Expedia, Inc. Reports First Quarter 2009 Results
Hotel Room Night Growth Accelerates Despite Difficult Global Economy
BELLEVUE, Wash., April 30 /PRNewswire-FirstCall/ -- Expedia, Inc. (Nasdaq: EXPE) today announced financial results for its first quarter ended March 31, 2009.
"Despite the economic environment we all must cope with these days, Expedia is engaged in more forward looking initiatives than ever," said Barry Diller, Expedia, Inc.'s Chairman and Senior Executive. "The test for us will be not in maximizing profitability at the cost of improving our services, but instead in the ground we gain competitively over the next years, both in extending our leadership and making true gains in the customer experience. This will be what differentiates us from others and is the key mission of the company."
"Our results for the first quarter, especially the improved momentum in transaction and hotel room night volumes, prove that Expedia can successfully drive unit growth despite an undeniably difficult environment," said Dara Khosrowshahi, Expedia Inc.'s CEO and President. "We effectively managed our cost base, reducing marketing spend significantly even while taking unit share. Our global realignment of resources is well in motion, which we believe will only improve our operational effectiveness and efficiency over time."
Discussion of Results
Gross Bookings & Revenue
Gross bookings decreased 11% (down 7% excluding the estimated impact from foreign exchange) for the first quarter of 2009 compared with the first quarter of 2008, driven by a decrease in the leisure segment. Domestic bookings decreased 11% and international bookings decreased 13% (down 1% excluding the estimated impact from foreign exchange).
Revenue decreased 8% (down 3% excluding the estimated impact from foreign exchange) for the first quarter, primarily driven by lower package, hotel and air revenues in our leisure segment, partially offset by increases in advertising and media and car revenues. Domestic revenue decreased 5% while international revenue decreased 14% (flat year over year excluding the estimated impact from foreign exchange).
Worldwide hotel revenue decreased 10% for the first quarter due to a 20% decrease in revenue per room night, partially offset by a 13% increase in room nights stayed, including rooms delivered as a component of packages and nights booked through VenereTM. Revenue per room night decreased primarily due to an 18% decrease in worldwide average daily rates ("ADRs").
Worldwide air revenue decreased 17% for the first quarter, primarily due to a 14% decrease in revenue per ticket, driven by lower commissions and overrides (in part due to timing of receipts), a lower mix of merchant air tickets, the negative impact of foreign exchange and lower consumer booking fees. Ticket volumes declined 4% reflecting lower passenger volumes due to carrier capacity cuts and softening traveler demand, partially offset by ticket volume share gains driven in part by our booking fee promotion beginning in March.
Worldwide revenue from products and services other than hotel and air (primarily revenue from advertising and media, car rentals and destination services) increased 5% for the first quarter due primarily to increased advertising and media revenue and increased car revenue.
Advertising and media revenue, including revenue from our TripAdvisor segment, increased 15% for the first quarter, accounting for over 11% of worldwide revenue. Package revenue decreased 18% compared with the prior year period primarily due to lower ADRs.
Revenue as a percentage of gross bookings ("revenue margin") was 12.17% for the first quarter, an increase of 51 basis points. Domestic revenue margin increased 81 basis points to 12.51% while international revenue margin decreased 13 basis points to 11.42%. The increase in worldwide and domestic revenue margins was primarily due to an increased mix of advertising and media revenues as compared to first quarter 2008. The decline in international revenue margin was primarily due to lower hotel margins, in part as a result of the negative impact of foreign exchange.
Gross profit for the first quarter of 2009 was $492 million, a decrease of 8% compared with the first quarter of 2008 primarily due to decreased revenue. OIBA for the first quarter increased 3% to $130 million and increased 212 basis points as a percentage of revenue to 20.4%, driven primarily by a decrease in sales and marketing expenses at a faster rate than the decrease in revenue. Operating income increased 3% for the same reasons OIBA increased, in addition to lower amortization of intangible assets, partially offset by a $9 million restructuring charge taken in the first quarter of 2009.
Adjusted net income for the first quarter decreased $8 million compared to the prior year period primarily due to a decrease in interest income and an increase in interest expense partially offset by higher OIBA. Net income decreased primarily due to the same factors impacting adjusted net income as well as the restructuring charge taken in the first quarter of 2009 partially offset by lower amortization of intangible assets. First quarter adjusted EPS and diluted EPS were $0.21 and $0.14, respectively. Adjusted EPS decreased 13% and diluted EPS decreased 18%, primarily as a result of lower adjusted income and net income, partially offset by lower net share counts.
Cash Flows & Working Capital
For the three months ended March 31, 2009, net cash provided by operating activities was $502 million and free cash flow was $479 million. Both measures include $398 million from net changes in operating assets and liabilities, primarily driven by a working capital benefit from our merchant hotel business. Free cash flow for the first quarter decreased $52 million due primarily to a lower benefit from our merchant businesses and an increase in cash paid for income taxes and interest, partially offset by a decrease in cash used by other working capital accounts and lower capital expenditures.
Gross bookings from Expedia, Inc.'s international businesses were
$1.66 billion in the first quarter, accounting for 32% of worldwide
bookings, consistent with the prior year period. Revenue from
international businesses was $190 million in the first quarter, or 30%
of worldwide revenue, down from 32% in the prior year period.
- hotels.com launched new localized sites in Thailand and Malaysia
bringing the total number of hotels.com sites in the APAC region to
- Expedia Affiliate Network signed a number of private label
distribution deals in Europe to power travel bookings for partners,
including Pegasus Airlines, click4carbon and Tiscali.
- TripAdvisor announced the official launch of its Chinese domain,
www.daodao.com, providing localized travel research for Chinese
travelers. In addition, TripAdvisor expanded its global footprint for
travelers speaking Portuguese, Dutch and Swedish.
As a part of its "Free Nights and No-Fee Flights" promotion,
Expedia.com® waived booking fees on all flights booked on or before
May 31 and offered travelers their last night free on stays of three,
four or five nights at more than 700 hotels worldwide.
- Expedia.com was named "Best Website" by Zagat in their 2009 U.S.
Hotels, Resorts and Spas Survey.
- Egencia announced expansion of its open travel and entertainment
management platform in North America, designed to help organizations
better manage expenses and prevent fraud and supported by integrations
with IBM's Global Expense Reporting Solutions (GERS), Databasics,
ExpenseWatch.com, ExpenseWire and SutiSoft.
- Hotwire launched a new carbon offset program with TerraPass through
which Hotwire pays for half the cost of carbon offsets purchased by
Content & Innovation
TripAdvisor launched its new flight meta-search service, which
includes its proprietary Fees Estimator tool, the first product of its
kind to help travelers better understand the true cost of a flight in
a single display.
- Expedia Media Solutions introduced PassportAdsTM, the first
behavioral marketing product to connect advertisers with in-market
travel consumers across the Internet and throughout the trip
- hotels.com® reached the one million mark for qualified user reviews.
A recent hotels.com survey showed that U.S. travelers are increasingly
relying on online reviews prior to booking a hotel.
- TripAdvisor announced its enhanced restaurant product featuring nearly
500,000 restaurants in 24,000 cities and more than 2 million ratings
and reviews, allowing visitors to identify, locate and book eateries
around the world.
- SeatGuru® now includes over 590 seat maps from 84 airlines, and has
been integrated on Expedia sites in the U.S., Canada and Australia, as
well as on Egencia.
- BookingBuddyTM introduced its new BookingBuddy Deals network,
delivering targeted travel deal ads to more than 23 million travelers
throughout the TripAdvisor network.
- Expedia.com enhanced its hotel search results display, with additional
geographic intelligence to deliver a larger selection of properties in
an expanded geographic radius for searches in smaller cities and
- Egencia expanded its mobile "Egencia on the Go" platform to Europe,
offering clients SMS travel alerts and flight information.
Partner Services Group ("PSG")
- Hilton Hotels has signed a new long-term, strategic agreement under
which Hilton properties will be available on all Expedia and
hotels.com-branded sites worldwide, as well as through Expedia
- PSG launched Expedia Partner Central, giving hotel partners a
centralized online resource to access the revenue management,
marketing, and operational tools Expedia offers.
- Expedia partnered with Virgin Blue and its international carrier
V-Australia in Expedia's first global airline agreement in Australia
and the first global distribution agreement for either airline with an
- Expedia signed agreements with the Stella Hospitality Group and
Mitchell Corp, adding 275 new properties to Expedia's supply and
expanding its presence in key secondary markets throughout Australia
and New Zealand.
Income Statement Notes
Gross Bookings / Revenue
- Expedia, Inc. companies make travel products and services available on
both a merchant and agency basis.
- Merchant transactions, which primarily relate to hotel bookings,
typically produce a higher level of net revenue per transaction and
are generally recognized when the customer uses the travel product or
- Agency bookings relate primarily to airline ticketing, with revenue
generally recognized at the time the reservation is booked. Agency
bookings also include hotel bookings from Venere, a European hotel
provider we acquired in September 2008, and whose revenue is
recognized at the time the hotel stay occurs.
- Merchant bookings accounted for 43% of total gross bookings in the
first quarter as compared to 44% in the prior year period. Our
merchant mix declined primarily due to lower worldwide ADRs and the
inclusion of agency hotel bookings from Venere.
- We have reclassified certain expenses to better reflect the
reorganization of our development and information technology teams.
Technology and content expense now includes the majority of
information technology costs, which were previously included in
general and administrative expense. Technology costs to operate our
websites and certain call center application costs remain in cost of
- The following table summarizes expenses as previously reported and as
reclassified, excluding stock-based compensation for all periods in
2008 (some numbers may not add due to rounding):
Cost of Revenue
- Cost of revenue primarily consists of: (1) costs of our call centers,
including telesales expense; (2) credit card expenses including
merchant fees, chargebacks and fraud; (3) fees paid to fulfillment
vendors for processing airline tickets and related customer services;
(4) data center and network costs to support our live sites and (5)
costs paid to suppliers for certain destination inventory.
- Excluding stock-based compensation, cost of revenue was 22.5% of
revenue for the first quarter of 2009 compared to 22.1% in the prior
year period, increasing 41 basis points as a percentage of revenue,
primarily due to increases in certain cost categories such as
datacenter costs and customer incentives, partially offset by
efficiencies in call center costs and merchant credit card fees.
- Given potentially lower volumes and anticipated efficiencies in
customer service, telesales, merchant fees and fulfillment, we expect
cost of revenue to decrease in absolute dollars in 2009.
Operating Expenses (non-GAAP)
(Stock-based compensation expense has been excluded from all calculations and discussions below)
- Operating expenses in millions and as a percentage of revenue for the
first quarter of 2009 and 2008 were as follows (some numbers may not
add due to rounding):
Selling and Marketing (non-GAAP)
- Selling and marketing expense primarily relates to direct advertising
expense, including television, radio and print spending, as well as
traffic generation costs from search engines, internet portals and our
private label and affiliate programs.
- Approximately 27% and 23% of selling and marketing expense in the
first quarter of 2009 and 2008 relate to indirect costs including
personnel in PSG, TripAdvisor, Egencia and Expedia Local Expert
- The 18% decrease in selling and marketing expense in the first quarter
was primarily due to lower offline and online advertising and lower
private label and affiliate expenses associated with the lower overall
travel demand environment, and was driven by decreases in our leisure
segment including Expedia branded points of sale in Europe and the
U.S. as well as hotels.com in the U.S.
Technology and Content (non-GAAP)
- Technology and content expense includes product development and
content expense, as well as information technology costs to support
our infrastructure, back-office applications and overall monitoring
and security of our networks, principally related to payroll and
related expenses, hardware and software expenditures, licensing and
maintenance expenses and software development cost amortization.
- The 8% increase in technology and content expense in the first quarter
2009 was due primarily to increased depreciation of technology assets.
General and Administrative (non-GAAP)
- General and administrative expense consists primarily of
personnel-related costs for support functions that include our
executive leadership, finance, legal, tax and human resources
functions, and fees for professional services that typically relate to
legal, tax and accounting engagements.
- General and administrative expenses were relatively flat in the first
quarter of 2009 compared to the comparable period of the prior year.
Stock-Based Compensation Expense
- Stock-based compensation expense relates primarily to expense for
stock options and restricted stock units ("RSUs"). In the first
quarter of 2009, we used stock options as our primary form of employee
- Stock-based compensation expense was $19 million in the first quarter
of 2009, consisting of $15 million in expense related to RSUs and $4
million in stock option expense, and increased less than $1 million
compared to the prior year period.
- Assuming, among other things, no meaningful modification of existing
awards, incremental grants or adjustments to forfeiture estimates, we
expect annual stock-based compensation expense will be less than $70
million in 2009.
- During the first quarter of 2009, in conjunction with the
reorganization of our business around our global brands, we recognized
a $9 million restructuring charge primarily consisting of employee
severance and benefits.
Interest Income and Interest Expense
- Interest income decreased $5 million in the first quarter of 2009
compared to the prior year period, primarily due to lower average
- Interest expense increased $6 million in the first quarter of 2009
compared to the prior year period, primarily resulting from additional
interest on the $400 million senior unsecured notes issued in June
2008 (see Borrowings below).
- Other, net primarily relates to foreign exchange gains and losses, our
portion of gains/losses in equity investments and, through the second
quarter of 2008, gains and losses related to our Ask Notes (see
- Other, net loss was $7 million in the first quarter of 2009 primarily
comprised of foreign exchange losses. In the first quarter of 2008,
other, net loss was $4 million primarily comprised of $8 million of
foreign exchange losses, partially offset by a $5 million gain related
to the Ask Notes.
- Foreign exchange gains and losses include those related to eLong's
U.S. dollar cash and short term investment positions, and the related
depreciation or appreciation in Chinese Renminbi (RMB). As there was
minimal movement in the RMB there was a modest gain in the first
quarter of 2009, compared to a loss of $5 million in the comparable
period of the prior year. These gains and losses are excluded from
calculations of adjusted net income and adjusted EPS.
- During the third quarter of 2008 we began using foreign currency
forward contracts for the purpose of economically hedging
foreign-denominated liabilities. These contracts are typically
short-term in duration and are recorded at fair value, with any
changes in fair value recorded as gains or losses in 'Other, net' on
the consolidated statements of income.
- Total gains on these contracts during the first quarter of 2009 were
$2 million, which were largely offset by corresponding losses on our
foreign-denominated liabilities, resulting in a minimal net impact to
- In the fourth quarter of 2008 we expanded our use of forwards to hedge
a portion of our foreign-denominated revenues, which had a minimal net
impact in the first quarter of 2009.
- At March 31, 2009 we were party to forward contracts hedging liability
and revenue exposures with a total notional value of $334 million and
a mark-to-market gain of $5 million. The mark-to-market gain is
recorded as an asset in 'prepaid expenses and other current assets.'
- The effective tax rate on GAAP pre-tax income was 40.7% for the first
quarter compared with 36.8% in the prior year period. The increase in
effective rate was primarily due to a non-taxable gain on derivatives
in the first quarter of 2008 that did not recur in 2009, and higher
accruals related to uncertain tax positions.
- The effective tax rate on pre-tax adjusted net income ("ANI") was
39.0% for the first quarter compared with 38.0% in the prior year
period. The effective ANI rate increased for the first quarter
primarily due to higher accruals related to uncertain tax positions.
- Effective GAAP and ANI rates were higher than the 35% federal tax rate
primarily due to state taxes and accruals related to uncertain tax
- Cash paid for income taxes in the first quarter of 2009 was $37
million, an increase of $29 million from the prior year primarily due
to the timing of estimated payments.
- As Expedia's reporting currency is the U.S. Dollar ("USD"), reported
financial results are affected by the strength or weakness of the USD
in comparison to currencies of international markets in which we
operate. Management believes investors may find it useful to assess
growth rates with and without the impact of foreign exchange.
- The estimated impact on growth rates from foreign exchange in the
first quarter was as follows (some numbers may not add due to
- During the first quarter foreign currency exchange rate fluctuations
negatively impacted our growth rates due to depreciation in the Pound,
Euro and Canadian Dollar, the three currencies most impacting our
- The net negative impact of foreign exchange on revenue was $33 million
and was primarily due to $28 million from year-over-year changes in
foreign exchange rates at the time of booking, and $6 million related
to the changes in exchange rates between the time of hotel bookings
and the associated stays. Our revenue hedging program, designed to
hedge this book to stay impact, resulted in a realized gain of $0.5
million in the first quarter of 2009 and is included in our
calculation of OIBA.
- We expect that our second quarter 2009 growth rates will be negatively
impacted by the significant year over year depreciation in the Pound,
Euro and Canadian Dollar. Should these currencies remain at current
levels we would also expect a negative impact on full-year 2009 growth
- The negative impact of foreign exchange on our cash balances was $4
million in the first quarter of 2009, and is included in 'effect of
exchange rate changes on cash and cash equivalents' on our statements
of cash flows. This amount decreased $10 million from the prior year
gain of $6 million due to depreciating foreign currencies in the first
quarter of 2009 compared with appreciating foreign currencies in the
prior year period.
- The impact of acquisitions, primarily related to Venere,
CarRentals.com and certain media content businesses, on the growth of
gross bookings, revenue and OIBA in the first quarter of 2009 is as
follows (some numbers may not add due to rounding):
Balance Sheet Notes
Cash, Cash Equivalents, Restricted Cash and Short-Term Investments
- Cash, cash equivalents, restricted cash and short-term investments
totaled $577 million at March 31, 2009. This amount includes $51
million of cash and $90 million of short-term investments at eLong,
whose results are consolidated in our financial statements due to our
controlling voting and economic ownership position.
- The $184 million decrease in cash, cash equivalents, restricted cash
and short-term investments for the first quarter of 2009, principally
relates to net payments on the credit facility of $650 million, $39
million in interest payments, cash tax payments of $37 million,
capital expenditures of $23 million and a current period foreign
exchange impact on cash of $19 million, partially offset by OIBA
excluding depreciation of $154 million and net changes in operating
assets and liabilities (other than taxes, interest and restructuring
charges) of $430 million.
- Accounts receivable include receivables from credit card agencies,
corporate clients and advertisers as well as receivables related to
agency transactions including those due from airlines and global
- Accounts receivable increased $56 million from December 31, 2008
primarily due to a seasonal increase in our merchant business
operations as well as growth from the TripAdvisor Media Network.
Prepaid Merchant Booking, Prepaid Expenses and Other Current Assets
- Prepaid merchant bookings primarily relate to our merchant air
business and reflect prepayments to our airline partners for their
portion of the gross booking, prior to the travelers' dates of travel.
Prepaid merchant bookings increased $23 million from December 31,
2008, due primarily to a seasonal increase in our merchant air
- Prepaid expenses and other current assets are primarily composed of
prepaid marketing, merchant fees, license and maintenance agreements
and insurance. Prepaid expenses and other current assets decreased $4
million from December 31, 2008, primarily due to a $5 million cash
distribution from the Reserve Primary Fund and the reclassification of
the remaining $6 million in the Reserve Primary Fund to 'Long-term
investments and other assets', partially offset by a $5 million asset
related to unrealized gains on open forward contracts.
Property and Equipment, net
- Property and equipment, net decreased $8 million due primarily to the
impact of depreciation expense, partially offset by property and
equipment additions during the quarter.
Long-Term Investments and Other Assets
- Long-term investments and other assets primarily include
transportation equipment, equity investments, capitalized debt
issuance costs and balances due from the Reserve Primary Fund.
- The increase of $4 million in long-term investments and other assets
was due primarily to reclassification of $6 million of the Reserve
Primary Fund from 'prepaid expenses and other assets' as the timing of
distribution of those fund assets cannot be determined at this time.
Goodwill and Intangible Assets, Net
- Goodwill and intangible assets, net primarily relates to the
acquisitions of hotels.com, Expedia.com and Hotwire.
- $688 million of intangible assets, net relates to intangible assets
with indefinite lives, which are not amortized, principally related to
acquired trade names and trademarks. This amount did not change
meaningfully from December 31, 2008.
- $130 million of intangible assets, net relates to intangible assets
with definite lives, which are generally amortized over a period of
two to twelve years. The majority of this amortization is not
deductible for tax purposes.
- Amortization expense for definite lived intangibles was $9 million for
the first quarter of 2009 compared to $18 million for the prior year
period. The decrease was primarily due to the completed amortization
of earlier period technology and supplier intangible assets. Assuming
no impairments or additional acquisitions, we expect amortization
expense of $26 million for the remainder of 2009 and $28 million in
Deferred Merchant Bookings and Accounts Payable, Merchant
- Deferred merchant bookings consist of amounts received from travelers
who have not yet traveled and the balances generally mirror the
seasonality pattern of our gross bookings. The payment to suppliers
related to these bookings is generally made within two weeks after
booking for air travel and, for all other merchant bookings, after the
customer's use of services and subsequent billing from the supplier,
which billing is reflected as accounts payable, merchant on our
balance sheet. Therefore, especially for merchant hotel, there is a
significant period of time from the receipt of cash from our travelers
to supplier payment.
- The change in deferred merchant bookings and accounts payable,
merchant was a net source of cash of $502 million compared with a net
source of cash of $606 million in 2008 due primarily to a decrease in
our merchant gross bookings in the first quarter of 2009 compared to
the first quarter of the prior year.
Accounts Payable, Other
- Accounts payable, other primarily consists of payables related to the
day-to-day operations of our business, and increased $21 million
primarily due to a seasonal increase in marketing and professional
Accrued Expenses and Other Current Liabilities
- Accrued expenses principally relate to accruals for cost of service
related to our call center and internet services, accruals for
service, bonus, salary and wage liabilities, a reserve related to the
potential settlement of occupancy tax issues, income taxes payable and
accrued interest on our various debt instruments.
- Accrued expenses and other current liabilities decreased $50 million
primarily due to payment of annual incentive compensation for prior
year performance, which is typically paid in the first quarter of each
year, as well as payment of accrued interest and taxes.
Ask Derivative Liability
- In connection with IAC's acquisition of Ask, we issued 4.3 million
shares of Expedia, Inc. common stock into an escrow account, which
shares (or cash in equal value) were due to holders of Ask convertible
notes upon conversion ("Ask Notes"). These shares were included in
diluted shares from the date of our spin-off from IAC.
- During the second quarter of 2008 the remaining Ask Notes were
- In the first quarter of 2008 we recorded a net gain of $5 million
related to the Ask Notes which was included in 'other, net' and
excluded from both OIBA and adjusted net income for the that period.
- Expedia, Inc. maintains a $1 billion unsecured revolving credit
facility, which expires in August 2010. During the first quarter of
2009 we paid off the outstanding balance and as of March 31, 2009 we
had no borrowings outstanding under the facility.
- Related to our goodwill and intangibles impairment in the fourth
quarter of 2008, we amended our credit facility to replace our
tangible net worth covenant with a minimum interest coverage covenant.
As part of this amendment several financial covenant levels were
tightened, and pricing on our borrowings increased by 200 basis
- At our discretion we can choose a base rate on borrowings equal to (1)
the greater of the Prime rate or the Federal Funds Rate plus 50 basis
points or LIBOR plus 100 basis points or (2) various durations of
- Borrowings under the facility would bear interest reflecting our
financial leverage, which based on our March 31, 2009 financials would
equate to the base rate chosen above plus 262.5 basis points.
- Outstanding letters of credit under the facility as of March 31, 2009
were $51 million, which amount is applied against our $1 billion
borrowing capacity under the facility.
- Long-term debt relates to $500 million in registered 7.456% Senior
Notes (the "7.456% Notes") due 2018, and $400 million in 8.5% Notes
due 2016 (the "8.5% Notes"). The 7.456% Notes are repayable in whole
or in part on August 15, 2013 at the option of the note holders. The
8.5% Notes are non-callable until 2012. Both Note issues can be
retired at any time at our option subject to make-whole premium of
37.5 basis points in the case of the 7.456% Notes and 50 basis points
in the case of the 8.5% Notes.
- As of March 31, 2009 we were in compliance with the financial
covenants under our debt facilities.
- Annual interest expense related to our 7.456% Notes is $37 million,
paid semi-annually on February 15 and August 15 of each year. Annual
interest expense related to our 8.5% Notes is $34 million, paid
semi-annually on January 1 and July 1, beginning with January 1, 2009.
Accrued interest related to these notes was $13 million at March 31,
2009 and is classified as 'accrued expenses and other current
liabilities' on our balance sheet.
Other Long-Term Liabilities
- Other long-term liabilities consist primarily of uncertain tax
positions recorded under FIN 48, and did not change meaningfully from
December 31, 2008.
- Noncontrolling interest relates to the minority ownership position in
eLong, an entity in which we own a 61% interest (55% fully-diluted)
and results for which are consolidated for all periods presented.
Purchase Obligations and Contractual Commitments
- At March 31, 2009 we have agreements with certain vendors under which
we have future minimum obligations of $23 million in 2009, $11 million
in 2010 and $1 million in 2011. These minimum obligations are
primarily for software and telecom services. These obligations are
less than our projected use for those periods, and we expect payment
to be more than the minimum obligations based on our actual use.
- In conjunction with our investment in a travel company, we have
entered into a commitment to provide a $10 million revolving operating
line of credit and a credit facility for up to $20 million.
Approximately $3 million was drawn on the line of credit and no
amounts were drawn on the credit facility as of March 31, 2009.
- Our estimated future minimum rental payments under operating leases
with non-cancelable lease terms that expire after March 31, 2009 are
$30 million for the remainder of 2009, $38 million for 2010, $36
million for 2011, $34 million for 2012, $28 million for 2013 and $90
million for 2014 and thereafter.
- In August 2006 our Board of Directors authorized the repurchase of up
to 20 million common shares. There is no fixed termination date for
the authorization, and as of the date of this release we have not
repurchased any shares under this authorization.
Class B Common Stock
- There are approximately 26 million shares of Expedia Class B common
stock outstanding, owned by a subsidiary of Liberty Media Corporation
("Liberty"). Class B shares are entitled to ten votes per share when
voting on matters with the holders of Expedia common and preferred
- Through the common stock our Chairman and Senior Executive, Barry
Diller, owns directly, as well as the common stock and Class B stock
for which he has been assigned an irrevocable proxy from Liberty, Mr.
Diller had a controlling 60% voting interest in Expedia, Inc. as of
April 16, 2009.
- As of March 31, 2009 there were 32.5 million privately held warrants
outstanding, which, if exercised in full, would entitle holders to
acquire 16.3 million common shares of Expedia, Inc. for an aggregate
purchase price of approximately $414 million (representing an average
of approximately $25 per Expedia, Inc. common share). 32.2 million of
these warrants expire in May 2012.
- During the first quarter of 2009 26.0 million publicly traded warrants
- At March 31, 2009 we had 27.2 million stock-based awards outstanding,
consisting of stock options to purchase 19.6 million common shares
with a $15.41 weighted average exercise price and weighted average
remaining life of 5.8 years, and 7.6 million RSUs.
- In the first quarter of 2009, we used stock options as our primary
form of annual employee stock-based compensation, and granted 9.9
million option awards. In addition, we awarded 0.9 million RSUs in the
Basic, Fully Diluted and Adjusted Diluted Shares
- Weighted average basic, fully diluted and adjusted diluted share
counts for the quarters ended March 31, 2009 and 2008 are as follows
Notes & Definitions:
Number of Transactions - Quantity of purchases reported as booked, net of cancellations. Packages purchased using our packages wizard, which by definition include a merchant hotel, are recorded as a single transaction.
Gross Bookings - Total retail value of transactions booked for both agency and merchant transactions, recorded at the time of booking. Bookings include the total price due for travel, including taxes, fees and other charges, and are generally reduced for cancellations and refunds.
Leisure - Reflects results for travel products and services provided to customers of our leisure travel sites including Expedia branded sites, hotels.com branded sites, Hotwire, the Expedia Affiliate Network and other leisure brands.
TripAdvisor Media Network ("TripAdvisor") - Reflects TripAdvisor worldwide sites.
Egencia - Reflects worldwide results for our managed travel business.
Corporate - Includes intercompany eliminations as well as unallocated corporate expenses.
Worldwide Hotel - Reported on a stayed basis, and includes both merchant and agency model hotel stays.
Definitions of Non-GAAP Measures
Expedia, Inc. reports Operating Income Before Amortization, Adjusted Net Income, Adjusted EPS, Free Cash Flow and non-GAAP operating expense (non-GAAP selling and marketing, non-GAAP technology and content and non-GAAP general and administrative), 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. The definitions of Operating Income Before Amortization and Adjusted Net Income were revised in the first quarter of 2009 to better reflect our current operations and take into consideration the impact of new accounting literature.
Operating Income Before Amortization ("OIBA") is defined as operating income plus: (1) stock-based compensation expense, including compensation expense related to certain subsidiary equity plans; (2) acquisition-related impacts, including (i) amortization of intangible assets and goodwill and intangible asset impairment, (ii) gains (losses) recognized on changes in the value of contingent consideration arrangements, and (iii) gains (losses) recognized on non-controlling investment basis adjustments when we acquire controlling interests; (3) certain infrequently occurring items, including restructuring; (4) charges incurred for monies that may be required to be paid in advance of litigation in certain occupancy tax proceedings; (5) gains (losses) realized on revenue hedging activities that are included in other, net. OIBA is the primary operating metric used by which management evaluates the performance of our 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. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP measures. We endeavor to compensate for the limitation of the non-GAAP measure presented by also providing the comparable GAAP measure, GAAP financial statements, and descriptions of the reconciling items and adjustments, to derive the non-GAAP measure. We present a reconciliation of this non-GAAP financial measure to GAAP below. OIBA represents the combined operating results of Expedia, Inc.'s businesses, taking into account depreciation of property and equipment (including internal-use software and website development), which we believe is an ongoing cost of doing business, but excluding the effects of non-cash or other expenses that may not be indicative of our core business operations. We believe this performance measure is useful to investors because it provides greater insight into management decision making at Expedia, as OIBA is our primary internal metric for evaluating the performance of our business, and 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. OIBA has certain limitations in that it does not take into account the impact of certain expenses to our consolidated statements of operations, including stock-based compensation, acquisition-related accounting and certain other expenses, if applicable. Due to the high variability and difficulty in predicting certain items that affect net income / (loss), such as tax rates, stock price and interest rates, Expedia, Inc. is unable to provide a reconciliation to net income / (loss) on a forward-looking basis without unreasonable efforts.
Adjusted Net Income generally captures all items on the statements of operations that occur in normal course operations and have been, or ultimately will be, settled in cash and is defined as net income / (loss) attributable to Expedia, Inc. plus net of tax: (1) stock-based compensation expense, including compensation expense related to certain subsidiary equity plans; (2) acquisition-related impacts, including (i) amortization of intangible assets, including as part of equity-method investments, and goodwill and intangible asset impairment, (ii) gains (losses) recognized on changes in the value of contingent consideration arrangements, and (iii) gains (losses) recognized on noncontrolling investment basis adjustments when we acquire controlling interests; (3) mark to market gains and losses on derivative instruments assumed at Spin-off; (4) currency gains or losses on U.S. dollar denominated cash or short-term investments held by eLong; (5) certain other infrequently occurring items, including restructuring (6) charges incurred for monies that may be required to be paid in advance of litigation in certain occupancy tax proceedings; (7) discontinued operations; and (8) the noncontrolling 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, infrequently occurring items and items not directly tied to the core operations of our businesses.
Adjusted EPS is defined as Adjusted Net Income divided by weighted fully diluted shares outstanding for Adjusted EPS purposes. We include dilution from options and warrants per the treasury stock method and include all shares relating to RSUs in shares outstanding for Adjusted EPS. This differs from the GAAP method for including RSUs, which treats them on a treasury method basis. Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes. We believe Adjusted EPS is useful to investors because it represents, on a per share basis, Expedia's consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other items which are not allocated to the operating businesses such as interest expense, taxes, foreign exchange gains or losses, and minority interest, but excluding the effects of non-cash expenses not directly tied to the core operations of our businesses. Adjusted Net Income and Adjusted EPS have similar limitations as OIBA. In addition, Adjusted Net Income does not include all items that affect our net income / (loss) and net income / (loss) per share for the period. Therefore, we think it is important to evaluate these measures along with our consolidated statements of operations.
Free Cash Flow is defined as net cash flow provided by operating activities less capital expenditures. Management believes Free Cash Flow is useful to investors because it represents the operating cash flow that our operating businesses generate, less capital expenditures but before taking into account other cash movements that are not directly tied to the core operations of our businesses, such as financing activities, foreign exchange or certain investing activities. Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures. Therefore, it is important to evaluate Free Cash Flow along with the consolidated statements of cash flows.
Non-GAAP cost of revenue, selling and marketing, technology and content and general and administrative 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®. 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®, 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 Operations for stock-based compensation by line item.
Expedia, Inc. will audiocast a conference call to discuss first quarter 2009 financial results and certain forward-looking information on Thursday, April 30, 2009 at 8:00 a.m. Pacific Time (PT). The audiocast will be open to the public and available via http://www.expediainc.com/ir. Expedia, Inc. expects to maintain access to the audiocast on the IR website for approximately three months subsequent to the initial broadcast.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance. These forward-looking statements are based on management's expectations as of April 30, 2009 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 / (loss), earnings per share and other measures of results of operation and the prospects for future growth of Expedia, Inc.'s business.
Actual results and the timing and outcome of events may differ materially from those expressed or implied in the forward-looking statements for a variety of reasons, including, among others: continued or prolonged adverse economic conditions leading to decreased consumer and business spending; 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 adverse weather, bankruptcies, health risks war and/or terrorism); 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; risks related to our long term indebtedness, including the ability to access funds as and when needed; changing laws, rules and regulations and legal uncertainties relating to our business; changes in search engine algorithms and dynamics; risks relating to a failure to perform of third parties to our financial and/or service agreements; the use of fraudulent credit cards on Expedia, Inc.'s websites; Expedia, Inc.'s ability to expand successfully in international markets; possible charges resulting from, among other events, platform migration; failure to realize cost efficiencies, including from any restructuring activities; 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, 2008, and subsequent Forms 10-Q.
Except as required by law, Expedia, Inc. undertakes no obligation to update any forward-looking or other statements in this press release, whether as a result of new information, future events or otherwise.
About Expedia, Inc.
Expedia, Inc. is the world's leading online travel company. With more people booking travel online in Expedia's global marketplace than anywhere else, the company delivers consumers value in leisure and business travel, drives demand for travel suppliers, and provides advertisers opportunities to reach in-market travel consumers. The Expedia, Inc. portfolio of brands includes: Expedia.com®, hotels.com®, Hotwire®, EgenciaTM (formerly Expedia Corporate Travel), TripAdvisor®, Expedia Local Expert®, Classic Vacations® and eLongTM. Expedia, Inc.'s companies operate more than 70 global points of sale in more than 40 countries. Expedia also powers travel bookings for some of the world's leading airlines and hotels, top consumer brands, high traffic websites, and thousands of active affiliates. For more information, visit http://www.expediainc.com/.
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Web Site: http://www.expediainc.com
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