BELLEVUE, Wash., July 31 \/PRNewswire-FirstCall\/ — Expedia, Inc. (NASDAQ: EXPE) today announced financial results for its second quarter ended June 30, 2008.<\/p>\n
<\/p>\n
“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.”<\/p>\n
<\/p>\n
“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.”<\/p>\n
<\/p>\n
Financial Summary & Operating Metrics (figures in MM's, except per share\n amounts)<\/pre>\n3 Months 3 Months Y\/Y
\nMetric Ended 6.30.08 Ended 6.30.07 Growth
\n—— ————– ————– ———-
\nTransactions 13.0 11.8 10%
\nGross bookings $5,933.4 $5,128.0 16%
\nRevenue 795.0 689.9 15%
\nRevenue margin 13.40% 13.45% (5 bps)
\nGross profit 626.2 546.3 15%
\nOperating income before
\namortization* (“OIBA”) 204.1 187.1 9%
\nOperating income 170.5 153.6 11%
\nAdjusted net income * 120.8 114.9 5%
\nNet income 96.1 96.1 0%
\nAdjusted EPS * $0.40 $0.35 14%
\nDiluted EPS $0.33 $0.30 10%
\nNet cash provided by operating
\nactivities 307.3 384.6 (20%)
\nFree cash flow * 269.7 363.9 (26%)<\/p>\n* “Operating income before amortization,” “Adjusted net income,”
\n“Adjusted EPS,” and “Free cash flow” are non-GAAP measures as
\ndefined by the Securities and Exchange Commission (the “SEC”).
\nPlease see “Definitions of Non-GAAP Measures” and “Tabular
\nReconciliations for Non-GAAP Measures” on pages 15-18 herein for an
\nexplanation of non-GAAP measures used throughout this release.
\nEffective Q108 we amended the definition of Adjusted net income and
\nAdjusted EPS.<\/p>\nDiscussion of Results<\/p>\n
Gross Bookings & Revenue<\/p>\n
<\/p>\n
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™ and our Asia Pacific operations) increased 31%.<\/p>\n
<\/p>\n
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%.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
Profitability<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
Cash Flows & Working Capital<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
Recent Highlights<\/pre>\nGlobal Presence
\n— Gross bookings from Expedia, Inc.’s international businesses were
\n$1.88 billion in the second quarter, accounting for 32% of worldwide
\nbookings, up from 28% in the prior year period. Revenue from
\ninternational businesses was $269 million in the second quarter, or
\n34% of worldwide revenue, up from 30% in the prior year period.
\n— Expedia expanded its global footprint with an agreement to purchase
\nVenere™ SpA, a leading European online travel provider, which
\nwill expand Expedia’s European, Middle Eastern and African lodging
\nfootprint by over 10,000 properties, and offer hotel supplier
\npartners an agency model booking option.
\n— hotels.com launched its 42nd point of sale —
\nhttp:\/\/japan.hotels.com\/<\/a> — in Japan, the world’s second largest
\ntravel market.<\/p>\nBrand Portfolio
\n— The TripAdvisor\u00ae Media Network continued its expansion with the
\nacquisition of VirtualTourist\u00ae, a leader in user-generated travel
\ncontent, and its affiliate OneTime\u00ae, a leader in travel booking
\ncomparison. With these acquisitions the TripAdvisor\u00ae Media Network
\nnow attracts nearly 32 million unique monthly visitors according to
\ncomScore Media Metrix (May 2008).
\n— Expedia.com\u00ae and hotels.com\u00ae came to the aid of gas pump-weary
\ntravelers by offering a free $50 Gas Money Prepaid Mastercard\u00ae,
\nfor hotel stays of three or more nights booked this summer.
\n— TripAdvisor\u00ae expanded its social media footprint with the launch
\nof three leading travel applications (Cities I’ve Visited™, Local
\nPicks™ and TravelerIQ™) on MySpace, the world’s most popular
\nsocial network. In addition, lastminute.com announced an agreement
\nto feature branded TripAdvisor hotel reviews throughout its website.
\n— Expedia\u00ae Corporate Travel launched its own distinct brand,
\nEgencia™, recognizing the growth and scale of a business that has
\nreached over $100 million in trailing twelve months revenue. Egencia
\nalso announced the acquisition of Synergi Global Travel Management,
\na Canadian travel management company, as well as the launch of
\nseveral site features including hotel reviews, TripAdvisor City
\nGuides and SeatGuru\u00ae flight seating content.<\/p>\nContent & Innovation
\n— QuickConnect™, Expedia’s hotel connectivity solution for
\nindependent hotels and small to medium-sized hotel chains, has been
\nadopted by over 1,000 hotels in more than 35 countries, facilitating
\nan expansion of hotel inventory and rates on Expedia’s worldwide
\npoints of sale.
\n— hotels.com unveiled its welcomerewards™ program, enabling
\ntravelers to earn one free hotel night stay for every ten nights
\nbooked through hotels.com, with no blackout dates or hotel
\nrestrictions.
\n— hotels.com and TripAdvisor both launched applications for Apple’s
\nnew iPhone, enabling access to hotels.com content and booking
\ncapabilities and TripAdvisor’s Local Picks™ restaurant finder.
\n— Hotwire\u00ae launched Trip Watcher, its latest cost-and time-saving
\ntravel planning tool. Trip Watcher tracks travelers’ specific trip
\nitineraries over a 60-day range, finding the lowest available prices
\non hotels, airfares and car rentals and offering money saving
\noptions such as date flexibility and neighboring airports.
\n— Expedia.com unveiled its 2nd annual Expedia Insiders’ Select\u00ae list
\nof the world’s best hotels (http:\/\/www.expedia.com\/insidersselect<\/a>).
\nWith Insiders’ Select global travelers discover the best hotels
\namong Expedia’s nearly 80,000 properties based on Traveler
\nOpinions\u00ae postings, value ratings and Expedia’s experts.<\/p>\nPartner Services Group (“PSG”)
\n— Expedia continued to grow its European hotel base, adding 1,700
\nmerchant hotel properties during the second quarter, including long-
\nterm, strategic agreements with Barcelo Hotels & Resorts and Sol
\nMelia Hotels & Resorts, making these properties’ inventory available
\non Expedia\u00ae and hotels.com worldwide points of sale.
\n— Expedia’s worldwide merchant hotel portfolio grew 23% to exceed
\n42,000 properties, including over 24,000 hotels in the Americas,
\nnearly 16,000 in Europe, the Middle East & Africa, and over 2,000 in
\nthe APAC region.
\n— Expedia reached a multi-year agreement with Budget Rent A Car
\nSystem, Inc., adding Budget’s fleet inventory to the Expedia
\nPreferred Rental Car Program on the company’s U.S. websites. Expedia
\nalso signed a long-term agreement with Jumeirah Hotels, a leading
\noperator of luxury hotels in Dubai.<\/p>\nEXPEDIA, INC.
\nCONSOLIDATED STATEMENTS OF INCOME
\n(in thousands, except per share data)
\n(Unaudited)<\/p>\nThree months ended Six months ended
\nJune 30, June 30,
\n——————————————–
\n2008 2007 2008 2007
\n———- ——— ———- ———–<\/p>\nRevenue $795,048 $689,923 $1,482,865 $1,240,434
\nCost of revenue (1) 168,874 143,646 320,817 264,944
\n———- ——— ———- ———–
\nGross profit 626,174 546,277 1,162,048 975,490<\/p>\nOperating expenses:
\nSelling and marketing (1) 299,550 255,905 586,672 478,173
\nGeneral and
\nadministrative (1) 84,679 75,733 173,080 151,896
\nTechnology and content (1) 52,744 41,511 105,046 83,763
\nAmortization of intangible
\nassets 18,660 19,503 36,711 40,699
\n———- ——— ———- ———–
\nOperating income 170,541 153,625 260,539 220,959<\/p>\nOther income (expense):
\nInterest income 9,073 10,552 17,188 17,821
\nInterest expense (13,342) (9,902) (29,042) (21,078)
\nOther, net (5,098) 5,936 (8,771) 441
\n———- ——— ———- ———–
\nTotal other income (expense),
\nnet (9,367) 6,586 (20,625) (2,816)
\n———- ——— ———- ———–
\nIncome before income taxes and
\nminority interest 161,174 160,211 239,914 218,143
\nProvision for income taxes (65,944) (64,076) (94,916) (87,688)
\nMinority interest in loss of
\nconsolidated subsidiaries,
\nnet 859 1 2,397 457
\n———- ——— ———- ———–
\nNet income $96,089 $96,136 $147,395 $130,912
\n========== ========= ========== ===========<\/p>\nNet earnings per share
\navailable to common
\nstockholders:
\nBasic $0.34 $0.32 $0.52 $0.43
\nDiluted 0.33 0.30 0.50 0.41<\/p>\nShares used in computing
\nearnings per share:
\nBasic 285,986 303,035 285,547 305,426
\nDiluted 293,999 320,196 294,010 321,966<\/p>\n———
\n(1) Includes stock-based
\ncompensation as follows:
\nCost of revenue $569 $646 $1,244 $1,529
\nSelling and marketing 2,836 2,804 6,575 6,039
\nGeneral and administrative 8,018 7,004 16,968 14,673
\nTechnology and content 3,431 3,518 7,873 7,591
\n———- ——— ———- ———–
\nTotal stock-based
\ncompensation $14,854 $13,972 $32,660 $29,832
\n========== ========= ========== ===========<\/p>\nEXPEDIA, INC.
\nCONSOLIDATED BALANCE SHEETS
\n(in thousands, except per share data)<\/p>\nJune 30, December 31,
\n2008 2007
\n————– ————-
\n(Unaudited)
\nASSETS
\nCurrent assets:
\nCash and cash equivalents $1,027,553 $617,386
\nRestricted cash and cash equivalents 26,937 16,655
\nAccounts receivable, net of allowance of
\n$8,135 and $6,081 398,500 268,008
\nPrepaid merchant bookings 129,681 66,778
\nPrepaid expenses and other current assets 100,688 76,828
\n————– ————-
\nTotal current assets 1,683,359 1,045,655
\nProperty and equipment, net 208,864 179,490
\nLong-term investments and other assets 112,674 93,182
\nIntangible assets, net 980,214 970,757
\nGoodwill 6,136,371 6,006,338
\n————– ————-
\nTOTAL ASSETS $9,121,482 $8,295,422
\n============== =============<\/p>\nLIABILITIES AND STOCKHOLDERS’ EQUITY<\/p>\n
Current liabilities:
\nAccounts payable, merchant $830,576 $704,044
\nAccounts payable, other 185,629 148,233
\nDeferred merchant bookings 1,217,467 609,117
\nDeferred revenue 19,009 11,957
\nIncome taxes payable 41,729 –
\nAccrued expenses and other current
\nliabilities 284,861 301,001
\n————– ————-
\nTotal current liabilities 2,579,271 1,774,352
\nLong-term debt 894,296 500,000
\nCredit facility – 585,000
\nDeferred income taxes, net 361,772 351,168
\nOther long-term liabilities 216,800 204,886
\nMinority interest 59,315 61,935<\/p>\nCommitments and contingencies<\/p>\n
Stockholders’ equity:
\nPreferred stock $.001 par value – –
\nAuthorized shares: 100,000
\nSeries A shares issued and outstanding:
\n1 and 1
\nCommon stock $.001 par value 339 337
\nAuthorized shares: 1,600,000
\nShares issued: 338,961 and 337,057
\nShares outstanding: 260,901 and 259,489
\nClass B common stock $.001 par value 26 26
\nAuthorized shares: 400,000
\nShares issued and outstanding:
\n25,600 and 25,600
\nAdditional paid-in capital 5,950,983 5,902,582
\nTreasury stock – Common stock, at cost (1,730,091) (1,718,833)
\nShares: 78,060 and 77,568
\nRetained earnings 749,599 602,204
\nAccumulated other comprehensive income 39,172 31,765
\n————– ————-
\nTotal stockholders’ equity 5,010,028 4,818,081
\n————– ————-
\nTOTAL LIABILITIES AND STOCKHOLDERS’
\nEQUITY $9,121,482 $8,295,422
\n============== =============<\/p>\nEXPEDIA, INC.
\nCONSOLIDATED STATEMENTS OF CASH FLOWS
\n(in thousands)
\n(Unaudited)<\/p>\nSix months ended June 30,
\n——————————-
\n2008 2007
\n————– ————-
\nOperating activities:
\nNet income $147,395 $130,912
\nAdjustments to reconcile net income
\nto net cash provided by operating
\nactivities:
\nDepreciation of property and equipment,
\nincluding internal-use software and website
\ndevelopment 35,364 28,050
\nAmortization of intangible assets and stock-
\nbased compensation 69,371 70,531
\nDeferred income taxes (9,082) 722
\n(Gain) loss on derivative instruments, net (4,580) 4,544
\nEquity in loss of unconsolidated affiliates 1,916 3,554
\nMinority interest in loss of consolidated
\nsubsidiaries, net (2,397) (457)
\nForeign exchange (gain) loss on cash and cash
\nequivalents, net 2,314 (4,686)
\nOther 1,147 2,913
\nChanges in operating assets and liabilities,
\nnet of effects from acquisitions:
\nAccounts receivable (118,404) (93,517)
\nPrepaid merchant bookings and prepaid
\nexpenses (90,067) (70,854)
\nAccounts payable, merchant 124,336 178,076
\nAccounts payable, other, accrued
\nexpenses and other current liabilities 98,432 118,734
\nDeferred merchant bookings 608,288 551,691
\nDeferred revenue 7,021 2,400
\n————– ————-
\nNet cash provided by operating activities 871,054 922,613
\n————– ————-
\nInvesting activities:
\nCapital expenditures, including
\ninternal-use software and website
\ndevelopment (70,733) (38,974)
\nAcquisitions, net of cash acquired (178,313) (59,622)
\nIncrease in long-term investments
\nand deposits (11,106) (29,594)
\nProceeds from sale of business to a
\nrelated party 1,624 –
\nNet cash used in investing activities (258,528) (128,190)
\n————– ————-
\nFinancing activities:
\nCredit facility borrowings 90,000 150,000
\nCredit facility repayments (675,000) (150,000)
\nProceeds from issuance of long-term
\ndebt, net of issuance costs 393,818 –
\nChanges in restricted cash and cash
\nequivalents (11,838) (11,614)
\nProceeds from exercise of equity awards 3,709 34,885
\nExcess tax benefit on equity awards 1,551 1,608
\nTreasury stock activity (11,215) (668,018)
\nOther, net – 393
\n————– ————-
\nNet cash used in financing activities (208,975) (642,746)
\nEffect of exchange rate changes on
\ncash and cash equivalents 6,616 6,453
\n————– ————-
\nNet increase in cash and cash equivalents 410,167 158,130
\nCash and cash equivalents at beginning of
\nperiod 617,386 853,274
\n————– ————-
\nCash and cash equivalents at end of period $1,027,553 $1,011,404
\n============== =============<\/p>\nSupplemental cash flow information
\nCash paid for interest $28,990 $19,775
\nIncome tax payments, net 48,657 5,888<\/p>\nIncome Statement Notes<\/p>\n
Gross Bookings \/ Revenue
\n— Expedia, Inc. makes travel products and services available on a
\nmerchant and agency basis. Merchant transactions, which primarily
\nrelate to hotel bookings, typically produce a higher level of net
\nrevenue per transaction and are generally recognized when the
\ncustomer uses the travel product or service. Agency revenues are
\ngenerally recognized at the time the reservation is booked and
\nprimarily relate to air transactions.
\n— Merchant bookings accounted for 43% of total gross bookings in the
\nsecond quarter compared to 42% in the prior year period due to
\ngrowth in our merchant air business.<\/p>\nCost of Revenue
\n— Cost of revenue primarily consists of: (1) costs of our call and
\ndata centers, including telesales expense; (2) credit card merchant
\nfees; (3) fees paid to fulfillment vendors for processing airline
\ntickets and related customer services; (4) costs paid to suppliers
\nfor certain destination inventory; and (5) reserves and related
\npayments to airlines for tickets purchased with fraudulent credit
\ncards.
\n— Cost of revenue was 21.2% of revenue for the second quarter of 2008
\ncompared to 20.8% in the prior year period. Excluding stock-based
\ncompensation, cost of revenue was 21.2% of revenue for the second
\nquarter of 2008 compared to 20.7% in the prior year period. Cost of
\nrevenue increased as a percentage of revenue due primarily to
\nincreased expenses in our call and telesales centers, as well as due
\nto our gas rebate promotion.
\n— Cost of revenue includes depreciation expense of $4 million for the
\nsecond quarters of 2008 and 2007.<\/p>\nOperating Expenses (non-GAAP)<\/p>\n
<\/p>\n
(Stock-based compensation expense has been excluded from all calculations and discussions below)<\/p>\n
<\/p>\n
-- Operating expenses in millions and as a percentage of revenue for\n the second quarter of 2008 and 2007 were as follows (some numbers\n may not add due to rounding):<\/pre>\nOperating Expenses As a % of Revenue
\n——————- ——————-
\nThree months Three months
\nended ended
\nJune 30, June 30,
\n————- ————- Change
\nin
\n2008 2007 Growth 2008 2007 bps
\n——- ——- —— —— ——- —–
\nSelling and marketing $296.7 $253.1 17% 37.3% 36.7% 63
\nGeneral and administrative 76.7 68.7 12% 9.6% 10.0% (32)
\nTechnology and content 49.3 38.0 30% 6.2% 5.5% 70
\n——- ——- —— —— ——- —–
\nTotal operating expenses $422.7 $359.8 17% 53.2% 52.2% 101<\/p>\nOperating expenses include $14 million of depreciation expense for
\nthe second quarter of 2008, and $10 million for the comparable prior
\nyear period. The increase primarily relates to higher technology and
\ncontent depreciation expense related to capitalized software.<\/p>\nSelling and Marketing (non-GAAP)
\no Selling and marketing expense primarily relates to traffic
\ngeneration costs from search engines, brand advertising
\n(primarily television), online advertising and our private
\nlabel and affiliate programs.
\no Approximately 23% and 20% of selling and marketing expense in
\nthe second quarters of 2008 and 2007 relate to indirect
\nexpenses, including personnel-related costs in PSG, the
\nTripAdvisor Media Network and Europe.
\no The 17% increase in selling and marketing expense in the second
\nquarter was primarily due to increased direct spend at our
\ncontinental European sites and Hotwire\u00ae, including
\nCarRentals.com™. In addition, we increased personnel costs
\nat PSG, TripAdvisor and our European businesses.
\no We expect selling and marketing expense to increase as a
\npercentage of revenue in 2008 compared to 2007 as we invest in
\nour higher growth and earlier stage international businesses,
\nexpand our various sales teams, invest in our global
\nadvertising and media businesses and experience continued
\nkeyword inflation.<\/p>\nGeneral and Administrative (non-GAAP)
\no General and administrative expense consists primarily of
\npersonnel-related costs for support functions that include our
\nexecutive leadership, finance, legal, tax, technology and human
\nresources functions, as well as fees for professional services
\nthat typically relate to legal, tax or accounting engagements.
\no The 12% increase in general and administrative expense in the
\nsecond quarter was primarily to support the overall growth of
\nour businesses, including costs related to our information
\ntechnology efforts and our European businesses.
\no We expect general and administrative expense to decrease as a
\npercentage of revenue in 2008 compared to 2007.<\/p>\nTechnology and Content (non-GAAP)
\no Technology and content expense includes product development
\nexpenses principally related to payroll and related expenses,
\nprofessional fees, licensing costs and software development
\ncost amortization.
\no The 30% increase in technology and content expense in the
\nsecond quarter was due to increased personnel costs related to
\nour North America businesses, primarily in our worldwide
\nproduct development organization and TripAdvisor, as well as an
\nincrease in software development cost amortization.
\no Given historical and ongoing investments in our various
\ninitiatives, we expect technology and content expense to
\nincrease as a percentage of revenue in 2008 compared to 2007.<\/p>\nStock-Based Compensation Expense
\n— Stock-based compensation expense relates primarily to expense for
\nrestricted stock units (“RSUs”) and stock options. Since February
\n2003 we have awarded RSUs as our primary form of employee stock-
\nbased compensation, and these awards generally vest over five years.
\n— Second quarter stock-based compensation expense was $15 million,
\nconsisting of $12 million in expense related to RSUs, and $3 million
\nin stock option expense.
\n— Second quarter stock-based compensation expense increased $1 million
\ncompared to the prior year period due to increased expense related
\nto RSU awards.
\n— Assuming, among other things, no meaningful modification of existing
\nawards, incremental grants or adjustments to forfeiture estimates,
\nwe expect annual stock-based compensation expense will be less than
\n$70 million in 2008.<\/p>\nOther, Net
\n— The $5 million Other, net loss primarily relates to a $4 million
\nforeign exchange loss and $1 million in losses from our
\nequity-method investments. The prior year period Other, net gain was
\n$6 million, primarily related to a $12 million gain related to
\nfederal excise tax, partially offset by a $3 million loss on our Ask
\nNotes and $2 million in losses from our equity-method investments.
\n— $3 million of the $4 million foreign exchange loss in the second
\nquarter of 2008 related to losses from eLong’s U.S. dollar cash
\nposition and appreciation in the Chinese Renminbi. This loss is
\nexcluded from our calculations of Adjusted Net Income and Adjusted
\nEPS.<\/p>\nIncome Taxes
\n— The effective tax rates on GAAP pre-tax income were 40.9% for the
\nsecond quarter of 2008 and 40.0% in the prior year period. The
\nincrease in the effective rate was primarily due to higher interest
\naccruals related to uncertain tax positions, partially offset by a
\nlower non-deductible loss on derivatives in the second quarter of
\n2008 as compared to the prior year period. The effective tax rate
\nwas higher than the 35% federal statutory rate primarily due to
\nstate income taxes and interest accruals related to uncertain tax
\npositions.
\n— The effective tax rates on pre-tax adjusted income were 38.9% for
\nthe second quarter of 2008 and 38.4% in the prior year period. The
\neffective tax rate for the second quarter of 2008 was higher than
\nthe 35% federal statutory rate primarily due to state income taxes
\nand interest accruals related to uncertain tax positions.
\n— Cash paid for income taxes in the first half of 2008 was
\n$49 million, an increase of $43 million from the prior year
\nprimarily due to the impact of new federal regulations regarding the
\ncalculation of estimated tax payments. We anticipate lower stock-
\nbased compensation related tax deductions in 2008 than in 2007, and
\ntherefore expect cash tax payments for full year 2008 will increase
\nsignificantly compared with 2007.<\/p>\nForeign Exchange
\n— As Expedia’s reporting currency is the U.S. dollar (“USD”), reported
\nfinancial results are affected by the strength or weakness of the
\nUSD in comparison to the currencies of the international markets in
\nwhich we operate. Management believes investors may find it useful
\nto assess growth rates both with and without the impact of foreign
\nexchange.
\n— The estimated impact on worldwide and Europe growth rates from
\nforeign exchange in the second quarter 2008 was as follows (some
\nnumbers may not add due to rounding):<\/p>\nWorldwide Europe
\n—————————— —————————-
\nImpact Impact
\nY\/Y on Y\/Y Y\/Y on Y\/Y
\ngrowth growth growth growth
\nrates rates rates rates
\nexcluding from excluding from
\nThree Y\/Y foreign foreign Y\/Y foreign foreign
\nmonths ended growth exchange exchange growth exchange exchange
\nJune 30, 2008 rates movements movements rates movements movements
\n——– ———- ——— ——- ——— ———
\nGross Bookings 15.7% 12.4% 3.3% 30.2% 18.9% 11.3%<\/p>\nRevenue 15.2% 11.6% 3.6% 28.1% 17.4% 10.7%<\/p>\n
— The positive impact of foreign exchange on our cash balances
\ndenominated in foreign currency was $7 million in the first six
\nmonths of 2008 and $6 million in the prior year period. Both amounts
\nare included in “effect of exchange rate changes on cash and cash
\nequivalents” on our statements of cash flows. These increases arise
\nfrom an appreciation in foreign currencies compared with the USD.<\/p>\nAcquisitions
\n— The impact of acquisitions on the growth of gross bookings, revenue
\nand OIBA in the second quarter is as follows (some numbers may not
\nadd due to rounding):<\/p>\nWorldwide
\n——————————————-
\nY\/Y growth Impact on
\nrates Y\/Y Growth
\nThree months ended Y\/Y growth excluding rates from
\nJune 30, 2008 rates acquisitions acquisitions
\n——— ———— ————-
\nGross Bookings 15.7% 15.1% 0.6%
\nRevenue 15.2% 14.2% 1.0%
\nOIBA 9.1% 7.6% 1.5%<\/p>\n— During the first half of 2008 we paid cash totaling $178 million for
\nacquisitions, including a $93 million earnout payment related to a
\nprior year acquisition.
\n— Expedia acquired Virtual Tourist on June 30, 2008, and recorded the
\npurchase price in ‘Accrued expenses and other current liabilities’
\non our balance sheet. The purchase price was paid in cash in early
\nJuly. In July we entered into an agreement to acquire Venere.com,
\nsubject to regulatory approval. We are holding Euro cash balances to
\neconomically hedge the purchase price, and expect to incur a foreign
\nexchange gain or loss in the third quarter to reflect fluctuation in
\nthe EuroUSD exchange rate between the agreement date and the close
\ndate.<\/p>\nAdjusted Net Income & Adjusted EPS
\n— During the first quarter of 2008, we began to exclude foreign
\nexchange gains or losses on USD cash balances held by eLong from
\nadjusted net income and adjusted EPS, as we expect to use the cash
\nto settle foreseeable USD obligations and commitments. Losses were
\n$3 million ($2 million or $0.01 per share net of minority interest),
\nand $2 million ($1 million or $0.00 per share net of minority
\ninterest) for the quarters ended June 30, 2008 and 2007,
\nrespectively.<\/p>\nBalance Sheet Notes<\/p>\n
Cash, Cash Equivalents and Restricted Cash
\n— Cash, cash equivalents and restricted cash totaled $1.05 billion at
\nJune 30, 2008. This amount includes $27 million in restricted cash
\nand cash equivalents primarily related to merchant air transactions,
\nand $156 million of cash at eLong, whose results are consolidated in
\nour financial statements due to our controlling voting and economic
\nownership position.
\n— The $420 million increase in cash, cash equivalents and restricted
\ncash for the six months ended June 30, 2008 principally relates to
\n$630 million in net benefit from changes in operating assets and
\nliabilities and $330 million in OIBA, partially offset by $191
\nmillion in net debt repayments, $189 million in acquisitions, long-
\nterm investments and deposits, $78 million in cash payments related
\nto taxes and interest expense and $71 million of capital
\nexpenditures.<\/p>\nAccounts Receivable
\n— Accounts receivable include receivables from credit card agencies,
\ncorporate clients and advertising partners as well as receivables
\nrelated to agency transactions including those due from airlines and
\nGDS partners.
\n— Accounts receivable increased $130 million from December 31, 2007
\nprimarily due to a seasonal ramp in our merchant business and the
\nassociated credit card receivables, as well as growth in our
\nadvertising and media and corporate travel businesses.<\/p>\nPrepaid Merchant Booking, Prepaid Expenses and Other Current Assets
\n— Prepaid merchant bookings primarily relate to our merchant air
\nbusiness and reflect prepayments to our airline partners for their
\nportion of the gross booking, prior to the travelers’ dates of
\ntravel. The $63 million increase in prepaid merchant bookings from
\nDecember 31, 2007 is due to a seasonal increase in our merchant air
\nbusiness.
\n— Prepaid expenses and other current assets are primarily composed of
\nprepaid marketing, prepaid credit card merchant fees, prepaid
\nlicense and maintenance agreements, and prepaid insurance. Prepaid
\nexpenses and other current assets increased $24 million primarily
\ndue to increased prepaid credit card merchant fees from growth in
\nour merchant hotel business, and other prepaid expenses, including
\nprepaid marketing.<\/p>\nLong-Term Investments and Other Assets
\n— Long-term investments and other assets include transportation
\nequipment, collateral deposits related to our cross-currency swap
\nagreements, equity investments, and capitalized debt issuance costs.
\n— The $19 million increase in long-term investments and other assets
\nfrom December 31, 2007 includes a $10 million increase in amounts
\nheld related to our cross-currency swaps and $2 million of issuance
\ncosts related to our unregistered 8.5% Senior Notes due 2016 (“8.5%
\nNotes”), which we issued in June 2008.<\/p>\nGoodwill and Intangible Assets, Net
\n— Goodwill and intangible assets, net primarily relates to the
\nacquisitions of hotels.com, Expedia.com, and Hotwire.com\u00ae.
\n— $868 million of intangible assets, net relates to intangible assets
\nwith indefinite lives, which are not amortized, principally related
\nto acquired trade names and trademarks.
\n— $112 million of intangible assets, net relates to intangible assets
\nwith definite lives, which are generally amortized over a period of
\ntwo to ten years. The majority of this amortization is not
\ndeductible for tax purposes.
\n— Amortization expense related to definite lived intangibles was
\n$19 million for the second quarter 2008 compared with $20 million
\nfor the prior year period. This decrease was primarily due to
\ncompleted amortization of certain technology intangible assets.
\nAssuming no impairments or additional acquisitions, we expect
\namortization expense for definite lived intangibles of $27 million
\nfor the remainder of 2008 and $29 million in 2009.<\/p>\nAccounts Payable, Other
\n— Accounts payable, other primarily consists of payables and accrued
\nexpenses related to the day-to-day operations of our business.
\n— Accounts payable, other increased $37 million from December 31, 2007
\nprimarily due to an increase in accrued marketing expenses to
\nsupport our various businesses.<\/p>\nDeferred Merchant Bookings and Accounts Payable, Merchant
\n— Deferred merchant bookings consist of amounts received from
\ntravelers who have not yet traveled and the balances generally
\nmirror the seasonality pattern of our gross bookings. The payment to
\nsuppliers related to these bookings is generally made within two
\nweeks after booking for air travel and, for all other merchant
\nbookings, after the customer’s use of services and subsequent
\nbilling from the supplier, which billing is reflected as accounts
\npayable, merchant on our balance sheet. Therefore, especially for
\nmerchant hotel, there has historically been a significant period of
\ntime from the receipt of cash from our travelers to supplier
\npayment.
\n— As long as the merchant hotel business continues to grow and our
\nbusiness model does not meaningfully change, we expect that changes
\nin working capital related to this business will continue to be a
\npositive contributor to operating and free cash flow. If this
\nbusiness declines or if the model changes significantly, it would
\nnegatively affect our working capital.
\n— Due to various factors, including technology and process
\ninitiatives, we paid hotels sooner in the first half of 2008 than in
\nthe comparable period of 2007, resulting in an incremental reduction
\nto our overall working capital benefits year over year. We will
\ncontinue to invest in such initiatives in the second half of 2008.
\n— For the six months ended June 30, 2008, the change in deferred
\nmerchant booking and accounts payable, merchant contributed $733
\nmillion to net cash provided by operating activities, primarily
\nrelated to growth in our merchant hotel business.<\/p>\nAccrued Expenses and Other Current Liabilities
\n— Accrued expenses and other current liabilities principally relate to
\naccruals for cost of service related to our call center and internet
\nservices, accruals for service, bonus, salary and wage liabilities,
\na reserve related to the potential settlement of occupancy tax
\nissues, and accrued interest related to our various debt
\ninstruments.
\n— Accrued expenses and other current liabilities decreased $16 million
\nfrom December 31, 2007 primarily due to an earn-out payment related
\nto a prior-year acquisition, the payout of annual bonuses in the
\nfirst quarter and settlement of the Ask Derivative liability. These
\namounts were partially offset by an accrued liability related to the
\npurchase price for Virtual Tourist, current year bonus accruals and
\nother accrued expenses.<\/p>\nAsk Derivative Liability
\n— In connection with IAC\/InterActiveCorp’s acquisition of Ask, we
\nissued 4.3 million shares of Expedia, Inc. common stock into an
\nescrow account, which shares (or cash in equal value) were due to
\nholders of Ask convertible notes upon conversion. These shares have
\nbeen included in diluted shares from the date of our spin-off from
\nIAC.
\n— During the second quarter the remaining Ask Notes were converted for
\n0.5 million shares of Expedia common stock. There are no Ask Notes
\noutstanding, and our obligation to satisfy demands for any
\nconversions has ceased.
\n— For the second quarter we recorded a loss of $400,000 related to the
\nAsk Notes due to the increase in our share price at the conversion
\ndate compared to the end of the first quarter 2008. This loss is
\nrecorded in other, net on our consolidated statements of income and
\nis excluded from both our OIBA and adjusted net income calculations.<\/p>\nBorrowings
\n— Expedia, Inc. maintains a $1 billion unsecured revolving credit
\nfacility, which expires in August 2010.
\n— As of June 30, 2008, we had no borrowings outstanding under our
\ncredit facility, reflecting our repayment of the outstanding balance
\nof $330 million with the proceeds of our 8.5% Notes.
\n— Outstanding borrowings under the facility bear interest based on our
\nfinancial leverage, which based on our June 30, 2008 financials
\nequates to a base rate plus 62.5 basis points. At our discretion we
\ncan choose a base rate equal to (1) the greater of the Prime Rate or
\nthe Federal Funds Rate plus 50 basis points or (2) various LIBOR
\ndurations.
\n— As of June 30, 2008 we were in compliance with the leverage and net
\nworth covenants under the credit facility. Outstanding letters of
\ncredit as of that date were $65 million, reducing total borrowing
\ncapacity under the facility to $935 million.
\n— Long-term debt relates to $500 million in registered 7.456% Senior
\nNotes due 2018 (the “7.456% Notes”) and $400 million in 8.5% Notes.
\nThe 7.456% Notes are repayable in whole or in part on August 15,
\n2013 at the option of the note holders, and we may redeem the 7.456%
\nNotes at any time at our option subject to a Treasury + 37.5bps
\nmake-whole premium. The 8.5% Notes are non-callable until July 2012,
\nbut at any time may be redeemed at our option subject to a Treasury
\n+ 50bps make-whole premium. After July, 2012 we may redeem the 8.5%
\nNotes at redemption prices ranging from 104.25% to 100% of the
\nprincipal.
\n— Annual interest expense related to our 7.456% Notes is $37 million,
\npaid semi-annually on February 15 and August 15 of each year. Annual
\ninterest expense related to our 8.5% Notes is $34 million, paid
\nsemi-annually on January 1 and July 1, beginning with January 1,
\n2009. Accrued interest related to these notes was $15 million at
\nJune 30, 2008 and is classified as accrued expenses and other
\ncurrent liabilities on our balance sheet.<\/p>\nOther Long-Term Liabilities
\n— Other long-term liabilities include $177 million in uncertain tax
\npositions recorded under FIN 48. This amount increased $5 million
\ncompared to $172 million at December 31, 2007 primarily due to
\naccrued interest.
\n— Other long-term liabilities also includes $31 million of derivative
\nliabilities, primarily related to cross-currency swaps, which
\nincreased $10 million from December 31, 2007 primarily due to
\nincreased swap interest rates and the weakening of the USD compared
\nwith the Euro.<\/p>\nMinority Interest
\n— Minority interest primarily relates to the minority ownership
\nposition in eLong, an entity in which we own a 57% interest (51%
\nfully-diluted) and results for which are consolidated for all
\nperiods presented.
\n— During the first quarter of 2008 eLong approved a $20 million share
\nrepurchase program. As of May 23, 2008 eLong had repurchased $2.6
\nmillion worth of shares, primarily through open market repurchases.<\/p>\nPurchase Obligations and Contractual Commitments
\n— At June 30, 2008 we have agreements with certain vendors under which
\nwe have future minimum obligations of $19 million for the remainder
\nof 2008 and $11 million in 2009. These minimum obligations for
\nsoftware, loyalty, telecom, marketing agreements and other support
\nservices are less than our projected use for those periods, and we
\nexpect payment to be more than the minimum obligations based on our
\nactual use.
\n— In conjunction with our investment in a travel company, we have
\nentered into a commitment to provide a $10 million revolving
\noperating line of credit and a credit facility for up to $20
\nmillion. $1 million was drawn on the line of credit and no amounts
\nwere drawn on the credit facility as of June 30, 2008.
\n— We have entered into a lease for new headquarters office space
\nlocated in Bellevue, Washington for which we began recognizing rent
\nexpense in April 2008 in addition to rent expense on our present
\nlocation. The ten-year term and cash payments related to this lease
\nare expected to begin in November 2008.
\n— Our estimated future minimum rental payments under operating leases
\nwith non-cancelable lease terms that expire after June 30, 2008 are
\n$17 million for the remainder of 2008, $38 million for 2009, $36
\nmillion for 2010, $35 million for 2011, $34 million for 2012, and
\n$128 million for 2013 and thereafter.<\/p>\nCommon Stock
\n— In August 2006 our Board of Directors authorized the repurchase of
\nup to 20 million common shares. There is no fixed termination date
\nfor the authorization, and as of the date of this release we have
\nnot repurchased any shares under this authorization.<\/p>\nClass B Common Stock
\n— There are approximately 26 million shares of Expedia Class B common
\nstock outstanding, all of which are owned by Liberty Media
\nCorporation and its subsidiaries (“Liberty”). Class B shares are
\nentitled to ten votes per share when voting on matters with the
\nholders of Expedia common and preferred stock.
\n— Through the common stock our Chairman and Senior Executive, Barry
\nDiller, owns directly, as well as the common stock and Class B stock
\nfor which he has been assigned an irrevocable proxy from Liberty,
\nMr. Diller had a controlling 60% voting interest in Expedia, Inc. as
\nof July 21, 2008.<\/p>\nWarrants
\n— As of June 30, 2008 we had 58.5 million warrants outstanding, which,
\nif exercised in full, would entitle holders to acquire 34.6 million
\ncommon shares of Expedia, Inc. for an aggregate purchase price of
\napproximately $773 million (representing an average of approximately
\n$22 per Expedia, Inc. common share).
\n— 32.2 million of these warrants are privately held and expire in
\n2012, and 26.0 million warrants are publicly-traded and expire in
\nFebruary 2009. There are 0.3 million other warrants outstanding.<\/p>\nStock-Based Awards
\n— At June 30, 2008 we had 18.6 million stock-based awards outstanding,
\nconsisting of 9.4 million RSUs and stock options to purchase 9.3
\nmillion common shares with a $25.35 weighted average exercise price
\nand weighted average remaining life of 4.3 years.
\n— During the first half of 2008 we granted 3.4 million RSUs, primarily
\nrelated to our annual RSU grant for employees occurring in the first
\nquarter of each year. Net of cancellations, expirations and
\nforfeitures occurring during the first half of 2008, RSUs and
\noptions increased by 2.6 million.<\/p>\nBasic, Fully Diluted and Adjusted Diluted Shares
\n— Weighted average basic, fully diluted and adjusted diluted share
\ncounts for the three months ended June 30, 2008 are as follows (in
\n000’s; some numbers may not add due to rounding):<\/p>\n3 Months Ended 3 Months Ended
\nShares 6.30.08 6.30.07
\n——– ———– ———–
\nBasic shares 285,986 303,035
\nOptions 1,270 8,909
\nWarrants 5,457 6,084
\nDerivative liabilities 300 501
\nRSUs 986 1,666
\n———– ———–
\nFully diluted shares 293,999 320,196
\nAdditional RSUs, Adjusted Income
\nmethod 8,382 7,087
\n———– ———–
\nAdjusted diluted shares 302,380 327,283
\n=========== ===========<\/p>\n— The decrease in basic, fully diluted and adjusted diluted shares for
\nthe second quarter of 2008 as compared to the prior year period
\nprimarily relates to the completion of our tender offer for 25.0
\nmillion shares in August 2007.
\n— The maximum possible dilution from various warrant issuances is
\n34.6 million shares, including 18.4 million shares related to
\nwarrants expiring in the first quarter of 2009. As of June 30, 2008,
\nin-the-money warrants expiring in the first quarter of 2009
\nrepresented the right to purchase 11.1 million shares, which is
\nsignificantly higher than the 5.5 million shares represented by
\nwarrants above primarily due to offsetting repurchases assumed under
\nthe treasury method for diluted share calculations.<\/p>\nExpedia, Inc.
\nTrended Operational Metrics
\n(All figures in millions, except per share amounts)<\/p>\n— The following metrics are intended as a supplement to the financial
\nstatements found in this press release and in our filings with the
\nSEC. In the event of discrepancies between amounts in these tables
\nand our historical financial statements, readers should rely on our
\nfilings with the SEC and financial statements in our most recent
\nearnings release.
\n— We intend to periodically review and refine the definition,
\nmethodology and appropriateness of each of our supplemental metrics.
\nAs a result, these metrics are subject to removal and\/or change, and
\nsuch changes could be material.
\n— “Expedia Worldwide” gross bookings constitute bookings from all
\nExpedia-branded properties, including our international sites and
\nworldwide Egencia businesses, as well as affiliates. “hotels.com
\nWorldwide” gross bookings constitute bookings from all hotels.com-
\nbranded properties, including our international sites and
\naffiliates. “Other” gross bookings constitute bookings from
\nHotwire\u00ae, eLong, and all brands other than Expedia Worldwide and
\nhotels.com Worldwide.
\n— These metrics do not include adjustments for one-time items,
\nacquisitions, foreign exchange or other adjustments.
\n— Some numbers may not add due to rounding.<\/p>\n2006
\n———————————–
\nQ1 Q2 Q3 Q4
\n——– ——– ——– ——-<\/p>\nNumber of Transactions 10.4 10.4 10.3 8.8<\/p>\n
Gross Bookings by Segment
\nNorth America $3,522 $3,445 $3,104 $2,666
\nEurope 711 674 724 613
\nOther 347 368 365 344
\n——– ——– ——– ——-
\nTotal $4,580 $4,487 $4,193 $3,623<\/p>\nGross Bookings by Brand
\nExpedia Worldwide Sites $3,631 $3,537 $3,300 $2,920
\nhotels.com Worldwide Sites 582 621 600 456
\nOther 367 330 293 246
\n——– ——– ——– ——-
\nTotal $4,580 $4,487 $4,193 $3,623<\/p>\nGross Bookings by Agency\/Merchant
\nAgency $2,650 $2,675 $2,429 $2,213
\nMerchant 1,930 1,812 1,763 1,410
\n——– ——– ——– ——-
\nTotal $4,580 $4,487 $4,193 $3,623<\/p>\nRevenue by Segment
\nNorth America $382 $456 $450 $379
\nEurope 85 112 134 121
\nOther 27 30 30 32
\n——– ——– ——– ——-
\nTotal $494 $598 $614 $531<\/p>\nPackages Revenue $114 $131 $125 $107<\/p>\n
TripAdvisor Media Network Revenue $26 $27 $27 $25
\nTripAdvisor Media Network OIBA 14 16 15 16<\/p>\nAdvertising and Media Revenue (Net) 21 22 25 27<\/p>\n
OIBA by Segment
\nNorth America $147 $212 $204 $172
\nEurope 15 40 48 55
\nOther (74) (68) (72) (81)
\n——– ——– ——– ——-
\nTotal $89 $184 $180 $146<\/p>\nWorldwide Merchant Hotel
\nRoom Nights 8.0 10.0 10.9 8.6
\nRoom Night Growth 7% 13% 11% 7%
\nADR Growth 3% 7% 4% 8%
\nRevenue per Night Growth -4% 4% 3% 7%
\nRevenue Growth 3% 17% 14% 15%<\/p>\nWorldwide Air (Merchant & Agency)
\nTickets Sold Growth 2% -4% -7% 1%
\nAirfare Growth 9% 13% 11% 3%
\nRevenue per Ticket Growth -9% -10% -17% -14%
\nRevenue Growth -7% -13% -23% -14%<\/p>\n2007
\n———————————–
\nQ1 Q2 Q3 Q4
\n——– ——– ——– ——-<\/p>\nNumber of Transactions 10.9 11.8 11.9 10.5<\/p>\n
Gross Bookings by Segment
\nNorth America $3,559 $3,723 $3,519 $3,136
\nEurope 940 939 1,074 919
\nOther 425 466 465 466
\n——– ——– ——– ——-
\nTotal $4,924 $5,128 $5,058 $4,522<\/p>\nGross Bookings by Brand
\nExpedia Worldwide Sites $3,947 $4,034 $3,887 $3,547
\nhotels.com Worldwide Sites 612 696 730 579
\nOther 365 399 441 396
\n——– ——– ——– ——-
\nTotal $4,924 $5,128 $5,058 $4,522<\/p>\nGross Bookings by Agency\/Merchant
\nAgency $2,850 $2,959 $2,808 $2,659
\nMerchant 2,075 2,169 2,249 1,862
\n——– ——– ——– ——-
\nTotal $4,924 $5,128 $5,058 $4,522<\/p>\nRevenue by Segment
\nNorth America $406 $505 $534 $452
\nEurope 110 145 183 169
\nOther 34 39 42 45
\n——– ——– ——– ——-
\nTotal $551 $690 $760 $665<\/p>\nPackages Revenue $111 $132 $140 $128<\/p>\n
TripAdvisor Media Network Revenue $43 $51 $58 $50
\nTripAdvisor Media Network OIBA 27 29 27 22<\/p>\nAdvertising and Media Revenue (Net) 37 44 51 51<\/p>\n
OIBA by Segment
\nNorth America $164 $227 $239 $192
\nEurope 26 43 68 71
\nOther (85) (83) (94) (97)
\n——– ——– ——– ——-
\nTotal $104 $187 $213 $165<\/p>\nWorldwide Merchant Hotel
\nRoom Nights 8.3 11.0 12.7 10.2
\nRoom Night Growth 3% 10% 16% 18%
\nADR Growth 9% 6% 6% 7%
\nRevenue per Night Growth 13% 4% 5% 4%
\nRevenue Growth 17% 14% 22% 23%<\/p>\nWorldwide Air (Merchant & Agency)
\nTickets Sold Growth 5% 14% 15% 15%
\nAirfare Growth 1% -3% 2% 9%
\nRevenue per Ticket Growth -20% -18% -5% -2%
\nRevenue Growth -16% -7% 9% 13%<\/p>\n2008
\n——————
\nY\/Y
\nQ1 Q2 Growth
\n——– ——– ——<\/p>\nNumber of Transactions 12.6 13.0 10%<\/p>\n
Gross Bookings by Segment
\nNorth America $4,087 $4,099 10%
\nEurope 1,257 1,223 30%
\nOther 559 611 31%
\n——– ——– ——
\nTotal $5,902 $5,933 16%<\/p>\nGross Bookings by Brand
\nExpedia Worldwide Sites $4,631 $4,552 13%
\nhotels.com Worldwide Sites 745 806 16%
\nOther 527 576 45%
\n——– ——– ——
\nTotal $5,902 $5,933 16%<\/p>\nGross Bookings by Agency\/Merchant
\nAgency $3,301 $3,357 13%
\nMerchant 2,602 2,576 19%
\n——– ——– ——
\nTotal $5,902 $5,933 16%<\/p>\nRevenue by Segment
\nNorth America $494 $556 10%
\nEurope 146 186 28%
\nOther 47 53 36%
\n——– ——– ——
\nTotal $688 $795 15%<\/p>\nPackages Revenue $125 $137 4%<\/p>\n
TripAdvisor Media Network Revenue $72 $79 54%
\nTripAdvisor Media Network OIBA 35 45 56%<\/p>\nAdvertising and Media Revenue (Net) 64 74 68%<\/p>\n
OIBA by Segment
\nNorth America $195 $248 9%
\nEurope 30 58 36%
\nOther (100) (102) -23%
\n——– ——– ——
\nTotal $126 $204 9%<\/p>\nWorldwide Merchant Hotel
\nRoom Nights 10.2 12.5 13%
\nRoom Night Growth 23% 13% 13%
\nADR Growth 3% 1% 1%
\nRevenue per Night Growth -1% -2% -2%
\nRevenue Growth 22% 10% 10%<\/p>\nWorldwide Air (Merchant & Agency)
\nTickets Sold Growth 11% 4% 4%
\nAirfare Growth 8% 12% 12%
\nRevenue per Ticket Growth 6% 9% 9%
\nRevenue Growth 18% 14% 14%<\/p>\nNotes & Definitions:<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
Other — Includes Egencia, Asia Pacific and unallocated corporate functions and expenses.<\/p>\n
<\/p>\n
TripAdvisor Media Network — Revenue and OIBA before inter-company eliminations include Expedia, Inc. expenditures on TripAdvisor sites, recorded at market-comparable rates.<\/p>\n
<\/p>\n
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.<\/p>\n
<\/p>\n
Definitions of Non-GAAP Measures<\/p>\n
<\/p>\n
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.<\/p>\n
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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.<\/p>\n
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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.<\/p>\n
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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.<\/p>\n
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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.<\/p>\n
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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\u00ae. 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\u00ae, 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.<\/p>\n
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Tabular Reconciliations for Non-GAAP Measures\n Operating Income Before Amortization<\/pre>\nThree months ended Six months ended
\nJune 30, June 30,
\n——————- ——————
\n2008 2007 2008 2007
\n——— ——— ——— ———
\n(in thousands)<\/p>\nOIBA $204,055 $187,100 $329,910 $291,490
\nAmortization of intangible assets (18,660) (19,503) (36,711) (40,699)
\nStock-based compensation (14,854) (13,972) (32,660) (29,832)
\n——— ——— ——— ———
\nOperating income 170,541 153,625 260,539 220,959<\/p>\nInterest income (expense), net (4,269) 650 (11,854) (3,257)
\nOther, net (5,098) 5,936 (8,771) 441
\nProvision for income taxes (65,944) (64,076) (94,916) (87,688)
\nMinority interest in loss of
\nconsolidated subsidiaries, net 859 1 2,397 457
\n——— ——— ——— ———
\nNet income $96,089 $96,136 $147,395 $130,912
\n========= ========= ========= =========<\/p>\nAdjusted Net Income & Adjusted EPS<\/p>\n
Three months ended Six months ended
\nJune 30, June 30,
\n——————- ——————
\n2008 2007 2008 2007
\n——————- ——————
\n(in thousands, except per share data)<\/p>\nNet income $96,089 $96,136 $147,395 $130,912
\nAmortization of intangible assets 18,660 19,503 36,711 40,699
\nStock-based compensation 14,854 13,972 32,660 29,832
\nForeign currency loss on U.S.
\ndollar cash balances held by
\neLong 2,693 2,007 7,968 3,170
\nFederal excise tax refunds – (12,058) – (12,058)
\n(Gain) loss on derivative
\ninstruments, net 400 3,153 (4,580) 4,544
\nAmortization of intangible assets
\nas part of equity method
\ninvestments 610 551 1,260 551
\nMinority interest (1,262) (1,072) (3,463) (1,789)
\nProvision for income taxes (11,202) (7,329) (26,110) (21,415)
\n——— ——— ——— ———
\nAdjusted net income $120,842 $114,863 $191,841 $174,446
\n========= ========= ========= =========<\/p>\nGAAP diluted weighted average
\nshares outstanding 293,999 320,196 294,010 321,966
\nAdditional restricted stock units 8,382 7,087 7,791 6,526
\n——— ——— ——— ———
\nAdjusted weighted average shares
\noutstanding 302,380 327,283 301,801 328,492
\n========= ========= ========= =========<\/p>\nDiluted earnings per share $0.33 $0.30 $0.50 $0.41
\n========= ========= ========= =========
\nAdjusted earnings per share $0.40 $0.35 $0.64 $0.53
\n========= ========= ========= =========<\/p>\nFree Cash Flow
\nThree months ended Six months ended
\nJune 30, June 30,
\n——————- ——————
\n2008 2007 2008 2007
\n——— ——— ——— ———
\n(in thousands)<\/p>\nNet cash provided by operating
\nactivities $307,275 $384,557 $871,054 $922,613
\nLess: capital expenditures (37,545) (20,642) (70,733) (38,974)
\n——— ——— ——— ———
\nFree cash flow $269,730 $363,915 $800,321 $883,639
\n——— ——— ——— ———<\/p>\n<\/p>\n
Non-GAAP cost of revenue, selling and marketing, general and administrative and technology and content expenses excluding stock-based compensation<\/p>\n
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Three months ended Six months ended\n June 30, June 30,\n ------------------- ------------------\n 2008 2007 2008 2007\n --------- --------- --------- ---------\n (in thousands)<\/pre>\nCost of revenue $168,874 $143,646 $320,817 $264,944
\nLess: stock-based compensation (569) (646) (1,244) (1,529)
\n——— ——— ——— ———
\nCost of revenue excluding stock-
\nbased compensation $168,305 $143,000 $319,573 $263,415<\/p>\nSelling and marketing expense $299,550 $255,905 $586,672 $478,173
\nLess: stock-based compensation (2,836) (2,804) (6,575) (6,039)
\n——— ——— ——— ———
\nSelling and marketing expense
\nexcluding stock-based
\ncompensation $296,714 $253,101 $580,097 $472,134<\/p>\nGeneral and administrative expense $84,679 $75,733 $173,080 $151,896
\nLess: stock-based compensation (8,018) (7,004) (16,968) (14,673)
\n——— ——— ——— ———
\nGeneral and administrative expense
\nexcluding stock-based
\ncompensation $76,661 $68,729 $156,112 $137,223<\/p>\nTechnology and content expense $52,744 $41,511 $105,046 $83,763
\nLess: stock-based compensation (3,431) (3,518) (7,873) (7,591)
\n——— ——— ——— ———
\nTechnology and content expense
\nexcluding stock-based
\ncompensation $49,313 $37,993 $97,173 $76,172<\/p>\nConference Call<\/p>\n
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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<\/a>. Expedia, Inc. expects to maintain access to the audiocast on the IR website for approximately three months subsequent to the initial broadcast.<\/p>\n
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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995<\/p>\n
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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.<\/p>\n
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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.<\/p>\n
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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.<\/p>\n
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About Expedia, Inc.<\/p>\n
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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\u00ae, hotels.com\u00ae, Hotwire\u00ae, Egencia™ (formerly Expedia Corporate Travel), TripAdvisor\u00ae, Expedia Local Expert™, Classic Vacations\u00ae and eLong™. 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\/<\/a> (NASDAQ: EXPE).<\/p>\n
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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.<\/p>\n
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\u00a9 2008 Expedia, Inc. All rights reserved. CST: 2029030-40<\/p>\n
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SOURCE: Expedia, Inc.<\/p>\n
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CONTACT: Investor Relations, +1-425-679-3555, ir@expedia.com<\/a>, or
\nCommunications, +1-425-679-4317, press@expedia.com<\/a>, both of Expedia, Inc.<\/br\/><\/p>\n<\/p>\n
Web site: http:\/\/www.expedia.com\/<\/a><\/p>\n
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