Highlights From PCLN's Q3 Conference Call: Bookings Up 33% Year-Over-Year, Guides Above for Q4

November 10, 2009 1:19 PM EST

Priceline.com (NASDAQ: PCLN) reports Q3 adjusted EPS of $3.45, 55 cents better than the analyst estimate of $2.90. Revenue for the quarter was $730.7 million, which compares to the estimate of $693.97 million. Shares are up over 17% today.

Highlights From PCLN's Q3 Conference Call:

• (CEO) Priceline reported consolidated gross bookings for the third quarter of approximately $2.7 billion, up 33% year over year.
  
• Pro forma net income was $173 million, or $3.45 per share versus $2.39 the prior year.
  
• Worldwide hotel room night reservations were 17.9 million for the quarter, up 56% year-over-year.
  
• While the global economic environment remains challenging, we were pleased to see accelerating growth in hotel unit sales, which allowed us to overcome the continued impact of negative year-over-year pricing and currency trends.
  
• Our international business gained momentum in the quarter with 49% gross bookings growth on a local currency basis.
  
• Year-over-year comparisons improved in part because of steadily deteriorating economic conditions that we witnessed in the second half of last year's third quarter. Higher unit sales were tempered by continued weakness in hotel ADRs.
  
• Booking.com's worldwide hotel count now exceeds 73,000 hotels in over 70 countries.
  
• Agoda also reported improved growth in excess of 100%, which contributed to the sequential improvement in worldwide merchant gross bookings growth from 22% to 33%. Agoda's growth rates reflect weakness in the prior period due to economic conditions and civil unrest in Thailand. And there are also signs of economic improvement in Asian markets.
  
• Priceline's domestic gross bookings grew 25% in Q3, with accelerating growth in hotel unit sales and retail airline tickets offset by year-over-year decreases in ADRs and air fares.
  
• (Vice Chairman) Our growth rates for gross booking dollars and hotel room nights accelerated sequentially for both Q2 and Q3.
  
• Hotel room nights booked grew by 56% in the third quarter versus last year and this compares to 44% growth in hotel room nights for Q2.
  
• FX rates were favorable to the $1.42 per euro and unfavorable to the $1.67 per British pound that prevailed when we gave our guidance in August.
  
• And since a significant portion of our international results are denominated in euros, FX was a net favorable factor for the quarter as compared to guidance.
  
• However, when comparing our results to the prior year, FX rates continue to have an adverse impact. The average exchange rates for the euro and the pound versus the dollar were down 5% and 14% respectively in Q3 2009 versus the Q3 2008.
  
• Gross profit was $434 million and grew 37% as compared to prior year. Our domestic business generated gross profit of $118 million, which represented 26% growth versus the prior year. Gross profit for our international operations amounted to $316 million and grew by 42% as compared to the prior year.
  
• Total operating expenses were generally in line with our guidance.
  
• On a year-over-year basis, we increased pro forma operating expenses by 24% as we continue to invest in marketing, people and new offices to support the growth of our business. We recorded below-the-line expenses in the quarter of about $1.8 million, which is in line with our guidance.
  
• In summary, pro forma EBITDA for Q3 amounted to $225 million, which exceeded our forecast of between 178 and $188 million and represents 47% growth versus prior year.
  
• Priceline received a jury verdict in a class action suit brought by the city of San Antonio on behalf of itself and a class of 172 Texas municipalities against Priceline and other online travel companies. The company recorded a charge in general and administrative expenses in the amount of $3.7 million related to this judgment in Q3.
  
• In Q3 of 2009, we recorded an income tax benefit of $181.9 million to reverse a portion of the valuation allowance on the company's deferred tax asset due to our view that it is more likely than not that our future pre-tax profits will be ample enough for us to realize this tax benefit.
  
• In terms of cash flow, we generated approximately $195 million of cash from operations during the third quarter of 2009. We spent about $2 million on CapEx in the quarter and repaid $86 million principal amount of convertible debt, bringing us to an outstanding debt balance of $271 million at quarter-end.
  
• This leaves us at quarter-end with cash and marketable securities of about $448 million in excess of our outstanding debt balance.
  
• We also have our $175 million revolving credit facility that is undrawn and doesn't expire until September of 2012.
  
• Now on to guidance for the fourth quarter of 2009. We are forecasting total gross bookings to grow by 30 to 40% with domestic gross bookings growing by approximately 15%.
  
• We expect international gross bookings expressed in U.S. dollars to grow by 50 to 60% as compared to last year and to grow on a local currency basis by approximately 37 to 46%. We expect our bookings growth rate versus prior year to continue to be hampered by decreases in ADRs.
  
• Our forecast assumes that the exchange rates remain at the same $1.48 per euro and $1.66 per British pound as of Friday's closing rates. This would yield average rates from a euro and pound perspective for Q4 that appreciate by approximately 13 and 5%, respectively as compared to the prior year.
  
• We expect Q4 revenue to grow year-over-year by approximately 24 to 28% and gross profit dollars to grow by approximately 40 to 45%.
  
• For Q4 operating expenses, we are targeting consolidated advertising expenses of approximately 94 to $97 million, with approximately 94% of that amount being spent on online advertising.
  
• We expect sales and marketing expense of between 20 and $21 million. We expect personnel costs excluding stock-based compensation to come in between 40 and $41 million.
  
• We expect G&A expenses of approximately 23 to $24 million. We expect information technology costs of approximately $5.5 million and depreciation and amortization expense excluding acquisition amortization of approximately $4.5 million.
  
• Pro forma EBITDA is expected to range between 98 and $108 million and we are targeting pro forma fully diluted EPS of approximately $1.52 to a $1.62 per share, which represents 22% growth year over year at the midpoint. (Consensus is $1.49)
  
• Our pro forma EPS forecast includes an estimated cash income tax of approximately 19 to $22 million, comprised primarily of international income taxes and also some alternative minimum tax in the United States.
  
• (Q&A) I was wondering if you could provide some more color on trends that you're seeing on the opaque travel side domestically. (A)I think what we've seen throughout the year is a strong consumer demand for value and a high level of interest in the channel from suppliers as a place to discount. And as a result, it's driven some good results in terms of the growth in our merchant gross bookings and we're pleased with the results we've seen so far this year.
  
• So as far as how it performed in third quarter over 2Q, would you say that with unemployment and everything picking up it was slightly stronger than what we saw before, the demand? (A)I don't think
  we have a particular comment or point of view that the demand has gotten stronger or weaker as a result of sort of the month-to-month changes in employment and economic figures. We've had a very robust demand for our products, really across the board. The real distinctions that you see are for example in airline tickets, where very low airfares has put a dent in the supply environment and the demand environment for opaque airline tickets and we mentioned that in our prepared remarks.
  
• Could you just touch on some of the drivers of the impressive ability to maintain your ad returns despite the skinnier unit economics and increased clicks per reservation in this type of macro environment? (A)I think the thing that has benefited us in that regard is very strong brand strength
  which helps your conversion and helps you get clicks in the first place. And then with respect to the hotel business, continuing to add to supply and innovate on the website, which helps your conversion. (A)I would also say, Scott, that as the business gets more and more mature, an increasing percentage of our business especially internationally, is being driven by repeat. And that helps offset, or allows - another way of saying it, it allows us to reinvest in growth because a lot of the repeat comes for free.

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