BELLEVUE, Wash., Nov. 7 \/PRNewswire-FirstCall\/ — Expedia, Inc. (NASDAQ: EXPE) today announced financial results for its third quarter ended September 30, 2007.<\/p>\n
<\/p>\n
“Expedia succeeded on almost every financial metric during the third quarter,” said Barry Diller, Expedia, Inc.’s Chairman and Senior Executive. “These are good results, and our ability to keep them coming depends on the right balance of investment and profitable growth — and I think we’ve shown our ability to be in proper cadence with those levers throughout this year.”<\/p>\n
<\/p>\n
“Thanks to the continued hard work of our employees around the globe, Expedia’s brand portfolio delivered record revenue and OIBA in the third quarter,” said Dara Khosrowshahi, Expedia Inc.’s CEO and President. “While we’re particularly encouraged by 16% worldwide transaction growth and 47% European bookings growth, we are by no means satisfied with our progress, and believe there remain significant investment and growth opportunities ahead for Expedia.”<\/p>\n
<\/p>\n
Financial Summary & Operating Metrics (figures in $MM’s, except per share amounts)<\/p>\n
<\/p>\n
3 Months 3 Months Y \/ Y\n Metric Ended 9.30.07 Ended 9.30.06 Growth<\/pre>\nGross bookings $5,146.9 $4,261.0 21%
\nRevenue 759.6 613.9 24%
\nRevenue margin 14.76% 14.41% +35bps
\nGross profit 608.5 480.8 27%
\nOperating income before
\namortization* (“OIBA”) 212.8 180.0 18%
\nOperating income 179.8 89.3 101%
\nAdjusted net income * 123.1 117.2 5%
\nNet income 99.6 59.0 69%
\nAdjusted EPS * $0.39 $0.34 15%
\nDiluted EPS $0.32 $0.17 88%
\nFree cash flow * 24.1 (18.9) N\/A<\/p>\n* “Operating income before amortization,” “Adjusted net income,”
\n“Adjusted EPS,” and “Free cash flow” are non-GAAP measures as defined
\nby the Securities and Exchange Commission (the “SEC”). Please see
\n“Definitions of Non-GAAP Measures” and “Tabular Reconciliations for
\nNon-GAAP Measures” on pages 15-18 herein for an explanation of non-GAAP
\nmeasures used throughout this release.<\/p>\nDiscussion of Results<\/p>\n
Gross Bookings & Revenue<\/p>\n
<\/p>\n
Gross bookings increased 21% for the third quarter of 2007 compared with the third quarter of 2006. North America bookings increased 13%, Europe bookings increased 47% (39% excluding the impact of foreign exchange) and Other bookings (primarily Expedia\u00ae Corporate Travel and our Asia Pacific operations) increased 27%.<\/p>\n
<\/p>\n
Revenue increased 24% for the third quarter, primarily driven by increased worldwide merchant hotel revenue and advertising and media revenue. North America revenue increased 19%, Europe revenue increased 37% (30% excluding foreign exchange) and Other revenue increased 41%.<\/p>\n
<\/p>\n
Worldwide merchant hotel revenue increased 22% for the third quarter due to a 16% increase in room nights stayed, including rooms delivered as a component of vacation packages, and a 5% increase in revenue per room night. Revenue per room night increased due to a 5% increase in worldwide average daily rates (“ADRs”), partially offset by a 37 basis point decline in hotel raw margin.<\/p>\n
<\/p>\n
Worldwide air revenue increased 9% for the third quarter due to a 15% increase in air tickets sold, partially offset by a 5% decrease in revenue per air ticket. The decrease in revenue per air ticket primarily reflects reduced air service fees, and to a lesser extent, decreased compensation from air carriers and global distribution system (“GDS”) providers versus the prior year period.<\/p>\n
<\/p>\n
Worldwide revenue from products and services other than merchant hotel and air (including advertising and media, car rentals, destination services and cruises), increased 40% for the third quarter due primarily to increased advertising and media revenues and car rental revenues.<\/p>\n
<\/p>\n
Package revenue increased 12% compared with the prior year period primarily due to higher European package bookings and increased revenue margin on North American package bookings compared with the prior year period in which we pursued aggressive package discounting.<\/p>\n
<\/p>\n
Revenue as a percentage of gross bookings (“revenue margin”) was 14.76% for the third quarter, an increase of 35 basis points. North America revenue margin increased 68 basis points to 15.19%, Europe revenue margin decreased 116 basis points to 15.73%, and Other revenue margin increased 90 basis points to 9.08%. The third quarter increase in worldwide and North America revenue margin was primarily due to an increased mix of advertising and media revenues as compared to third quarter 2006. Europe revenue margin decreased primarily due to lower revenue from more competitive hotel pricing and lower air booking fees.<\/p>\n
<\/p>\n
Profitability<\/p>\n
<\/p>\n
Gross profit for the third quarter of 2007 was $609 million, an increase of 27% compared with the third quarter of 2006 primarily due to increased revenue and a 179 basis point improvement in gross margin to 80.11%. The gross margin increase was due to cost reductions from our various efficiency initiatives and an increased mix of advertising and media revenue.<\/p>\n
<\/p>\n
OIBA for the third quarter increased 18% to $213 million, driven primarily by higher revenue. OIBA as a percentage of revenue decreased 131 basis points to 28.02%, primarily reflecting a higher growth in sales and marketing expenses excluding stock-based compensation as a percentage of revenue, partially offset by a higher gross margin. Operating income increased 101% to $180 million primarily due to an intangible asset impairment in the prior year period, the same factors driving OIBA growth, and lower intangible amortization.<\/p>\n
<\/p>\n
Adjusted net income for the third quarter increased $6 million due to higher OIBA, partially offset by net losses from foreign currency and higher net interest expense. Net income increased $41 million reflecting higher operating income, partially offset by a higher tax provision, an increase in net losses from foreign currency and higher net interest expense compared with the prior period. Third quarter adjusted EPS and diluted EPS were $0.39 and $0.32, respectively. These measures increased 15% and 88% due to the same factors impacting adjusted net income and net income, as well as lower net share counts from share repurchase activity since the prior year period.<\/p>\n
<\/p>\n
Cash Flows & Working Capital<\/p>\n
<\/p>\n
For the nine months ended September 30, 2007, net cash provided by operating activities was $965 million and free cash flow was $908 million. Both measures include $597 million of benefit from net changes in operating assets and liabilities, primarily driven by seasonal receipt of cash related to our merchant hotel business. Free cash flow for the third quarter increased $43 million primarily due to higher OIBA, greater benefit from net changes in operating assets and liabilities and lower capital expenditures.<\/p>\n
<\/p>\n
Recent Highlights<\/pre>\nGlobal Presence
\n— Gross bookings from Expedia, Inc.’s international points of sale in
\nCanada, China, France, Germany, Italy, the United Kingdom and other
\ncountries were $1.67 billion, accounting for 32% of worldwide
\nbookings, up from 27% in the prior year period. International revenue,
\nincluding the TripAdvisor international websites beginning in 2007,
\nwas $252 million or 33% of worldwide revenue, up from 29% in the prior
\nyear period.
\n— Expedia\u00ae Corporate Travel (“ECT”) launched its sixth European point
\nof sale in Spain, added JetBlue Airways\u00ae and AirTran Airways\u00ae
\ncontent in North America and has generated year-to-date gross bookings
\nof nearly $1 billion.
\n— Expedia, Inc. launched its 14th and 15th Expedia\u00ae-branded points of
\nsale in Austria (http:\/\/www.expedia.at\/<\/a>) and New Zealand
\n(http:\/\/www.expedia.co.nz\/<\/a>).
\n— Expedia, Inc. and Freeborders Inc. announced a partnership to create a
\ntechnology development center for Expedia in China. The expansion of
\nExpedia’s global development resources will speed product and service
\ndelivery, provide for flexible staffing and enable access to the Asia
\nPacific region’s top talent.<\/p>\nBrand Portfolio
\n— Expedia.com and Citi expanded their partnership with the launch of the
\nnew Citi PremierPass\u00ae\/Expedia.com\u00ae Card. The Card follows the
\nsuccessful introduction of ThankYou Rewards on Expedia.com, where over
\none million Expedia customers have become ThankYou members in less
\nthan a year. With the new Card travelers earn ThankYou points for
\neveryday purchases, eligible travel booked on Expedia.com and miles
\nflown on any airline.
\n— Hotels.com\u00ae, the expert in booking hotels online and on the phone,
\nlaunched a new comprehensive website dedicated to Spanish-speaking
\ntravelers, espanol.hotels.com. In addition to the website, hotels.com
\noffers a dedicated 1-800 sales center for those preferring to book
\ntheir hotels over the phone in Spanish.
\n— TripAdvisor\u00ae, the world’s largest travel community, was named one of
\nthe “Top 25 Travel Milestones” by USA Today. Picked by the USA Today
\ntravel team, the list features the top “25 pivotal changes that
\ntransformed the way we travel.” TripAdvisor was the only company to be
\nsingled out as a milestone on the list of 25, joining such
\ngroundbreaking innovations as smoke-free flights and the rolling
\nsuitcase.<\/p>\nContent & Innovation
\n— Expedia.com began beta testing its TravelAds platform, enabling
\nmerchant hotels to dynamically bid for premium placement in hotel
\nsearch results on Expedia.com.
\n— Hotwire.com™ unveiled a new Airfare Savings Hub, making it even
\neasier for flexible travelers to save money with proactive, real-time
\nrecommendations for alternative airports and dates of travel. With the
\nAirfare Savings Hub, Hotwire\u00ae has offered travelers an average
\nsavings of 25% with its deal recommendations.
\n— Hotels.com added its 1,000th bed and breakfast property, addressing
\nU.S. travelers who make more than five million trips to B&B’s each
\ncalendar year. Hotels.com offers a dedicated “Condos, B&B” tab on its
\nhomepage to enable easy discovery of its extensive bed and breakfast
\ninventory.<\/p>\nPartner Services Group (“PSG”)
\n— Expedia, Inc. reached new strategic agreements with British Airways\u00ae
\nand AirFrance\/KLM\u00ae, ensuring multi-year availability of these
\ncarriers’ fares, schedules and inventory.
\n— Expedia, Inc. signed multi-year agreements with Harrah’s\u00ae and
\nExtended Stay America\u00ae, ensuring availability of these hotel chains
\nrooms and pricing across the Company’s worldwide points of sale.<\/p>\nEXPEDIA, INC.
\nCONSOLIDATED STATEMENTS OF INCOME
\n(In thousands, except per share data)
\n(Unaudited)<\/p>\nThree months ended Nine months ended
\nSeptember 30, September 30,
\n—————– ———————
\n2007 2006 2007 2006
\n——– ——– ———- ———-<\/p>\nRevenue $759,596 $613,942 $2,000,030 $1,706,298
\nCost of revenue (1) 151,053 133,094 415,997 380,857
\n——– ——– ———- ———-
\nGross profit 608,543 480,848 1,584,033 1,325,441<\/p>\nOperating expenses:
\nSelling and marketing (1) 279,341 215,086 757,514 614,778
\nGeneral and administrative
\n(1) 83,365 66,156 235,261 210,570
\nTechnology and content (1) 47,452 36,034 131,215 104,866
\nAmortization of intangible
\nassets 18,613 26,569 59,312 86,860
\nImpairment of intangible
\nasset – 47,000 – 47,000
\nAmortization of non-cash
\ndistribution and marketing – 711 – 9,578
\n——- ——– ——— ——–
\nOperating income 179,772 89,292 400,731 251,789<\/p>\nOther income (expense):
\nInterest income 12,888 9,697 30,709 20,332
\nInterest expense (13,940) (4,857) (35,018) (7,230)
\nOther, net (13,894) 2,926 (13,453) 17,049
\n——- ——– ——— ——–
\nTotal other income (expense),
\nnet (14,946) 7,766 (17,762) 30,151
\n——- ——– ——— ——–
\nIncome before income taxes and
\nminority interest 164,826 97,058 382,969 281,940
\nProvision for income taxes (65,542) (37,707) (153,230) (103,523)
\nMinority interest in (income)
\nloss of consolidated
\nsubsidiaries, net 311 (374) 768 (623)
\n——- ——– ——— ——–
\nNet income $99,595 $58,977 $230,507 $177,794
\n======= ======== ========= ========<\/p>\nNet earnings per share
\navailable to common
\nstockholders:
\nBasic $0.34 $0.18 $0.77 $0.52
\nDiluted 0.32 0.17 0.72 0.50<\/p>\nShares used in computing
\nearnings per share:
\nBasic 292,171 330,359 300,959 340,660
\nDiluted 312,756 341,137 318,848 355,075<\/p>\n(1) Includes stock-based
\ncompensation as follows:
\nCost of revenue $550 $1,816 $2,079 $6,627
\nSelling and marketing 2,729 2,968 8,768 11,665
\nGeneral and administrative 7,683 7,043 22,356 25,483
\nTechnology and content 3,455 4,612 11,046 13,772
\n——- ——– ——— ——–
\nTotal stock-based
\ncompensation $14,417 $16,439 $44,249 $57,547
\n======= ======== ========= ========<\/p>\nEXPEDIA, INC.
\nCONSOLIDATED BALANCE SHEETS
\n(In thousands, except share and per share amounts)<\/p>\nSeptember 30, December 31,
\n2007 2006
\n———— ————
\n(Unaudited)
\nASSETS
\nCurrent assets:
\nCash and cash equivalents $836,531 $853,274
\nRestricted cash and cash equivalents 20,748 11,093
\nAccounts and notes receivable, net
\nof allowance of $5,226 and $4,874 317,901 211,430
\nPrepaid merchant bookings 71,986 39,772
\nDeferred income taxes, net 275 4,867
\nPrepaid expenses and other current assets 71,279 62,249
\n———— ————
\nTotal current assets 1,318,720 1,182,685
\nProperty and equipment, net 152,941 137,144
\nLong-term investments and other assets 89,006 59,289
\nIntangible assets, net 988,525 1,028,774
\nGoodwill 5,912,934 5,861,292
\n———— ————
\nTOTAL ASSETS $8,462,126 $8,269,184
\n============ ============<\/p>\nLIABILITIES AND STOCKHOLDERS’ EQUITY<\/p>\n
Current liabilities:
\nAccounts payable, merchant $823,351 $600,192
\nAccounts payable, other 185,868 120,545
\nDeferred merchant bookings 818,474 466,474
\nDeferred revenue 13,765 10,317
\nIncome taxes payable 52,522 30,902
\nOther current liabilities 196,858 171,695
\n———— ————
\nTotal current liabilities 2,090,838 1,400,125
\nLong-term debt 500,000 500,000
\nCredit facility 500,000 –
\nDeferred income taxes, net 362,398 369,297
\nOther long-term liabilities 104,052 33,716
\nMinority interest 62,590 61,756<\/p>\nCommitments and contingencies<\/p>\n
Stockholders’ equity:
\nPreferred stock $.001 par value – –
\nAuthorized shares: 100,000,000
\nSeries A shares issued and
\noutstanding: 776 and 846
\nCommon stock $.001 par value 333 328
\nAuthorized shares: 1,600,000,000
\nShares issued: 332,539,633 and
\n328,066,276
\nShares outstanding: 255,005,709
\nand 305,901,048
\nClass B common stock $.001 par value 26 26
\nAuthorized shares: 400,000,000
\nShares issued and outstanding:
\n25,599,998 and 25,599,998
\nAdditional paid-in capital 5,996,099 5,903,200
\nTreasury stock – Common stock, at cost (1,717,922) (321,155)
\nShares: 77,533,924 and 22,165,228
\nRetained earnings 536,847 309,912
\nAccumulated other comprehensive income 26,865 11,979
\n———— ————
\nTotal stockholders’ equity 4,842,248 5,904,290
\n———— ————
\nTOTAL LIABILITIES AND STOCKHOLDERS’
\nEQUITY $8,462,126 $8,269,184
\n============ ============<\/p>\nEXPEDIA, INC.
\nCONSOLIDATED STATEMENTS OF CASH FLOWS
\n(In thousands)
\n(Unaudited)
\nNine months ended
\nSeptember 30,
\n————————-
\n2007 2006
\n——– ———<\/p>\nOperating activities:
\nNet income $230,507 $177,794
\nAdjustments to reconcile net income to net
\ncash provided by operating activities:
\nDepreciation 43,381 35,834
\nAmortization of intangible assets, non-cash
\ndistribution and marketing and stock-based
\ncompensation 103,561 153,985
\nDeferred income taxes (3,297) (31,702)
\nUnrealized (gain) loss on derivative
\ninstruments, net 5,938 (11,609)
\nEquity in (income) loss of
\nunconsolidated affiliates 3,848 (2,331)
\nMinority interest in income (loss)
\nof consolidated subsidiaries, net (768) 623
\nImpairment of intangible asset – 47,000
\nForeign exchange gain on cash and
\ncash equivalents, net (18,669) (23,274)
\nOther 3,362 785
\nChanges in operating assets and
\nliabilities, net of effects from
\nacquisitions:
\nAccounts and notes receivable (94,431) (39,767)
\nPrepaid merchant bookings and
\nprepaid expenses (38,674) (30,178)
\nAccounts payable, other and other
\ncurrent liabilities 154,180 103,189
\nAccounts payable, merchant 221,084 122,307
\nDeferred merchant bookings 351,969 216,911
\nDeferred revenue 3,365 4,001
\n——– ——-
\nNet cash provided by operating activities 965,356 723,568
\n——– ——-
\nInvesting activities:
\nCapital expenditures (57,620) (67,580)
\nAcquisitions, net of cash acquired (59,622) (29,830)
\nIncrease in long-term investments
\nand deposits (29,677) (1,820)
\n——– ——-
\nNet cash used in investing activities (146,919) (99,230)
\n——— ——-
\nFinancing activities:
\nCredit facility borrowings 650,000 –
\nCredit facility repayments (150,000) (230,649)
\nProceeds from issuance of long-term
\ndebt, net of issuance costs – 495,682
\nChanges in restricted cash and cash
\nequivalents (10,630) (2,604)
\nProceeds from exercise of equity awards 45,398 29,360
\nExcess tax benefit on equity awards 2,676 781
\nTreasury stock activity (1,396,012) (295,105)
\nOther, net (844) –
\n———– ——–
\nNet cash used in financing activities (859,412) (2,535)
\nEffect of exchange rate changes on
\ncash and cash equivalents 24,232 26,473
\n——- ——-
\nNet increase (decrease) in cash and
\ncash equivalents (16,743) 648,276
\nCash and cash equivalents at
\nbeginning of period 853,274 297,416
\n——- ——-
\nCash and cash equivalents at end of period $836,531 $945,692
\n=========== ========
\nSupplemental cash flow information
\nCash paid for interest $41,381 $3,796
\nIncome tax payments, net 69,751 63,955<\/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 typically produce a
\nhigher level of net revenue per transaction and are generally
\nrecognized when the customer uses the travel product or service.
\nAgency revenues are generally recognized at the time the reservation
\nis booked.
\n— Merchant bookings accounted for 44% of total gross bookings for the
\nthird quarter of 2007 compared with 42% in the prior year period,
\nprimarily driven by an increase in our European merchant bookings.<\/p>\nCost of Revenue
\n— Cost of revenue primarily consists of: (1) costs of our call and data
\ncenters, including telesales expense; (2) credit card merchant fees;
\n(3) fees paid to fulfillment vendors for processing airline tickets
\nand related customer services; (4) costs paid to suppliers for certain
\ndestination inventory; and (5) reserves and related payments to
\nairlines for tickets purchased with fraudulent credit cards.
\n— Cost of revenue was 19.9% of revenue for the third quarter of 2007 and
\n21.7% for the prior year period. Excluding stock-based compensation,
\ncost of revenue was 19.8% of revenue for the third quarter of 2007 and
\n21.4% for the prior year period. Cost of revenue excluding stock-based
\ncompensation decreased 157 basis points as a percentage of revenue due
\nto our various efficiency initiatives and an increased mix of
\nadvertising and media revenue.
\n— Cost of revenue includes depreciation expense of $4 million for the
\nthird quarter of 2007, and $3 million for the comparable 2006 period.<\/p>\nOperating Expenses (non-GAAP)
\n(Stock-based compensation expense has been excluded from all calculations
\nand discussions below)
\n— Operating expenses in millions and as a percentage of revenue for the
\nthird quarters of 2007 and 2006 were as follows (some numbers may not
\nadd due to rounding):<\/p>\nThree months Three months
\nended September 30, ended September 30,
\n———————— —————————-
\n2007 2006 Growth 2007 2006 change in bps
\n——– —— ——- —— ——- ————-
\nSelling and
\nmarketing $276.6 $212.1 30% 36.4% 34.6% 187
\nGeneral and
\nadministrative 75.7 59.1 28% 10.0% 9.6% 34
\nTechnology and
\ncontent 44.0 31.4 40% 5.8% 5.1% 67
\n——– ——- ——- —— ——- ———
\nTotal operating
\nexpenses $396.3 $302.7 31% 52.2% 49.3% 287<\/p>\n— Operating expenses include depreciation expense of $11 million in the
\nthird quarter of 2007 and $10 million in the prior year period.<\/p>\nSelling and Marketing (non-GAAP)
\n— Selling and marketing expense primarily relates to direct advertising
\nexpense, including television, radio and print spending, as well as
\ntraffic generation costs from internet portals, search engines and our
\nprivate label and affiliate programs.
\n— Approximately 21% of selling and marketing expense in the third
\nquarter of 2007 and 20% for the prior year period relate to indirect
\ncosts including personnel in PSG, TripAdvisor, ECT and destination
\nservices.
\n— The increase in selling and marketing expense was primarily due to
\nincreased direct online and brand spend to support our worldwide
\npoints of sale, including spend at Hotels.com and Expedia sites in
\nEurope, our TripAdvisor network, our European private label and
\naffiliate channels, Hotels.com, Hotwire and Expedia.com, as well as
\nincreased personnel costs related to TripAdvisor, destination
\nservices, PSG and other teams.
\n— We expect selling and marketing expense to increase as a percentage of
\nrevenue in 2007 as we aggressively support our established brands and
\ngeographies, grow our earlier stage international markets, increase
\nour use of brand spend as markets reach scale, invest in our global
\nadvertising and media businesses and expand our corporate travel
\nsales, destination services and market management teams.<\/p>\nGeneral and Administrative (non-GAAP)
\n— 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, and fees for professional services that include
\nlegal, tax and accounting.
\n— The increase in general and administrative expense was primarily due
\nto increased incentive accruals, personnel costs related to expansion
\nof our corporate IT functions and our European businesses, and
\nincreased legal expenses.
\n— We expect general and administrative expense to increase in absolute
\ndollars but decrease as a percentage of revenue in 2007 as compared to
\nthe prior year.<\/p>\nTechnology and Content (non-GAAP)
\n— Technology and content expense includes product development expenses
\nprincipally related to payroll and related expenses, hardware and
\nsoftware expenditures and software development cost amortization.
\n— The increase in technology and content expense was due to increased
\npersonnel costs and amortization of capitalized software costs, a
\nsignificant amount of which we began putting into service beginning
\nwith the fourth quarter of 2006.
\n— Given our historical and ongoing investments in our enterprise data
\nwarehouse, re-platforming, geographic expansion, data centers,
\nredundancy, call center technology, site merchandising, content
\nmanagement, site monitoring, networking, corporate travel, supplier
\nintegration and other initiatives, we expect technology and content
\nexpense to increase in absolute dollars and as a percentage of revenue
\nin both 2007 and 2008.<\/p>\nStock-Based Compensation Expense
\n— Stock-based compensation expense relates primarily to expense for
\nstock options and restricted stock units (“RSUs”). Since February 2003
\nwe have awarded RSUs as our primary form of employee stock-based
\ncompensation. Our stock-based awards generally vest over five years.
\n— Third quarter stock-based compensation expense was $14 million,
\nconsisting of $11 million in expense related to RSUs and other equity
\ncompensation and $3 million in stock option expense.
\n— Third quarter stock-based compensation decreased $2 million compared
\nto the prior year period primarily due to completed vesting of
\nprevious option awards, partially offset by higher expense related to
\nRSU grants.
\n— Assuming, among other things, no modification of existing awards,
\nsignificant incremental award grants, adjustments to forfeiture
\nestimates or meaningful changes in our stock price, we expect annual
\nstock-based compensation expense will be approximately $65 million in
\n2007 and 2008.<\/p>\nOther, Net
\n— The $17 million decrease in other, net for the third quarter primarily
\nrelates to a $12 million net foreign exchange loss in the third
\nquarter of 2007, compared with a $2 million gain in the prior year
\nperiod.<\/p>\nIncome Taxes
\n— The effective tax rate on GAAP pre-tax income was 39.8% for the third
\nquarter 2007 compared with 38.8% in the prior year period. The
\neffective tax rate on pre-tax adjusted income was 38.6% for the third
\nquarter 2007 compared with 37.5% in the prior year period. The
\neffective rates for both GAAP and pre-tax adjusted income increased
\nprimarily due to tax return adjustments in the prior year period. Both
\nthird quarter 2007 rates were higher than the statutory rate
\nprincipally due to state income taxes and tax reserves.
\n— Cash paid for income taxes for the nine months ended September 30,
\n2007 was $70 million, an increase of $6 million from the prior year
\nperiod. We anticipate tax-related payments for full-year 2007 will
\ndecrease compared with 2006 due to higher stock-based deductions
\nrelated to recent increases in our stock price.<\/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 USD
\nin comparison to our international operations’ functional currencies.
\nManagement believes investors may find it useful to assess growth
\nrates with and without the impact of foreign exchange.
\n— The estimated impact on worldwide and Europe growth rates from foreign
\nexchange in the third quarter was as follows (some numbers may not add
\ndue to rounding):<\/p>\nWorldwide<\/p>\n
Y\/Y growth rates Impact on Y\/Y growth
\nexcluding foreign rates from foreign
\nY\/Y growth rates exchange movements exchange movements<\/p>\nGross Bookings 20.8% 18.7% 2.1%
\nRevenue 23.7% 21.4% 2.4%<\/p>\nEurope<\/p>\n
Y\/Y growth rates Impact on Y\/Y growth
\nexcluding foreign rates from foreign
\nY\/Y growth rates exchange movements exchange movements
\nGross Bookings 46.8% 38.7% 8.1%
\nRevenue 36.7% 29.8% 7.0%<\/p>\n— The positive impact of foreign exchange on our cash balances
\ndenominated in foreign currency was $14 million in the third quarter
\nof 2007, and is included in “effect of exchange rate changes on cash
\nand cash equivalents” on our statements of cash flows. This amount
\nreflects a net increase of $4 million as compared to the prior year
\nperiod primarily due to a higher net gain from holding or converting
\nforeign currencies in the third quarter of 2007 as compared to the
\nprior year period.<\/p>\nAcquisitions
\n— Acquisitions increased third quarter 2007 gross bookings growth by
\n0.1%, revenue growth by 1.8% and OIBA growth by 1.2%. These
\nacquisitions increased year-to-date gross bookings growth by 0.1%,
\nrevenue growth by 1.7% and OIBA growth by 1.7%. These acquisitions
\nwere primarily related to media content businesses.<\/p>\nBalance Sheet Notes<\/p>\n
Cash, Cash Equivalents and Restricted Cash
\n— Cash, cash equivalents and restricted cash totaled $857 million at
\nSeptember 30, 2007. This amount includes $21 million in restricted
\ncash and cash equivalents primarily related to merchant air revenue
\ntransactions, and $159 million of cash at eLong, whose results are
\nconsolidated in our financial statements due to our controlling voting
\nand economic ownership position.
\n— The decrease in cash, cash equivalents and restricted cash for the
\nnine months ended September 30, 2007 principally relates to
\n$1.4 billion in treasury stock activity primarily related to tender
\noffer repurchases of 55 million common shares, $89 million in
\nacquisitions, long-term investments and deposits, $70 million in cash
\ntax payments and $58 million of capital expenditures, partially offset
\nby a $597 million net benefit from changes in operating assets and
\nliabilities, $504 million in OIBA, $500 million in revolver borrowings
\nand $45 million in proceeds from equity award exercises.<\/p>\nAccounts and Notes Receivable
\n— Accounts receivable include credit card receivables generally due
\nwithin two to three days from credit card agencies, receivables from
\nagency transactions generally due within 30 days after booking, and
\nreceivables from global distribution system partners generally due
\nwithin 60 to 120 days after booking.
\n— Accounts and notes receivable increased $106 million from December 31,
\n2006 due to growth in our various lines of business.<\/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 travel.
\nThe $32 million increase in prepaid merchant bookings from
\nDecember 31, 2006 is due in part to increased air bookings at Hotwire.
\n— Prepaid expenses and other current assets are primarily composed of
\nprepaid marketing, prepaid merchant fees, prepaid license and
\nmaintenance agreements and prepaid insurance.<\/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— Long-term investments and other assets increased $30 million from
\nDecember 31, 2006 primarily due to a first quarter equity investment
\nin a travel company.<\/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.
\n— Goodwill increased $52 million from acquisitions completed since
\nDecember 31, 2006.
\n— $867 million of intangible assets, net relates to intangible assets
\nwith indefinite lives, which are not amortized, principally related to
\nacquired trade names and trademarks.
\n— $121 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 deductible
\nfor tax purposes.
\n— Amortization expense related to definite lived intangibles was
\n$19 million for the third quarter, compared with $27 million for the
\nprior year period. The decrease was primarily due to the completed
\namortization of certain technology and supplier intangible assets over
\nthe past year. Assuming no impairments or additional acquisitions, we
\nexpect amortization expense for definite lived intangibles of
\n$78 million in 2007 and $57 million in 2008.<\/p>\nAccounts Payable, Other
\n— Accounts payable, other primarily consists of payables related to the
\nday-to-day operations of our business.
\n— Accounts payable, other increased $65 million from December 31, 2006
\nprimarily due to accrued marketing expenses related to increased
\nmarketing efforts at our various points of sale, as well as an
\nincrease in corporate accounts payable in keeping with the growth of
\nour business.<\/p>\nDeferred Merchant Bookings and Accounts Payable, Merchant
\n— Deferred merchant bookings consist of amounts received from travelers
\nwho have not yet traveled and the balances generally mirror the
\nseasonality pattern of our gross bookings. The payment to suppliers
\nrelated to these bookings is generally made within two weeks after
\nbooking for air travel and, for all other merchant bookings, after the
\ncustomer’s use of services and subsequent billing from the supplier,
\nwhich billing is reflected as accounts payable, merchant on our
\nbalance sheet. Therefore, especially for merchant hotel, there is a
\nsignificant period of time from the receipt of cash from our travelers
\nto supplier payment.
\n— As long as the merchant hotel business continues to grow and our
\nbusiness model does not meaningfully change, we expect that changes in
\nworking capital related to this business will continue to be a
\npositive contributor to operating and free cash flow. If this business
\ndeclines or if the model changes significantly, it would negatively
\naffect our working capital.
\n— For the nine months ended September 30, 2007, the change in deferred
\nmerchant booking and accounts payable, merchant contributed
\n$573 million to net cash provided by operating activities, primarily
\nrelated to seasonality associated with, and growth in, our merchant
\nhotel business.<\/p>\nIncome Taxes Payable
\n— Income taxes payable increased $22 million from December 31, 2006
\nreflecting an increase in our taxes due primarily to taxable income
\ngenerated during the first nine months of the year.<\/p>\nOther Current Liabilities
\n— Other current liabilities principally relate to accruals for cost of
\nservice related to our call center and internet services, accruals for
\nservice, bonus, salary and wage liabilities, a reserve related to
\noccupancy taxes, and accrued interest on our Notes and credit
\nfacility.
\n— Other current liabilities includes $30 million related to our tax
\nsharing agreement with Microsoft and the fair value of our Ask
\nderivative, which relates to notes which are due June 1, 2008 (see
\n“Ask Derivative Liability”).
\n— Other current liabilities increased $25 million from December 31, 2006
\nprimarily due to the reclassification of $15 million from other
\nlong-term liabilities related to our Ask derivative.<\/p>\nAsk Derivative Liability
\n— In connection with IAC\/Interactive Corp’s acquisition of Ask, we
\nissued 4.3 million shares of Expedia, Inc. common stock into an escrow
\naccount, which shares (or cash in equal value) were due to holders of
\nAsk convertible notes upon conversion. These shares have been included
\nin diluted shares from the date of our spin-off from IAC.
\n— During the third quarter of 2007 notes were converted for less than
\n10,000 common shares, which when combined with prior conversions of
\n3.8 million shares, leaves 0.5 million shares of Expedia common stock
\n(or cash in equal value) due to Ask convertible note holders upon
\nconversion. The Ask notes are due June 1, 2008; upon maturity our
\nobligation to satisfy demands for conversion ceases.
\n— The estimated fair value of the Ask derivative at September 30, 2007
\nwas $15 million, and is recorded in other current liabilities on our
\nconsolidated balance sheet.
\n— For the third quarter we recorded a net unrealized loss of $1 million
\nrelated to the Ask derivative due to the increase in our share price
\nat the end of the third quarter of 2007 compared with the end of the
\nsecond quarter of 2007. This loss is reflected as an increase in other
\ncurrent liabilities, is recorded in other, net on our consolidated
\nstatements of income and is excluded from both our OIBA and adjusted
\nnet income calculations.
\n— We anticipate recording a quarterly unrealized gain or loss in future
\nquarters related to any remaining liability as we adjust the fair
\nvalue for changes in our stock price, as measured at subsequent
\nquarter-ends compared with the prior quarter-end.<\/p>\nBorrowings
\n— Expedia, Inc. maintains a $1 billion unsecured revolving credit
\nfacility, which expires in August 2010. As of September 30, 2007, we
\nhad $500 million in borrowings outstanding under our revolver, which
\namount was drawn in conjunction with the August 2007 funding of our
\n25 million share tender offer.
\n— Outstanding borrowings bear interest based on our financial leverage,
\nwhich based on our September 30, 2007 financials would equate to a
\nbase rate plus 62.5 basis points. At our discretion we can choose a
\nbase rate equal to (1) the greater of the Prime rate or the Federal
\nFunds Rate plus 50 basis points or (2) various durations of LIBOR. The
\nbase rate is currently 1-month LIBOR of 5.13%, and is due to re-price
\non November 15.
\n— As of September 30, 2007 we were in compliance with our leverage and
\nnet worth covenants under the credit facility. Outstanding letters of
\ncredit under the facility as of that date were $52 million, which
\nbalance reduces our available borrowing capacity.
\n— Long-term debt relates to $500 million in registered 7.456% Senior
\nNotes (the “Notes”) due 2018, which were issued in August 2006. The
\nNotes are repayable in whole or in part on August 15, 2013 at the
\noption of the note holders. We may redeem the Notes at any time at our
\noption.
\n— Semi-annual interest expense related to the Notes is $19 million, paid
\non February 15 and August 15 of each year. Accrued interest related to
\nthe notes was $5 million at September 30, 2007 and $13 million at
\nDecember 31, 2006, and such amounts are classified as other current
\nliabilities on our balance sheet.<\/p>\nOther Long-Term Liabilities
\n— Other long-term liabilities include $74 million in uncertain tax
\npositions recorded under FIN 48. Prior to the adoption of FIN 48 on
\nJanuary 1, 2007 these amounts were classified as taxes payable in
\ncurrent liabilities.
\n— Other long-term liabilities also includes $21 million of derivative
\nliabilities, primarily related to cross-currency swaps, which
\nincreased $8 million from December 31, 2006 primarily due to the
\nweakening of the USD compared with the Euro.<\/p>\nMinority Interest
\n— Minority interest primarily relates to the minority ownership position
\nin eLong, an entity in which we own a 56% interest (52% fully-diluted)
\nand results for which are consolidated for all periods presented.<\/p>\nPurchase Obligations and Contractual Commitments
\n— At September 30, 2007 we have agreements with certain vendors under
\nwhich we have future minimum obligations of $21 million for the
\nremainder of 2007, $9 million in 2008 and $8 million in 2009. These
\nminimum obligations for telecom, loyalty, software 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. In addition, if certain obligations are met by our
\ncounterparties, our obligations will increase. These obligations are
\nnot reflected on our consolidated balance sheets herein.
\n— In conjunction with our investment in a travel company, we have
\nentered into a commitment to provide a $10 million revolving operating
\nline of credit and a credit facility for up to $20 million. No amounts
\nwere drawn on the line of credit or credit facility as of
\nSeptember 30, 2007.
\n— In conjunction with one of our acquisitions we are obligated to pay an
\nadditional purchase price ranging from $0 to approximately
\n$100 million based on the 2007 and 2008 financial performance of the
\nacquired company. Such amount (if any) would be payable in the first
\nhalf of 2008 and\/or 2009.
\n— In June 2007, we entered into a lease for new headquarters office
\nspace located in Bellevue, Washington. The ten-year term and cash
\npayments related to this lease are expected to begin in November 2008.
\n— Our estimated future minimum rental payments under operating leases
\nwith noncancelable lease terms that expire after September 30, 2007
\nare $7.0 million for the remainder of 2007, $29.0 million for 2008,
\n$28.7 million for 2009, $26.1 million for 2010, $24.8 million for 2011
\nand $116.7 million for 2012 and thereafter.<\/p>\nCommon Stock
\n— In August 2007 we completed a tender offer to purchase 25 million
\nshares of Expedia, Inc. at a price of $29.00 for a total cost of
\n$725 million excluding fees and expenses. The Company used
\n$500 million in available borrowings under its revolving credit
\nfacility and approximately $225 million in cash to fund the tender
\noffer. The Company’s directors and executive officers and Liberty
\nMedia Corporation did not tender any shares.
\n— In August 2006 our Board of Directors authorized the repurchase of up
\nto 20 million common shares. There is no fixed termination date for
\nthe authorization, and as of the date of this release we have not
\nrepurchased any shares under this authorization. This authorization
\nwas not impacted by the above tender offer and remains outstanding.<\/p>\nClass B Common Stock
\n— There are approximately 26 million shares of Expedia Class B common
\nstock outstanding, owned by Liberty Media Corporation and its
\nsubsidiaries (“Liberty”). Class B shares are entitled to ten votes per
\nshare when voting on matters with the holders of Expedia common and
\npreferred 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, Mr.
\nDiller had a controlling 60% voting interest in Expedia, Inc. as of
\nOctober 12, 2007.<\/p>\nWarrants
\n— As of September 30, 2007 we had 58.5 million warrants outstanding,
\nwhich, if exercised in full, would entitle holders to acquire
\n34.6 million common shares of Expedia, Inc. for an aggregate purchase
\nprice of approximately $774 million (representing an average of
\napproximately $22 per Expedia, Inc. common share).
\n— 32.2 million of these warrants are privately held and expire in 2012,
\nand 26.0 million warrants are publicly-traded and expire in 2009.
\nThere are 0.3 million other warrants outstanding.<\/p>\nShelf Registration
\n— In October we filed a shelf registration statement with the SEC, under
\nwhich we may offer from time to time debt securities, guarantees of
\ndebt securities, preferred stock, common stock or warrants. The shelf
\nregistration statement expires in October 2010.<\/p>\nStock-Based Awards
\n— At September 30, 2007 we had 28.3 million stock-based awards
\noutstanding, consisting of stock options to purchase 19.9 million
\ncommon shares with a $16.66 weighted average exercise price and
\nweighted average remaining life of 2.6 years, and 8.4 million RSUs.
\n— During the third quarter 2007 we granted 0.4 million RSUs, primarily
\nrelated to new hire grants.
\n— Through September 30, 2007 total equity grants were 3.6 million, or
\n2.1 million net of cancellations, expirations and forfeitures.
\n— On October 8, 2007 Expedia’s Chairman and Senior Executive exercised
\noptions to purchase 9.5 million shares, which options would have
\notherwise expired on October 19, 2007, following their 10-year term.
\n2.3 million shares were withheld by Expedia to cover the exercise
\nprice of $8.59 per share and 3.5 million shares were withheld to cover
\ntax obligations, with a net delivery to Mr. Diller of 3.7 million
\nshares. Mr. Diller intends to hold the shares issued to him upon
\nexercise of the options.
\n— Expedia cancelled all withheld shares and made the required tax
\npayments of $121 million in connection with Mr. Diller’s exercise.
\nThese tax payments will appear in “Financing Activities” on our
\nStatement of Cash Flows for the year ended December 31, 2007.
\n— Following the October 2007 option exercise, we had 10.4 million
\noptions remaining outstanding with a weighted average exercise price
\nof $24.05 and a weighted average remaining life of 4.9 years.<\/p>\nBasic, Fully Diluted and Adjusted Diluted Shares
\n— Weighted average basic, fully diluted and adjusted diluted share
\ncounts are as follows (in 000’s; some numbers may not add due to
\nrounding):<\/p>\n3 Months 3 Months 3 Months
\nEnded Ended Ended
\nShares 9.30.07 12.31.06 9.30.06
\n—————————— ——– ——– ——-
\nBasic shares 292,171 330,294 330,359
\n—————————— ——– ——– ——-
\nOptions 9,264 7,339 6,351
\nWarrants 8,528 3,756 2,288
\nDerivative liabilities 469 867 1,300
\nRSUs 2,324 1,323 827
\nOther – 7 13
\n—————————— ——– ——– ——-
\nFully diluted shares 312,756 343,586 341,137
\nAdditional RSUs, Adjusted Income
\nmethod 6,159 5,849 6,761
\n—————————— ——– ——– ——-
\nAdjusted diluted shares 318,915 349,435 347,898
\n—————————— ——– ——– ——-<\/p>\n— The decrease in basic, fully diluted and adjusted diluted shares as
\ncompared to the end of 2006 and the prior year quarter primarily
\nrelates to the completion of our tender offers for 30 million common
\nshares in January and 25 million common shares in August 2007.
\n— This decrease in diluted share counts was partially offset by dilution
\nfrom warrants, options and RSUs related to the increase in our stock
\nprice and the accompanying impact of such increase on the treasury
\nmethod calculation for dilutive securities.<\/p>\nExpedia, Inc.
\nOperational Metrics – Third quarter 2007
\n(All figures in millions)<\/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 and
\nour 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” gross bookings constitute bookings from all Expedia-branded
\nproperties, including our international sites and our worldwide ECT
\nbusinesses. “Other” gross bookings constitute bookings from all brands
\nother than Expedia and Hotels.com.
\n— Metrics, with the exception of revenue and OIBA items, include 100% of
\nthe results of an unconsolidated joint-venture of which we own
\napproximately 49.9%.
\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>\n2005 2006
\nQ3 Q4 Q1 Q2 Q3 Q4
\n—— —— —— —— —— ——<\/p>\nNumber of Transactions 10.3 8.7 10.5 10.6 10.4 8.9<\/p>\n
Gross Bookings by Segment
\nNorth America $3,044 $2,624 $3,522 $3,445 $3,104 $2,666
\nEurope 644 510 780 752 792 677
\nOther 249 262 347 368 365 344
\n—— —— —— —— —— ——
\nTotal $3,938 $3,395 $4,648 $4,565 $4,261 $3,687<\/p>\nGross Bookings by Brand
\nExpedia $3,096 $2,707 $3,700 $3,614 $3,369 $2,984
\nHotels.com 502 407 582 621 600 456
\nOther 340 281 367 330 293 246
\n—— —— —— —— —— ——
\nTotal $3,938 $3,395 $4,648 $4,565 $4,261 $3,687<\/p>\nGross Bookings by
\nAgency\/Merchant
\nAgency $2,276 $2,068 $2,695 $2,728 $2,473 $2,253
\nMerchant 1,662 1,327 1,953 1,837 1,788 1,433
\n—— —— —— —— —— ——
\nTotal $3,938 $3,395 $4,648 $4,565 $4,261 $3,687<\/p>\nRevenue by Segment
\nNorth America N\/A N\/A $382 $456 $450 $379
\nEurope N\/A N\/A 85 112 134 121
\nOther N\/A N\/A 27 30 30 32
\n—— —— —— —— —— ——
\nTotal N\/A N\/A $494 $598 $614 $531<\/p>\nPackages Revenue $128 $106 $114 $131 $125 $107<\/p>\n
Advertising and
\nMedia Revenue $19 $19 $21 $22 $25 $27<\/p>\nOIBA by Segment
\nNorth America N\/A N\/A $147 $212 $204 $172
\nEurope N\/A N\/A 15 40 48 55
\nOther N\/A N\/A (74) (68) (72) (81)
\n—— —— —— —— —— ——
\nTotal N\/A N\/A $89 $184 $180 $146<\/p>\nWorldwide Merchant Hotel
\nRoom Nights 10.0 8.1 8.1 10.1 11.1 8.7
\nRoom Night Growth 10% 10% 7% 13% 11% 8%
\nADR Growth 9% 6% 3% 7% 4% 8%
\nRevenue per
\nNight Growth 4% -1% -4% 4% 2% 7%
\nRevenue Growth 15% 9% 3% 17% 14% 15%<\/p>\nWorldwide Air (Merchant & Agency)
\nTickets Sold Growth 14% 8% 3% -4% -6% 1%
\nAirfare Growth 7% 7% 9% 13% 11% 4%
\nRevenue per
\nTicket Growth -10% -11% -9% -10% -17% -15%
\nRevenue Growth 3% -4% -7% -13% -23% -14%<\/p>\n2007 Q3 Y\/Y YTD Y\/Y
\nQ1 Q2 Q3 Growth Growth
\n—— —— —— —- —-<\/p>\nNumber of Transactions 11.0 12.0 12.1 16% 12%<\/p>\n
Gross Bookings by Segment<\/p>\n
North America $3,559 $3,723 $3,519 13% 7%
\nEurope 1,032 1,035 1,163 47% 39%
\nOther 425 466 465 27% 26%
\n—— —— —— —- —-
\nTotal $5,016 $5,224 $5,147 21% 14%<\/p>\nGross Bookings by Brand
\nExpedia $4,039 $4,130 $3,976 18% 14%
\nHotels.com 612 696 730 22% 13%
\nOther 365 399 441 51% 22%
\n—— —— —— —- —-
\nTotal $5,016 $5,224 $5,147 21% 14%<\/p>\nGross Bookings by
\nAgency\/Merchant
\nAgency $2,910 $3,025 $2,866 16% 11%
\nMerchant 2,106 2,199 2,281 28% 18%
\n—— —— —— —- —-
\nTotal $5,016 $5,224 $5,147 21% 14%<\/p>\nRevenue by Segment
\nNorth America $406 $505 $534 19% 12%
\nEurope 110 145 183 37% 32%
\nOther 34 39 42 41% 33%
\n—— —— —— —- —-
\nTotal $551 $690 $760 24% 17%<\/p>\nPackages Revenue $111 $132 $140 12% 4%<\/p>\n
Advertising and
\nMedia Revenue $37 $44 $51 106% 94%<\/p>\nOIBA by Segment
\nNorth America $164 $227 $239 17% 12%
\nEurope 26 43 68 43% 33%
\nOther (85) (83) (94) NM NM
\n—— —— —— —- —-
\nTotal $104 $187 $213 18% 11%<\/p>\nWorldwide Merchant Hotel
\nRoom Nights 8.4 11.1 12.9 16% 11%
\nRoom Night Growth 3% 10% 16% 16% 11%
\nADR Growth 9% 5% 5% 5% 6%
\nRevenue per Night Growth 13% 4% 5% 5% 7%
\nRevenue Growth 17% 14% 22% 22% 18%<\/p>\nWorldwide Air (Merchant & Agency)
\nTickets Sold Growth 5% 14% 15% 15% 11%
\nAirfare Growth 1% -3% 2% 2% 0%
\nRevenue per
\nTicket Growth -20% -19% -5% -5% -15%
\nRevenue Growth -16% -7% 9% 9% -6%<\/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. Includes 100% of TripAdvisor as it is managed in North America.<\/p>\n
<\/p>\n
Europe — Reflects results for travel products and services provided through localized Expedia websites in Austria, Denmark, France, Germany, 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 Expedia Corporate Travel, Asia Pacific and unallocated corporate functions and expenses.<\/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
<\/p>\n
Operating Income Before Amortization (“OIBA”) is defined as operating income plus: (1) amortization of non-cash distribution and marketing expense, (2) stock-based compensation expense, (3) amortization of intangible assets and goodwill and\/or intangible asset impairment, if applicable and (4) certain one-time items, if applicable. OIBA represents the combined operating results of Expedia, Inc.’s businesses, taking into account depreciation, which we believe is an ongoing cost of doing business, but excluding the effects of other non-cash expenses that may not be indicative of our core business operations. Management believes this measure is useful to investors because it corresponds more closely to the cash operating income generated from our core operations by excluding significant non-cash operating expenses such as stock- based compensation, and because it provides greater insight into management decision making at Expedia, Inc. as OIBA is our primary internal metric for evaluating the performance of our businesses. OIBA has certain limitations in that it does not take into account the impact of certain expenses to Expedia, Inc.’s statements of income, including stock-based compensation, non-cash payments to partners, acquisition-related accounting and certain one-time items, if applicable. Due to the high variability and difficulty in predicting certain items that affect net income, such as tax rates, stock price and interest rates, Expedia, Inc. is unable to provide a reconciliation to net income on a forward-looking basis without unreasonable efforts.<\/p>\n
<\/p>\n
Adjusted Net Income generally captures all items on the statements of income that have been, or ultimately will be, settled in cash and is defined as net income available to stockholders plus net of tax (1) amortization of non-cash distribution and marketing expense, (2) stock-based compensation expense, (3) amortization of intangible assets, including as part of equity-method investments, and goodwill and\/or intangible impairment, if applicable, (4) one-time items, (5) mark to market gains and losses on derivative liabilities, (6) discontinued operations and (7) the minority interest impact of the aforementioned adjustment items. We believe Adjusted Net Income is useful to investors because it represents Expedia, Inc.’s combined results, taking into account depreciation, which management believes is an ongoing cost of doing business, but excluding the impact of other non-cash expenses and items not directly tied to the core operations of our businesses.<\/p>\n
<\/p>\n
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 charges which are not allocated to the operating businesses such as interest expense, taxes 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
<\/p>\n
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. These expenses are also likely to decline in the near future as we no longer award options as our primary form of equity compensation. 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<\/pre>\nOperating Income Before Amortization<\/p>\n
Three months ended Nine months ended
\nSeptember 30, September 30,
\n—————– —————–
\n2007 2006 2007 2006
\n——- ——- ——- ——-
\n(In thousands)<\/p>\nOIBA $212,802 $180,011 $504,292 $452,774
\nAmortization of intangible assets (18,613) (26,569) (59,312) (86,860)
\nImpairment of intangible asset – (47,000) – (47,000)
\nStock-based compensation (14,417) (16,439) (44,249) (57,547)
\nAmortization of non-cash
\ndistribution and marketing – (711) – (9,578)
\n——- ——- ——- ——-
\nOperating income 179,772 89,292 400,731 251,789<\/p>\nInterest income (expense), net (1,052) 4,840 (4,309) 13,102
\nOther, net (13,894) 2,926 (13,453) 17,049
\nProvision for income taxes (65,542) (37,707) (153,230) (103,523)
\nMinority interest in (income) loss
\nof consolidated subsidiaries, net 311 (374) 768 (623)
\n——- ——- ——- ——-
\nNet income $ 99,595 $58,977 $230,507 $177,794
\n======= ======= ======== ========<\/p>\nAdjusted Net Income & Adjusted EPS
\nThree months ended Nine months ended
\nSeptember 30, September 30,
\n—————– —————–
\n2007 2006 2007 2006
\n——- ——- ——- ——-
\n(In thousands, except per share data)<\/p>\nNet income $ 99,595 $ 58,977 $230,507 $177,794
\nAmortization of intangible assets 18,613 26,569 59,312 86,860
\nImpairment of intangible asset – 47,000 – 47,000
\nStock-based compensation 14,417 16,439 44,249 57,547
\nAmortization of non-cash
\ndistribution and marketing – 711 – 9,578
\nFederal excise tax refunds – – (12,058) –
\nUnrealized (gain) loss on
\nderivative instruments, net 1,394 603 5,938 (11,609)
\nAmortization of intangible assets
\nas part of equity method
\ninvestments 934 – 1,485 –
\nMinority interest (109) (185) (511) (720)
\nProvision for income taxes (11,705) (32,930) (32,457) (74,068)
\n——- ——- ——- ——-
\nAdjusted net income $123,139 $117,184 $296,465 $292,382
\n======= ======= ======= =======<\/p>\nGAAP diluted weighted average
\nshares outstanding 312,756 341,137 318,848 355,075
\nAdditional restricted stock units 6,159 6,761 6,403 6,303
\n——- ——- ——- ——-
\nAdjusted weighted average shares
\noutstanding 318,915 347,898 325,251 361,378
\n======= ======= ======= =======<\/p>\nDiluted earnings per share $ 0.32 $ 0.17 $ 0.72 $ 0.50
\n======= ======= ======= =======
\nAdjusted earnings per share $ 0.39 $ 0.34 $ 0.91 $ 0.81
\n——- ——- ——- ——-<\/p>\nFree Cash Flow
\nThree months ended Nine months ended
\nSeptember 30, September 30,
\n—————– ——————
\n2007 2006 2007 2006
\n——- —— ——- ——-
\n(In thousands)<\/p>\nNet cash provided by operating
\nactivities $ 42,743 $ 14,655 $965,356 $723,568
\nLess: capital expenditures (18,646) (33,551) (57,620) (67,580)
\n——- ——- ——- ——-
\nFree cash flow $ 24,097 $(18,896) $907,736 $655,988
\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
<\/p>\n
Three months ended Nine months ended\n September 30, September 30,\n ----------------- -----------------\n 2007 2006 2007 2006\n ------- ------- ------- -------\n (in thousands)\n Cost of revenue $151,053 $133,094 $415,997 $380,857\n Less: stock-based compensation (550) (1,816) (2,079) (6,627)\n ------- ------- ------- -------\n Cost of revenue excluding stock-\n based compensation $150,503 $131,278 $413,918 $374,230<\/pre>\nSelling and marketing expense $279,341 $215,086 $757,514 $614,778
\nLess: stock-based compensation (2,729) (2,968) (8,768) (11,665)
\n——- ——- ——- ——-
\nSelling and marketing expense
\nexcluding stock-based
\ncompensation $276,612 $212,118 $748,746 $603,113<\/p>\nGeneral and administrative expense $ 83,365 $ 66,156 $235,261 $210,570
\nLess: stock-based compensation (7,683) (7,043) (22,356) (25,483)
\n——- ——- ——- ——-
\nGeneral and administrative expense
\nexcluding stock-based compensation $75,682 $ 59,113 $212,905 $185,087<\/p>\nTechnology and content expense $47,452 $ 36,034 $131,215 $104,866
\nLess: stock-based compensation (3,455) (4,612) (11,046) (13,772)
\n——- ——- ——- ——-
\nTechnology and content expense
\nexcluding stock-based compensation $43,997 $ 31,422 $120,169 $ 91,094<\/p>\nConference Call<\/p>\n
<\/p>\n
Expedia, Inc. will audiocast a conference call to discuss third quarter 2007 financial results and certain forward-looking information on Wednesday, November 7, 2007 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
<\/p>\n
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 November 7, 2007 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, our ability to effectively update, automate and integrate disparate financial and accounting systems and approaches among our brands and businesses; adverse changes in senior management; the rate of growth of the internet and 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; 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 Asia; fluctuations in foreign exchange rates; changing laws, rules and regulations and legal uncertainties relating to our business; Expedia, Inc.’s ability to expand successfully in international markets; possible charges resulting from, among other events, platform migration; failure to realize cost efficiencies; the successful completion of any future corporate transactions or acquisitions; and the integration of current and acquired businesses; and other risks detailed in Expedia, Inc.’s public filings with the SEC, including Expedia, Inc.’s annual report on Form 10-K for the year ended December 31, 2006.<\/p>\n
<\/p>\n
Except as required by law, Expedia, Inc. undertakes no obligation to update any forward-looking or other statements in this press release, whether as a result of new information, future events or otherwise.<\/p>\n
<\/p>\n
About Expedia, Inc.<\/p>\n
<\/p>\n
Expedia, Inc. is the world’s leading online travel company, empowering business and leisure travelers with the tools and information they need to easily research, plan, book and experience travel. Expedia, Inc. also provides wholesale travel to offline retail travel agents and in-destination concierge service and activity desks for travelers. The Expedia, Inc. portfolio of brands includes: Expedia.com\u00ae, hotels.com\u00ae, Hotwire\u00ae, Expedia\u00ae Corporate Travel, TripAdvisor\u00ae, Expedia Local Expert™, Classic Vacations\u00ae and eLong™. Expedia, Inc.’s companies operate more than 50 global points of sale with sites in North America, South America, Latin America, Europe, Middle East, Africa and Asia Pacific. Expedia, Inc. was recently added to the S&P 500 index. For more information, visit http:\/\/www.expediainc.com\/<\/a> (NASDAQ: EXPE).<\/p>\n
<\/p>\n
Expedia and Expedia.com are either registered trademarks or trademarks of Expedia, Inc. in the U.S. and\/or other countries. Classic Vacations is either a trademark or registered trademark of Classic Vacations, LLC in the U.S. and\/or other countries. hotels.com is either a trademark or registered trademark of hotels.com, L.P., a subsidiary of hotels.com in the U.S. and\/or other countries. Hotwire is either a trademark or registered trademark of Hotwire, Inc. in the U.S. and\/or other countries. TripAdvisor is either a trademark or registered trademark of TripAdvisor, LLC in the U.S. and\/or other countries. Other logos or product and company names mentioned herein may be the property of their respective owners.<\/p>\n
<\/p>\n
SOURCE: Expedia, Inc.<\/p>\n
<\/p>\n
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
<\/p>\n","protected":false},"excerpt":{"rendered":"