Merchant Hotel & Advertising Drive 2007 OIBA Growth, $625 Million in Free Cash
Flow
BELLEVUE, Wash., Feb. 7 /PRNewswire-FirstCall/ -- Expedia, Inc.
(Nasdaq: EXPE) today announced financial results for its fourth quarter and
year ended December 31, 2007.
"2007 was a very good year for Expedia, with acceleration in nearly every
key financial metric," said Barry Diller, Expedia, Inc.'s Chairman and Senior
Executive. "We ended the year on higher ground with a stabilized supplier
outlook, expanded global reach, established media businesses and sharpened
marketing prowess. At the same time, we continued to make strides in capital
efficiency by leveraging our balance sheet to meaningfully reduce our share
base with an eye toward further repurchases."
"Through significant investment, innovation and execution, Expedia
delivered four consecutive quarters of top-line growth acceleration in 2007,"
said Dara Khosrowshahi, Expedia Inc.'s CEO and President. "While we're pleased
by our return to OIBA growth in 2007 and mindful of potential challenges from
near-term economic conditions, we will continue to invest in further growth
opportunities in 2008 and beyond to drive long-term shareholder value."
Financial Summary & Operating Metrics (figures in $MM's, except per share
amounts)
3 Months 3 Months Year Year
Ended Ended Y/Y Ended Ended Y/Y
Metric 12.31.07 12.31.06 Growth 12.31.07 12.31.06 Growth
-------------- --------- ---------- ------ -------- --------- -------
Gross bookings $4,596.3 $3,686.7 25% $19,983.3 $17,160.6 16%
Revenue 665.3 531.3 25% 2,665.3 2,237.6 19%
Revenue
margin 14.47% 14.41% +6 bps 13.34% 13.04% +30 bps
Gross profit 518.9 409.5 27% 2,102.9 1,734.9 21%
Operating income
before
amortization*
("OIBA") 165.2 146.2 13% 669.5 599.0 12%
Operating income 128.3 99.5 29% 529.1 351.3 51%
Adjusted net
income * 94.6 98.1 (4%) 391.1 390.5 0%
Net income 65.4 67.1 (3%) 295.9 244.9 21%
Adjusted EPS * $0.31 $0.28 11% $1.22 $1.09 12%
Diluted EPS $0.22 $0.20 10% $0.94 $0.70 34%
Free cash flow * (282.3) (131.2) (115%) 625.4 524.8 19%
*"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 17-20 herein for an explanation of non-GAAP measures used
throughout this release.
Discussion of Results - Fourth Quarter 2007
Gross Bookings & Revenue
Gross bookings increased 25% for the fourth quarter of 2007 compared with
the fourth quarter of 2006. North America bookings increased 18%, Europe
bookings increased 47% (35% excluding the net benefit from foreign exchange)
and Other bookings (primarily Expedia(R) Corporate Travel and our Asia Pacific
operations) increased 36%.
Revenue increased 25% for the fourth quarter, primarily driven by
increased worldwide merchant hotel revenue and advertising and media revenue.
North America revenue increased 19%, Europe revenue increased 39% (29%
excluding foreign exchange) and Other revenue increased 42%.
Worldwide merchant hotel revenue increased 23% for the fourth quarter due
to an 18% increase in room nights stayed, including rooms delivered as a
component of vacation packages, and a 4% increase in revenue per room night.
Revenue per room night increased due to a 6% increase in worldwide average
daily rates ("ADRs"), partially offset by a 61 basis point decline in hotel
raw margin.
Worldwide air revenue increased 13% for the fourth quarter due to a 14%
increase in air tickets sold, partially offset by a 2% decrease in revenue per
air ticket. The decrease in revenue per air ticket primarily reflects reduced
consumer air fees versus the prior year period.
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 42% for the fourth quarter due primarily
to increased advertising and media revenues and car rental revenues.
Package revenue increased 20% compared with the prior year period
primarily due to higher worldwide package bookings as well as increased
revenue margin compared with the prior year period.
Revenue as a percentage of gross bookings ("revenue margin") was 14.47%
for the fourth quarter, an increase of 6 basis points. North America revenue
margin increased 20 basis points to 14.40%, Europe revenue margin decreased 89
basis points to 16.97%, and Other revenue margin increased 40 basis points to
9.62%. The fourth quarter increase in North America revenue margin was
primarily due to an increased mix of advertising and media revenues as
compared to fourth quarter 2006. Europe revenue margin decreased primarily due
to lower revenue from more competitive hotel pricing, the impact of foreign
exchange, and lower consumer air fees.
Profitability
Gross profit for the fourth quarter of 2007 was $519 million, an increase
of 27% compared with the fourth quarter of 2006 primarily due to increased
revenue and a 92 basis point improvement in gross margin to 77.99%. The gross
margin increase was primarily due to an increased mix of advertising and media
revenue and cost reductions from our various efficiency initiatives.
OIBA for the fourth quarter increased 13% to $165 million, driven
primarily by higher revenue. OIBA as a percentage of revenue decreased 270
basis points to 24.83%, primarily reflecting higher growth in sales and
marketing expenses excluding stock-based compensation as a percentage of
revenue. Operating income increased 29% to $128 million primarily due to the
same factors driving OIBA growth as well as lower intangible amortization and
stock-based compensation expense.
Adjusted net income for the fourth quarter decreased $4 million compared
to the prior year period as higher OIBA was offset by a net increase in
foreign exchange losses and an increase in net interest expense. Net income
decreased $2 million due to the same factors impacting adjusted net income as
well as a higher effective tax rate. Fourth quarter adjusted EPS and diluted
EPS were $0.31 and $0.22, respectively. These measures increased 11% and 10%
due to lower net share counts resulting from share repurchase activity during
2007.
Discussion of Results - Full Year 2007
Gross Bookings & Revenue
Gross bookings increased 16% in 2007 compared with 2006. North America
bookings increased 9%, Europe bookings increased 41% (32% excluding the net
benefit from foreign exchange) and Other bookings increased 28%.
Revenue increased 19% for the year, primarily driven by increased
worldwide merchant hotel revenue and advertising and media revenue. North
America revenue increased 14%, Europe revenue increased 34% (26% excluding
foreign exchange) and Other revenue increased 35%.
Worldwide merchant hotel revenue increased 19% in 2007 due to a 12%
increase in room nights stayed, including rooms delivered as a component of
vacation packages, and a 6% increase in revenue per room night. Revenue per
room night increased due to a 6% increase in worldwide ADRs, partially offset
by a 13 basis point decline in hotel raw margin.
Worldwide air revenue decreased 2% in 2007 due to a 12% decrease in
revenue per air ticket, partially offset by a 12% increase in air tickets
sold. The decrease in revenue per air ticket primarily reflects decreased
compensation from air carriers and global distribution system ("GDS")
providers, and to a lesser extent, reduced consumer air fees.
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 38% in 2007 due primarily to increased
advertising and media revenues and car rental revenues.
Package revenue increased 7% compared with the prior year period primarily
due to higher European package bookings compared with the prior year period.
Revenue margin was 13.34% in 2007, an increase of 30 basis points. North
America revenue margin increased 53 basis points to 13.62%, Europe revenue
margin decreased 69 basis points to 14.37%, and Other revenue margin increased
45 basis points to 8.80%. The increase in 2007 worldwide revenue margin was
primarily due to an increased mix of advertising revenue, partially offset by
lower air revenue per ticket. The increase in North America revenue margin was
primarily due to an increased mix of advertising and media revenues. Europe
revenue margin decreased primarily due to lower air commissions and consumer
fees as well as lower revenue from more competitive hotel pricing.
Profitability
Gross profit for 2007 was $2.10 billion, an increase of 21% compared with
2006 primarily due to increased revenue and a 136 basis point improvement in
gross margin to 78.90%. The gross margin increase was primarily due to an
increased mix of advertising and media revenue and cost reductions from our
various efficiency initiatives.
OIBA increased 12% to $669 million, driven primarily by higher revenue.
OIBA as a percentage of revenue decreased 165 basis points to 25.12%,
primarily reflecting higher growth in sales and marketing expenses excluding
stock-based compensation as a percentage of revenue, partially offset by a
higher gross margin. Operating income increased 51% to $529 million primarily
due to the same factors driving OIBA growth and lower expenses related to
intangible assets and an intangible asset impairment charge in 2006.
Adjusted net income for the year increased $1 million compared with 2006
due to higher OIBA, largely offset by net losses from foreign currency and
increases in net interest expense. Net income increased $51 million due to the
same factors impacting adjusted net income as well as lower amortization of
intangible assets compared to 2006 and an impairment charge in the prior year.
2007 adjusted EPS and diluted EPS were $1.22 and $0.94, respectively. These
measures increased 12% and 34% due to the same factors impacting adjusted net
income and net income, as well as lower net share counts from share repurchase
activity.
Cash Flows & Working Capital
Net cash provided by operating activities in 2007 was $712 million and
free cash flow was $625 million. Both measures include $244 million of benefit
from net changes in operating assets and liabilities primarily related to our
merchant hotel business. Free cash flow in 2007 increased $101 million
primarily due to greater benefit from net changes in operating assets and
liabilities and higher OIBA.
Recent Highlights
Global Presence
-- Gross bookings from Expedia, Inc.'s international points of sale were
$1.54 billion and $6.19 billion in the fourth quarter and year ended
December 31, 2007, accounting for 34% and 31% of worldwide bookings, up
from 29% and 26% in the prior year periods. International revenue,
including the TripAdvisor international websites beginning in 2007, was
$238 million and $853 million in the fourth quarter and year ended
December 31, 2007, or 36% and 32% of worldwide revenue, up from 31% and
28% in the prior year periods.
-- Expedia Corporate Travel ("ECT") celebrated its fifth anniversary and
announced its Asia Pacific launch through a strategic partnership with
eLong(TM), Inc., providing access to fully localized service, global
reporting and in-country call support to ECT clients doing business in
China.
-- Expedia, Inc. launched six new European points of sale including
http://www.expedia.ie in Ireland, its 16th Expedia(R)-branded site, and
five new Hotels.com(R)-branded local language sites in the Czech
Republic, Greece, Hungary, Iceland, and Turkey.
-- TripAdvisor(R) Media Network expanded its global presence with launches
of UK sites http://www.CruiseCritic.co.uk and
http://www.BookingBuddy.co.uk.
Brand Portfolio
-- Expedia.com(R) teamed up with the National Football League in a multi-
year sponsorship agreement. As the Official Travel Sponsor of the NFL,
Expedia.com offers year-round travel incentives to nearly 170 million
NFL fans as well as unique packages and sweepstakes for marquee events
like the Super Bowl and the Pro Bowl.
-- For the second year in a row, Hotwire.com(TM) was recognized for
providing the "Highest Customer Satisfaction for Independent Travel Web
Sites" according to J.D. Power and Associates' 2007 Independent Travel
Web Site Satisfaction Study(SM) (For J.D. Power and Associates award
information including information about the study see
http://www.jdpower.com).
-- In less than three months since its launch, the Citi
PremierPass(R)/Expedia.com Card was named the "Best Card for Travel
Rewards," by SmartMoney magazine for its combination of value and
flexibility.
-- Expedia.co.uk was honored as "Europe's Leading Travel Agency" at the
annual World Travel Awards, and also won the UK Travel Weekly Globe
Award for "Best Online Booking Website" based on votes by readers of
Associated Newspapers publications.
-- Expedia, Inc. and CruiseShipCenters International, Inc. ("CSC")
unveiled their combined brand, Expedia CruiseShipCenters(R), and began
offering travel products through home-based agents in the US and
through their first co-branded store in Bellevue, WA.
-- TripAdvisor has launched several leading travel applications on
Facebook, including Cities I've Visited, Traveler IQ Challenge and
Local Picks, which combined have exceeded 6 million cumulative
installations.
Content & Innovation
-- ECT launched a "Specials" page on its US site highlighting exclusive
offers, including deeply discounted hotels, specific flights, and
upgrades.
-- Expedia.ca integrated CSC's cruise content and rates in a "Cruise" tab
which was recently added to the site.
-- Hotels.com created a customized version of its site for the Apple
iPhone and iPod touch as well as a "Hotels Near Friends" application on
Facebook, which allows users to locate the 30 hotels closest to each
friend and book stays at those properties.
-- Expedia.de launched a "beach inspiration" tool to help travelers plan
trips to over 300 beaches in the Mediterranean and Canary Islands. The
tool features panoramic views, detailed area information and package
deals, and enables search by sand quality, crowd demographic, location,
and palm tree incidence.
Partner Services Group ("PSG")
-- Expedia signed multi-year agreements with InterContinental Hotels
Group, Starwood Hotels and Resorts and Kimpton Hotel & Restaurant
Group, ensuring availability of these hotel chains' rooms and pricing
across the Company's worldwide points of sale.
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended Year ended
December 31, December 31,
------------------- ---------------------
2007 2006 2007 2006
-------- --------- ---------- ---------
Revenue $665,302 $531,288 $2,665,332 $2,237,586
Cost of revenue(1) 146,404 121,781 562,401 502,638
-------- --------- ---------- ---------
Gross profit 518,898 409,507 2,102,931 1,734,948
Operating expenses:
Selling and marketing(1) 235,046 171,417 992,560 786,195
General and
administrative(1) 85,989 79,079 321,250 289,649
Technology and content(1) 51,268 35,505 182,483 140,371
Amortization of intangible
assets 18,257 23,906 77,569 110,766
Impairment of intangible
asset - - - 47,000
Amortization of non-cash
distribution and marketing - 60 - 9,638
-------- --------- ---------- ---------
Operating income 128,338 99,540 529,069 351,329
Other income (expense):
Interest income 8,709 11,733 39,418 32,065
Interest expense (17,878) (10,036) (52,896) (17,266)
Other, net (5,154) 1,721 (18,607) 18,770
-------- --------- ---------- ----------
Total other income (expense),
net (14,323) 3,418 (32,085) 33,569
-------- --------- ---------- ----------
Income before income taxes and
minority interest 114,015 102,958 496,984 384,898
Provision for income taxes (49,884) (35,928) (203,114) (139,451)
Minority interest in (income)
loss of consolidated
subsidiaries, net 1,226 110 1,994 (513)
-------- --------- ---------- ----------
Net income $65,357 $67,140 $295,864 $244,934
======== ========= ========== ==========
Net earnings per share
available to common
stockholders:
Basic $0.23 $0.20 $1.00 $0.72
Diluted 0.22 0.20 0.94 0.70
Shares used in computing
earnings per share:
Basic 283,823 330,294 296,640 338,047
Diluted 300,530 343,586 314,233 352,181
(1) Includes stock-based
compensation as follows:
Cost of revenue $814 $1,772 $2,893 $8,399
Selling and marketing 3,704 4,228 12,472 15,893
General and administrative 9,495 11,394 31,851 36,877
Technology and content 4,587 5,344 15,633 19,116
-------- --------- ---------- ----------
Total stock-based
compensation $18,600 $22,738 $62,849 $80,285
======== ========= ========== ==========
EXPEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
December 31,
-------------------------------
2007 2006
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $617,386 $853,274
Restricted cash and cash
equivalents 16,655 11,093
Accounts and notes receivable, net
of allowance of $6,081 and $4,874 268,008 211,430
Prepaid merchant bookings 66,778 39,772
Income taxes receivable 5,395 -
Prepaid expenses and other current
assets 71,433 62,249
------------ ------------
Total current assets 1,045,655 1,177,818
Property and equipment, net 179,490 137,144
Long-term investments and other
assets 93,182 59,289
Intangible assets, net 970,757 1,028,774
Goodwill 6,006,338 5,861,292
------------ ------------
TOTAL ASSETS $8,295,422 $8,264,317
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, merchant $704,044 $600,192
Accounts payable, other 148,233 120,545
Accrued expenses 288,712 171,799
Deferred merchant bookings 609,117 466,474
Deferred revenue 11,957 10,317
Income taxes payable - 30,902
Other current liabilities 12,289 2,359
------------ ------------
Total current liabilities 1,774,352 1,402,588
Long-term debt 500,000 500,000
Credit facility 585,000 -
Deferred income taxes, net 351,168 361,967
Other long-term liabilities 204,886 33,716
Minority interest 61,935 61,756
Commitments and contingencies
Stockholders' equity:
Preferred stock $.001 par value - -
Authorized shares: 100,000,000
Series A shares issued and
outstanding: 751 and 846
Common stock $.001 par value 337 328
Authorized shares: 1,600,000,000
Shares issued: 337,056,760 and
328,066,276
Shares outstanding: 259,489,102
and 305,901,048
Class B common stock $.001 par
value 26 26
Authorized shares: 400,000,000
Shares issued and outstanding:
25,599,998 and 25,599,998
Additional paid-in capital 5,902,582 5,903,200
Treasury stock - Common stock, at
cost (1,718,833) (321,155)
Shares: 77,567,658 and
22,165,228
Retained earnings 602,204 309,912
Accumulated other comprehensive
income (loss) 31,765 11,979
------------ ------------
Total stockholders' equity 4,818,081 5,904,290
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $8,295,422 $8,264,317
============ ============
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Year ended December 31,
-------------------------------
2007 2006
------------ ------------
Operating activities:
Net income $295,864 $244,934
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 59,526 48,779
Amortization of intangible assets,
non-cash distribution and marketing
and stock-based compensation 140,418 200,689
Deferred income taxes (1,583) (10,652)
Unrealized (gain) loss on derivative
instruments, net 5,748 (8,137)
Equity in (income) loss of
unconsolidated affiliates 2,614 (2,541)
Minority interest in income (loss)
of consolidated subsidiaries, net (1,994) 513
Impairment of intangible asset - 47,000
Foreign exchange (gain) on cash and
cash equivalents, net (12,524) (37,182)
Other 3,801 1,100
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts and notes receivable (44,363) (32,148)
Prepaid merchant bookings and
prepaid expenses (32,378) (20,694)
Accounts payable, other, accrued
expenses and other current
liabilities 51,702 59,858
Accounts payable, merchant 101,068 63,246
Deferred merchant bookings 142,608 59,450
Deferred revenue 1,562 3,225
------------ ------------
Net cash provided by operating
activities 712,069 617,440
------------ ------------
Investing activities:
Capital expenditures (86,658) (92,631)
Acquisitions, net of cash acquired (59,622) (32,518)
Proceeds from sale of business to a
related party - 13,163
Increase in long-term investments
and deposits (33,226) (1,514)
------------ ------------
Net cash used in investing activities (179,506) (113,500)
------------ ------------
Financing activities:
Credit facility borrowings 755,000 -
Credit facility repayments (170,000) (230,000)
Proceeds from issuance of long-term
debt, net of issuance costs - 495,346
Changes in restricted cash and cash
equivalents (6,494) 4,578
Proceeds from exercise of equity
awards 55,038 35,258
Excess tax benefit on equity awards 95,702 1,317
Withholding taxes for stock option
exercises (121,208) -
Treasury stock activity (1,397,173) (295,691)
Other, net (844) (1,036)
------------ ------------
Net cash provided by (used in)
financing activities (789,979) 9,772
Effect of exchange rate changes on
cash and cash equivalents 21,528 42,146
------------ ------------
Net increase (decrease) in cash and
cash equivalents (235,888) 555,858
Cash and cash equivalents at
beginning of year 853,274 297,416
Cash and cash equivalents at end of
year $617,386 $853,274
============ ============
Supplemental cash flow information
Cash paid for interest $49,266 $4,287
Income tax payments, net 78,345 126,126
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 41% of total gross bookings in the
fourth quarter as compared to 39% in the prior year period. For full
year 2007, merchant bookings represented 42% of total gross bookings
compared with 41% in 2006. The year-over-year increases are primarily
driven by a higher mix of Europe merchant bookings and a lower mix of
North America agency bookings.
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 22.0% and 22.9% of revenue for the fourth quarters
of 2007 and 2006. Excluding stock-based compensation, cost of revenue
was 21.9% and 22.6% of revenue for the fourth quarters of 2007 and
2006. Cost of revenue excluding stock-based compensation decreased 71
basis points as a percentage of revenue due to an increased mix of
advertising and media revenue and our various cost efficiency
initiatives.
-- 2007 cost of revenue was 21.1% of revenue compared with 22.5% in 2006.
Excluding stock-based compensation, 2007 cost of revenue was 21.0%
compared to 22.1% in 2006. The 110 basis point decrease was primarily
due to an increased mix of advertising and media revenue and our
various cost efficiency initiatives.
-- Cost of revenue includes depreciation expense of $4 million and $3
million for the fourth quarters of 2007 and 2006, and $15 million and
$10 million for full years 2007 and 2006.
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
fourth quarter and full year periods of 2007 and 2006 were as follows
(some numbers may not add due to rounding):
Operating Expenses As a % of Revenue
-------------------------- --------------------------
Three months ended Three months ended
December 31, December 31,
------------------- --------------------
chg. in
2007 2006 Growth 2007 2006 bps
-------- ------- ------- ------ ------ -------
Selling and
marketing $231.3 $167.2 38% 34.8% 31.5% 330
General and
administrative 76.5 67.7 13% 11.5% 12.7% (124)
Technology and
content 46.7 30.2 55% 7.0% 5.7% 134
-------- ------- ------- ------ ------ -------
Total operating
expenses $354.5 $265.0 34% 53.3% 49.9% 340
Operating Expenses As a % of Revenue
-------------------------- --------------------------
Years ended Years ended
December 31, December 31,
------------------- --------------------
chg. in
2007 2006 Growth 2007 2006 bps
-------- ------- ------- ------ ------ -------
Selling and
marketing $980.1 $770.3 27% 36.8% 34.4% 235
General and
administrative 289.4 252.8 14% 10.9% 11.3% (44)
Technology and
content 166.9 121.3 38% 6.3% 5.4% 84
-------- ------- ------- ------ ------ -------
Total operating
expenses $1,436.3 $1,144.3 26% 53.9% 51.1% 275
Operating expenses include $12 million and $10 million of depreciation
expense for the quarters ended December 31, 2007 and 2006, and $44 million and
$39 million for full years 2007 and 2006.
Selling and Marketing (non-GAAP)
-- Selling and marketing expense primarily relates to direct advertising
expense, including television, radio and print spending, as well as
traffic generation costs from search engines, internet portals and our
private label and affiliate programs.
-- Approximately 26% and 27% of selling and marketing expense in the
fourth quarters ended December 31, of 2007 and 2006 relate to indirect
costs including personnel in PSG, ECT, Expedia Local Expert ("ELE") and
TripAdvisor.
-- The 38% increase in selling and marketing expense in the fourth quarter
was primarily due to increased direct online and brand spend to support
our worldwide points of sale, including spend in Europe for our
Hotels.com, Expedia and TripAdvisor sites as well as our private label
and affiliate channels; in North America for Hotels.com, our
TripAdvisor network, Expedia.com, and Hotwire; as well as increased
personnel costs related to PSG, TripAdvisor, our European businesses,
ELE, ECT and other teams.
-- Selling and marketing expense increased 27% for full year 2007 compared
to 2006 primarily due to increased direct online and brand spend to
support our worldwide points of sale including spend in Europe for our
Hotels.com, Expedia and TripAdvisor sites as well as our private label
and affiliate channels; in North America for our TripAdvisor network,
Expedia.com, Hotels.com, and Hotwire; as well as increased personnel
costs related to TripAdvisor, PSG, our European businesses, ELE, ECT
and other teams.
-- We expect selling and marketing expense to increase as a percentage of
revenue in 2008 as compared to 2007 as we continue to support our
established brands and geographies, grow our earlier stage
international markets, increase our use of brand spend as markets reach
scale, anticipate continued keyword inflation, invest in our global
advertising and media businesses and expand our corporate travel sales,
destination services and market management teams.
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, and fees for professional services that typically relate to
legal, tax or accounting engagements.
-- The 13% increase in general and administrative expense in the fourth
quarter was primarily due to payroll taxes related to stock option
exercises, personnel costs related to expansion of our European
businesses and information technology (IT) group, and increased
incentive accruals.
-- General and administrative expense increased 14% for full year 2007
compared to 2006 primarily due to increased incentive accruals,
personnel costs primarily related to expansion of our IT function, our
European businesses and our TripAdvisor network, as well as legal
expenses and payroll taxes related to stock option exercises.
-- We expect general and administrative expense as a percentage of revenue
in 2008 to remain relatively similar to 2007.
Technology and Content (non-GAAP)
-- Technology and content expense includes product development expenses
principally related to payroll and related expenses, hardware and
software expenditures and software development cost amortization.
-- The 55% and 38% increases in technology and content expense in the
fourth quarter and year ended December 31, 2007 was due to increased
personnel costs related to both our in-house and offshore development
teams and amortization of capitalized software costs, a significant
amount of which relates to projects we began putting into service
beginning with the fourth quarter of 2006 and throughout 2007.
-- Given our historical and ongoing investments in our enterprise data
warehouse, re-platforming, geographic expansion, data centers,
redundancy, call center technology, site merchandising, content
management, site monitoring, networking, corporate travel, supplier
integration and other initiatives, we expect technology and content
expense to increase in absolute dollars, and as a percentage of revenue
in 2008 as compared to 2007.
Stock-Based Compensation Expense
-- Stock-based compensation expense relates primarily to expense for stock
options and restricted stock units ("RSUs"). Since February 2003 we
have awarded RSUs as our primary form of employee stock-based
compensation. Our stock-based awards generally vest over five years.
-- Fourth quarter stock-based compensation expense was $19 million,
consisting of $16 million in expense related to RSUs and $3 million in
stock option expense.
-- Fourth quarter stock-based compensation decreased $4 million compared
to the prior year period primarily due to completed vesting of previous
option awards, offset partially by higher expense related to RSU
grants.
-- Stock-based compensation expense for 2007 was $63 million, consisting
of $49 million in expense related to RSUs and $14 million in stock
option expense. Stock-based compensation decreased $17 million from
the prior year amount due to reduced stock option expense, offset
partially by higher expense related to RSU grants.
-- Assuming, among other things, no modification of existing awards,
significant incremental award grants, adjustments to forfeiture
estimates or meaningful changes in our stock price, we expect annual
stock-based compensation expense will be less than $70 million in 2008.
Other, Net
-- The $7 million decrease in other, net for the fourth quarter primarily
relates to a $7 million net foreign exchange loss in the fourth quarter
of 2007, compared with a $7 million gain in the prior year period,
which was partially offset by a less than $1 million gain on the Ask
derivative, compared with a $3 million loss in the prior year period.
In addition, we had a $1 million net gain on our equity investments in
the fourth quarter, compared with a gain of less than $1 million in the
prior year period.
-- Other, net decreased $37 million in 2007, primarily due to a $22
million net foreign exchange loss and $6 million loss on the Ask
derivative in 2007, compared to $10 million and $8 million gains in the
prior year, partially offset by $12 million related to a federal excise
tax refund received during the year.
Income Taxes
-- The effective tax rates on GAAP pre-tax income were 43.8% and 40.9% for
the fourth quarter and year ended December 31, 2007 compared with 34.9%
and 36.2% in the prior year periods. The effective rate increased for
the fourth quarter primarily due to higher state taxes and taxes
related to our foreign operations, partially offset by tax return
adjustments in the prior year period. The effective rate increased for
full year 2007 primarily due to higher state taxes and non-deductible
losses related to our derivative liabilities compared with a gain in
2006.
-- The effective tax rates on pre-tax adjusted income were 38.2% and 38.5%
for the fourth quarter and year ended December 31, 2007 compared with
35.9% and 37.2% in the prior year periods. The effective rate increased
for the fourth quarter primarily due to higher state taxes and taxes
related to our foreign operations, partially offset by tax return
adjustments in the prior year period. The effective rate increased for
full year 2007 primarily due to higher state taxes and taxes related to
our foreign operations. The effective rates in the fourth quarter and
full year 2007 were higher than the statutory rate primarily due to
state income taxes and taxes related to our foreign operations.
-- Cash paid for income taxes in 2007 was $78 million, a decrease of $48
million from the prior year primarily due to higher stock-based
compensation related deductions. We anticipate lower stock-based
compensation related deductions in 2008, and therefore expect
tax-related payments for full year 2008 will increase compared with
2007.
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 our international operations' functional currencies.
Management believes investors may find it useful to assess growth rates
with and without the impact of foreign exchange.
-- The estimated impact on worldwide and Europe growth rates from foreign
exchange in the fourth quarter and year ended December 31, 2007
was as follows (some numbers may not add due to rounding):
Worldwide Europe
---------------------------- ---------------------------
Impact on Impact on
Y/Y Y/Y Y/Y Y/Y
growth growth growth growth
rates rates rates rates
excluding from excluding from
Y/Y foreign foreign Y/Y foreign foreign
growth exchange exchange growth exchange exchange
rates movements movements rates movements movements
------- --------- --------- ------ --------- ---------
Three months
ended
Dec.
31, 2007
Gross
Bookings 24.7% 20.8% 3.9% 46.8% 34.6% 12.2%
Revenue 25.2% 21.2% 4.0% 39.5% 28.8% 10.7%
Year
ended Dec.
31, 2007
Gross
Bookings 16.4% 14.2% 2.3% 40.7% 31.6% 9.1%
Revenue 19.1% 16.7% 2.5% 34.3% 26.1% 8.2%
-- The positive impact of foreign exchange on our cash balances
denominated in foreign currency was $22 million in 2007, and is
included in "effect of exchange rate changes on cash and cash
equivalents" on our statements of cash flows. This amount reflects a
net decrease of $21 million from 2006 primarily due to a lower net gain
from holding or converting foreign currencies compared to the prior
year.
Acquisitions
-- The impact of acquisitions, primarily related to our media content
business, on the growth of gross bookings, revenue and OIBA in the
fourth quarter and year ended December 31, 2007 is as follows (some
numbers may not add due to rounding):
Three Months Ended Year Ended
Dec. 31, 2007 Dec. 31, 2007
---------------------------- ---------------------------
Impact on
Impact on Y/Y
Y/Y Y/Y Y/Y growth
growth growth growth rates
Y/Y rates rates Y/Y rates from
growth excluding from growth excluding acqui-
rates acquisitions acquisitions rates acquisitions sitions
--------------------------------------------------------------
Gross Bookings 24.7% 24.5% 0.2% 16.4% 16.3% 0.1%
Revenue 25.2% 23.3% 2.0% 19.1% 17.4% 1.7%
OIBA 13.1% 12.6% 0.5% 11.8% 10.4% 1.4%
Balance Sheet Notes
Cash, Cash Equivalents and Restricted Cash
-- Cash, cash equivalents and restricted cash totaled $634 million at
December 31, 2007. This amount includes $17 million in restricted cash
and cash equivalents primarily related to merchant air revenue
transactions, and $158 million of cash at eLong, whose results are
consolidated in our financial statements due to our controlling voting
and economic ownership position.
-- The $230 million decrease in cash, cash equivalents and restricted cash
for 2007 principally relates to $1.4 billion in treasury stock activity
primarily related to tender offer repurchases of 55 million common
shares, $121 million in withholding taxes for stock option exercises,
$93 million in acquisitions, long-term investments and deposits, $87
million of capital expenditures and $78 million in cash tax payments,
partially offset by $670 million in OIBA, $585 million in net revolver
borrowings, $220 million net benefit from changes in operating assets
and liabilities, $55 million in proceeds from equity award exercises
and a $22 million increase in gains from holding or converting foreign
currencies.
Accounts and Notes 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
global distribution system partners.
-- Accounts and notes receivable increased $57 million from December 31,
2006 primarily due to growth in various lines of our business including
acquisitions made in 2007.
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 $27
million increase in prepaid merchant bookings from December 31, 2006 is
due to certain package transactions that were migrated to the merchant
model in 2007 which were on the agency model in 2006.
-- Prepaid expenses and other current assets are primarily composed of
prepaid marketing, prepaid merchant fees, prepaid license and
maintenance agreements and prepaid insurance.
Income Taxes Receivable and Payable
-- We had income taxes receivable of $5 million at December 31, 2007
compared to income taxes payable of $31 million in the prior year
primarily due to the reclassification of $43 million of net liabilities
related to uncertain tax positions to other long-term liabilities upon
the adoption of FIN 48 on January 1, 2007.
Long-Term Investments and Other Assets
-- Long-term investments and other assets include transportation
equipment, collateral deposits related to our cross-currency swap
agreements, equity investments and capitalized debt issuance costs.
-- Long-term investments and other assets increased $34 million from
December 31, 2006 primarily due to a first quarter equity investment in
a travel company.
Goodwill and Intangible Assets, Net
-- Goodwill and intangible assets, net primarily relates to the
acquisitions of Hotels.com, Expedia.com and Hotwire.com.
-- Goodwill increased $145 million primarily due to acquisitions completed
since December 31, 2006.
-- $867 million of intangible assets, net relates to intangible assets
with indefinite lives, which are not amortized, principally related to
acquired trade names and trademarks.
-- $104 million of intangible assets, net relates to intangible assets
with definite lives, which are generally amortized over a period of two
to ten years. The majority of this amortization is not deductible for
tax purposes.
-- Amortization expense related to definite lived intangibles was $18
million for the fourth quarter and $78 million for full year 2007,
compared with $24 million and $111 million for the prior year periods.
The decreases were primarily due to the completed amortization of
certain technology and supplier intangible assets over the past year.
Assuming no impairments or additional acquisitions, we expect
amortization expense for definite lived intangibles of $57 million in
2008 and $18 million in 2009.
Accounts Payable, Other
-- Accounts payable, other primarily consists of payables related to the
day-to-day operations of our business.
-- Accounts payable, other increased $28 million from December 31, 2006
primarily due to purchases of servers and network equipment and accrued
marketing expenses related to increased marketing efforts at our
various points of sale.
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 is a significant
period of time from the receipt of cash from our travelers to supplier
payment.
-- As long as the merchant hotel business continues to grow and our
business model does not meaningfully change, we expect that changes in
working capital related to this business will continue to be a positive
contributor to operating and free cash flow. If this business declines
or if the model changes significantly, it would negatively affect our
working capital.
-- For the year ended December 31, 2007, the change in deferred merchant
booking and accounts payable, merchant contributed $244 million to net
cash provided by operating activities, primarily related to growth in
our merchant hotel business.
Accrued Expenses
-- Accrued expenses 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 on our Notes
and credit facility.
-- Accrued expenses include the fair value of our Ask derivative, which
relates to notes which are due June 1, 2008 (see "Ask Derivative
Liability").
-- Accrued expenses increased $117 million from December 31, 2006
primarily due to an obligation to pay an additional purchase price of
$92 million based on the financial performance of one of our
acquisitions, which we expect to pay in the first half of 2008.
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 2007 notes were converted for approximately 290,000 common
shares, which when combined with prior conversions of 3.5 million
shares, leaves 0.5 million shares of Expedia common stock (or cash in
equal value) due to Ask convertible note holders upon conversion. The
Ask notes are due June 1, 2008; upon maturity our obligation to satisfy
demands for conversion ceases.
-- The estimated fair value of the Ask derivative at December 31, 2007 was
$15 million, and is recorded in accrued expenses on our consolidated
balance sheet.
-- For 2007 we recorded a net unrealized loss of $6 million related to the
Ask derivative due to changes in our share price during the year. This
loss is reflected as an increase in accrued expenses, is recorded in
other, net on our consolidated statements of income and is excluded
from both our OIBA and adjusted net income calculations.
-- We anticipate recording a quarterly unrealized gain or loss in the
first quarter of 2008 related to any remaining liability as we adjust
the fair value for changes in our stock price, as measured at the
subsequent quarter-end, compared with the prior quarter-end.
Borrowings
-- Expedia, Inc. maintains a $1 billion unsecured revolving credit
facility, which expires in August 2010. As of December 31, 2007, we had
$585 million in borrowings outstanding under our revolver, which amount
was primarily drawn in conjunction with the August 2007 funding of our
25 million share tender offer.
-- Outstanding borrowings bear interest based on our financial leverage,
which based on our December 31, 2007 financials would equate to a base
rate plus 75 basis points. At our discretion we can choose a base rate
equal to (1) the greater of the Prime rate or the Federal Funds Rate
plus 50 basis points or (2) various durations of LIBOR. The base rate
on all borrowings is currently 1-month LIBOR.
-- As of December 31, 2007 we were in compliance with the leverage and net
worth covenants under the credit facility. Outstanding letters of
credit under the facility as of that date were $52 million, which
balance reduces our available borrowing capacity.
-- Long-term debt relates to $500 million in registered 7.456% Senior
Notes (the "Notes") due 2018, which were issued in August 2006. The
Notes are repayable in whole or in part on August 15, 2013 at the
option of the note holders. We may redeem the Notes at any time at our
option.
-- Semi-annual interest expense related to the Notes is $19 million, paid
on February 15 and August 15 of each year. Accrued interest related to
the notes was $14 million at December 31, 2007 and $13 million at
December 31, 2006, and such amounts are classified as accrued expenses
on our balance sheet.
Other Long-Term Liabilities
-- Other long-term liabilities include $172 million in uncertain tax
positions recorded under FIN 48, $127 million of which arose during
2007 and $45 million of which existed prior to the adoption of FIN 48
on January 1, 2007 and were classified as taxes payable in current
liabilities, net of a $2 million federal benefit.
-- Other long-term liabilities also includes $21 million of derivative
liabilities, primarily related to cross-currency swaps, which increased
$8 million from December 31, 2006 primarily due to the weakening of the
USD compared with the Euro.
Minority Interest
-- Minority interest primarily relates to the minority ownership position
in eLong, an entity in which we own a 56% interest (51% fully-diluted)
and results for which are consolidated for all periods presented.
Purchase Obligations and Contractual Commitments
-- At December 31, 2007 we have agreements with certain vendors under
which we have future minimum obligations of $26 million in 2008 and $6
million in 2009. These minimum obligations for telecom, loyalty,
software and other support services are less than our projected use for
those periods, and we expect payment to be more than the minimum
obligations based on our actual use.
-- In conjunction with our investment in a travel company, we have entered
into a commitment to provide a $10 million revolving operating line of
credit and a credit facility for up to $20 million. Less than $1
million was drawn on the line of credit and no amounts were drawn on
the credit facility as of December 31, 2007.
-- In June 2007, we entered into a lease for new headquarters office space
located in Bellevue, Washington for which we will recognize rent
expense beginning in May 2008 in addition to rent expense on our
present location. The ten-year term and cash payments related to this
lease are expected to begin in November 2008.
-- Our estimated future minimum rental payments under operating leases
with noncancelable lease terms that expire after December 31, 2007 are
$31 million for 2008, $32 million for 2009, $30 million for 2010, $28
million for 2011, $27 million for 2012 and $97 million for 2013 and
thereafter.
Common Stock
-- In 2007 we completed two tender offers to purchase a total of 55
million shares of Expedia, Inc. at an average price of $25.18 for a
total cost of $1.39 billion, excluding fees and expenses. The Company
used $500 million in available borrowings under its revolving credit
facility and approximately $885 million in cash to fund the tender
offers. The Company's directors and executive officers and Liberty
Media Corporation did not tender any shares.
-- In August 2006 our Board of Directors authorized the repurchase of up
to 20 million common shares. There is no fixed termination date for the
authorization, and as of the date of this release we have not
repurchased any shares under this authorization.
Class B Common Stock
-- There are approximately 26 million shares of Expedia Class B common
stock outstanding, owned by Liberty Media Corporation and its
subsidiaries ("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, Barry
Diller, owns directly, as well as the common stock and Class B stock
for which he has been assigned an irrevocable proxy from Liberty, Mr.
Diller had a controlling 60% voting interest in Expedia, Inc. as of
January 18, 2008.
Warrants
-- As of December 31, 2007 we had 58.5 million warrants outstanding,
which, if exercised in full, would entitle holders to acquire 34.6
million common shares of Expedia, Inc. for an aggregate purchase price
of approximately $774 million (representing an average of approximately
$22 per Expedia, Inc. common share).
-- 32.2 million of these warrants are privately held and expire in 2012,
and 26.0 million warrants are publicly-traded and expire in 2009. There
are 0.3 million other warrants outstanding.
Shelf Registration
-- In October we filed a shelf registration statement with the SEC, under
which we may offer from time to time debt securities, guarantees of
debt securities, preferred stock, common stock or warrants. The shelf
registration statement expires in October 2010.
Stock-Based Awards
-- At December 31, 2007 we had 17.9 million stock-based awards
outstanding, consisting of stock options to purchase 9.7 million common
shares with a $24.74 weighted average exercise price and weighted
average remaining life of 4.75 years, and 8.3 million RSUs.
-- During the fourth quarter 2007 we granted 0.1 million RSUs, primarily
related to new hire grants.
-- For 2007, total equity grants were 3.8 million, or 2.3 million net of
cancellations, expirations and forfeitures.
-- On October 8, 2007 Expedia's Chairman and Senior Executive exercised
options to purchase 9.5 million shares, which options would have
otherwise expired on October 19, 2007, following their 10-year term.
2.3 million shares were withheld by Expedia to cover the exercise price
of $8.59 per share and 3.5 million shares were withheld to cover tax
obligations, with a net delivery to Mr. Diller of 3.7 million shares.
-- Expedia cancelled all withheld shares and made the required tax
payments of $121 million in connection with Mr. Diller's exercise.
These tax payments appear in "Financing Activities" on our Statement of
Cash Flows for the year ended December 31, 2007.
Basic, Fully Diluted and Adjusted Diluted Shares
-- Weighted average basic, fully diluted and adjusted diluted share counts
for the three months and 12 months ended December 31, 2007 are as
follows (in 000's):
3 Months 3 Months Year Year
Ended Ended Ended Ended
Shares 12.31.07 12.31.06 12.31.07 12.31.06
------------------ ---------- -------- -------- --------
Basic shares 283,823 330,294 296,640 338,047
Options 3,063 7,339 7,384 7,744
Warrants 10,685 3,756 7,574 3,600
Derivative liabilities 463 867 510 1,463
RSUs 2,496 1,323 2,125 1,092
Other - 7 - 235
------------------ ---------- -------- -------- --------
Fully diluted shares 300,530 343,586 314,233 352,181
Additional RSUs, Adjusted Income
method 5,736 5,849 6,237 6,189
------------------ ---------- -------- -------- --------
Adjusted diluted shares 306,266 349,435 320,470 358,370
------------------ ---------- -------- -------- --------
-- The decrease in basic, fully diluted and adjusted diluted shares for
the quarter and year ended December 31, 2007 as compared to the prior year
periods primarily relates to the completion of our tender offers for 55
million total shares in 2007.
-- The above decreases in diluted share counts were partially offset by
dilution from warrants and RSUs related to the increase in our stock price and
the accompanying impact of such increase on the treasury method calculation
for dilutive securities.
Expedia, Inc.
Trended Operational Metrics
(All figures in millions)
-- 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 ECT 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, eLong, and all brands
other than Expedia Worldwide and Hotels.com Worldwide.
-- Metrics, with the exception of revenue and OIBA items, include 100% of
the results of an unconsolidated joint-venture of which we own
approximately 49.9%.
-- These metrics do not include adjustments for one-time items,
acquisitions, foreign exchange or other adjustments.
-- Some numbers may not add due to rounding.
2005 2006
------ ------------------------------
Q4 Q1 Q2 Q3 Q4
------ ------ ------ ------ ------
Number of Transactions 8.7 10.5 10.6 10.4 8.9
Gross Bookings by Segment
North America $2,624 $3,522 $3,445 $3,104 $2,666
Europe 510 780 752 792 677
Other 262 347 368 365 344
------ ------ ------ ------ ------
Total $3,395 $4,648 $4,565 $4,261 $3,687
Gross Bookings by Brand
Expedia Worldwide Sites $2,707 $3,700 $3,614 $3,369 $2,984
Hotels.com Worldwide Sites 407 582 621 600 456
Other 281 367 330 293 246
------ ------ ------ ------ ------
Total $3,395 $4,648 $4,565 $4,261 $3,687
Gross Bookings by Agency/Merchant
Agency $2,068 $2,695 $2,728 $2,473 $2,253
Merchant 1,327 1,953 1,837 1,788 1,433
------ ------ ------ ------ ------
Total $3,395 $4,648 $4,565 $4,261 $3,687
Revenue by Segment
North America N/A $382 $456 $450 $379
Europe N/A 85 112 134 121
Other N/A 27 30 30 32
------ ------ ------ ------ ------
Total N/A $494 $598 $614 $531
Packages Revenue $106 $114 $131 $125 $107
Advertising and Media Revenue $19 $21 $22 $25 $27
OIBA by Segment
North America N/A $147 $212 $204 $172
Europe N/A 15 40 48 55
Other N/A (74) (68) (72) (81)
------ ------ ------ ------ ------
Total $133 $89 $184 $180 $146
Worldwide Merchant Hotel
Room Nights 8.1 8.1 10.1 11.1 8.7
Room Night Growth 10% 7% 13% 11% 8%
ADR Growth 6% 3% 7% 4% 8%
Revenue per Night Growth -1% -4% 4% 2% 7%
Revenue Growth 9% 3% 17% 14% 15%
Worldwide Air (Merchant & Agency)
Tickets Sold Growth 8% 3% -4% -6% 1%
Airfare Growth 7% 9% 13% 11% 4%
Revenue per Ticket Growth -11% -9% -10% -17% -15%
Revenue Growth -4% -7% -13% -23% -14%
2007
-------------------------------------
Q1 Q2 Q3 Q4
------- ------- ------- -------
Number of Transactions 11.0 12.0 12.1 10.6
Gross Bookings by Segment
North America $3,559 $3,723 $3,519 $3,136
Europe 1,032 1,035 1,163 994
Other 425 466 465 466
------- ------- ------- -------
Total $5,016 $5,224 $5,147 $4,596
Gross Bookings by Brand
Expedia Worldwide Sites $4,039 $4,130 $3,976 $3,621
Hotels.com Worldwide Sites 612 696 730 579
Other 365 399 441 396
------- ------- ------- -------
Total $5,016 $5,224 $5,147 $4,596
Gross Bookings by Agency/Merchant
Agency $2,910 $3,025 $2,866 $2,703
Merchant 2,106 2,199 2,281 1,893
------- ------- ------- -------
Total $5,016 $5,224 $5,147 $4,596
Revenue by Segment
North America $406 $505 $534 $452
Europe 110 145 183 169
Other 34 39 42 45
------- ------- ------- -------
Total $551 $690 $760 $665
Packages Revenue $111 $132 $140 $128
Advertising and Media Revenue $37 $44 $51 $51
OIBA by Segment
North America $164 $227 $239 $192
Europe 26 43 68 71
Other (85) (83) (94) (97)
------- ------- ------- -------
Total $104 $187 $213 $165
Worldwide Merchant Hotel
Room Nights 8.4 11.1 12.9 10.3
Room Night Growth 3% 10% 16% 18%
ADR Growth 9% 5% 5% 6%
Revenue per Night Growth 13% 4% 5% 4%
Revenue Growth 17% 14% 22% 23%
Worldwide Air (Merchant & Agency)
Tickets Sold Growth 5% 14% 15% 14%
Airfare Growth 1% -3% 2% 9%
Revenue per Ticket Growth -20% -19% -5% -2%
Revenue Growth -16% -7% 9% 13%
Q4 Y/Y 2007 Y/Y
Growth 2006 2007 Growth
-------- ------ ------ --------
Number of Transactions 18% 40.5 45.7 13%
Gross Bookings by Segment
North America 18% $12,737 $13,937 9%
Europe 47% 3,001 4,223 41%
Other 36% 1,423 1,823 28%
------- -------
Total 25% $17,161 $19,983 16%
Gross Bookings by Brand
Expedia Worldwide Sites 21% $13,667 $15,766 15%
Hotels.com Worldwide Sites 27% 2,259 2,616 16%
Other 61% 1,235 1,601 30%
------- -------
Total 25% $17,161 $19,983 16%
Gross Bookings by Agency/Merchant
Agency 20% $10,150 $11,504 13%
Merchant 32% 7,011 8,479 21%
------- -------
Total 25% $17,161 $19,983 16%
Revenue by Segment
North America 19% $1,667 $1,898 14%
Europe 39% 452 607 34%
Other 42% 119 160 35%
------- -------
Total 25% $2,238 $2,665 19%
Packages Revenue 20% $476 $511 7%
Advertising and Media Revenue 90% $94 $183 93%
OIBA by Segment
North America 11% $735 $821 12%
Europe 29% 158 208 32%
Other NM (294) (359) NM
------- -------
Total 13% $599 $669 12%
Worldwide Merchant Hotel
Room Nights 18% 38.1 42.7 12%
Room Night Growth 18% 10% 12% 12%
ADR Growth 6% 6% 6% 6%
Revenue per Night Growth 4% 3% 6% 6%
Revenue Growth 23% 13% 19% 19%
Worldwide Air (Merchant & Agency)
Tickets Sold Growth 14% -2% 12% 12%
Airfare Growth 9% 9% 2% 2%
Revenue per Ticket Growth -2% -13% -12% -12%
Revenue Growth 13% -14% -2% -2%
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.
North America - Reflects results for travel products and services provided
to customers in the United States, Canada, Mexico and Latin America. Includes
100% of TripAdvisor as it is managed in North America.
Europe - Reflects results for travel products and services provided
through localized Expedia websites in Austria, Denmark, France, Germany,
Ireland, Italy, the Netherlands, Norway, Spain, Sweden and the United Kingdom
and localized versions of Hotels.com in various European countries.
Other - Includes Expedia Corporate Travel, Asia Pacific and unallocated
corporate functions and expenses.
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) amortization of non-cash distribution and marketing expense,
(2) stock-based compensation expense, (3) amortization of intangible assets
and goodwill and/or intangible asset impairment, if applicable and (4) certain
one-time items, if applicable. OIBA represents the combined operating results
of Expedia, Inc.'s businesses, taking into account depreciation, 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 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, non-cash
payments to partners, 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) amortization of
non-cash distribution and marketing expense, (2) stock-based compensation
expense, (3) amortization of intangible assets, including as part of equity-
method investments, and goodwill and/or intangible impairment, if applicable,
(4) one-time items, (5) mark to market gains and losses on derivative
liabilities, (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 Year ended
December 31, December 31,
------------------------ -------------------
2007 2006 2007 2006
------------- ---------- -------- ----------
(in thousands)
OIBA $165,195 $146,244 $669,487 $599,018
Amortization of intangible assets (18,257) (23,906) (77,569) (110,766)
Impairment of intangible asset - - - (47,000)
Stock-based compensation (18,600) (22,738) (62,849) (80,285)
Amortization of non-cash
distribution and marketing - (60) - (9,638)
------------- ---------- -------- ----------
Operating income 128,338 99,540 529,069 351,329
Interest income (expense) , net (9,169) 1,697 (13,478) 14,799
Other, net (5,154) 1,721 (18,607) 18,770
Provision for income taxes (49,884) (35,928) (203,114) (139,451)
Minority interest in (income) loss
of consolidated subsidiaries, net 1,226 110 1,994 (513)
------------- ---------- -------- ----------
Net income $65,357 $67,140 $295,864 $244,934
============= ========== ======== ==========
Adjusted Net Income & Adjusted EPS
Three months ended Year ended
December 31, December 31,
------------------------ -------------------
2007 2006 2007 2006
------------- ---------- -------- ----------
(in thousands, except per share data)
Net income $65,357 $67,140 $295,864 $244,934
Amortization of intangible assets 18,257 23,906 77,569 110,766
Stock-based compensation 18,600 22,738 62,849 80,285
Amortization of non-cash
distribution and marketing - 60 - 9,638
Impairment of intangible asset - - - 47,000
Federal excise tax refunds - - (12,058) -
Unrealized (gain) loss on derivative
instruments, net (190) 3,472 5,748 (8,137)
Amortization of intangible assets as
part of equity method investments 839 - 2,324 -
Minority interest (218) (202) (729) (922)
Provision for income taxes (8,054) (18,984) (40,511) (93,052)
------------- ---------- -------- ----------
Adjusted net income $94,591 $98,130 $391,056 $390,512
============= ========== ======== ==========
GAAP diluted weighted average shares
outstanding 300,530 343,586 314,233 352,181
Additional restricted stock units 5,736 5,849 6,237 6,189
------------- ---------- -------- ----------
Adjusted weighted average shares
outstanding 306,266 349,435 320,470 358,370
============= ========== ======== ==========
Diluted earnings per share $0.22 $0.20 $0.94 $0.70
============= ========== ======== ==========
Adjusted earnings per share 0.31 $0.28 $1.22 $1.09
============= ========== ======== ==========
Free Cash Flow
Three months ended Year ended
December 31, December 31,
------------------------ -------------------
2007 2006 2007 2006
------------- ---------- -------- ----------
(in thousands)
Net cash provided by operating
activities $(253,287) $(106,128) $712,069 $617,440
Less: capital expenditures (29,038) (25,051) (86,658) (92,631)
------------- ---------- -------- ----------
Free cash flow $(282,325) $(131,179) $625,411 $524,809
============= ========== ======== ==========
Non-GAAP cost of revenue, selling and marketing, general and
administrative and technology and content expenses excluding stock-based
compensation
Three months ended Year ended
December 31, December 31,
------------------------ -------------------
2007 2006 2007 2006
------------- ---------- -------- ----------
(in thousands)
Cost of revenue $146,404 $121,781 $562,401 $502,638
Less: stock-based compensation (814) (1,772) (2,893) (8,399)
------------- ---------- -------- ----------
Cost of revenue excluding stock-
based compensation $145,590 $120,009 $559,508 $494,239
Selling and marketing expense $235,046 $171,417 $992,560 $786,195
Less: stock-based compensation (3,704) (4,228) (12,472) (15,893)
------------- ---------- -------- ----------
Selling and marketing expense
excluding stock-based
compensation $231,342 $167,189 $980,088 $770,302
General and administrative expense $85,989 $79,079 $321,250 $289,649
Less: stock-based compensation (9,495) (11,394) (31,851) (36,877)
------------- ---------- -------- ----------
General and administrative expense
excluding stock-based
compensation $76,494 $67,685 $289,399 $252,772
Technology and content expense $51,268 $35,505 $182,483 $140,371
Less: stock-based compensation (4,587) (5,344) (15,633) (19,116)
------------- ---------- -------- ----------
Technology and content expense
excluding stock-based
compensation $46,681 $30,161 $166,850 $121,255
Conference Call
Expedia, Inc. will audiocast a conference call to discuss fourth quarter
and full year 2007 financial results and certain forward-looking information
on Thursday, February 7, 2008 at 8:00 a.m. Pacific Time (PT). The audiocast
will be open to the public and available via http://www.expediainc.com/ir.
Expedia, Inc. expects to maintain access to the audiocast on the IR website
for approximately three months subsequent to the initial broadcast.
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 February 7, 2008 and
assumptions which are inherently subject to uncertainties, risks and changes
in circumstances that are difficult to predict. The use of words such as
"intends" and "expects" among others, generally identify forward-looking
statements. However, these words are not the exclusive means of identifying
such statements. In addition, any statements that refer to expectations,
projections or other characterizations of future events or circumstances are
forward-looking statements and may include statements relating to future
revenues, expenses, margins, profitability, net income, earnings per share and
other measures of results of operation and the prospects for future growth of
Expedia, Inc.'s business.
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: 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 decreased
consumer and business spending, adverse weather, bankruptcies, health risks,
war, terrorism and/or general economic downturns); the rate of online
migration in the various geographies and markets in which Expedia, Inc.
operates, including Eastern Europe and Asia; fluctuations in foreign exchange
rates; changing laws, rules and regulations and legal uncertainties relating
to our business; Expedia, Inc.'s ability to expand successfully in
international markets; possible charges resulting from, among other events,
platform migration; failure to realize cost efficiencies; the successful
completion of any future corporate transactions or acquisitions; and the
integration of current and acquired businesses; and other risks detailed in
Expedia, Inc.'s public filings with the SEC, including Expedia, Inc.'s annual
report on Form 10-K for the year ended December 31, 2006.
Except as required by law, Expedia, Inc. undertakes no obligation to
update any forward-looking or other statements 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
wholesale travel to offline retail travel agents and in-destination concierge
service and activity desks for travelers. The Expedia, Inc. portfolio of
brands includes: Expedia.com(R), hotels.com(R), Hotwire(R), Expedia(R)
Corporate Travel, TripAdvisor(R), Expedia Local Expert(TM), Classic
Vacations(R) and eLong(TM). Expedia, Inc.'s companies operate more than 50
global points of sale with sites in North America, South America, Latin
America, Europe, Middle East, Africa and Asia Pacific. Expedia, Inc. is a
component of the S&P 500 index. For more information, visit
http://www.expediainc.com/ (NASDAQ: EXPE).
Expedia, Expedia.com, Expedia Corporate Travel and Expedia Local Expert
are either registered trademarks or trademarks of Expedia, Inc. in the U.S.
and/or other countries. Classic Vacations is either a trademark or registered
trademark of Classic Vacations, LLC in the U.S. and/or other countries.
hotels.com is either a trademark or registered trademark of hotels.com, L.P.,
a subsidiary of hotels.com in the U.S. and/or other countries. Hotwire is
either a trademark or registered trademark of Hotwire, Inc. in the U.S. and/or
other countries. TripAdvisor is either a trademark or registered trademark of
TripAdvisor, LLC in the U.S. and/or other countries. Other logos or product
and company names mentioned herein may be the property of their respective
owners.
(C) 2008 Expedia, Inc. All rights reserved. CST: 2029030-40
SOURCE Expedia, Inc.
Investor Relations, +1-425-679-3555, ir@expedia.com, or Communications,
+1-425-679-4317, press@expedia.com, both of Expedia
