Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 8-K
 
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) October 26, 2017
 
EXPEDIA, INC.
(Exact name of registrant as specified in its charter)
 

Delaware
 
001-37429
 
20-2705720
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
333 108th Avenue NE
Bellevue, Washington 98004
(Address of principal executive offices) (Zip code)
(425) 679-7200
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1934 (§240.12b-2 of this chapter).
 
 
 
Emerging growth company ☐
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 






Item 2.02.    Results of Operations and Financial Condition.
On October 26, 2017, Expedia, Inc. ("Expedia") issued an earnings release and will hold a conference call regarding its financial results for the quarter ended September 30, 2017. A copy of the earnings release is furnished as Exhibit 99.1 hereto.
Expedia is making reference to non-GAAP financial measures in both the earnings release and the conference call. A reconciliation of these non-GAAP financial measures to the nearest comparable GAAP financial measures is contained in the attached Exhibit 99.1 earnings release.
Pursuant to General Instruction B.2. to Form 8-K, the information set forth in this Item 2.02 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, or incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 8.01.    Other Events.
On October 26, 2017, Expedia announced that its Executive Committee, acting on behalf of its Board of Directors, has declared a quarterly cash dividend of $0.30 per share of outstanding common stock payable on December 7, 2017 to stockholders of record as of the close of business on November 16, 2017.
Item 9.01.    Financial Statements and Exhibits.
(d) Exhibits
Exhibit
Number
  
Description
99.1
  





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
EXPEDIA, INC.
 
 
 
 
By:
/s/ ALAN PICKERILL
 
 
Alan Pickerill
 
 
Chief Financial Officer
Dated: October 26, 2017





EXHIBIT INDEX
 
Exhibit
Number
  
Description
99.1
  


Exhibit
Exhibit 99.1


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11854852&doc=3
Expedia, Inc. Reports Third Quarter 2017 Results
Healthy room night growth partly offset by natural disasters, trivago
BELLEVUE, WA – October 26, 2017 – Expedia, Inc. (NASDAQ: EXPE) announced financial results today for the third quarter ended September 30, 2017.
Key Highlights
 
Gross bookings, including HomeAway, increased $2.2 billion or 11% year-over-year to $22.2 billion. Revenue increased 15% year-over-year to $3.0 billion.
HomeAway delivered $305 million of revenue, representing an increase of 45% year-over-year.
Room nights stayed, including HomeAway, increased 16% year-over-year.
Room nights stayed for the global growth brands of Brand Expedia, Hotels.com, EAN and Egencia combined increased 18% year-over-year, with HomeAway room nights stayed up 36% year-over-year.
Adjusted EBITDA grew 6% year-over-year during the third quarter, including trivago's $8 million loss and an estimated negative impact of approximately $15 million to $20 million from the recent natural disasters.
The Expedia, Inc. global lodging portfolio increased to over 500,000 properties available as of September 30, 2017, up 57% year-over-year. HomeAway offers nearly 1.5 million online bookable listings.
Financial Summary & Operating Metrics ($ millions except per share amounts)

Metric
Q3 2017
Q3 2016
Δ Y/Y
Room night growth(1)
16%
31%
(1,405) bps
Gross bookings(1)
$22,196.5
$19,988.1
11%
Revenue
2,965.8
2,580.9
15%
Operating income
481.7
386.2
25%
Net income attributable to Expedia, Inc.
352.2
279.3
26%
Diluted EPS
$2.23
$1.81
23%
Adjusted EBITDA(2)
709.3
666.7
6%
Adjusted net income(2)
398.8
374.1
7%
Adjusted EPS(2)
$2.51
$2.41
4%
Free cash flow(2)
(612.3)
(369.5)
(66)%

(1) Expedia acquired HomeAway on December 15, 2015. Beginning in the first quarter of 2017, HomeAway results are included in room nights and gross bookings operating metrics, with quarterly results for 2016 adjusted to reflect this change.
(2) "Adjusted EBITDA" (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"). See "Definitions of Non-GAAP Measures" and "Tabular Reconciliations for Non-GAAP Measures" on pages 13-17 herein for an explanation and reconciliations of non-GAAP measures used throughout this release.

Please refer to the "Glossary of Business Terms," located in the Quarterly Results section on Expedia’s investor relations website, for business and financial statement definitions used throughout this release.

Page 1 of 19


Discussion of Results
The results include Expedia.com® ("Brand Expedia"), Hotels.com®, Expedia® Affiliate Network ("EAN"), trivago®, HomeAway®, Egencia®, Orbitz®, Travelocity®, Hotwire.com®, Wotif Group, CheapTickets®, ebookers®, CarRentals.comTM, Classic Vacations®, Expedia Local Expert®, Expedia® CruiseShipCenters®, SilverRail Technologies, Inc. ("SilverRail") and AirAsia ExpediaTM, in addition to the related international points of sale. All amounts shown are in U.S. dollars.

The results include the impact of SilverRail following the acquisition of a majority ownership stake by Expedia in June 2017. All comparisons, unless otherwise noted, are to the third quarter of 2016.


Gross Bookings & Revenue
Gross Bookings and Revenue by Segment ($ millions)
 
 
Gross Bookings
 
 
Revenue
 
Third Quarter
 
 
Third Quarter
 
2017
 
2016
 
Δ%
 
 
2017
 
2016
 
Δ%
Core OTA
$
18,456

 
$
17,007

 
9%
 
 
$
2,314

 
$
2,083

 
11%
trivago

 

 
—%
 
 
338

 
276

 
22%
HomeAway
2,013

 
1,403

 
44%
 
 
305

 
210

 
45%
Egencia
1,728

 
1,579

 
9%
 
 
126

 
112

 
13%
Intercompany eliminations

 

 
—%
 
 
(117
)
 
(101
)
 
(16)%
Total
$
22,197

 
$
19,988

 
11%
 
 
$
2,966

 
$
2,581

 
15%
Note: Some numbers may not add due to rounding.
For the third quarter of 2017, total gross bookings increased 11% (including negative impact from the natural disasters and 1 percentage point of positive foreign exchange impact), driven primarily by growth in Brand Expedia, HomeAway, Hotels.com and EAN. Domestic gross bookings increased 5% and international gross bookings increased 22% (including 3 percentage points of positive foreign exchange impact). International gross bookings totaled $8.7 billion and accounted for 39% of worldwide bookings, compared with 35% in the third quarter of 2016.
For the third quarter of 2017, revenue increased 15% (including negative impact from the natural disasters and 2 percentage points of positive foreign exchange impact), driven primarily by growth in Brand Expedia, HomeAway, EAN and trivago. Domestic revenue increased 9% and international revenue increased 23% (including 7 percentage points of positive foreign exchange impact). International revenue equaled $1.4 billion, representing 47% of worldwide revenue, compared to 44% in the third quarter of 2016.
Product & Services Detail
As a percentage of total worldwide revenue in the third quarter of 2017, lodging accounted for 71%, advertising and media accounted for 10%, air accounted for 6% and all other revenues accounted for the remaining 13%.
Lodging revenue, which includes hotel and HomeAway revenue, increased 15% in the third quarter of 2017 on a 16% increase in room nights stayed driven by growth in Brand Expedia, HomeAway and EAN, partially offset by a 1% decrease in revenue per room night.
Air revenue decreased 7% in the third quarter of 2017 on a 10% decrease in revenue per ticket partially offset by a 4% increase in air tickets sold.
Advertising and media revenue increased 24% in the third quarter of 2017 due to continued growth in trivago and Expedia® Media Solutions. All other revenue increased 21% in the third quarter of 2017 reflecting growth in car rental and travel insurance products.

Page 2 of 19




Generally Accepted Accounting Principles (GAAP) Expenses
 
 
Costs and Expenses
 
 
As a % of Revenue
 
Third Quarter
 
 
Third Quarter
 
2017
 
2016
 
Δ%
 
 
2017
 
2016
 
Δ in bps
 
($ millions)
 
 
 
 
 
 
 
 
 
GAAP cost of revenue
$
459

 
$
417

 
10
 %
 
 
15.5
%
 
16.2
%
 
(69
)
GAAP selling and marketing
1,461

 
1,205

 
21
 %
 
 
49.3
%
 
46.7
%
 
258

GAAP technology and content
350

 
301

 
16
 %
 
 
11.8
%
 
11.7
%
 
12

GAAP general and administrative
141

 
166

 
(15
)%
 
 
4.8
%
 
6.4
%
 
(166
)
Total GAAP costs and expenses
$
2,411

 
$
2,089

 
15
 %
 
 
81.3
%
 
80.9
%
 
35

GAAP Cost of Revenue
For the third quarter of 2017, total GAAP cost of revenue increased 10%, compared to the third quarter of 2016, due to $36 million more in data center, cloud and other costs, including an $8 million increase related to data center related depreciation expense. Personnel expenses also increased in the third quarter of 2017 primarily to support customer operations. Cloud expense in GAAP cost of revenue was $17 million during the third quarter of 2017, compared to $1 million in the third quarter of 2016.
GAAP Selling and Marketing
For the third quarter of 2017, total GAAP selling and marketing expenses increased 21%, compared to the third quarter of 2016, due to a $217 million increase in direct costs, including online and offline marketing expenses. trivago, Brand Expedia, EAN and Hotels.com accounted for the majority of the total direct cost increases.
For the third quarter of 2017, indirect costs increased $39 million, primarily driven by growth in personnel.

GAAP Technology and Content
For the third quarter of 2017, GAAP technology and content expense increased 16%, compared to the third quarter of 2016, primarily due to increased depreciation and amortization of technology assets of $21 million as well as growth in personnel and overhead from increased headcount, including the addition of SilverRail. Cloud expense in GAAP technology and content expense was $11 million during the third quarter of 2017, compared to $10 million in the third quarter of 2016.
GAAP General and Administrative
For the third quarter of 2017, GAAP general and administrative expense decreased 15%, compared to the third quarter of 2016, primarily due to the current period reversal of approximately $41 million of previously recognized stock-based compensation expense related to the recent departure of the former CEO, partially offset by higher personnel and overhead costs, including the addition of SilverRail.

Page 3 of 19



Adjusted Expenses
 
 
Costs and Expenses
 
 
As a % of Revenue
 
Third Quarter
 
 
Third Quarter
 
2017
 
2016
 
Δ%
 
 
2017
 
2016
 
Δ in bps
 
($ in millions)
 
 
 
 
 
 
 
 
 
Adjusted cost of revenue *
$
431

 
$
397

 
8
 %
 
 
14.5
%
 
15.4
%
 
(88
)
Adjusted selling and marketing *
1,441

 
1,192

 
21
 %
 
 
48.6
%
 
46.2
%
 
243

Adjusted technology and content *
223

 
197

 
13
 %
 
 
7.5
%
 
7.7
%
 
(14
)
Adjusted general and administrative *
153

 
131

 
17
 %
 
 
5.2
%
 
5.1
%
 
8

Total adjusted costs and expenses
$
2,248

 
$
1,918

 
17
 %
 
 
75.8
%
 
74.3
%
 
149

Total depreciation
156

 
124

 
26
 %
 
 
5.3
%
 
4.8
%
 
48

Total stock-based compensation
6

 
48

 
(87
)%
 
 
0.2
%
 
1.9
%
 
(166
)
Total costs and expenses
$
2,411

 
$
2,090

 
15
 %
 
 
81.3
%
 
81.0
%
 
31

*Adjusted expenses are non-GAAP measures. See pages 13-17 herein for a description and reconciliation to the corresponding GAAP measures.
Note: Some numbers may not add due to rounding.
Adjusted Cost of Revenue
For the third quarter of 2017, total adjusted cost of revenue increased 8%, compared to the third quarter of 2016, primarily due to an increase in cloud expense. Personnel expenses also increased in the third quarter of 2017 primarily to support customer operations. Cloud expense in adjusted cost of revenue was $17 million during the third quarter of 2017, compared to $1 million in the third quarter of 2016.
Adjusted Selling and Marketing
For the third quarter of 2017, total adjusted selling and marketing expense increased 21%, compared to the third quarter of 2016, due to a $217 million increase in direct costs, including online and offline marketing expenses. trivago, Brand Expedia, EAN and Hotels.com accounted for the majority of the direct selling and marketing cost increase.
For the third quarter of 2017, indirect costs increased $33 million, primarily driven by growth in personnel. As a percentage of total adjusted selling and marketing, indirect costs represented 15% in the third quarter of 2017, down from 16% in the third quarter of 2016.
Adjusted Technology and Content
For the third quarter of 2017, total adjusted technology and content expense increased 13%, compared to the third quarter of 2016, primarily due to growth in personnel and overhead from increased headcount, including the addition of SilverRail. Cloud expense in adjusted technology and content expense was $11 million during the third quarter of 2017, compared to $10 million in the third quarter of 2016.
Adjusted General and Administrative
For the third quarter of 2017, total adjusted general and administrative expense increased 17%, compared to the third quarter of 2016, primarily due to growth in personnel and overhead from increased headcount, including the addition of SilverRail.
Depreciation Expense
Depreciation expense increased $33 million or 26% to $156 million in the third quarter of 2017, due primarily to increased expenses related to previously capitalized software development costs for completed technology projects that have been placed into service, as well as investments in corporate technology infrastructure.


Page 4 of 19



Stock-Based Compensation Expense
Stock-based compensation expense decreased $42 million or 87% to $6 million in the third quarter of 2017, primarily due to the current period reversal of approximately $41 million of previously recognized stock-based compensation expense related to the recent departure of the former CEO.

Net Income Attributable to Expedia and Adjusted EBITDA*
Adjusted EBITDA by Segment ($ millions)
 
 
Third Quarter
 
2017
 
2016
 
Δ%
Core OTA
$
737

 
$
714

 
3%
trivago(1)
(8
)
 
6

 
NM
HomeAway
126

 
77

 
63%
Egencia
20

 
18

 
13%
Unallocated overhead costs
(166
)
 
(148
)
 
(12)%
Total
$
709

 
$
667

 
6%
 
 
 
 
 
 
Net income attributable to Expedia, Inc.(2)
$
352

 
$
279

 
26%
(1) Upon completion of its initial public offering on December 16, 2016, trivago became a separately listed company on the Nasdaq Global Select Market and, therefore, is subject to its own reporting and filing requirements which could result in possible differences that are not expected to be material to Expedia, Inc. (2) Expedia does not calculate or report net income by segment.
* Adjusted EBITDA is a non-GAAP measure. See pages 13-17 herein for a description and reconciliation to the corresponding GAAP measure.
Note: Some numbers may not add due to rounding.
GAAP net income attributable to Expedia was $352 million in the third quarter of 2017, an improvement of 26% compared to the third quarter of 2016. Adjusted EBITDA was $709 million in the third quarter of 2017, an increase of 6% compared to the third quarter of 2016 (including negative impact from the natural disasters).
Amortization of Intangible Assets
Consolidated amortization of intangible assets decreased $4 million to $71 million in the third quarter of 2017, primarily due to the prior period completion of amortization of certain intangible assets.

Interest and Other
Consolidated interest income increased $4 million, or 60%, in the third quarter of 2017, compared to the third quarter of 2016, primarily due to higher invested balances and to a lesser extent higher rates of return. Consolidated interest expense in the third quarter of 2017 was $44 million, which is essentially consistent with the third quarter of 2016.
Consolidated other, net was a loss of $32 million in the third quarter of 2017, compared to a loss of $9 million in the third quarter of 2016. The losses in the third quarters of 2017 and 2016 were primarily related to foreign exchange. Expedia’s revenue hedging program is designed primarily to offset the book-to-stay impact on merchant hotel revenue. Expedia includes that portion of any realized gains or losses from the revenue hedging program that are included in other, net that relate to revenue recognized in the period in the calculation of Adjusted EBITDA.
Income Taxes
The GAAP effective tax rate was 16% for the third quarter of 2017, compared to 18% for the third quarter of 2016. The effective tax rates for the third quarters of 2017 and 2016 were primarily driven by discrete income tax items, specifically the recognition of excess tax benefits related to share-based payments. The effective tax rate on pretax adjusted net income ("ANI") was 21% for the third quarter of 2017, compared to 24% for the third quarter of 2016. The year-over-year change in the ANI effective tax rate was due to discrete income tax items and the timing of the tax return filings.

Balance Sheet, Cash Flows and Capitalization
Cash, cash equivalents, restricted cash and short-term investments totaled $3.8 billion at September 30, 2017. For the nine months ended September 30, 2017, consolidated net cash provided by operating activities was $1.9 billion and consolidated free cash flow totaled $1.4 billion. Both measures include $1.0 billion from net changes in operating assets and liabilities, primarily driven by an increase in deferred merchant bookings. For the nine months

Page 5 of 19



ended September 30, 2017, consolidated free cash flow increased $420 million, compared to the prior year period, primarily due to an increase in net cash provided by operating activities.
Long-term investments and other assets includes an investment in Despegar.com, Corp. ("Despegar"), which is recorded at a fair value of $307 million as of September 30, 2017, and $338 million of a $350 million investment made in Traveloka Holding Limited in July 2017, accounted for as a cost method investment (with a small portion allocated to intangible assets). Despegar completed its initial public offering in September 2017.
Current maturities of long-term debt includes $500 million in 7.456% senior notes due in August 2018. Long-term debt, net of applicable discounts and debt issuance costs, totaled $3.7 billion at September 30, 2017 consisting of $990 million in 3.8% senior notes due 2028; $741 million in 5.0% senior notes due 2026; $495 million in 4.5% senior notes due 2024; $762 million (€650 million) in 2.5% senior notes due 2022; and $748 million in 5.95% senior notes due 2020. The 2028 senior notes were issued during the third quarter of 2017. In addition, as of September 30, 2017, Expedia had a $1.5 billion unsecured revolving credit facility which was essentially untapped.
At September 30, 2017, Expedia, Inc. had stock-based awards outstanding representing approximately 19 million shares of Expedia common stock, consisting of options to purchase approximately 16 million common shares with a $93.89 weighted average exercise price and weighted average remaining life of 4.6 years, and approximately 2 million restricted stock units ("RSUs").
During the first nine months of 2017, Expedia, Inc. repurchased 1.0 million shares of Expedia, Inc. common stock for an aggregate purchase price of $139 million excluding transaction costs (an average of $135.49 per share). As of September 30, 2017, there were approximately 6.2 million shares remaining under the February 2015 repurchase authorization.
On September 14, 2017, Expedia, Inc. paid a quarterly dividend of $46 million ($0.30 per common share). In addition, on October 25, 2017, the Executive Committee of Expedia’s Board of Directors declared a cash dividend of $0.30 per share of outstanding common stock to be paid to stockholders of record as of the close of business on November 16, 2017, with a payment date of December 7, 2017. Based on current shares outstanding, the total payment for this quarterly dividend is estimated to be approximately $46 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.



Page 6 of 19



Recent Highlights
Expedia, Inc.
As of September 30, 2017, Expedia’s global lodging portfolio consisted of over 500,000 properties available, including over 95,000 HomeAway listings on 28 Brand Expedia, Orbitz, Travelocity, CheapTickets and ebookers points of sale.
Expedia, Inc., excluding HomeAway, surpassed 1 million net room nights booked in a single day for the first time ever, on July 10th.
Expedia renewed its supply marketing agreements with airBaltic, Alaska Air Group, American Airlines and TAP Air Portugal.
Expedia, Inc. launched cruises to Cuba on all of its North American websites, and is now marketing Cuban sailings on Azamara Club Cruises, Carnival Cruise Line, Holland America Line, Norwegian Cruise Line and Royal Caribbean International.
Expedia announced global availability for Expedia PartnerCentral (EPC) Property Analytics that leverages the latest property, competitive set and market data to help properties make informed decisions to maximize demand and revenue.
Expedia, Inc. made a further investment in ALICE, a hotel technology platform for staff, concierge and guests, and is now the majority shareholder. Expedia also led ALICE's series A round in 2015.
Core OTA
Brand Expedia announced a strategic alliance with Thomas Cook, one of Europe's leading holiday companies. The agreement enables Expedia to power Thomas Cook's technology, providing consumers with access to thousands more hotels for Thomas Cook's city and domestic holiday businesses.
Brand Expedia launched Collections, a new resource to help travelers find the best hotels for six experiences: Beach, Relaxation, Family Fun, Culture & History, Shopping and Snow. Travel experts curate each Collection using a rigorous set of standards for experience, traveler reviews and value.
For Hotels.com, approximately 45% of global transactions and 55% of traffic are now coming from mobile devices.
Hotels.com launched collaborations with Avios, whose Travel Rewards members in the UK can collect points while shopping on Hotels.com and redeem for travel rewards; IMG College, combining sports and travel ventures for the 2017 and 2018 college football seasons; and Tesco Clubcard, whose members can now redeem their points on Hotels.com.
EAN launched a 'manage my booking' widget which allows partners to integrate and deliver a seamless post-booking experience for their travelers, letting them view, print and amend itineraries.
EAN went live with RoomIt by CWT, the new hotel distribution division of Carlson Wagonlit Travel, making EAN's competitive rates and supply available to RoomIt and CWT clients.
SilverRail announced a new technology agreement with Rail Europe, providing a connectivity and transaction processing layer to all of Rail Europe's train operators' fares and seat inventory.
trivago
In August 2017, trivago acquired the assets of tripl GmbH, to enhance trivago's product with personalization technology using big data and a traveler-centric approach.
trivago continued to optimize its product for mobile device usage, which contributed to mobile revenue share reaching over 60% in the third quarter of 2017.
HomeAway
Over one-third of HomeAway's nearly 1.5 million online bookable listings are now instantly bookable.
At its annual RezFest conference, HomeAway unveiled MarketMaker to owners and property managers, the vacation rental industry’s first revenue management tool to tap into real-time travel data and provide insights into specific markets’ demand and occupancy.
HomeAway continues to roll out updates of its secure messaging platform for its North American and European sites, with pre-booking communications now facilitated through the secure messaging system for over 65% of listings.
Egencia
Egencia signed an estimated $385 million pipeline of new clients in the third quarter, representing a quarterly record, and entered into a new agreement with Domtar, the largest integrated producer of freesheet paper in North America.
Egencia launched the rail product for a subset of US travelers in its mobile app, with additional features and countries to follow.

Page 7 of 19



EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Revenue
$
2,965,848

 
$
2,580,905

 
$
7,740,636

 
$
6,680,735

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (1) (2)
458,559

 
416,907

 
1,319,253

 
1,225,857

Selling and marketing (1) (2)
1,460,707

 
1,204,521

 
4,174,174

 
3,398,862

Technology and content (1) (2)
350,061

 
301,446

 
1,014,631

 
910,921

General and administrative (1) (2)
141,298

 
165,829

 
478,403

 
504,395

Amortization of intangible assets
71,011

 
74,939

 
203,966

 
249,119

Impairment of intangibles

 
2,141

 

 
2,141

Legal reserves, occupancy tax and other
(1,499
)
 
22,332

 
22,956

 
28,650

Restructuring and related reorganization charges (1)
3,983

 
6,638

 
15,590

 
46,274

Operating income
481,728

 
386,152

 
511,663

 
314,516

Other income (expense):
 
 
 
 
 
 
 
Interest income
9,329

 
5,827

 
24,850

 
14,349

Interest expense
(44,001
)
 
(43,374
)
 
(129,639
)
 
(130,273
)
Other, net
(31,625
)
 
(9,050
)
 
(66,016
)
 
(37,118
)
Total other expense, net
(66,297
)
 
(46,597
)
 
(170,805
)
 
(153,042
)
Income before income taxes
415,431

 
339,555

 
340,858

 
161,474

Provision for income taxes
(66,078
)
 
(60,627
)
 
(22,374
)
 
14,929

Net income
349,353

 
278,928

 
318,484

 
176,403

Net loss attributable to non-controlling interests
2,885

 
403

 
4,321

 
25,988

Net income attributable to Expedia, Inc.
$
352,238

 
$
279,331

 
$
322,805

 
$
202,391

 
 
 
 
 
 
 
 
Earnings per share attributable to Expedia, Inc. available to common stockholders:
 
 
 
 
 
 
 
Basic
$
2.32

 
$
1.86

 
$
2.13

 
$
1.35

Diluted
2.23

 
1.81

 
2.06

 
1.31

Shares used in computing earnings per share:
 
 
 
 
 
 
 
Basic
152,088

 
150,239

 
151,406

 
150,281

Diluted
157,760

 
154,236

 
156,520

 
154,332

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.30

 
$
0.26

 
$
0.86

 
$
0.74

_________
(1) Includes stock-based compensation as follows:
 
 
 
 
 
 
 
Cost of revenue
$
2,289

 
$
3,476

 
$
7,855

 
$
8,768

Selling and marketing
9,543

 
4,876

 
30,637

 
37,372

Technology and content
13,944

 
11,556

 
41,581

 
50,997

General and administrative
(19,497
)
 
27,308

 
23,519

 
87,775

Restructuring and related reorganization charges

 
1,047

 

 
12,690

 
 
 
 
 
 
 
 
(2) Includes depreciation as follows:
 
 
 
 
 
 
 
Cost of revenue
$
25,576

 
$
16,045

 
$
73,412

 
$
45,853

Selling and marketing
9,765

 
7,981

 
26,872

 
20,692

Technology and content
113,301

 
92,419

 
325,080

 
260,168

General and administrative
7,502

 
7,110

 
23,380

 
18,120


Page 8 of 19



EXPEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
September 30, 2017
 
December 31, 2016
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
3,239,886

 
$
1,796,811

Restricted cash and cash equivalents
46,936

 
18,733

Short-term investments
540,581

 
72,313

Accounts receivable, net of allowance of $34,973 and $25,278
1,835,286

 
1,343,247

Income taxes receivable
35,265

 
19,402

Prepaid expenses and other current assets
285,848

 
199,745

Total current assets
5,983,802

 
3,450,251

Property and equipment, net
1,521,609

 
1,394,904

Long-term investments and other assets
888,847

 
520,058

Deferred income taxes
37,204

 
23,658

Intangible assets, net
2,377,597

 
2,446,652

Goodwill
8,226,173

 
7,942,023

TOTAL ASSETS
$
19,035,232

 
$
15,777,546

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable, merchant
$
1,780,341

 
$
1,509,313

Accounts payable, other
824,917

 
577,012

Deferred merchant bookings
3,643,600

 
2,617,791

Deferred revenue
315,181

 
282,517

Income taxes payable
27,252

 
49,739

Accrued expenses and other current liabilities
1,181,265

 
1,090,826

Current maturities of long-term debt
500,000

 

Total current liabilities
8,272,556

 
6,127,198

Long-term debt, excluding current maturities
3,735,736

 
3,159,336

Deferred income taxes
393,353

 
484,970

Other long-term liabilities
395,808

 
312,939

Redeemable non-controlling interests
22,469

 

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Common stock $.0001 par value
23

 
22

Authorized shares: 1,600,000
 
 
 
Shares issued: 227,668 and 224,310
 
 
 
Shares outstanding: 139,452 and 137,232
 
 
 
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
9,070,498

 
8,794,298

Treasury stock - Common stock, at cost
(4,664,705
)
 
(4,510,655
)
Shares: 88,216 and 87,077
 
 
 
Retained earnings
321,576

 
129,034

Accumulated other comprehensive income (loss)
(123,973
)
 
(280,399
)
Total Expedia, Inc. stockholders’ equity
4,603,420

 
4,132,301

Non-redeemable non-controlling interests
1,611,890

 
1,560,802

Total stockholders’ equity
6,215,310

 
5,693,103

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
19,035,232

 
$
15,777,546


Page 9 of 19



EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine months ended September 30,
 
2017
 
2016
Operating activities:
 
 
 
Net income
$
318,484

 
$
176,403

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of property and equipment, including internal-use software and website development
448,744

 
344,833

Amortization of stock-based compensation
103,592

 
197,602

Amortization of intangible assets
203,966

 
249,119

Impairment of intangible assets

 
2,141

Deferred income taxes
(89,277
)
 
(66,050
)
Foreign exchange (gain) loss on cash, cash equivalents and short-term investments, net
(81,694
)
 
(16,508
)
Realized (gain) loss on foreign currency forwards
(831
)
 
34,515

Other
(9,294
)
 
(7,015
)
Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable
(428,191
)
 
(297,258
)
Prepaid expenses and other assets
(108,292
)
 
(51,995
)
Accounts payable, merchant
259,225

 
158,453

Accounts payable, other, accrued expenses and other current liabilities
298,198

 
91,221

Tax payable/receivable, net
(29,051
)
 
(57,521
)
Deferred merchant bookings
1,017,524

 
722,768

Deferred revenue
18,922

 
62,970

Net cash provided by operating activities
1,922,025

 
1,543,678

Investing activities:
 
 
 
Capital expenditures, including internal-use software and website development
(525,596
)
 
(567,044
)
Purchases of investments
(1,713,195
)
 
(20,446
)
Sales and maturities of investments
920,880

 
31,637

Net settlement of foreign currency forwards
831

 
(34,515
)
Acquisitions, net of cash acquired
(170,293
)
 
(777
)
Other, net
7,195

 
2,222

Net cash used in investing activities
(1,480,178
)
 
(588,923
)
Financing activities:
 
 
 
Proceeds from issuance of long-term debt, net of issuance costs
992,470

 
(1,792
)
Payment of HomeAway Convertible Notes

 
(401,424
)
Purchases of treasury stock
(154,050
)
 
(366,723
)
Payment of dividends to stockholders
(130,263
)
 
(111,009
)
Proceeds from exercise of equity awards and employee stock purchase plan
180,031

 
103,760

Other, net
(27,676
)
 
(38,109
)
Net cash provided by (used in) financing activities
860,512

 
(815,297
)
Effect of exchange rate changes on cash and cash equivalents
140,716

 
28,718

Net increase in cash and cash equivalents
1,443,075

 
168,176

Cash and cash equivalents at beginning of period
1,796,811

 
1,676,299

Cash and cash equivalents at end of period
$
3,239,886

 
$
1,844,475

Supplemental cash flow information
 
 
 
Cash paid for interest
$
162,395

 
$
152,008

Income tax payments, net
134,980

 
103,901


Page 10 of 19



Expedia, Inc. (excluding eLong)
Trended Metrics
(All figures in millions)

The supplemental metrics below are intended to supplement the financial statements in this release and in our filings with the SEC, and do not include adjustments for one-time items, acquisitions, foreign exchange or other adjustments. The definition, methodology and appropriateness of any of our supplemental metrics are subject to removal and/or change, and such changes could be material. In the event of any discrepancy between any supplemental metric and our historical financial statements, you should rely on the information filed with the SEC and the financial statements in our most recent earnings release.
 
 
 
2015
 
 
 
2016
 
 
 
2017
 
 
 
Y/Y
 
 
 
 
 
Q4
 
 
 
Q1
Q2
Q3
Q4
 
 
 
Q1
Q2
Q3
 
 
Growth
 
Gross bookings by segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core OTA
 
 
$
13,563

 
 
 
$
17,226

$
17,182

$
17,007

$
14,650

 
 
 
$
19,110

$
18,954

$
18,456

 
 
9%
 
HomeAway
 
 

 
 
 
1,818

1,460

1,403

1,299

 
 
 
2,697

2,123

2,013

 
 
44%
 
Egencia
 
 
1,387

 
 
 
1,656

1,679

1,579

1,454

 
 
 
1,804

1,761

1,728

 
 
9%
 
Total
 
 
$
14,950

 
 
 
$
20,699

$
20,321

$
19,988

$
17,403

 
 
 
$
23,610

$
22,838

$
22,197

 
 
11%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross bookings by geography
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 
$
9,616

 
 
 
$
13,744

$
13,320

$
12,915

$
11,074

 
 
 
$
15,128

$
14,730

$
13,540

 
 
5%
 
International
 
 
5,335

 
 
 
6,955

7,001

7,073

6,329

 
 
 
8,483

8,108

8,657

 
 
22%
 
Total
 
 
$
14,950

 
 
 
$
20,699

$
20,321

$
19,988

$
17,403

 
 
 
$
23,610

$
22,838

$
22,197

 
 
11%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross bookings by business model
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
 
$
8,430

 
 
 
$
10,640

$
10,611

$
10,023

$
8,869

 
 
 
$
11,342

$
11,168

$
10,392

 
 
4%
 
Merchant
 
 
6,520

 
 
 
8,242

8,250

8,563

7,235

 
 
 
9,572

9,546

9,792

 
 
14%
 
HomeAway
 
 

 
 
 
1,818

1,460

1,403

1,299

 
 
 
2,697

2,123

2,013

 
 
44%
 
Total
 
 
$
14,950

 
 
 
$
20,699

$
20,321

$
19,988

$
17,403

 
 
 
$
23,610

$
22,838

$
22,197

 
 
11%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core OTA
 
 
$
1,505

 
 
 
$
1,540

$
1,765

$
2,083

$
1,695

 
 
 
$
1,700

$
2,009

$
2,314

 
 
11%
 
trivago
 
 
110

 
 
 
176

201

276

183

 
 
 
286

328

338

 
 
22%
 
HomeAway
 
 
20

 
 
 
142

172

210

166

 
 
 
185

224

305

 
 
45%
 
Egencia
 
 
107

 
 
 
110

125

112

116

 
 
 
123

135

126

 
 
13%
 
Intercompany eliminations
 
 
(44
)
 
 
 
(64
)
(66
)
(101
)
(67
)
 
 
 
(104
)
(110
)
(117
)
 
 
(16)%
 
Total
 
 
$
1,699

 
 
 
$
1,904

$
2,196

$
2,581

$
2,093

 
 
 
$
2,189

$
2,586

$
2,966

 
 
15%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by geography
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 
$
978

 
 
 
$
1,115

$
1,271

$
1,451

$
1,199

 
 
 
$
1,249

$
1,457

$
1,576

 
 
9%
 
International
 
 
721

 
 
 
789

924

1,130

893

 
 
 
940

1,129

1,390

 
 
23%
 
Total
 
 
$
1,699

 
 
 
$
1,904

$
2,196

$
2,581

$
2,093

 
 
 
$
2,189

$
2,586

$
2,966

 
 
15%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by business model
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
 
$
495

 
 
 
$
523

$
612

$
723

$
567

 
 
 
$
571

$
684

$
803

 
 
11%
 
Merchant
 
 
1,044

 
 
 
1,065

1,210

1,407

1,170

 
 
 
1,176

1,376

1,559

 
 
11%
 
Advertising & Media
 
 
139

 
 
 
174

202

241

190

 
 
 
257

302

299

 
 
24%
 
HomeAway
 
 
20

 
 
 
142

172

210

166

 
 
 
185

224

305

 
 
45%
 
Total
 
 
$
1,699

 
 
 
$
1,904

$
2,196

$
2,581

$
2,093

 
 
 
$
2,189

$
2,586

$
2,966

 
 
15%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA by segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core OTA
 
 
$
407

 
 
 
$
292

$
428

$
714

$
532

 
 
 
$
306

$
488

$
737

 
 
3%
 
trivago
 
 
16

 
 
 
8

7

6

14

 
 
 
21

2

(8
)
 
 
NM
 
HomeAway
 
 
4

 
 
 
17

38

77

42

 
 
 
6

39

126

 
 
63%
 
Egencia
 
 
10

 
 
 
15

26

18

21

 
 
 
27

28

20

 
 
13%
 
Unallocated overhead costs
 
 
(158
)
 
 
 
(156
)
(169
)
(148
)
(167
)
 
 
 
(151
)
(164
)
(166
)
 
 
(12)%
 
Total
 
 
$
280

 
 
 
$
177

$
331

$
667

$
442

 
 
 
$
208

$
393

$
709

 
 
6%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Expedia, Inc.
 
 
$
(13
)
 
 
 
$
(109
)
$
32

$
279

$
79

 
 
 
$
(86
)
$
57

$
352

 
 
26%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Page 11 of 19



Expedia, Inc. (excluding eLong)
Trended Metrics, continued
(All figures in millions)

 
 
 
2015
 
 
 
2016
 
 
 
2017
 
 
 
 
 
 
Q4
 
 
 
Q1
Q2
Q3
Q4
 
 
 
Q1
Q2
Q3
 
 
Worldwide lodging (merchant, agency & HomeAway)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Room nights
 
 
52.8

 
 
 
57.4

66.0

80.2

64.9

 
 
 
64.0

79.9

93.5

 
 
Room night growth
 
 
39
 %
 
 
 
50
 %
31
 %
31
 %
23
 %
 
 
 
12
 %
21
 %
16
 %
 
 
Domestic room night growth
 
 
33
 %
 
 
 
50
 %
36
 %
36
 %
22
 %
 
 
 
7
 %
17
 %
12
 %
 
 
International room night growth
 
 
47
 %
 
 
 
50
 %
24
 %
25
 %
24
 %
 
 
 
17
 %
26
 %
22
 %
 
 
ADR growth
 
 
(5
)%
 
 
 
1
 %
5
 %
8
 %
5
 %
 
 
 
2
 %
2
 %
4
 %
 
 
Revenue per night growth
 
 
(11
)%
 
 
 
(6
)%
(1
)%
 %
4
 %
 
 
 
1
 %
(4
)%
(1
)%
 
 
Revenue growth
 
 
24
 %
 
 
 
41
 %
29
 %
30
 %
27
 %
 
 
 
12
 %
16
 %
15
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Worldwide air (merchant & agency)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tickets sold growth
 
 
70
 %
 
 
 
52
 %
45
 %
32
 %
6
 %
 
 
 
8
 %
2
 %
4
 %
 
 
Airfare growth
 
 
(12
)%
 
 
 
(8
)%
(8
)%
(6
)%
(4
)%
 
 
 
(3
)%
1
 %
(2
)%
 
 
Revenue per ticket growth
 
 
(5
)%
 
 
 
1
 %
3
 %
15
 %
—%

 
 
 
(4
)%
4
 %
(10
)%
 
 
Revenue growth
 
 
61
 %
 
 
 
54
 %
50
 %
52
 %
6
 %
 
 
 
4
 %
6
 %
(7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Notes:
The year-over-year growth figures through Q2 2016 exclude eLong, Inc., as Expedia sold its ownership interest on May 22, 2015.
The metrics above include Orbitz Worldwide following the acquisition on September 17, 2015 and HomeAway following the acquisition on December 15, 2015.
HomeAway gross bookings and room nights operating metrics include on-platform transactions from all HomeAway brands, with the exception of BedandBreakfast.com and TopRural (which, if included, would collectively add less than an estimated 2% to each of gross bookings and room nights). On-platform gross bookings and room nights for Stayz, Bookabach and Travelmob (which collectively represent less than 10% of total on-platform transactions) represent our best estimates.
Advertising & Media Revenue includes 3rd party revenue from trivago. All trivago revenue is classified as international.
Some numbers may not add due to rounding.



Page 12 of 19



Notes & Definitions:
Gross Bookings: Gross bookings generally represent the total retail value of transactions booked, recorded at the time of booking reflecting the total price due for travel by travelers, including taxes, fees and other charges, adjusted for cancellations and refunds.
Core OTA: Core Online Travel Agencies ("Core OTA") segment provides a full range of travel and advertising services to our worldwide customers through a variety of brands including: Expedia.com and Hotels.com in the United States and localized Expedia.com and Hotels.com websites throughout the world, Expedia Affiliate Network, Hotwire, Orbitz, Travelocity, Wotif Group, CheapTickets, ebookers, AirAsia Expedia, CarRentals.com, Classic Vacations and SilverRail.
trivago: trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its localized hotel metasearch websites.
HomeAway: HomeAway segment provides a range of travel services for the vacation rental industry through a global portfolio of brands including: HomeAway, VRBO, VacationRentals.com and BedandBreakfast.com, among others.
Egencia: Egencia segment provides managed travel services to corporate customers worldwide.
Corporate: Includes unallocated corporate expenses.
Lodging metrics: Reported on a stayed basis and includes both merchant and agency model hotel stays, as well as alternative accommodations primarily made available through HomeAway.
Room Nights: Room nights represent stayed hotel room nights for our Core OTA and Egencia reportable segments and property nights for our HomeAway reportable segment. Hotel room nights are reported on a stayed basis and include both merchant and agency hotel stays. Property nights are reported upon the first day of stay and check-in to a property and represent the total number of nights for which a property is rented.
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 (Loss), Adjusted EPS, Free Cash Flow and Adjusted 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 (Loss), 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 (Loss) and Adjusted EPS also exclude certain items related to transactional 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 (Loss) 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 and in the first quarter of 2016. The definition of Adjusted Expenses was revised in the first quarter of 2014 and in the second quarter 2015.
Adjusted EBITDA is defined as net income (loss) attributable to Expedia, Inc. adjusted for:
(1) net income (loss) attributable to non-controlling interests;
(2) provision for income taxes;
(3) total other expenses, net;
(4) stock-based compensation expense, including compensation expense related to certain subsidiary equity plans;
(5) acquisition-related impacts, including

Page 13 of 19



(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;
(6) certain other items, including restructuring;
(7) 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;
(8) that portion of gains (losses) on revenue hedging activities that are included in other, net that relate to revenue recognized in the period; and
(9) depreciation.
The above items are excluded from our Adjusted EBITDA measure because these items are non-cash 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. The definition for Adjusted EBITDA was revised in the fourth quarter of 2012.
Adjusted Net Income (Loss) 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,
(iii) upfront consideration paid to settle employee compensation plans of the acquiree, and
(iv) gains (losses) recognized on non-controlling investment basis adjustments when we acquire controlling interests;
(3) currency gains or losses on U.S. dollar denominated cash or investments held by eLong;
(4) certain other items, including restructuring charges;
(5) 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, including as part of equity method investments;
(6) discontinued operations;
(7) the non-controlling interest impact of the aforementioned adjustment items and
(8) unrealized gains (losses) on revenue hedging activities that are included in other, net.
We believe Adjusted Net Income (Loss) 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 and items not directly tied to the core operations of our businesses. The definition for adjusted net income (loss) was revised in the fourth quarters of 2010, 2011 and 2012.
Adjusted EPS is defined as Adjusted Net Income (Loss) divided by adjusted weighted average shares outstanding, which include dilution from options per the treasury stock method and include all shares relating to RSUs in shares

Page 14 of 19



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 (Loss) and Adjusted EPS have similar limitations as Adjusted EBITDA. In addition, Adjusted Net Income (Loss) 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.
Adjusted Expenses (cost of revenue, selling and marketing, technology and content and general and administrative expenses) exclude stock-based compensation related to expenses for stock options, restricted stock units and other equity compensation under applicable stock-based compensation accounting standards as well as depreciation expense. Expedia, Inc. excludes stock-based compensation and depreciation 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. Exclusion of depreciation expense also allows the year-over-year comparison of expenses on a basis that is consistent with the year-over-year comparison of Adjusted EBITDA. There are certain limitations in using financial measures that do not take into account stock-based compensation and depreciation expense, including the fact that stock-based compensation is a recurring expense and a valued part of employees’ compensation and depreciation expense is also a recurring expense and is a direct result of previous capital investment decisions made by management. Therefore it is important to evaluate both our GAAP and non-GAAP measures. See the Notes to the Consolidated Statements of Operations for stock-based compensation and depreciation expense by line item. In addition, in the second quarter of 2015, we included an adjustment to remove operating expenses related to eLong due to our sale on May 22, 2015.
Expedia, Inc. (excluding eLong). Expedia sold its ownership interest in eLong, Inc. on May 22, 2015. In order to allow comparison with prior periods for the ongoing Expedia businesses, Expedia, Inc. (excluding eLong) gross bookings, revenue, adjusted EBITDA, operating income (loss), adjusted net income (loss), adjusted EPS and net income (loss) attributable to the Company each exclude the impact of eLong.

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Tabular Reconciliations for Non-GAAP Measures
Adjusted EBITDA (Adjusted Earnings Before Interest, Taxes, Depreciation & Amortization)
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In thousands)
Net income attributable to Expedia, Inc.
 
$
352,238

 
$
279,331

 
$
322,805

 
$
202,391

Net loss attributable to non-controlling interests
 
(2,885
)
 
(403
)
 
(4,321
)
 
(25,988
)
Provision for income taxes
 
66,078

 
60,627

 
22,374

 
(14,929
)
Total other expense, net
 
66,297

 
46,597

 
170,805

 
153,042

Operating income
 
481,728

 
386,152

 
511,663

 
314,516

Gain (loss) on revenue hedges related to revenue recognized
 
(8,381
)
 
3,715

 
3,524

 
3,692

Restructuring and related reorganization charges, excluding stock-based compensation
 
3,983

 
5,591

 
15,590

 
33,584

Legal reserves, occupancy tax and other
 
(1,499
)
 
22,332

 
22,956

 
28,650

Stock-based compensation
 
6,279

 
48,263

 
103,592

 
197,602

Amortization of intangible assets
 
71,011

 
74,939

 
203,966

 
249,119

Impairment of intangible assets
 

 
2,141

 

 
2,141

Depreciation
 
156,144

 
123,555

 
448,744

 
344,833

Adjusted EBITDA
 
$
709,265

 
$
666,688

 
$
1,310,035

 
$
1,174,137


Adjusted Net Income & Adjusted EPS
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In thousands, except per share data)
Net income attributable to Expedia, Inc.
 
$
352,238

 
$
279,331

 
$
322,805

 
$
202,391

Amortization of intangible assets
 
71,011

 
74,939

 
203,966

 
249,119

Impairment of intangible assets
 

 
2,141

 

 
2,141

Stock-based compensation
 
6,279

 
48,263

 
103,592

 
197,602

Legal reserves, occupancy tax and other
 
(1,499
)
 
22,332

 
22,956

 
28,650

Restructuring and related reorganization charges, excluding stock-based compensation
 
3,983

 
5,591

 
15,590

 
33,584

Unrealized (gain) loss on revenue hedges
 
3,121

 
333

 
17,242

 
2,928

Legal reserves, occupancy tax and other as part of equity method investments
 

 
1,750

 

 
1,750

Loss on investments, net
 
8,738

 
4,127

 
14,319

 
10,830

Mark-to-market of minority interest
 
2,243

 

 
2,243

 

Provision for income taxes
 
(43,032
)
 
(61,400
)
 
(144,837
)
 
(184,855
)
Non-controlling interests
 
(4,302
)
 
(3,306
)
 
(10,919
)
 
(28,304
)
Adjusted net income
 
$
398,780

 
$
374,101

 
$
546,957

 
$
515,836

 
 
 
 
 
 
 
 
 
GAAP diluted weighted average shares outstanding
 
157,760

 
154,236

 
156,520

 
154,332

Additional dilutive securities
 
1,320

 
1,095

 
1,330

 
1,143

Adjusted weighted average shares outstanding
 
159,080

 
155,331

 
157,850

 
155,475

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
2.23

 
$
1.81

 
$
2.06

 
$
1.31

Adjusted earnings per share
 
2.51

 
2.41

 
3.47

 
3.32


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Free Cash Flow
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In thousands)
Net cash provided by (used in) operating activities
 
$
(443,615
)
 
$
(182,419
)
 
$
1,922,025

 
$
1,543,678

Less: capital expenditures
 
(168,704
)
 
(187,063
)
 
(525,596
)
 
(567,044
)
Free cash flow
 
$
(612,319
)
 
$
(369,482
)
 
$
1,396,429

 
$
976,634


Adjusted Expenses (cost of revenue, selling and marketing, technology and content and general and administrative expenses)
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In thousands)
Cost of revenue
 
$
458,559

 
$
416,907