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Orbitz Worldwide (NYSE:OWW)

Q2 2014 Earnings Call

August 07, 2014 10:00 am ET

Executives

Brian Wolf -

Barney Harford - Chief Executive Officer, President and Director

Michael O. Randolfi - Chief Financial Officer and Senior Vice President

Analysts

Daniel Louis Kurnos - The Benchmark Company, LLC, Research Division

Naved Khan - Cantor Fitzgerald & Co., Research Division

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Mark S. Mahaney - RBC Capital Markets, LLC, Research Division

Eric James Sheridan - UBS Investment Bank, Research Division

Lloyd Walmsley - Deutsche Bank AG, Research Division

Dean Prissman - Crédit Suisse AG, Research Division

Kevin Kopelman - Cowen and Company, LLC, Research Division

Michael Costantini - Susquehanna Financial Group, LLLP, Research Division

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

Operator

Welcome, and thank you for standing by. [Operator Instructions] I would now like to turn today's meeting over to Brian Wolf. Thank you. You may begin.

Brian Wolf

Thank you. Good morning, everyone, and thank you for joining us on the Orbitz Worldwide Second Quarter 2014 Earnings Conference Call. I am joined on this call by Barney Harford, CEO of Orbitz Worldwide; and Mike Randolfi, our CFO.

As many of you have seen, we filed the press release this morning detailing our second quarter results. If you've not received the press release, it's available on the Investor Relations portion of our website. Additionally, this webcast will be archived on the site for a period of at least 30 days.

Some of the statements made during this call constitute forward-looking statements that involve known and unknown uncertainties and other factors, including the factors described in our SEC filings. These risks and uncertainties may cause our actual results or performance to materially differ from any future results or performance expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements.

Finally, during the call, we will be referencing certain non-GAAP financial measures as defined by SEC rules. We provide in our press release or on our Investor Relations website a reconciliation of those measures to the GAAP financial measures that we consider to be the most comparable.

I would now like to turn the call over to Barney Harford, CEO of Orbitz Worldwide.

Barney Harford

Thanks, Brian. The second quarter of 2014 was another successful quarter for Orbitz Worldwide, and we are very pleased with the full results we're showing with you this morning. We are raising our full year guidance to reflect the positive trends we're seeing in the business.

Gross bookings increased 9% year-over-year. Revenue increased 10% and room nights were up 20%. Across all of our consumer brands, 31% of standalone hotel bookings in the second quarter were made using mobile devices, up from 24% in the year-ago quarter.

Room nights at our domestic brands Overstock.com and CheapTickets grew nicely. We continue to benefit from a significant increase in year-on-year attach of hotel to air driven by loyalty. We've honed our testing and site optimization capabilities and infrastructure, and we're stepping up our investments here. Currently, we have over 60 tests running across the Orbitz.com and CheapTickets sites.

We recently launched the CheapTickets CheapCash rewards program. It's a different consumer value proposition to Orbitz Rewards, but it uses common technology and is similar in its goal of driving higher hotel attach rates and incremental hotel bookings.

Ebookers saw strength in both standalone hotel and vacation packages. During the quarter, we stepped up our vacation package marketing efforts to take advantage of the strong European demand we were seeing. In Europe, we recently launched the ebookers Bonus+ Program, which is very similar to the Orbitz Rewards program.

Across Orbitz.com, CheapTickets and ebookers, over the last couple of months we've been seeing good traction with our air initiatives. We are driving conversion improvements by reducing latency and improving the relevance of the results we show to customers, and by optimizing our tablet and mobile web air path shopping experience. We are confident that these and other actions will improve our air trajectory in the second half of the year.

HotelClub had a strong transaction growth and is helping us expand our international footprint. We are investing in localization, new currencies and new forms of payment with a particular focus on Asia, where we are building strength in key markets.

Strong growth continues in our private label business, Orbitz Partner Network. Existing partners are taking advantage of our platform to grow their business. We're adding new partners and we have a robust sales pipeline.

Orbitz for Business had an excellent quarter, driven by growth in new accounts. We saw increased contribution from Orbitz for Business Express, the small business solution we introduced last year. Given the desire and the corporate travel market for consumerized booking solutions, Orbitz for Business is very well positioned for growth, and we are stepping up our investment against this opportunity.

At the Orbitz Worldwide level in July, Travelport sold 39 million shares in our company, representing 35% of the total shares outstanding. Previously, Travelport has been our largest shareholder. Travelport's sell-down has a number of positive implications for our company. Travelport no longer has any special rights under our charter and we will have greater flexibility to operate our business and make corporate decisions. We now have a significantly expanded public float and we've seen significantly high level of trading volume in our stock since transaction closed. This is an important milestone for Orbitz Worldwide.

As we look forward towards the remainder of the year, we are focused on deploying -- on developing a meaningfully differentiated consumer value proposition through our loyalty offering, providing our customers with a world-class mobile experience and increasing our global reach to international expansion.

Before I wrap, let me thank the Orbitz Worldwide employees for helping to deliver a great quarter. It's truly a team effort, and I'm proud that the team was recently recognized by Glassdoor via Forbes as the best company in the travel industry to work for based on employee reviews.

With that, over to Mike.

Michael O. Randolfi

Thanks, Barney. Turning to our second quarter financial results. We had another successful quarter with strong gross bookings, room night and revenue growth. We generated $111 million of free cash flow defined as operating cash flow less CapEx on a trailing 12-month basis. And our liquidity remained strong at $345 million, which is composed of $265 million of cash and cash equivalents and $80 million available on our undrawn revolver.

Gross bookings increased to $3.4 billion, up 9% year-over-year. Net revenue increased to $248 million, up 10% year-over-year with approximately 7 points of growth coming from TPN. Adjusted EBITDA came in at $44.8 million.

With regards to how we're managing the business, on our last earnings call, we had indicated our intent to take advantage of business outperformance to increase investments. During the quarter, we experienced better-than-expected revenue performance as we generated strong room night volumes throughout our business, and as a result, we stepped up our investment in loyalty, product and marketing.

On the revenue side, standalone hotel revenue was up 15% year-over-year. This was driven by strong room night growth across our brands and ADR expansion, partially offset by contra revenue associated with the ramp of the loyalty program and promotional activities.

We saw a particular strength in our hotel volume growth at our international brands, HotelClub and ebookers. TPN contributed approximately 8 percentage points to hotel revenue growth.

Standalone air revenue was up 5% versus the prior year. TPN added approximately 10 percentage points to air net revenue. Excluding TPN, the lower year-over-year standalone air revenue was due to lower air volumes as a result of the expiration of an exclusive relationship with KAYAK, offset by higher net revenue per transaction as a result of a mix shift toward higher take rate international segments. Toward the back end of this past quarter, we experienced strong indications that our air initiatives, which we expect will drive future volume growth, are working.

Vacation package revenue was up 12% year-over-year due to increased vacation package volume at ebookers and in the private label business. Other revenue was up 9% year-over-year. This was driven by strength in car, which increased 13% year-over-year due to site optimization, and increased marketing spend.

Cost to revenue as a percentage of revenue was up 181 basis points compared with the second quarter of 2013. Excluding the acquisition of TPN, cost of revenue was flat year-over-year. As discussed in our last call, TPN's private label business incurs higher customer service cost as a percentage of revenue as compared to the rest of Orbitz Worldwide.

Marketing expense as a percentage of revenue increased 38 basis points from the second quarter of 2013. SG&A expense as a percentage of net revenue for the second quarter 2014 decreased 166 basis points. Continued SG&A leverage reflects the ability of Orbitz Worldwide to grow revenue at a faster pace than SG&A expense. TPN added $4.6 million to SG&A expense. Excluding TPN, SG&A expense would have been down $1.9 million.

Net interest expense decreased $4.1 million in the second quarter 2014 compared with the second quarter of 2013. This decrease in interest expense is primarily due to the refinancings that have occurred since March of last year.

Moving to guidance. For the third quarter 2014, we expect net revenue between $249 million and $254 million, and adjusted EBITDA between $41 million and $46 million. For the full year, we expect net revenue growth between 9% and 11% year-over-year and adjusted EBITDA growth between 7% and 10% year-over-year.

I do want to take a moment to highlight a few items around our revenue and adjusted EBITDA expectations for the remainder of the year. The increase to our full year revenue guidance reflects improved hotel performance as we step up marketing investments. Based on book trends to date, we expect Q3 year-over-year stayed room night growth to be similar to that of the second quarter. On the air side, we expect air volume growth rates to improve meaningfully over the balance of the year even if we exclude the impact of TPN. Our full year 2014 adjusted EBITDA projection reflects the investments we are making in 2014, which we believe will provide a strong foundation for top and bottom line growth in 2015. Finally, on CapEx, we still expect that full year's spend will be in the $47 million to $52 million range.

In summary, we're feeling very positive about our business. The second quarter was a strong quarter, and we have a good trajectory for the balance of the year.

With that, operator, we would like to open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question or comment comes from Dan Kurnos from Benchmark Company.

Daniel Louis Kurnos - The Benchmark Company, LLC, Research Division

Just a couple of thoughts here. Obviously, with the Travelport restrictions, Barney, you've touched on it, removed. Just your thoughts now on uses of cash and if there's any sort of change to the operating strategy -- let's start with that, and I'll ask a follow-up.

Barney Harford

Sure. I don't think it's -- I don't think there's any change to the operating strategy. Obviously, we have been operating as a independent company in the best interest of our shareholders. We're a public company. That's our general operating approach. But I think there was certain restrictions that Travelport had, such as the ability to detailed [ph] board members selection and such which will just make it easier for us to operate as an independent company on a go-forward basis. But I wouldn't expect to see any significant change in strategies.

Michael O. Randolfi

And I would say from a cash flow perspective, similar. We're very pleased with the balance sheet's strength we've developed over the last couple of years. We're pleased with the amount of cash flow we've generated and the refinancings that we have achieved. Going forward, we like the flexibility we have that our cash position provides us.

Daniel Louis Kurnos - The Benchmark Company, LLC, Research Division

Great. And then just secondarily, Barney, I saw that you guys announced the new diner program. We know that Priceline has bought OpenTable. It seems like a pretty and obvious adjacent vertical. Love to hear your thoughts on whether or not you plan to get more aggressive in this vertical? And just any update you could provide on attach rates from a loyalty program to hotel.

Barney Harford

Sure. So the diner program that we've announced is a component of the loyalty program, whereby members of our rewards program can connect 1 or more credit cards to the program and earn 5% back in Orbucks when they dine at participating restaurants. Furthermore, for folks who have been smart enough to sign up for the Orbitz Rewards credit card, they actually get 7 points back. That's on top of combined earners of 7% when they book flights with the Orbitz Rewards credit card on a mobile device and 10% when they book hotels with a credit card on mobile device. So there's some great earning opportunities for folks, and we thought this is an interesting opportunity for us to expand the offering associated with Orbitz Rewards, the loyalty program and our credit card in particular. More broadly in terms of what we're doing with the loyalty program, we continue to see very substantial increases in the rate of attach of hotels to air transactions associated with the loyalty program. It's really did a great job of increasing the extent to which air purchases also transact hotel with us, so it's operating exactly as we had intended. We're also seeing some nice trends in terms of improved repeat rate on transactions. So we're very pleased with the way the loyalty program is working, and that's behind our decision to roll out a program across ebookers, which launches today. That's a program that is very similar in nature to the program that we have on Orbitz.com. And also by our decision to roll out a complementary program for CheapTickets CheapCash program. It's a slightly different program, but it's, as I mentioned in the script, going after the same approach. And we think this loyalty opportunity is a deep vein for us to go after.

Operator

Our next question or comment is from Naved Khan from Cantor Fitzgerald.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Just a couple. So it looks like the room night is growing faster than the hotel revenue, and it makes us think that probably, when you anniversary the rollout of the loyalty, probably this should be growing more in tandem. Is that the right way to think about it? And then I have a follow-up.

Michael O. Randolfi

Yes, so a couple of things to be thinking about as we look at revenue versus room night trends. To your point, I think there's a couple of things going on there. One, last year, we had the benefit of higher ADR growth as we continue to have the benefit from American Express, and so now we're lapping that obviously. But secondly, we had -- our revenue growth rate as a result of the loyalty program and various promotional activities has been a little lower than the room night growth. But as you look forward, what you would expect that the loyalty program will ultimately bring is an increased rate of growth over time in our overall revenue as more customers attach from air to hotel.

Naved Khan - Cantor Fitzgerald & Co., Research Division

And just to sort of clarify that a little bit. So if and when -- so I know that it's still being rolled out in different geographies. But as you sort of start to anniversary those rollouts, is it fair to assume that the 2 will converge or be more closely aligned?

Michael O. Randolfi

I'm sorry, Naved. Could you repeat the question?

Naved Khan - Cantor Fitzgerald & Co., Research Division

So the Orbucks probably, I think, has been rolled out in the U.S. first, and I think Barney talked about the rollout in ebookers and in other brands. But as you anniversary those rollouts or the loyalty, is it fair to assume that the room night growth and the hotel revenue growth will be more closely aligned?

Michael O. Randolfi

Yes, I think there's many things going on there, obviously, just because of the marketing promotional activities over time. So I don't know that they're perfectly aligned. So in general, to the extent you see a big change in room night growth, you would expect sequential improvements that kind of align with that over time from a revenue standpoint. But quarter-to-quarter, it's tough to say with regards to how precisely they will align. But over time, are they correlated? Yes, there's obviously a correlation there. I think as you think about our loyalty program overall, couple of things I would consider is we're at the point now where the Orbitz Rewards program is a net benefit to the company as -- so it's net-net accretive. And then as we look at the rollout in other geographies and to CheapCash, most of the impact, from a contra revenue impact of those rollouts, will be primarily impacting 2014, and that's incorporated in our guidance. So as we get to next year, you shouldn't expect that we would have incremental contra revenue impacts beyond what you'd see this year.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Okay, that's very helpful. And then, Barney, can you talk about how to think about the TripAdvisor's instant book feature, and whether or not you intend to participate in that?

Barney Harford

Sure. We participate now in a range of different marketing channels. Obviously, we have a good partnership with TripAdvisor on the meta side. But with regards to facilitated book, we've not participated in any facilitated book models today.

Operator

Our next question or comment comes from Brian Fitzgerald from Jefferies.

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Two questions maybe. Your marketing expenses as a percentage of revenue has decreased again in Q2, 40 bps. Are you seeing increase in marketing efficiencies here? And generally, where do you see the improvement? Is it in the branding side? Is it in variable channels like search? And then second question, mobile continues to be a good source of traffic for you and good growth. Any updates there in terms of the traffic dynamics or conversion rates? Any color you want to add on mobile?

Barney Harford

Yes, we continue to invest -- I'll take the mobile one first. We continue to invest substantially against building out our mobile capabilities, and we've been very pleased with the way that we have been able to continue to drive growth there. I mentioned in the script, 31% of standalone hotel transactions now coming through mobile. Obviously, we're seeing the app portion of that. That's the fastest-growing component of it. We've seen -- alongside hotel, we've seen particularly strong performance on the car side. I think we are one of the only global OTA -- the only global OTA to actually have a car -- mobile app car offering, and we've been seeing substantial success with that as the consumers are definitely appreciating both the ability to book a hotel and car on a same-day basis. As I think we -- as we've done in the U.S. as we roll out our loyalty programs for CheapTickets and for ebookers, we're incorporating a loyalty angle for those. So the earned levels are higher for folks who download and use the app. That's encouraging. That behavior, we think, it's the best user experience that we have to offer, so it's great to expose them to that, but it also allows us to increase the mix of traffic that is coming to us directly. Mike, the second one?

Michael O. Randolfi

Yes, so a couple of things as we look at marketing as a percentage of revenue. First, this quarter, we found a lot of ways through the various initiatives we've implemented to meaningfully grow the top line and obviously do that in an efficient way. And the way I would think about our marketing is less so much in terms of the quarter-to-quarter trends. And as you indicated, it's relatively flat this quarter as compared to the same quarter last year. But the way we think about it is, to the extent that we're able to identify efficiencies, we're able to increase conversion which also aids marketing efficiency, to the extent that frees up incremental marketing dollars, we're looking with our advanced analytics team as to what the next best opportunity is to drive profitable growth for Orbitz. And that's the way we're thinking about it. So we're thinking about to the extent it frees up dollars, what's the next best opportunity? So I wouldn't necessarily expect significant leverage there because we view that as a tool to add to the growth of the organization over time.

Operator

Our next question comes from Mark Mahaney from RBC Capital Markets.

Mark S. Mahaney - RBC Capital Markets, LLC, Research Division

I think just 2 questions please -- or 3 questions. Could you -- what was the bookings growth x TPN? I don't know if you disclosed that. You did last quarter. Could you update that? Second, your outlook for the back half of the year, particularly in the fourth quarter, has EBITDA margins down. And maybe you've already covered it, but if you could kind of summarize it, why would the margins be down? What are kind of the newer more aggressive investment areas? And then third, just to follow-up on Brian Fitzgerald's questions about mobile. I'd take another tack at it and ask, the mobile bookings that you see, are those kind of coming from newer users or are they just more spend from existing users and is it generating a lot of same kind of different use cases, new use cases like next-day, same-day bookings? And it could well be all of the above, but any more color there would be great.

Barney Harford

Sure. We didn't -- the question was kind of faint, so we'll repeat them as we go. I'll take the mobile one. So in terms of mobile coming from new users or repeat users, we're actually seeing strength in both. And just given the strength of the offerings we're seeing, it's a great way for us to hook new customers, but it's also a way for us to enhance the relationship we have with existing customers. And what we're finding is that, as we're successful in getting existing customers to engage with mobile, we are seeing that their repeat rate increased. Obviously, there's some selection bias there, but as we control for that, we feel really good about the impact that the app experience, in particular, is having on our ability to increase share wallet with our customers. In terms of use cases, yes, I think that we're definitely seeing -- I know this is being consistent, but it continues that the strength of the offering is such that it's really allowing us to tap into that vein of same-day bookings. And I think we're seeing particular strength in hotel but also in car as the offering really serves the need of someone who's just arrived in destination getting off the plane, et cetera, in a way that, a couple of years ago, it just maybe didn't. Mike, the other two [ph].

Michael O. Randolfi

Sure. On gross bookings, with regards to the including versus excluding TPN. Excluding TPN, gross bookings were relatively flat for the second quarter versus the prior year. And what I would think about there as you're thinking about gross bookings is, as we've discussed on this call and prior calls, the end of the exclusive relationship with KAYAK, that was a significant stream of volume for us. And obviously, that's impacting the gross bookings and a drag on gross bookings. Offsetting that is the strength we're seeing in room nights and on the vacation package side, as well as on the B2B side of our business. And then what I would say is on the air side in particular, we saw good indications in the back part of this past quarter that the initiatives that we're putting in place are working, and we expect to have an impact on volumes as we move forward. With regard to EBITDA margin, in terms of EBITDA margin being lower as we look forward, the way I think about it is we have meaningful opportunities to grow the top line. And we also have a significant amount of investment opportunities that we believe will help drive the business over the long run, well beyond 1 or 2 quarters, and that's the way we're focused as we manage the business. So we have been stepping up investment in several areas. One, on the hotel side, as we've talked about today, the expansion of the loyalty program. Two, internationally. We continue to be very focused on localizing our sites and where appropriate, adding geographies. And then on the air initiatives, we've invested significantly this year on air initiatives and intend to do that as we view the air side of our business as an important on-ramp for customers who will then have the propensity to purchase air and then ultimately, attach with hotel. So that's the way we're thinking about it as we look forward.

Mark S. Mahaney - RBC Capital Markets, LLC, Research Division

Mike, on the KAYAK issue, just as a simple question. When -- with the KAYAK acquisition by Priceline, Trivago acquisition by Expedia, are those marketing channels boxed out to you? Or is there something that changes in the economics that makes those channels less attractive?

Barney Harford

Yes, it's not that they're boxed out in any way. I think to keep up the value proposition of a KAYAK or Trivago is that it's got multiple brands, and so I don't think you'll be smart for those guys to shut out brands that it didn't own. However, in the case of KAYAK, we used to have an exclusive relationship with KAYAK, and we came to the end of that exclusivity at the end of 2013. So as we've gone to 2014, we've been moving to a new phase of that relationship where we are more on a level-playing field. At the same time, it is the case that some of the kind of the technology integrations that they're doing, they're doing more aggressively with their in-house brands than with us. So there's definitely a headwind from both, but the big factor there is the impact of the expiring exclusivity.

Operator

Our next question or comment comes from Eric Sheridan from UBS.

Eric James Sheridan - UBS Investment Bank, Research Division

So on the marketing, just to follow up there, can you isolate out some of the channels you're allocating marketing dollars to? And whether you're seeing sort of rising or falling ROIs by channels and whether the mix shift of your marketing dollars might be moving across various channels? And then longer-term question, just to go back to it, the extent to which the rewards program and the marketing dollars combined whether you could see leverage longer term on the marketing dollars if you see continued success with the rewards program?

Barney Harford

So we participate across a range of different marketing channels, and we're continually looking at the different channels to understand the best way to allocate investment diameter based on the returns that we're seeing, both at the transaction level but also the customer lifetime value level. I'm probably not going to get into more details there in terms of specifics of the spend allocation. It's something that we're seeing -- that we do see as somewhat competitively sensitive. We're definitely seeing continued competitive intensity in terms of the marketplace for demand and for clicks. That having been said, the landing page and site optimization work that we're doing helps us to offset increases in CPC as does work to enhance inventory competitiveness, CRM capabilities, customer lifetime value, loyalty, et cetera.

Michael O. Randolfi

With regards to the loyalty program driving leverage on the marketing line and what our thoughts is -- what our thoughts are around that over the long term. I think clearly, the customers are a part of Orbitz Rewards. We'll have a much greater propensity to come to our site directly. That's the expectation, that's the intent and that's based on what we're seeing. We expect that, over time, to be the case. I think in terms of -- so in isolation, that is certainly beneficial to the marketing line. But I say that in isolation because it always just depends on what is the dollar that's freed up and what's the next best marketing opportunity. And we're always looking at what that next best marketing opportunity is and what's the customer acquiring and what's the lifetime value we're ultimately going to acquire as a result of the incremental marketing dollar freed up. And that's the way we're thinking about it. So I just think it's tough to talk specifically of what the leverage trends are because it'll depend over time what the opportunities are that are available.

Operator

Our next question or comment is from Lloyd Walmsley from Deutsche Bank.

Lloyd Walmsley - Deutsche Bank AG, Research Division

Wondering if you can just elaborate a little bit more on your comments around booking paths given some of your key competitors don't seem to be embracing the trip booking path. It seems like an area where you could gain some share. Does the loyalty program potentially change the equation around participating in booking paths whereby you can kind of take ownership of the customer through that? Or is there really a religious opposition to participation?

Barney Harford

Look, I think we think we've got a pretty good site experience at Orbitz.com and other brands. I think we feel particularly good about the mobile booking experience. I think one of the challenges in some of the meta players have had is that, as consumer demand shifts increasingly towards mobile devices, it's hard for them to actually provide a really great integrated shop book experience. I think that's where we've really nailed it. That's why we're seeing -- what we see to be industry leading levels of mobile penetration across our brands I mentioned on 31%. That's not just Orbitz.com, that's across all of our consumer-facing brands around the world. So I think we feel really good about that level of differentiation. It is interesting in terms of thinking about the -- what's going on with meta players as they look to integrate booking experience on the site. We're seeing the meta sites move towards more transaction-based model to deal with our mobile experience. At the same time, we're exploring opportunities to deliver some of the kind of mobile value prop to consumers, and so we've integrated a kind of hybrid model that allows some of the meta-value prop to be exposed on both CheapTickets and on Orbitz within the hotel resorts cards, and we're seeing good value from that. So I think that's the opportunity we see, and we're using it to aggressively go after the mobile user base.

Lloyd Walmsley - Deutsche Bank AG, Research Division

Okay. And then as a follow-up, can you give us an update on what your off-line marketing mix is, and whether it may make sense to increase your spend offline to promote awareness around the rewards given, the traction you're seeing there?

Barney Harford

Yes, that's a great point. So we have -- we spend significantly more of our marketing dollars online than offline. We do have across both ebookers and Orbitz a little bit offline activities today. But I absolutely think that your point's a good one, and that's something that we are actively exploring kind of the opportunity to move some of the mix there towards offline. To highlight the unit value proposition that we have with loyalty, it really is a very differentiated value proposition versus the competition. Everyone else has got these loyalty programs that are slightly impenetrable. Nobody can work out what you actually get, what you earn, what you can burn. Our program is super simple. It's just percentage based. And the research that we've done has made us realized that once consumers get exposed to that, they see it extremely positively. I think we're doing really nicely in terms of exposing it to folks who are already visiting the site and who we're attracting through our online marketing activities, but agreeing completely that it's a powerful message and we're looking at opportunities to get that more broadly through offline.

Operator

Our next question or comment comes from Dean Prissman from Crédit Suisse.

Dean Prissman - Crédit Suisse AG, Research Division

Can you talk to some of the tactics you're employing to remind people that have Orbucks balances, how are the tactics working and how much room for further improvement exists? And then when you assess the benefits you expect to get from the new GDS contracts that go live in 2015, how much relates to cost savings versus transaction volume growth? And then I have a follow-up on the marketing line questions.

Barney Harford

Sure. So our -- the opportunity to remind folks that they've got Orbucks balances is a really interesting one. I think we're doing a pretty good job in terms of -- in showing the folks who visit the site are aware of the Orbucks they have, in particular on the mobile apps. We've gotten a nice total feature that toggles Orbucks supply versus not apply [ph] on and off [ph]. And that's a fun way and it also kind of makes it really easy for consumers to see. I think the real opportunity for us out there is to get better and better at reminding folks who are not currently visiting the site of the Orbucks balance they have. It's integrating into our CRM activities, but as I talk with our e-mail teams, I think we see significant opportunity for us to continue to refine that. Obviously, we've been live now for something like 9 months and the teams are kind of going to bring their pace to launch capabilities around it. But in particular, as we think about some of our more sophisticated segmentation approaches and some of the machine learnings that we apply to our e-mail programs, we think that they're taking advantage of -- and finding small ways to go and message the Orbucks balance is definitely a big opportunity for us going forward. Look, in terms of GDS, I think for competitive reasons, we're not getting into too much in terms of details of the impact of those relationships. What I would say though is having the ability to optimize our business across the 3 major GDSs, Amadeus, Sabre, Travelport, I think we see that as being something which can be significantly beneficial to the company, and that allows you to do a couple of things. One, it allows you to allocate segments and bookings to the GDS, where you think you're going to maximize the ability to drive confirms, so where the booking errors or the purchase failures are the lowest. And for certain carriers, it's all much of a muchness. But there's other carriers where we've seen substantial gaps and differences in terms of bookability. So that's an opportunity. And then secondly, look, this is just a great competitive dynamic. When you've got 3 GDSs, 2 of whom are already public and the third of whom, I'm sure, wants to get public, that creates a nice competitive dynamic in terms of being able to maximize the revenue that we're able to derive from that segment volume.

Michael O. Randolfi

And just to add to that, this isn't specific to 2015, but the impact of the contracts in general fall on the revenue line primarily.

Dean Prissman - Crédit Suisse AG, Research Division

Got it. And then, so when you look at the stability of marketing as a percent of revenue, was TPN a tailwind, headwind or neutral here?

Michael O. Randolfi

It was -- the marketing cost as a percentage of revenue at TPN were slightly higher than the base business at Orbitz, but it was slight.

Operator

Our next question or comment is from Kevin Kopelman from Cowen & Company.

Kevin Kopelman - Cowen and Company, LLC, Research Division

Just a follow-up on loyalty. Can you give us any more color on the uptake of the Visa card? And then any color on how those users are -- how they're activity changed on the site?

Barney Harford

Sure. It's still early days. First on the Visa card, so we have -- we're not -- we haven't got any specific numbers to disclose, but I think I'm feeling good about the program. It's a killer value prop as I laid out before and so I think we're exploring ways. It's -- we're finding more and more ways to integrate the cards and to integrate it both into the purchase path and also into other parts of the messaging mix and also in terms of ways to go and drive sign-up volume independent of a transaction path. So a lot of work going into what we can do there, but it's still pretty early days, but it's clearly a great value proposition. So folks who get it, I think we definitely -- the challenge is, Kevin [ph], always a selection bias. The folks who sign up for the card are going to be the people who are most engaged in the site. And so just because those card users transact more, it doesn't necessarily mean that they haven't acquired the card. They would've performed less well, but we're definitely pleased with the trends we're seeing so far.

Operator

Our next question or comment is from Brian Nowak from Susquehanna.

Michael Costantini - Susquehanna Financial Group, LLLP, Research Division

This is Michael on for Brian. I just a few questions on TPN. TPN has already lost $5.2 million year-to-date. How should we think about the contribution for the rest of the year and into '15? And how do you plan to improve the profitability over the next 18 to 24 months as you integrate it? And then the TPN added 8 points to the hotel revenue growth, but how many points did it contribute to room night growth?

Michael O. Randolfi

So a couple of things on TPN. As we -- one, looking in the first quarter and this quarter, the one thing I would take into account as you're looking at the results of TPN is at this stage, there's a fair bit of integration-related costs associated with TPN, and that's what you're seeing. So that is driving a disproportionate amount of the loss for TPN. What I would say is for this year, we expect that TPN will lose approximately $4 million based on our forecast. And we think as we transition it to our technology and our global platform, and we continue to integrate and leverage the benefits that TPN brings with its points-based loyalty programs, as Mark [ph] said, the customers and the ability for us to add to that over time, we think it'll be nicely additive to adjusted EBITDA. So that's generally our view. With regards to room nights, we've indicated on the last call, it was approximately 1/3 of room nights, and it was -- that's approximately what it was for the second quarter.

Operator

And our last question comes from Manish Hemrajani from Oppenheimer.

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

One more on mobile, if I may. How do a tech [ph] phase on mobile compare with the desktop? And is there a higher use of loyalty programs on mobile versus desktop? Also if you could share the total percent of bookings through mobile.

Barney Harford

Those are great questions, but those are not levels of -- I'm afraid those are specific data points that we have at this stage not shared. We may consider sharing them in the future. But at this stage, we've not got into that level of detail. But I think it's, yes, good questions. We'll consider some more disclosure around that on a go-forward basis.

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

Okay. And then given Priceline's deal which Trip announced last night, how does that impact some of your initiatives in China? And how do you think this changes the competitive landscape for outbound market in China?

Barney Harford

I don't think it has a major impact on the competitive landscape in China. It more kind of validates our thesis about the attractiveness of the outbound market in China, and that's the -- as we've talked in previous calls, we talked about the launch of HotelClub's brand Hàokèbang, we now have a local entity established that we're building out our team in our -- in China. So I think it validates our thesis around being a substantial opportunity in that market to market that today, 2014 represents about 100 million outbound travels. By 2018, Chinese government is saying it's going to get to about 200 million outbound trips. And as we think in terms of kind of major destinations where we're particularly strong, in particular, the U.S. and in terms of Europe, it is very much top of the list in terms of target market opportunities for growth. So as we think about the kind of the way that our supply and demand network works and the way that we use our global network to go and build cable both [ph] to cater [ph] to outbound travelers, but also to work with destinations and hotels and suppliers broadly who are looking to expand their offerings into new frontier growth markets. I think it lines up very well with what we're doing there. So I think, look, it's -- we're still learning more about the exact structure of it. But from our perspective, it doesn't change our process significantly.

Operator

And that was our last question. I'd now like to turn it back over to Mr. Harford for closing remarks.

Barney Harford

Well, thank you so much for joining us on this call, and we look forward to updating you on our next call in 3 months time. Thank you.

Operator

That concludes today's conference call. Thank you for your participation. You may disconnect at this time.

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Source: Orbitz Worldwide's (OWW) CEO Barney Harford on Q2 2014 Results - Earnings Call Transcript
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