Julie Whalen
Chief Financial Officer at Expedia Group
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% to its 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 buyback our stock at 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 we'll 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 headwind 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 a 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 brand 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 returned to hybrid work policies, we've seen increased demand in urban markets and a reduction in length of stays. 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 in air 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 in 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 at 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, end 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 the 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 to 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 state basis and to a contractually agreed percentage and therefore, the returns against marketing spend are more guaranteed and immediate.
Given these factors and the fact that we underinvested 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 2.7 times. However, in order to further fortify our investment grade rating, we are targeting a leverage ratio of approximately 2 times. 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 receive upgraded ratings, our outlooks from all three rating agencies demonstrating the actions we've 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 buyback of $600 million or nearly 6 million shares.
Post these buybacks, we have ample levels of shares remaining under our existing authorization 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 royalty 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 us well to drive long-term growth and shareholder returns.
And with that, I would now like to open the call for questions. Thank you.
