Merchant Hotel and Advertising Fuel 21% OIBA Growth
BELLEVUE, Wash., May 1 /PRNewswire-FirstCall/ -- Expedia, Inc. today announced financial results for its first quarter ended March 31, 2008.
"With over $20 billion in annual gross bookings and excellent first quarter results, Expedia(R) is far and away the leader in online travel services," said Barry Diller, Expedia, Inc.'s Chairman and Senior Executive. "Our unique mix of both transactional and advertising revenues, each operating at meaningful scale, continues to deliver strong profitable growth."
"Expedia employees around the globe continued to execute in the first quarter, delivering record gross bookings and solid OIBA growth," said Dara Khosrowshahi, Expedia, Inc.'s CEO and President. "While 2008 continues to present an uncertain economic backdrop, Expedia remains focused on investing in our leadership position to drive growth in long-term 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 3.31.08 Ended 3.31.07 Growth
--------- -------------- --------------- --------
Transactions 12.6 10.9 16%
Gross bookings $5,902.5 $4,924.1 20%
Revenue $687.8 $550.5 25%
Revenue margin 11.65% 11.18% +47 bps
Gross profit $535.9 $429.2 25%
Operating income before
amortization* ("OIBA") $125.9 $104.4 21%
Operating income $90.0 $67.3 34%
Adjusted net income* $71.0 $59.6 19%
Net income $51.3 $34.8 48%
Adjusted EPS* $0.24 $0.18 33%
Diluted EPS $0.17 $0.11 55%
Net cash provided by operating
activities $563.8 $538.1 5%
Free cash flow* $530.6 $519.7 2%
* "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 have amended the
definition of Adjusted net income and Adjusted EPS.
Discussion of Results
Gross Bookings & Revenue
Gross bookings increased 20% for the first quarter of 2008 compared with the first quarter of 2007. North America bookings increased 15%, Europe bookings increased 34% (25% excluding the net benefit from foreign exchange) and Other bookings (primarily Expedia(R) Corporate Travel and our Asia Pacific operations) increased 31%.
Revenue increased 25% for the first quarter, primarily driven by increased worldwide merchant hotel revenue and advertising and media revenue. North America revenue increased 22%, Europe revenue increased 33% (23% excluding foreign exchange) and Other revenue increased 38%.
Worldwide merchant hotel revenue increased 22% for the first quarter due to a 23% increase in room nights stayed, including rooms delivered as a component of vacation packages, offset slightly by a 1% decrease in revenue per room night. Revenue per room night decreased due to a 108 basis point decline in hotel margin, partially offset by a 3% increase in worldwide average daily rates.
Worldwide air revenue increased 18% for the first quarter due to an 11% increase in air tickets sold and a 6% increase in revenue per air ticket.
Worldwide revenue from products and services other than merchant hotel and air (including advertising and media, car rentals, destination services, agency hotel and cruises), increased 39% for the first quarter due primarily to increased advertising and media revenues and car rental revenues. Package revenue increased 13% primarily due to higher package gross bookings worldwide.
Revenue as a percentage of gross bookings ("revenue margin") was 11.65% for the first quarter, an increase of 47 basis points. North America revenue margin increased 68 basis points to 12.10%, Europe revenue margin decreased 6 basis points to 11.65%, and Other revenue margin increased 39 basis points to 8.41%. The first quarter increase in North America revenue margin was primarily due to an increased mix of advertising and media revenues as compared to first quarter 2007. Europe revenue margin decreased primarily due to lower revenue from more competitive hotel pricing and lower consumer air fees. Worldwide and segment revenue margins benefited from higher revenues associated with completed Easter travel, which occurred in the first quarter of 2008 compared to the second quarter of 2007.
Profitability
Gross profit for the first quarter of 2008 was $536 million, an increase of 25% compared with the first quarter of 2007 due to increased revenue.
OIBA for the first quarter increased 21% to $126 million, driven primarily by higher revenue. OIBA as a percentage of revenue decreased 66 basis points to 18.30%, primarily reflecting higher growth in sales and marketing expenses excluding stock-based compensation as a percentage of revenue. Operating income increased 34% to $90 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 first quarter increased $11 million compared to the prior year period driven by higher OIBA, partially offset by a higher net interest expense. Net income increased $17 million due to the same factors impacting adjusted net income as well as an unrealized gain on the Ask convertible notes ("Ask Notes"), compared to an unrealized loss in the prior year period, partially offset by an increase in net foreign exchange losses. First quarter adjusted EPS and diluted EPS were $0.24 and $0.17, respectively. These measures increased 33% and 55% due to higher net income and lower weighted average share counts primarily resulting from shares repurchased in August 2007.
Cash Flows & Working Capital
For the three months ended March 31, 2008, net cash provided by operating activities was $564 million and free cash flow was $531 million. Both measures include $457 million from net changes in operating assets and liabilities, primarily driven by our merchant hotel business. Free cash flow for the first quarter increased $11 million due primarily to increased net changes in operating assets and liabilities and higher OIBA, partially offset by increased capital expenditures and an increase in cash paid for interest and taxes as compared with the prior year period.
Recent Highlights
Global Presence
* Gross bookings from Expedia, Inc.'s international points of sale
were $1.90 billion in the first quarter, accounting for 32% of
worldwide bookings, up from 28% in the prior year period.
International revenue was $221 million in the first quarter, or 32%
of worldwide revenue, up from 29% in the prior year period.
* Expedia, Inc. launched its 17th and 18th Expedia-branded points of
sale -- http://www.expedia.co.in(tm/) in India and http://www.expedia.be(tm/) in
Belgium.
* The TripAdvisor(R) Media Network continued to expand its global
presence, entering the Asia Pacific market with the launch of
http://www.bookingbuddy.in(tm/) in India.
Brand Portfolio
* Expedia's private label group, Expedia(R) Distribution, entered new
partnerships with ExpressJet, Frontier Airlines, BMI and British
Columbia Automobile Association Travel Agency, as well as Sky
Travel, the first partner to integrate both TripAdvisor traveler
reviews and Expedia Distribution's white label booking engine.
* Expedia, Inc. expanded its brand portfolio with three acquisitions
including CarRentals.com(TM), the premier online car rental firm
offering a diverse selection of car rentals directly to travelers,
HolidayWatchdog.com(TM), a UK-based user-generated travel content
site, and airfarewatchdog.com(TM), an online source of airfare
deals.
* hotels.com(R) signed a new multi-year strategic partnership with Air
Canada, enabling aircanada.com visitors to access the full range of
hotels.com's inventory of nearly 80,000 properties worldwide.
* TripAdvisor entered its first content distribution partnership with
a tourist board, Visit London, whose home page displays TripAdvisor
reviews for London attractions and hotels along with its "Trip's Top
10" lists. Total reviews and opinions on TripAdvisor sites reached
the 15 million milestone in less than a year since hitting 10
million in June 2007.
* hotels.com was named the "Best Site for Booking Hotels in the United
States" and the "Best Site for Booking Hotels in Europe" by Conde
Nast Traveler magazine, which recommended its 800,000 monthly
readers use the site "anytime you are shopping online for a hotel
stay."
* Expedia Corporate Travel ("ECT") emphasized its commitment to
offering the best value with the U.S. launch of the Expedia
Corporate Travel Promise, which includes a flight price guarantee.
Customers who find a lower fare after booking a trip can receive a
refund of the difference or be rebooked at no additional charge.
* In a recent roundup titled "Hot Links: 10 Sites You Need to Bookmark
Now," the New York Post named TripAdvisor as the "Best Hotel Portal"
and referred to it as "our favorite source for candid hotel info"
while airfarewatchdog.com was named "Top Fare Finder."
Content & Innovation
* Hotwire(R) launched its "Hotel Deal Engine" feature, allowing
visitors to the "Hotels" area of the site to see a current list of
Hotwire's very best deals, tailored to desired locations and
refreshed hourly.
* Expedia.co.jp(TM) introduced a lowest price guarantee and eliminated
its cancellation fee, assuring its customers of the most competitive
prices and flexibility while offering the broadest selection of
hotels of any travel site in Japan, with more than 40,000 properties
currently available on its site. Also, Japanese travelers are now
able to purchase air tickets on Expedia.co.jp as a result of its
recent affiliation with World Travel System.
* ECT introduced new services geared toward the corporate travel
manager, including DataMinder(TM), which sends real-time email
notifications to travel managers such as total air spend, market
share by city pair and carrier and average nightly room rate by
city. ECT also launched enhanced security services which facilitate
travel monitoring and use daily global intelligence data to help
companies enhance travel security.
Partner Services Group ("PSG")
* Expedia signed a strategic agreement with Air Berlin Group, making
all fares, schedules and inventory available on Expedia and
hotels.com branded points of sale.
* ECT expanded its offerings with key inventory expansion. The Expedia
Corporate Rate hotel program in the U.S. now includes 2,200 hotels
offering additional amenities and savings of up to 25% off standard
rates and customers can now book flights on 14 European low cost
carriers and ExpressJet in the U.S.
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended
March 31,
------------------------------
2008 2007
-------------- -------------
Revenue $687,817 $550,511
Cost of revenue (1) 151,943 121,298
-------------- -------------
Gross profit 535,874 429,213
Operating expenses:
Selling and marketing (1) 287,122 222,268
General and administrative (1) 88,401 76,163
Technology and content (1) 52,302 42,252
Amortization of intangible assets 18,051 21,196
-------------- -------------
Operating income 89,998 67,334
Other income (expense):
Interest income 8,115 7,269
Interest expense (15,700) (11,176)
Other, net (3,673) (5,495)
-------------- -------------
Total other expense, net (11,258) (9,402)
-------------- -------------
Income before income taxes and minority
interest 78,740 57,932
Provision for income taxes (28,972) (23,612)
Minority interest in loss of consolidated
subsidiaries, net 1,538 456
-------------- -------------
Net income $51,306 $34,776
============== =============
Net earnings per share available to common
stockholders:
Basic $0.18 $0.11
Diluted 0.17 0.11
Shares used in computing earnings per share:
Basic 285,117 307,828
Diluted 294,031 323,749
(1) Includes stock-based compensation as follows:
Cost of revenue $675 $883
Selling and marketing 3,739 3,235
General and administrative 8,950 7,669
Technology and content 4,442 4,073
-------------- -------------
Total stock-based compensation $17,806 $15,860
============== =============
EXPEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
March 31, December 31,
2008 2007
-------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $697,868 $617,386
Restricted cash and cash equivalents 29,854 16,655
Accounts receivable, net of allowance of
$7,785 and $6,081 367,930 268,008
Prepaid merchant bookings 103,302 66,778
Prepaid expenses and other current assets 99,586 76,828
-------------- -------------
Total current assets 1,298,540 1,045,655
Property and equipment, net 184,422 179,490
Long-term investments and other assets 101,733 93,182
Intangible assets, net 978,683 970,757
Goodwill 6,067,395 6,006,338
-------------- -------------
TOTAL ASSETS $8,630,773 $8,295,422
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, merchant $794,173 $704,044
Accounts payable, other 168,144 148,233
Deferred merchant bookings 1,127,352 609,117
Deferred revenue 18,372 11,957
Accrued expenses and other current
liabilities 260,356 301,001
-------------- -------------
Total current liabilities 2,368,397 1,774,352
Long-term debt 500,000 500,000
Credit facility 240,000 585,000
Deferred income taxes, net 360,958 351,168
Other long-term liabilities 215,010 204,886
Minority interest 59,972 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: 338,569 and 337,057
Shares outstanding: 260,582 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 5,922,732 5,902,582
Treasury stock - Common stock, at cost (1,728,363) (1,718,833)
Shares: 77,986 and 77,568
Retained earnings 653,510 602,204
Accumulated other comprehensive income 38,192 31,765
-------------- -------------
Total stockholders' equity 4,886,436 4,818,081
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,630,773 $8,295,422
============== =============
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended March 31,
------------------------------
2008 2007
-------------- -------------
Operating activities:
Net income $51,306 $34,776
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property and equipment,
including internal-use software and website
development 17,068 14,388
Amortization of intangible assets and stock-
based compensation 35,857 37,056
Deferred income taxes 7,908 4,443
Unrealized (gain) loss on derivative
instruments, net (4,980) 1,391
Equity in loss of unconsolidated affiliates 823 1,295
Minority interest in loss of consolidated
subsidiaries, net (1,538) (456)
Foreign exchange (gain) loss on cash and cash
equivalents, net (234) 1,879
Other 615 367
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (93,285) (71,588)
Prepaid merchant bookings and prepaid
expenses (66,372) (58,135)
Accounts payable, merchant 88,014 55,309
Accounts payable, other, accrued expenses
and other current liabilities 3,995 35,681
Deferred merchant bookings 518,219 480,365
Deferred revenue 6,383 1,285
-------------- -------------
Net cash provided by operating activities 563,779 538,056
-------------- -------------
Investing activities:
Capital expenditures, including internal-use
software and website development (33,188) (18,332)
Acquisitions, net of cash acquired (82,455) (39,851)
Increase in long-term investments and
deposits (7,157) (28,507)
-------------- -------------
Net cash used in investing activities (122,800) (86,690)
-------------- -------------
Financing activities:
Credit facility borrowings - 150,000
Credit facility repayments (345,000) (150,000)
Changes in restricted cash and cash
equivalents (14,756) (9,489)
Proceeds from exercise of equity awards 1,665 8,272
Excess tax benefit on equity awards 1,333 820
Treasury stock activity (9,488) (666,483)
Other, net - 393
-------------- -------------
Net cash used in financing activities (366,246) (666,487)
Effect of exchange rate changes on cash and
cash equivalents 5,749 (431)
-------------- -------------
Net increase (decrease) in cash and
cash equivalents 80,482 (215,552)
Cash and cash equivalents at beginning of
period 617,386 853,274
-------------- -------------
Cash and cash equivalents at end of period $697,868 $637,722
============== =============
Supplemental cash flow information
Cash paid for interest $25,511 $19,555
Income tax payments, net 7,604 3,151
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 44% of total gross bookings in the
first quarter compared to 42% in the prior year period due to growth
in our merchant hotel 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 22.1% of revenue for the first quarter of 2008
compared to 22.0% in the prior year period. Excluding stock-based
compensation, cost of revenue was 22.0% of revenue for the first
quarter of 2008 compared to 21.9% in the prior year period.
* Cost of revenue includes depreciation expense of $4 million for the
first quarter of 2008, and $3 million for the comparable 2007
period.
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 first 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 Change
ended March 31, ended March 31, in
---------------- ----------------
2008 2007 Growth 2008 2007 bps
------ ------ ------ ------ ------ -----
Selling and marketing $283.4 $219.0 29% 41.2% 39.8% 141
General and
administrative 79.5 68.5 16% 11.6% 12.4% (89)
Technology and content 47.9 38.2 25% 7.0% 6.9% 2
------ ------ ------ ------ ------ -----
Total operating
expenses $410.7 $325.7 26% 59.7% 59.2% 55
Operating expenses include $13 million of depreciation expense for the first quarter of 2008, and $11 million for the comparable prior year period.
Selling and Marketing (non-GAAP)
o Selling and marketing expense primarily relates to traffic
generation costs from search engines, brand advertising
(primarily television), our private label and affiliate
programs and internet portals.
o Approximately 23% and 22% of selling and marketing expense in
the first quarter of 2008 and 2007 relate to indirect costs,
including personnel in PSG, TripAdvisor, Europe, ECT and
Expedia Local Expert(TM) ("ELE").
o The 29% increase in selling and marketing expense in the first
quarter was primarily due to increased direct online and brand
spend to support our worldwide points of sale, including spend
in North America for Expedia.com, our TripAdvisor network,
hotels.com, and Hotwire, and in Europe for our hotels.com and
Expedia sites, as well as our private label and affiliate
channels. In addition, we had increased personnel costs related
to TripAdvisor, PSG, our European businesses, ECT, ELE and
other teams.
o We expect selling and marketing expense to increase as a
percentage of revenue in 2008 compared to 2007 as we continue
to support our established brands and geographies, experience
continued keyword inflation, invest in our global advertising
and media businesses, grow our earlier stage international
markets, and expand our various sales teams in PSG, ECT and
ELE.
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, and fees for professional services that
typically relate to legal, tax or accounting engagements.
o The 16% increase in general and administrative expense in the
first quarter was primarily due to overall growth of the
business including costs related to our corporate functions
including the information technology group, our European
businesses and expansion of TripAdvisor.
o We expect general and administrative expense as a percentage of
revenue in 2008 to remain relatively similar to our 2007 level.
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 25% increase in technology and content expense in the first
quarter was due to increased personnel costs related to our
North America businesses, primarily TripAdvisor, and our
product development organization, as well as an increase in
software development cost amortization.
o Given historical and ongoing investments in our enterprise data
warehouse, re-platforming, geographic expansion, call center
technology, site merchandising, content management, corporate
travel, supplier integration and other 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
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.
* First quarter stock-based compensation expense was $18 million,
consisting of $15 million in expense related to RSUs and $3 million
in stock option expense.
* First quarter stock-based compensation expense increased $2 million
compared to the prior year period primarily due to higher expense
related to RSU grants, partially offset by the completed vesting of
option awards.
* Assuming, among other things, no meaningful modification of existing
awards, incremental award grants or adjustments to forfeiture
estimates, we expect annual stock-based compensation expense will be
less than $70 million in 2008.
Other, Net
* The improvement in other, net for the first quarter primarily
relates to a $5 million gain on the Ask Notes, compared with a
$1 million loss in the prior year period and lower losses in our
joint venture investments, which were partially offset by an $8
million net foreign exchange loss in the first quarter of 2008,
compared with a $3 million net loss in the prior year period.
* Foreign exchange losses increased primarily due to increased losses
from eLong's U.S. dollar-denominated cash position and the
appreciation of the Chinese renminbi.
Income Taxes
* The effective tax rates on GAAP pre-tax income were 36.8% for the
first quarter of 2008 and 40.8% in the prior year period. The
decrease in the effective rate was primarily due to a non-taxable
gain on derivatives in the first quarter of 2008 as compared to a
non-deductible loss in the prior year period. The effective tax rate
for the first quarter of 2008 was higher than the 35% federal
statutory rate primarily due to state income taxes and accruals
related to uncertain tax positions, partially offset by non-taxable
gains related to our derivative liabilities.
* The effective tax rates on pre-tax adjusted income were 38.0% for
the first quarter of 2008 and 38.6% in the prior year period. The
effective tax rate for the first quarter of 2008 was higher than the
35% federal statutory rate primarily due to state income taxes and
accruals related to uncertain tax positions.
* Cash paid for income taxes in the first quarter of 2008 was $8
million, an increase of $4 million from the prior year. 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 first quarter 2008 was as follows (some
numbers may not add due to rounding):
Worldwide Europe
----------------------------- ----------------------------
Impact Impact
on 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 March 31,
2008
Gross Bookings 19.9% 16.8% 3.1% 33.7% 24.8% 8.9%
Revenue 24.9% 21.8% 3.1% 33.1% 23.3% 9.8%
* The positive impact of foreign exchange on our cash balances
denominated in foreign currency was $6 million in the first quarter
of 2008, 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 increase of $6 million from 2007 primarily due to
higher average foreign-denominated cash balances.
Acquisitions
* The impact of acquisitions on the growth of gross bookings, revenue
and OIBA in the first 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
March 31, 2008 rates acquisitions acquisitions
-------------- -------------- -------------
Gross Bookings 19.9% 19.7% 0.2%
Revenue 24.9% 23.4% 1.5%
OIBA 20.6% 19.1% 1.5%
* During the first quarter of 2008 we used a total of $82 million for
acquisitions. One of the acquisitions was for a controlling interest
with certain provisions which may result in additional payments for
the remainder of the acquired company through 2011.
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 only. Losses
were $5 million ($3 million or $0.01 per share net of minority
interest), and $1 million ($1 million or $0.00 per share net of
minority interest) for the quarters ended March 31, 2008 and 2007,
respectively.
Balance Sheet Notes
Cash, Cash Equivalents and Restricted Cash
* Cash, cash equivalents and restricted cash totaled $728 million at
March 31, 2008. This amount includes $30 million in restricted cash
and cash equivalents primarily related to merchant air revenue
transactions, and $159 million of cash at eLong, whose results are
consolidated in our financial statements due to our controlling
voting and economic ownership position.
* The $94 million increase in cash, cash equivalents and restricted
cash for the three months ended March 31, 2008 principally relates
to $457 million net benefit from changes in operating assets and
liabilities and $126 million in OIBA, partially offset by $345
million in payments on our revolving credit facility, $90 million in
acquisitions, long-term investments and deposits, and $33 million of
capital expenditures.
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
GDS partners.
* Accounts and notes receivable increased $100 million from December
31, 2007 primarily due to a seasonal increase in our merchant
business operations and, to a lesser extent, growth in our
advertising and media 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 $37 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 merchant fees, prepaid license and
maintenance agreements, and prepaid insurance.
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.
Goodwill and Intangible Assets, Net
* Goodwill and intangible assets, net primarily relates to the
acquisitions of hotels.com, Expedia.com, and Hotwire.com.
* $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.
* $111 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 first quarter 2008 compared with $21 million for
the prior year period. This decrease was primarily due to the
completed amortization of certain technology intangible assets over
the past year. Assuming no impairments or additional acquisitions,
we expect amortization expense for definite lived intangibles of
$43 million for the remainder of 2008 and $23 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 $20 million from December 31, 2007
primarily due to an increase in accrued marketing expenses related
to growth in marketing 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 three months ended March 31, 2008, the change in deferred
merchant booking and accounts payable, merchant contributed $606
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 on our Notes and credit facility.
* Accrued expenses and other current liabilities include the fair
value of our Ask Notes, which are due June 1, 2008 (see "Ask
Derivative Liability").
* Accrued expenses and other current liabilities include an obligation
to pay an additional purchase price of $92 million based on the
financial performance of one of our acquisitions made in 2007, which
we expect to pay in the second quarter of 2008.
* Accrued expenses and other current liabilities decreased $41 million
from December 31, 2007 primarily due to payment of annual incentive
compensation for performance in 2007, which is traditionally paid in
the first quarter of each year, and payment of accrued interest.
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) are 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 first quarter of 2008 there were no conversions of Ask
Notes into common shares. Prior conversions total 3.8 million
shares, leaving 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 Notes at March 31, 2008 was
$10 million, and is recorded in accrued expenses and other current
liabilities on our consolidated balance sheets.
* For the first quarter we recorded a net unrealized gain of $5
million related to the Ask Notes due to the decrease in our share
price at the end of the first quarter 2008 compared to the end of
2007. This gain is reflected as a decrease in accrued expenses and
other current liabilities, 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 gain or loss in the second quarter of 2008
representing an adjustment of the fair value of our remaining Ask
Notes' liability from March 31, 2008 up to and including expiration
on June 1, 2008.
Borrowings
* Expedia, Inc. maintains a $1 billion unsecured revolving credit
facility, which expires in August 2010. As of March 31, 2008, we had
$240 million in borrowings outstanding under our revolver reflecting
a reduction of $345 million since December 31, 2007.
* Outstanding borrowings bear interest based on our financial
leverage, which based on our March 31, 2008 financials equated 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 durations of LIBOR.
The base rate on all current borrowings is 1-month LIBOR.
* As of March 31, 2008 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 $66 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 $5 million at March 31, 2008 and is
classified as accrued expenses and other current liabilities on our
balance sheet.
Other Long-Term Liabilities
* Other long-term liabilities include $175 million in uncertain tax
positions recorded under FIN 48 compared to $172 million at December
31, 2007.
* Other long-term liabilities also includes $26 million of derivative
liabilities, primarily related to cross-currency swaps, which
increased $5 million from December 31, 2007 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.
* During the first quarter of 2008 eLong approved a $20 million share
repurchase program.
Purchase Obligations and Contractual Commitments
* At March 31, 2008 we have agreements with certain vendors under
which we have future minimum obligations of $21 million for the
remainder of 2008 and $6 million in 2009. These minimum obligations
for telecom, loyalty, software, 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 March 31, 2008.
* 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 $25 million for the remainder of 2008, $34 million for 2009,
$31 million for 2010, $30 million for 2011, $29 million for 2012,
and $103 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 April 15, 2008.
Warrants
* As of March 31, 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 $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 2007 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 March 31, 2008 we had 19.2 million stock-based awards
outstanding, consisting of stock options to purchase 9.5 million
common shares with a $25.05 weighted average exercise price and
weighted average remaining life of 4.6 years, as well as 9.7 million
RSUs.
* Annual employee RSU grants typically occur during the first quarter
of each year. During each of the first quarters of 2008 and 2007 we
granted 3.1 million RSUs. Net of cancellations, expirations and
forfeitures occurring during the quarter, RSUs increased by 2.8
million in the first quarter of 2008 and 2.4 million in the prior
year period.
Basic, Fully Diluted and Adjusted Diluted Shares
* Weighted average basic, fully diluted and adjusted diluted share
counts for the three months ended March 31, 2008 are as follows (in
000's):
3 Months Ended 3 Months Ended
Shares 3.31.08 3.31.07
-------- ---------- ----------
Basic shares 285,117 307,828
---------- ----------
Options 1,471 8,301
Warrants 5,624 4,998
Derivative liabilities 463 608
RSUs 1,356 2,013
---------- ----------
Fully diluted shares 294,031 323,749
Additional RSUs, Adjusted Income method 7,200 5,964
---------- ----------
Adjusted diluted shares 301,231 329,713
========== ==========
* The decrease in basic, fully diluted and adjusted diluted shares for
the quarter ended March 31, 2008 as compared to the prior year
period primarily relates to the completion of our tender offer for
25 million shares in August 2007 and the exercise of stock options
and related cancellation of shares for tax withholding.
* 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 March 31,
2008, in-the-money warrants expiring in the first quarter of 2009
represented the right to purchase 11.2 million shares, which is
significantly higher than the 5.6 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. See footnote below.
* "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(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
Advertising and Media
Revenue $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
Diluted EPS $0.06 $0.27 $0.17 $0.20
Adjusted EPS** $0.15 $0.32 $0.34 $0.28
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 2008
----------------------------------- ---------- Y/Y
Q1 Q2 Q3 Q4 Q1 Growth
--------- ------- -------- ------- ---------- -------
Number of
Transactions* 10.9 11.8 11.9 10.5 12.6 16%
Gross Bookings by
Segment
North America $3,559 $3,723 $3,519 $3,136 $4,087 15%
Europe* 940 939 1,074 919 1,257 34%
Other 425 466 465 466 559 31%
--------- ------- -------- ------- ---------- -------
Total* $4,924 $5,128 $5,058 $4,522 $5,902 20%
Gross Bookings by
Brand
Expedia Worldwide
Sites* $3,947 $4,034 $3,887 $3,547 $4,631 17%
Hotels.com
Worldwide Sites 612 696 730 579 745 22%
Other 365 399 441 396 527 44%
--------- ------- -------- ------- ---------- -------
Total* $4,924 $5,128 $5,058 $4,522 $5,902 20%
Gross Bookings
by Agency/Merchant*
Agency $2,850 $2,959 $2,808 $2,659 $3,301 16%
Merchant 2,075 2,169 2,249 1,862 2,602 25%
--------- ------- -------- ------- ---------- -------
Total* $4,924 $5,128 $5,058 $4,522 $5,902 20%
Revenue by Segment
North America $406 $505 $534 $452 $494 22%
Europe 110 145 183 169 146 33%
Other 34 39 42 45 47 38%
--------- ------- -------- ------- ---------- -------
Total $551 $690 $760 $665 $688 25%
Packages Revenue $111 $132 $140 $128 $125 13%
Advertising and
Media Revenue $37 $44 $51 $51 $64 73%
OIBA by Segment
North America $164 $227 $239 $192 $195 19%
Europe 26 43 68 71 30 19%
Other (85) (83) (94) (97) (100) NM
--------- ------- -------- ------- ---------- -------
Total $104 $187 $213 $165 $126 21%
Diluted EPS $0.11 $0.30 $0.32 $0.22 $0.17 55%
Adjusted EPS** $0.18 $0.35 $0.39 $0.32 $0.24 33%
Worldwide Merchant
Hotel
Room Nights* 8.3 11.0 12.7 10.2 10.2 23%
Room Night Growth* 3% 10% 16% 18% 23% 23%
ADR Growth* 9% 6% 6% 7% 3% 3%
Revenue per Night
Growth 13% 4% 5% 4% -1% -1%
Revenue Growth 17% 14% 22% 23% 22% 22%
Worldwide Air
(Merchant & Agency)
Tickets Sold Growth* 5% 14% 15% 15% 11% 11%
Airfare Growth* 1% -3% 2% 9% 8% 8%
Revenue per Ticket
Growth* -20% -18% -5% -2% 6% 6%
Revenue Growth -16% -7% 9% 13% 18% 18%
* Q108 and historical metrics have been slightly revised to exclude an
unconsolidated joint venture in Europe. There was no impact to
revenue, OIBA, cash flows or cash balances as a result of these
changes. If the joint venture had been included, Q108 transactions
would have been 12.7 million, worldwide gross bookings $6.01
billion, Europe gross bookings $1.37 billion, Expedia Worldwide
Sites gross bookings $4.7 billion, room nights 10.4 million, tickets
sold growth 10%, and revenue per ticket growth 7%. Room night
growth, ADR growth, and airfare growth would not have changed from
the metrics shown above.
** Effective Q108 we have amended the definition of Adjusted EPS and
the revised measures are shown above. For quantitative
reconciliation of Adjusted EPS presented above to the
most directly comparable amounts reported in accordance with GAAP,
please refer to Exhibit 99.2 to our Current Report on Form 8-K filed
on May 1, 2008, in connection with this earnings release.
Notes & Definitions:
Number of Transactio
