Good afternoon. My name is Federica, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Expedia Group Second Quarter 2020 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I will now like to turn the call over to Michael Senno, Vice President, Investor Relations and Treasurer. Please go ahead, sir.

Thank you. Good afternoon. And welcome to Expedia Group’s financial results conference call for the second quarter ended June 30, 2020. I am pleased to be joined on the call today by our Vice Chairman and CEO, Peter Kern; and our CFO, Eric Hart. The following discussion including responses to your questions reflects management’s views as of today, July 30th, 2020 only. We do not undertake any obligations to update or revise this information. As always, some of the statements made on today’s call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate, we are optimistic or confident that, or similar statements. Please refer to today’s earnings release and the company’s filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements. You will find reconciliations of non-GAAP measures discussed today in our earnings release, which is posted on the company’s Investor Relations website at ir.expediagroup.com. And I encourage you to periodically visit our IR website for other important content. Unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative expense, and technology and content expense exclude stock-based compensation and all comparisons on this call will be against our results for the comparable period of 2019. Please note that depreciation expense is now reported in a separate line item, and prior periods have been restated to reflect this change. And with that, let me turn the call over to Peter.

Thank you, Michael, and good afternoon, everyone. I hope you are all safe during this challenging time. As mentioned in our release, the second quarter was tough for the travel industry, including us. However, we were encouraged by consistent growth after April, with May and June showing significant improvement. This is not just a short-term positive for our business, as our numbers are still down compared to previous periods, but it highlights the strong desire for travel. People are eager to travel when they feel safe and there are no restrictions, and we observed this eagerness over the summer. I expect this trend to continue as the world gradually opens up. We anticipate a bumpy recovery, with rising virus cases and new restrictions in certain areas, but we are focusing on aspects we can control. We are dedicated to assisting our customers and suppliers navigate this complex time, optimizing our cost structure, and improving our internal operations, speed, and agility for future growth. Although it may take time for you to see the results of our efforts, this is our primary focus. Eric will provide a summary of our second-quarter numbers shortly. They are complicated and not particularly revealing, and I wouldn't recommend dissecting them too much. The changes we are experiencing are largely influenced by macroeconomic conditions, and we are concentrating on long-term solutions rather than daily tactics for immediate revenue. We are prioritizing foundational work to create long-lasting benefits. We're not chasing every dollar right now because we're committed to long-term growth. For instance, we recently discontinued the HomeAway brand in the U.S., consolidating all traffic to Vrbo to streamline our operations. We also integrated our car rentals in Europe under the Expedia brand for simplification. Additionally, we sold bodybuilding.com and closed down less essential projects within the Vrbo business. On the technology side, we've accelerated various projects. Our Media Solutions business moved away from a third-party vendor for auction technology to our own platform sooner than expected, allowing us more time for optimization and growth. Our hotels.com brand transitioned to a new mobile platform ahead of schedule as well. We launched virtual agents for our Egencia Corporate brand in the U.S. and France, two years ahead of plan. All these changes aim to make us quicker, simpler, and more agile. We are focusing on utilizing our data effectively to enhance decision-making for our customers and suppliers. Our long-term goal is to assist our supply partners in becoming stronger after the challenges posed by COVID-19. We have implemented a relief and recovery program for hotels to better leverage our tools and are improving our air product for suppliers. As for costs, we're actively pursuing efficiency across the company, aiming to exceed our previous target of $500 million in savings, having already achieved about $400 million. However, we acknowledge that we cannot provide precise numbers, as various timing factors are involved in our initiatives. Our efforts also extend to reducing variable costs, such as customer service and transaction costs, and refining our approach to marketing. In terms of recovery, we initially faced significant declines in April but saw consistent growth afterward. While we were down 90% for the quarter, by June that figure reduced to less than 70%, and lodging bookings improved further. July performance has remained consistent, with Vrbo showing strong results during our recovery, especially in the whole-home rental space, driven by families seeking private accommodations. While we expect some fluctuations in the coming months, I believe the world is eager to travel, and as opportunities for safe travel increase, people will continue to embrace travel once again. Overall, we are focused on the long-term and are making significant progress, even if it takes time to reflect in our numbers. Now, I'll hand it over to Eric. Thank you.

Thanks, Peter. And thank you everyone for joining us as well. As you can see, our financial results this quarter are indicative of the severe impact COVID-19 has had on our business and also the rest of the travel industry as well. As Peter mentioned, we've been focusing our energy on what we can control. And coming into the year I discuss several priorities aimed at delivering margin expansion. And that includes resetting our fixed cost base, premium variable cost of revenue, and driving marketing efficiency. The impact from COVID has made these priorities even more important for us. And I’m pleased with the progress our teams have already made across these areas. And I expect it will become increasingly evident in our P&L as our business recovers. Peter also noted, we are running ahead of our initial cost savings target. And we now expect to exceed $500 million on a run rate basis. Over the last several months as we've accelerated and deepened our work across our cost initiatives and identified additional opportunities across the board for those in cloud, real estate licensing, procurements, people-related costs that push the expected savings higher. We're still working across these areas and continue to look for more potential opportunities as we drive efficiency and simplify how we operate the company. The progress to date is already evident in our overhead cost categories, which collectively declined 22% in Q2. About half of that year-on-year decline reflects savings achieved thus far from these costs initiatives, while temporary cost measures related to COVID-19 accounted for the rest. We expect that over the next few quarters, the temporary benefits will phase out, while the savings from our cost initiatives will increase. In addition to the progress on the cost savings initiatives, we're also making nice strides on improving variable cost of sales. It's not evident in the P&L yet given the low booking volumes, but we expect the progress we're making to drive efficiency and customer service among other areas and to be another source of leverage on the P&L as revenue recovers. Looking at our cost of revenue as mentioned, it did not scale down with revenue with a given decline of 22%. One factor is that only some of the costs are directly variable with revenue. Credit card processing related fees are the biggest component and will fluctuate with our merchant revenue. And for context, that accounted for roughly a quarter of our cost of revenue in 2019. In Q2, we also had higher bad debt and customer chargebacks related to COVID and also had costs related to bodybuilding.com before it was sold. Customer service costs are tied more to call volume, and particularly early in Q2, we saw unprecedented levels of call volume due to cancellations that required additional staffing. Since April, these costs have started to decline year-on-year, as the environment has stabilized, and we deploy more automation and self-service tools. Longer term, we believe this is going to be a big opportunity for us to improve variable costs through further innovation on our virtual agent platform. We expect the cost of revenue will remain a source of leverage while revenue remains depressed, but we do expect it to scale nicely as the business recovers and contribute to better gross margins as we return to more normalized volumes. On direct marketing expense, which is another area we're focusing on to drive efficiency, we slowly restarted marketing as the quarter progressed and demand began to increase. We plan to continue working our way back into performance and brand marketing as we see demand signals in different geographies. But we intend to remain disciplined and operate at higher ROI than in the past, both near-term and going forward. As Peter mentioned, the results this quarter are distorted in several ways through the impact of COVID. And I want to spend a few minutes going through a few key areas to help you understand what's happening to the business. In terms of our lodging results, ADRs were up 1% and revenue per room night increased 15%. On ADRs, Vrbo, which carries higher ADRs, saw ADR growth given the strong demand that Peter talked about previously. It accounted for a much higher mix of room nights than it has historically, and more than offset declines at hotel ADR. A similar dynamic impacted revenue per room night with growth driven by the increase in mix and improved monetization of Vrbo. Revenue take rate was abnormally high at 21%. While there’s a lot of noise in the quarter, the biggest factor was the impact of lodging cancellations, which are netted out of gross bookings but do not impact revenue contributed to the sort of take rate. This metric can remain volatile in the coming quarters with seasonality and product mix taking a different shape than we usually see. Air revenue was negative in the quarter unlike lodging. We recognize air revenue at the time of booking and make an assumption on cancellation rates. Given the unprecedented disruption to the air business during the last few months, cancellations are in excess of what we previously estimated. And for certain types of bookings, we refunded customers their airfare. We also reversed previously recognized revenue that was based on reaching certain volume thresholds. All of these factors were offsets to revenue which exceeded the low volume of new revenue in the quarter. Moving on to cash flow in the balance sheet, free cash flow in the quarter was negative $2.1 billion, and if you exclude Vrbo's merchant business, most of which goes to restricted cash, free cash flow is closer to negative $2.2 billion largely due to the negative working capital impact to fund the decline in deferred merchant bookings and our adjusted loss in the quarter. As booking trends improve, deferred merchant bookings started to increase in June and ended the quarter at $4.6 billion total or $3.8 billion, excluding deferred loyalty, with Vrbo accounting for most of the inquiries. If you exclude the financing completed back in May, the decline in cash moderated each month in Q2 and was down only modestly during June, thanks to the stabilization in deferred merchant bookings and moderating profit loss. In addition to cash holdings at the end of the quarter, we held amounts and restricted cash and other balance sheet assets that covered approximately 60% of outstanding deferred bookings, excluding deferred loyalty. Turning to our capital structure, earlier this month, we opportunistically raised a total of $1.25 billion in senior unsecured notes across three and seven-year tranches with a weighted average coupon of 4.2%. We currently plan to use these proceeds to redeem the outstanding preferred equity stock when the redemption premium steps down in May of 2021, which will deliver significant cost savings and reduce our cost of capital. We continue to have flexibility in our capital structure to reduce our debt load over the next couple of years, which will be a key capital allocation priority and provides a path to return to our historical leverage levels as the business recovers. Overall, we’re excited by the improvement in travel demand over the last few months. As Peter talked about, it shows that consumers love and have a strong desire for travel and will find a way when they get comfort to do so. Nonetheless, there’s still a lot of uncertainty about the virus. And we expect the recovery will have ups and downs along the way. And look different in different geographies, depending on the ability to control the virus, travel restrictions, and consumers’ general comfort with traveling. We feel like we’re in a great position to participate as travel recovers. But right now we’re primarily focused on what we can control internally. We’re rapidly continuing down the path of reshaping how we do business. We’re on track to come out of this disruption a stronger, more nimble company with better margins and positioned to deliver attractive growth for the long term. Operator, we’re ready for our first question.

And your first question comes from the line of Naved Khan with SunTrust.

Yes. Hi. Thanks for taking the question. I just have a few. Maybe just on Vrbo first. Is there enough supply available to you to fulfill demand as you look out into the back half? Or is it mostly booked? And then, I have a follow-up.

Sure. Thanks for the question. I would say it's definitely not mostly booked. We have seen certain compression in a few markets. And in fact, you may have heard that the pricing has been higher as our suppliers have been able to get higher pricing as there's more demand in their markets. But there are very few markets where we have real issues with sufficient supply to satisfy demand. And certainly as you look out over the next several months and into the fall season, there's no shortage of supply. This summer has gotten a little tighter again in a few spots. But by and large, there’s ample supply around the globe.

That's helpful. And then, maybe just on the performance of different geos, as you look back into the July trends. Anything to call out with respect to performance of Europe and Asia? And how that compares with the U.S. business?

Sure. I'll just say quickly, and Eric can jump in. I think what we've seen, again, it's one of those things that rarely surprises you. It's kind of what you think it would be. The U.S. has been strong, and with the increase in viruses slowed a bit, Europe and Asia have been less strong but slow and steady and kind of continuing to improve. We're seeing a few spots of virus issues in Europe. So never know, and Latam has been a little more like the U.S., but it's quite small for us. So I would say, it's pretty much exactly what you think it would be based on what you're hearing about virus and openings, etc. And there's no real mystery inside of that anywhere. I don't know, Eric, if you want to add anything.

Yes. The only thing that I would add to it is that the story as we evolve over time, it's going to be a series of micro stories and intersections of different geographies. And just to give you a flavor of that. When you look at air, that ultimately if you just look at our overall number, you'd see an improvement from April through to June and then a slight weakening in July. But if you then split between the various geographies, North America and Latam look pretty similar, which will follow a very similar curve that I just mentioned, whereas EMEA and APAC really haven't recovered very well yet from an air perspective. If you then look at lodging then however, it's somewhat of a different story where North America and EMEA look the same. So they will follow a curve where April was down quite significantly, but has rebounded a bit through June and the order of magnitude mentioned previously. But whereas APAC and LATAM are still lagging. So it's going to be a story of comfort on domestic travel. How much of a given market historically and in this environment has domestic versus international. How comfortable people are across lodging versus air? But hopefully that will give you a sense for the various curves across two major problems, major geographies, and products.

That's helpful. Thank you, Peter. Thank you, Eric.

Yes. I would like to add that on the Vrbo side, we have noticed that during economic downturns, there tends to be an increase in the number of people entering the market. We have some optimism as we have observed early signs of increased supply in the market, which should help address any inventory challenges we may face.

Great. Thanks for taking the question, guys. Peter, I wanted to ask you a little bit of a big picture question. Given the trends that you have seen over the past few months, do you think there is a secular change in consumer behavior towards alternative accommodations in a more permanent way? Obviously, you have Vrbo. But where do you see incremental opportunity if this theme becomes sticky and significant for the whole travel industry? And then the second question is on the market share. You noted that you are willing to lose share gains in the near term on the performance marketing channels. How do you think about that share specifically something where you would like it to sustain? And is there a level where you would like demand to get to before you become aggressive in the performance marketing channels? Thank you.

Sure, thanks. Regarding the first question, I personally don’t believe there has been a significant change in consumer behavior. Specifically for Vrbo, we are seeing many people trying out alternative accommodations and, hopefully, having positive experiences. Vrbo focuses on whole home rentals, and I think there are many individuals unfamiliar with our brand or experience who are now discovering it and enjoying their trips. This presents a great opportunity for us to build long-term customer loyalty and value. As you may know, we've been working over the past couple of years to make more alternative products available through our main OTA brands. While there is still work to be done, we are making progress. I believe this will continue to serve as a valuable option for travelers. However, I don’t think any changes we are witnessing will be permanent. I remember the discussions about the future of travel and New York City after 9/11, which ultimately turned out to be incorrect. I remain optimistic in this area. Travel adapts; if international travel isn’t an option, then domestic travel will rise. If flying isn’t appealing, people will drive. If hotels aren’t preferred, alternative accommodations will be chosen. I don’t think we’ve seen a long-term behavioral shift. Regarding your second question on performance marketing, my earlier comments referred to short-term fluctuations that occur weekly; these variations happen everywhere. While we could spend time reacting to each of these fluctuations, we prefer to focus on foundational work, which we are actively pursuing. This doesn’t imply that we are willing to sacrifice market share; we want to keep our focus on the bigger picture of long-term revenue potential rather than chasing short-term share gains in a market that might still be struggling. We are open to making minor adjustments in the short term, but we still aim to maintain our market share and strive for our fair share of the market. I firmly believe we can grow our share while also increasing profitability, but achieving this requires significant foundational work. Optimizing for a multi-brand environment is complex, as is determining where to expand or retract geographically. All of this is currently in progress. We may not have clear results until we emerge from this phase, but we do not intend to sacrifice a specific amount of market share for short-term profit. Our objective is to retain our market share while becoming much more profitable, which will ultimately enable us to drive even more market share.

Right. Thanks, Peter.

Yes. Thank you.

Great. Thanks for taking my question. Can you just talk about the flexibility in your brand spending in the latter part of Q4 if hopefully, optimistic here that we get some positive data on the vaccine news and travel could be recovering, your flexibility on brand?

Sure. Thank you for the questions. Regarding Vrbo, we are concentrating on the new realities of working from home. We have initiated various campaigns to support this idea, focusing on themes like home work, home school, and the necessity of WiFi in this changed landscape. As many of you may have noticed, the way the school year is structured and how children will return to school differs significantly across the U.S. and other parts of the world. Consequently, there will be distinct and unique opportunities to leverage that. We are running some campaigns and experimenting with different approaches. We believe that this fall will differ from what we've historically experienced. The Christmas season could also be different, whether it means a longer season or longer booking windows, as we've seen this summer with people booking extended stays to spend time away with their families for a month. We'll likely observe trends like that. However, it remains too early to determine exactly how the fall will unfold. Candidly, this uncertainty stems from parents' concerns regarding whether their children will physically return to school or if they will need to go back to the office. As we gain clarity on these issues—especially in August—I believe we will begin to see a clearer picture. In terms of branding, while we have numerous tools at our disposal, such as traditional linear television and new on-demand or streaming services for advertising, we also have digital products for branding purposes, including video and performance marketing. We have multiple levers that we can pull. We have significant flexibility to ramp up our efforts if needed and have already scaled them back considerably. However, during this period, we have been intensely focused internally, particularly on defining our brand separation. We are dedicating a lot of effort to clearly articulate what our brand represents, distinct from hotels, Vrbo, and others. There’s a lot of positive work happening, positioning us well for the stages of recovery as people become more comfortable and as we refine our messaging. We plan a strong push as things normalize, clarifying where we want to place each brand and what each will stand for. This is crucial work. To be candid, we haven’t defined each brand and its proposition clearly yet, since we only merged our groups a couple of months ago. We will be ready with ample capital when the market is prepared, and I believe we will achieve much better brand separation and positioning moving forward as we pivot. Each brand can be effective in different ways and across various channels. Some brands have seen great success on YouTube, others in traditional television, while some have explored alternative methods. We possess a wide array of tools to utilize.

Thank you.

Thank you. So question on the revenue trends. You noted that new bookings from June were down about 45% and it fell off a little in July. Can you help us translate that new bookings metric directionally into what it would mean for revenue given some of the puts and takes there? Thanks.

I'll take that one. Generally, there are a couple of components I would highlight. Looking back, cancellations surged during the March and April timeframe due to COVID, but they have mostly returned to historical levels, which are still somewhat elevated. This has significantly impacted our profit and loss statement. When examining the average daily rates and revenue per room night, it's important to note there may be some fluctuations. For average daily rates, we saw a 1% increase, and the 45% figure you mentioned is influenced by Vrbo, where demand is strong. While the rates from Vrbo are higher, this is counterbalanced by double-digit declines in hotel rates, and revenue per night is similarly affected. Therefore, the profit and loss statement will experience some volatility. I provided a few examples of the noise we observed in Q2. I would like to think that whatever range we see in July for the rest of the quarter will be reflected in our profit and loss statement as it has been in the past, similar to what we experienced last year. However, as both Peter and I indicated, there is quite a bit of noise. The latter part of Q2 may give us some indication, but the next few months will likely be a bit turbulent. So, I can't provide a clear answer at this time.

Got it. Thanks. That's helpful. And then if I could just ask one other question. Can you talk about what you're seeing in Europe? And to what extent has Europe travel been picking up? And is that having a meaningful impact for Expedia in terms of offsetting the recent role on U.S.?

Yes. I would say Europe was a bit slower than the U.S. could pick up. I think we've mentioned that a number of different times during the fundraising process, etc., where the U.S. started rebounding earlier, particularly in lodging, as Peter mentioned, and the intersection of domestic drive to and whole homes, whereas EMEA was slower. Now, we have seen EMEA on the lodging side start to recover a bit. It's just more of a methodical improvement over time. I mentioned earlier on air, air is challenged more so than hotel in all geographies. And I would say, what we've seen thus far in Europe continues to be quite challenged. There's a different mix between how domestic and international in Europe versus the U.S. And even though in the U.S., air still declined, but still quite low. In EMEA, you just got a high rate of international travel, and there's just a lot of uncertainty that remains. So, Europe continues to be pretty tepid on the air side. So good signals in EMEA. Time will tell. Slow on the air side.

Thanks, Eric. Thanks, Peter.

Yep. Thanks, Kevin.

Thank you.

Thank you so much for taking the question. Maybe one for each of you. Peter, just understanding the industry dynamic, with demand where it is, anything you're seeing interesting on the supply side of either more alternative accommodations being listed broadly on a global basis, or hotels more willing to work with OTAs? Typically, if you go back and look historically, those are periods of time where the OTAs tend to gain some share of supply when demand has never been as low as this, but low generally. So I'm just curious what you might be seeing on the supply side as opposed to the demand side looking at the marketplace?

Yes. Thank you very much. So I'll take the first one and say it's a couple different buckets. I mentioned the opportunity we think there is around more supply coming into the Vrbo rental base. People are all looking for ways to monetize their assets. And we do believe and we have seen some early signs, nothing, not a tidal wave or anything but some early signs that there's opportunity there. And we do market to that audience, and we do try to build that side of the platform. So, that's ongoing. I think there's solid opportunity there. But it's relatively early days. And I think, again, you all have your own views about what the economy will look like coming out of this and globally, etc., but we think there's opportunity there. As for the big players on the air and lodging side, look, our main goal is to get everybody back in business and drive as much business as we can to all those players. We are trying to be as collaborative as we can. But I would say, yes, there is by and large a willingness and openness to work together on new ideas, things that have been sitting on the shelf for a while that have been talked about but never moved on. I think there's some interesting things we can do with some of our lodging partners that we're looking at. There's a lot of opportunity for air, and we're working to improve our air product and we're working with our air suppliers, so we can make that good for everybody. And yes, there is a general sense of collaboration and willingness to work on new ideas to drive business for everybody. And I would say that in times like this you would expect and we are making up more share of everybody's wallet on the supply side. So we're not trying to put the screws to anybody; we are trying to collaboratively look at how we can grow their business, help grow our business. And we are keenly focused on that. So there is definitely opportunity. Again, I don't think it's about leveraging a moment, it’s really about an openness that you get at a time like this where everybody's in a bit of a crisis to look at opportunities, to work together to grow the business, to improve both sides, and that's what we're focused on.

Hey, this is Eric. I'll take the second half of the question. And thanks for the question. I'm going to give a slightly longer update because I think there's a fair number of questions I suspect we'll get during the call. So let me try to give a bit of a holistic update on the balance sheet and cash. So if you look at the deferred merchant bookings, and again, for everyone's edification, deferred merchant bookings is where we accept customers cash; we then hold on to that and remit it to suppliers post stay, if you will. It did decrease $1.3 billion during the quarter. But if you look at the trend over that quarter, it was a significant drop in April, a slight decline in May, and then actually increased in June. The increase in June is driven by Vrbo, which we've talked a lot about the strong bookings growth actually year-on-year that occurred in Vrbo. If you look at non-Vrbo within that deferred merchant booking, it was essentially flat between May and June. So if you would go in reverse and we look back at what we are observing in the April and March, April, May timeline where that DMB or that Deferred Merchant Booking was really declining. I would say we feel pretty darn good about how the latter part of the quarter looked from a Deferred Merchant Booking standpoint. I then move to cash. I know a lot of this is in the financials that we publish. But essentially, we started the quarter with $4.1 billion, essentially a change, call it, operating at negative 1.4. We then raised approximately $4 billion of financing. Obviously, it was a little bit less than that from a net standpoint. So at the end of the quarter, we had $5.5 billion, and that's excluding the 1.25 incremental raise that we did earlier this month. And then lastly, which is related to all of this is and I suspect there's a question coming just around that $275 million cash burn rate that we talked about. And we’ve talked about over the last couple of months and quarters. Remember, this is effectively contribution neutral. Revenue, less cost of revenue, less marketing, we assume that zero. And then what is the cost to run the business. So i.e. what is the cost to keep the site up? What is the cost to keep the lights on? We've had said previously that we would be at approximately a $275 million burn rate per month. And we said we would get to that by the end of the year. I'm happy to say that we are operating broadly in that range right now. So we have achieved it faster than we anticipated. Just one point of clarification, because I know it comes up occasionally. It does exclude restructuring costs associated with our cost program. And then because we raised $1.25 billion, we will have about $5 million of incremental interest expense. But sort of net-net feel very good about the DMB where the trend is. We're in a strong cash position and feel really good about our overall cost program and what that burn rate looks like.

Thanks for all the color.

Great, thanks for taking the question. So you're sticking with Vrbo with obviously booking trends remaining really strong for the pandemic. I guess, is there anything you're seeing there as it relates to traffic next in terms of paid traffic versus direct to Vrbo? And how you would expect that to perhaps evolve over the course of this crisis?

Yes, definitely. I've noticed that many have reduced competitive advertising and participation in auctions during the tough times in March and April. We've started to re-engage with all our brands, but we've been more cautious with Vrbo. Honestly, Vrbo has benefited significantly from direct and organic traffic. This mix has proven to be very profitable for Vrbo. We are open to utilizing performance marketing for Vrbo and are actively trying to implement it. However, our marketing returns are at much higher levels compared to late 2019. There's been a noticeable change, though I wouldn't label it as structural. We'll see how things develop once the situation normalizes. What we've observed is the strength of the brand and its visibility as an essential organic option for travelers. The current mix is really strong, and while we may see changes as we grow and the competition stabilizes, it's excellent at this moment.

Great. Thanks for taking the question.

Thank you.

Great. This is James on for Brent. Thanks for taking my questions. I just had one for Eric. Can you give us an update on what your CapEx spend is looking like for the back half of 2020 and then first half of 21. I know you have the headquarters which should be completed by early next year, but just want to know what your other capex spend might look like and how we should think about that from a modeling perspective. Thanks.

Our capital expenditures were $206 million, including $34 million for the headquarters. As we mentioned last quarter, we've resumed work on the headquarters, which accounts for $115 million in the first half of the year, excluding that, the total is $172 million. Most of this spending is for uncapitalized labor, primarily for employees working on tech developments. We expect to see some improvement in capitalized labor due to our cost program and other measures we've implemented. Our data center investments are shifting more towards the cloud, and we anticipate that the capital expenditures on data centers will also decrease. While I can't provide very specific figures, I can say that we expect our spending in 2020 to be lower than in 2019, considering all the various factors involved. Looking ahead to 2021, as the headquarters project wraps up, we should become more efficient, require less capital expenditure, and ultimately achieve better cash conversion. This should give you a sense of our expectations for 2020, and we anticipate increased efficiency over time.

Very helpful. Thank you so much.

Maybe just start on the vacation rental side, just kind of parsing out the difference of what's going on in vacation rental and hotel. I think you mentioned that Vrbo was growing. So just maybe first, since you guys have seen sort of the plateau in July. Is there any difference going on in the cancellation and new bookings from the two?

Yes. Overall, cancellation rates have remained quite steady. There isn't anything particularly remarkable in the performance between hotels and vacation rentals, except that hotels are taking a bit longer to recover. Vacation rentals showed strong demand, surpassing previous years during certain peak times, which is encouraging. Hotels, on the other hand, are recovering at a slower pace, but we haven't noticed anything significant regarding cancellations. Generally, cancellations have stayed stable for July, June, and so forth. There hasn't been a notable increase in cancellations. The key distinction lies in the early bookings in vacation rentals, which hotels are not experiencing, and there has been a gradual easing of that busy booking period into July. Hotels are slowly gaining ground, albeit in a more measured way.

Got it. And maybe just a follow-up. As it relates to cloud cost, I think you mentioned previously that 2020 levels should be below 2018. And I was curious as you guys got further into the year. If you can put any bit of a final point on that? Thanks.

Yes. I think the story remains the same. Just to recap for those that may not have the full story. We brought all of our cloud teams and do a single unit; they have the ability to optimize the right side of the computer. So we've been able to really push and accelerate that in the COVID environment. So it gave us some short-term benefits and we think that will bear fruit over the long-term as well. Better economics with our vendors, etc. But over that, by 2020, we do expect to be down. However, when volumes start to increase, it does obviously have a variable component to it. And so, as that volume comes back, you would expect to grow along with it as well. But I think sort of magnitude or the story that we tell before still holds.

Thanks, guys. We wanted to ask just sort of hypothesis on. Generally, when consumers travel close to home, I think you see shorter durations and less expensive accommodations versus when you're traveling farther and internationally. Is that valid? Is that valid in old days? But are you seeing those dynamics change now with more local travel coming back, replacing longer international trips? You see consumers trading up versus what they would normally spend staying longer on durations. Anything you could tell us about kind of the propensity to spend as local starts versus international? Thanks.

Eric, I'm going to take that first if you want.

Yes, sure.

There are several aspects to address in your question. Firstly, we have noticed that pricing and the willingness to pay are very apparent in the vacation rental sector. In highly competitive markets, suppliers have increased their rates, and guests are also staying longer. This trend is contributing to an increase in average daily rates in this segment, which aligns with broader trends in the hotel industry. However, while there is some pressure on hotel pricing, we are also seeing more discounts being offered. The comfort level with hotels has not rebounded as strongly. This situation reflects typical supply and demand dynamics. Regarding local versus non-local travel and hotel stays, there hasn't been a significant shift that I'm aware of. The pattern has remained consistent. Additionally, the overall spending during domestic trips is generally less compared to international trips. Nevertheless, everyone seems to be identifying their opportunities. Air travel is currently facing more challenges than lodging. Although no one has reported health issues related to flying, people seem to feel less comfortable with air travel. Consequently, travelers are opting to drive and explore alternative ways to reach their hotel accommodations. Local domestic travel is slowly compensating for the gaps left by international travel. Ultimately, the average daily rate is determined by supply and demand, which behaves as expected: in saturated markets like the Florida coast, where supply is limited and demand is high, prices can be increased. Conversely, in areas with less tourist activity, such as New York right now, hotels need to reduce prices to attract guests.

Yes, I believe you’ve addressed it well. I would advise caution in making broad assumptions about the trends. It’s essentially people finding ways to travel that suit their needs while still wanting to travel. The really encouraging part is that, as Peter pointed out earlier, many more people are becoming familiar with the Vrbo brand and alternative accommodations. This process is accelerating, and we intend to foster relationships with these individuals. I believe they are having great experiences based on what I’ve heard anecdotally in my discussions. So, from that viewpoint, it’s a very positive development for Vrbo.

And apologies, I would just triple down. Don’t extrapolate too much from any of this. I think this is really a unique moment. And I said it before, but I don't think this portends any difference in how people think about things. It may expose them more or may make them open to things they weren't open to before. But I don't think we're seeing any structural shift in people's views about hotels or other things. It's just a moment. And it's just about their comfort and their safety and what they're able to do.

Thank you, Peter. Thank you, Eric.

Yep. Thank you.

Okay. Thank you, everybody for your questions. I hope we gave you a good perspective on the business. I just want to reiterate. We’re feeling really good about the internal work we’re doing. I commend our teams who have done amazing work in impossible circumstances where everybody's working from home and everything is harder. So can't thank all of them enough. And appreciate you all your questions. As Eric and I said, we hope that you'll see the benefit of all this hard work we've been doing as the numbers come back. And we look forward to talking to you in another quarter. So thank you for your time. And everybody stay safe. Take care.

This concludes today's call. You may now disconnect.