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Orbitz Worldwide (NYSE:OWW)

Q3 2012 Earnings Call

November 07, 2012 10:00 am ET

Executives

Melissa Hayes

Barney Harford - Chief Executive Officer, President, Director and Member of Executive Committee

David Belmont - Interim Chief Financial Officer and Group Vice President of Financial Planning & Analysis

Analysts

Naved Khan - Cantor Fitzgerald & Co., Research Division

Brian Patrick Fitzgerald - Jefferies & Company, Inc., Research Division

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Brian Nowak - Nomura Securities Co. Ltd., Research Division

Michael J. Olson - Piper Jaffray Companies, Research Division

Tracy B. Young - Evercore Partners Inc., Research Division

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. And now, I would like to turn the meeting over to Melissa Hayes, Vice President of Finance. Ma'am, you may begin.

Melissa Hayes

Thank you. Good morning, everyone, and thank you for joining us on the Orbitz Worldwide Third Quarter 2012 Earnings Conference Call. I'm joined on this call by Barney Harford, CEO of Orbitz Worldwide; and David Belmont, our interim CFO.

As many of you have seen, we filed a press release this morning detailing our third quarter results. If you have not received the press release, it is 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'll be referencing certain non-GAAP financial measures as defined by SEC rules. We have provided 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, Melissa, and thanks to all of you for joining us on the call today. We had a mixed quarter, one in which we made a significant progress against key strategic initiatives, but we had a few setbacks, too. Before I get into the quarter, let me talk to you about our intense focus on building our global hotel business. Revenue from the sale of hotels, both stand-alone and as part of a package, already accounts for 38% of our total revenue, and we've set a target of increasing this to 50%. We believe that technology affords a remarkable opportunity to transform the way consumers around the world search for and book hotels.

We completed the migration of all our consumer brands to our global technology platform in February and we're pleased with the way it's working for us. The new platform had allowed us to speed up our development cycle, dramatically accelerating the pace with which we can rollout new enhancements onto our websites. I'm particularly excited about the progress we're making around landing page optimization, booking pad optimization and promotional capabilities. And having all our consumer brands on one platform means we can rollout successful features across all of our sites quickly and easily.

Turning to the quarter. We made good progress in a number of key areas. At ebookers, as we discussed in our last call, the economic slowdown in Europe over the summer caused growth in Q3 stayed room nights at ebookers to decelerate. On a booked basis, room nights however -- on a booked-room night basis however, as the quarter progressed, we saw a stabilization and we've seen continued recovery through October. On the air side, we saw softness in OTA channel volumes in the quarter, but across Europe, ebookers generally maintained share against its online competitors.

At HotelClub, we saw a sequential improvement in stayed room night performance, with further improving booked basis trends into October. Clearly, we still have a lot more to do at HotelClub, but we are cautiously optimistic about the improving trajectory for the business.

On the algorithmic marketing front, our keyword optimization and bidding engine, KOBE, investments are really starting to bear fruit. KOBE is now operating at scale, bidding algorithmically on over 100 million keywords and driving strong performance in the search engine marketing channel. While we're making good progress, we know that there's still very significant opportunity for growth in this channel.

We have seen continued strength in mobile, driven by the strong native and mobile web capabilities that we've built out on the global platform. Mobile now represents 21% of stand-alone hotel transactions on orbitz.com.

In private label distribution, we were pleased to launch the American Express Consumer Travel Network partnership during the third quarter, and looking forward, we have a strong pipeline of existing -- a strong pipeline of exciting new distribution opportunities. At the same time, we had a couple of setbacks in the quarter impacting our U.S. consumer brands. First, we had some unexpected air operational issues, which we've since resolved but impacted air performance in the third quarter. This also had a negative effect on hotel performance due to fewer cross-sell opportunities. Second, poor performance in a couple of our online marketing channels also brought down room night growth. We are working actively to address these issues.

Looking forward, we're going to be taking advantage of the global technology platform's flexibility to rollout a number of aggressive and interesting strategies over the coming 12 months. I'm also excited to be announcing this morning that Mitch Marcus will be joining us as our CFO starting this coming Monday. Mitch was most recently with Sara Lee, where he was -- where he served as Treasurer and SVP Corporate Development. Prior to joining Sara Lee, Mitch spent over 13 years working as investment banker with Merrill Lynch, Goldman Sachs and William Blair. Mitch also previously worked as a corporate attorney and started off his career as an accountant working at Arthur Andersen.

With that, let me turn the call over to David Belmont. Before I do, I'd like to take the opportunity to thank David most warmly for agreeing to serve as our interim CFO for the last 5 months. David has done an outstanding job in this role, allowing us to conduct a really thoughtful and considered search process. Once Mitch starts, David will be resuming his other role as head of our Global FP&A function. Over to David.

David Belmont

Thanks, Barney. Turning to the financial results for the quarter, adjusted EBITDA came in at $40 million, which is down 2% year-over-year and exceeded the guidance range we provided on our last earnings call. Net revenue came in at $198 million, which was down 2% from Q3 of last year and flat after adjusting for currency impacts.

Our third quarter results were impacted by several external factors, including economic challenges in Europe, a stronger U.S. dollar and declining air volume in the U.S. online travel agency channel. In addition, as Barney noted, we've made some unexpected air operational issues for our U.S. leisure brands, and that weighed on both air and hotel performance in the quarter.

We continued to strengthen the mix of revenue coming from our hotel business. Hotels, including both stand-alone and packaged on a trailing 12-month basis, increased to 38% of total net revenue, up 229 basis points from 36% for the same period last year. Stand-alone hotel revenue is up 4% in the third quarter or 5% on a constant currency basis. Global ADRs were down 2% in the quarter with domestic ADRs flat and international ADRs down 4% due primarily to the impact of exchange rates. Vacation package revenue was up 3% year-over-year driven by our continued focus on beach destinations at ebookers and new private label partnership launches.

Stand-alone air revenue is down 3% in the third quarter or flat on a constant currency basis. Stand-alone air revenue was $2.6 million higher in the quarter than it otherwise would have been due to a noncash benefit resulting from a reduction in an unfavorable contract liability. This occurred as a result of entering into a new agreement with a supplier in the quarter. The combination of this onetime benefit and higher net revenue per airline ticket was offset by lower volume. Other revenue declined 17% in the quarter driven primarily by Department of Transportation regulatory changes for travel insurance that went into effect in late January and lower car rental revenue, which was primarily driven by lower global pricing.

Turning to expenses. Cost of revenue as a percent of revenue was 19%, up 148 basis points from the third quarter of last year. This increase was partially due to additional customer service staffing required to support the growth in our private label business. As you think about our cost of revenue as a percent of revenue moving forward, it is important to note that a component of the new American Express private label business is priced on a cost-plus basis and has a gross profit margin that is much lower than the rest of our business. As a result, you should expect to see our cost of revenue as a percent of revenue in the fourth quarter to be about 200 to 300 basis points higher than last year.

Marketing expense as a percent of revenue is up 135 basis points year-over-year. This deleverage was primarily due to 3 factors: first, poor performance in a couple of our marketing channels in the U.S., which we are actively working to address; second, a shift in mix towards businesses that have higher marketing as a percent of revenue; and third, stepped-up marketing investment at HotelClub given the improving trajectory of that business and a broader Asia Pacific opportunity.

SG&A expense decreased 16% year-over-year due primarily to an insurance reimbursement of $5 million we received in the third quarter of this year for legal costs incurred to defend hotel occupancy tax cases. While we did expect to receive this reimbursement in the second half of 2012, we received it a quarter sooner than expected. We also realized year-over-year cost savings from the migration of HotelClub to the global platform last year, and we incurred lower foreign currency losses and hedging costs in the quarter.

Now turning to the balance sheet. We finished the quarter with $152 million of cash and cash equivalents, an increase of 8% over the same period last year. At quarter end, we were in compliance with all of our debt covenants and we expect to remain in compliance on a go-forward basis.

Turning to guidance for the remainder of the year. As we look to the fourth quarter, we expect net revenue between $183 million and $189 million, and adjusted EBITDA between $32 million and $37 million. For the full year 2012, this implies net revenue between $772 million and $778 million and adjusted EBITDA between $124.5 million and $129.5 million. This revised outlook is a little lower than what we communicated on our earnings call last quarter, and this is due to 2 primary factors: first, we expect the U.S. consumer business to continue to face some of the marketing performance challenges I mentioned earlier; and second, while we were pleased to launch the American Express Consumer Travel Network partnership in the third quarter, we have not seen the full impact of this business yet, given the pace of the ramp-up and a longer-than-expected book to sales cycle which impacts our revenue recognition. This guidance assumes FX rates as of October 31.

With that, operator, we'd like to open up the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Naved Khan, Cantor Fitzgerald.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Barney, you spoke about some air operational issues in the U.S. Can you delve a little bit in detail into what exactly the issues are and how you are working around those?

Barney Harford

I don't think we want to get into too much in the way of kind of the micro detail here, but there were a couple of factors that related to the way that rate schedules and availability were propagated from airline-hosted systems to search platforms to our business. That was one of the key items [ph]. I think the key piece of information here is this was something that impacted our share during the quarter. It is something that we have, however, addressed and resolved and we've moved beyond at this stage.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Okay. And then just looking at the American Express partnership, is the rate of the ramp slower than what you had initially anticipated, or when do you expect this partnership to be sort of fully ramped?

David Belmont

Yes, the ramp is definitely a bit different than what were originally expecting. It is 100% cut over at this point. And with any new site launch, there are always things that you need to sort of work through and fine-tune along the way. So we're pleased with the launch and getting that out on time and with the expectations that we originally set, and I think we're encouraged with what we see so far.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Okay. And then I think the press release has basically some comments about insurance reimbursement, and I think [indiscernible]. Can you break it out for us and give us what the amount was?

David Belmont

Yes, the amount was $5 million in the quarter. And just to be clear, so people understand what that is, I mean, this is basically reimbursement for costs that we have previously incurred that ran through the P&L, and we've had similar type reimbursements in previous years. But this is the -- we've sort of run through the insurance coverage that we have, so this is the last reimbursement we expect to get.

Operator

Our next question is from Brian Fitzgerald with Jefferies.

Brian Patrick Fitzgerald - Jefferies & Company, Inc., Research Division

You mentioned in the press release, per Internet retailer, you were the #1 kind of travel service company in mobile commerce. Do you have the ability to target mobile offerings by mobile OS like you do on the landline side? Can you segment and target that way? And then a follow on, you mentioned in the press release, 21% of stand-alone hotel transactions come from mobile. Where do you see that percentage getting to longer term?

Barney Harford

Sure. So yes, the -- in terms of what we're able to do for the mobile offering, we are able to and we do push Orbitz Mobile Steals, which are exclusive rates that are only available through the mobile site. And we are able to push those uniquely to our mobile channels, which includes the mobile web and also the mobile apps. And so that is unique inventory that is only made available through the mobile site. Mobile Steals, we offer those rates now in 59 U.S. markets and an additional 206 markets internationally, and many of those markets have a significant robust set of deals beneath them. Bigger markets with over 50 deals active at any given time, and many markets with over 20 deals that are active. So the ability to take advantage of the fact that over 70% of reservations coming through smartphones are being done within a day of check-in means that we're able to go and negotiate for rates that hotels might not otherwise want to make broadly available given the ring-fence nature of the mobile offerings. In terms of where we think it's going to get to, I don't think we have -- we've not kind of forecast forward on that, but I think what I would call out is we're seeing broad adoption shifts. We're seeing strength across both smartphone and tablet and we are seeing strength on the smartphone side, both in mobile web and in apps. And so we think we're still in the relative early days here. We're putting a lot of focus and to making sure that we've got the best possible user experience that we're deploying across each of those form factors, be it smartphone, mobile web, smartphone app or the kind of the touchscreen experience with tablets, and we're seeing different usage patterns as we look at each of those form factors.

Operator

Our next question is from Heath Terry with Goldman Sachs.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

As we've seen marketing as a percentage of revenue coming down over the last quarter, any change to your strategy there or to the return that you're seeing on the advertising spend, particularly by channel, whether it's search, TripAdvisor, display?

Barney Harford

I think on a year-on-year basis, there has been some deleverage on marketing as a percentage of revenue of about 1.4 -- 150 basis points. That's primarily driven by a mix shift towards brands that have a higher -- marketing expenses are higher -- marketing expense in terms of revenue is higher for those brands. And additional investment that we're stepping up in HotelClub as we see encouraging trends within that business, and we look to change the trajectory and take advantage of what we think is an attractive growth opportunity. We did refer to some poor performance in certain marketing channels in the U.S., which was a factor. But I would also say that on the algorithmic side, where we've invested heavily in building out our search engine marketing capabilities, we're seeing a good trajectory in terms of being able to step up our acquisition and do so in a way that has positive efficiency trends.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

And when you look at your strategy for marketing spend over the coming quarters, is there any shift, either by channel or brand, that you expect to see to try and either get some of that leverage back on the spend line or at least drive acceleration in terms of bookings versus the spend that you've got?

Barney Harford

I think for competitive reasons, we're not going to get into a lot of detail about what we're going to do on a channel-by-channel basis. Rest assured that we have a highly sophisticated team, and we are always evaluating the best use and way to allocate our marketing dollars.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Okay, and then maybe just one question on that. The -- is mobile -- in general, is mobile a net positive or negative for marketing spend?

Barney Harford

I think the mobile channel has got a different set of dynamics. You have apps, which are generally very sticky, and you don't have marketing costs associated with them, and then you've got mobile web. I think, again, I don't want to get into too much detail about relative efficiency rates on a channel-by-channel basis. But given our strength in mobile and the way those products are performing, it's definitely an area that we're very focused on.

Operator

Our next question is from Dan Kurnos from the Benchmark.

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Just a quick question on guidance, I just wanted to clarify if there was any -- if you guys are seeing any impact from the recent hurricane on guidance, or if it should be de minimis?

David Belmont

Yes, I mean at this point, it's -- we don't have a complete view in terms of what the full impact's going to be in terms of cancellations and refunds. But I would say net on balance, we're not expecting the impact to be material.

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Okay, great. And then just if you guys could give as an update on the status of the agreement between you guys and American, which I thought expired at the end of last month. And as a follow-up to that, Barney, you talked about volumes declining in the OTA channel. I'm just -- I'm curious if it's really more just supply issues with the ongoing capacity cuts and if that's going to sort of continue into next year, or if there are also some competitive pressures? Some of your competitors are rolling out some new platforms there.

Barney Harford

Sure. Well, we continue to sell American Airlines flights on the website. American and Travelport have -- I think have disclosed publicly that their agreement, which was coterminous with ours, was extended. I think on our side, I think we typically don't provide the specifics of individual supply deals and, in particular, term length. And I think that with regard to the situation, I think we're not planning on getting into that and kind of providing the blow-by-blow. I think at a high level, we believe we have a strong value proposition to offer to our airline partners. We have hundreds of airline partners we work with, and we bring billions of dollars of revenue to their businesses and have important and significant partnerships with them. We have announced over the course of this year, multi-year marketing relationships with US Airways and with United Airlines. We've also talked about a new Frontier Airlines multi-year partnership in which we've been developing some interesting new technologies to allow us to offer new products and services with regard to their inventory. So I think we feel good about our broad set of relationships with airlines, but I think we're not going to get into any specifics of, in general, any of our partners' contract dates and terms.

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Great. And if I could just sneak one more in quickly. Just how would you classify the pipeline that you're seeing in terms of both the private label and the partnership channel?

Barney Harford

You said the private and the -- what's the...

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Yes, both, private label and partnership, yes.

Barney Harford

I think we feel very good about the pipeline that we have. We do not talk about a partnerships channel. We talk about private label distribution, but I think we feel very good about the depth of the private label partnership channel. There's a lot to be done around the world. There's a lot of businesses that are interested in selling travel, and we'll be focused heavily on building out technology that allows us to offer a robust integration experience. And as result, this has been a fruitful channel for us and we feel good about prospects of that going forward, building on the success of the business that the channel has had recently.

Operator

Our next question is from Brian Nowak with Nomura.

Brian Nowak - Nomura Securities Co. Ltd., Research Division

In the press release, I think you guys noted higher volume for hotels kind of driving some of the overall net revenue. I was wondering if you could talk a little more about the regional room night performance. Roughly, what type of growth are you seeing in domestic room nights? Were you positive in the quarter kind of given some of the marketing issues? And then secondly, I guess, I was wondering, Barney, if you could talk a little more the online marketing channel performance issues you had in the U.S. I mean, was that related to paid search or travel research and kind of what's driving it? Is it cost-per-click or conversion or what's going on there?

Barney Harford

So I think, we -- if you look on a geographic basis in the U.S. and in Europe, I think in the U.S., room nights were up a little bit. Internationally, room nights were down a little bit, but relatively small differences there in the quarter. I think we -- our plan is kind of not to kind of -- not to breakout specific room night figures for individual brands for competitive reasons. In terms of marketing channel performance, can you just rephrase the question there?

Brian Nowak - Nomura Securities Co. Ltd., Research Division

Yes, I guess, I think you mentioned there were some performance issues in the U.S. around the online marketing channel. I was just kind of curious for a little more visibility in that. I mean, is that paid search or travel research and kind of what's driving that? Is it higher cost-per-click or lower conversion, or what are kind of the issues?

Barney Harford

Again, I don't want to get into it on a channel-by-channel basis just given the competitive environment. I think what I will say is that the different aspects that we are doing operationally to improve performance really relate to what we're doing in terms of buying -- we're looking at which placements to be paying and how much we're paying for them. Secondly, working out how to go and take the traffic and make sure that the experience -- the landing page experience that the customer experiences when they arrive on the website takes into account as much as possible the context to where they're coming from. And then ensuring that the booking path that they go through, whether it is a -- we classify kind of on-site search or offsite search, whether the customer is already sighted the property or the piece of inventory, or whether they're coming in with more of a market-level query, making sure that booking path is as optimized as possible to go and ensure the maximum possible conversion down the funnel. We've talked in previous calls and investor meetings about the progress that we're making there. That progress continues. We have an accelerating capability to perform ongoing testing on the website and being able to perform large numbers of tests. I think in September, we've performed almost 60 tests on top of each other. And these -- obviously, not every one yields an improvement, but we're able to rapidly get to learnings and then taking advantage of the global platform rolls out across all the global businesses.

Brian Nowak - Nomura Securities Co. Ltd., Research Division

Okay. I had one more, if I could squeeze it in, too. I think you guys used to disclose global room night growth excluding HotelClub, and I may have missed it in the press release, but what did that look like in this quarter?

Barney Harford

We have talked about that in previous quarters. I think what I mentioned in my remarks is that we've seen improving trends within HotelClub, in particular on a forwards or book-to basis. And as a result, we're not going to be breaking out the HotelClub contribution because it's not as much of a drag on overall performance as had been in the case in the 2 previous quarters where we broke that out.

Operator

Our next question is Mike Wilson (sic) [Olson] from Piper Jaffray.

Michael J. Olson - Piper Jaffray Companies, Research Division

Just a quick high-level question. The revenue mix shift towards non-air versus air, and towards international versus domestic seems to have stalled a bit over the last 2 quarters. Is shifting to non-air and international a key priority for the company? Do you expect that mix shift is going to resume on both fronts in the coming quarters?

Barney Harford

I'll take -- with regard to hotel, absolutely, our focus is very much on increasing the mix of revenue for our businesses that comes from hotel. It was 38% on a trailing 12-month basis, which was up significantly versus the 12-month-ago figure. And we have laid out the long-term kind of target of getting that to be at least 50%. And we are very focused and have a broad range of strategies that are designed and that we'll be rolling out to go and drive that growth. With regard to international, I think our focus is on increasing our exposure to high-growth markets and high-growth opportunities. And as such, to the extent international markets represent high-growth opportunities, we want to be increasing our exposure there. That's what we do with ebookers, what we do with HotelClub. At the same time, the significant -- some of the significant partnerships we've launched on the private label side, in particular, the partnership with American Express, while we actually have a -- we also announced we have a partnership with American Express internationally, the largest part of that relationship is in the U.S., and so that may have an impact on the U.S. international mix of revenue.

Operator

Our next question is from Tracy Young with Evercore.

Tracy B. Young - Evercore Partners Inc., Research Division

Two questions. First question is, is it fair to assume that the decline in other is primarily related to the insurance business? And then the second question is -- I know you're not giving information on hotel room nights, but on the non-air international side, was the decline in non-air revenues mostly HotelClub or ebookers?

David Belmont

Yes, so the decline in other insurance definitely was a key driver there. And we also did talk about the fact that car revenue was down year-over-year as well, too, and a lot of that was pricing driven. The overall pricing with car business is pretty low by historical standards.

Barney Harford

And then, non-air international revenue, HotelClub versus...

David Belmont

The second question again?

Tracy B. Young - Evercore Partners Inc., Research Division

Oh, just whether the decline in non-air international revenues is primarily ebookers or HotelClub.

David Belmont

Yes, I mean, we're not -- as Barney had said before with the room night performance, we're not going to talk specifically brand by brand. Certainly, FX is having an impact there with the international performance on a year-over-year basis.

Barney Harford

Yes, I mean FX is the main driver basically given what -- in Q3, given in particular the euro and GBP trends on a year-on-year basis.

Operator

Our next question is Michael Purcell with Stifel, Nicolaus.

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Two quick ones. Just on the EBITDA guidance, after the 2Q call, you were guiding to flat to up 5%, so call it $130 million at the midpoint for the year. I'm assuming from the timing of the insurance payment that you were thinking that was going to hit in the fourth quarter. Is that correct?

David Belmont

Yes, that is.

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So when I just do some quick math, it looks like you're at the midpoint about $3 million-ish lower than that previous guide.

David Belmont

Yes, that's right.

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

And this is mainly from the timing of the American Express, et cetera?

David Belmont

It's the American Express ramp and the other part of that, too, was the book to stay cycle and window. We've actually seen the advanced purchase window which, from the time of booking to the time we actually recognized the revenue, is looking like it's a bit longer than our consumer sites are.

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So that's not a huge reduction. And then just real quickly on the rate schedule dislocations, if you will, that you saw in the third quarter, I'm curious as how quickly do you become aware that it's happening, and how do you react, and how do you adjust your marketing spend, et cetera?

Barney Harford

Could you rephrase the first part? The rate schedule?

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Well, you said you had some disruption in the air that negatively impacted you in some of your leisure brands in the third quarter. And I thought you said it was from some rate scheduling coming from some of the airlines. Did I hear that correctly? Availabilities?

Barney Harford

Yes, so your question is -- first off, the air operations that I referred to, it's to do with the connectivity between airlines and our websites through a number of different parties. And there were some issues with the way that happens. In terms of how quickly we can respond, we're able to respond very quickly to aggregate changes in performance. The real issue here is, in what is a complex business that we operate in, how long it takes to identify the specific causes of operational challenges on a -- if they are not across the board, would apply to a specific, in this case, carrier or technology connection. And that is what happened in the third quarter. But those issues have been resolved and addressed, and we're back up on all cylinders there.

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So in simplest terms, it was a technology disruption but you were able to react fairly quickly to it. And then -- but in that time, can you -- does it have any disruption or deleveraging to your marketing spend, I guess, is the other part of my question.

Barney Harford

I think I'd characterize it as an air operational issue. And in terms of the impact, it has an impact on conversion and thus revenue that we're able to bring into the business. And our marketing channels are things that we manage on a pretty dynamic basis based on the conversion we're seeing in any given market and so they can respond pretty quickly.

Operator

Sir, at this time, there are no further questions.

Barney Harford

Great. Well, thank you all for joining us. Thanks everyone on the Orbitz Worldwide team for their continued hard work. We look forward to talking to you again in 3 months' time. Thank you.

Operator

Thank you all for participating in today's conference. You may now disconnect at this time.

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