EX-99.1 2 d671771dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

Expedia, Inc. Reports Fourth Quarter and Full Year 2013 Results

BELLEVUE, WA—February 6, 2014—Expedia, Inc. (NASDAQ: EXPE) today announced financial results for the fourth quarter and year ended December 31, 2013.

 

  •   Room night growth accelerated sequentially to 25% year-over-year for the fourth quarter of 2013 with domestic room night growth improving to 18% year-over-year.

 

  •   Revenue grew 18% year-over-year for the fourth quarter of 2013 due to growth in hotel room nights and advertising and media revenue. trivago® grew revenue more than 85% for the year adding approximately 4 percentage points to overall revenue growth for 2013.

 

  •   Brand Expedia® launched hotel and air products on the Travelocity-branded US website during the fourth quarter of 2013 as part of a strategic marketing agreement signed with Travelocity in August 2013, and expects to complete the majority of the migration for the remaining products and the Canadian website during the first half of 2014.

 

  •   The combination of healthy top line growth and leverage on fixed costs led to Adjusted EBITDA* improving 31% year-over-year as compared to fourth quarter 2012.

 

  •   In 2013, Expedia, Inc. repurchased 9.3 million common shares for an aggregate purchase price of $515 million excluding transaction costs.

Financial Summary & Operating Metrics (financial figures in $MMs except per share amounts)

 

Metric

    Quarter
Ended
12.31.13		     Quarter
Ended
12.31.12		     Y / Y
Growth		     Year
Ended
12.31.13		     Year
Ended
12.31.12		     Y / Y
Growth		  

Room night growth

      25 %      33 %      (812 ) bps      23 %      27 %      (402 ) bps 

Gross bookings

      9,104.1        7,525.8        21 %      39,442.6        33,959.4        16 % 

Revenue

      1,152.0        974.9        18 %      4,771.3        4,030.3        18 % 

Adjusted EBITDA*

      242.0        184.6        31 %      878.7        802.9        9 % 

Operating income

      138.7        1.5        NM        366.1        431.7        (15 %) 

Adjusted net income *

      125.1        88.9        41 %      452.0        438.5        3 % 

Income from continuing operations

      94.7        6.9        NM        232.9        302.7        (23 %) 

Adjusted EPS *

    $ 0.92      $ 0.63        46 %    $ 3.22      $ 3.10        4 % 

Diluted EPS from continuing operations

    $ 0.70      $ 0.05        NM      $ 1.67      $ 2.16        (23 %) 

Free cash flow *

      (285.4 )      (275.4 )      (4 %)      454.6        1,001.5        (55 %) 

 

* “Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization,” “Adjusted net income,” “Adjusted EPS” and “Free cash flow” are non-GAAP measures as defined by the Securities and Exchange Commission (the “SEC”). Please see “Definitions of Non-GAAP Measures” and “Tabular Reconciliations for Non-GAAP Measures” on pages 11-14 herein for an explanation of non-GAAP measures used throughout this release. The definition for adjusted net income was revised in the fourth quarters of 2010, 2011 and 2012 and the definition for adjusted earnings before interest, taxes, depreciation and amortization was revised in the fourth quarter of 2012.

Please refer to the Glossary in the Financial Information section on Expedia’s corporate website for definitions of the business and financial terms discussed within this release.

 

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Discussion of Results

The information presented within treats the domestic and international operations previously associated with Expedia’s TripAdvisor® Media Group as discontinued operations and accounts for the reverse stock split that occurred on December 20, 2011. The results include Expedia.com®, Hotels.com®, Hotwire.com®, Expedia® Affiliate Network, Classic Vacations®, Expedia Local Expert®, Expedia® CruiseShipCenters®, Egencia®, eLong, Venere® Net SpA and trivago GmbH; in addition to the related international points of sale.

Expedia and AirAsia™ formed a joint venture on July 1, 2011, which is 50% owned by Expedia; therefore, subsequent results do not include the Brand Expedia websites contributed to the joint venture.

The results include trivago GmbH following acquisition of a controlling interest during March 2013 as well as results from the strategic marketing agreement with Travelocity (“Travelocity agreement”) launched during the fourth quarter of 2013. The impact of the Travelocity agreement was not meaningful to the results for the fourth quarter of 2013, and the impacts from trivago are discussed in more detail below. Unless otherwise noted, all comparisons below are versus the fourth quarter of 2012.

Gross Bookings, Revenue & Revenue Margins

For the fourth quarter of 2013, gross bookings increased 21% (21% excluding foreign exchange) primarily driven by room night growth at eLong, Brand Expedia and Hotels.com, and, to a lesser extent, an increase in air tickets.

For the fourth quarter of 2013, average daily room rates were essentially flat year-over-year while average airfares rose by 1%. Air tickets sold grew by 13% year-over-year primarily due to strong growth at Brand Expedia. Domestic bookings increased 19% and international bookings increased 24% (24% excluding foreign exchange) for the fourth quarter of 2013. International bookings totaled $4.1 billion for the fourth quarter of 2013, accounting for 45% of worldwide bookings versus 44% in the prior year.

For 2013, gross bookings increased 16% (16% excluding foreign exchange) primarily driven by an increase in hotel room nights and air tickets. For 2013, average daily room rates were essentially flat, and average airfares grew 1% year-over-year. Air tickets sold grew by 9% year-over-year due to growth at Brand Expedia and Egencia. Domestic bookings increased 11% and international bookings increased 24% (23% excluding foreign exchange) for 2013. International bookings totaled $17.3 billion for the year, accounting for 44% of worldwide bookings versus 41% in the prior year.

For the fourth quarter of 2013, revenue increased 18% (18% excluding foreign exchange) primarily driven by a 25% increase in hotel room nights stayed as well as advertising and media revenue, partially offset by a 9% decrease in revenue per room night. The trivago acquisition added approximately 4 percentage points to year-over-year revenue growth for the fourth quarter of 2013. Domestic revenue increased 14% and international revenue increased 23% (22% excluding foreign exchange) for the fourth quarter of 2013. International revenue equaled $569 million for the fourth quarter of 2013, representing 49% of worldwide revenue versus 48% in the prior year.

For 2013, revenue increased 18% (19% excluding foreign exchange) primarily driven by a 23% increase in hotel room nights stayed as well as advertising and media revenue, partially offset by a 7% decrease in revenue per room night. The trivago acquisition added approximately 4 percentage points to year-over-year revenue growth for the year. Domestic revenue increased 14% and international revenue increased 23% (23% excluding foreign exchange) for 2013. International revenue equaled $2.2 billion for the year, representing 47% of worldwide revenue versus 45% in the prior year.

Revenue as a percentage of gross bookings (“revenue margin”) was 12.7% for the fourth quarter of 2013, a decrease of 30 basis points compared to the fourth quarter of 2012. The decrease primarily relates to lower revenue per room night on our hotel product partially offset by a favorable mix shift to our higher margin products, including advertising and media revenue as well as hotel revenue. For the year, revenue margin totaled 12.1%, a 23 basis point increase versus 2012. The increase primarily relates to a favorable mix shift to our higher margin products, including hotel revenue as well as advertising and media revenue, partially offset by lower revenue per room night on our hotel product.

Product & Services Detail – Fourth Quarter 2013

As a percentage of total worldwide revenue in the fourth quarter of 2013, hotel accounted for 71%, air accounted for 8% and all other revenue sources, including advertising and media revenue, accounted for the remaining 21%.

 

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Worldwide hotel revenue increased 14% for the fourth quarter of 2013 driven by a 25% increase in room nights stayed driven by eLong, Brand Expedia and Hotels.com, partially offset by a 9% decrease in revenue per room night. Revenue per room night decreased primarily due to efforts to expand inventory availability as well as our global supply portfolio, including contracts signed as part of our Expedia® Traveler Preference™ (ETP) program, promotional activities such as couponing and growing our loyalty programs’ membership in addition to continued hotel mix shift to Asia-Pacific.

Worldwide air revenue increased 17% for the fourth quarter of 2013 due to a 13% increase in air tickets sold and a 3% increase in revenue per ticket.

All other revenue (excluding hotel and air) increased 37% for the fourth quarter of 2013 primarily through strong growth in advertising and media revenue generated by trivago.

Product & Services Detail – Full Year 2013

As a percentage of total worldwide annual revenue, hotel accounted for 72%, air accounted for 8% and all other revenue sources, including advertising and media revenue, accounted for the remaining 20%.

Worldwide hotel revenue increased 15% for 2013 driven by a 23% increase in room nights stayed driven by eLong, Brand Expedia and Hotels.com, partially offset by a 7% decrease in revenue per room night. Revenue per room night decreased primarily due to efforts to expand inventory availability as well as our global supply portfolio, including contracts signed as part of our ETP program, continued hotel mix shift to Asia-Pacific and promotional activities such as couponing and growing our loyalty programs’ membership.

Worldwide air revenue increased 14% for 2013 due to a 9% increase in air tickets sold as well as a 4% increase in revenue per ticket.

All other revenue (excluding hotel and air) increased 37% for 2013 primarily through strong growth in advertising and media revenue generated by trivago.

Costs and Expenses

(Stock-based compensation expenses of $21 million for fourth quarter of 2013 and $16 million for fourth quarter of 2012 as well as $130 million and $65 million for the full years 2013 and 2012, respectively, have been excluded from all calculations and discussions below; some numbers may not add due to rounding.)

 

     Costs and Expenses     As a % of Revenue  
   Three months ended December 31,     Three months ended December 31,  
   2013      2012      Growth     2013     2012     r in bps  

Cost of revenue

    $ 247       $ 224         10 %      21.5 %      23.0 %      (153 ) 

Selling and marketing

      480         391         23 %      41.7 %      40.1 %      158   

Technology and content

      150         130         15 %      13.0 %      13.4 %      (35 ) 

General and administrative

      90         90         -1 %      7.8 %      9.3 %      (147 ) 
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Total costs and expenses

    $ 967       $ 836         16 %      84.0 %      85.7 %      (178 ) 
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  
     Costs and Expenses     As a % of Revenue  
   Year ended December 31,     Year ended December 31,  
   2013      2012      Growth     2013     2012     r in bps  

Cost of revenue

    $ 1,034       $ 895         16 %      21.7 %      22.2 %      (54 ) 

Selling and marketing

      2,180         1,708         28 %      45.7 %      42.4 %      332   

Technology and content

      557         469         19 %      11.7 %      11.6 %      5   

General and administrative

      344         314         10 %      7.2 %      7.8 %      (57 ) 
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Total costs and expenses

    $ 4,116       $ 3,385         22 %      86.3 %      84.0 %      226   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Cost of revenue (non-GAAP)

 

  •   For the fourth quarter of 2013, cost of revenue increased 10% due to $24 million more in net credit card processing costs, including fraud and chargebacks, related to growth of our merchant bookings.

 

  •   For 2013, cost of revenue increased 16% due to $77 million more in net credit card processing costs, including fraud and chargebacks, related to growth of our merchant bookings as well as $38 million in headcount costs primarily related to the VIA Travel™ acquisition.

 

  •   Depreciation represents approximately 3% of total cost of revenue for both the fourth quarter of 2013 and 2013; essentially consistent with the prior year periods.

 

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Selling and Marketing (non-GAAP)

 

  •   For the fourth quarter of 2013, selling and marketing expense increased 23% due to an $82 million increase in direct costs, including online and offline marketing expenses. Brand Expedia and trivago accounted for a majority of the total increase in direct selling and marketing expenses. trivago contributed approximately 6 percentage points to the sales and marketing growth during the fourth quarter of 2013.

 

  •   For 2013, selling and marketing expense increased 28% due to a $415 million increase in direct costs, including online and offline marketing expenses. trivago, Brand Expedia and Hotels.com accounted for a majority of the total increase in the sales and marketing growth during the year. trivago contributed approximately 8 percentage points to the sales and marketing growth during 2013.

 

  •   Indirect costs driven by additional personnel at trivago, various transaction brands and our supply organization increased $7 million for the fourth quarter of 2013 and $57 million for 2013. As a percentage of total selling and marketing, indirect costs represented 24% in the fourth quarter of 2013 and 21% for the full year compared to 28% and 23%, respectively in the prior year.

 

  •   Depreciation represents less than 1% of total selling and marketing expenses for both the fourth quarter of 2013 and 2013; essentially consistent with the prior year periods.

Technology and Content (non-GAAP)

 

  •   For the fourth quarter of 2013, technology and content expense increased 15% primarily due to a $10 million increase in depreciation as well as a $7 million increase in personnel costs, net of capitalized salary costs, for additional headcount to support key technology projects for our corporate technology function, supply organization and Brand Expedia. Depreciation represents approximately 30% of total technology and content expenses for the fourth quarter of 2013 compared to 27% in the fourth quarter of 2012.

 

  •   For 2013, technology and content expense increased 19% primarily due to a $47 million increase in personnel costs, net of capitalized salary costs, for additional headcount to support key technology projects for our corporate technology function, supply organization and Brand Expedia. Depreciation grew by $42 million for the full year and represents approximately 29% of total technology and content expenses for 2013 compared to 25% in 2012.

General and Administrative (non-GAAP)

 

  •   For the fourth quarter of 2013, general and administrative expense decreased 1% primarily due to lower bonus accruals and professional fees partially offset by higher personnel costs totaling $8 million. trivago added approximately 2 percentage points to general and administrative expense growth for the fourth quarter of 2013.

 

  •   For 2013, general and administrative expense increased 10% primarily due to higher personnel costs of $22 million primarily driven by additional headcount as well as an increase in professional fees of $8 million. Acquisitions added approximately 4 percentage points to general and administrative expense growth for 2013.

 

  •   Depreciation represents approximately 6% of total general and administrative expenses for both the fourth quarter of 2013 and 2013; approximately 1 percentage point higher than the prior year periods.

Interest and Other

For the fourth quarter of 2013 and full year, interest income declined 15% and 6%, respectively, due primarily to lower cash balances. Interest expense was essentially consistent with the prior period for both the fourth quarter and 2013.

For the fourth quarter of 2013, other, net was a loss of $1 million essentially consistent with the prior year period. Losses for the fourth quarter of 2013 were primarily due to an other-than-temporary investment impairment partially offset by equity method operating gains while losses for the prior year primarily related to foreign exchange losses. For 2013, other, net was a loss of $3 million compared to a loss of $20 million in 2012. An other-than-temporary investment impairment partially offset by equity method operating gains primarily drove the losses for 2013. Losses for 2012 were primarily related to foreign exchange. Foreign currency rate fluctuations minimally impacted fourth quarter revenue growth rates. Our revenue hedging program is designed to offset the book-to-stay impact on merchant hotel revenue. We include any realized gains or losses from our revenue hedging program in our calculation of Adjusted EBITDA.

 

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Income Taxes

The effective tax rate on GAAP pre-tax income was 22.0% for the fourth quarter of 2013 and 28.0% for 2013 compared with 144.4% and 13.4%, respectively, in the prior year periods. The effective tax rate on pre-tax adjusted net income (“ANI”) was 23.4% for the fourth quarter of 2013 and 24.1% for 2013 compared with an effective tax rate of 24.8% and 22.2%, respectively, in the prior year periods. Tax reserves accrued during the fourth quarter of 2012 related to Hawaii Tax Court Litigation resulted in a pretax book loss that drove the quarterly year-over-year variance in GAAP rates. For 2013, the rate was higher due primarily to three non-deductible items – nondeductible stock compensation related to the trivago acquisition that closed in March 2013, penalties accrued during the first quarter related to the Hawaii Tax Court Litigation and recording a valuation allowance against foreign net operating losses. The ANI rates for the fourth quarter of 2013 as well as 2013 are essentially consistent with the prior year periods. For the fourth quarter of 2013, the ANI rate was higher than the GAAP rate primarily as a result of higher pre-tax income on an adjusted basis.

Balance Sheet, Cash Flows and Capitalization

Cash, cash equivalents, restricted cash and short-term investments totaled $1.4 billion at December 31, 2013. Of this amount, $336 million is held by our majority-owned subsidiaries and while included in our consolidated financial statements, we do not treat it as available for our working capital purposes.

Outstanding letters of credit totaling $19 million were applied to our $1 billion unsecured revolving credit facility leaving a total available capacity of $981 million at December 31, 2013. Long-term debt totaled $1.25 billion at December 31, 2013 consisting of $749 million, net of discount, in 5.95% senior notes due 2020 and $500 million in 7.456% senior notes due 2018.

For the year ended December 31, 2013, net cash provided by operating activities was $763 million and free cash flow was $455 million. Both measures include $107 million from net changes in operating assets and liabilities, primarily driven by a change in non-merchant accounts payable, accrued expenses and other liabilities. Free cash flow decreased $547 million for the year ended December 31, 2013, compared to the prior year primarily due to changes in non-merchant accounts payable and accrued expenses, decrease in the rate of growth of our merchant hotel business compared to the prior year period, as well as payments of $171 million related to Hawaii Tax Court Litigation required by the state of Hawaii to pursue a challenge on appeal of the adverse decision by the Tax Court that general excise tax is due on the total amount paid by consumers for a hotel room reservation in Hawaii.

At December 31, 2013, we had stock-based awards outstanding representing approximately 16 million shares of our common stock, consisting of options to purchase 15 million common shares with a $36.03 weighted average exercise price and weighted average remaining life of 4 years, and approximately 0.4 million restricted stock units (RSUs). Assuming, among other things, no meaningful modifications of existing awards, incremental grants or adjustments to forfeiture estimates, we expect annual stock-based compensation expense will be approximately $90 million for 2014.

During 2013, we repurchased 9.3 million common shares for an aggregate purchase price of $515 million excluding transaction costs (an average of $55.59 per share). Subsequent to quarter end, we repurchased an additional 0.7 million shares for an aggregate purchase price of $46 million excluding transaction costs (an average of $66.68 per share), leaving approximately 8.1 million shares of common stock available for repurchase under our April 25, 2012 authorization.

On December 12, 2013, we paid a quarterly dividend of $20 million ($0.15 per common share). In addition, on February 5, 2014, the Executive Committee of Expedia’s Board of Directors declared a cash dividend of $0.15 per share of outstanding common stock to be paid to stockholders of record as of the close of business on March 10, 2014, with a payment date of March 27, 2014. Based on our current shares outstanding, we estimate the total payment for this quarterly dividend will be approximately $19 million. Future declaration of dividends and the establishment of future record and payment dates are subject to the final determination of Expedia’s Board of Directors.

 

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Recent Highlights

Global Presence

 

  •   Expedia, Inc. signed distribution agreements with several international carriers, including leading Chinese carrier Air China; Gulf Air, the national flag carrier of the Kingdom of Bahrain; and Chicago-based United Airlines, serving the world’s most comprehensive global route network.

 

  •   Egencia signed agreements to power corporate travel management solutions for globally operating chemical company Fuchs Petrolub SE; GRAHAM, a U.K.-and Ireland-based construction, asset management and project investment company; the corporate business and group purchasing divisions of leading healthcare improvement company Premier, Inc.; Sage Software GmbH, leading global provider of business management software to small and medium-sized companies; SGS in North America, the world’s leading inspection, verification, testing and certification company; and SPIE, a leading European company in electrical, mechanical and HVAC engineering, energy and communication systems. In addition, Egencia showed continued growth in the German market with approximately 31% year-over-year growth in gross bookings, excluding foreign exchange, and 35% growth in transactions.

 

  •   Egencia now offers corporate travel management services in 62 countries worldwide following the launch of Egencia.com.tr in Turkey, and through the expansion of the Egencia Global Alliance in Dominican Republic, El Salvador, Estonia, Latvia, Lithuania, and Panama.

 

  •   Expedia Affiliate Network signed agreements to power online travel bookings for several international companies, including Logitravel.com, an online travel agency specializing in the sale of cruises, vacation packages and hotels; travel booking website OneTwoTrip; and Hungary-based low-cost airline Wizzair.

Technology Platform Investment and Innovation

 

  •   Expedia launched several new features powered by big data and intended to simplify the travel shopping experience on its desktop and mobile websites. Flight Recommendations, the first tool of its kind from an online travel agency, applies insights to real-time customer search queries to offer travelers in the U.S. suggestions on alternative airports, travel dates and times; while Scratchpad neatly stores and organizes a consumer’s search queries for easy retrieval, helping users to make smart and informed travel decisions. Consumers who book travel on Expedia desktop and mobile websites can now also share their live itineraries and travel notifications with co-workers, friends and family members following the rollout of Itinerary Sharing.

 

  •   Welcome Rewards®, the popular loyalty program from Hotels.com, achieved a major milestone of 10 million members since launching only five years earlier.

 

  •   Expedia® Media Solutions, the advertising sales division of Expedia, Inc., generated 31% year-over-year revenue growth during the fourth quarter of 2013, exhibiting some of its strongest performance to-date.

Worldwide Hotel Portfolio

 

  •   At quarter-end, Expedia, Inc. global websites, including eLong, featured more than 260,000 bookable properties. Expedia, Inc. sites offer almost 200,000 hotels in EMEA and APAC countries.

 

  •   Expedia Lodging Partner Services signed partnership agreements that include provisions allowing for distribution under the Expedia Traveler Preference (ETP) program with a number of notable hotel brands, including major economy lodging provider G6, operating more than 1,100 Motel 6 and Studio 6 Extended Stay properties across the U.S. and Canada; InterContinental Hotels Group, one of the world’s leading hotel companies; and fully-integrated lifestyle hospitality company Morgans Hotel Group. To date, more than 45,000 hotels globally have signed on to participate in the ETP program since launch.

New Distribution Channels

 

  •   Several Expedia, Inc. brands were recognized for their achievements in the online travel and mobile app development sectors. Brand Expedia was named the World’s Leading Online Travel Agency Website at the 20th-annual World Travel Awards. Hotels.com ranked first on the Keynote Lodging Performance Index for fastest online travel site search; received top honors in the Branded Content and Mobile Marketing categories at the Marketing Excellence Awards; and was recipient of Hospitality Sales and Marketing Association International’s (HSMAI) Gold Adrian Award for the Chinese International Travel Monitor campaign. Hotwire® took first place in the Online Travel Services and Travel Mobile Application categories at the 2013 Travel Weekly Magellan Awards, and received the designation of Best Travel Mobile Application at the 2013 Mobile Web Awards.

 

  •   Hotels.com unveiled upgraded iPad and new Kindle Fire mobile apps, enabling consumers worldwide to search and book hotel accommodations, read guest reviews, and take advantage of mobile-exclusive deals directly from these devices. Hotwire also launched its first app on the Android platform.

 

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  •   Hotels.com signed a partnership agreement with popular road trip mobile app RoadNinja, whereby Hotels.com content is surfaced in a searchable and bookable interface to RoadNinja users looking for nearby accommodations.

 

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EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three months ended
December 31,		     Year ended
December 31,		  
     2013     2012     2013     2012  
     (In thousands, except for per share data)  

Revenue

    $ 1,152,015      $ 974,859      $ 4,771,259      $ 4,030,347   

Costs and expenses:

         

Cost of revenue (1)

      248,528        225,132        1,038,034        898,604   

Selling and marketing (1)(2)

      484,226        393,636        2,196,145        1,721,037   

Technology and content (1)

      155,039        134,344        577,820        484,898   

General and administrative (1)

      100,460        98,418        377,078        345,354   

Amortization of intangible assets

      21,810        10,178        71,731        31,705   

Acquisition-related and other (1)

      —          —          66,472        —     

Legal reserves, occupancy tax and other

      3,241        111,641        77,919        117,025   
  

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

      138,711        1,510        366,060        431,724   

Other income (expense):

         

Interest income

      4,942        5,822        24,779        26,396   

Interest expense

      (22,015 )      (22,306 )      (87,358 )      (87,788 ) 

Other, net

      (1,177 )      (998 )      (2,788 )      (20,275 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Total other expense, net

      (18,250 )      (17,482 )      (65,367 )      (81,667 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) from continuing operations before income taxes

      120,461        (15,972 )      300,693        350,057   

Provision for income taxes

      (26,474 )      23,067        (84,335 )      (47,078 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations

      93,987        7,095        216,358        302,979   

Discontinued operations, net of taxes

      —          (193 )      —          (22,539 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income

      93,987        6,902        216,358        280,440   

Net (income) loss attributable to noncontrolling interests

      730        (168 )      16,492        (269 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income attributable to Expedia, Inc.

    $ 94,717      $ 6,734      $ 232,850      $ 280,171   
  

 

 

    

 

 

    

 

 

    

 

 

  

Amounts attributable to Expedia, Inc.:

         

Income from continuing operations

    $ 94,717      $ 6,927      $ 232,850      $ 302,710   

Discontinued operations, net of taxes

      —          (193 )      —          (22,539 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income

    $ 94,717      $ 6,734      $ 232,850      $ 280,171   
  

 

 

    

 

 

    

 

 

    

 

 

  

Earnings per share from continuing operations attributable to Expedia, Inc. available to common stockholders:

         

Basic

    $ 0.72      $ 0.05      $ 1.73      $ 2.26   

Diluted

      0.70        0.05        1.67        2.16   

Earnings per share attributable to Expedia, Inc. available to common stockholders:

         

Basic

    $ 0.72      $ 0.05      $ 1.73      $ 2.09   

Diluted

      0.70        0.05        1.67        2.00   

Shares used in computing earnings per share:

         

Basic

      131,306        135,046        134,912        134,203   

Diluted

      135,571        140,756        139,593        139,929   

Dividends declared per common share

    $ 0.15      $ 0.65      $ 0.56      $ 0.96   

 

         

(1) Includes stock-based compensation as follows:

         

Cost of revenue

    $ 1,040      $ 793      $ 3,752      $ 3,296   

Selling and marketing

      4,333        2,900        16,190        13,474   

Technology and content

      5,006        3,958        20,465        16,073   

General and administrative

      10,591        8,035        33,123        31,753   

Acquisition-related and other

      —          —          56,643        —     

(2) Includes related party amounts as follows:

      46,485        40,688        217,771        205,027   

 

Page 8 of 17

EXPEDIA, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     December 31,  
     2013     2012  
    
  

(In thousands, except

per share data)

  
ASSETS     

Current assets:

     

Cash and cash equivalents

    $ 1,021,033      $ 1,293,161   

Restricted cash and cash equivalents

      26,042        21,475   

Short-term investments

      325,510        644,982   

Accounts receivable, net of allowance of $11,555 and $10,771

      614,735        461,531   

Deferred income taxes

      66,130        83,034   

Income taxes receivable

      64,296        27,764   

Prepaid expenses and other current assets

      101,541        110,319   
  

 

 

    

 

 

  

Total current assets

      2,219,287        2,642,266   

Property and equipment, net

      480,702        409,373   

Long-term investments and other assets

      250,626        224,231   

Deferred income taxes

      14,151        19,787   

Intangible assets, net

      1,111,041        821,419   

Goodwill

      3,663,674        3,015,670   
  

 

 

    

 

 

  

TOTAL ASSETS

    $ 7,739,481      $ 7,132,746   
  

 

 

    

 

 

  
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

     

Accounts payable, merchant

    $ 1,044,259      $ 954,071   

Accounts payable, other

      261,288        283,029   

Deferred merchant bookings

      1,350,319        1,128,231   

Deferred revenue

      39,746        26,475   

Income taxes payable

      61,874        62,025   

Accrued expenses and other current liabilities

      536,895        556,244   
  

 

 

    

 

 

  

Total current liabilities

      3,294,381        3,010,075   

Long-term debt

      1,249,412        1,249,345   

Deferred income taxes

      433,532        343,553   

Other long-term liabilities

      138,300        126,912   

Commitments and contingencies

     

Redeemable noncontrolling interests

      364,871        13,473   

Stockholders’ equity:

     

Common stock $.0001 par value

      19        19   

Authorized shares: 1,600,000

     

Shares issued: 192,562 and 189,255

     

Shares outstanding: 116,886 and 122,530

     

Class B common stock $.0001 par value

      1        1   

Authorized shares: 400,000

     

Shares issued and outstanding: 12,800 and 12,800

     

Additional paid-in capital

      5,802,140        5,675,075   

Treasury stock - Common stock, at cost

      (3,465,675 )      (2,952,790 ) 

Shares: 75,676 and 66,725

     

Retained earnings (deficit)

      (209,218 )      (442,068 ) 

Accumulated other comprehensive income (loss)

      18,197        22   
  

 

 

    

 

 

  

Total Expedia, Inc. stockholders’ equity

      2,145,464        2,280,259   

Noncontrolling interest

      113,521        109,129   
  

 

 

    

 

 

  

Total stockholders’ equity

      2,258,985        2,389,388   
  

 

 

    

 

 

  

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

    $ 7,739,481      $ 7,132,746   
  

 

 

    

 

 

  

 

Page 9 of 17

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Year ended December 31,  
   2013     2012  
   (In thousands)  

Operating activities:

     

Net income

    $ 216,358      $ 280,440   

Less: Discontinued operations, net of tax

      —          (22,539 ) 
  

 

 

    

 

 

  

Net income from continuing operations

      216,358        302,979   

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

     

Depreciation of property and equipment, including internal-use software and website development

      211,744        164,247   

Amortization of stock-based compensation

      130,173        64,596   

Amortization of intangible assets

      71,731        31,705   

Deferred income taxes

      (772 )      (55,120 ) 

Foreign exchange (gain) loss on cash, cash equivalents and short-term investments, net

      56,822        (19,904 ) 

Realized (gain) loss on foreign currency forwards

      (40,850 )      12,954   

Other

      10,576        17,521   

Changes in operating assets and liabilities, net of effects from acquisitions:

     

Accounts receivable

      (127,327 )      (84,017 ) 

Prepaid expenses and other current assets

      (18,724 )      (3,386 ) 

Accounts payable, merchant

      91,503        146,469   

Accounts payable, other, accrued expenses and other current liabilities

      (97,985 )      345,938   

Deferred merchant bookings

      246,229        312,059   

Deferred revenue

      13,722        1,141   
  

 

 

    

 

 

  

Net cash provided by operating activities from continuing operations

      763,200        1,237,182   
  

 

 

    

 

 

  

Investing activities:

     

Capital expenditures, including internal-use software and website development

      (308,581 )      (235,697 ) 

Purchases of investments

      (1,216,591 )      (1,873,519 ) 

Sales and maturities of investments

      1,502,576        1,955,955   

Acquisitions, net of cash acquired

      (541,247 )      (199,360 ) 

Net settlement of foreign currency forwards

      40,850        (12,954 ) 

Other, net

      (2,520 )      (2,250 ) 
  

 

 

    

 

 

  

Net cash used in investing activities from continuing operations

      (525,513 )      (367,825 ) 
  

 

 

    

 

 

  

Financing activities:

     

Purchases of treasury stock

      (522,900 )      (417,571 ) 

Proceeds from issuance of treasury stock

      25,273        —     

Payment of dividends to stockholders

      (75,760 )      (130,423 ) 

Purchases of interest in controlled subsidiaries, net

      (14,923 )      (2,015 ) 

Proceeds from exercise of equity awards and employee stock purchase plan

      56,836        241,193   

Excess tax benefit on equity awards

      39,606        41,100   

Other, net

      (648 )      (5,071 ) 
  

 

 

    

 

 

  

Net cash used in financing activities from continuing operations

      (492,516 )      (272,787 ) 
  

 

 

    

 

 

  

Net cash provided by (used in) continuing operations

      (254,829 )      596,570   

Net cash provided by (used in) discontinued operations

      13,637        (7,607 ) 

Effect of exchange rate changes on cash and cash equivalents

      (30,936 )      15,064   
  

 

 

    

 

 

  

Net increase (decrease) in cash and cash equivalents

      (272,128 )      604,027   

Cash and cash equivalents at beginning of year

      1,293,161        689,134   
  

 

 

    

 

 

  

Cash and cash equivalents at end of year

    $ 1,021,033      $ 1,293,161   
  

 

 

    

 

 

  

Supplemental cash flow information

     

Cash paid for interest from continuing operations

    $ 84,136      $ 86,024   

Income tax payments, net from continuing operations

      73,439        9,632   

 

Page 10 of 17

Expedia, Inc.

Trended Metrics

(All figures in millions)

 

  •   The following metrics are intended as a supplement to the financial statements found in this release and in our filings with the SEC. In the event of discrepancies between amounts in these tables and our historical financial statements, readers should rely on our filings with the SEC and financial statements in our most recent earnings release.

 

  •   We intend to periodically review and refine the definition, methodology and appropriateness of each of our supplemental metrics. As a result, metrics are subject to removal and/or change, and such changes could be material.

 

  •   These metrics do not include adjustments for one-time items, acquisitions, foreign exchange or other adjustments.

 

  •   Some numbers may not add due to rounding.

 

     2012     2013     Full Year     Y /Y Growth  
   Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4     2012     2013     Q413     2013  

Gross Bookings by Segment

                         

Leisure

    $ 7,666      $ 8,019      $ 8,120      $ 6,571      $ 8,664      $ 8,933      $ 9,312      $ 8,000      $ 30,374      $ 34,910        22 %      15 % 

Egencia

      755        938        936        955        1,117        1,188        1,125        1,104        3,585        4,533        16 %      26 % 
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $ 8,421      $ 8,957      $ 9,056      $ 7,526      $ 9,781      $ 10,121      $ 10,437      $ 9,104      $ 33,959      $ 39,443        21 %      16 % 

Gross Bookings by Geography

                         

Domestic

    $ 5,116      $ 5,486      $ 5,155      $ 4,201      $ 5,484      $ 5,848      $ 5,828      $ 4,982      $ 19,958      $ 22,142        19 %      11 % 

International

      3,305        3,471        3,902        3,324        4,297        4,273        4,609        4,122        14,002        17,301        24 %      24 % 
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $ 8,421      $ 8,957      $ 9,056      $ 7,526      $ 9,781      $ 10,121      $ 10,437      $ 9,104      $ 33,959      $ 39,443        21 %      16 % 

Gross Bookings by Agency/Merchant

                         

Agency

    $ 4,621      $ 4,867      $ 4,706      $ 4,165      $ 5,270      $ 5,466      $ 5,701      $ 5,248      $ 18,358      $ 21,684        26 %      18 % 

Merchant

      3,799        4,090        4,350        3,361        4,511        4,655        4,736        3,856        15,601        17,758        15 %      14 % 
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $ 8,421      $ 8,957      $ 9,056      $ 7,526      $ 9,781      $ 10,121      $ 10,437      $ 9,104      $ 33,959      $ 39,443        21 %      16 % 

Revenue by Segment

                         

Leisure

    $ 764      $ 964      $ 1,121      $ 890      $ 924      $ 1,110      $ 1,316      $ 1,056      $ 3,739      $ 4,406        19 %      18 % 

Egencia

      53        76        78        85        89        95        85        96        291        365        12 %      25 % 
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $ 816      $ 1,040      $ 1,199      $ 975      $ 1,012      $ 1,205      $ 1,402      $ 1,152      $ 4,030      $ 4,771        18 %      18 % 

Revenue by Geography

                         

Domestic

    $ 483      $ 591      $ 642      $ 511      $ 558      $ 664      $ 742      $ 583      $ 2,227      $ 2,548        14 %      14 % 

International

      334        449        557        464        454        541        660        569        1,803        2,223        23 %      23 % 
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $ 816      $ 1,040      $ 1,199      $ 975      $ 1,012      $ 1,205      $ 1,402      $ 1,152      $ 4,030      $ 4,771        18 %      18 % 

Revenue by Agency/Merchant/Advertising

                         

Agency

    $ 182      $ 220      $ 235      $ 212      $ 234      $ 270      $ 330      $ 293      $ 850      $ 1,127        38 %      33 % 

Merchant

      603        787        930        730        733        855        963        774        3,049        3,325        6 %      9 % 

Advertising & Media Revenue

      31        32        35        33        46        80        109        84        131        319        159 %      144 % 

Total

    $ 816      $ 1,040      $ 1,199      $ 975      $ 1,012      $ 1,205      $ 1,402      $ 1,152      $ 4,030      $ 4,771        18 %      18 % 

Adjusted EBITDA

                         

Leisure

    $ 171      $ 283      $ 357      $ 262      $ 178      $ 265      $ 419      $ 315      $ 1,073      $ 1,177        20 %      10 % 

Unallocated Overhead Costs

      (79 )      (78 )      (76 )      (90 )      (85 )      (91 )      (91 )      (91 )      (324 )      (358 )      1 %      11 % 
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

    $ 92      $ 205      $ 281      $ 172      $ 93      $ 174      $ 328      $ 224      $ 750      $ 820        31 %      9 % 

Egencia

      10        18        12        13        12        18        11        18        53        59        36 %      11 % 
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $ 102      $ 223      $ 294      $ 185      $ 105      $ 192      $ 340      $ 242      $ 803      $ 879        31 %      9 % 

Worldwide Hotel (Merchant & Agency)

                         

Room Nights

      22.7        30.1        36.7        29.7        29.0        35.9        44.1        37.1        119.2        146.1        25 %      23 % 

Room Night Growth

      24 %      22 %      27 %      33 %      28 %      19 %      20 %      25 %      27 %      23 %      25 %      23 % 

Room Night Growth including AirAsia JV

      27 %      24 %      27 %      34 %      28 %      20 %      21 %      25 %      28 %      23 %      25 %      23 % 

ADR Growth

      0 %      -1 %      -3 %      -3 %      0 %      0 %      0 %      0 %      -2 %      0 %      0 %      0 % 

Revenue per Night Growth

      -6 %      -5 %      -6 %      -6 %      -3 %      -6 %      -7 %      -9 %      -5 %      -7 %      -9 %      -7 % 

Revenue Growth

      18 %      16 %      20 %      25 %      24 %      12 %      11 %      14 %      20 %      15 %      14 %      15 % 

Worldwide Air (Merchant & Agency)

                         

Tickets Sold Growth

      5 %      3 %      11 %      12 %      9 %      7 %      7 %      13 %      7 %      9 %      13 %      9 % 

Airfare Growth

      7 %      5 %      1 %      2 %      0 %      0 %      3 %      1 %      4 %      1 %      1 %      1 % 

Revenue per Ticket Growth

      -20 %      -11 %      -19 %      -2 %      5 %      1 %      9 %      3 %      -14 %      4 %      3 %      4 % 

Revenue Growth

      -17 %      -8 %      -10 %      10 %      14 %      8 %      16 %      17 %      -8 %      14 %      17 %      14 % 

Notes:

The metrics above exclude results from the joint venture between Brand Expedia and AirAsia beginning July 1, 2011 except where noted.

The metrics above include VIA Travel following our acquisition on April 27, 2012 and trivago GmbH following our acquisition of a controlling interest on March 8, 2013.

VIA Travel and trivago GmbH are recorded within the Egencia and Leisure segments, respectively.

Advertising & Media Revenue includes revenue from trivago GmbH. All trivago GmbH revenue is classified as international.

 

Page 11 of 17

Notes & Definitions:

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.com, the Expedia Affiliate Network, trivago and other leisure brands.

Egencia – Reflects worldwide results for our managed corporate travel business.

Corporate – Includes unallocated corporate expenses.

Worldwide Hotel metrics – Reported on a stayed basis, and include both merchant and agency model hotel stays.

Worldwide Air metrics – Reported on a booked basis and includes both merchant and agency air bookings.

Definitions of Non-GAAP Measures

Expedia, Inc. reports Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Free Cash Flow and non-GAAP operating expenses (non-GAAP cost of revenue, 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 and on which internal budgets are based. 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. Adjusted EBITDA, Adjusted Net Income and Adjusted EPS have certain limitations in that they do not take into account the impact of certain expenses to our consolidated statements of operations. 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. Adjusted EBITDA, Adjusted Net Income and Adjusted EPS also exclude certain items related to occupancy tax matters, which may ultimately be settled in cash, and we urge investors to review the detailed disclosure regarding these matters in the Management Discussion and Analysis, Legal Proceedings sections, as well as the notes to the financial statements, included in the Company’s annual and quarterly reports filed with the Securities and Exchange Commission. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The definition of Adjusted Net Income was revised in the fourth quarters of 2010, 2011 and 2012 and the definition for Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization was revised in the fourth quarter of 2012.

Adjusted EBITDA 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) upfront consideration paid to settle employee compensation plans of the acquiree; (3) certain infrequently occurring items, including restructuring; (4) items included in Legal reserves, occupancy tax and other, which includes reserves for potential settlement of issues related to transactional taxes (e.g. hotel and excise taxes), related to court decisions and final settlements, and charges incurred, if any, for monies that may be required to be paid in advance of litigation in certain transactional tax proceedings; (5) gains (losses) realized on revenue hedging activities that are included in other, net; and (6) depreciation.

The above items are excluded from our Adjusted EBITDA measure because these items are noncash in nature, or because the amount and timing of these items is unpredictable, not driven by core operating results and renders comparisons with prior periods and competitors less meaningful. We believe Adjusted EBITDA is a useful measure for analysts and investors to evaluate our future on-going performance as this measure allows a more meaningful comparison of our performance and projected cash earnings with our historical results from prior periods and to the results of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments. In addition, we believe that by excluding certain items, such as stock-based compensation and acquisition-related impacts, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business and allows investors to gain an understanding of the factors and trends affecting the ongoing cash earnings capabilities of our business, from which capital investments are made and debt is serviced.

 

Page 12 of 17

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 equity plans of certain subsidiaries and equity-method investments; (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) upfront consideration paid to settle employee compensation plans of the acquiree and (iv) 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 investments held by eLong; (5) certain other infrequently occurring items, including restructuring charges; (6) items included in Legal reserves, occupancy tax and other, which includes reserves for potential settlement of issues related to transactional taxes (e.g., hotel occupancy and excise taxes), related court decisions and final settlements, and charges incurred, if any, for monies that may be required to be paid in advance of litigation in certain transactional tax proceedings; (7) discontinued operations; (8) the noncontrolling interest impact of the aforementioned adjustment items and (9) unrealized gains (losses) on revenue hedging activities that are included in other, net. 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 certain 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 adjusted weighted average shares outstanding, which 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 certain expenses not directly tied to the core operations of our businesses. Adjusted Net Income and Adjusted EPS have similar limitations as Adjusted EBITDA. 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 applicable stock-based compensation accounting standards. 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. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting applicable stock-based compensation accounting standards, 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.

 

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Tabular Reconciliations for Non-GAAP Measures

Adjusted Earnings Before Interest, Taxes, Depreciation & Amortization

 

     Three months ended
December 31,		     Year ended
December 31,		  
   2013     2012     2013     2012  
   (In thousands)  

Adjusted EBITDA

    $ 241,996      $ 184,580      $ 878,723      $ 802,875   

Depreciation

      (58,774 )      (47,393 )      (211,744 )      (164,247 ) 

Amortization of intangible assets

      (21,810 )      (10,178 )      (71,731 )      (31,705 ) 

Stock-based compensation

      (20,970 )      (15,686 )      (130,173 )      (64,596 ) 

Legal reserves, occupancy tax and other

      (3,241 )      (111,641 )      (77,919 )      (117,025 ) 

Acquisition-related and other

      —          —          (9,829 )      —     

Realized (gain) loss on revenue hedges

      1,510        1,828        (11,267 )      6,422   
  

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

      138,711        1,510        366,060        431,724   

Interest expense, net

      (17,073 )      (16,484 )      (62,579 )      (61,392 ) 

Other, net

      (1,177 )      (998 )      (2,788 )      (20,275 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) from continuing operations before income taxes

      120,461        (15,972 )      300,693        350,057   

Provision for income taxes

      (26,474 )      23,067        (84,335 )      (47,078 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations

      93,987        7,095        216,358        302,979   

Discontinued operations, net of taxes

      —          (193 )      —          (22,539 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income

      93,987        6,902        216,358        280,440   

Net (income) loss attributable to noncontrolling interests

      730        (168 )      16,492        (269 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income attributable to Expedia, Inc.

    $ 94,717      $ 6,734      $ 232,850      $ 280,171   
  

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted Net Income & Adjusted EPS

 

     Three months ended
December 31,		     Year ended
December 31,		  
   2013     2012     2013     2012  
   (In thousands)  

Net income attributable to Expedia, Inc.

    $ 94,717      $ 6,734      $ 232,850      $ 280,171   

Discontinued operations, net of taxes

      —          193        —          22,539   

Amortization of intangible assets

      21,810        10,178        71,731        31,705   

Stock-based compensation

      20,970        15,686        130,173        64,596   

Legal reserves, occupancy tax and other

      3,241        111,641        77,919        117,025   

Acquisition-related and other

      —          —          9,829        —     

Foreign currency (gain) loss on U.S. dollar cash balances held by eLong

      (38 )      41        (165 )      16   

Unrealized (gain) loss on revenue hedges

      (2,709 )      (2,353 )      (1,072 )      3,199   

Stock-based compensation as part of equity method investments

      133        —          232        —     

Other-than-temporary investment impairment

      4,247        —          4,247        —     

Provision for income taxes

      (12,837 )      (52,573 )      (58,493 )      (78,485 ) 

Noncontrolling interests

      (4,256 )      (672 )      (15,278 )      (2,263 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted Net Income

    $ 125,278      $ 88,875      $ 451,973      $ 438,503   
  

 

 

    

 

 

    

 

 

    

 

 

  

GAAP diluted weighted average shares outstanding

      135,571        140,756        139,593        139,929   

Additional restricted stock units

      327        949        565        1,323   
  

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted weighted average shares outstanding

      135,898        141,705        140,158        141,252   
  

 

 

    

 

 

    

 

 

    

 

 

  

Diluted earnings per share from continuing operations

    $ 0.70      $ 0.05      $ 1.67      $ 2.16   

Adjusted earnings per share from continuing operations

      0.92        0.63        3.22        3.10   

 

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Free Cash Flow

 

     Three months ended
December 31,		     Year ended
December 31,		  
   2013     2012     2013     2012  
   (In thousands)  

Net cash provided by operating activities

    $ (212,215 )    $ (216,726 )    $ 763,200      $ 1,237,182   

Less: capital expenditures

      (73,165 )      (58,717 )      (308,581 )      (235,697 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Free cash flow

    $ (285,380 )    $ (275,443 )    $ 454,619      $ 1,001,485   
  

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP cost of revenue, selling and marketing, technology and content and general and administrative expenses excluding stock-based compensation

 

     Three months ended
December 31,		     Year ended
December 31,		  
   2013     2012     2013     2012  
   (in thousands)  

Cost of revenue

    $ 248,528      $ 225,132      $ 1,038,034      $ 898,604   

Less: stock-based compensation

      (1,040 )      (793 )      (3,752 )      (3,296 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Cost of revenue excluding stock-based compensation

    $ 247,488      $ 224,339      $ 1,034,282      $ 895,308   

Selling and marketing expense

    $ 484,226      $ 393,636      $ 2,196,145      $ 1,721,037   

Less: stock-based compensation

      (4,333 )      (2,900 )      (16,190 )      (13,474 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Selling and marketing expense excluding stock-based compensation

    $ 479,893      $ 390,736      $ 2,179,955      $ 1,707,563   

Technology and content expense

    $ 155,039      $ 134,344      $ 577,820      $ 484,898   

Less: stock-based compensation

      (5,006 )      (3,958 )      (20,465 )      (16,073 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Technology and content expense excluding stock-based compensation

    $ 150,033      $ 130,386      $ 557,355      $ 468,825   

General and administrative expense

    $ 100,460      $ 98,418      $ 377,078      $ 345,354   

Less: stock-based compensation

      (10,591 )      (8,035 )      (33,123 )      (31,753 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

General and administrative expense excluding stock-based compensation

    $ 89,869      $ 90,383      $ 343,955      $ 313,601   

Conference Call

Expedia, Inc. will audiocast a conference call to discuss fourth quarter and full year 2013 financial results and certain forward-looking information on Thursday, February 6, 2014 at 1:30 p.m. Pacific Standard Time (PST). The audiocast will be open to the public and available via 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 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 February 6, 2014 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 operations 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:

 

  •   an increasingly competitive global environment;

 

  •   modifications to our current business models and practices or our adoption of new business models or practices in order to compete;

 

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  •   changes in search engine algorithms and dynamics or other traffic-generating arrangements;

 

  •   declines or disruptions in the travel industry;

 

  •   our failure to maintain and expand our relationships and contractual agreements with travel suppliers or travel distribution partners;

 

  •   our failure to maintain and expand our brand awareness or increased costs to do so;

 

  •   our failure to adapt to technological developments or industry trends;

 

  •   risks relating to our operations in international markets, including China;

 

  •   adverse application of existing tax or unclaimed property laws, rules or regulations or implementation of new unfavorable laws, rules or regulations;

 

  •   adverse outcomes in legal proceedings to which we are a party;

 

  •   our failure to comply with current laws, rules and regulations, or changes to such laws, rules and regulations;

 

  •   determinations by U.S. and foreign tax authorities regarding our worldwide tax provision for income taxes;

 

  •   payments related risks, including credit card fraud;

 

  •   volatility in our stock price;

 

  •   liquidity constraints or our inability to access the capital markets when necessary;

 

  •   interruption or lack of redundancy in our information systems;

 

  •   failure to retain or motivate key personnel or hire, retain and motivate qualified personnel, including senior management;

 

  •   changes in control of the Company;

 

  •   management and director conflicts of interest;

 

  •   risks related to actions taken by our business partners and third party service providers, including failure to comply with our requirements or standards or the requirements or standards of governmental authorities, or any cessation of their operations;

 

  •   risks related to the failure of counterparties to perform on financial obligations;

 

  •   fluctuations in foreign exchange rates;

 

  •   our failure to comply with governmental regulation and other legal obligations related to our processing, storage, use and disclosure of personal data, and liabilities related to security breaches;

 

  •   risks related to our acquisitions, investments or significant commercial arrangements;

 

  •   risks related to our long-term indebtedness;

 

  •   our failure to effectively operate our businesses due to restrictive covenants in the agreements governing our indebtedness;

 

  •   our failure to protect our intellectual property from copying or use by others, including competitors;

as well as other risks detailed in our public filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2013. Except as required by law, we undertake no obligation to update any forward-looking or other statements in this release, whether as a result of new information, future events or otherwise.

About Expedia, Inc.

Expedia, Inc. is the largest online travel company in the world, with an extensive brand portfolio that includes some of the world’s leading online travel brands, including:

 

  •   Expedia.com®, the world’s largest full service online travel agency, with localized sites in 31 countries

 

  •   Hotels.com®, the hotel specialist with sites in more than 60 countries

 

  •   Hotwire®, a leading discount travel site that offers opaque deals in 12 countries throughout North America, Europe and Asia

 

  •   Egencia®, the world’s fifth largest corporate travel management company

 

  •   eLong™, the second largest online travel company in China

 

  •   Venere.com™, the online hotel reservation specialist in Europe

 

  •   trivago®, a leading online hotel metasearch company with sites in 40 countries

 

  •   Expedia Local Expert®, a provider of in-market concierge services, activities and experiences in 18 markets worldwide

 

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  •   Classic Vacations®, a top luxury travel specialist

 

  •   Expedia® CruiseShipCenters®, one of North America’s leading retail cruise vacation experts

The company delivers consumers value in leisure and business travel, drives incremental demand and direct bookings to travel suppliers, and provides advertisers the opportunity to reach a highly valuable audience of in-market travel consumers through Expedia Media Solutions. Expedia also powers bookings for some of the world’s leading airlines and hotels, top consumer brands, high traffic websites, and thousands of active affiliates through Expedia® Affiliate Network. For corporate and industry news and views, visit us at www.expediainc.com or follow us on Twitter @expediainc.

Trademarks and logos are the property of their respective owners. © 2014 Expedia, Inc. All rights reserved. CST: 2029030-50

 

Contacts            
Investor Relations    Communications         
(425) 679-3555    (425) 679-4317         
ir@expedia.com    press@expedia.com         

 

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