This has held up despite inflation and recession worries and even, more recently, bank system concerns. While economists continue to debate potential recession outcomes and clearly many unknowns are still out there, consumers have so far shaken it off and continue to travel. Against this backdrop in our consumer business, we continue to invest in our strategy of acquiring and retaining high value loyalty members and app users across our three leading brands. As I've explained before, these cohorts drive higher production and repeat rates versus other customers, ultimately leading to higher lifetime value. Q1 2023 was another step in this journey as we saw our active loyalty member base for our core OTA brands grow over 25% year-over-year and the percentage of gross bookings coming through our app roughly doubled what it was in 2019.

This continued growth in our base of valuable customer cohorts, obviously, bodes very well for our future. I've also talked for a number of quarters about our platform journey, and in particular about the drag we had last year on our business resulting from the migration of hotels.com to the brand Expedia stack. I'm pleased to say that with that migration fully behind us, hotels.com is now back in growth mode. We are already seeing higher conversion, increased feature velocity and higher bookings. In fact, year-over-year bookings growth for hotels.com was nearly 20% in Q1 2023, which is beginning to approach the almost 30% we saw on brand Expedia. This inflection back towards growth was exactly what we had expected, and we were pleased to see the pivot come so quickly.

As you may recall, we are following the same migration path with Vrbo, which has now started taking some traffic on the Expedia stack in our largest markets. Just as we saw last year with hotels.com, this work has slowed conversion and feature work on Vrbo for the past few quarters. And as we cut over, we expect some inevitable degradation and conversion due to the switch. But as we get this migration finished in the coming months, Vrbo too will be in prime position to benefit from the Expedia platform, and just like hotels.com, will benefit from reaccelerating testing, conversion and feature improvements. Our tech journey hasn't been easy, but we had to have conviction to give up some short term gratification to get to the promised land. With a couple of big last lifts finishing this year, we will finally be in position for all of our business to accelerate their velocity of innovation and deploy more traveler features as widely as possible.

In particular, I'm excited about the power to deploy AI and machine learning to all corners of our product to enhance the customer experience and move towards our Northstar of true personalization. To that end, you probably noticed our launch of the Expedia plugin for ChatGPT and the launch of ChatGPT in our own Expedia iOS app. This would not have been possible at this speed or with this efficacy in our prior world. And it's just a small piece of what the future will hold. It is yet to be seen how impactful large language models will be in facilitating travel shopping. But for us, this is just one step in a journey to bring the best technology to our members and partners at an accelerated pace. And to be clear, we have already been at the cutting edge of deploying AI and ML across almost all experiences for our consumers.

When they land on our site, we use AI to customize the sorting and filtering options and the images we render to make the shopping experience most relevant to them. AI allows us to deliver price predictions and enable comparison shopping, so they can pick the right product with confidence. Then post booking, we use AI in our service stack to help consumers self-serve their problems, and it even helps our customer service agents more quickly address issues. While we have been using AI and ML for some time to make the experience better for consumers, we will go much further this year to continue to deliver the best technology in online travel. Another exciting milestone ahead of us is our unified loyalty program, One Key, which will be released in July in the United States.

It reflects the culmination of years of work on the technology side to get to a solution that enables earn and burn across multiple products and brands in our portfolio. We've been busy testing this program and sourcing preferred deals for our members, all with great results to date and we cannot wait to launch it this summer. I discussed many times how our broad investment in technology not only benefits the B2C traveler experience, but how it also enhances our B2B partner experience. This includes the over 400 million loyalty members we served through our template partners, the more than 35,000 offline travel agencies we power across more than 30 countries, all the way to our numerous API partners who take our inventory and certain tech capabilities to build their own experiences.

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On the back of this, demand in our B2B business continues to accelerate worldwide. We had yet another quarter of impressive growth, with revenue growing approximately 55% year-over-year. We continue to sign new business including SoFi, who has launched our full template product to their customer base. And as we look to enhance our partnerships with our biggest suppliers, we went live with both Hilton and Accor who will use our capabilities to sell packages on their sites. These are just a few examples, and we have many more wins coming this year. We continue to innovate for our supply partners and equip them with highly differentiated solutions. Last year, we spoke about our optimized distribution product that gives our lodging partners greater control of their wholesale business.

This product has helped some of the biggest hoteliers in the world. And over the past two years, we have tripled the number of participating chains using this capability. There are significant innovations coming this year to give more control to our partners and allow smaller partners to participate in the product. I'm particularly proud of this product as it truly represents a winning technology for the entire industry, and allows us to provide much more than just a marketplace for our partners. Finally, though, somewhat more nascent, we've talked about our ambitions to externalize our tech in the form of micro services to help any kind of travel company use our tech to enhance their business. Our first pilot of our fraud capability started late last year and I'm proud to say we now have our first paying customer on the service.

We also have other products in beta testing with a number of partners including our best-in-class service technology and our revenue management API. While still early days, we believe that by delivering our technology as micro services, we are greatly expanding the addressable market for our tech and cementing our technology is the core operating system for the travel industry. Next week, we will host our EXPLORE partner event at our Seattle campus, where we are excited to showcase what we've been working on for our partners and how we are helping our partners sell more, operate more efficiently and ultimately better serve travelers around the world. Overall, I'm really pleased with our progress. I'm excited that we're in the final innings of our tech transformation.

And I'm encouraged by the incremental momentum we achieve with every step. We've been willing to take some short term lumps in order to get these moves finished, but the rewards are now clearly becoming visible in the hotels.com reacceleration and the sheer velocity of our tech delivery. And in our B2B business, where we have not had disruption and have only enriched our offerings, our growth has been phenomenal. No company is doing more to move travel tech forward and make the entire experience better for travelers. And ultimately, that is how we will win. And with that, let me hand it over to Julie.

Julie Whalen : Thanks, Peter. And hello, everyone. I am pleased with our performance in the first quarter with record lodging levels driving gross bookings up 20% year-over-year, revenue up 18% with highest ever first quarter levels and record free cash flow. Our robust top line performance reflects the success we're seeing from our strategic growth initiatives, as well as the continued health of the travel industry. And it's this strength in the business that gives us the confidence to continue to buy back our stock and accelerated levels at $600 million, one of the largest buybacks we have done year-to-date. Before I jump into more of the details, I wanted to remind you that effective this quarter and going forward, all financial comparisons will be on a year-over-year basis.

As a result, we no longer need to refer to like-for-like growth rates as the Egencia transaction and associated Amex GBT supply agreement closed in 2021. Additionally, to provide more clarity and transparency, we have removed less relevant disclosures and discussions within the press release, while at the same time added new disclosures such as lodging gross bookings. Of course, we will continue to evaluate whether any additional disclosures may be helpful over time and will update you accordingly. It is also important to note that our first quarter 2023 growth rates as compared to 2022 were negatively impacted by FX headwinds of approximately 200 basis points to gross bookings, 300 basis points to revenue and 1,600 basis points to EBITDA. We also saw an approximately 80 basis point headwinds to the EBITDA margin.

Now let's discuss more of the financial details regarding our performance this quarter, beginning with our gross booking trends. Total gross bookings of $29.4 billion were up 20% versus the first quarter of 2022 and saw sequential acceleration in the year-over-year growth rate from the fourth quarter. Growth was driven primarily by total lodging gross bookings which grew 19% versus last year and reached a record quarterly level of $21.1 billion. In our hotel business, we saw significant growth from our B2B segment, driven by strong demand in EMEA and APAC. In our B2C business, brand Expedia maintained strong growth and our hotels.com brands showed impressive recovery, post its migration to the brand Expedia platform. These results are also aided to some extent by shifting demand patterns.

For instance, as more and more businesses return to hybrid work policies, we've seen increased demand in urban markets and a reduction in length of stay. So while these trends are helping our hotels business, the same trends are also putting some pressure on our Vrbo business. Yet this pressure was far outweighed by our hotel strength, enabling us to maintain total lodging bookings at record levels. We also saw strong growth in our air bookings this quarter, especially in international travel, which was more impacted by the Omicron variant during the first quarter last year. This air strength was both in the number of tickets sold and an in ticket price increases as demand continues to outstrip capacity. It is great to see that air continues to gain momentum despite higher prices and international air has recovered to close to 2019 levels.

Moving to the key financial metrics and the P&L, starting with total revenue. Revenue was the highest first quarter on record at $2.7 billion, up 18% versus the first quarter of 2022. The revenue margin of 9.1% was down slightly versus last year, driven mostly by the strong recovery in our lower margin air business. Cost of sales was $411 million for the quarter, which is up about $43 million, or 12%, with approximately 100 basis points of leverage as a percentage of revenue versus the first quarter of 2022, driven by ongoing efficiencies primarily across our customer support operations. We benefited from lower customer support call volume, as well as the continued efficiency from the various automation initiatives we have implemented over the past few years.

And we expect to continue to find even more efficiencies as we finish our migration onto one platform in areas such as cloud and license and maintenance costs as we eliminate redundant systems. Direct sales and marketing expense in the first quarter was $1.5 billion, which was up $311 million or 26% versus last year. There were two main drivers of this spend increase. First, in our B2C business, we leaned into marketing to take advantage of the strong demand environment and to accelerate gross bookings growth. And we also maintained our marketing spend mix towards longer term payback channels to drive loyalty members and app users, which given the longer term return profile of the spend is less closely correlated to demand within any given quarter.

The second reason for the increase in marketing spend is an increase in commissions to support the accelerating growth in our B2B business, which fall into our direct sales and marketing line. These commissions are generally paid on a stay basis and to a contractually agreed percentage, and therefore the return against marketing spend are more guaranteed and immediate. Given these factors, and the fact that we under invested last year due to Omicron, we did see marketing deleverage. Overhead expenses were $588 million, an increase of $56 million or 11% versus the first quarter of 2022, growing slower than revenue growth, resulting in leverage of approximately 160 basis points. While we remain disciplined on our overall cost structure, we continue to invest in talent across our product and technology teams in support of our platform initiatives to drive growth.

EBITDA was $185 million, up $12 million or 7% versus the first quarter of 2022, which includes the 1,600 basis point negative impact to growth from FX. Excluding this year-over-year negative FX impact, EBITDA grew 23% and ahead of revenue growth, resulting in an EBITDA margin excluding FX 10 basis points above last year. Free cash flow for the quarter was at record levels, at a positive $2.9 billion or up 3% versus 2022, primarily driven by higher working capital from the outperformance in our gross bookings. On the balance sheet, we ended the quarter with over $5.9 billion in unrestricted cash and our undrawn revolving line of credit of $2.5 billion, which provides us with ample liquidity of $8.4 billion to operate the business. From a debt perspective, our debt level remains at approximately $6.3 billion, with a leverage ratio of 2.7x.

However, in order to further fortify our investment grade rating, we are targeting a leverage ratio of approximately 2x. And through EBITDA growth and potentially some early retirement of debt, we expect to make progress towards this goal by the end of the year. The great news is we have recently received upgraded ratings or outlooks from all three rating agencies, demonstrating the actions we have taken to improve the financial strength of the business are being well received. As far as capital allocation, given our strong free cash flow levels and a stock price that we believe remains undervalued relative to our expected long term performance, we have been opportunistically buying back our stock on an accelerated basis. Year-to-date, this is one of our largest levels of buybacks of $600 million or nearly 6 million shares.

Post these buybacks, we have ample levels of shares remaining under our existing authorizations for future repurchases at approximately 12.1 million shares. And considering our ongoing strong liquidity and free cash flow, as long as we continue to believe that our stock remains undervalued and does not reflect our confidence in the long term strength of the business, we plan to continue buying back our stock opportunistically throughout 2023. Looking ahead, given the strength we continue to see in our business, we are reiterating our full year outlook of double-digit top line growth with margin expansion. As it pertains to the second quarter, it is important to remember that although we continue to see strong travel demand, we expect year-over-year top line growth to moderate in the short term to mid-single digits, primarily driven by a tougher compare given the strength in the business last year from the immediate rebound we saw post Omicron as well as some short term disruption to Vrbo resulting from its migration to the core Expedia stack.

In addition, similar to the first quarter, we expect to lean into marketing in the second quarter as we invest to drive gross bookings and increase loyalty membership and app usage ahead of the busy summer season, all of which should set us up for a stronger back half. Overall, we expect to see EBITDA margins in the second quarter to be relatively in line with last year. In closing, 2023 is off to a great start with record revenue and cash flow. The travel industry appears to be strong and growing and our growth initiatives are gaining momentum. And all of this we believe positions as well to drive long term growth and shareholder returns. And with that, I would now like to open the call for questions. Thank you.

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