and welcome to the HomeAway Inc. First Quarter 2015 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jen Ford, Senior Director of Investor Relations. Ms. Ford, please go ahead.

[Jen Ford:]

Thank you and welcome to HomeAway’s first quarter 2015 financial results conference call. By now, everyone should have access to the earnings press release, which was distributed today at approximately 4

[Brian Sharples:]

Thank you, Jen. Good afternoon and thank you for joining us on the call today. We’ve got a lot to cover regarding both financial results and some important organizational changes, so let’s dive right in. First off, I want to acknowledge that I am disappointed that we didn’t deliver revenues on the high end of our range for Q1. We’re proud to have had a very consistent track record of nailing top line results and even though we once again faced some FX headwinds our 119 million in revenue and FX neutral growth of 21% were on the low end our previous stated range. The primary culprit for this was a weakness versus our expectation in European subscription sales particularly at our Homelidays brand where the platform migration continues to have a significant impact on new listing conversion. Even though subscriptions in Europe were below our expectations, pay-per-booking in Europe continue to perform well. We expect to continue to see a mix shift with the new listings toward pay-per-booking and while this trend is net neutral to positive for monetization in the long run it does have the effect of pushing out revenue from new listings. This mix shift however also comes with some good news in the short-term. For starters we have a publicly stated goal that’s making virtually all of the listings on our site online bookable by the end of 2016 and every PPB listing gets us closer to that goal. In fact, Q1 was a blockbuster quarter for our online booking initiatives with now 465,000 listings online bookable at quarter’s end due to both the popularity of PPB and a record number of subscribers adopting this feature during the quarter. This means that we’re now knocking on the door of having nearly half of our listings with this feature creating big wins with travelers and improving the overall experience of using our sites. And with the upcoming launch of offline payment support for online bookable transactions, we feel very good about achieving the milestone we laid out for the end of 2016. Further I should say that we’re already seeing a positive impact on our traveler net promoter scores on virtually all the sites that carry our global inventory. This is in large part due we think to us seeing a higher percentage of OLB inventory on our global platforms. I am happy to report that adjusted EBITDA of 25.3 million came in ahead of our expectations. I know that some investors have been concerned about our ability to control cost to cover increased marketing expenses and as a result I am particularly pleased to deliver strong adjusted EBITDA results in the first quarter. But know that we are still early in the year so I directed our teams to reinvest the EBITDA over performance towards an even more aggressive achievement of our long term strategic objectives. That said, we continue to generate strong free cash flow which totaled 124 million for the trailing 12 months, up 26% year-on-year and balance sheet remained very healthy as we ended the quarter with just over 850 million in cash and short-term investments. On the listings front, we ended the quarter with approximately 1,86 million whole home listings in our family of Web sites, up 14% year-over-year. Note that during the quarter we placed emphasis on fully transitioning out of our legacy paper lead business. Some of these listings were comparative to PPB and others were removed based on historic performance to optimize site experience adjusting for paper lead listings that we removed from our sites overall listing growth would have been approximately 16% year-over-year. As of now we have completely phased out of the paper lead business but there is some effect of this in Q2 as well from the month of April. During the quarter we also announced an investment in partnership with CanadaStays it’s a market leading site in Canada which has over 45,000 Canadian listings, these listings do not appear currently in our listing counts. But provide the future opportunity for listing growth as it is our intent to market HomeAway listings to all of these customers in the coming quarter. Subscription renewal rates for the quarter were effectively in line with last quarter at 72.4% on an adjusted basis accounting for subscription listings that were migrated to pay-per-booking were actually up slightly versus last quarter which is good news. Despite the positive renewal rate performance however we do still continue to see weakness in renewal rates in EU business particularly again in our Homelidays brand in France and Spain. As part of our continuing efforts to consolidate our listings on to a single platform, recall we migrated our Homelidays business to our global platform mid-2014 and the resulting changes from this migration continued to have an impact on owner satisfaction renewals and traffic growth in EU, just as we saw with VRBO in 2012. These issues are typical following the migration with recovery at Homelidays’ is preceding more slowly than we’ve experienced with other sites, primarily because the old Homelidays user experience was dramatically different than our new global product. We’ve done a number of these migrations over the years and one of the things we’ve learned is that every one of these is unique. We also have action plans in place always to help mitigate these short-term impacts but we may continue to see some softness in the Homelidays business in particularly for a few more quarters. In addition, it is our intent to begin migrating our UK based Owners Direct platform in May and these impacts are incorporated into our updated 2015 outlook. As an aside for our new investors that may not be aware of why we migrate sites there are number of significant benefits to doing this including expansion of our global network, platform consolidation and cost and introduction of some of our most valuable features including listings Tiers and online booking. Once the Owners Direct migration is complete about 90% of our global listings will have been migrated. FX neutral subscription revenue per listing was up approximately 16% year-over-year and continue to benefit from adoption of Tiers in geographic bundles. These increases continue to highlight the value our customers see in our sub-offering which continues to provide a very high ROI to our customers. During the quarter our global network of site attracted 287 million visits this is an increase of 17% year-over-year consistent with growth in the prior quarter despite migration related headwinds at Homelidays which on the traffic side were pretty significant. Of particularly importance, traffic in Europe improved throughout the quarter and continued to show positive momentum into April with the launch of our new marketing campaign. Our global integrated marketing campaign launched at the tail-end of the quarter and so far we’ve seen positive results in traffic, brand awareness and branded search. While early results were encouraging, we have only a few weeks of data so we’re refraining from lobbying out any hard stats so we feel better about their validity in the coming quarters. While our branding campaign and TV commercials get the headlines the majority of our increased budget was spent on online marketing and I am pleased to report that our SCM activities delivered particularly strong visit growth in the first quarter complemented by other marketing channels such as social and email. Our TV ad campaign began in just last couple weeks of the quarter and will roll out fully in Q2. And as I’ve already said we’re pleased with the initial results but want to remind everyone that we’re making a long term commitment to brand marketing and it is very early days in this multiyear turn. As we seek to increase traffic we also believe we’ve got a huge opportunity to improve booking conversion. During the quarter we drove continued improvement of booking conversion across the board to enabling more listings with online bookings, working with our supplier to improve their responsiveness and numerous product changes including search, sort, retargeting and a lot of [AB] testing. A particular note booking conversion on smartphones was up significantly year-over-year, our particularly area of focus as our smartphone traffic is growing at triple digit rates and now represents almost 27% of our total traffic. Customer engagement is also improving to capture the long term advantages of improved conversion. Since the end of 2014 we have significantly increased our active traveler database through a strong focus on CRM by Mariano our CMO and his team. We are investing heavily in CRM in 2015 and expect to exit the year with dramatically enhanced capabilities in this area. On the organization front, we announced today that our President and COO, Brent Bellm plans to leave the company in June. We wish Brent the best and want to thank him for the extraordinary accomplishments with HomeAway over the last five years. While we regret losing such a talented execs we’re going to take this opportunity to make a handful of work changes that will position the company to move aggressively going forward. First and foremost I will be resuming the role as President and we’re not announcing a direct replacement for Brent's current role. We have incredibly Brent strength in HomeAway and will be empowering some very talented people help me lead the company into the future. First Tom Hale will be picking the title of COO and seeing expansion of his role to include product marketing and customer service two groups that previously reported to Brent. This will unite all the main touch points of our product experience under one very capable executive with the passion to create a world-class experience for our customers. Second, I'm pleased to announce that John Gray will join our C-suite in a newly created role of Chief Revenue Officer. John’s been with HomeAway for 10 years, was our third employee and for the last two years has been the leader of our highly successful Americas business. I am particularly excited for him to apply his knowledge and skills to our EU business in this role and he will pick up responsibility for that region immediately. Third we’re also promoting Jeff Hurst to our C-suite in the role of Chief Strategy Office. Jeff has been leading our highly successful efforts in e-commerce which is our fastest growing business segment. In his new role Jeff will continue to be responsible for e-commerce and other strategic initiatives that drive long-term growth for the business. Fourth, we’re promoting Jeff Mosler to Chief Service Officer. Jeff joined our company five years ago from Amazon and since that time has built a world-class global customer service organization spanning all of our brands. By our joining our executive team we expect to benefit from his close connection to our suppliers and travelers and are sending a message to our organization about the importance of treating our customers as king. And last our CMO Mariano Dima will add additional responsibility to his job including operational resources to even further expand our CRM capabilities and move quickly on that front. We’re also announcing today that my co-founder Carl Shepherd has decided that he is ready to spend more time with family and plans to retire from HomeAway in the back half of this year no date certain yet in particular. We've asked him to remain on the Board of the company and he intends to stay on as a board member for the foreseeable future. In interim he will have the title of Chief Development Officer and remain responsible for M&A and a smooth transition of his other areas of responsibility including legal and government relations. I can't say enough about what Carl has done for this business it literally wouldn't exists without him, and I want to thank him publically for being the best co-founder I could ask for. Who will be greatly missed but also available to me always as a trusted adviser as necessary going forward and again will remain a member of the Board. As you can see we’re a company in a midst of exciting transition. Our market opportunity continues to be extraordinary in a vacation rental segment as you know has become probably the hottest market in global traveling. I am thrilled that we’re back in the marketing game in a significant way and have the early indications from our new integrating campaign are very positive. Our aggressive push in e-commerce and online booking will improve satisfaction for customers and improve royalty, and we've got a highly energized team committed to maintaining our leadership in a vacation rental category. With that I will turn it over to Lynn to discuss our first quarter results and 2015 outlook.

[Lynn Atchison:]

Thank you Brian. For the first quarter total revenue of a 119 million was 20.6% higher than the comparable quarter last year on an FX neutral basis, with strong growth particularly in other revenue. Listing revenue for the quarter up 17.9% FX neutral year-over-year to 95 million benefitted from higher average subscription revenue per listing and increased performance based revenue. We ended the quarter with approximately 1,086,000 listings. Compared to last year our subscription listings are effective flat while we saw a 59% increase in the number of performance based listings. As Brian mentioned PPB is proven to be very popular in Europe and in a U.S. while subscription renewal rates were steady quarter-over-quarter a meaningful portion of new listings were performance based listings. For this reason we expect substantially all our listing volume growth to come from performance listings for the remainder of the year. It's worth noting as we head into the second quarter that we have a tough year-over-year growth comparison and the PBL headwind that Brian described. Other revenue was 24.1 million for the quarter increased 33.4% FX neutral over last year driven largely by revenues from ancillary products which grew more than 50% year-over-year as more transactions occurred on our platform the volume of booking transacting through our platform continue to increase as more suppliers adopt and use the service. This trend provides the growing base of travelers which we can monetize. Turning to expenses, total operating expenses for the quarter increased 16.9% compared to the same quarter last year. Most of the increase reflects higher sales and marketing expenses as direct marketing expenses were almost 9 million higher this past quarter than in Q1 of 2014 indicating our focus in this area. As well we had increased compensation expenses. We ended the quarter with 1,826 employees an increase of 238 employee’s year-over-year and an increase of 46 since 2014 year-end. As a result adjusted-EBITDA in the first quarter was 25.3 million ahead of our expectation but down 3% from last year primarily due to foreign fluctuation and the increase investment and marketing. Other expense of 4.2 million for the quarter was comprised primarily as a non-cash amortization of the imputed debt discount associated without convertible debt. I want to take a few minutes to discuss our income tax expense for the quarter we take Tour Vacation Rentals all over the world to do so we maintain operations in 12 countries. Over the past several years we have optimized our global cash tax expense but from time to time and usual items have impacted our book effective tax rate as was the case in Q1. Our Q1 tax expense of 3.6 million was actually higher than our pretax income for the quarter. This is because on both tax and book basis our Swiss entity through which we run most of our European operations is estimated currently to be in a loss position for 2015. At the same time we expect our U.S. businesses to be in a taxable earnings situation. Accounting rules require that we record tax expense where we have book income such as the U.S. but these rules also prevent us from offsetting income with losses from entity so the acquisitions hits taxable income such as some entities in Europe and Asia. And as a result there is timing and location of our marketing spends on enacting these accounting outcomes. Given that we expect our marketing investment will remain high in the near term and will still be significant in Europe I expect we will have a similar situation for the second quarter. By the second half of the year I expect the tax rate to stabilize with a full year annual tax rate to be in the 73% to 78% range. The quarterly and annual effective tax rates do not consider items like the federal R&D credit that hasn’t been renewed for 2015 by Congress. We expect cash taxes to be only 6 million to 7 million for the full year as we are still utilizing our NOLs in the U.S. For the first quarter we had a net loss attributable to HomeAway at 2.1 million or $0.02 per share. Now moving on to our balance sheet and cash flow, at March 31st cash, cash equivalents and short-term investments totaled 850.6 million for the quarter we generated free cash flow of 45.3 million resulting in 123.6 million of free cash flows on a trailing 12 month basis 26% higher than the same period last year. Cash was generated during the quarter from our operations net of capital expenses of 8.9 million during the quarter. We ended the quarter with 193.4 million in deferred revenue which was up 15.8% over last year FX neutral. Now I’d like to take a few minutes to look forward. Our updated full year 2015 revenue outlook is 493 million to 500 million, reflecting FX neutral growth of approximately 19% to 21% and actual FX growth rates of approximately 10% to 12%. We have updated our outlook to reflect FX headwinds due to strengthening dollar listing mix shift with our increasing popular PPB product and the revised forecast for Homelidays and our other European businesses. The combination of these items means that the midpoint of our updated outlook is approximately 18 million lower than our previous estimates. Half of this reduction is due to additional foreign exchange impact compared to our previous outlook and now represents an estimated 40 million headwind to full year top line compared to last year. Our 2015 outlook reflects the euro rate of $1.05 U.S. going forward. This rate is down approximately 21% from the prior year average and down approximately 7% from the 1.13 rate used in our first quarter outlook. While all currencies directly impacting our revenue are down compared to the prior year, the euro was particularly impactful as approximately 30% of our revenue is euro denominated. Given the rapid pace in the decline of the euro exchange rate since our first quarter call in February, some analyst estimates may not fully reflect this deterioration. Our full year adjusted EBITDA outlook of 119 million to 123 million reflects adjusted EBITDA margins of approximately 24.4% at the midpoint. FX headwinds caused approximately 100 basis points of de-leverage in EBITDA margin compared to the prior year. And as Brian mentioned and as we have historically done early in the year we are reinvesting a peak from Q1 into the full year. For the second quarter of 2015 our revenue range of 122 million to 124 million reflects FX neutral growth of approximately 18.6% at the midpoint. Based on current rates, we expect that FX headwinds will exist throughout 2015 and we believe they will be most pronounced in the second quarter at approximately 11% when comparing to last year. Because of the shift in mix with pay-per-booking listings we expect revenue growth to accelerate in the back half of the year as travelers take their summer vacation. Our adjusted EBITDA range of 22.5 million to 23.5 million for Q2 of 2015 reflects EBITDA margin of 18.7% at the midpoint. As discussed on the February call we expect marketing investment to be highest in the first half of the year with a step up in Q2 due to the seasonality of the business. Our other assumptions to help you model; amortization of intangibles is expected to be 11.5 million to 12.5 million for the full year; depreciation is expected to be 22 million to 24 million for the full year and 6 million to 6.5 million for the second quarter; interest expense associated with our convertible note is expected to be approximately 4.7 million for the second quarter and 19 million for the full year. And similar to Q1 we anticipate our Q2 effects of tax rate to remain high. This is due to the timing of our revenue and marketing expenses. In the third quarter and fourth quarter we expect that effective tax rate to stabilize in the 40% range, while the full year effective tax rate is expected to be 73% to 78%. We’re not assuming any R&D credit and are expecting to generate lower profit or losses in the jurisdiction where you have the lowest rate. Non-cash stock compensation expense for the full year is expected to be in the range of 53 million to 58 million. Basic share count for the full year is expected to be in the range of 95 million to 98 million and for the second quarter 94 million to 96 million. Our fully diluted weighted average share count for the full year is expected to be in the range of 97 million to 100 million and for the second quarter 97 million to 99 million shares. Capital expenditures are expected to be in the range of 33 million to 36 million for the full year and foreign exchange hedging cost related to our intercompany debt structure and other related items are projected to be approximately 1.5 million to 2 million for the full year. With that I will turn it back to Brian to share some final thoughts.

[Brian Sharples:]

Thanks a lot Lynn, so here we get started to take a first question, just wanted to go off [strip] little bit and say that we missed our high guide by $0.06 over percent this quarter. I hate seeing that happen. And we certainly don't like providing numbers for the year for anything else other than FX, but there is really nothing here in the news and we will talk about in the questions. That changes in my mind at all. The long-term opportunity for this business, we’re really on track with our strategy as a company and we’re at a very hot space as all you guys know we've a huge supply advantage in this business. We have a big traffic advantage over our direct competitors. We have a massive e-commerce opportunity which is growing very fast, triple-digits within this company and that’s where we’re pushing and that does have some effect on the subscription business but it's a good thing. We have enormous opportunity to build out brand and we’re just getting started doing that and our early results are very, very encouraging. And last but not least yes there is some leadership changes but we have a highly motivated incredible team of people here with a great deal of experience and they are super, super energized to take this company to the next level. So with that I guess it's a Lloyd next and take your questions.

[Operator:]

[Operator Instructions]. Our first today is coming from Lloyd Walmsley from Deutsche Bank. Please proceed with your question.

[Lloyd Walmsley:]

I wondered if you can just give us an update on where things stand in terms of marketplace management and adjusting sort order as you launch the marketing plan and ramp that up. Are there -- should we expect to see you guys more and more creative stuff to get the exposure of the pay-per-booking listings up as you ramp the marketing program?

[Brian Sharples:]

Yes Lloyd great question. I think you know [indiscernible] who runs that program. We've actually been doing a great job with it. This was a good quarter for us for conversion in both the U.S. and Europe. We have a big focus on conversion right now. And MTM does play a big role in that is also lot of sight changes as well. Bill was telling me earlier that in Europe if you look at IPMs, PPB, and [indiscernible] all PPBs the percentage of those listings that are actually been moved up by MTM is still actually a single-digits it works really well but greater than 90% of that opportunity still remains available to us. So we have a lot of flexibility to get more aggressive there and certainly every quarter we do get more aggressive. And so there is still a very, very big opportunity.

[Lloyd Walmsley:]

And then I guess is there anything you guys can share in terms of the level of bookings you are driving through e-commerce independent of the pay-per-booking but just e-commerce in general now that that’s approaching 50% of your listings. Are you seeing your probably getting a pretty good deal now on the bookings you are driving? Any kind of update on how much is e-commerce and then what your broader view across both subscription and pay-per-booking, what kind of annualized bookings volume you think you are driving?

[Brian Sharples:]

So Lloyd we don't publish the booking numbers but I can tell you that the growth rate in booking volume if you take PPB plus PPS and just look at e-commerce is triple-digit growth. It's very, very exciting growth in the company and unfortunately that’s not a metric that we give out, yet maybe something we will in the future.

[Operator:]

Our next question today is coming from Heath Terry from Goldman Sachs. Please proceed with your question.

[Heath Terry:]

I know you don't give bookings volumes number that you gave out, but you have talked in the past about an implied take rate or implied ROI for the subscription customers on the platform. Can you give us your latest thoughts on where that is and where those two numbers are trending as more inventory comes on to the platform? And in the past you’ve talked about the level of investment particularly in technology and product development that you’re making as you ramp marketing spend in some other areas of investment. Can you give us a sense of where you expect either absolute dollar growth or percentage growth in product development or technology spending to be this year versus last? And just your sort of overall general view on investing in that line item given sort of the competitive landscape?

[Brian Sharples:]

So the take rate question is a big and very relevant one because the majority of our business is still subscription and it depends on what region/area in the world, but we’d like to say in the U.S. it’s still 3% to 4% in Europe it’s probably more than the 5% to 7% range just based on the pricing and the performance that we see out in Europe. But on average we’ve got a huge listings here in the U.S. So if you think about when I talked about when I right before we got to the Q&A we have a huge supply advantage, we have a huge traffic advantage. Probably the one disadvantage we have versus competitors who are pure bookings base in take rate because there is a segment of our listings and it happens to be the biggest segment of our other listings that has a lower take rate than 10% or 15% that other people drive through that. So it is still very much the strategic objective of this team to get that take rate up. Now if you look at ASP over the last few quarters the growth in ASP is accelerating you have 17% increase this quarter in ASP and yes some of that was price increase but it’s actually only about 2 percentage points of that 17% so the rest these people buying up and paying more and so there is a lot of value there and obviously if those trends of numbers continue on a weighted years will get to a take rate that make sense. There are potentially some strategic options to look at other ways to do that so that’s where we are right now with the business that provides tremendous value to our customers. But it’s a huge opportunity. I mean if we were earning 10% on all the listings in this company we’ll be doing about $1.2 billion in revenue I mean that’s just the reality of it. And so there is a big-big opportunity so far to the company and again pricing is heading in the right direction, maybe other things that we can do to have that happen quicker and obviously the team will be looking at that as we go forward. On the Tech investment side we’ll just say we’re still funding very healthy growth on the product side just impact of two areas where we are spending the most relative to last year our product intent and marketing the moves that we just made to put all the product related groups under Tom Hale, is going to create some efficiency because now we have this one -- within one organization all the resources we need. I think probably the biggest benefit we’re going to see the speed, time to market. The teams are going to be a lot closer together and in total if you take our product management group, our product marketing group, our development group it’s a huge team of people. And so we’re very-very well resourced in that area as a company and we have really talented people in that area, so we’re pretty excited and I know Tom is pretty excited with this expanded team to move even quicker and faster in the past and I know if you want specific percentage of that [multiple speakers].

[Jen Ford:]

So I’ll just jump in so I mean it’s going [indiscernible] our investment in 2015 is higher than it was in 2014 but as a percentage of revenue you just think about that at staying flat and we talked about longer term getting leverage out of product and technology but you will see there is a percentage of revenue that’s about flat in ’15 compared to ’14. But I’ll chime in that one of the advantages I know we’ve talked a lot about some of the challenges with our migration. So one of the advantages of migrating our client such as Homelidays last year and Owners Direct coming up as we get more and more of our technology on the same platform which gives a lot more opportunity for innovation for product and technology so that’s some a good news that we get out of migrations.

[Operator:]

Our next question today is coming from Mike Olson from Piper Jaffray. Please proceed with your question.

[Mike Olson:]

So for the listings that are online booking enabled, are you able to share how the bookings per listing is trending versus non-online booking enabled? And is that something that you’re sharing with the owners of property managed to help drive towards OLB and maybe alleviate some of the concerns that they have?

[Jen Ford:]

I don’t really know that we -- we were certainly down [multiple speakers].

[Mike Olson:]

You said subscription listings --?

[Jen Ford:]

All online booking listings versus subscriptions or pay-per-booking

[Brian Sharples:]

You mean anyone who is OLB enabled -- anyone who is PPB enabled certainly those exactly what revenue they’re driving because we report that to them. For subscriber who uses OLB understand that many of the subscribers hopefully most of those transactions occur in our platform but there are lot of transactions still that we believe they take off platform and so we don’t actually have full insight, into how much our subscribers are making one-times throughout the day.

[Jen Ford:]

One of the things that we use in our marketing materials to subscribers is that one of the advantages of online booking is that it’s considered in sort. And so even though it’s not tied so you will get X number of bookings to be online bookable you will definitely be higher in store within your Tier and category and so by definition they know and understand that it’s benefit now.

[Brian Sharples:]

This is a what that’s driving the question so we have this call to get everybody OLB enabled by the end of 2016 and that creates monthly set of goals, we have internally which is to declare, we’re doing really well in that. We are ahead of where we expected to be at this point in time. We have got now 43% of our listings online bookings enabled which I said in the script means we’re going to be knock another door of 50% real soon, but we haven't dropped the big hammer yet which is supporting offline payments and we’re going to do that at the end of Q2 beginning in Q3 and we think that’s going to create another big influx. And as we talked about the last two years once we get the 50%, 60%, 70% of the people who have it it's a massive incentive for the rest of the people to go. And so what we’re really trying this strategy by 2016 is get as much of it naturally if you will between now and the second half of the 2015. And then by the end of 2015 it won't be that big deal for us to enforce in certain ways. And so we will have so much tougher penalties for people who don't play in that online booking roles, towards the end of 2016. So we feel very, very good about that task that we are on. And what we’re already seeing is that the more online booking listings we have the more goodness we have in our marketplace. Our net promoter scores I said this in the script this quarter across the Board are turning upward and we are exciting to see that. We think one of the main reasons is that travelers are just getting quicker response, they are getting to see the pricing, they are getting to book online, and that’s going to do really great for the business in terms of repeat usage and recommendations and social sharing and all those kinds of things. So we feel very much on track that parts going well.

[Mike Olson:]

I think the heart of the question, was I just remember from customer conference at one point that think you had said nothing like there was the 2X bookings per listing, maybe it was for subscription listings for those that had already moved to online booking versus those that hadn't. But any one other quick question that I had was as far as Homelidays what percent of listings overall still need to be taken over the global platform. You mentioned that when you finish Homeliays in Europe and then the UK transition will be 90% but where is that today?

[Brian Sharples:]

I think with Homelidays its surrounding it’s another 5% that comes with OwnersDirect and then another big swag will really be stage in Australia which we may or may not move to the global platform or we don't know exactly the things certain we actually have decided who stays at least for the time being the kind of pretty full development teams put features on that site that we currently have on our global and not wait for that to happen, because there is pain with these migrations. As Homelidays things is the equivalent of when we migrated VRBO in the U.S. It’s a very big pan European business, and it was very different that the HomeAway platform. That’s how we compete to this. It is very different in terms of the owner experience the dashboards they had, the pricing model, we've introduced here we've introduced PPB which they didn't have before that. And you may remember that back in the days of good VRPO we had the same issues, we had the renewal rate issues, we had traffic issues, and this is they recovered quicker and these haven't recovered as quick and that was the surprise to us. And since we seem to be in a new ball game with this one, we've decided for rest of the year that we would bake in some softness in that business for the next three quarters. It is our full expectation that we will get out with the words with that and we wouldn't be doing an OwnersDirect migration on the heels of it next quarter if we didn't feel confident that was the right thing to do for the business. But the combination of those to migration this year does put a little bit of pressure on the business that’s reflected in the numbers fully at this point and we’re excited as you guys get to get pass it.

[Operator:]

Thank you our next question today is coming from Robert Peck from SunTrust.

[Robert Peck:]

Thanks for taking the question. Lynn I was wondering if you maybe gives us a little around [indiscernible] the cost of acquiring customer. What levels you think are appropriate going forward. And then Brian I was wondering if you could touch a little bit on your -- give some update on the Expedia relationship. I think last quarter you mentioned talking -- possibly talking to other partners just more it. Just curious where we are there.

[Lynn Atchison:]

There is always the first line and where we really think about that I answering based on demand is right now a 60% all of our traffic comes from a combination of SEO and Direct and do we have a very strong asset in the sense of base we wanted to grow demand. The rest of our traffic comes from a combination of SEM, display, e-mail marketing, affiliate programs, a lot of other things that we do. So we got a great base to work from as we grow. And we know that will change over the year than we’re adapting on our muscles and marketing the things that we’re doing in CRM and all that should adapt to the changing marketplace, should adapt to [indiscernible], et cetera. So we don’t view it as much of a cost of acquisition that way but see it more holistically about how we bring demand to the marketplace.

[Brian Sharples:]

And then related to the question on Expedia, there is not a lot of new news since last quarter. It’s fairly still status Quo. We’re not exposed on the majority of the searches on Expedi still probably the biggest news there is we’re getting set to go live in Europe with them. Something we told u we thought was going to have an impact because most of the IPM PPB listings we have a lot of them our European listing and so that’ll perform obviously a lot better on experience side. Relative to other we call EEN or electronic distribution network deals we don’t have anything announce able today on this call. But we continue to work on that.

[Operator:]

Our next question today is coming from Chris Merwin from Barclays. Please proceed with your question.

[Chris Merwin:]

I just had a couple of question. The first question Brian you mention that the PPB product is actually getting more popular in Europe and I guess the simple question is why just in the sense that if the ROI typically for owner is higher when they have a subscription product. Why are they moving willingly over to the pay-per-booking product presumably were they're paying a higher take rate and getting out slightly lower ROI. And then secondly just in terms of the marketing campaign what type of metrics and hurdles do you have in mind that you're looking to need or exceed as you roll out that campaign to the extent that you're doing better or worse in any of those metrics would you start to resize that campaign appropriately. So for instance its going very well would you actually up the spend to the extent that you are getting those good results? Thanks.

[Brian Sharples:]

So we're fortunate to have Mariano here I'm gone let him take the marketing question after me. On the PPB side just not to confuse it too much, of new listings coming into the size in the U.S and Europe. The splits between PPS and PPB are that far off. I mean PPB is a pretty popular product in both regions for new people coming in essentially because it's free and it's a great to our product. We also don’t have a lot of evidence that we have listing spinning out of subscription and going into PPB on math there is some of that. But that’s not a big issue we see. In Europe it tends to be -- so we drive two type of listing we have those to come in from platform then we have a sales force. The sales force side of the business which is pretty significant in the U.S signs of lot more PMs on a subscription basis than Europe does almost everybody in Europe, if European has been trained because there is lot of competition in Europe that’s pure commission base to do commission base deal. So when you blend together to stuff our sales force brings in with what’s coming on in the platform you just get a very high percentage of listings in Europe being PPB in total. And that obviously changes the dynamic from a year ago where the sales force is only sell on subscription and the platform was only sell in subscription. So it's now taking down subscription increase PPB and that has the effect of pushing revenue out because we don’t recognize revenue on PPB until somebody state in a property. And that revenue recognition while getting better it's still on average specially to include RPM below the subscription side. We believe that based on the work we're doing on conversion we will get to a point where that’s not true. So in the long term we loss the PPB business it’s a 10% take rate business but recognize again that new people that have never been on our site they don’t get to experienced that 3%, 5% take rate as they've never there before and that’s really impact that we’re seeing. And then Mariano if you want to answer the marketing piece?

[Mariano Dima:]

The KPI started we are going to launch into just improve on to drive growth on the margin perspective generally about brand awareness and branded charge. And ultimately now dry traffic on engagement. So the way that will signed I think delayed the margin campaign was aimed to drive ensure that we have a very solid digital marketing base very, very strong SCM that are may like on social activities to make sure that we drive under the tropic. While at the same time we just would drive to be campaign that drives awareness and banner search. Early recharge as why I mention was a quite positive but deal from a perspective of band of surge we are seeing definite increase from that perspective in the countries and the brands that we advertise. And at the same time I saw we've seen kind of good positive indication increase brands they want in traffic. So this is an investment of long term early times and we launch a campaigns like four weeks ago. One of the weeks was Easter break so you cannot count out so early days, early indications that we're seeing are quite positive.

[Operator:]

Next question today is coming from Kevin Kopelman with Cowen & Company. Please proceed with your question.

[Kevin Kopelman:]

I just have a high level question on the kind of underline bookings that you're generating for your listing. Can you just give us a sense of what the year-over-year growth looks like in kind of total bookings that you generate and what your target is that?

[Brian Sharples:]

I mentioned that in earlier question. So we don’t give out the exact stat but its well over 100% it's growing very fast.

[Kevin Kopelman:]

Sorry just to clarify I'm including a subscription kind of the business that you generate increase subscription customers in that.

[Lynn Atchison:]

We don’t have a point of view right now on what that number is. This is Lynn, because all that occurs to off our platform.

[Brian Sharples:]

We do see what our regular estimate of it. The last time we did an estimate of it, it was about 12 billion. I think we did that about three months ago. We have to a bunch of analysis to figure that out, we got to make some assumptions, we got to make some survey work with our customers but at last check it was 12 billion, and we haven't updated this since we talked about that number. I think we had talked about publically.

[Operator:]

Our next question today is coming from Rohit Kulkarni from RBC. Please proceed with your question.

[Rohit Kulkarni:]

I guess revenue per listing been accelerating for last three, four, five quarters. Adoption of premium peers, can give an update us to where what percentage of listings there are in and how sustainable do you think is this accelerating momentum? And then I had a follow-up on Europe.

[Brian Sharples:]

There is still lot of opportunity there. I know and the brands that have had it the longest Tier adoption at the higher end tends to be in 15% to 20% range for a platinum right now and still going on for all of the sites that we have launched since most of them in general are on the trajectory that is similar to if not faster pace than what we saw in the U.S. and you got most of the sites have started in the U.S. that platinum adoption is still in the low-single digit so it’s got a pretty long way to go. Where we sit right now with Platinum at 15, 20, is good because it worked. We got five peers it probably theoretically want to see about 20% in each bucket, is one of the reason we did raised the prices on the high-end is because that was starting to get over 20%. And we we’ll continue to overtime to adjust pricing to make sure we have a percentage of different Tiers actually make sense and is well distributed but for the site that we launched Tiers on last year, year and half they still have the very long way to go. And then I think the other thing is we haven't seen when we launched we've just recently launched Tiers, for example [indiscernible] and a number of other sites long-term we really haven’t the big renewal impact in fact that’s sill the case that the higher something in sore meaning the more they pay, the more royalty are customers in the higher renewal rate they have.

[Rohit Kulkarni:]

And on Europe since pay-per-booking is more popular than, is there a direct taking out the FX impact do you have a transactional impact as well in Europe where travelers are opting for probably cheaper-shorter hotel stays versus vacation rental luxury, vacation rental sales or do you see any evidence of that s you are managing that?

[Brian Sharples:]

I actually don't know the answer to question year-over-year. You do have -- I mean there is more city travel in Europe so you have more -- people and more likely in Europe to allow three days to four days stays and weekend breaks than in the U.S. which tends to be a Friday-to-Friday or Saturday-to-Saturday market. So in general you will find lower booking rates in Europe than you were in the U.S. but whether that has changed in last 12 months I am just unaware of that. I know if I look at the data look at that although we were been in the online booking business in Europe for years and we’re just barely getting to the point where we have year-over-year comparisons, before that everything was occurring off line. So we might have done the pricing was still don't exactly what people were paying. So I think will be in a better position to asset that over the next few quarters. But thank you for the question we will go back and look at it away and if there is something that we can communicate back to you, we will.

[Lynn Atchison:]

I think our time in, for our type of inventory houses of the vacation rental fees and we’re turning into the vacation rental season right now in Europe. And so I think we know a lot more, better feel for that consumer experience by our July call.

[Brian Sharples:]

And we wouldn’t surprise me.

[Operator:]

Our next question today is coming from Manish Hemrajani from Oppenheimer. Please proceed with your question.

[Manish Hemrajani:]

Average revenue per sub listing was down sequentially. Typically we see an increase in the first quarter. How does European average Rev per sub compare to the U.S and is that European sub pricing declining on the FX neutral basis?

[Lynn Atchison:]

It is exactly that, the difference is really FX we're seeing overall average revenue toward subscription listing increase and so that’s just seeing impact of the FX.

[Manish Hemrajani:]

As PPB listing is higher.

[Lynn Atchison:]

I think it’s a little higher in the U.S and Europe it a little higher in the U.S.

[Brian Sharples:]

But not by a significant amount.

[Manish Hemrajani:]

And then as PPB listing spend more time on the platform do they have a propensity to then be may be convert to a sub listing on what kind of trends are you seeing there for listing that have been on the platform PPB for order a year?

[Brian Sharples:]

To be honest for year we're running about 15% right now our converting from PPB to sub, but it's a very small sample size if you go back. That’s what we believe is kind of a base case right now. And that’s about our whole lot of marketing and a whole lot of push. So my guess is that if something were looking to accelerate with use of the sales force with better CRM we do a lot of work on CRM right now on putting those [indiscernible] boxes and my guess is we’ll be able to push that up to 20% - 25% maybe more. But naturally right now it's about 15%.

[Operator:]

Our next question today is coming from Nat [indiscernible], Merrill Lynch. Please proceed with your question.

[Jason Mitchell:]

This is Jason Mitchell here for Nat. Can you just talk about how you expect the UK role of migration to take? Is it a couple of quarters. And then after that I'm assuming you’ll roll out to chaired listings. How should we kind of think about that is that kind of just takeover year is doing seasonality in that? And then I a quick follow up question.

[Brian Sharples:]

Yes so I guess chaired listing right away, it's from our revenue perspective that will be lot of goodness from doing that migration. But I would say where they go pretty flawlessly it's usually a couple of quarter problem and hopefully it's going on a four plus quarter issue. I will tell you how our teams have been really digging in hard on the Homelidays’ side and try to mitigate and understand why that migration was different and lot of that knowledge will be upsize from Owners Direct. So I don’t expect Owners Direct to be the same kind of situation that drags on as long as we've had with Homelidays, but for the next couple quarters it will definitely have an impact, so I believe Tom Hales in the room. Tom when is that migration actually happen? When is that switch flip?

[Thomas Hale:]

I’ll follow the HR, mid-May.

[Jason Mitchell:]

So starting in mid-May, I probably count on 6 to 9 months ,the softness from that business.

[Lynn Atchison:]

I do want to chime in that whenever we migrate aside and certainly we can now offer share pricing. There is a natural uptick that takes place by the owners, they don’t just all suddenly rush through the Tier, they generally would look at it upon their renewal. So if you think it in a sense that the first year is that people come up for renewal they may contemplate where or not they wanted to cheer up. And the revenue recognition is 12 months back with that. So it is, that element of the model that takes a little bit of time starts the develop.

[Jason Mitchell:]

Okay thanks and then just through a quickly, are all PPB listing unique from sub-listing or could somebody have like sub-listing on one side maybe a PPB listing on that different side for the same property?

[Thomas Hale:]

It’s theoretically possible but it's pretty difficult and we haven’t detected much that behavior. If there are more than 50 to 100 I’d be shocked.

[Operator:]

Our next question today is coming from Tom White from Macquarie. Please proceed with your question.

[Tom White:]

First just a clarification subscription listing growth trends kind of U.S. versus Europe. I think last quarter you guys said U.S. growth accelerated, but it sounds like that maybe PPB was kind of taking up in popularity here where they both sort of flattish year-over-year this quarter? And then just with regards to Homelidays renewal rate and the softness there and your comments about being sort of worst then it was with the [VRBO] migration. Could you just may be elaborate a bit more on sort of what gives you confidence to that the softness is sort of purely the impact of the platform migration and kind of the product difference as opposed to maybe macro-effects or competition?

[Lynn Atchison:]

I'll take the first one. We are continuing to see positive growth and in subscriptions in the U.S and of course we're seeing not that in Europe and so that’s why we're seeing the flat growth overall on a consolidate level worldwide. I do think that we don’t have a breakdown of how much with how much in Europe the slowdown related specially to Homelidays versus overall macro conditions. I think competition is somehow in there we don’t have a specifically quantifying. But we did see some softness in the UK for example and that was in HD.

[Brian Sharples:]

But now [real] is HD, it's really simple stuff the day we did the migration new listing conversion on the size. You got to funnel all the listing coming in the sides. New listing conversion went down by significant amount the day we launched this, that not macro condition it literally happen overnight. The same was true with renewal rate where you saw almost instantaneously a big change. Because the renewal process was different, the screenings were different people don’t recognize to setting. The other is that we also run other sites in the geography, so the biggest geography for Homeliday is flat and we also ran out of the brand called [indiscernible] brand and retail is having the issues that Homeliday is. They're completely uncorrelated I would tell it’s actually doing very well. So we're quite confident it have to with the platform change and we know what those changes are and so some of the fix things to those are making changes to our core platform to bridge the gap between some of this stuff that people like coming old one like we now our big deals to those owner and the platforms is different feature different features, doing things and in some cases we're going have to modify our core platform to satisfy the audience. Like with VRBO, I think the lot of people just go up on the sidelines and kind of wait and see, then they come back and eventually we've done 10 of these now, they always come back, it's just they variant in time between the different sides and unfortunately there is one of the painful in long one and may the accounting plays in sort of little bit because people on the margin are less willing to tolerate change. But we have enough data to believe that it's the platform that’s really been the biggest thing driving it.

[Operator:]

Thank you. That does conclude today's teleconference, you may disconnect your lines at this time. Have a wonderful day. We thank you for your participation today.