Good day, everyone, and welcome to the Expedia Group Q1 2023 Financial Results Teleconference. My name is Emily, and I'll be the operator for today's call. For opening remarks, I will turn the call over to Senior Vice President, Corporate Development, Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Good afternoon. Welcome to Expedia Group's earnings call for the first quarter of 2023 that ended March 31. I'm pleased to be joined on the call today by our CEO, Peter Kern; and our CFO, Julie Whalen. The following discussion, including responses to your questions, reflects management's view as of today, May 4, 2023, only. We do not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we plan, 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 reconciliation of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company's Investor Relations website. And I encourage you to consistently visit our IR website for other important information. Unless otherwise stated, any reference to expenses excludes stock-based compensation. And with that, let me turn the call over to Peter.

Thank you, Harshit, and good afternoon, and thank you all for joining us today. As I mentioned last quarter, this year marks the final phase in our major platform transformation journey, and I'm pleased to have started the year with strong performance. We posted our highest ever quarter for lodging gross bookings and free cash flow and our best first quarter for revenue. Throughout the quarter, we saw strong consumer demand with acceleration in international and big city travel and more of Asia reopening. The reemergence of major international cities has meant increased hotel demand, offset in part by flattening demand in vacation rentals as travel demand mixed to shorter stay urban destinations over extended beach and mountain trips. Similarly, air has continued to mix towards international travel and away from COVID-era concentration in domestic. By and large, prices have held up quite well after several years of inflation. We've seen lodging ADRs hold fairly steady across geographies. Air ticket prices, however, continued to increase as strong demand continues to outstrip capacity. The only area where we have seen any meaningful decline in average daily rate is in the car rental space, where larger inventories have allowed rental companies to drive more volume at the expense of price. Overall, we are pleased to see broad travel demand remain strong in what appears to be a more structural post-pandemic environment of people prioritizing travel above most other categories of spend. This has held up despite inflation, recession worries, and even more recently, bank system concerns. While economists continue to debate potential recession outcomes and clearly, many unknowns are still out there, consumers have so far shaken it off and continue to travel. Against this backdrop in our consumer business, we continue to invest in our strategy of acquiring and retaining high-value loyalty members and app users across our three leading brands. As I have explained before, these cohorts drive higher production and repeat rates versus other customers, ultimately leading to higher lifetime value. Q1 '23 was another step in this journey as we saw our active loyalty member base for our Core OTA brands grow over 25% year-over-year and the percentage of gross bookings coming through our app roughly doubled what it was in 2019. This continued growth in our base of valuable customer cohorts bodes very well for our future. I've also talked for a number of quarters about our platform journey and in particular, about the drag we had last year on our business resulting from the migration of Hotels.com to the Brand Expedia stack. I'm pleased to say that with that migration fully behind us, Hotels.com is now back in growth mode. We are already seeing higher conversion, increased feature velocity, and higher bookings. In fact, year-over-year bookings growth for Hotels.com was nearly 20% in Q1 '23, which is beginning to approach the almost 30% we saw in Brand Expedia. This inflection back towards growth was exactly what we had expected, and we were pleased to see the pivot come so quickly. As you may recall, we are following the same migration path with Vrbo, which has now started taking some traffic on the Expedia stack in our largest markets. Just as we saw last year with Hotels.com, this work has flowed conversion and feature work on Vrbo for the past few quarters. And as we cut over, we expect some inevitable degradation in conversion due to the switch. But as we get this migration finished in the coming months, Vrbo too will be in prime position to benefit from the Expedia platform and just like Hotels.com will benefit from reaccelerating, testing, conversion, and feature improvements. Our tech journey hasn't been easy, but we had to have conviction to give up some short-term gratification to get to the promised land. With a couple of big last lifts finishing this year, we will finally be in a position for all of our business to accelerate their velocity of innovation and deploy more traveler features as widely as possible. In particular, I'm excited about the power to deploy AI and machine learning to all corners of our product to enhance the customer experience and move towards our North Star of true personalization. To that end, you probably noticed our launch of the Expedia plug-in for ChatGPT and the launch of ChatGPT in our own Expedia iOS app. This would not have been possible at this speed or with this efficacy in our prior world, and it's just a small piece of what the future will hold. It is yet to be seen how impactful large language models will be in facilitating travel shopping. But for us, this is just one step in a journey to bring the best technology to our members and partners at an accelerated pace. And to be clear, we have already been at the cutting edge of deploying AI and ML across almost all experiences for our consumers. When they land on our site, we use AI to customize the sorting and filtering options and the images we render to make the shopping experience most relevant to them. AI allows us to deliver price predictions and enable comparison shopping so they can book the right product with confidence. Then post-booking, we use AI and our service stack to help consumers self-serve their problems, and it even helps our customer service agents more quickly address issues. While we have been using AI and ML for some time to make the experience better for consumers, we will go much further this year to continue to deliver the best technology in online travel. Another exciting milestone ahead of us is our unified loyalty program, One Key, which will be released in July in the United States. It reflects the culmination of years of work on the technology side to get to a solution that enables earn and burn across multiple products and brands in our portfolio. We've been busy testing this program and sourcing preferred deals for our members, all with great results to date, and we cannot wait to launch it this summer. I discussed many times how our broad investment in technology not only benefits the B2C traveler experience but how it also enhances our B2B partner experience. This includes the over 400 million loyalty members we serve through our template partners and more than 35,000 offline travel agencies we power across more than 30 countries, all the way to our numerous API partners who take our inventory and certain capabilities to build their own experiences. On the back of this, demand in our B2B business continues to accelerate worldwide. We had yet another quarter of impressive growth with revenue growing approximately 55% year-over-year. We continue to sign new business, including SoFi, which has launched our full template product to their customer base. And as we look to enhance our partnerships with our biggest suppliers, we went live with both Hilton and Accor, who will use our capabilities to sell packages on their sites. These are just a few examples, and we have many more wins coming this year. We continue to innovate for our supply partners and equip them with highly differentiated solutions. Last year, we spoke about our optimized distribution product that gives our lodging partners greater control of their wholesale business. This product has helped some of the biggest hoteliers in the world, and over the past two years, we have tripled the number of participating chains using this capability. There are significant innovations coming this year to give more control to our partners and allow smaller partners to participate in the product. I'm particularly proud of this product as it truly represents a winning technology for the entire industry and allows us to provide much more than just a marketplace for our partners. Finally, though somewhat more nascent, we have talked about our ambitions to externalize our tech in the form of microservices to help any kind of travel company use our tech to enhance their business. Our first pilot of our fraud capability started late last year, and I'm proud to say we now have our first paying customer on the service. We also have other products in beta testing with a number of partners, including our best-in-class service technology and our revenue management API. While still early days, we believe that by delivering our technology as microservices, we are greatly expanding the addressable market for our tech and cementing our technology as the core operating system for the travel industry. Next week, we will host our EXPLORE partner event at our Seattle campus, where we are excited to showcase what we've been working on for our partners and how we are helping our partners sell more, operate more efficiently, and ultimately better serve travelers around the world. Overall, I'm really pleased with our progress. I'm excited that we're in the final innings of our tech transformation, and I'm encouraged by the incremental momentum we achieve with every step. We've been willing to take some short-term lumps in order to get these moves finished, but the rewards are now clearly becoming visible in the Hotels.com reacceleration and the sheer velocity of our tech delivery. And in our B2B business, where we have not had disruption and have only enriched our offerings, our growth has been phenomenal. No company is doing more to move travel tech forward and make the entire experience better for travelers. And ultimately, that is how we will win. And with that, let me hand it over to Julie.

Thanks, Peter, and hello, everyone. I am pleased with our performance in the first quarter with record lodging levels driving gross bookings up 20% year-over-year, revenue up 18% to its highest ever first-quarter levels, and record free cash flow. Our robust top line performance reflects the success we're seeing from our strategic growth initiatives as well as the continued health of the travel industry. And it's this strength in the business that gives us the confidence to continue to buy back our stock at accelerated levels at $600 million, one of the largest buybacks we have done year-to-date. Before I jump into more of the details, I wanted to remind you that effective this quarter and going forward, all financial comparisons will be on a year-over-year basis. As a result, we no longer need to refer to like-for-like growth rates as the Egencia transaction and associated Amex GBT supply agreement closed in 2021. Additionally, to provide more clarity and transparency, we have removed less relevant disclosures and discussions within the press release, while at the same time added new disclosures such as lodging gross bookings. Of course, we will continue to evaluate whether any additional disclosures may be helpful over time, and we'll update you accordingly. It is also important to note that our first quarter 2023 growth rates as compared to 2022 were negatively impacted by FX headwinds of approximately 200 basis points to gross bookings, 300 basis points to revenue, and 1,600 basis points to EBITDA. We also saw an approximately 80 basis point headwind to the EBITDA margin. Now let's discuss more of the financial details regarding our performance this quarter, beginning with our gross booking trends. Total gross bookings of $29.4 billion were up 20% versus the first quarter of 2022 and saw a sequential acceleration in the year-over-year growth rate from the fourth quarter. Growth was driven primarily by total lodging gross bookings, which grew 19% versus last year and reached a record quarterly level of $21.1 billion. In our hotel business, we saw significant growth from our B2B segment, driven by strong demand in EMEA and APAC. In our B2C business, Brand Expedia maintained strong growth, and our Hotels.com brand showed impressive recovery post its migration to the Brand Expedia platform. These results are also aided to some extent by shifting demand patterns. For instance, as more and more businesses return to hybrid work policies, we've seen increased demand in urban markets and a reduction in length of stay. So while these trends are helping our hotels business, the same trends are also putting some pressure on our Vrbo business. Yet this pressure was far outweighed by our hotel strength, enabling us to maintain total lodging bookings at record levels. We also saw strong growth in our air bookings this quarter, especially in international travel, which was more impacted by the Omicron variant during the first quarter last year. This air strength was both in the number of tickets sold and in air ticket price increases as demand continues to outstrip capacity. It is great to see that air continues to gain momentum despite higher prices and international air has recovered to close to 2019 levels. Moving to the key financial metrics in the P&L, starting with total revenue. Revenue was the highest first quarter on record at $2.7 billion, up 18% versus the first quarter of 2022. The revenue margin at 9.1% was down slightly versus last year, driven mostly by the strong recovery in our lower-margin air business. Cost of sales was $411 million for the quarter, which is up about $43 million or 12% with approximately 100 basis points of leverage as a percentage of revenue versus the first quarter of 2022, driven by ongoing efficiencies primarily across our customer support operations. We benefited from lower customer support call volume as well as the continued efficiency from the various automation initiatives we have implemented over the past few years, and we expect to continue to find even more efficiencies as we finish our migration onto one platform in areas such as cloud and license and maintenance costs as we eliminate redundant systems. Direct sales and marketing expense in the first quarter was $1.5 billion, which was up $311 million or 26% versus last year. There were two main drivers of the spend increase. First, in our B2C business, we leaned into marketing to take advantage of the strong demand environment and to accelerate gross bookings growth. And we also maintained our marketing spend mix towards longer-term payback channels to drive loyalty members and app users, which given the longer-term return profile of the spend is less closely correlated to demand within any given quarter. The second reason for the increase in marketing spend is an increase in commissions to support the accelerating growth in our B2B business, which falls into our direct sales and marketing line. These commissions are generally paid on a stay basis and to a contractually agreed percentage. And therefore, the returns against marketing spend are more guaranteed and immediate. Given these factors and the fact that we underinvested last year due to Omicron, we did see marketing deleverage. Overhead expenses were $588 million, an increase of $56 million or 11% versus the first quarter of 2022, growing slower than revenue growth, resulting in leverage of approximately 160 basis points. While we remain disciplined on our overall cost structure, we continue to invest in talent across our product and technology teams in support of our platform initiatives to drive growth. EBITDA was $185 million, up $12 million or 7% versus the first quarter of 2022, which includes the 1,600 basis point negative impact to growth from FX. Excluding this year-over-year negative FX impact, EBITDA grew 23% and ahead of revenue growth, resulting in an EBITDA margin, excluding FX, 10 basis points above last year. Free cash flow for the quarter was at record levels, at a positive $2.9 billion or up 3% versus 2022, primarily driven by higher working capital from the outperformance in our gross bookings. On the balance sheet, we ended the quarter with over $5.9 billion in unrestricted cash and our undrawn revolving line of credit of $2.5 billion, which provides us with ample liquidity of $8.4 billion to operate the business. From a debt perspective, our debt level remains at approximately $6.3 billion with a leverage ratio of 2.7x. However, in order to further fortify our investment-grade rating, we are targeting a leverage ratio of approximately 2x. Through EBITDA growth and potentially some early retirement of debt, we expect to make progress towards this goal by the end of the year. The great news is we have recently received upgraded ratings or outlooks from all three rating agencies, demonstrating the actions we have taken to improve the financial strength of the business are being well received. As far as capital allocation, given our strong free cash flow levels and a stock price that we believe remains undervalued relative to our expected long-term performance, we have been opportunistically buying back our stock on an accelerated basis. Year-to-date, this is one of our largest levels of buybacks at $600 million or nearly 6 million shares. Post these buybacks, we have ample levels of shares remaining under our existing authorization for future repurchases at approximately 12.1 million shares. Considering our ongoing strong liquidity and free cash flow, as long as we continue to believe that our stock remains undervalued and does not reflect our confidence in the long-term strength of the business, we plan to continue buying back our stock opportunistically throughout 2023. Looking ahead, given the strength we continue to see in our business, we are reiterating our full-year outlook of double-digit top line growth with margin expansion. As it pertains to the second quarter, it is important to remember that although we continue to see strong travel demand, we expect year-over-year top line growth to moderate in the short term to mid-single digits, primarily driven by a tougher compare given the strength in the business last year from the immediate rebound we saw post-Omicron as well as some short-term disruption to Vrbo resulting from its migration to the core Expedia stack. In addition, similar to the first quarter, we expect to lean into marketing in the second quarter as we invest to drive gross bookings and increase loyalty membership and app usage ahead of the busy summer season, all of which has set us up for a stronger back half. Overall, we expect to see EBITDA margins in the second quarter to be relatively in line with last year. In closing, 2023 is off to a great start, with record revenue and cash flow. The travel industry appears to be strong and growing, and our growth initiatives are gaining momentum. We believe all of this positions us well to drive long-term growth and shareholder returns. With that, I would now like to open the call for questions. Thank you.

Our first question today comes from Lee Horowitz with Deutsche Bank.

Great. So you talked a lot about continued improvement in loyalty and app usage. But can you maybe help us sort of clarify all indirect bookings and how that's trending and how that informs the way you view advertising leverage, particularly in the second half of the year and as you look out to next year? And I have one follow-up after if I could.

Sure. Thanks, Lee. It's a little hard to hear you, but I think I got it. The way we think about it is, our business, we said it last quarter, it's running at a similar level. About two-thirds of the business comes from direct. That continues to grow as a nominal number, but as a percentage, it's fairly similar to where it was a quarter ago. And yes, we are investing in app and loyalty, and these longer-term payback products. But remember, we're only taking a portion of our quarterly spend and putting it into these channels. So it's not like we reversed the model, and it's all in these long-term channels. We are peeling off a portion of it, a fairly modest but sizable portion, and putting it into these longer channels. It means we give up some short-term payback and it means we stack up these customers over time. But given that it's not our full spend, it takes a while for this to stack up. Then you add to that, that we are now getting back to the conversion levels we used to have and accelerating through them as we get Hotels.com on the Expedia stack, as we get Vrbo on the new stack, and we're accelerating Brand Expedia itself because we are just upping the velocity of testing massively. So we're getting a lot of improvement. A lot of it is coming through this year and coming even as we speak. And the reason we have confidence in the leverage that will come in the back half of this year and the future is we're both stacking up the loyalty and the app usage and all these more direct channels. That's what we're doing with the money that we can tactically spend differently, but we're also changing and improving the product and the conversion in the product so that every dollar will work harder in the future. All of that's coming, and then One Key launches in July, which is yet again another sticky product feature that will add millions of people from Vrbo, customers from Vrbo into the mix and allow more of our loyalty members to spend across more products. So all of that is coming kind of at the same time, not that it's going to be a moment in time inflection, but it's building on itself. And that's why we said second half of this year will be stronger.

Great. And then one more. With travel seemingly shifting back towards areas where you guys are incredibly strong, urban, international, and the like, can you give us an update on how you think U.S. hotel share progressed in the quarter? And what your expectations are here for the rest of the year, particularly with Hotels.com accelerating at this point?

Yes, we believe that we have maintained or possibly improved our market share in North American hotels. We are being careful not to overinvest. It’s a balancing act between expenditure and the timing of technology improvements. We could have allocated more resources to Hotels.com last year, but it wouldn’t have been as effective. As Hotels.com enhances, our ability to invest will increase. These advancements equip us better for competition. We feel we have slightly improved our position and anticipate further acceleration. Additionally, we have scaled back in certain international markets in the past few years where we were less effective. Now that our products have improved and we trust our marketing strategy, we are preparing to launch more aggressive initiatives. While much of our focus has been on North America, we are looking to expand beyond that as we overcome technical challenges and can execute more quickly on a global scale.

Our next question comes from Kevin Kopelman with Cowen.

This is Jacob Seide in for Kevin Kopelman. Just a question on One Key launch. So with the launch in July, how are you thinking about some of the smaller brands that are not going to be included in the launch? And how are you thinking about managing them going forward?

Yes. Thanks, Jacob. I think we've talked about it a couple of times before. But by and large, we have somewhat deemphasized and not invested as strongly in the smaller brands as we continue to put more heft behind the big three brands. One Key will envelop the big three. We certainly aren't going to take our brands away from people right away or anything, but we do believe that over time, people will migrate to our big three brands where the latest product features are, where One Key is, etc. Essentially, there's a little bit of the big brands have to eat the sideways or slightly slow degradation of the other brands, but that's something we've planned for in terms of the guidance we've given this year and certainly something we plan for long-term.

Our next question comes from an analyst with Bank of America Merrill Lynch.

I guess a couple of things. When I see the B2B growth versus outpacing the core retail, how do you think about that business as a margin versus your core business? And should we expect to see more the retail accelerate as you kind of fix the platforms at Expedia and Hotels.com? And then secondly, as you think about the overall use of cash, anything to stop you from deploying cash flow to buybacks, anything on the debt side we should be thinking about?

Yes. I'll address the first part and then turn the capital side over to Julie. The B2B business has been experiencing significant growth, as I indicated in my prepared remarks. We haven't needed to carry out any major technical migrations. Instead, we've enhanced our capabilities over the last couple of years, yielding benefits in many of our business lines. This growth is partly due to our increased exposure to certain regions that rebounded last quarter, such as Asia and Latin America. Some of the geographical mix is contributing to what you are observing. We certainly anticipate continued growth in our B2B business. A few years ago, I mentioned this was an area with plenty of opportunities that we aimed to expand. We plan to pursue as much growth as possible here to tap into areas of demand that we might not otherwise reach through our B2C business. However, we fully expect our B2C business to pick up pace as we move beyond the significant changes we've implemented over the last few years, which have been lengthy and challenging. As we progress, we find ourselves in an increasingly favorable position to accelerate growth. There are still a few final hurdles to clear, but we believe we're nearing the end of this process, allowing us to focus our technical and product design resources on driving growth. While I’m not suggesting that B2B will slow down in comparison to B2C, I do anticipate that B2C will accelerate, and I expect both sectors to perform well in the upcoming period.

From a capital allocation perspective, our approach remains unchanged. We have outlined our targeted leverage ratio to provide insight into our internal goals, and we plan to make progress towards that this year and in the future. We anticipate achieving this with EBITDA growth and possibly a small reduction in debt, which won't require much given our already lowered debt levels. In summary, with strong EBITDA and robust free cash flow, we have significant cash available for buybacks. We have executed one of our largest buybacks to date, approximately $600 million this year. There is still plenty of opportunity for buybacks, and as long as our stock trades at its current levels compared to our understanding of the long-term performance of the company, we will continue to pursue this opportunistically.

Our next question comes from Eric Sheridan with Goldman Sachs.

So much of the focus for investors tends to be in the North America market. And you made some interesting comments about some of the international markets on this call so far. Can you give us an update on your view on where you sit competitively and how you think about the investment cycle to drive growth away from North America, maybe through the lens of some of the B2B and B2C initiatives and some of the refocused brand initiatives, so we have a better understanding of that?

Sure. Let me start by addressing B2B, which we view as a valuable avenue for tapping into areas of demand that we don't typically reach or don't reach effectively. For instance, in regions like China, where we anticipate a strong recovery and have established partnerships. Additionally, it could involve loyalty programs in current markets that have a dedicated audience looking to redeem points from credit card programs. Engaging in B2B allows us to participate in travel markets without directly competing with B2C efforts. On the B2C front, we've had a presence in various global markets, some of which we're more committed to than ever, while we've exited others due to unsustainable economics. We were incurring losses without gaining market share unless we continued spending. We believe our focus should be on developing a stronger model, enhancing our product, and refining our marketing strategy to attract customers who appreciate our offerings — the best product, loyalty program, and service available. While not every customer will fit this profile, we believe there are many potential customers across different regions that we currently overlook, as well as some we previously engaged with less effectively. You may not see significant immediate growth in our numbers this year, but we've observed a solid recovery in regions like EMEA, Asia, and Latin America where we are present. Over time, we see this as a larger opportunity, especially as we roll out our One Key program and further complete our product development, allowing us to implement our strategy in new markets and engage the right customer segments.

Our next question comes from Lloyd Walmsley with UBS.

This is Chris speaking on behalf of Lloyd. My first question is regarding the double-digit growth projection for both revenue and profits in 2023. How do you perceive the potential for upside to impact either revenue or profits this year? Additionally, it seems like there are positive changes happening with the air product. Could you share your thoughts on how you view air as a distinct opportunity for driving growth in room nights moving forward?

So as far as the guidance, I didn't hear all of what you said, but I think basically the question is, what gives you the confidence to be able to hit the top line and the bottom line guidance, which does include margin expansion. I mean it's several things. Peter alluded to many of them. Obviously, it starts with the travel industry's strength. Everyone is reporting great numbers. Clearly, the consumer is prioritizing their spend on travel. We're seeing it in our own business with the success we're seeing with the Brand Expedia business with a 30% growth in gross bookings, and then Hotels.com getting on that platform and at post-migration now driving a 20% increase in gross bookings. We have a B2B business that's grown 55%, which is a halo for the rest of the business. We have Q2, we're at the moment where we've got to address this tougher year-over-year compare, and we're going through the Vrbo migration. But when we come out the other side, Vrbo will be on the same platform that is delivering that same sort of double-digit growth. We are excited to see that. On top of everything else we're doing with the growing loyalty member base, the growing app user base, and all of the goodness that will drive in the back half, along with all of our tech and product initiatives, that's what gives us the confidence that we're going to be able to hit this guidance for the full year.

Yes. And I'll just take the second part on air. We've been innovating a lot on air. Now it's important to remember, since if you go back pre-COVID, we sold Egencia, our corporate business into Amex GBT, and we got out of the air business with our partner, Chase. So there's some weird comps if you go back in history. But if you look at the air product, I think we've made huge progress on it as a product. You'll find we have price tracking and predictions now in most of the world. That's been a great engagement product. It's helped with conversion. It's helped with attached sales of hotels and other things. We've increased our speed. We've got smart shopping, which is a new capability of comparison shopping or looking at the best seats and comparing more easily. We use AI to suggest the best option for each customer. So all of these things are in the works. We've improved our search speed considerably recently. There's a bunch of work going in to make that product the preeminent product in the space again. I think we definitely look at it as an opportunity. It's a unique capability, something we've always been strong in, something we can drive traffic through. We have a lot of opportunity to improve our attach rates and our packaging. We have terrific package rates for many of our partners, and we've just started deploying as part of the run-up to One Key member flight discounts, which we've never had before, which is a great opportunity for airlines to use their pricing to help get the best customers out of our marketplace. There's a lot of things that have been in the works and coming. Again, this is just one of the areas where I say the technology has been evolving through this period and it's all getting to a place where it can be much more effective. We haven't spent much time on it. But obviously, once everything is on the same stack, we start to have a unique capability to start moving more products across brands. Things we've talked about before like better selling our Vrbo content on our OTA brands and through those points of sales become a reality.

Our next question comes from John Colantuoni with Jefferies.

Can you double-click on the commentary from last quarter around delivering margin expansion throughout the year? And maybe just give us a sense of what line items we should expect that to come from and help us size the efficiency you're anticipating as well?

Yes. I mean as far as margin expansion as we move throughout the year, certainly as we deliver more top line growth. Right now, we're sort of more in a mode of driving gross bookings where we don't get the benefit of that to revenue until the stay. In the back half, with this outperformance that we're seeing today, we expect to have that benefit the P&L. Of course, we're expecting marketing leverage as we move throughout the year based on all the things we talked about that we're going to benefit from. It's really those two lines. We're going to obviously be working on efficiencies across the company as we deliver on our tech stack and start to be able to repurpose individuals and cut costs and things like that, and that will also drive some efficiencies, but it's really the top line revenue growth and the marketing efficiencies in the back half.

Yes, I'll just add that this year involves a lot of work requiring many dedicated individuals for significant projects. As we approach the end of the year, much of this work will diminish, allowing us to shift our talented people to more immediate growth initiatives. Each time we complete a project, we unlock additional resources to enhance conversion growth and improve customer experience, which translates into revenue. The efficiency we gain post-project completion is substantial. The timing of when these benefits will impact this year versus future years is yet to be determined, but that's our journey. We need to navigate these major challenges first, and we've already experienced this when we completed the Hotels.com conversion; it freed up a lot of talent for immediate conversion successes, which has proven to be extremely productive. Each time we accomplish one of these projects, we gain more capabilities to drive near-term business growth. This will not only have effects this year but is expected to yield even greater benefits in the future.

Our next question comes from Tom Champion with Piper Sandler.

Peter, just any interesting observations behaviorally on the GPT plug-in, maybe too early, but just curious about any comments. And then I think this is self-evident in your implication, but the tech replatforming will be ostensibly complete in the U.S. in July with the launch of One Key. Just curious if that's the case. And then maybe just a final one for Julie. I was a little surprised by the outsized impact of FX on EBITDA in Q1; curious if you could elaborate on that or add any details.

Thanks, Tom. I'll try the first couple. The ChatGPT plug-in, which is where we have made a plug-in for their environment so that when people are searching, thinking about travel, and want to see if there are hotels near the Eiffel Tower or what flights leave from L.A. to New York on Tuesday, if they have our plug-in, we can provide that. That is still only available in the paid and the developer environment. So it's not out in the wild. It's small still, but interesting to see how people behave. People are using it. It’s not materially changing our numbers, but it’s definitely interesting learnings for us. We've also deployed it into our own iOS app, allowing people to use the capability in our app to do a similar thing, such as asking what hotels are near the Eiffel Tower or whatever they might be searching for. When ChatGPT provides answers and lists hotels, we will save those hotels for people so they can then shop and comparison shop. Again, early days, but people have engaged with it. It has been interesting to people, not a huge driver yet. We don’t know how big a driver it's going to be in behavior, but it's definitely interesting. We wouldn't be the only company in the world, but we are on the forefront of looking at other ways that large language models can help other parts of our experience, whether it's with our partners or turning descriptions into property descriptions. There are many aspects where we think we can look at using AI. Regarding tech replatforming, yes, the answer to your question is yes. The last of the big things in the U.S. is launching One Key. Once that is done, that's the last of the major lifts we’ve had. We want to launch One Key in more places. There's work to complete, but yes, when One Key is done in the U.S., that's the last of the big hurdles.

As for FX, it really depends on which currencies we are transacting in and their relativity to the strength of the U.S. dollar. The difference between the delta on the top and the bottom line is a function of Q1 being a lower earnings quarter; hence, it has a more pronounced impact on the lower level of earnings relative to the top line, which is obviously a much bigger number. It's simply a function of math.

Our next question comes from Mario Lu with Barclays.

The first one, a follow-up on One Key. You mentioned it's rolling out in July. Just is that a global rollout? Or just U.S? And then is there a rough timeframe for when we should see the benefits of the joint loyalty program? I understand that take rates will take hit initially once points are redeemed. But just curious how we should think about the expected payback period?

Yes. We are rolling out in the U.S. first. We will roll out in the rest of the world later this year and next year. There are differences in the rest of the world where in some cases, not all brands are present. In some cases, we have a different brand in lieu of one of our brands. So they will take on slightly different flavors. The U.S. is obviously the biggest proof point. Regarding payback, loyalty drives future repeat, future loyalty, future engagement. We've modeled it in various ways. It’s difficult to say how quickly it pays back, given that travel for most people is about 1.5 times a year. Some of it will come back this year, and some will come back in the future, and it will keep building on itself. Our intent is to balance between all of the levers we have of spend, whether it’s direct sales and marketing, paid search, discounting, loyalty, etc. We believe that the overall capital should balance out. As we provide more loyalty, which might have a longer-term payback, we will pull it out of other areas to accommodate that and live within a budget we think is right for overall spending.

Got it. And just one for Julie, in terms of the Q2 commentary on the top line to mid-single digit, any color in terms of the drivers to get to that in terms of what level of bookings growth or take rate we should expect?

No, we didn't go into that level of detail. The biggest driver is the tough compare for many companies next quarter, given the immediate rebound in travel post-Omicron. That's the biggest driver, and of course, we are managing the Vrbo migration during this timeframe, which also adds to the complexity. Those are the two main drivers.

Our final question today comes from Jed Kelly with Oppenheimer.

Great. Just two questions. On the Vrbo migration you called out, are you seeing any pressures from the vacation rental markets after three record years, and now people are able to travel to other destinations? And then my second question relates to supply. Can you give us a sense of how your Vrbo supply is trending? And then your supply in some of the international markets like where we are in supply?

Yes. We have seen a little bit of flattening in demand in vacation rentals, largely because the length of stays have shortened. People are gravitating towards cities more than long extended beach or mountain vacations where they took a month. Hybrid work has also changed the landscape. So overall, these factors are impacting macro demand slightly. Much of it is returning to cities. In our VR business, we don't participate as much in the urban market, though we do have solid product there. I mentioned before, but we actually have good urban market product in our OTA brands, but it's not in our Vrbo brand. One thing the Vrbo migration brings is the ability to get that content together, which will help a lot. We have seen solid growth in supply for our Vrbo and again in our core product of whole homes or apartments. We continue to add product where we've seen the most demand. We're not trying to enter new grounds where we don't have demand, but we’ve had good growth in supply overall. The biggest unlock will come post-Vrbo migration, where our supply can move seamlessly to any point of sale and any endpoint in our brand system. While that's not an immediate inflection point, it brings a huge opportunity for us.

Thank you. That was our last question. Thanks for joining us. We'll see you next quarter. Take care.