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From the Wires
Expedia, Inc. Reports Third Quarter 2008 Results
By: PR Newswire
Oct. 30, 2008 09:00 AM
"Yes, it's a difficult environment, but that's everyone's news, and for
travel any predictions about its depth or duration would be foolish," said
"Our sixth consecutive quarter of double digit room night growth and a
robust advertising and media business drove respectable 10% revenue growth in
this challenging environment," said
Financial Summary & Operating Metrics (figures in MM's, except per share
amounts)
3 Months 3 Months Y / Y
Metric Ended 9.30.08 Ended 9.30.07 Growth
Transactions 12.6 11.9 6%
Gross bookings $5,412.8 $5,057.8 7%
Revenue 833.3 759.6 10%
Revenue margin 15.40% 15.02% +38bps
Gross profit 656.3 608.5 8%
Operating income before
amortization* ("OIBA") 230.8 212.8 8%
Operating income 199.6 179.8 11%
Adjusted net income * 118.3 123.9 (5%)
Net income 94.8 99.6 (5%)
Adjusted EPS * $0.39 $0.39 -
Diluted EPS $0.33 $0.32 3%
Net cash provided by (used in)
operating activities (103.5) 42.7 NA
Free cash flow * (151.8) 24.1 NA
*"Operating income before amortization," "Adjusted net income," "Adjusted EPS," and "Free cash flow" are non-GAAP measures as defined by the Securities and Exchange Commission (the "SEC"). Please see "Definitions of Non-GAAP Measures" and "Tabular Reconciliations for Non-GAAP Measures" on pages 16-18 herein for an explanation of non-GAAP measures used throughout this release. Effective Q108 we amended our definition of Adjusted net income and Adjusted EPS. Discussion of Results Gross Bookings & Revenue Gross bookings increased 7% for the third quarter of 2008 compared with
the third quarter of 2007. Revenue increased 10% for the third quarter, primarily driven by increased
worldwide merchant hotel revenue and advertising and media revenue. Worldwide merchant hotel revenue increased 7% for the third quarter due to a 15% increase in room nights stayed, including rooms delivered as a component of packages, partially offset by a 6% decrease in revenue per room night. Worldwide air revenue decreased 7% for the third quarter due to a 5% decrease in air tickets sold and a 2% decrease in revenue per air ticket. Worldwide revenue from products and services other than merchant hotel and
air (including advertising and media, car rentals, destination services,
agency hotel and cruises) increased 27% for the third quarter due primarily to
increased revenue from our advertising and media and agency hotel businesses.
Package revenue decreased 5% for the quarter primarily due to weakness in key
North American package markets such as Revenue as a percentage of gross bookings ("revenue margin") was 15.40%
for the third quarter, an increase of 38 basis points. Profitability Gross profit for the third quarter of 2008 was OIBA for the third quarter increased 8% to Adjusted net income for the third quarter decreased Cash Flows & Working Capital For the nine months ended
Recent Highlights
Global Presence -- Gross bookings from Expedia, Inc.'s international businesses were
-- TripAdvisor(R) launched www.tripadvisor.in, with localized features,
reviews and recommendations providing comprehensive travel information to
-- hotels.com(R) continued its expansion in the -- Expedia completed the acquisition of Venere SpA, expanding its European, Middle Eastern and African lodging footprint by over 10,000 properties, and adding an agency model booking option for hotel suppliers. Brand Portfolio -- AARP selected Expedia(R) Travel Network to provide its over 40 million members with exclusive travel booking services and other travel-related benefits. The new travel center, at www.expedia-aarp.com, features no airline booking fees, hotel and car rental discounts through AARP preferred chains and vacation package discounts. -- Expedia, the Official Travel Team of the NFL, kicked off the Go Like
Pro(TM) campaign with unique travel options for NFL cities and other popular
destinations. The program showcases personal travel tips on uniquely designed
Expedia pages from -- Classic Vacations(R) was awarded "Best FIT/Custom Tour Operator" by leading luxury travel network Virtuoso for excellence in creating exceptional vacation experiences. -- hotels.com was named a winner of Budget Travel magazine's 2008 Extra Mile Awards for its new loyalty program, welcomerewards(TM), which awards one free night's stay for every 10 nights booked at hotels.com. -- TripAdvisor purchased a majority stake in FlipKey(TM), a leading vacation rental listing and review site. Content & Innovation -- Hotwire(R) launched a local car rental offering, enabling travelers to pick up their rental cars at non-airport locations across the country. -- Expedia launched flight booking services on Expedia.co.in, providing
access to international airfares from more than 70 airlines worldwide to
travelers in -- Egencia launched its Egencia Promise in Partner Services Group ("PSG") -- Expedia signed long-term, strategic agreements with Carlson Hospitality Corporation, Destination Hotels & Resorts, Marriott International, and Red Lion Hotels Corporation, making their hotel rooms available on Expedia and hotels.com worldwide points of sale. -- Expedia continued to grow its European hotel base, adding over 2,700
merchant properties during the third quarter. Expedia's worldwide merchant
hotel portfolio features nearly 46,000 properties, including over 25,000
hotels in the Americas, over 18,000 in -- Expedia signed a multi-year strategic agreement with Virgin America, making all fares, schedules, and inventory available on Expedia.com. Virgin America flights are also available to managed business travel clients of Egencia(TM). -- Expedia expanded its international low cost carrier offering, signing
agreements with Windjet and Vueling in
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------- -------------------
2008 2007 2008 2007
------- ------- ------- -------
Revenue $833,337 $759,596 $2,316,202 $2,000,030
Cost of revenue (1) 177,001 151,053 497,818 415,997
------- ------- ------- -------
Gross profit 656,336 608,543 1,818,384 1,584,033
Operating expenses:
Selling and marketing(1) 298,858 279,341 885,530 757,514
General and
administrative (1) 90,585 83,365 263,665 235,261
Technology and content(1) 51,480 47,452 156,526 131,215
Amortization of
intangible assets 15,827 18,613 52,538 59,312
------- ------- ------- -------
Operating income 199,586 179,772 460,125 400,731
Other income (expense):
Interest income 7,428 12,888 24,616 30,709
Interest expense (20,061) (13,940) (49,103) (35,018)
Other, net (23,243) (13,894) (32,014) (13,453)
------- ------- ------- -------
Total other expense, net (35,876) (14,946) (56,501) (17,762)
------- ------- ------- -------
Income before income taxes
and minority
interest 163,710 164,826 403,624 382,969
Provision for income taxes (69,223) (65,542) (164,139) (153,230)
Minority interest in loss
of consolidated
subsidiaries, net 337 311 2,734 768
------- ------- ------- -------
Net income $94,824 $99,595 $242,219 $230,507
======= ======= ======= =======
Net earnings per share
available to common
stockholders:
Basic $0.33 $0.34 $0.85 $0.77
Diluted 0.33 0.32 0.83 0.72
Shares used in computing
earnings per share:
Basic 286,674 292,171 285,930 300,959
Diluted 291,724 312,756 293,256 318,848
(1) Includes stock-based
compensation as
follows:
Cost of revenue $510 $550 $1,754 $2,079
Selling and marketing 2,541 2,729 9,116 8,768
General and
administrative 9,235 7,683 26,203 22,356
Technology and content 3,081 3,455 10,954 11,046
------- ------- ------- -------
Total stock-based
compensation $15,367 $14,417 $48,027 $44,249
======= ======= ======= =======
EXPEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30, December 31,
2008 2007
---------- ----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $659,671 $617,386
Restricted cash and cash equivalents 7,056 16,655
Accounts receivable, net of allowance of
$9,092 and $6,081 351,255 268,008
Prepaid merchant bookings 99,510 66,778
Prepaid expenses and other current assets 168,298 76,828
---------- ----------
Total current assets 1,285,790 1,045,655
Property and equipment, net 242,233 179,490
Long-term investments and other assets 81,966 93,182
Intangible assets, net 1,075,373 970,757
Goodwill 6,303,867 6,006,338
---------- ----------
TOTAL ASSETS $8,989,229 $8,295,422
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, merchant $768,111 $704,044
Accounts payable, other 198,685 148,233
Deferred merchant bookings 844,291 609,117
Deferred revenue 15,689 11,957
Accrued expenses and other current liabilities 224,123 301,001
---------- ----------
Total current liabilities 2,050,899 1,774,352
Long-term debt 894,421 500,000
Credit facility 250,000 585,000
Deferred income taxes, net 389,590 351,168
Other long-term liabilities 236,880 204,886
Minority interest 57,857 61,935
Commitments and contingencies
Stockholders' equity:
Preferred stock $.001 par value - -
Authorized shares: 100,000
Series A shares issued and outstanding: 1 and 1
Common stock $.001 par value 339 337
Authorized shares: 1,600,000
Shares issued: 339,376 and 337,057
Shares outstanding: 261,268 and 259,489
Class B common stock $.001 par value 26 26
Authorized shares: 400,000
Shares issued and outstanding: 25,600
and 25,600
Additional paid-in capital 5,967,686 5,902,582
Treasury stock - Common stock, at cost (1,730,945) (1,718,833)
Shares: 78,109 and 77,568
Retained earnings 844,423 602,204
Accumulated other comprehensive income 28,053 31,765
---------- ----------
Total stockholders' equity 5,109,582 4,818,081
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,989,229 $8,295,422
========== ==========
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine months ended
September 30,
----------------------
2008 2007
--------- ---------
Operating activities:
Net income $242,219 $230,507
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property and equipment, including
internal-use software and website development 54,935 43,381
Amortization of intangible assets and stock-based
compensation 100,565 103,561
Deferred income taxes (9,547) (3,297)
(Gain) loss on derivative instruments assumed at
Spin-Off (4,600) 5,938
Equity in loss of unconsolidated affiliates 558 3,848
Minority interest in loss of consolidated
subsidiaries, net (2,734) (768)
Foreign exchange (gain) loss on cash and cash
equivalents, net 55,974 (18,669)
Realized loss on foreign currency forwards 20,234 -
Other 1,886 3,362
Changes in operating assets and liabilities, net
of effects from acquisitions:
Accounts receivable (45,655) (94,431)
Prepaid merchant bookings and prepaid expenses (54,845) (38,674)
Accounts payable, merchant 64,397 221,084
Accounts payable, other, accrued expenses and
other current liabilities 105,248 154,180
Deferred merchant bookings 235,260 351,969
Deferred revenue 3,634 3,365
--------- ---------
Net cash provided by operating activities 767,529 965,356
--------- ---------
Investing activities:
Capital expenditures, including internal-use
software and website development (118,984) (57,620)
Acquisitions, net of cash acquired (529,414) (59,622)
Reclassification of Reserve Primary Fund holdings (80,360) -
Net settlement of foreign currency forwards (20,234) -
Changes in long-term investments and deposits 8,275 (29,677)
Proceeds from sale of business to a related party 1,624 -
--------- ---------
Net cash used in investing activities (739,093) (146,919)
--------- ---------
Financing activities:
Credit facility borrowings 340,000 650,000
Credit facility repayments (675,000) (150,000)
Proceeds from issuance of long-term debt, net of
issuance costs 392,386 -
Changes in restricted cash and cash equivalents 8,044 (10,630)
Proceeds from exercise of equity awards 6,348 45,398
Excess tax benefit on equity awards 3,154 2,676
Treasury stock activity (12,575) (1,396,012)
Other, net - (844)
--------- ---------
Net cash provided by (used in) financing activities 62,357 (859,412)
Effect of exchange rate changes on cash and cash
equivalents (48,508) 24,232
--------- ---------
Net increase (decrease) in cash and cash equivalents 42,285 (16,743)
Cash and cash equivalents at beginning of period 617,386 853,274
--------- ---------
Cash and cash equivalents at end of period $659,671 $836,531
========= =========
Supplemental cash flow information
Cash paid for interest $48,959 $41,381
Income tax payments, net 124,232 69,751
Income Statement Notes
Gross Bookings / Revenue-- Expedia, Inc. makes travel products and services available on a merchant and agency basis. Merchant transactions, which primarily relate to hotel bookings, typically produce a higher level of net revenue per transaction and are generally recognized when the customer uses the travel product or service. Agency revenues are generally recognized at the time the reservation is booked and primarily relate to air transactions. -- Merchant bookings accounted for 43% and 44% of total gross bookings in the third quarters of 2008 and 2007, respectively. Cost of Revenue -- Cost of revenue primarily consists of: (1) costs of our call and data centers, including telesales expense; (2) credit card merchant fees; (3) fees paid to fulfillment vendors for processing airline tickets and related customer services; (4) costs paid to suppliers for certain destination inventory; and (5) reserves and related payments to airlines for tickets purchased with fraudulent credit cards. -- Cost of revenue was 21.2% of revenue for the third quarter of 2008 compared to 19.9% in the prior year period. Excluding stock-based compensation, cost of revenue was 21.2% of revenue for the third quarter of 2008 compared to 19.8% in the prior year period. Cost of revenue increased as a percentage of revenue due primarily to our gas card promotion. -- Cost of revenue includes depreciation expense of Operating Expenses (non-GAAP) (Stock-based compensation expense has been excluded from all calculations and discussions below)
-- Operating expenses in millions and as a percentage of revenue for the
third quarter of 2008 and 2007 were as follows (some numbers may not add due
to rounding):
Operating Expenses As a % of Revenue
------------------ ------------------
Three months ended Three months ended
September 30, September 30,
------------------ ------------------
Change
in
2008 2007 Growth 2008 2007 bps
------ ------ ------ ------ ------ ------
Selling and
marketing $296.3 $276.6 7% 35.6% 36.4% (86)
General and
administrative 81.4 75.7 7% 9.8% 10.0% (20)
Technology and
content 48.4 44.0 10% 5.8% 5.8% 2
------ ------ ------ ------ ------ ------
Total operating
expenses $426.1 $396.3 8% 51.1% 52.2% (104)
Operating expenses include Selling and Marketing (non-GAAP) -- Selling and marketing expense primarily relates to search engine marketing, brand advertising (primarily television), online advertising and our private label and affiliate programs. -- Approximately 23% and 21% of selling and marketing expense in the
third quarters of 2008 and 2007 relate to indirect expenses, including
personnel-related costs in PSG, the TripAdvisor Media Network and -- The 7% increase in selling and marketing expense in the third quarter
was primarily due to increased personnel costs at TripAdvisor, PSG, Egencia
and our -- We expect selling and marketing expense to increase as a percentage of revenue in 2008 compared to 2007 as we invest in our higher growth and international businesses, expand our various sales teams, and grow our global advertising and media businesses. General and Administrative (non-GAAP) -- General and administrative expense consists primarily of personnel- related costs for support functions that include our executive leadership, finance, legal, tax, technology and human resources functions, as well as fees for professional services that typically relate to legal, tax or accounting engagements. -- The 7% increase in general and administrative expense in the third quarter was primarily to support the overall growth of our business including information technology efforts as well as costs related to TripAdvisor and our European businesses. -- We expect general and administrative expense to increase as a percentage of revenue in 2008 compared to 2007. Technology and Content (non-GAAP) -- Technology and content expense includes product development expenses principally related to payroll and related expenses, professional fees, licensing costs and software development cost amortization. -- The 10% increase in technology and content expense in the third quarter was due to increased personnel costs, primarily related to TripAdvisor, as well as an increase in software development cost amortization. -- Given historical and ongoing investments in our various initiatives, we expect technology and content expense to increase as a percentage of revenue in 2008 compared to 2007. Stock-Based Compensation Expense -- Stock-based compensation expense relates primarily to expense for
restricted stock units ("RSUs") and stock options. Since -- Third quarter stock-based compensation expense was -- Third quarter stock-based compensation expense increased -- Assuming, among other things, no meaningful modification of existing
awards, incremental grants or adjustments to forfeiture estimates, we expect
annual stock-based compensation expense will be less than Other, Net -- The -- Foreign exchange losses included -- In the third quarter of 2008 we were unable to redeem an -- During the third quarter of 2008 we began using foreign currency
forward contracts for the purpose of economically hedging our foreign currency
denominated liabilities. These contracts are typically 30-days in duration and
recorded at fair value, with any gains or losses recorded in Other, net. Total
losses on these contracts during the third quarter of 2008 were approximately
Income Taxes -- The effective tax rates on GAAP pre-tax income were 42.3% for the third quarter of 2008 and 39.8% in the prior year period. The increase in the effective rate was primarily due to higher accruals related to uncertain tax positions and an increase in state income taxes, partially offset by a permanent tax benefit related to the termination of our cross currency swaps in the third quarter of 2008 as compared to the prior year period. The effective tax rate was higher than the 35% federal statutory rate primarily due to state income taxes and accruals related to uncertain tax positions. -- The effective tax rates on pre-tax adjusted income were 39.6% for the third quarter of 2008 and 38.4% in the prior year period. The increase in the effective rate was primarily due to higher accruals related to uncertain tax positions, partially offset by a permanent tax benefit related to the termination of our cross currency swaps in the third quarter of 2008. The effective tax rate for the third quarter of 2008 was higher than the 35% federal statutory rate primarily due to state income taxes and accruals related to uncertain tax positions. -- Cash paid for income taxes in the first nine months of 2008 was Foreign Exchange -- As Expedia's reporting currency is the U.S. dollar ("USD"), reported financial results are affected by the strength or weakness of the USD in comparison to the currencies of the international markets in which we operate. Management believes investors may find it useful to assess growth rates both with and without the impact of foreign exchange. -- The estimated impact on worldwide and
Worldwide
----------
Impact on
Y/Y growth Y/Y growth
rates excluding rates from
foreign foreign
Three months ended Y/Y growth exchange exchange
September 30, 2008 rates movements movements
-------------- -------------- --------------
Gross Bookings 7.0% 5.1% 1.9%
Revenue 9.7% 7.6% 2.1%
Europe
----------
Impact on
Y/Y growth Y/Y growth
rates excluding rates from
foreign foreign
Three months ended Y/Y growth exchange exchange
September 30, 2008 rates movements movements
-------------- -------------- --------------
Gross Bookings 18.5% 12.9% 5.6%
Revenue 15.7% 9.8% 5.9%
-- The impact of foreign exchange on our cash balances denominated in
foreign currency was a negative Acquisitions
-- The impact of acquisitions on the growth of gross bookings, revenue
and OIBA in the third quarter was as follows (some numbers may not add due to
rounding):
Worldwide
---------
Y/Y growth Impact on
rates Y/Y growth
Three months ended Y/Y growth excluding rates from
September 30, 2008 rates acquisitions acquisitions
-------------- -------------- --------------
Gross Bookings 7.0% 5.4% 1.6%
Revenue 9.7% 7.1% 2.6%
OIBA 8.5% 4.6% 3.8%
-- During the first nine months of 2008 we paid cash totaling -- Expedia acquired Virtual Tourist on Adjusted Net Income & Adjusted EPS -- During the first quarter of 2008, we began to exclude foreign exchange
gains or losses on USD cash balances held by eLong from adjusted net income
and adjusted EPS, as we expect to use the cash to settle foreseeable USD
obligations and commitments. Losses were Balance Sheet Notes Cash, Cash Equivalents and Restricted Cash -- Cash, cash equivalents and restricted cash totaled -- The Accounts Receivable -- Accounts receivable include receivables from credit card agencies, corporate clients and advertising partners as well as receivables related to agency transactions including those due from airlines and GDS partners. -- Accounts receivable increased Prepaid Merchant Booking, Prepaid Expenses and Other Current Assets -- Prepaid merchant bookings primarily relate to our merchant air
business and reflect prepayments to our airline partners for their portion of
the gross booking, prior to the travelers' dates of travel. The -- Prepaid expenses and other current assets have historically been composed of prepaid marketing, prepaid credit card merchant fees, prepaid license and maintenance agreements, and prepaid insurance. -- Prepaid expenses and other current assets at -- Prepaid expenses and other current assets increased Property and equipment, net -- Property and equipment, net includes capitalized software development costs, computer equipment, furniture and other equipment and leasehold improvements. -- The Long-Term Investments and Other Assets -- Long-term investments and other assets include transportation equipment, equity investments, capitalized debt issuance costs, and until the current quarter, collateral deposits related to our cross-currency swap agreements. -- The Goodwill and Intangible Assets, Net -- Goodwill and intangible assets, net primarily relates to the acquisitions of hotels.com, Expedia.com, and Hotwire.com(R). -- -- -- Amortization expense related to definite lived intangibles was -- Goodwill and intangible assets, net increased Accounts Payable, Other -- Accounts payable, other primarily consists of payables and accrued expenses related to the day-to-day operations of our business. -- Accounts payable, other increased Deferred Merchant Bookings and Accounts Payable, Merchant -- Deferred merchant bookings consist of amounts received from travelers who have not yet traveled and the balances generally mirror the seasonality pattern of our gross bookings. The payment to suppliers related to these bookings is generally made within two weeks after booking for air travel and, for all other merchant bookings, after the customer's use of services and subsequent billing from the supplier, which billing is reflected as accounts payable, merchant on our balance sheet. Therefore, especially for merchant hotel, there has historically been a significant period of time from the receipt of cash from our travelers to supplier payment. -- For the nine months ended Accrued Expenses and Other Current Liabilities -- Accrued expenses and other current liabilities principally relate to accruals for cost of service related to our call center and internet services, accruals for service, bonus, salary and wage liabilities, a reserve related to the potential settlement of occupancy tax issues, and accrued interest related to our various debt instruments. -- Accrued expenses and other current liabilities decreased Ask Derivative Liability -- In connection with IAC/InterActiveCorp's acquisition of Ask, we issued 4.3 million shares of Expedia, Inc. common stock into an escrow account, which shares (or cash in equal value) were due to holders of Ask convertible notes upon conversion. These shares have been included in diluted shares from the date of our spin-off from IAC. During the second quarter of 2008 the remaining Ask Notes were converted and there are now no Ask Notes outstanding. -- Any prior period gains or losses were recorded in Other, net on our consolidated statements of income and have been excluded from both our OIBA and adjusted net income calculations for comparable periods. -- The liability associated with the Ask Notes was included in Other
long-term liabilities prior to Borrowings -- Expedia, Inc. maintains a -- Outstanding borrowings under the facility bear interest based on our
financial leverage, which based on our -- Outstanding letters of credit as of -- Long-term debt relates to -- As of -- Annual interest expense related to our 7.456% Notes is Other Long-Term Liabilities -- Other long-term liabilities include -- As of Minority Interest -- Minority interest primarily relates to the minority ownership position in eLong, an entity in which we own a 58% interest (53% fully-diluted) and results of which are consolidated for all periods presented. -- During the first quarter of 2008 eLong approved a Purchase Obligations and Contractual Commitments -- At -- In conjunction with our investment in a travel company, we have
entered into a commitment to provide a -- We have entered into a lease for new headquarters office space located
in -- Our estimated future minimum rental payments under operating leases
with non-cancelable lease terms that expire after Common Stock -- In Class B Common Stock -- There are approximately 26 million shares of Expedia Class B common stock outstanding, all of which are owned by a subsidiary of Liberty Media Corporation ("Liberty"). Class B shares are entitled to ten votes per share when voting on matters with the holders of Expedia common and preferred stock. -- Through the common stock our Chairman and Senior Executive, Warrants -- As of -- 32.2 million of these warrants are privately held and expire in 2012,
and 26.0 million warrants are publicly-traded and expire in Stock-Based Awards -- At -- During the first nine months of 2008 we granted 3.6 million RSUs, primarily related to our annual RSU grant for employees occurring in the first quarter of each year. Net of cancellations, expirations and forfeitures occurring during the first nine months of 2008, RSUs and options outstanding increased by 2.2 million. Basic, Fully Diluted and Adjusted Diluted Shares -- Weighted average basic, fully diluted and adjusted diluted share
counts for the three months ended
3 Months Ended 3 Months Ended
Shares 9.30.08 9.30.07
------ ------- -------
Basic shares 286,674 292,171
--------------------------------- ------- -------
Options 749 9,264
Warrants 3,710 8,528
Derivative liabilities - 469
RSUs 591 2,324
--------------------------------- ------- -------
Fully diluted shares 291,724 312,756
Additional RSUs, Adjusted Income method 8,492 6,159
--------------------------------- ------- -------
Adjusted diluted shares 300,216 318,915
--------------------------------- ------- -------
-- The decrease in basic, fully diluted and adjusted diluted shares for
the third quarter of 2008 compared to the prior year period primarily relates
to the completion of our tender offer for 25 million common shares in -- The maximum possible dilution from various warrant issuances is 34.6
million shares, including 18.4 million shares related to warrants expiring in
the first quarter of 2009. As of
Expedia, Inc.
Trended Operational Metrics
(All figures in millions, except per share amounts)
-- The following metrics are intended as a supplement to the financial statements found in this press release and in our filings with the SEC. In the event of discrepancies between amounts in these tables and our historical financial statements, readers should rely on our filings with the SEC and financial statements in our most recent earnings release. -- We intend to periodically review and refine the definition, methodology and appropriateness of each of our supplemental metrics. As a result, these metrics are subject to removal and/or change, and such changes could be material. -- "Expedia Worldwide" gross bookings constitute bookings from all Expedia-branded properties, including our international sites and worldwide Egencia businesses, as well as affiliates. "hotels.com Worldwide" gross bookings constitute bookings from all hotels.com-branded properties, including our international sites and affiliates. "Other" gross bookings constitute bookings from Hotwire(R), eLong, and all brands other than Expedia Worldwide and hotels.com Worldwide. -- These metrics do not include adjustments for one-time items, acquisitions, foreign exchange or other adjustments. -- Some numbers may not add due to rounding.
2006 2007
------ ------
Q3 Q4 Q1 Q2 Q3 Q4
--- --- --- --- --- ---
Number of
Transactions 10.3 8.8 10.9 11.8 11.9 10.5
Gross Bookings by
Segment
North America $3,104 $2,666 $3,559 $3,723 $3,519 $3,136
Europe 724 613 940 939 1,074 919
Other 365 344 425 466 465 466
------ ------ ------ ------ ------ ------
Total $4,193 $3,623 $4,924 $5,128 $5,058 $4,522
Gross Bookings
by Brand
Expedia
Worldwide
Sites $3,300 $2,920 $3,947 $4,034 $3,887 $3,547
hotels.com
Worldwide
Sites 600 456 612 696 730 579
Other 293 246 365 399 441 396
------ ------ ------ ------ ------ ------
Total $4,193 $3,623 $4,924 $5,128 $5,058 $4,522
Gross Bookings
by Agency/Merchant
Agency $2,429 $2,213 $2,850 $2,959 $2,808 $2,659
Merchant 1,763 1,410 2,075 2,169 2,249 1,862
------ ------ ------ ------ ------ ------
Total $4,193 $3,623 $4,924 $5,128 $5,058 $4,522
Revenue by Segment
North America $450 $379 $406 $505 $534 $452
Europe 134 121 110 145 183 169
Other 30 32 34 39 42 45
------ ------ ------ ------ ------ ------
Total $614 $531 $551 $690 $760 $665
Packages Revenue $125 $107 $111 $132 $140 $128
TripAdvisor Media
Network Revenue * $27 $25 $43 $51 $58 $50
TripAdvisor Media
Network OIBA * 15 16 27 29 27 22
Advertising and
Media Revenue (Net) 25 27 37 44 51 51
OIBA by Segment
North America $204 $172 $164 $227 $239 $192
Europe 48 55 26 43 68 71
Other (72) (81) (85) (83) (94) (97)
------ ------ ------ ------ ------ ------
Total $180 $146 $104 $187 $213 $165
Worldwide Merchant
Hotel
Room Nights 10.9 8.6 8.3 11.0 12.7 10.2
Room Night Growth 11% 7% 3% 10% 16% 18%
ADR Growth 4% 8% 9% 6% 6% 7%
Revenue per Night
Growth 3% 7% 13% 4% 5% 4%
Revenue Growth 14% 15% 17% 14% 22% 23%
Worldwide Air
(Merchant & Agency)
Tickets Sold
Growth -7% 1% 5% 14% 15% 15%
Airfare Growth 11% 3% 1% -3% 2% 9%
Revenue per Ticket
Growth -17% -14% -20% -18% -5% -2%
Revenue Growth -23% -14% -16% -7% 9% 13%
2008 Y/Y Growth
------
Q1 Q2 Q3 Q308 YTD 08
------ ------ ------ ------ ------
Number of
Transactions 12.6 13.0 12.6 6% 10%
Gross Bookings
by Segment
North
America $4,087 $4,099 $3,561 1% 9%
Europe 1,257 1,223 1,272 18% 27%
Other 559 611 580 25% 29%
------ ------ ------ ------ ------
Total $5,902 $5,933 $5,413 7% 14%
Gross Bookings
by Brand
Expedia
Worldwide
Sites $4,631 $4,552 $4,062 5% 12%
hotels.com
Worldwide
Sites 745 806 795 9% 15%
Other 527 576 555 26% 38%
------ ------ ------ ------ ------
Total $5,902 $5,933 $5,413 7% 14%
Gross Bookings
by Agency/
Merchant
Agency $3,301 $3,357 $3,058 9% 13%
Merchant 2,602 2,576 2,355 5% 16%
------ ------ ------ ------ ------
Total $5,902 $5,933 $5,413 7% 14%
Revenue by
Segment
North America $494 $556 $569 7% 12%
Europe 146 186 212 16% 24%
Other 47 53 52 24% 32%
------ ------ ------ ------ ------
Total $688 $795 $833 10% 16%
Packages Revenue $125 $137 $133 -5% 3%
TripAdvisor Media
Network Revenue* $72 $79 $85 46% 55%
TripAdvisor Media
Network OIBA* 35 45 44 63% 50%
Advertising and
Media
Revenue (Net) 64 74 79 56% 65%
OIBA by Segment
North America $195 $248 $264 11% 12%
Europe 30 58 72 5% 17%
Other (100) (102) (105) 12% 17%
------ ------ ------ ------ ------
Total $126 $204 $231 8% 11%
Worldwide
Merchant Hotel
Room Nights 10.2 12.5 14.6 15% 16%
Room Night
Growth 23% 13% 15% 15% 16%
ADR Growth 3% 1% -1% -1% 1%
Revenue per
Night Growth -1% -2% -6% -6% -4%
Revenue Growth 22% 10% 7% 7% 12%
Worldwide Air
(Merchant & Agency)
Tickets Sold
Growth 11% 4% -5% -5% 4%
Airfare Growth 8% 12% 11% 11% 10%
Revenue per
Ticket Growth 6% 9% -2% -2% 4%
Revenue Growth 18% 14% -7% -7% 8%
* TripAdvisor Media Network Revenue and OIBA include intercompany amounts
Notes & Definitions: Number of Transactions - Quantity of purchases reported as booked, net of cancellations. Packages purchased using our packages wizard, which by definition include a merchant hotel, are recorded as a single transaction. Gross Bookings - Total retail value of transactions booked for both agency and merchant transactions, recorded at the time of booking. Bookings include the total price due for travel, including taxes, fees and other charges, and are generally reduced for cancellations and refunds. Other - Includes Egencia, TripAdvisor Media Network - Revenue and OIBA before inter-company eliminations include Expedia, Inc. expenditures on TripAdvisor sites, recorded at market-comparable rates. Merchant Hotel Room Nights - Worldwide merchant hotel nights, net of cancellations. With the exception of Hotwire, which records room nights upon booking, nights are reported as stayed. This metric includes nights stayed on both a package and stand-alone basis. Definitions of Non-GAAP Measures Expedia, Inc. reports Operating Income Before Amortization, Adjusted Net Income, Adjusted EPS, Free Cash Flow and non-GAAP operating expense (non-GAAP selling and marketing, non-GAAP general and administrative and non-GAAP technology and content), all of which are supplemental measures to GAAP and are defined by the SEC as non-GAAP financial measures. These measures are among the primary metrics by which management evaluates the performance of the business, on which internal budgets are based and by which management is compensated. Management believes that investors should have access to the same set of tools that management uses to analyze our results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP. We endeavor to compensate for the limitation of the non-GAAP measures presented by also providing the most directly comparable GAAP measures and descriptions of the reconciling items and adjustments to derive the non-GAAP measures. Operating Income Before Amortization ("OIBA") is defined as operating income plus: (1) stock-based compensation expense, (2) amortization of intangible assets and goodwill and/or intangible asset impairment, if applicable and (3) certain one-time items, if applicable. OIBA represents the combined operating results of Expedia, Inc.'s businesses, taking into account depreciation (including internal-use software and website development), which we believe is an ongoing cost of doing business, but excluding the effects of other non-cash expenses that may not be indicative of our core business operations. Management believes this performance measure is useful to investors because it corresponds more closely to the cash operating income generated from our core operations by excluding significant non-cash operating expenses such as stock-based compensation, and because it provides greater insight into management decision making at Expedia, Inc. as OIBA is our primary internal metric for evaluating the performance of our businesses. OIBA has certain limitations in that it does not take into account the impact of certain expenses to Expedia, Inc.'s statements of income, including stock- based compensation, acquisition-related accounting and certain one-time items, if applicable. Due to the high variability and difficulty in predicting certain items that affect net income, such as tax rates, stock price and interest rates, Expedia, Inc. is unable to provide a reconciliation to net income on a forward-looking basis without unreasonable efforts. Adjusted Net Income generally captures all items on the statements of income that have been, or ultimately will be, settled in cash and is defined as net income available to stockholders plus net of tax (1) stock-based compensation expense, (2) amortization of intangible assets, including as part of equity-method investments, and goodwill and/or intangible impairment, if applicable, (3) one-time items, (4) mark to market gains and losses on derivative liabilities, (5) currency gains or losses on U.S. dollar denominated cash equivalents held by eLong, (6) discontinued operations and (7) the minority interest impact of the aforementioned adjustment items. We believe Adjusted Net Income is useful to investors because it represents Expedia, Inc.'s combined results, taking into account depreciation, which management believes is an ongoing cost of doing business, but excluding the impact of other non-cash expenses and items not directly tied to the core operations of our businesses. Adjusted EPS is defined as Adjusted Net Income divided by weighted fully diluted shares outstanding for Adjusted EPS purposes. We include dilution from options and warrants per the treasury stock method and include all shares relating to RSUs in shares outstanding for Adjusted EPS. This differs from the GAAP method for including RSUs, which treats them on a treasury method basis. Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes. We believe Adjusted EPS is useful to investors because it represents, on a per share basis, Expedia's consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other items which are not allocated to the operating businesses such as interest expense, taxes, foreign exchange gains or losses, and minority interest, but excluding the effects of non-cash expenses not directly tied to the core operations of our businesses. Adjusted Net Income and Adjusted EPS have similar limitations as OIBA. In addition, Adjusted Net Income does not include all items that affect our net income and net income per share for the period. Therefore, we think it is important to evaluate these measures along with our consolidated statements of income. Free Cash Flow is defined as net cash flow provided by operating activities less capital expenditures. Management believes Free Cash Flow is useful to investors because it represents the operating cash flow that our operating businesses generate, less capital expenditures but before taking into account other cash movements that are not directly tied to the core operations of our businesses, such as financing activities, foreign exchange or certain investing activities. Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures. Therefore, it is important to evaluate Free Cash Flow along with the consolidated statements of cash flows. Non-GAAP cost of revenue, selling and marketing, general and administrative and technology and content expenses excluding stock-based compensation exclude stock-based compensation related to expenses for stock options, restricted stock units and other equity compensation under FAS 123(R). Expedia, Inc. excludes stock-based compensation expenses from these measures primarily because they are non-cash expenses that we do not believe are necessarily reflective of our ongoing cash operating expenses and cash operating income. In addition, due to historical accounting charges and credits related to our spin-off from IAC, changes in forfeiture estimates and other events, stock-based compensation has been highly variable in some historical quarters, impairing year-on-year and quarter-to-quarter comparability. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting FAS 123(R), management believes that providing non-GAAP financial measures that exclude stock-based compensation allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies, as well as providing management with an important tool for financial operational decision making and for evaluating our own recurring core business operating results over different periods of time. There are certain limitations in using financial measures that do not take into account stock-based compensation, including the fact that stock- based compensation is a recurring expense and a valued part of employees' compensation. Therefore it is important to evaluate both our GAAP and non-GAAP measures. See the Note to the Consolidated Statements of Income for stock- based compensation by line item.
Tabular Reconciliations for Non-GAAP Measures
Operating Income Before Amortization
Three months ended Nine months ended
September 30, September 30,
----------------- -----------------
2008 2007 2008 2007
------- ------- ------- -------
(in thousands)
OIBA $230,780 $212,802 $560,690 $504,292
Amortization of intangible assets (15,827) (18,613) (52,538) (59,312)
Stock-based compensation (15,367) (14,417) (48,027) (44,249)
------- ------- ------- -------
Operating income 199,586 179,772 460,125 400,731
Interest expense, net (12,633) (1,052) (24,487) (4,309)
Other, net (23,243) (13,894) (32,014) (13,453)
Provision for income taxes (69,223) (65,542) (164,139) (153,230)
Minority interest in loss of
consolidated subsidiaries, net 337 311 2,734 768
------- ------- ------- -------
Net income $94,824 $99,595 $242,219 $230,507
======= ======= ======= =======
Adjusted Net Income & Adjusted EPS
Three months ended Nine months ended
September 30, September 30,
----------------- -----------------
2008 2007 2008 2007
------- ------- ------- -------
(in thousands, except per share data)
Net income $94,824 $99,595 $242,219 $230,507
Amortization of intangible
assets 15,827 18,613 52,538 59,312
Stock-based compensation 15,367 14,417 48,027 44,249
Foreign currency loss on
U.S. dollar cash
balances held by eLong 290 1,836 8,258 5,006
Federal excise tax refunds - - - (12,058)
Gain (loss) on derivative
instruments assumed at
Spin-Off (20) 1,394 (4,600) 5,938
Amortization of intangible
assets as part of equity
method investments 614 934 1,874 1,485
Minority interest (249) (913) (3,712) (2,702)
Provision for income taxes (8,306) (11,943) (34,416) (33,358)
------- ------- ------- -------
Adjusted net income $118,347 $123,933 $310,188 $298,379
======= ======= ======= =======
GAAP diluted weighted
average shares
outstanding 291,724 312,756 293,256 318,848
Additional restricted stock
units 8,492 6,159 8,024 6,403
------- ------- ------- -------
Adjusted weighted average
shares outstanding 300,216 318,915 301,280 325,251
======= ======= ======= =======
Diluted earnings per share $0.33 $0.32 $0.83 $0.72
======= ======= ======= =======
Adjusted earnings per share $0.39 $0.39 $1.03 $0.92
======= ======= ======= =======
Free Cash Flow
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
2008 2007 2008 2007
------- ------- ------- -------
(in thousands)
Net cash provided by operating
activities $(103,525) $42,743 $767,529 $965,356
Less: capital expenditures (48,251) (18,646) (118,984) (57,620)
------- ------- ------- -------
Free cash flow $(151,776) $24,097 $648,545 $907,736
======= ======= ======= =======
Non-GAAP cost of revenue, selling and marketing, general and
administrative and technology and content expenses excluding stock-based
compensation
Three months ended Nine months ended
September 30, September 30,
---------------- -----------------
2008 2007 2008 2007
------ ------ ------ ------
(in thousands)
Cost of revenue $177,001 $151,053 $497,818 $415,997
Less: stock-based compensation (510) (550) (1,754) (2,079)
------ ------ ------ ------
Cost of revenue excluding
stock-based compensation $176,491 $150,503 $496,064 $413,918
Selling and marketing expense $298,858 $279,341 $885,530 $757,514
Less: stock-based compensation (2,541) (2,729) (9,116) (8,768)
------ ------ ------ ------
Selling and marketing expense
excluding stock-based
compensation $296,317 $276,612 $876,414 $748,746
General and administrative
expense $90,585 $83,365 $263,665 $235,261
Less: stock-based compensation (9,235) (7,683) (26,203) (22,356)
------ ------ ------ ------
General and administrative
expense excluding stock-based
compensation $81,350 $75,682 $237,462 $212,905
Technology and content expense $51,480 $47,452 $156,526 $131,215
Less: stock-based compensation (3,081) (3,455) (10,954) (11,046)
------ ------ ------ ------
Technology and content expense
excluding stock-based
compensation $48,399 $43,997 $145,572 $120,169
Conference Call Expedia, Inc. will audiocast a conference call to discuss third quarter
2008 financial results and certain forward-looking information on Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 This press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are not guarantees of future performance. These forward-looking
statements are based on management's expectations as of Actual results and the timing and outcome of events may differ materially
from those expressed or implied in the forward-looking statements for a
variety of reasons, including, among others: continued or prolonged adverse
economic conditions leading to decreased consumer and business spending;
changes in Expedia, Inc.'s relationships and contractual agreements with
travel suppliers or GDS partners; adverse changes in senior management; the
rate of growth of online travel; our inability to recognize the benefits of
our investment in technologies; changes in the competitive environment, the e-
commerce industry and broadband access and our ability to respond to such
changes; declines or disruptions in the travel industry (including those
caused by, adverse weather, bankruptcies, health risks, war and/or terrorism);
the rate of online migration in the various geographies and markets in which
Expedia, Inc. operates, including Except as required by law, Expedia, Inc. undertakes no obligation to update any forward-looking or other statements included in this press release, whether as a result of new information, future events or otherwise. About Expedia, Inc. Expedia, Inc. is the world's leading online travel company, empowering
business and leisure travelers with the tools and information they need to
easily research, plan, book and experience travel. Expedia, Inc. also provides
in-destination concierge service and activity desks for travelers. The
Expedia, Inc. portfolio of brands includes: Expedia.com(R), hotels.com(R),
Hotwire(R), Egencia(TM) (formerly Expedia Corporate Travel), TripAdvisor(R),
Expedia Local Expert(TM), Classic Vacations(R) and eLong(TM). Expedia, Inc.'s
companies operate more than 60 global points of sale in more than 40
countries, with sites in Trademarks and logos are property of their respective owners. (C) 2008 Expedia, Inc. All rights reserved. CST: 2029030-40 SOURCE Expedia, Inc.
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