Jeffery H. Boyd - President, Chief Executive Officer, Director
Robert J. Mylod Jr. - Chief Financial Officer
Analyst for Imran Khan - J.P.Morgan
Michael Millman - Soleil Securities
Scott Barry - Credit Suisse
Brian Fitzgerald - Bank of America
Jennifer Watson - Goldman Sachs
Justin Post - Merrill Lynch
Mark Mahaney - Citigroup
Priceline.com, Inc. (PCLN) Q3 2008 Earnings Call November 6, 2008 2:30 PM ET
Welcome to Priceline's third quarter 2008 conference call. Priceline would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements.
For a list of factors that could cause Priceline's actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Priceline's earnings press release as well as Priceline's most recent filings with the Securities and Exchange Commission. Unless required by law, Priceline undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.
A copy of Priceline's earnings press release together with an accompanying financial and statistical supplement is available in the investor relations section of Priceline's website, located at www.priceline.com.
Now I would like to introduce Priceline's speakers for this afternoon, Jeff Boyd and Bob Mylod. Go ahead, gentlemen.
Welcome to Priceline’s third quarter conference call. I’m here with Priceline’s CFO, Bob Mylod.
Priceline reported consolidated gross bookings for the third quarter of $2 billion, up 44% year-over-year. Pro forma gross profit of $316 million was up 57%. Pro forma EBITDA was $153 million, up 69% and pro forma net income was $117 million or $2.39 per share, up 52%.
Third quarter results surpassed third quarter consensus estimates of $2.10 due to better than forecast results in Europe and the United States. Our international business had a good quarter with 59% bookings growth despite a substantial decline from the beginning to the end of the quarter in the value of the Euro and in hotel ADR’s.
International gross bookings benefited from growth in new markets and results from Agoda, the Asian hotel reservation business we acquired last year which added gross bookings of $32 million in the quarter. Agoda was able to achieve good growth rates despite civil unrest in Thailand, which has materially dampened leisure travel in Agoda’s largest destination market.
Priceline’s domestic business grew 33% in the third quarter due to growth in sales of opaque and retail airline tickets, hotel room nights and vacation packages. Domestic merchant gross bookings which include opaque services and retail merchant hotels grew 19%. We believe that Priceline continued to gain market share on our major competitors during the quarter and delivered superior earnings growth. While it is difficult to make precise forecasts in today’s market, our third quarter results demonstrate our strong competitive position in challenging economic times.
While our international business showed good third quarter growth rates in late September the global financial crisis struck Europe in earnest with widespread instability in major banking centers, deep concern over the safety of bank deposits and ultimately widespread governmental intervention all occurring within a two week time span. A rapid decline in the value of the Euro coincided with these developments.
Not surprisingly, consumer demand in our business perceptibly weakened during this period as consumers processed these events. We have therefore seen deterioration in the key drivers of the business, namely the Euro/Dollar exchange rate, transaction growth rates, ADR’s and cancellations. Given the outlook for the general economy we are forecasting a significant reduction in U.S. dollar denominated international gross booking growth rates.
Of course further negative economic developments such as a fresh wave of instability in the financial markets or high profile financial or industrial company bankruptcies or bailouts which depress consumer sentiment would likely lead to below forecast results. Despite these macro challenges we continue to expand our international hotel platform, building new markets and enhancing the connections among our businesses in North America, Europe and Asia.
Booking.com now has approximately 57,000 hotels in over 70 countries and continues to add inventory and build new destinations. We continue to benefit from growing repeat business to Booking.com and other Booking.com branded sites. Agoda has made good progress in building its direct hotel inventory and its infrastructure for long-term growth in the promising Asian market.
Priceline’s domestic business showed 33% year-over-year growth in the third quarter. We continue to see attractive domestic growth rates which we believe are supported by consumer demand for travel deals in a weak economic setting, attractive inventory from airlines and hotels using our services to round out demand and protect yields and effective marketing of our low price positioning in both opaque and retail markets. The negotiator ad campaign continues to provide a versatile platform for effectively communicating our value proposition and strengthening our brand.
There are wide ranging estimates for future economic conditions with most assuming further deterioration in consumer spending and economic growth in all of our core markets. Our goal is to pursue unit and local currency bookings growth in all of our key markets and maintain operating margins while continuing to build our brands and expand the international hotel platform. We will be more measured in activities which grow our cost structure given the volatility in market conditions.
We do not believe the current economic outlook will put an end to the global secular movement of travel planning and purchase to the Internet. We do believe our brands, superior content and pricing, lean cost structure and strong balance sheet and cash flows position us well to compete in economic down cycles.
I will now turn the call over to Bob for the detailed financial review.
On August 5 earlier this year we announced our second quarter earnings and gave financial guidance for the third quarter and second half of 2008. As has always been typical of the guidance we give our guidance then was based upon an assumption that we would be operating in an economic condition throughout the back half of 2008 that was similar to the economic conditions that existed on that day we gave guidance.
Of course as Jeff discussed, the economic events that happened since August 5 have put the overall travel industry, the online travel industry and therefore Priceline in an environment that looks nothing like the environment that existed 90 days ago. As you can see from the third quarter results fortunately these conditions didn’t crop up in time to significantly affect our third quarter. In fact, our gross bookings, gross profit, EBITDA and earnings per share all came within, or in the case of our profit metrics, well above the range of guidance we gave on August 5.
We are particularly proud of this performance because we were able to deliver these results despite significant headwinds that developed and strengthened towards the end of the quarter. One of these headwinds was foreign currency exchange rates and I intend to discuss FX more in a moment but I did want to point out that our Q3 EBITDA and net income results did benefit from approximately $5 million of FX hedging gains that we recognized in the quarter.
Even without these gains, however, our profits came in well above our expectations and well above first call earnings estimates. Most importantly, it appears we took significant market share from our competitors during the quarter and continued to position our worldwide businesses for continued long-term growth. We were also very pleased with our third quarter cash flows which were very strong and which put us in what we think is a relatively advantageous capital position at a time when capital is very hard to come by.
Specifically, during Q3 we generated approximately $102 million in operating cash flow, up 65% year-over-year. During the quarter we repaid approximately $53 million on the principle amount of our convertible notes. We also invested $123 million to purchase all the remaining minority interest in our Priceline Europe subsidiary and we spent $5.9 million on capital expenditure. Despite this $182 million use of cash associated with these discreet financing and investing activities, we still ended up the third quarter with cash and marketable securities balance that is in excess of our debt balance.
Beyond that we have a $175 million revolving credit facility that is undrawn and doesn’t expire for four years. So as I mentioned, we feel very good about our balance sheet and our liquidity position.
That pretty much covers the major financial highlights from Q3 and Jeff didn’t already cover, so what I’d like to do is revert back to the discussion of the current economic environment that Jeff began because it certainly has significant implications for our immediate earnings outlook.
Jeff has already covered the obvious potential effect that a weak economy is having on our fundamental unit demand for travel. I wanted to discuss a couple other key metrics in some detail.
As we have discussed on previous earnings calls, our gross bookings and earnings are significantly affected by two variables that are heavily driven by macroeconomic factors. First, foreign currency exchange rates. Second, the retail prices at which our hotel partners choose to market their rooms on our web sites. These two variables are critical because a very significant majority of our gross bookings and profits are generated by our hotel room reservation services, most of which are conducted outside the United States in Euros or British Pounds.
To put these words into a little numerical perspective, on the day of our August 5 earnings call the Euro translated into $1.55 and the British Pound translated into $1.95. Those August 5 FX translation rates formed the basis of our second half guidance. As we speak today, the Euro has devalued against the dollar by 17% since August 5 and is now translating at $1.29 per Euro as of the close of business last night. The British Pound devalued at an even faster rate, down 19% to a translation rate of $1.59 per Pound. Both of these rates are also down significantly from their year-ago levels.
As for average selling prices of our hotel rooms (ADR’s), those too have declined very significantly relative to where they were over the summer as our hotel suppliers have cut their selling prices in order to stimulate lagging demand. Our guidance on August 5 was for ADR’s to be roughly flat on a year-over-year basis domestically and down roughly 1-2% on a year-over-year basis internationally, all roughly consistent with summer levels.
Actual third quarter ADR’s were down 1% domestically and down 3.5% internationally with significantly worsening trends towards the end of September that have carried into the fourth quarter. As Jeff mentioned we believe these ADR declines also contributed and continue to contribute to an increase in our reservation cancellation rates which have created yet another headwind for us. Because the fourth quarter is seasonally our weakest for gross bookings, the impact of an increase in cancellation rates on our gross bookings will be more impactful to the fourth quarter as compared to the other quarters.
One last point on FX and ADR rate declines as they relate to our dollar denominated international gross bookings metric. That is that FX rates and ADR’s have a multiplicative impact on each other when calculating gross bookings dollars. So when our blended FX exchange rates for our two main foreign currency is down by nearly 15% year-over-year and international ADR’s on a local currency basis are down by more than 5% year-over-year this means that our international hotel room night sales net of cancellations will have to grow by nearly 25% in the fourth quarter in order for international gross bookings on a dollar denominated basis to just be flat with last year’s levels. That is obviously a very significant headwind. As you will see when we get to our specific numerical guidance for the fourth quarter it is nevertheless our goal and expectation to grow our international gross bookings on a dollar denominated basis in the fourth quarter despite these historically unprecedented headwinds.
The last point I want to make before I give the specific numerical guidance has to do with our outstanding convertible debt and the impact it is having and is expected to have on our future diluted share count. As most of you know in recent quarters our stock traded at levels that were well in excess of their conversion prices and as a result our diluted share count rose to levels exceeding 50 million shares. With our stock trading down significantly as of late, we are now witnessing the opposite effect, namely that our diluted share count has fallen along with our stock price thereby providing a favorable share count comparable in Q4.
There is one other point I would like to make about our convertible notes and that has to do with early conversion activity. As most of you know, the owners of our convertible notes are primarily convertible bond hedge funds almost all of whom have suffered very significant losses and investor redemptions as a result of the recent market turmoil. These investor redemptions have forced hedge funds to liquidate their bond portfolios. As a result, prices across the board for convertible bonds have plummeted and the prices of our convertible notes have plummeted along with the market.
In fact, our convertible notes are now trading at prices that essentially assign no value to the significant option value that is inherent in them and therefore many convertible note holders have opted to convert their notes prior to maturity and receive the intrinsic value of their bonds from us instead of trying to sell them in the open market.
In the past several weeks we have received approximately $50 million face amount of such early conversion notices and as long as the convertible bond market remains in turmoil we expect to potentially see more. As I mentioned earlier we are in a relatively advantageous liquidity position and so we think we believe we have plenty of excess liquidity to repay the principle amount of our convertible bonds with cash with any remaining in the money value repaid through the issuance of common shares.
While this activity has created a little bit of unpredictability with respect to our quarter ending debt balances and cash balances. It does not impact the predictability of our cash net of debt position which was slightly positive in Q3 and is expected to grow nicely in Q4.
I’d also like to point out we generally look at all this activity as good news because by redeeming our notes early we will eliminate any potential future dilution that we would have otherwise experienced if our bonds remained outstanding through maturity and our stock price goes back up to levels we saw earlier this year.
I’d also like to point out this early conversion activity creates a mismatch of timing between when we deliver shares to our convertible note holders for the in the money conversion value of their notes and when we receive shares from our hedging counter parties for our conversion spread hedges. Because of this timing anomaly in calculating the pro forma diluted per share count we use for pro forma EPS we have decided not to give effect the hedging benefit associated with any convertible notes that are converted early until the actual maturity date of the hedge.
Now for fourth quarter guidance. We are looking for total fourth quarter gross bookings to grow by approximately 7.5-17.5% on a year-over-year basis with international gross bookings coming anywhere from flat to up 10% versus last year’s fourth quarter level and domestic gross bookings growing by approximately 22%.
As I mentioned earlier this will be the first quarter in years in which dollar denominated gross bookings will grow at a slower rate than the local currency growth rate. Specifically we expect international gross bookings to grow on a local currency basis by approximately 10-20%. This growth rate is consistent with a continuation of the year-over-year growth rate declines we saw in Q1, Q2 and Q3. However, due to all the negative headwinds I just reviewed we do expect the slope of the decline to steepen significantly as compared to the slop we witnessed during the first nine months of 2008.
We expect pro forma revenue to grow by approximately 12-14% on a year-over-year basis. We expect pro forma gross profit dollars to grow by approximately 12.5-17.5% on a year-over-year basis. As for Q4 operating expenses, we are targeting consolidated advertising expenses of approximately $58-62 million with approximately 90% of that amount being spent on online advertising. We expect sales and marketing expense between $16.5 to $17.5 million. We expect personnel costs excluding stock based compensation to come in between $28-29 million. We expect G&A expenses of approximately $13-13.5 million, information technology costs of approximately $5-5.5 million and depreciation and amortization expense excluding acquisition amortization of approximately $4.3 million.
We expect total below the line positive impact of approximately $2.5 million which is comprised primarily of foreign exchange hedging income. We are targeting pro forma EBITDA of between $60-66 million. We are targeting pro forma EPS of approximately $1.00 to $1.10 per share. Our pro forma EPS forecast includes an estimated cash income tax of approximately $11.5-12 million comprised of international income taxes and alternative minimum tax in the United States. Our pro forma EPS guidance is based on pro forma diluted per share count of approximately 44.6 million shares which is based on last night’s closing stock price of $52.60 per share. As you can see, this is a substantially lower share count than last quarter’s share count due to the convertible note dynamics I just discussed.
As for expected GAAP results we expect to report GAAP EPS of between $0.55 to $0.65 per share. The difference between our GAAP and pro forma results will be driven primarily by the inclusion of acquisition related amortization, stock based compensation and certain income tax expense all of which are non-cash in nature.
Our forecast assumes the Euro versus dollar exchange rate remains at the same $1.29 per Euro as last night’s closing rate. It also assumes there is no material change in the FX relationship between the Pound and the Euro. Our forecasts also assume the ADR’s of domestic hotel service will be down 3-4% as compared to 2007 levels and the ADR’s of our international hotel service will be down about 5-6% year-over-year which is basically about what we are currently running at now.
We think our Q4 forecast is representative of another quarter in which we expect to take market share both in the United States and internationally. From a balance sheet perspective, as I mentioned to you earlier, due to convertible note conversions that are to be processed or will be processed during the quarter we expect our debt balances to be reduced by an additional $75 million as compared to the levels at which we ended the third quarter. Of course it is possible we will pay down even more debt if we see further conversions and as I mentioned we will welcome this activity. We already have plenty of excess liquidity to repay our debt and that excess liquidity continues to grow each quarter which puts us in the position to take advantage of the market dislocations through the early retirement of our convertible notes.
Before I turn the call over to your questions I did want to make a few more qualitative points about our financial guidance. The first point relates to the Q4 guidance I just gave. It has always been our practice to give very detailed financial guidance for any current quarter and we are doing so again today. By definition, forecasting involves predicting an uncertain future. We wanted to say the very real economic uncertainty that is affecting the worldwide consumer and worldwide market places has added a great deal to our own level of uncertainty around our forecast. Our Q4 forecast does its best to quantify how the current market environment, which is clearly very weak, will play out for the rest of the quarter. Our bias is that it will get weaker given the trends we have seen since September but the volatility associated with that trend means there is a significantly greater standard deviation in our forecast with respect to possible upside and possible down side as compared to previous quarters.
As you might surmise, all of this economic uncertainty impacts how we think about 2009. Typically around this time of year we are engaged in our budgeting process for the following year. This year is no different and we are deeply into that process as we speak. However, the format of our budgeting process is different this year in that we are trying to forecast multiple financial performance outcomes based upon multiple potential economic conditions. Until we actually see some stability in the worldwide economy, we will be reluctant to communicate any financial forecasts for 2009.
Therefore, when we announce our Q4 results in February it is unlikely that we will provide a full-year 2009 forecast. What I can say about our 2009 budget process is that regardless of whatever economic scenario ultimately manifests itself we will be striving to achieve several principle goals. First, to grow the unit sales and local currency gross bookings in each of our businesses on a worldwide basis. Second, to continue taking market share in the worldwide online travel market. Third, to maintain the significant operating leverage gained we achieved in 2008.
Lastly, as I hope we have made pretty clear on this call, our numbers are going to be impacted by several variables that will create difficult comps for us in the next several quarters. These variables are not necessarily permanent. Once we see stability, or even a turn around in some of these variables such as FX and ADR’s, our comps towards the end of next year should get easier and should not ultimately impact our overall long-term growth rates.
With that we’d be happy to take your questions.
(Operator Instructions) The first question comes from Imran Khan - J.P.Morgan,
Analyst for Imran Khan - J.P.Morgan
I’m wondering if you could discuss for us differences you are seeing across western international countries and also has the weakness spread to the non-western European businesses or has it been offset by penetration increases?
I think the economic weakness is essentially widespread by this point in time. I wouldn’t point out a geography that appears to somehow be immune to it. That’s not to say we don’t have some higher growth rates in some of these newer markets which is still the case but you can absolutely see the impact of the economy really in most markets.
The next question comes from Michael Millman - Soleil Securities.
Michael Millman - Soleil Securities
Can you talk about if you are seeing a change particularly in Europe in how vacationers or travelers are acting and specifically are you seeing some change in weekend vacations or one way or the other or full week, which would presumably be vacations? Then related I guess Ryan Air has talked about a huge promotion. Do you see that having a major effect on business or already having some effect on business?
As for trends in Europe, I’d make a couple of comments. First of all, the economic headlines have been much more prevalent in the United States so I think the United States market has been digesting over where the economy is potentially going over a longer period of time and that’s why I think potentially specifically our U.S. business continued to perform very well because there wasn’t as much shock in the headline news in the United States relative to Europe.
I think as we got into September and we saw several of the major European banks fail we could absolutely sort of see a little bit of a change in the booking patterns of consumers in Europe as they started to catch up on digesting the state of the current world markets.
The only other thing I would say is we did in Q3 see maybe a little bit of a contraction in the time frame between when consumers were booking and when they were consuming their hotel room but nothing very material.
As for Ryan Air, Jeff?
On the Ryan Air side one thing has happened which is good which is oil prices have come down dramatically. That has put the airlines in a position where they can look forward to potentially being profitable next year both in the United States and with Ryan Air in Europe we have seen some fare sale activity which is absolutely intended to spur demand and I would expect it would spur demand and ultimately we and the other online travel agents should benefit from that.
The next question comes from Scott Barry - Credit Suisse.
Scott Barry - Credit Suisse
A question on the FX impact. Is it consistent with your revenue mix across your expense line items? Assuming we have a slower growth environment in 2009 on the top line could you just maybe give us a sense for where we might get some back on the expense line items such as personnel costs or G&A?
I think one of the nice features of our international business is that our expenses tend to line up very well with our revenue and gross profit in terms of FX. We really tend to not have very material differences or hedging translation risk with respect to expenses on the one hand and revenue on the other hand. That’s why as I mentioned at the end of my prepared remarks that one of our goals in 2009 is going to try to maintain our operating leverage in local currency. I think because we don’t have much of a mismatch in expenses versus revenue that hopefully makes that a more achievable goal than it otherwise would be.
As for how we are going to manage expenses in 2009, I tried to allude to that a little bit in that as we think about building our forecast for 2009 we are really coming up with various scenarios of growth. Again, because we do want to try and maintain that operating leverage regardless of which scenario ends up unfolding there is an area of expense management to it. We certainly have plenty of fixed expenses in our P&L. Personnel is one of them. Off-line advertising is one of them. G&A is one of them. IT is one of them and I think you can assume we are going to be very, very careful about managing those fixed expenses in 2009 and the variable ones as well. Online advertising is obviously our single biggest expense line item and we certainly hope that as we move into 2009 we hope we will be operating in that environment from a position of strength relative to some of our competitors who have been competing with us in much better markets over the last couple of years.
The next question comes from Brian Fitzgerald - Bank of America.
Brian Fitzgerald - Bank of America
I wanted to know if you could give us an update on [Q1] pricing. Then is there any change to the underlying balance or elasticity between your ad mix, profitability and your bookings?
On key word pricing we are certainly hearing what many of you are probably hearing in the marketplace; that there is an expectation that may soften and in general demand for advertising should soften and pricing should soften. I don’t think that is really visible or reflected in our third quarter results. I think that is another way of saying we haven’t really seen that much yet.
In terms of the ad mix, the only comment I would make there is we will continue to push our ROI targets and try to use offline dollars here in the United States to build the brim. We have very compelling, low price messaging here and it is working as you can see with what we think are very attractive growth rates that clearly are related to the fact we have a strong brand and good pricing positioning and we will continue to push that next year.
The next question comes from Jennifer Watson - Goldman Sachs.
Jennifer Watson - Goldman Sachs
Can you talk about the potential for launching a name your own price product internationally?
We have name your own price hotel inventory in Europe and in some other international destinations which we sell to U.S. resident customers and we also use it in our vacation package products so we are in that business right now. We also at Priceline.co.uk have the ability to sell U.K. point of sale opaque hotel. It is not something we have invested a lot of time or money in. Given the market place there may be some more demand on the supplier side of that and certainly the consumers are looking for bargains so I wouldn’t rule that out as something we might get back into and invest some more time into next year but it is not something we are doing right this minute.
The next question comes from Justin Post - Merrill Lynch.
Justin Post - Merrill Lynch
When you think about next year, in the October call last year you were able to call out some interesting things and dynamics for the following year. Is there anything beyond the macro that you think will be interesting affecting the year-over-year growth rates for bookings or revenues as you look out to next year?
I think one of the reasons I sort of painstakingly went through the various variables was to hopefully deliver the punch line about what we need to do on a unit growth basis just to break even. We view that as actually fairly impressive in that we do have some pretty big headwinds but ultimately our unit growth is still very strong in Europe and we think represents market-leading growth in which we are taking market share. We certainly don’t have an ability at this point to predict 2009 but in many ways the story for Booking.com remains exactly intact. We continue to grow not only in Europe and Eastern Europe but throughout international and into the United States. The fact we have had a little bit of a slow down doesn’t change our strategy at all. It may make us a little bit more careful about how we manage forward-looking expenses but we still think there is a very big opportunity. As Jeff mentioned there are still plenty of people who are moving from offline means of purchasing their travel to online means. Again we are going to have some headwinds no doubt about it. But the fundamental thesis that we are pursuing internationally is, as I said, intact.
One thing I would add there is that as we continue to build out the hotel network because we have soft occupancy and demand at the hotels, I think we are in a very good position to bring more hotels into the system, to get some of the larger chains that have not been focused on getting new online distribution channels to get them to recognize the value of the distribution we can bring to them from around the world. We certainly expect to use this opportunity to try to improve our inventory and relationships with our hotel suppliers because we believe that next year is a year that we can really help them and work together to sort of mitigate the impact of the economic downturn on their business.
Justin Post - Merrill Lynch
On the fourth quarter you said you were up 10-20% in Europe on your hotel nights so far this quarter. How do you think that compares to the industry? Do you think maybe the industry may be down 5-10% so you are out performing by maybe 1,500 basis points? How would you characterize October?
Just to clarify, our guidance for fourth quarter is for local currency gross bookings growth rate to be up 10-20%. Given the ADR declines I discussed and given some of the higher cancellation rates, it actually means that our new unit gross bookings coming in the front end are up more than…we expect them to be up more than 10-20%. I’m really not in much of a position to say what we think that means relative to the rest of the market. We’ll sort of leave that up to you. Based on some of the rhetoric we have heard from industry sources and our competitors we certainly think that probably will continue to represent market-leading growth.
The next question comes from Mark Mahaney – Citigroup.
Mark Mahaney - Citigroup
First, the significant expansion in hotels under management or under contract and inventory…any color on where you are seeing that growth and to what extent is that for hotels in the U.S.? Secondly, can you just clarify a little bit more your comments on margin and potential margin outlook for next year? I think you said with units and bookings growth in local currencies I think you said you should be able to maintain 2008 margins. Under what scenario do you think margins would actually theoretically have to come down? Is it simply flat revenue, flat bookings in local currency brings margins down in 2009 or could even under that scenario they stay flat?
In terms of hotel expansion for Booking.com it is happening in all of their principle markets in Europe, North America and Asia. Our expectation is that we will continue developing the hotel inventory worldwide.
As for the operating leverage point, again our goal for 2009 is to grow units and gross bookings on a local currency basis. Because our expenses are also expressed in a local currency basis our goal and our intention is to manage those expenses so we can maintain the operating leverage. Obviously, if we were to enter a scenario where our top line were to shrink that could potentially limit our ability to maintain the operating leverage but for now here in the middle of November given our unit growth rate we are still seeing in the fourth quarter we still think it is reasonable to hope we can grow our units and our gross bookings on a local currency basis. Therefore, if we do manage those expenses properly, and manage our ROI’s on online spend well hopefully we can maintain that operating leverage on a consolidated basis.
There appear to be no further questions. Do you have any closing remarks?
Thank you all very much for participating in the call.
Thank you ladies and gentlemen. That does conclude our Priceline third quarter 2008 earnings conference call.
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