TripAdvisor Media Network Expands Reach, Eclipses $250MM in Annual Revenues
BELLEVUE, Wash., July 31 /PRNewswire-FirstCall/ -- Expedia, Inc.
(Nasdaq: EXPE) today announced financial results for its second quarter ended
June 30, 2008.
"Expedia extended its global leadership position in travel with its sixth
consecutive quarter of double digit revenue growth," said Barry Diller,
Expedia, Inc.'s Chairman and Senior Executive. "Despite an uncertain economic
environment we intend to aggressively expand our worldwide reach, as evidenced
by our acquisition of Virtual Tourist, a leading community of user-generated
travel content, and our intended acquisition of Venere, a European agency
lodging site."
"Against a backdrop of unprecedented oil prices and airline industry
capacity reductions, Expedia employees continued to execute in the second
quarter, delivering solid growth in bookings, revenue and OIBA," said Dara
Khosrowshahi, Expedia, Inc.'s CEO and President. "With our advertising and
media businesses and international sites now delivering over 40 percent of
revenue, Expedia has meaningfully diversified its growth drivers, and
established a strong foundation for long-term growth in free cash flow and
shareholder value."
Financial Summary & Operating Metrics (figures in MM's, except per share
amounts)
3 Months 3 Months Y/Y
Metric Ended 6.30.08 Ended 6.30.07 Growth
------ -------------- -------------- ----------
Transactions 13.0 11.8 10%
Gross bookings $5,933.4 $5,128.0 16%
Revenue 795.0 689.9 15%
Revenue margin 13.40% 13.45% (5 bps)
Gross profit 626.2 546.3 15%
Operating income before
amortization* ("OIBA") 204.1 187.1 9%
Operating income 170.5 153.6 11%
Adjusted net income * 120.8 114.9 5%
Net income 96.1 96.1 0%
Adjusted EPS * $0.40 $0.35 14%
Diluted EPS $0.33 $0.30 10%
Net cash provided by operating
activities 307.3 384.6 (20%)
Free cash flow * 269.7 363.9 (26%)
* "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 15-18 herein for an
explanation of non-GAAP measures used throughout this release.
Effective Q108 we amended the definition of Adjusted net income and
Adjusted EPS.
Discussion of Results
Gross Bookings & Revenue
Gross bookings increased 16% for the second quarter of 2008 compared with
the second quarter of 2007. North America bookings increased 10%, Europe
bookings increased 30% (19% excluding the net benefit from foreign exchange)
and Other bookings (primarily Egencia(TM) and our Asia Pacific operations)
increased 31%.
Revenue increased 15% for the second quarter, primarily driven by
increased worldwide merchant hotel revenue and advertising and media revenue.
North America revenue increased 10%, Europe revenue increased 28% (17%
excluding foreign exchange) and Other revenue increased 36%.
Worldwide merchant hotel revenue increased 10% for the second quarter due
to a 13% increase in room nights stayed, including rooms delivered as a
component of packages, partially offset by a 2% decrease in revenue per room
night. Revenue per night decreased due to a decline in hotel margins,
partially offset by a 1% increase in average daily rates.
Worldwide air revenue increased 14% for the second quarter due to a 9%
increase in revenue per air ticket and a 4% increase in air tickets sold.
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 31% for the second quarter due primarily
to increased revenue from advertising and media and car rentals. Package
revenue increased 4% from growth in international package gross bookings.
Revenue as a percentage of gross bookings ("revenue margin") was 13.40%
for the second quarter, a decrease of 5 basis points. North America revenue
margin decreased 2 basis points to 13.55%, Europe revenue margin decreased 26
basis points to 15.23%, and Other revenue margin increased 31 basis points to
8.70%. The second quarter decrease in European revenue margins was primarily
due to lower revenue from more competitive hotel pricing. Worldwide and North
America revenue margins were relatively flat as an increased mix of
advertising and media revenue largely offset the impact of more competitive
hotel pricing.
Second quarter revenue growth and revenue margins were negatively impacted
by higher revenues from the Easter holiday falling in the first quarter in
2008 compared with the second quarter in 2007.
Profitability
Gross profit for the second quarter of 2008 was $626 million, an increase
of 15% compared with the second quarter of 2007 due to increased revenue.
OIBA for the second quarter increased 9% to $204 million, driven primarily
by higher revenue. OIBA as a percentage of revenue decreased 145 basis points
to 25.67%, primarily reflecting higher growth in technology and content and
sales and marketing expenses excluding stock-based compensation as a
percentage of revenue. Operating income increased 11% to $171 million
primarily due to the same factors driving OIBA growth, as well as lower
amortization and stock-based compensation as a percentage of revenue.
Adjusted net income for the second quarter increased $6 million compared
to the prior year period driven by higher OIBA, partially offset by higher net
interest expense. Net income was flat due to an increase in operating income
being offset by a gain related to federal excise tax refunds in the prior year
period and higher net interest expense. Second quarter adjusted EPS and
diluted EPS were $0.40 and $0.33, respectively. These measures increased 14%
and 10% respectively primarily due to lower average share counts primarily
resulting from shares repurchased in August 2007.
Cash Flows & Working Capital
For the six months ended June 30, 2008, net cash provided by operating
activities was $871 million and free cash flow was $800 million. Both measures
include $630 million from net changes in operating assets and liabilities,
primarily driven by our merchant hotel business. Free cash flow for the period
decreased $83 million from the prior year period primarily due to decreased
net changes in operating assets and liabilities (including faster invoice and
payment processing for hotel suppliers), higher cash taxes and increased
capital expenditures, offsetting increased OIBA.
Recent Highlights
Global Presence
-- Gross bookings from Expedia, Inc.'s international businesses were
$1.88 billion in the second quarter, accounting for 32% of worldwide
bookings, up from 28% in the prior year period. Revenue from
international businesses was $269 million in the second quarter, or
34% of worldwide revenue, up from 30% in the prior year period.
-- Expedia expanded its global footprint with an agreement to purchase
Venere(TM) SpA, a leading European online travel provider, which
will expand Expedia's European, Middle Eastern and African lodging
footprint by over 10,000 properties, and offer hotel supplier
partners an agency model booking option.
-- hotels.com launched its 42nd point of sale --
http://japan.hotels.com -- in Japan, the world's second largest
travel market.
Brand Portfolio
-- The TripAdvisor(R) Media Network continued its expansion with the
acquisition of VirtualTourist(R), a leader in user-generated travel
content, and its affiliate OneTime(R), a leader in travel booking
comparison. With these acquisitions the TripAdvisor(R) Media Network
now attracts nearly 32 million unique monthly visitors according to
comScore Media Metrix (May 2008).
-- Expedia.com(R) and hotels.com(R) came to the aid of gas pump-weary
travelers by offering a free $50 Gas Money Prepaid Mastercard(R),
for hotel stays of three or more nights booked this summer.
-- TripAdvisor(R) expanded its social media footprint with the launch
of three leading travel applications (Cities I've Visited(TM), Local
Picks(TM) and TravelerIQ(TM)) on MySpace, the world's most popular
social network. In addition, lastminute.com announced an agreement
to feature branded TripAdvisor hotel reviews throughout its website.
-- Expedia(R) Corporate Travel launched its own distinct brand,
Egencia(TM), recognizing the growth and scale of a business that has
reached over $100 million in trailing twelve months revenue. Egencia
also announced the acquisition of Synergi Global Travel Management,
a Canadian travel management company, as well as the launch of
several site features including hotel reviews, TripAdvisor City
Guides and SeatGuru(R) flight seating content.
Content & Innovation
-- QuickConnect(TM), Expedia's hotel connectivity solution for
independent hotels and small to medium-sized hotel chains, has been
adopted by over 1,000 hotels in more than 35 countries, facilitating
an expansion of hotel inventory and rates on Expedia's worldwide
points of sale.
-- hotels.com unveiled its welcomerewards(TM) program, enabling
travelers to earn one free hotel night stay for every ten nights
booked through hotels.com, with no blackout dates or hotel
restrictions.
-- hotels.com and TripAdvisor both launched applications for Apple's
new iPhone, enabling access to hotels.com content and booking
capabilities and TripAdvisor's Local Picks(TM) restaurant finder.
-- Hotwire(R) launched Trip Watcher, its latest cost-and time-saving
travel planning tool. Trip Watcher tracks travelers' specific trip
itineraries over a 60-day range, finding the lowest available prices
on hotels, airfares and car rentals and offering money saving
options such as date flexibility and neighboring airports.
-- Expedia.com unveiled its 2nd annual Expedia Insiders' Select(R) list
of the world's best hotels (http://www.expedia.com/insidersselect).
With Insiders' Select global travelers discover the best hotels
among Expedia's nearly 80,000 properties based on Traveler
Opinions(R) postings, value ratings and Expedia's experts.
Partner Services Group ("PSG")
-- Expedia continued to grow its European hotel base, adding 1,700
merchant hotel properties during the second quarter, including long-
term, strategic agreements with Barcelo Hotels & Resorts and Sol
Melia Hotels & Resorts, making these properties' inventory available
on Expedia(R) and hotels.com worldwide points of sale.
-- Expedia's worldwide merchant hotel portfolio grew 23% to exceed
42,000 properties, including over 24,000 hotels in the Americas,
nearly 16,000 in Europe, the Middle East & Africa, and over 2,000 in
the APAC region.
-- Expedia reached a multi-year agreement with Budget Rent A Car
System, Inc., adding Budget's fleet inventory to the Expedia
Preferred Rental Car Program on the company's U.S. websites. Expedia
also signed a long-term agreement with Jumeirah Hotels, a leading
operator of luxury hotels in Dubai.
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
--------------------------------------------
2008 2007 2008 2007
---------- --------- ---------- -----------
Revenue $795,048 $689,923 $1,482,865 $1,240,434
Cost of revenue (1) 168,874 143,646 320,817 264,944
---------- --------- ---------- -----------
Gross profit 626,174 546,277 1,162,048 975,490
Operating expenses:
Selling and marketing (1) 299,550 255,905 586,672 478,173
General and
administrative (1) 84,679 75,733 173,080 151,896
Technology and content (1) 52,744 41,511 105,046 83,763
Amortization of intangible
assets 18,660 19,503 36,711 40,699
---------- --------- ---------- -----------
Operating income 170,541 153,625 260,539 220,959
Other income (expense):
Interest income 9,073 10,552 17,188 17,821
Interest expense (13,342) (9,902) (29,042) (21,078)
Other, net (5,098) 5,936 (8,771) 441
---------- --------- ---------- -----------
Total other income (expense),
net (9,367) 6,586 (20,625) (2,816)
---------- --------- ---------- -----------
Income before income taxes and
minority interest 161,174 160,211 239,914 218,143
Provision for income taxes (65,944) (64,076) (94,916) (87,688)
Minority interest in loss of
consolidated subsidiaries,
net 859 1 2,397 457
---------- --------- ---------- -----------
Net income $96,089 $96,136 $147,395 $130,912
========== ========= ========== ===========
Net earnings per share
available to common
stockholders:
Basic $0.34 $0.32 $0.52 $0.43
Diluted 0.33 0.30 0.50 0.41
Shares used in computing
earnings per share:
Basic 285,986 303,035 285,547 305,426
Diluted 293,999 320,196 294,010 321,966
---------
(1) Includes stock-based
compensation as follows:
Cost of revenue $569 $646 $1,244 $1,529
Selling and marketing 2,836 2,804 6,575 6,039
General and administrative 8,018 7,004 16,968 14,673
Technology and content 3,431 3,518 7,873 7,591
---------- --------- ---------- -----------
Total stock-based
compensation $14,854 $13,972 $32,660 $29,832
========== ========= ========== ===========
EXPEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, December 31,
2008 2007
-------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,027,553 $617,386
Restricted cash and cash equivalents 26,937 16,655
Accounts receivable, net of allowance of
$8,135 and $6,081 398,500 268,008
Prepaid merchant bookings 129,681 66,778
Prepaid expenses and other current assets 100,688 76,828
-------------- -------------
Total current assets 1,683,359 1,045,655
Property and equipment, net 208,864 179,490
Long-term investments and other assets 112,674 93,182
Intangible assets, net 980,214 970,757
Goodwill 6,136,371 6,006,338
-------------- -------------
TOTAL ASSETS $9,121,482 $8,295,422
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, merchant $830,576 $704,044
Accounts payable, other 185,629 148,233
Deferred merchant bookings 1,217,467 609,117
Deferred revenue 19,009 11,957
Income taxes payable 41,729 -
Accrued expenses and other current
liabilities 284,861 301,001
-------------- -------------
Total current liabilities 2,579,271 1,774,352
Long-term debt 894,296 500,000
Credit facility - 585,000
Deferred income taxes, net 361,772 351,168
Other long-term liabilities 216,800 204,886
Minority interest 59,315 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: 338,961 and 337,057
Shares outstanding: 260,901 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 5,950,983 5,902,582
Treasury stock - Common stock, at cost (1,730,091) (1,718,833)
Shares: 78,060 and 77,568
Retained earnings 749,599 602,204
Accumulated other comprehensive income 39,172 31,765
-------------- -------------
Total stockholders' equity 5,010,028 4,818,081
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $9,121,482 $8,295,422
============== =============
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six months ended June 30,
-------------------------------
2008 2007
-------------- -------------
Operating activities:
Net income $147,395 $130,912
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation of property and equipment,
including internal-use software and website
development 35,364 28,050
Amortization of intangible assets and stock-
based compensation 69,371 70,531
Deferred income taxes (9,082) 722
(Gain) loss on derivative instruments, net (4,580) 4,544
Equity in loss of unconsolidated affiliates 1,916 3,554
Minority interest in loss of consolidated
subsidiaries, net (2,397) (457)
Foreign exchange (gain) loss on cash and cash
equivalents, net 2,314 (4,686)
Other 1,147 2,913
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (118,404) (93,517)
Prepaid merchant bookings and prepaid
expenses (90,067) (70,854)
Accounts payable, merchant 124,336 178,076
Accounts payable, other, accrued
expenses and other current liabilities 98,432 118,734
Deferred merchant bookings 608,288 551,691
Deferred revenue 7,021 2,400
-------------- -------------
Net cash provided by operating activities 871,054 922,613
-------------- -------------
Investing activities:
Capital expenditures, including
internal-use software and website
development (70,733) (38,974)
Acquisitions, net of cash acquired (178,313) (59,622)
Increase in long-term investments
and deposits (11,106) (29,594)
Proceeds from sale of business to a
related party 1,624 -
Net cash used in investing activities (258,528) (128,190)
-------------- -------------
Financing activities:
Credit facility borrowings 90,000 150,000
Credit facility repayments (675,000) (150,000)
Proceeds from issuance of long-term
debt, net of issuance costs 393,818 -
Changes in restricted cash and cash
equivalents (11,838) (11,614)
Proceeds from exercise of equity awards 3,709 34,885
Excess tax benefit on equity awards 1,551 1,608
Treasury stock activity (11,215) (668,018)
Other, net - 393
-------------- -------------
Net cash used in financing activities (208,975) (642,746)
Effect of exchange rate changes on
cash and cash equivalents 6,616 6,453
-------------- -------------
Net increase in cash and cash equivalents 410,167 158,130
Cash and cash equivalents at beginning of
period 617,386 853,274
-------------- -------------
Cash and cash equivalents at end of period $1,027,553 $1,011,404
============== =============
Supplemental cash flow information
Cash paid for interest $28,990 $19,775
Income tax payments, net 48,657 5,888
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% of total gross bookings in the
second quarter compared to 42% in the prior year period due to
growth in our merchant air business.
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 second quarter of 2008
compared to 20.8% in the prior year period. Excluding stock-based
compensation, cost of revenue was 21.2% of revenue for the second
quarter of 2008 compared to 20.7% in the prior year period. Cost of
revenue increased as a percentage of revenue due primarily to
increased expenses in our call and telesales centers, as well as due
to our gas rebate promotion.
-- Cost of revenue includes depreciation expense of $4 million for the
second quarters of 2008 and 2007.
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 second quarter of 2008 and 2007 were as follows (some numbers
may not add due to rounding):
Operating Expenses As a % of Revenue
------------------- -------------------
Three months Three months
ended ended
June 30, June 30,
------------- ------------- Change
in
2008 2007 Growth 2008 2007 bps
------- ------- ------ ------ ------- -----
Selling and marketing $296.7 $253.1 17% 37.3% 36.7% 63
General and administrative 76.7 68.7 12% 9.6% 10.0% (32)
Technology and content 49.3 38.0 30% 6.2% 5.5% 70
------- ------- ------ ------ ------- -----
Total operating expenses $422.7 $359.8 17% 53.2% 52.2% 101
Operating expenses include $14 million of depreciation expense for
the second quarter of 2008, and $10 million for the comparable prior
year period. The increase primarily relates to higher technology and
content depreciation expense related to capitalized software.
Selling and Marketing (non-GAAP)
o Selling and marketing expense primarily relates to traffic
generation costs from search engines, brand advertising
(primarily television), online advertising and our private
label and affiliate programs.
o Approximately 23% and 20% of selling and marketing expense in
the second quarters of 2008 and 2007 relate to indirect
expenses, including personnel-related costs in PSG, the
TripAdvisor Media Network and Europe.
o The 17% increase in selling and marketing expense in the second
quarter was primarily due to increased direct spend at our
continental European sites and Hotwire(R), including
CarRentals.com(TM). In addition, we increased personnel costs
at PSG, TripAdvisor and our European businesses.
o 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 earlier stage international businesses,
expand our various sales teams, invest in our global
advertising and media businesses and experience continued
keyword inflation.
General and Administrative (non-GAAP)
o 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.
o The 12% increase in general and administrative expense in the
second quarter was primarily to support the overall growth of
our businesses, including costs related to our information
technology efforts and our European businesses.
o We expect general and administrative expense to decrease as a
percentage of revenue in 2008 compared to 2007.
Technology and Content (non-GAAP)
o Technology and content expense includes product development
expenses principally related to payroll and related expenses,
professional fees, licensing costs and software development
cost amortization.
o The 30% increase in technology and content expense in the
second quarter was due to increased personnel costs related to
our North America businesses, primarily in our worldwide
product development organization and TripAdvisor, as well as an
increase in software development cost amortization.
o 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 February
2003 we have awarded RSUs as our primary form of employee stock-
based compensation, and these awards generally vest over five years.
-- Second quarter stock-based compensation expense was $15 million,
consisting of $12 million in expense related to RSUs, and $3 million
in stock option expense.
-- Second quarter stock-based compensation expense increased $1 million
compared to the prior year period due to increased expense related
to RSU awards.
-- 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
$70 million in 2008.
Other, Net
-- The $5 million Other, net loss primarily relates to a $4 million
foreign exchange loss and $1 million in losses from our
equity-method investments. The prior year period Other, net gain was
$6 million, primarily related to a $12 million gain related to
federal excise tax, partially offset by a $3 million loss on our Ask
Notes and $2 million in losses from our equity-method investments.
-- $3 million of the $4 million foreign exchange loss in the second
quarter of 2008 related to losses from eLong's U.S. dollar cash
position and appreciation in the Chinese Renminbi. This loss is
excluded from our calculations of Adjusted Net Income and Adjusted
EPS.
Income Taxes
-- The effective tax rates on GAAP pre-tax income were 40.9% for the
second quarter of 2008 and 40.0% in the prior year period. The
increase in the effective rate was primarily due to higher interest
accruals related to uncertain tax positions, partially offset by a
lower non-deductible loss on derivatives in the second 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 interest accruals related to uncertain tax
positions.
-- The effective tax rates on pre-tax adjusted income were 38.9% for
the second quarter of 2008 and 38.4% in the prior year period. The
effective tax rate for the second quarter of 2008 was higher than
the 35% federal statutory rate primarily due to state income taxes
and interest accruals related to uncertain tax positions.
-- Cash paid for income taxes in the first half of 2008 was
$49 million, an increase of $43 million from the prior year
primarily due to the impact of new federal regulations regarding the
calculation of estimated tax payments. We anticipate lower stock-
based compensation related tax deductions in 2008 than in 2007, and
therefore expect cash tax payments for full year 2008 will increase
significantly 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 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 Europe growth rates from
foreign exchange in the second quarter 2008 was as follows (some
numbers may not add due to rounding):
Worldwide Europe
------------------------------ ----------------------------
Impact Impact
Y/Y on Y/Y Y/Y on Y/Y
growth growth growth growth
rates rates rates rates
excluding from excluding from
Three Y/Y foreign foreign Y/Y foreign foreign
months ended growth exchange exchange growth exchange exchange
June 30, 2008 rates movements movements rates movements movements
-------- ---------- --------- ------- --------- ---------
Gross Bookings 15.7% 12.4% 3.3% 30.2% 18.9% 11.3%
Revenue 15.2% 11.6% 3.6% 28.1% 17.4% 10.7%
-- The positive impact of foreign exchange on our cash balances
denominated in foreign currency was $7 million in the first six
months of 2008 and $6 million in the prior year period. Both amounts
are included in "effect of exchange rate changes on cash and cash
equivalents" on our statements of cash flows. These increases arise
from an appreciation in foreign currencies compared with the USD.
Acquisitions
-- The impact of acquisitions on the growth of gross bookings, revenue
and OIBA in the second quarter is 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
June 30, 2008 rates acquisitions acquisitions
--------- ------------ -------------
Gross Bookings 15.7% 15.1% 0.6%
Revenue 15.2% 14.2% 1.0%
OIBA 9.1% 7.6% 1.5%
-- During the first half of 2008 we paid cash totaling $178 million for
acquisitions, including a $93 million earnout payment related to a
prior year acquisition.
-- Expedia acquired Virtual Tourist on June 30, 2008, and recorded the
purchase price in 'Accrued expenses and other current liabilities'
on our balance sheet. The purchase price was paid in cash in early
July. In July we entered into an agreement to acquire Venere.com,
subject to regulatory approval. We are holding Euro cash balances to
economically hedge the purchase price, and expect to incur a foreign
exchange gain or loss in the third quarter to reflect fluctuation in
the Euro\USD exchange rate between the agreement date and the close
date.
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
$3 million ($2 million or $0.01 per share net of minority interest),
and $2 million ($1 million or $0.00 per share net of minority
interest) for the quarters ended June 30, 2008 and 2007,
respectively.
Balance Sheet Notes
Cash, Cash Equivalents and Restricted Cash
-- Cash, cash equivalents and restricted cash totaled $1.05 billion at
June 30, 2008. This amount includes $27 million in restricted cash
and cash equivalents primarily related to merchant air transactions,
and $156 million of cash at eLong, whose results are consolidated in
our financial statements due to our controlling voting and economic
ownership position.
-- The $420 million increase in cash, cash equivalents and restricted
cash for the six months ended June 30, 2008 principally relates to
$630 million in net benefit from changes in operating assets and
liabilities and $330 million in OIBA, partially offset by $191
million in net debt repayments, $189 million in acquisitions, long-
term investments and deposits, $78 million in cash payments related
to taxes and interest expense and $71 million of capital
expenditures.
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 $130 million from December 31, 2007
primarily due to a seasonal ramp in our merchant business and the
associated credit card receivables, as well as growth in our
advertising and media and corporate travel businesses.
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 $63 million increase in prepaid merchant bookings from
December 31, 2007 is due to a seasonal increase in our merchant air
business.
-- Prepaid expenses and other current assets are primarily composed of
prepaid marketing, prepaid credit card merchant fees, prepaid
license and maintenance agreements, and prepaid insurance. Prepaid
expenses and other current assets increased $24 million primarily
due to increased prepaid credit card merchant fees from growth in
our merchant hotel business, and other prepaid expenses, including
prepaid marketing.
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.
-- The $19 million increase in long-term investments and other assets
from December 31, 2007 includes a $10 million increase in amounts
held related to our cross-currency swaps and $2 million of issuance
costs related to our unregistered 8.5% Senior Notes due 2016 ("8.5%
Notes"), which we issued in June 2008.
Goodwill and Intangible Assets, Net
-- Goodwill and intangible assets, net primarily relates to the
acquisitions of hotels.com, Expedia.com, and Hotwire.com(R).
-- $868 million of intangible assets, net relates to intangible assets
with indefinite lives, which are not amortized, principally related
to acquired trade names and trademarks.
-- $112 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
$19 million for the second quarter 2008 compared with $20 million
for the prior year period. This decrease was primarily due to
completed amortization of certain technology intangible assets.
Assuming no impairments or additional acquisitions, we expect
amortization expense for definite lived intangibles of $27 million
for the remainder of 2008 and $29 million in 2009.
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 $37 million from December 31, 2007
primarily due to an increase in accrued marketing expenses to
support our various businesses.
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.
-- 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.
-- Due to various factors, including technology and process
initiatives, we paid hotels sooner in the first half of 2008 than in
the comparable period of 2007, resulting in an incremental reduction
to our overall working capital benefits year over year. We will
continue to invest in such initiatives in the second half of 2008.
-- For the six months ended June 30, 2008, the change in deferred
merchant booking and accounts payable, merchant contributed $733
million to net cash provided by operating activities, primarily
related to growth in our merchant hotel business.
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 $16 million
from December 31, 2007 primarily due to an earn-out payment related
to a prior-year acquisition, the payout of annual bonuses in the
first quarter and settlement of the Ask Derivative liability. These
amounts were partially offset by an accrued liability related to the
purchase price for Virtual Tourist, current year bonus accruals and
other accrued expenses.
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 the remaining Ask Notes were converted for
0.5 million shares of Expedia common stock. There are no Ask Notes
outstanding, and our obligation to satisfy demands for any
conversions has ceased.
-- For the second quarter we recorded a loss of $400,000 related to the
Ask Notes due to the increase in our share price at the conversion
date compared to the end of the first quarter 2008. This loss is
recorded in other, net on our consolidated statements of income and
is excluded from both our OIBA and adjusted net income calculations.
Borrowings
-- Expedia, Inc. maintains a $1 billion unsecured revolving credit
facility, which expires in August 2010.
-- As of June 30, 2008, we had no borrowings outstanding under our
credit facility, reflecting our repayment of the outstanding balance
of $330 million with the proceeds of our 8.5% Notes.
-- Outstanding borrowings under the facility bear interest based on our
financial leverage, which based on our June 30, 2008 financials
equates to a base rate plus 62.5 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 LIBOR
durations.
-- As of June 30, 2008 we were in compliance with the leverage and net
worth covenants under the credit facility. Outstanding letters of
credit as of that date were $65 million, reducing total borrowing
capacity under the facility to $935 million.
-- Long-term debt relates to $500 million in registered 7.456% Senior
Notes due 2018 (the "7.456% Notes") and $400 million in 8.5% Notes.
The 7.456% Notes are repayable in whole or in part on August 15,
2013 at the option of the note holders, and we may redeem the 7.456%
Notes at any time at our option subject to a Treasury + 37.5bps
make-whole premium. The 8.5% Notes are non-callable until July 2012,
but at any time may be redeemed at our option subject to a Treasury
+ 50bps make-whole premium. After July, 2012 we may redeem the 8.5%
Notes at redemption prices ranging from 104.25% to 100% of the
principal.
-- Annual interest expense related to our 7.456% Notes is $37 million,
paid semi-annually on February 15 and August 15 of each year. Annual
interest expense related to our 8.5% Notes is $34 million, paid
semi-annually on January 1 and July 1, beginning with January 1,
2009. Accrued interest related to these notes was $15 million at
June 30, 2008 and is classified as accrued expenses and other
current liabilities on our balance sheet.
Other Long-Term Liabilities
-- Other long-term liabilities include $177 million in uncertain tax
positions recorded under FIN 48. This amount increased $5 million
compared to $172 million at December 31, 2007 primarily due to
accrued interest.
-- Other long-term liabilities also includes $31 million of derivative
liabilities, primarily related to cross-currency swaps, which
increased $10 million from December 31, 2007 primarily due to
increased swap interest rates and 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 57% interest (51%
fully-diluted) and results for which are consolidated for all
periods presented.
-- During the first quarter of 2008 eLong approved a $20 million share
repurchase program. As of May 23, 2008 eLong had repurchased $2.6
million worth of shares, primarily through open market repurchases.
Purchase Obligations and Contractual Commitments
-- At June 30, 2008 we have agreements with certain vendors under which
we have future minimum obligations of $19 million for the remainder
of 2008 and $11 million in 2009. These minimum obligations for
software, loyalty, telecom, marketing agreements 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. $1 million was drawn on the line of credit and no amounts
were drawn on the credit facility as of June 30, 2008.
-- We have entered into a lease for new headquarters office space
located in Bellevue, Washington for which we began recognizing rent
expense in April 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 non-cancelable lease terms that expire after June 30, 2008 are
$17 million for the remainder of 2008, $38 million for 2009, $36
million for 2010, $35 million for 2011, $34 million for 2012, and
$128 million for 2013 and thereafter.
Common Stock
-- 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, all of which are 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 July 21, 2008.
Warrants
-- As of June 30, 2008 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 $773 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
February 2009. There are 0.3 million other warrants outstanding.
Stock-Based Awards
-- At June 30, 2008 we had 18.6 million stock-based awards outstanding,
consisting of 9.4 million RSUs and stock options to purchase 9.3
million common shares with a $25.35 weighted average exercise price
and weighted average remaining life of 4.3 years.
-- During the first half of 2008 we granted 3.4 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 half of 2008, RSUs and
options increased by 2.6 million.
Basic, Fully Diluted and Adjusted Diluted Shares
-- Weighted average basic, fully diluted and adjusted diluted share
counts for the three months ended June 30, 2008 are as follows (in
000's; some numbers may not add due to rounding):
3 Months Ended 3 Months Ended
Shares 6.30.08 6.30.07
-------- ----------- -----------
Basic shares 285,986 303,035
Options 1,270 8,909
Warrants 5,457 6,084
Derivative liabilities 300 501
RSUs 986 1,666
----------- -----------
Fully diluted shares 293,999 320,196
Additional RSUs, Adjusted Income
method 8,382 7,087
----------- -----------
Adjusted diluted shares 302,380 327,283
=========== ===========
-- The decrease in basic, fully diluted and adjusted diluted shares for
the second quarter of 2008 as compared to the prior year period
primarily relates to the completion of our tender offer for 25.0
million shares in August 2007.
-- 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 June 30, 2008,
in-the-money warrants expiring in the first quarter of 2009
represented the right to purchase 11.1 million shares, which is
significantly higher than the 5.5 million shares represented by
warrants above primarily due to offsetting repurchases assumed under
the treasury method for diluted share calculations.
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
-----------------------------------
Q1 Q2 Q3 Q4
-------- -------- -------- -------
Number of Transactions 10.4 10.4 10.3 8.8
Gross Bookings by Segment
North America $3,522 $3,445 $3,104 $2,666
Europe 711 674 724 613
Other 347 368 365 344
-------- -------- -------- -------
Total $4,580 $4,487 $4,193 $3,623
Gross Bookings by Brand
Expedia Worldwide Sites $3,631 $3,537 $3,300 $2,920
hotels.com Worldwide Sites 582 621 600 456
Other 367 330 293 246
-------- -------- -------- -------
Total $4,580 $4,487 $4,193 $3,623
Gross Bookings by Agency/Merchant
Agency $2,650 $2,675 $2,429 $2,213
Merchant 1,930 1,812 1,763 1,410
-------- -------- -------- -------
Total $4,580 $4,487 $4,193 $3,623
Revenue by Segment
North America $382 $456 $450 $379
Europe 85 112 134 121
Other 27 30 30 32
-------- -------- -------- -------
Total $494 $598 $614 $531
Packages Revenue $114 $131 $125 $107
TripAdvisor Media Network Revenue $26 $27 $27 $25
TripAdvisor Media Network OIBA 14 16 15 16
Advertising and Media Revenue (Net) 21 22 25 27
OIBA by Segment
North America $147 $212 $204 $172
Europe 15 40 48 55
Other (74) (68) (72) (81)
-------- -------- -------- -------
Total $89 $184 $180 $146
Worldwide Merchant Hotel
Room Nights 8.0 10.0 10.9 8.6
Room Night Growth 7% 13% 11% 7%
ADR Growth 3% 7% 4% 8%
Revenue per Night Growth -4% 4% 3% 7%
Revenue Growth 3% 17% 14% 15%
Worldwide Air (Merchant & Agency)
Tickets Sold Growth 2% -4% -7% 1%
Airfare Growth 9% 13% 11% 3%
Revenue per Ticket Growth -9% -10% -17% -14%
Revenue Growth -7% -13% -23% -14%
2007
-----------------------------------
Q1 Q2 Q3 Q4
-------- -------- -------- -------
Number of Transactions 10.9 11.8 11.9 10.5
Gross Bookings by Segment
North America $3,559 $3,723 $3,519 $3,136
Europe 940 939 1,074 919
Other 425 466 465 466
-------- -------- -------- -------
Total $4,924 $5,128 $5,058 $4,522
Gross Bookings by Brand
Expedia Worldwide Sites $3,947 $4,034 $3,887 $3,547
hotels.com Worldwide Sites 612 696 730 579
Other 365 399 441 396
-------- -------- -------- -------
Total $4,924 $5,128 $5,058 $4,522
Gross Bookings by Agency/Merchant
Agency $2,850 $2,959 $2,808 $2,659
Merchant 2,075 2,169 2,249 1,862
-------- -------- -------- -------
Total $4,924 $5,128 $5,058 $4,522
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
TripAdvisor Media Network Revenue $43 $51 $58 $50
TripAdvisor Media Network OIBA 27 29 27 22
Advertising and Media Revenue (Net) 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 8.3 11.0 12.7 10.2
Room Night Growth 3% 10% 16% 18%
ADR Growth 9% 6% 6% 7%
Revenue per Night Growth 13% 4% 5% 4%
Revenue Growth 17% 14% 22% 23%
Worldwide Air (Merchant & Agency)
Tickets Sold Growth 5% 14% 15% 15%
Airfare Growth 1% -3% 2% 9%
Revenue per Ticket Growth -20% -18% -5% -2%
Revenue Growth -16% -7% 9% 13%
2008
------------------
Y/Y
Q1 Q2 Growth
-------- -------- ------
Number of Transactions 12.6 13.0 10%
Gross Bookings by Segment
North America $4,087 $4,099 10%
Europe 1,257 1,223 30%
Other 559 611 31%
-------- -------- ------
Total $5,902 $5,933 16%
Gross Bookings by Brand
Expedia Worldwide Sites $4,631 $4,552 13%
hotels.com Worldwide Sites 745 806 16%
Other 527 576 45%
-------- -------- ------
Total $5,902 $5,933 16%
Gross Bookings by Agency/Merchant
Agency $3,301 $3,357 13%
Merchant 2,602 2,576 19%
-------- -------- ------
Total $5,902 $5,933 16%
Revenue by Segment
North America $494 $556 10%
Europe 146 186 28%
Other 47 53 36%
-------- -------- ------
Total $688 $795 15%
Packages Revenue $125 $137 4%
TripAdvisor Media Network Revenue $72 $79 54%
TripAdvisor Media Network OIBA 35 45 56%
Advertising and Media Revenue (Net) 64 74 68%
OIBA by Segment
North America $195 $248 9%
Europe 30 58 36%
Other (100) (102) -23%
-------- -------- ------
Total $126 $204 9%
Worldwide Merchant Hotel
Room Nights 10.2 12.5 13%
Room Night Growth 23% 13% 13%
ADR Growth 3% 1% 1%
Revenue per Night Growth -1% -2% -2%
Revenue Growth 22% 10% 10%
Worldwide Air (Merchant & Agency)
Tickets Sold Growth 11% 4% 4%
Airfare Growth 8% 12% 12%
Revenue per Ticket Growth 6% 9% 9%
Revenue Growth 18% 14% 14%
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,
as well as results from TripAdvisor Media Network.
Europe -- Reflects results for travel products and services provided
through localized Expedia websites in Austria, Belgium, 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 Egencia, Asia Pacific and unallocated corporate
functions and expenses.
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 Six months ended
June 30, June 30,
------------------- ------------------
2008 2007 2008 2007
--------- --------- --------- ---------
(in thousands)
OIBA $204,055 $187,100 $329,910 $291,490
Amortization of intangible assets (18,660) (19,503) (36,711) (40,699)
Stock-based compensation (14,854) (13,972) (32,660) (29,832)
--------- --------- --------- ---------
Operating income 170,541 153,625 260,539 220,959
Interest income (expense), net (4,269) 650 (11,854) (3,257)
Other, net (5,098) 5,936 (8,771) 441
Provision for income taxes (65,944) (64,076) (94,916) (87,688)
Minority interest in loss of
consolidated subsidiaries, net 859 1 2,397 457
--------- --------- --------- ---------
Net income $96,089 $96,136 $147,395 $130,912
========= ========= ========= =========
Adjusted Net Income & Adjusted EPS
Three months ended Six months ended
June 30, June 30,
------------------- ------------------
2008 2007 2008 2007
------------------- ------------------
(in thousands, except per share data)
Net income $96,089 $96,136 $147,395 $130,912
Amortization of intangible assets 18,660 19,503 36,711 40,699
Stock-based compensation 14,854 13,972 32,660 29,832
Foreign currency loss on U.S.
dollar cash balances held by
eLong 2,693 2,007 7,968 3,170
Federal excise tax refunds - (12,058) - (12,058)
(Gain) loss on derivative
instruments, net 400 3,153 (4,580) 4,544
Amortization of intangible assets
as part of equity method
investments 610 551 1,260 551
Minority interest (1,262) (1,072) (3,463) (1,789)
Provision for income taxes (11,202) (7,329) (26,110) (21,415)
--------- --------- --------- ---------
Adjusted net income $120,842 $114,863 $191,841 $174,446
========= ========= ========= =========
GAAP diluted weighted average
shares outstanding 293,999 320,196 294,010 321,966
Additional restricted stock units 8,382 7,087 7,791 6,526
--------- --------- --------- ---------
Adjusted weighted average shares
outstanding 302,380 327,283 301,801 328,492
========= ========= ========= =========
Diluted earnings per share $0.33 $0.30 $0.50 $0.41
========= ========= ========= =========
Adjusted earnings per share $0.40 $0.35 $0.64 $0.53
========= ========= ========= =========
Free Cash Flow
Three months ended Six months ended
June 30, June 30,
------------------- ------------------
2008 2007 2008 2007
--------- --------- --------- ---------
(in thousands)
Net cash provided by operating
activities $307,275 $384,557 $871,054 $922,613
Less: capital expenditures (37,545) (20,642) (70,733) (38,974)
--------- --------- --------- ---------
Free cash flow $269,730 $363,915 $800,321 $883,639
--------- --------- --------- ---------
Non-GAAP cost of revenue, selling and marketing, general and
administrative and technology and content expenses excluding stock-based
compensation
Three months ended Six months ended
June 30, June 30,
------------------- ------------------
2008 2007 2008 2007
--------- --------- --------- ---------
(in thousands)
Cost of revenue $168,874 $143,646 $320,817 $264,944
Less: stock-based compensation (569) (646) (1,244) (1,529)
--------- --------- --------- ---------
Cost of revenue excluding stock-
based compensation $168,305 $143,000 $319,573 $263,415
Selling and marketing expense $299,550 $255,905 $586,672 $478,173
Less: stock-based compensation (2,836) (2,804) (6,575) (6,039)
--------- --------- --------- ---------
Selling and marketing expense
excluding stock-based
compensation $296,714 $253,101 $580,097 $472,134
General and administrative expense $84,679 $75,733 $173,080 $151,896
Less: stock-based compensation (8,018) (7,004) (16,968) (14,673)
--------- --------- --------- ---------
General and administrative expense
excluding stock-based
compensation $76,661 $68,729 $156,112 $137,223
Technology and content expense $52,744 $41,511 $105,046 $83,763
Less: stock-based compensation (3,431) (3,518) (7,873) (7,591)
--------- --------- --------- ---------
Technology and content expense
excluding stock-based
compensation $49,313 $37,993 $97,173 $76,172
Conference Call
Expedia, Inc. will audiocast a conference call to discuss second quarter
2008 financial results and certain forward-looking information on Thursday,
July 31, 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 July 31, 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, 2007.
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 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 and Egencia are trademarks of Expedia, Inc. Classic
Vacations is a trademark of Classic Vacations, LLC. hotels.com is a trademark
of hotels.com, L.P., a subsidiary of hotels.com. Hotwire is a trademark of
Hotwire, Inc. TripAdvisor is a trademark of TripAdvisor, LLC. 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, Inc.
