Form 8-K/A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A

(Amendment No. 1)

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) February 9, 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))

 

 

 


Explanatory Note

On February 9, 2017, Expedia, Inc. issued an earnings release announcing its financial results for the quarter and year ended December 31, 2016. A copy of the earnings release was furnished with a Current Report on Form 8-K filed on February 9, 2017 (the “Original 8-K”). This Amendment No. 1 on Form 8-K/A is being filed to amend Items 2.02 and 9.01 of the Original 8-K, solely for the purpose of correcting an error related to the percentage impacts of acquisitions on non-GAAP expense category growth in the earnings release, as described below.

 

Item 2.02. Results of Operations and Financial Condition.

On February 9, 2017, Expedia, Inc. (the “Company”) issued an earnings release announcing its financial results for the quarter and year ended December 31, 2016 (the “Original Earnings Release”). Information regarding the percentage impacts of acquisitions on non-GAAP expense category growth for the quarter and year ended December 31, 2016 was misstated in the Original Earnings Release due to a calculation error. On February 21, 2017, the Company issued a corrected earnings release including such information, as corrected (the “Corrected Earnings Release”). The calculation error did not impact any of the Company’s other earnings release disclosures, including, but not limited to, reported Gross Bookings, Revenue, Adjusted EBITDA or Adjusted Net Income, nor was there any impact to the Company’s GAAP financial statements.

A copy of the Corrected Earnings Release, which indicates the corrected percentages on pages 8 and 9, is furnished as Exhibit 99.1 to this Amendment No. 1 on Form 8-K/A and for convenience the corrected percentages are also excerpted below (with original reported percentage struck and corrected percentage in bold type).

Adjusted Cost of Revenue

 

    Acquisitions contributed approximately 7 5 and 19 18 percentage points of inorganic adjusted cost of revenue growth for the fourth quarter and full year 2016, respectively.

Adjusted Selling and Marketing

 

    Acquisitions contributed approximately 7 6 and 15 14 percentage points of inorganic adjusted selling and marketing growth for the fourth quarter and full year 2016, respectively.

Adjusted Technology and Content

 

    Acquisitions contributed approximately 21 17 and 31 30 percentage points of inorganic adjusted technology and content growth for the fourth quarter and full year 2016, respectively.

Adjusted General and Administrative

 

    Acquisitions, including acquisition related expenses, contributed approximately a negative 6 8 and a positive 3 8 percentage points of inorganic adjusted general and administrative expense growth for the fourth quarter and full year 2016, respectively.

The Corrected Earnings Release makes reference to non-GAAP financial measures and includes a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP financial measures. 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, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit

Number

  

Description

99.1    Corrected Earnings Release of Expedia, Inc., dated February 9, 2017.


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/ Mark D. Okerstrom

  Mark D. Okerstrom
  Chief Financial Officer

Dated: February 21, 2017


EXHIBIT INDEX

 

Exhibit

Number

  

Description

99.1    Corrected Earnings Release of Expedia, Inc., dated February 9, 2017.
EX-99.1

Exhibit 99.1

 

LOGO

Expedia, Inc. Reports Fourth Quarter and Full Year 2016 Results

BELLEVUE, WA – February 9, 2017 – Expedia, Inc. (NASDAQ: EXPE) announced financial results today for the fourth quarter and full year ended December 31, 2016.

All figures below exclude eLong and include the impact from acquisitions, unless otherwise noted.

Key Highlights

 

    Gross bookings increased $1.2 billion or 8% year-over-year to $16.1 billion in the fourth quarter of 2016. Revenue increased 23% year-over-year to $2.1 billion in the fourth quarter.

 

    Room nights stayed increased 15% year-over-year in the fourth quarter of 2016, with growth of 16% excluding Orbitz Worldwide.

 

    On a standalone basis, trivago® reached $183 million in revenue in the fourth quarter of 2016, an increase of 65% year-over-year, and completed its initial public offering and listing on the Nasdaq Global Select Market in December 2016.

 

    HomeAway® delivered $166 million of revenue in the fourth quarter of 2016, representing an increase of 30% year-over-year on a standalone basis.

 

    In 2016, Expedia® repurchased 4.0 million shares of its common stock for approximately $436 million.

Financial Summary & Operating Metrics ($ millions except per share amounts) - Fourth Quarter 2016

 

     Expedia, Inc.  

Metric

   Q4 2016     Q4 2015     DY/Y  

Room night growth

     15     39 %(2)      (2,481 ) bps(2) 

Gross bookings

   $ 16,103.8     $ 14,950.4       8

Revenue

     2,092.8       1,698.6       23

Adjusted EBITDA(1)

     441.5       279.9       58

Operating income

     147.2       29.5       399

Adjusted net income(1)

     182.9       106.7       71

Adjusted EPS(1)

   $ 1.17     $ 0.77       52

Net income (loss) attributable to the Company

     79.5       (12.5     NM  

Diluted EPS

   $ 0.51     $ (0.09     NM  

Free cash flow(1)

     (161.6     (335.1     52

 

(1)   “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”). Please see “Definitions of Non-GAAP Measures” and “Tabular Reconciliations for Non-GAAP Measures” on pages 18-23 herein for an explanation and reconciliations of non-GAAP measures used throughout this release.
(2)  Expedia sold its ownership interest in eLong, Inc. on May 22, 2015 and eLong is excluded from our results from that point forward. The room night growth comparison for Q4 2015 excludes eLong.

Please refer to the Glossary in the Quarterly Results section on Expedia’s investor relations website for definitions of the business and financial terms discussed within this release.

 

Page 1 of 25


Financial Summary & Operating Metrics ($ millions except per share amounts) - Full Year 2016

 

     Expedia (excluding eLong) (2)     Expedia, Inc.  

Metric

   2016     2015     DY/Y     2016     2015     DY/Y  

Room night growth

     21     36     (1,478 ) bps      12     19     (722 ) bps 

Gross bookings

   $ 72,431.5     $ 59,679.5       21  %    $ 72,431.5     $ 60,830.4       19  % 

Revenue

     8,773.6       6,630.6       32  %      8,773.6       6,672.3       31  % 

Adjusted EBITDA(1)

     1,615.7       1,165.3       39  %      1,615.7       1,103.1       46  % 

Operating income

     461.7       499.0       (7 )%      461.7       413.6       12  % 

Adjusted net income(1)

     698.8       540.2       29  %      698.8       497.4       40  % 

Adjusted EPS(1)

   $ 4.49     $ 4.02       12  %    $ 4.49     $ 3.70       21  % 

Net income attributable to the Company

     281.8       415.3       (32 )%      281.8       764.5       (63 )% 

Diluted EPS

         $ 1.82     $ 5.70       (68 )% 

Free cash flow(1)

           815.0       581.0       40  % 

 

(1)  “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”). Please see “Definitions of Non-GAAP Measures” and “Tabular Reconciliations for Non-GAAP Measures” on pages 18-23 herein for an explanation and reconciliations of non-GAAP measures used throughout this release.
(2) Expedia sold its ownership interest in eLong, Inc. on May 22, 2015 and eLong is excluded from our results from that point forward. Expedia (excluding eLong) measures are non-GAAP measures as they also exclude eLong, Inc. results prior to May 22, 2015. Please see “Definitions of Non-GAAP Measures” and “Tabular Reconciliations for Non-GAAP Measures” on pages 18-23 herein for an explanation and reconciliations of these non-GAAP measures. The Classification of certain revenue and expense items as well as foreign exchange rates used for reporting purposes may result in immaterial differences between the above reported amounts and eLong, Inc.’s standalone results.

Discussion of Results

The results include Expedia.com® (“Brand Expedia”), Hotels.com®, Orbitz Worldwide, Inc. (“Orbitz Worldwide”), Expedia® Affiliate Network (“EAN”), trivago, HomeAway, Egencia®, Travelocity®, Hotwire.com®, Wotif Group, Classic Vacations®, CarRentals.comTM, Expedia Local Expert®, Expedia® CruiseShipCenters®, AirAsia ExpediaTM and eLong (through May 22, 2015 unless otherwise noted), in addition to the related international points of sale and certain other brands.

The results include the results of Orbitz Worldwide following the acquisition by Expedia in September 2015, as well as results of HomeAway following the acquisition by Expedia in December 2015. Beginning in the fourth quarter of 2015, the results of Orbitz for Business are reported within the Egencia segment; the results of the rest of Orbitz Worldwide are reported within the Core OTA segment as well as within unallocated overhead costs. Inorganic impact of acquisitions is calculated through the date that the acquisition closed in the prior year. “Excluding Orbitz” and “excluding HomeAway” impact is calculated by completely removing the results of Orbitz Worldwide and HomeAway from both current and prior year periods. Unless otherwise noted, all comparisons below are against the fourth quarter of 2015.

Due to Expedia’s sale of its eLong ownership stake in May 2015, all discussion below refers to results for Expedia, Inc. excluding eLong unless otherwise noted.

 

Page 2 of 25


Estimated Impact of Recent Major Acquisitions (including operating results as well as deal and integration costs)

The acquisitions by Expedia of Orbitz Worldwide in the third quarter of 2015 and HomeAway in the fourth quarter of 2015 have had significant impacts on Expedia’s consolidated financial and operating metrics. The table below provides a summary of impacts from these transactions (including deal and integration costs for acquired companies) on the fourth quarter and full year 2016 results in order to allow for a more consistent comparison with prior periods.

 

Fourth Quarter

 

Metric

($ millions)

   Expedia, Inc.     Orbitz
Worldwide
    HomeAway (3)      Expedia
(excluding Orbitz &
HomeAway)(4)
 
     Q4 2016     Q4 2015     DY/Y     Q4 2016     Q4 2016      Q4 2016     Q4 2015     DY/Y  

Room night growth

     15     39     (2,481 ) bps(2)      (1 )%      —          16     31     (1,538 ) bps 

Gross bookings

   $ 16,104     $ 14,950       8   $ 2,043     $ —        $ 14,061     $ 12,522       12

Revenue

     2,093       1,699       23     174       166        1,753       1,501       17

Adjusted EBITDA(1)

     442       280       58     67       38        336       292       15

Net income attributable to the Company

     79       (13     NM             

 

Full Year

 

Metric

($ millions)

   Expedia (excluding eLong)     Orbitz
Worldwide
     HomeAway (3)      Expedia
(excluding eLong, Orbitz &
HomeAway)(4)
 
     2016     2015     DY/Y     2016      2016      2016     2015     DY/Y  

Room night growth

     21     36     (1,478 ) bps      NM        —          16     34     (1,797 ) bps 

Gross bookings

   $ 72,431     $ 59,680       21   $ 9,657      $ —        $ 62,774     $ 56,830       10

Revenue

     8,774       6,631       32     764        689        7,320       6,415       14

Adjusted EBITDA(1)

     1,616       1,165       39     224        163        1,228       1,204       2

Net income attributable to the Company

     282       415       (32 )%             

 

(1)  Adjusted EBITDA is a non-GAAP measure. See pages 18-23 herein for a description and reconciliation to the corresponding GAAP measure.
(2) Expedia sold its ownership interest in eLong, Inc. on May 22, 2015 and eLong is excluded from our results from that point forward. The room night growth comparison for Q4 and full year 2015 excludes eLong.
(3)  Expedia does not include room nights or gross bookings for HomeAway in its reported metrics.
(4) The results of Orbitz Worldwide and HomeAway are excluded in their entirety from both the current and the prior year periods for purposes of the above presentation.

Note: Some numbers may not add due to rounding. The metrics above are supplemental and are subject to removal and/or change. In addition to the above, reported results also include impacts from the acquisition of AirAsia Expedia Joint Venture.

 

Page 3 of 25


Gross Bookings & Revenue

Gross Bookings by Segment ($ millions)

 

     Fourth Quarter     Full Year  
     2016      2015      D%     2016      2015      D%  

Core OTA

   $ 14,650      $ 13,563        8   $ 66,064      $ 54,252        22

Egencia

     1,454        1,387        5     6,368        5,427        17
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Expedia (excluding eLong)

   $ 16,104      $ 14,950        8   $ 72,431      $ 59,680        21

eLong

     —          —              —          1,151        (100 )% 
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 16,104      $ 14,950        8   $ 72,431      $ 60,830        19
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Note: Some numbers may not add due to rounding.

For the fourth quarter of 2016, total gross bookings increased 8% (including 1 percentage point of negative foreign exchange impact), driven primarily by growth in the Core OTA business, including growth in Brand Expedia, Hotels.com and EAN, as well as in Egencia, partially offset by a year-over-year decrease in gross bookings for Orbitz Worldwide. Excluding Orbitz, gross bookings increased 12%. Domestic gross bookings increased 5% (9% excluding Orbitz) and international gross bookings increased 13% (including 2 percentage points of negative foreign exchange impact). International gross bookings totaled $6.1 billion and accounted for 38% of worldwide bookings, compared with 36% in the fourth quarter of 2015.

For the full year 2016, total gross bookings excluding eLong increased 21% (including 1 percentage point of negative foreign exchange impact), driven primarily by 13 percentage points of inorganic impact from acquisitions and growth in Brand Expedia and Hotels.com, as well as in Egencia. Excluding Orbitz, gross bookings increased 10%. Domestic gross bookings increased 24% and international gross bookings increased 17% (including 2 percentage points of negative foreign exchange impact). International gross bookings totaled $26.1 billion and accounted for 36% of worldwide bookings, compared with 37% in the prior year. The decrease in international gross bookings mix was primarily due to the acquisition of Orbitz Worldwide, which disproportionately bolstered domestic gross bookings for the full year 2016.

Revenue by Segment ($ millions)

 

     Fourth Quarter     Full Year  
     2016     2015     D%     2016     2015     D%  

Core OTA

   $ 1,695     $ 1,505       13   $ 7,084     $ 5,877       21

trivago

     183       110       65     836       548       53

Egencia

     116       107       9     462       400       16

HomeAway

     166       20       N/A       689       20       N/A  

Intercompany eliminations

     (67     (44     54     (297     (215     39
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expedia (excluding eLong)

   $ 2,093     $ 1,699       23   $ 8,774     $ 6,631       32

eLong

     —         —           —         42       (100 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,093     $ 1,699       23   $ 8,774     $ 6,672       31
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Note: Some numbers may not add due to rounding.

For the fourth quarter of 2016, total revenue increased 23% (including 1 percentage point of negative foreign exchange impact), driven primarily by 8 percentage points of inorganic impact from acquisitions and growth in the Core OTA business, including growth in Brand Expedia and Hotels.com, as well as in trivago. Domestic revenue increased 23% and international revenue increased 24% (including 1 percentage point of negative foreign exchange impact). International revenue equaled $893 million, representing 43% of worldwide revenue, compared to 42% in the fourth quarter of 2015.

 

Page 4 of 25


For the full year 2016, consolidated revenue increased 31%. Other than the reduction of revenue resulting from the sale of eLong in the prior year period, factors driving revenue growth are the same as those discussed below on a non-GAAP basis.

For the full year 2016, total revenue excluding eLong increased 32%, driven primarily by 19 percentage points of inorganic impact from acquisitions and growth in the Core OTA business, including growth in Brand Expedia and Hotels.com, as well as in trivago. Foreign exchange impact on total revenue growth was negligible. Domestic revenue increased 36% and international revenue increased 28%. International revenue equaled $3.7 billion, representing 43% of worldwide revenue, compared to 44% in the prior year. The decrease in international revenue mix was primarily due to the acquisitions of Orbitz Worldwide and HomeAway, which disproportionately bolstered domestic revenue for the full year 2016.

Product & Services Detail - Fourth Quarter 2016

As a percentage of total worldwide revenue in the fourth quarter of 2016, hotel accounted for 61%, advertising and media accounted for 9%, HomeAway accounted for 8%, air accounted for 8% and all other revenues accounted for the remaining 14%.

Hotel revenue increased 13% in the fourth quarter of 2016 on a 15% increase in room nights stayed driven by growth in Hotels.com, Brand Expedia and EAN, partially offset by a 2% decrease in revenue per room night. Excluding Orbitz, room nights stayed increased 16%. Revenue per room night decreased primarily due to an unfavorable foreign exchange translation impact as well as margin reductions aimed at expanding the size and availability of Expedia’s global hotel supply portfolio. Average daily room rates (“ADRs”) were essentially flat year-over-year in the fourth quarter of 2016.

Air revenue increased 6% in the fourth quarter of 2016 on a 6% increase in air tickets sold and no change in revenue per ticket year-over-year. Excluding Orbitz, air tickets sold increased 13%.

Advertising and media revenue increased 36% in the fourth quarter of 2016 due to continued growth in trivago and Expedia® Media Solutions. All other revenue increased 73% in the fourth quarter of 2016 primarily driven by the addition of the HomeAway business. Excluding HomeAway, other revenue increased 18% in the fourth quarter of 2016 on growth in travel insurance and car rental products.

Product & Services Detail (excluding eLong) - Full Year 2016

As a percentage of total worldwide annual revenue, hotel accounted for 61%, advertising and media accounted for 9%, air accounted for 9%, HomeAway accounted for 8% and all other revenues accounted for the remaining 13%.

Hotel revenue increased 16% in 2016 on a 21% increase in room nights stayed driven by the inorganic impact of acquisitions as well as the organic growth in Hotels.com, Brand Expedia and EAN, partially offset by a 4% decrease in revenue per room night. Revenue per room night decreased primarily due to margin reductions aimed at expanding the size and availability of Expedia’s global hotel supply portfolio, unfavorable foreign exchange translation impact as well as increased promotional activities such as growing loyalty programs. ADRs decreased 1% year-over-year in 2016, primarily due to an unfavorable foreign exchange translation impact. The inorganic component of acquisitions added approximately 7 percentage points of hotel revenue growth and 6 percentage points of room night growth for the year.

Air revenue increased 39% in 2016 on a 32% increase in air tickets sold, augmented by a 5% increase in revenue per ticket, driven primarily by new contractual agreements and the addition of Orbitz Worldwide. The inorganic component of acquisitions added approximately 28 percentage points of air revenue growth and 21 percentage points of air ticket growth for the year.

Advertising and media revenue increased 43% in 2016 due to continued growth in trivago and Expedia® Media Solutions. All other revenue increased 101% in 2016 primarily driven by the addition of the HomeAway business. Excluding HomeAway, other revenue increased 29% in 2016 on growth in travel insurance and car rental products, including an inorganic contribution from Orbitz Worldwide.

 

Page 5 of 25


GAAP Expenses

 

     Costs and Expenses     As a % of Revenue  
     Three months ended December 31,     Three months ended December 31,  
     2016      2015      D%     2016     2015     D in bps  
     ($ millions)                           

GAAP cost of revenue

   $ 371      $ 338        10     17.7     19.9     (221

GAAP selling and marketing

     969        789        23     46.3     46.4     (17

GAAP technology and content

     324        251        29     15.5     14.8     73  

GAAP general and administrative

     174        186        (6 )%      8.3     10.9     (264
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total GAAP costs and expenses

   $ 1,838      $ 1,564        17     87.8     92.1     (428
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Costs and Expenses     As a % of Revenue  
     Twelve months ended December 31,     Twelve months ended December 31,  
     2016      2015      D%     2016     2015     D in bps  
     ($ millions)                           

GAAP cost of revenue

   $ 1,597      $ 1,310        22     18.2     19.6     (143

GAAP selling and marketing

     4,367        3,381        29     49.8     50.7     (89

GAAP technology and content

     1,235        830        49     14.1     12.4     163  

GAAP general and administrative

     678        574        18     7.7     8.6     (87
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total GAAP costs and expenses

   $ 7,877      $ 6,095        29     89.8     91.3     (156
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Cost of Revenue

 

    For the fourth quarter of 2016, total GAAP cost of revenue increased 10%, compared to the fourth quarter of 2015, due to $14 million more in customer operations expenses, $3 million more in net credit card processing costs related to growth of our merchant bookings, as well as $16 million more in data center and other costs, including the added costs from the acquisition of HomeAway.

 

    For the full year 2016, total GAAP cost of revenue increased 22%, compared to the prior year, due to $158 million more in customer operations expenses, $57 million more in net credit card processing costs related to growth of our merchant bookings, as well as $72 million more in data center and other costs, including the added costs from the acquisitions of Orbitz Worldwide and HomeAway.

 

    Acquisitions contributed approximately 6 and 18 percentage points of inorganic GAAP cost of revenue growth for the fourth quarter and full year 2016, respectively.

GAAP Selling and Marketing

 

    For the fourth quarter of 2016, total GAAP selling and marketing expenses increased 23%, compared to the fourth quarter of 2015, due to a $151 million increase in direct costs, including online and offline marketing expenses. trivago, Brand Expedia and Hotels.com, as well as the added costs from the acquisition of HomeAway, accounted for a majority of the organic increase in direct selling and marketing expenses in the fourth quarter of 2016.

 

    For the fourth quarter of 2016, indirect costs increased $29 million, primarily driven by the additional personnel due to an accelerated pace of hiring in the lodging supply organization in the first half of the year and additional headcount at HomeAway.

 

    For the full year 2016, total GAAP selling and marketing expenses increased 29%, compared to the prior year, due to an $812 million increase in direct costs, including online and offline marketing expenses. trivago, Brand Expedia and Hotels.com, as well as the added costs from the acquisitions of HomeAway and Orbitz Worldwide accounted for the majority of the total direct cost increase.

 

    For the full year 2016, indirect costs increased $174 million, primarily driven by the additional personnel due to an accelerated pace of hiring in the lodging supply organization in the first half of the year and additional headcount at HomeAway and Orbitz Worldwide.

 

Page 6 of 25


    Acquisitions contributed approximately 6 and 14 percentage points of inorganic GAAP selling and marketing expense growth for the fourth quarter and full year 2016, respectively.

GAAP Technology and Content

 

    For the fourth quarter of 2016, GAAP technology and content expense increased 29%, compared to the fourth quarter of 2015, primarily due to $24 million more in personnel and overhead costs to support key technology projects primarily in Brand Expedia Group, the corporate technology function and trivago, as well as the addition of HomeAway personnel and overhead costs. Depreciation and amortization of technology assets also increased $28 million, compared to the fourth quarter of 2015. Other costs increased $22 million year-over-year primarily due to the expansion into the cloud computing environment and the growth of our technology platforms.

 

    For the full year 2016, GAAP technology and content expense increased 49%, compared to the prior year, primarily due to $193 million more in personnel and overhead costs to support key technology projects primarily in Brand Expedia Group, the corporate technology function and trivago, as well as the addition of HomeAway and Orbitz Worldwide personnel and overhead costs. Depreciation and amortization of technology assets also increased $97 million, compared to the prior year. Other costs increased $115 million year-over-year primarily due to the expansion into the cloud computing environment and higher licensing and maintenance to support the growth of our technology platforms as well as an increase in stock-based compensation of $37 million, including amounts related to the exercise of Expedia’s call right on certain trivago shares held by employees, as described below.

 

    Acquisitions contributed approximately 12 and 20 percentage points of inorganic GAAP technology and content expense growth for the fourth quarter and full year 2016, respectively.

GAAP General and Administrative

 

    For the fourth quarter of 2016, GAAP general and administrative expense decreased 6%, compared to the fourth quarter of 2015, primarily due to a $17 million decrease in professional and other fees (primarily related to the acquisition related costs in the fourth quarter of the prior year), partially offset by a $4 million increase in personnel and overhead expenses.

 

    For the full year 2016, GAAP general and administrative expense increased 18%, compared to the prior year, primarily due to an $81 million increase in personnel and overhead expenses, driven primarily by the organic growth of the business and the inorganic addition of HomeAway and Orbitz Worldwide. In addition, stock-based compensation increased $28 million year-over-year, which included increases related to trivago that were partially offset by the absence of eLong related stock-based compensation in 2016.

 

    Acquisitions, including acquisition related expenses, subtracted approximately 7 percentage points and contributed approximately 7 percentage points of inorganic GAAP general and administrative expense growth for the fourth quarter and full year 2016, respectively.

 

Page 7 of 25


Adjusted Expenses – Expedia (excluding eLong)

 

     Costs and Expenses     As a % of Revenue  
     Three months ended December 31,     Three months ended December 31,  
     2016      2015      D%     2016     2015     D in bps  
     ($ in millions)                           

Adjusted cost of revenue *

   $ 352      $ 324        9     16.8     19.1     (227

Adjusted selling and marketing *

     951        775        23     45.5     45.6     (19

Adjusted technology and content *

     210        170        24     10.0     10.0     5  

Adjusted general and administrative *

     147        158        (7 )%      7.0     9.3     (229
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total adjusted costs and expenses

   $ 1,660      $ 1,428        16     79.3     84.0     (471

Total depreciation

     132        96        38     6.3     5.6     68  

Total stock-based compensation

     45        44        2     2.1     2.6     (45
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

   $ 1,837      $ 1,567        17     87.8     92.3     (449
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Costs and Expenses     As a % of Revenue  
     Twelve months ended December 31,     Twelve months ended December 31,  
     2016      2015      D%     2016     2015     D in bps  
     ($ in millions)                           

Adjusted cost of revenue *

   $ 1,523      $ 1,224        24     17.4     18.5     (111

Adjusted selling and marketing *

     4,292        3,282        31     48.9     49.5     (58

Adjusted technology and content *

     810        528        53     9.2     8.0     127  

Adjusted general and administrative *

     546        474        15     6.2     7.1     (93
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total adjusted costs and expenses

   $ 7,171      $ 5,509        30     81.7     83.1     (135

Total depreciation

     477        333        43     5.4     5.0     41  

Total stock-based compensation

     242        159        52     2.8     2.4     36  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

   $ 7,890      $ 6,002        31     89.9     90.5     (58
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

* Adjusted expenses are non-GAAP measures. See pages 18-23 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 fourth quarter of 2016, total adjusted cost of revenue increased 9%, compared to the fourth quarter of 2015, due to $13 million more in customer operations expenses, $2 million more in credit card processing costs, as well as $12 million more in data center and other costs, including the added costs from the acquisition of HomeAway.

 

    For the full year 2016, total adjusted cost of revenue increased 24%, compared to the prior year, due to $167 million more in customer operations expenses, $59 million more in credit card processing costs, as well as $72 million more in data center and other costs, including the added costs from the acquisitions of Orbitz Worldwide and HomeAway.

 

    Acquisitions contributed approximately 5 and 18 percentage points of inorganic adjusted cost of revenue growth for the fourth quarter and full year 2016, respectively.

Adjusted Selling and Marketing

 

    For the fourth quarter of 2016, total adjusted selling and marketing expense increased 23%, compared to the fourth quarter of 2015, due to $151 million more in direct costs, including online and offline marketing expenses, as well as the added costs from the acquisition of HomeAway. trivago, Brand Expedia and Hotels.com accounted for a majority of the organic increase in direct selling and marketing expenses in the fourth quarter of 2016.

 

Page 8 of 25


    For the fourth quarter of 2016, indirect costs increased $25 million, primarily driven by the additional personnel due to an accelerated pace of hiring in the lodging supply organization in the first half of the year and additional headcount at HomeAway. As a percentage of total adjusted selling and marketing, indirect costs represented 21% in the fourth quarter of 2016, down from 22% in the fourth quarter of 2015.

 

    For the full year 2016, total adjusted selling and marketing expense increased 31%, compared to the prior year, due to an $855 million increase in direct costs, including online and offline marketing expenses, as well as the added costs from the acquisitions of HomeAway and Orbitz Worldwide. trivago, Brand Expedia and Hotels.com accounted for a majority of the organic increase in direct selling and marketing expenses in 2016.

 

    For the full year 2016, indirect costs increased $155 million, including the additional headcount at HomeAway and Orbitz Worldwide. The organic increase in indirect selling and marketing expenses was driven by the additional personnel due to an accelerated pace of hiring in the lodging supply organization in the first half of the year. As a percentage of total adjusted selling and marketing, indirect costs represented 18% in 2016, consistent with the prior year.

 

    Acquisitions contributed approximately 6 and 14 percentage points of inorganic adjusted selling and marketing growth for the fourth quarter and full year 2016, respectively.

Adjusted Technology and Content

 

    For the fourth quarter of 2016, total adjusted technology and content expense increased 24%, compared to the fourth quarter of 2015, due to $24 million more in total personnel and overhead costs, net of capitalized software development costs, as well as a $17 million increase in other costs, including the added costs from the acquisition of HomeAway. The organic increase in personnel and overhead costs was driven by key technology projects primarily in Brand Expedia Group, the corporate technology function and trivago. The organic increase in other costs was driven primarily by the expansion into the cloud computing environment and the growth of our technology platforms.

 

    For the full year 2016, total adjusted technology and content expense increased 53%, compared to the prior year, due to $203 million more in total personnel and overhead costs, net of capitalized software development costs, as well as a $79 million increase in other costs, including the added costs from the acquisitions of HomeAway and Orbitz Worldwide. The organic increase in personnel and overhead costs was driven by key technology projects primarily in Brand Expedia Group, the corporate technology function and trivago. The organic increase in other costs was driven primarily by the expansion into the cloud computing environment and the growth of our technology platforms. While the cloud-related expenses are projected to increase over the next few years, they are also expected to result in lower overall capital expenditures related to our data centers over time.

 

    Acquisitions contributed approximately 17 and 30 percentage points of inorganic adjusted technology and content growth for the fourth quarter and full year 2016, respectively.

Adjusted General and Administrative

 

    For the fourth quarter of 2016, total adjusted general and administrative expense decreased 7%, compared to the fourth quarter of 2015, primarily due to a $15 million decrease in professional and other fees (primarily related to the acquisition related costs in the fourth quarter of the prior year), partially offset by a $4 million increase in personnel costs.

 

    For the full year 2016, total adjusted general and administrative expense increased 15%, compared to the prior year, primarily due to a $74 million increase in personnel costs, driven primarily by the organic growth of the business and the inorganic addition of HomeAway, partially offset by a $2 million decrease in professional and other fees (primarily related to the acquisition related costs in the prior year).

 

    Acquisitions, including acquisition related expenses, contributed approximately a negative 8 and a positive 8 percentage points of inorganic adjusted general and administrative expense growth for the fourth quarter and full year 2016, respectively.

Depreciation Expense

Depreciation expense increased $36 million to $132 million in the fourth quarter of 2016 and $140 million to $477 million in 2016, primarily due to increased investments in corporate technology infrastructure as well as previously

capitalized software development costs for completed technology projects which have been placed into service. Depreciation expense is expected to continue to increase as additional projects are completed.

 

Page 9 of 25


Stock-Based Compensation Expense

Stock-based compensation expense increased $1 million to $45 million in the fourth quarter of 2016, primarily due to an increase in general employee stock-based compensation, partially offset by the stock-based compensation related to the acquisitions in the fourth quarter of 2015. Stock-based compensation expense increased $64 million to $242 million in 2016, primarily due to the exercise of Expedia’s call right on certain trivago shares held by employees, as described below.

During the second quarter of 2016, Expedia exercised its call right on certain shares held by trivago employees, which were originally awarded in the form of stock options pursuant to the trivago employee stock option plan and subsequently exercised by such employees, and elected to do so at a premium to fair value, which resulted in an incremental stock-based compensation charge of approximately $49 million in the second quarter of 2016 pursuant to liability award treatment. The acquisition of these employee minority interests increased Expedia’s ordinary ownership of trivago by a nominal amount.

Net Income Attributable to Expedia and Adjusted EBITDA*

Adjusted EBITDA by Segment ($ millions)

 

     Fourth Quarter     Full Year  
     2016     2015     D%     2016     2015     D%  

Core OTA

   $ 532     $ 407       31   $ 1,966     $ 1,600       23

trivago

     14       16       (12 )%      35       3       1,119

Egencia

     21       10       97     81       68       18

HomeAway

     42       4       N/A       175       4       N/A  

Unallocated overhead costs

     (168     (158     (6 )%      (641     (510     (26 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expedia (excluding eLong)

   $ 442     $ 280       58   $ 1,616     $ 1,165       39

eLong

     —         —             —         (62     (100 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 442     $ 280       58   $ 1,616     $ 1,103       46
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to the Company(1)

   $ 79     $ (13     NM     $ 282     $ 764       (63 )% 

 

(1)  Expedia does not calculate or report net income by segment.
* Adjusted EBITDA is a non-GAAP measure. See pages 18-23 herein for a description and reconciliation to the corresponding GAAP measure.

Note: Some numbers may not add due to rounding. Orbitz Worldwide Adjusted EBITDA results are included in Core OTA, Egencia and Unallocated Overhead Costs in the amounts of $68 million, $5 million and ($6) million, respectively, for the fourth quarter of 2016; $11 million, $0.1 million and ($9) million, respectively, for the fourth quarter of 2015; $264 million, $13 million and ($53) million, respectively, for 2016; and $1 million, $0.1 million and ($26 million) for 2015. HomeAway Adjusted EBITDA results are included in HomeAway and Unallocated Overhead Costs in the amounts of $42 million and ($4) million, respectively, for the fourth quarter of 2016; $4 million and ($18) million, respectively, for the fourth quarter of 2015; $175 million and ($12) million, respectively, for 2016; and $4 million and ($18) million, respectively, for 2015.

GAAP net income attributable to Expedia was $79 million in the fourth quarter of 2016, compared to GAAP net loss of $13 million in the fourth quarter of 2015. GAAP net income attributable to Expedia was $282 million in 2016, a decrease of 63% compared to GAAP net income of $764 million in 2015.

Adjusted EBITDA was $442 million in the fourth quarter of 2016, an increase of 58% compared to Adjusted EBITDA of $280 million in the fourth quarter of 2015. Core OTA Adjusted EBITDA increased 31% in the fourth quarter of 2016, driven primarily by Orbitz, Brand Expedia, Hotels.com and EAN.

Adjusted EBITDA was $1.6 billion in 2016, an increase of 39% compared to Adjusted EBITDA excluding eLong of $1.2 billion in 2015. Core OTA Adjusted EBITDA increased 23% in 2016, driven primarily by Orbitz, Hotels.com, Brand Expedia and EAN, partially offset by Hotwire.

 

Page 10 of 25


Consolidation of the HomeAway and Orbitz Worldwide financial statements (including related deal and integration costs) contributed approximately 43 and 37 percentage points of Adjusted EBITDA growth for the fourth quarter and full year 2016, respectively.

Amortization of Intangible Assets

Consolidated amortization of intangible assets decreased $5 million to $68 million in the fourth quarter of 2016, primarily due to the completion of amortization related to certain intangible assets. Consolidated amortization of intangible assets increased $161 million to $317 million in 2016, primarily due to amortization related to new business acquisitions in prior year, partially offset by the completion of amortization related to certain intangible assets. In 2016, we recorded a $35 million impairment loss related to an indefinite-lived trade names within our Core OTA segment due to changes in estimated future revenues of the related brands. In addition, in 2015, we also recorded impairment losses related to an indefinite-lived trade name within our Core OTA segment.

Legal Reserves, Occupancy Tax and Other

During 2016, we recognized approximately $12 million for amounts expected to be paid in advance of litigation related to merchant car rental transactions in connection with Hawaii’s general excise tax litigation. The remaining expense in 2016 was related to changes in our reserve related to hotel occupancy and other taxes. During 2015, we received a refund of prepaid pay-to-play payments of $132 million from the State of Hawaii in connection with the general excise tax litigation. In addition, during 2015, we recorded a $24 million benefit in legal reserves, occupancy tax and other for the recovery of costs related to occupancy tax litigation matters. These gains were partially offset by charges for changes in our reserve related to hotel occupancy and other taxes.

Restructuring and Related Reorganization Charges

In connection with the migration of technology platforms and centralization of technology, supply and other operations, primarily related to previously disclosed acquisitions, we recognized $10 million and $23 million in restructuring and related reorganization charges during the three months ended December 31, 2016 and 2015, as well as $56 million and $105 million in restructuring and related reorganization charges during 2016 and 2015. In 2016 and 2015, the charges were primarily related to employee severance and benefits as a part of the Orbitz integration and represent estimated severance amounts under pre-existing written plans and contracts Orbitz had with its employees, stock-compensation charges for acceleration of replacement awards pursuant to certain of these agreements as well as incremental retention compensation for exiting employees. Based on current plans, which are subject to change, we expect to incur approximately $10 to $15 million in 2017 related to these integrations, not including any possible future acquisition integrations.

Interest and Other

Consolidated interest income increased $3 million in the fourth quarter of 2016 and in full year 2016, compared to the prior year periods, primarily due to higher invested balances and higher rates of return for the fourth quarter and higher rates of return for full year 2016. Consolidated interest expense increased $6 million in the fourth quarter of 2016 and $47 million in 2016, compared to the prior year periods, primarily due to the issuance of the $750 million of senior unsecured notes issued in December 2015. In addition, the full year 2016 year-over-year increase was driven by the €650 million of senior unsecured notes issued in June 2015.

Consolidated other, net was a gain of $5 million in the fourth quarter of 2016, compared to a loss of $1 million in the fourth quarter of 2015. The gain in the fourth quarter of 2016 and the loss in the fourth quarter of 2015 were primarily related to foreign exchange. Consolidated other, net was a loss of $32 million in 2016, compared to a gain of $113 million in 2015. The loss in 2016 was primarily related to foreign exchange. The gain in 2015 was primarily related to a noncontrolling interest basis adjustment related to the acquisition of a majority stake in the AirAsia joint venture, as well as impacts from 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.

 

Page 11 of 25


Income Taxes

The effective tax rate on GAAP pretax income was 26% and 6% for the fourth quarter and full year 2016, respectively, compared to (117%) and 22% in the prior year periods. The change in the effective tax rate for GAAP purposes for the fourth quarter of 2016 compared to the fourth quarter of 2015 was primarily due to certain non-taxable items in the prior year period. For the fourth quarter of 2015, taxes were measured against a pretax loss resulting in a negative tax rate. The change in the effective tax rate for 2016 compared to 2015 was primarily due to the tax benefits from the adoption of the new accounting guidance relating to stock-based compensation, as well as the release of valuation allowances in certain jurisdictions on cumulative foreign net operating losses for which it is more likely than not the tax benefit will be realized. As a result of lower pre-tax earnings in 2016 compared to 2015, these benefits result in a significant effect on our effective tax rate. In addition to these factors, the effective tax rate for 2016 and 2015 was lower than the 35% federal statutory rate due to earnings in foreign jurisdictions, where our statutory income tax rate is lower, as well as the effective tax rate on the gain on the sale of eLong in 2015. The effective tax rate on pretax adjusted net income (“ANI”) was 28% and 26% for the fourth quarter and full year 2016, respectively, compared to 24% and 25% in the prior year periods. The year-over-year changes in the ANI effective tax rates for the fourth quarter of 2016 and for 2016 were primarily driven by the change in mix of domestic versus international pre-tax income due to lower earnings in certain foreign jurisdictions.

Balance Sheet, Cash Flows and Capitalization

Cash, cash equivalents, restricted cash and short-term investments totaled $1.9 billion at December 31, 2016. For the year ended December 31, 2016, consolidated net cash provided by operating activities was $1.6 billion and consolidated free cash flow totaled $815 million. Both measures include $169 million from net changes in operating assets and liabilities, primarily driven by an increase in deferred merchant bookings. For the three months ended December 31, 2016, consolidated free cash flow was $(162) million, an improvement of $173 million, compared to the prior year period, primarily due to the increase in net cash provided by operating activities related to higher Adjusted EBITDA and increased benefits from working capital changes, partially offset by the increase in capital expenditures. For the year ended December 31, 2016, consolidated free cash flow was $815 million, an increase of $234 million, compared to the prior year period, primarily due to the increase in net cash provided by operating activities related to higher Adjusted EBITDA, as well as the decrease in capital expenditures, partially offset by decreased benefits from working capital changes.

Long-term debt, net of applicable discounts and debt issuance costs, totaled $3.2 billion at December 31, 2016 consisting of $740 million in 5.0% senior notes due 2026; $494 million in 4.5% senior notes due 2024; $678 million (€650 million) in 2.5% senior notes due 2022; $747 million in 5.95% senior notes due 2020 and $500 million in 7.456% senior notes due 2018. In addition, as of December 31, 2016, Expedia had a $1.5 billion unsecured revolving credit facility, which was essentially untapped.

At December 31, 2016, Expedia, Inc. had stock-based awards outstanding representing approximately 20 million shares of Expedia common stock, consisting of options to purchase approximately 19 million common shares with an $84.07 weighted average exercise price and weighted average remaining life of 4.7 years, and approximately 1 million restricted stock units (“RSUs”).

During 2016, Expedia, Inc. repurchased 4.0 million shares of Expedia, Inc. common stock for an aggregate purchase price of $436 million excluding transaction costs (an average of $109.64 per share). As of December 31, 2016, there were approximately 7.3 million shares remaining under the February 2015 repurchase authorization.

On December 8, 2016, Expedia, Inc. paid a quarterly dividend of $39 million ($0.26 per common share). In addition, on February 7, 2017, the Executive Committee of Expedia’s Board of Directors declared an increased quarterly cash dividend of $0.28 per share of outstanding common stock to be paid to stockholders of record as of the close of business on March 9, 2017, with a payment date of March 30, 2017. Based on current shares outstanding, the total payment for this quarterly dividend is estimated to be approximately $42 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 12 of 25


Recent Highlights

Core OTA

 

    Brand Expedia’s Australia New Zealand region surpassed the $1 billion gross bookings mark in 2016. Brand Expedia Japan also reached $1 billion gross bookings and celebrated its tenth anniversary in 2016.

 

    The Expedia skill for Amazon Alexa launched in November, allowing customers with Alexa-enabled devices to access information about trip details, book rental cars, check their Expedia+ rewards balance and more. The Expedia bot on Skype also launched, letting users search for and book travel via Skype and easily connect to a travel representative at no charge.

 

    The Brand Expedia points of sale in Asia grew mobile room nights over 65% in the fourth quarter, with almost all key Asian markets getting more mobile visitors than desktop visitors.

 

    Hotels.com® Rewards program surpassed 27 million members, who have redeemed over $1 billion in free rewards nights since the program began in 2008.

 

    Package bookings are now available in the Android and iOS mobile apps for Brand Expedia, Travelocity, Orbitz, CheapTickets and ebookers, as well as rail bookings for Brand Expedia mobile app users in the UK. Hotels.com mobile app surpassed 60 million cumulative downloads in the fourth quarter.

 

    Expedia Local Expert now offers over 25,000 tours and activities via more than 60 Expedia, Inc. sites.

 

    Expedia CruiseShipCenters achieved over $560 million in gross bookings in 2016, with 18% year-over-year growth in fourth quarter gross bookings.

trivago

 

    trivago year-over-year revenue growth accelerated in the fourth quarter across all regions, with the Rest of World region growing over 130% (excluding foreign exchange impact).

 

    trivago successfully completed its initial public offering of American depositary shares (ADSs) in December 2016. The company is now listed on the Nasdaq Global Select Market and trades under the symbol TRVG.

Egencia

 

    During 2016, Egencia saved travelers over 15,500 hours through its automated call back functionality, letting them attend to other matters rather than waiting on hold.

 

    Egencia recently announced a pilot to test HomeAway inventory on the Egencia platform. Egencia intends to integrate HomeAway inventory in 2017 and continues to explore other alternative lodging inventory as well.

HomeAway

 

    HomeAway completed the first integration of Expedia vacation rental properties onto HomeAway.com and VRBO.com. Combined with HomeAway’s existing inventory, there are now more than 1 million instantly bookable units on HomeAway. The launch is on HomeAway US and VRBO® and is expected to expand to all HomeAway sites.

 

    HomeAway added 20,000 listings to Expedia.com as of year-end and will continue to add more in 2017. The integration provides an improved experience for travelers, helping them to discover HomeAway vacation rentals alongside hotels.

 

    During 2016, HomeAway online gross bookings reached approximately $6.0 billion, an increase of 46% year-over-year, while online property nights stayed surpassed 22 million, an increase of 48% year-over-year. HomeAway inventory now stands at approximately 1.2 million online bookable listings.

Expedia, Inc.

 

    At the end of 2016, Expedia’s global lodging portfolio consisted of over 350,000 properties available on the Core OTA and Egencia platforms, including approximately 20,000 HomeAway listings that have been integrated into the portfolio during the fourth quarter.

 

    Expedia and Best Western Hotels announced an expanded collaboration that sees approximately 200 Best Western Hotels across Germany adopt Expedia’s innovative MeetingMarket software. The strategic alliance makes Best Western the first global hotel brand to white label the technology.

 

    Expedia renewed supply marketing agreements with a number of airlines, including PJSC Aeroflot - Russian Airlines, Saudi Arabian Airlines, Turkish Airlines and Virgin Atlantic Airways.

 

    Brand Expedia launched a multi-year partnership with VisitBritain featuring a new ‘365 Days of #OMGB’ campaign with Expedia Media Solutions and building on a relationship of more than five years with the destination.

 

Page 13 of 25


EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share data)

(Unaudited)

 

     Three months ended
December 31,
    Year ended
December 31,
 
     2016     2015     2016     2015  

Revenue

   $ 2,092,829     $ 1,698,567     $ 8,773,564     $ 6,672,317  

Costs and expenses:

        

Cost of revenue (1) (2)

     370,841       338,493       1,596,698       1,309,559  

Selling and marketing (1) (2)

     968,555       788,936       4,367,417       3,381,086  

Technology and content (1) (2)

     324,098       250,570       1,235,019       830,244  

General and administrative (1) (2)

     173,897       185,954       678,292       573,913  

Amortization of intangible assets

     68,022       73,136       317,141       156,458  

Impairment of intangible assets

     32,749       7,207       34,890       7,207  

Legal reserves, occupancy tax and other

     (2,152     1,924       26,498       (104,587

Restructuring and related reorganization charges (1)

     9,633       22,870       55,907       104,871  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     147,186       29,477       461,702       413,566  

Other income (expense):

        

Interest income

     5,377       2,292       19,726       16,695  

Interest expense

     (42,875     (36,427     (173,148     (126,195

Gain on sale of business

       —         —         508,810  

Other, net

     5,438       (1,275     (31,680     113,086  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     (32,060     (35,410     (185,102     512,396  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     115,126       (5,933     276,600       925,962  

Provision for income taxes

     (30,244     (6,953     (15,315     (203,214
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     84,882       (12,886     261,285       722,748  

Net loss attributable to noncontrolling interests

     (5,425     348       20,563       41,717  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Expedia, Inc.

   $ 79,457     $ (12,538   $ 281,848     $ 764,465  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ 0.53     $ (0.09   $ 1.87     $ 5.87  

Diluted

     0.51       (0.09     1.82       5.70  

Shares used in computing earnings (loss) per share:

        

Basic

     150,624       134,128       150,367       130,159  

Diluted

     155,071       134,128       154,517       134,018  

Dividends declared per common share

   $ 0.26     $ 0.24     $ 1.00     $ 0.84  

(1) Includes stock-based compensation as follows:

        

Cost of revenue

   $ 2,620     $ 1,721     $ 11,388     $ 5,307  

Selling and marketing

     9,282       9,274       46,654       33,164  

Technology and content

     12,539       7,361       63,536       26,766  

General and administrative

     20,374       22,157       108,149       80,082  

Restructuring and related reorganization charges

     —         3,519       12,690       32,749  

(2) Includes depreciation as follows:

        

Cost of revenue

   $ 16,567     $ 12,753     $ 62,420     $ 45,451  

Selling and marketing

     8,055       4,335       28,747       11,754  

Technology and content

     101,266       73,320       361,434       265,100  

General and administrative

     6,340       5,394       24,460       14,375  

 

Page 14 of 25


EXPEDIA, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

 

     December 31,  
     2016     2015  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 1,796,811     $ 1,676,299  

Restricted cash and cash equivalents

     18,733       11,324  

Short-term investments

     72,313       33,739  

Accounts receivable, net of allowance of $25,278 and $27,035

     1,343,247       1,082,406  

Income taxes receivable

     19,402       13,805  

Prepaid expenses and other current assets

     199,745       158,688  
  

 

 

   

 

 

 

Total current assets

     3,450,251       2,976,261  

Property and equipment, net

     1,394,904       1,064,259  

Long-term investments and other assets

     520,058       642,802  

Deferred income taxes

     23,658       15,458  

Intangible assets, net

     2,446,652       2,793,954  

Goodwill

     7,942,023       7,992,941  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 15,777,546     $ 15,485,675  
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY  

Current liabilities:

    

Accounts payable, merchant

   $ 1,509,313     $ 1,329,870  

Accounts payable, other

     577,012       485,557  

Deferred merchant bookings

     2,617,791       2,337,037  

Deferred revenue

     282,517       235,809  

Income taxes payable

     49,739       68,019  

Accrued expenses and other current liabilities

     1,090,826       1,469,725  
  

 

 

   

 

 

 

Total current liabilities

     6,127,198       5,926,017  

Long-term debt

     3,159,336       3,183,140  

Deferred income taxes

     484,970       473,841  

Other long-term liabilities

     312,939       314,432  

Commitments and contingencies

    

Redeemable non-controlling interests

     —         658,478  

Stockholders’ equity:

    

Common stock $.0001 par value Authorized shares: 1,600,000 Shares issued: 224,310 and 220,383 Shares outstanding: 137,232 and 137,459

     22       22  

Class B common stock $.0001 par value Authorized shares: 400,000 Shares issued and outstanding: 12,800 and 12,800

     1       1  

Additional paid-in capital

     8,794,298       8,696,508  

Treasury stock — Common stock, at cost Shares: 87,077 and 82,924

     (4,510,655     (4,054,909

Retained earnings

     129,034       507,666  

Accumulated other comprehensive income (loss)

     (280,399     (284,894
  

 

 

   

 

 

 

Total Expedia, Inc. stockholders’ equity

     4,132,301       4,864,394  

Non-redeemable non-controlling interests

     1,560,802       65,373  
  

 

 

   

 

 

 

Total stockholders’ equity

     5,693,103       4,929,767  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 15,777,546     $ 15,485,675  
  

 

 

   

 

 

 

 

Page 15 of 25


EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Year ended December 31,  
     2016     2015  

Operating activities:

    

Net income

   $ 261,285     $ 722,748  

Adjustments to reconcile net income to net cash provided by operating activities:

    

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

     477,061       336,680  

Amortization of stock-based compensation

     242,417       178,068  

Amortization of intangible assets

     317,141       156,458  

Impairment of intangible assets

     34,890       7,207  

Deferred income taxes

     (14,088     (21,635

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

     16,253       88,528  

Realized (gain) loss on foreign currency forwards

     53,089       (54,226

Gain on sale of business

     —         (508,810

Non-controlling interest basis adjustment

     —         (77,400

Other

     7,555       15,865  

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

    

Accounts receivable

     (276,154     (198,262

Prepaid expenses and other assets

     (30,198     97,701  

Accounts payable, merchant

     184,398       97,248  

Accounts payable, other, accrued expenses and other current liabilities

     79,202       194,458  

Tax payable/receivable, net

     (100,525     39,776  

Deferred merchant bookings

     261,402       299,534  

Deferred revenue

     50,606       (5,893
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,564,334       1,368,045  
  

 

 

   

 

 

 

Investing activities:

    

Capital expenditures, including internal-use software and website development

     (749,348     (787,041

Purchases of investments

     (45,352     (521,329

Sales and maturities of investments

     60,935       410,923  

Acquisitions, net of cash acquired

     (777     (2,063,649

Proceeds from sale of business, net of cash divested and disposal costs

     67,088       523,882  

Net settlement on foreign currency forwards

     (53,089     54,226  

Other, net

     2,222       11,728  
  

 

 

   

 

 

 

Net cash used in investing activities

     (718,321     (2,371,260
  

 

 

   

 

 

 

Financing activities:

    

Payment of HomeAway Convertible Notes

     (401,424     —    

Proceeds from issuance of long-term debt, net of issuance costs

     (2,093     1,441,860  

Purchases of treasury stock

     (455,746     (60,546

Proceeds from issuance of treasury stock

     —         22,575  

Payment of dividends to stockholders

     (150,159     (108,527

Proceeds from exercise of equity awards and employee stock purchase plan

     141,043       97,716  

Sales (purchases) of interest in controlled subsidiaries, net

     208,016       (8,518

Excess tax benefit on equity awards

     —         90,855  

Withholding taxes for stock option exercises

     (1,282     (85,033

Other, net

     (28,974     13,817  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (690,619     1,404,199  

Effect of exchange rate changes on cash and cash equivalents

     (34,882     (127,385
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     120,512       273,599  

Cash and cash equivalents at beginning of year

     1,676,299       1,402,700  
  

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 1,796,811     $ 1,676,299  
  

 

 

   

 

 

 

Supplemental cash flow information

    

Cash paid for interest

   $ 153,755     $ 109,507  

Income tax payments, net

     124,291       96,834  

 

Page 16 of 25


Expedia, Inc. (excluding eLong)

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.

 

     2015     2016     Full Year     Y/Y Growth  
     Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4     2015     2016     Q416     2016  

Gross bookings by segment

                        

Core OTA

   $ 12,907     $ 13,692     $ 14,091     $ 13,563     $ 17,226     $ 17,182     $ 17,007     $ 14,650     $ 54,252     $ 66,064       8     22

Egencia

     1,366       1,371       1,302       1,387       1,656       1,679       1,579       1,454       5,427       6,368       5     17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expedia (excluding eLong)

   $ 14,273     $ 15,063     $ 15,393     $ 14,950     $ 18,882     $ 18,861     $ 18,585     $ 16,104     $ 59,680     $ 72,431       8     21

Gross bookings by geography

                        

Domestic

   $ 8,887     $ 9,301     $ 9,584     $ 9,616     $ 12,288     $ 12,179     $ 11,793     $ 10,050     $ 37,388     $ 46,310       5     24

International

     5,386       5,762       5,809       5,335       6,594       6,682       6,793       6,054       22,292       26,122       13     17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expedia (excluding eLong)

   $ 14,273     $ 15,063     $ 15,393     $ 14,950     $ 18,882     $ 18,861     $ 18,585     $ 16,104     $ 59,680     $ 72,431       8     21

Gross bookings by agency/merchant

                        

Agency

   $ 7,737     $ 8,175     $ 8,206     $ 8,430     $ 10,640     $ 10,611     $ 10,023     $ 8,869     $ 32,549     $ 40,143       5     23

Merchant

     6,536       6,888       7,187       6,520       8,242       8,250       8,563       7,235       27,130       32,289       11     19
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expedia (excluding eLong)

   $ 14,273     $ 15,063     $ 15,393     $ 14,950     $ 18,882     $ 18,861     $ 18,585     $ 16,104     $ 59,680     $ 72,431       8     21

Revenue by segment

                        

Core OTA

   $ 1,170     $ 1,463     $ 1,739     $ 1,505     $ 1,540     $ 1,765     $ 2,083     $ 1,695     $ 5,877     $ 7,084       13     21

trivago

     119       143       176       110       176       201       276       183       548       836       65     53

Egencia

     98       101       94       107       110       125       112       116       400       462       9     16

HomeAway

     —         —         —         20       142       172       210       166       20       689       NM       NM  

Intercompany eliminations

     (47     (52     (71     (44     (64     (66     (101     (67     (215     (297     54     39
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expedia (excluding eLong)

   $ 1,340     $ 1,654     $ 1,938     $ 1,699     $ 1,904     $ 2,196     $ 2,581     $ 2,093     $ 6,631     $ 8,774       23     32

eLong

     34       8       —         —         —         —         —         —         42       —         NM       NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,373     $ 1,663     $ 1,938     $ 1,699     $ 1,904     $ 2,196     $ 2,581     $ 2,093     $ 6,672     $ 8,774       23     31

Revenue by geography

                        

Domestic

   $ 768     $ 910     $ 1,047     $ 978     $ 1,115     $ 1,271     $ 1,451     $ 1,199     $ 3,703     $ 5,037       23     36

International

     572       745       890       721       789       924       1,130       893       2,927       3,737       24     28
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expedia (excluding eLong)

   $ 1,340     $ 1,654     $ 1,938     $ 1,699     $ 1,904     $ 2,196     $ 2,581     $ 2,093     $ 6,631     $ 8,774       23     32

eLong

     34       8       —         —         —         —         —         —         42       —         NM       NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,373     $ 1,663     $ 1,938     $ 1,699     $ 1,904     $ 2,196     $ 2,581     $ 2,093     $ 6,672     $ 8,774       23     31

Revenue by type

                        

Agency

   $ 360     $ 452     $ 555     $ 495     $ 523     $ 612     $ 723     $ 567     $ 1,861     $ 2,425       15     30

Merchant

     858       1,060       1,222       1,044       1,065       1,210       1,407       1,170       4,185       4,852       12     16

Advertising & media

     121       143       161       139       174       202       241       190       564       807       36     43

HomeAway

     —         —         —         20       142       172       210       166       20       689       NM       NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expedia (excluding eLong)

   $ 1,340     $ 1,654     $ 1,938     $ 1,699     $ 1,904     $ 2,196     $ 2,581     $ 2,093     $ 6,631     $ 8,774       23     32

eLong

     34       8       —         —         —         —         —         —         42       —         NM       NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,373     $ 1,663     $ 1,938     $ 1,699     $ 1,904     $ 2,196     $ 2,581     $ 2,093     $ 6,672     $ 8,774       23     31

Adjusted EBITDA by segment

                        

Core OTA

   $ 219     $ 384     $ 589     $ 407     $ 292     $ 428     $ 714     $ 532     $ 1,600     $ 1,966       31     23

trivago

     5       (9     (9     16       8       7       6       14       3       35       (12 )%      1,119

Egencia

     20       24       14       10       15       26       18       21       68       81       97     18

HomeAway

     —         —         —         4       17       38       77       42       4       175       NM       NM  

Unallocated overhead costs

     (109     (118     (125     (158     (156     (169     (148     (168     (510     (641     6     26
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expedia (excluding eLong)

   $ 135     $ 281     $ 469     $ 280     $ 177     $ 331     $ 667     $ 442     $ 1,165     $ 1,616       58     39

eLong

     (33     (29     —         —         —         —         —         —         (62     —         NM       NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 102     $ 252     $ 469     $ 280     $ 177     $ 331     $ 667     $ 442     $ 1,103     $ 1,616       58     47

Net income (loss) attributable to the company

   $ 44     $ 450     $ 283     $ (13   $ (109   $ 32     $ 279     $ 79     $ 764     $ 282       NM       (63 )% 

Worldwide hotel (merchant & agency)

                        

Room nights

     38.3       50.6       61.5       52.8       52.6       60.9       72.0       60.5       203.1       246.0      

Room night growth

     32     35     36     39     37     20     17     15     36     21    

Domestic room night growth

     23     24     25     33     32     22     20     11     26     21    

International room night growth

     46     50     50     47     44     18     15     18     48     22    

ADR growth

     (3 )%      (6 )%      (6 )%      (5 )%      (3 )%      (1 )%      1         (5 )%      (1 )%     

Revenue per night growth

     (13 )%      (16 )%      (15 )%      (11 )%      (9 )%      (5 )%      (2 )%      (2 )%      (14 )%      (4 )%     

Revenue growth

     15     14     17     24     25     14     15     13     17     16    

Worldwide air (merchant & agency)

                        

Tickets sold growth

     17     26     31     70     52     45     32     6     35     32    

Airfare growth

     (7 )%      (12 )%      (12 )%      (12 )%      (8 )%      (8 )%      (6 )%      (4 )%      (11 )%      (6 )%     

Revenue per ticket growth

     (5 )%      (10 )%      (9 )%      (5 )%      1     3     15         (7 )%      5    

Revenue growth

     12     14     19     61     54     50     52     6     25     39    

Notes:

 

    The metrics above exclude eLong for all periods presented due to Expedia’s sale of its eLong stake on May 22, 2015, unless otherwise noted. Net income (loss) attributable to the company includes eLong.

 

    The metrics above include Travelocity following the strategic marketing agreement launched during the fourth quarter of 2013, as well as the subsequent acquisition of Travelocity on January 23, 2015, Wotif Group following the acquisition on November 13, 2014, AirAsia Expedia following Expedia’s purchase of an additional 25% equity interest in the former joint venture on March 10, 2015, Orbitz Worldwide following the acquisition on September 17, 2015 and HomeAway following the acquisition on December 15, 2015.

 

    Advertising & media Revenue includes 3rd party revenue from trivago. All trivago revenue is classified as international.

 

Page 17 of 25


Notes & Definitions:

Gross Bookings: Gross Bookings is an operating and statistical measure that reflects 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.

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.com, Travelocity, Wotif Group, AirAsia Expedia, CarRentals.com, and Classic Vacations. The results of Orbitz Worldwide, with the exception of Orbitz for Business, are included within the Core OTA segment.

Brand Expedia Group: Consists of the full-service Core OTA brands on the Brand Expedia technology platform, including Brand Expedia, Orbitz.com, Travelocity, Wotif Group, ebookers and CheapTickets.

trivago: trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its localized hotel metasearch websites.

Egencia: Egencia segment provides managed travel services to corporate customers worldwide. The results of Orbitz for Business are included within the Egencia segment.

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.

Corporate: Includes unallocated corporate expenses.

Worldwide Hotel metrics: Reported on a stayed basis and includes 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 Adjusted Expenses (non-GAAP cost of revenue, non-GAAP selling and marketing, non-GAAP technology and content and non-GAAP general and administrative) and certain measures excluding eLong, Inc., 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, 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 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 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 operating income / (loss) 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 other items, including restructuring;

 

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(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) that portion of gains (losses) on revenue hedging activities that are included in other, net that relate to revenue recognized in the period; 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. The definition for Adjusted EBITDA was revised in the fourth quarter of 2012.

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,

(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) 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 noncontrolling 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 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 was revised in the fourth quarters of 2010, 2011 and 2012.

Adjusted EPS is defined as Adjusted Net Income 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 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

 

Page 19 of 25


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.

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
December 31,
    Year ended
December 31,
 
     2016     2015     2016     2015  
     (In thousands)  

Adjusted EBITDA

   $ 441,535     $ 279,945     $ 1,615,672     $ 1,103,111  

Depreciation

     (132,228     (95,802     (477,061     (336,680

Amortization of intangible assets

     (68,022     (73,136     (317,141     (156,458

Impairment of intangible assets

     (32,749     (7,207     (34,890     (7,207

Stock-based compensation

     (44,815     (44,032     (242,417     (178,068

Legal reserves, occupancy tax and other

     2,152       (1,924     (26,498     104,587  

Restructuring and related reorganization charges, excluding stock-based compensation

     (9,633     (19,351     (43,217     (72,122

(Gain) loss on revenue hedges related to revenue recognized

     (9,054     (9,016     (12,746     (43,597
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     147,186       29,477       461,702       413,566  

Interest expense, net

     (37,498     (34,135     (153,422     (109,500

Gain on sale of business

     —         —         —         508,810  

Other, net

     5,438       (1,275     (31,680     113,086  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     115,126       (5,933     276,600       925,962  

Provision for income taxes

     (30,244     (6,953     (15,315     (203,214
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     84,882       (12,886     261,285       722,748  

Net (income) loss attributable to noncontrolling interests

     (5,425     348       20,563       41,717  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Expedia, Inc.

   $ 79,457     $ (12,538   $ 281,848     $ 764,465  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Adjusted Net Income (Loss) & Adjusted EPS

 

     Three months ended
December 31,
    Year ended
December 31,
 
     2016     2015     2016     2015  
     (in thousands, except per share data)  

Net income (loss) attributable to Expedia, Inc.

   $ 79,457     $ (12,538   $ 281,848     $ 764,465  

Amortization of intangible assets

     68,022       73,136       317,141       156,458  

Impairment of intangible assets

     32,749       7,207       34,890       7,207  

Stock-based compensation

     44,815       44,032       242,417       178,068  

Legal reserves, occupancy tax and other

     (2,152     1,924       26,498       (104,587

Restructuring and related reorganization charges, excluding stock-based compensation

     9,633       19,351       43,217       72,122  

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

     —         —         —         (13

Unrealized (gain) loss on revenue hedges

     (4,793     6,505       (1,865     3,314  

Other-than-temporary investment impairment

     1,287       —         12,117       —    

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

     3,682       —         5,432       —    

Gain on sale of asset

     (3,000     —         (3,000     (11,501

Gain on sale of business

     —           —         (508,810

Non-controlling interest basis adjustment

     —         —         —         (77,400

Provision for income taxes

     (43,799     (27,579     (228,654     44,820  

Noncontrolling interests

     (2,974     (5,374     (31,278     (26,762
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

   $ 182,927     $ 106,664     $ 698,763     $ 497,381  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP diluted weighted average shares outstanding

     155,071       134,128       154,517       134,018  

Additional dilutive securities

     943       4,533       1,093       260  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted weighted average shares outstanding

     156,014       138,661       155,610       134,278  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings (loss) per share

   $ 0.51     $ (0.09   $ 1.82     $ 5.70  

Adjusted earnings per share

     1.17       0.77       4.49       3.70  

Free Cash Flow

 

     Three months ended
December 31,
    Year ended
December 31,
 
     2016     2015     2016     2015  
     (in thousands)  

Net cash provided by operating activities

   $ 20,656     $ (173,481   $ 1,564,334     $ 1,368,045  

Less: capital expenditures

     (182,304     (161,602     (749,348     (787,041
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ (161,648   $ (335,083   $ 814,986     $ 581,004  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Adjusted Expenses (cost of revenue, selling and marketing, technology and content and general and administrative expenses)

 

     Three months ended
December 31,
     Year ended
December 31,
 
     2016      2015      2016      2015  
     (in thousands)  

Cost of revenue

   $ 370,841      $ 338,493      $ 1,596,698      $ 1,309,559  

Less: stock-based compensation

     (2,620      (1,721      (11,388      (5,307

Less: depreciation

     (16,567      (12,753      (62,420      (45,451

Less: eLong(1)

     —          —          —          (34,358
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted cost of revenue

   $ 351,654      $ 324,019      $ 1,522,890      $ 1,224,443  

Selling and marketing expense

   $ 968,555      $ 788,936      $ 4,367,417      $ 3,381,086  

Less: stock-based compensation

     (9,282      (9,274      (46,654      (33,164

Less: depreciation

     (8,055      (4,335      (28,747      (11,754

Less: eLong(1)

     —          —          —          (54,080
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted selling and marketing expense

   $ 951,218      $ 775,327      $ 4,292,016      $ 3,282,088  

Technology and content expense

   $ 324,098      $ 250,570      $ 1,235,019      $ 830,244  

Less: stock-based compensation

     (12,539      (7,361      (63,536      (26,766

Less: depreciation

     (101,266      (73,320      (361,434      (265,100

Less: eLong(1)

     —          —          —          (10,072
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted technology and content expense

   $ 210,293      $ 169,889      $ 810,049      $ 528,306  

General and administrative expense

   $ 173,897      $ 185,954      $ 678,292      $ 573,913  

Less: stock-based compensation

     (20,374      (22,157      (108,149      (80,082

Less: depreciation

     (6,340      (5,394      (24,460      (14,375

Less: eLong(1)

     —          —          —          (5,399
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted general and administrative expense

   $ 147,183      $ 158,403      $ 545,683      $ 474,057  

 

(1)  eLong amount presented without stock-based compensation and depreciation as those are included within the consolidated totals above.

Conference Call

Expedia, Inc. will webcast a conference call to discuss fourth quarter 2016 financial results and certain forward-looking information on Thursday, February 9, 2017 at 1:30 p.m. Pacific Time (PT). The webcast will be open to the public and available via http://ir.expediainc.com. Expedia, Inc. expects to maintain access to the webcast 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 9, 2017 and assumptions which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. The use of words such as “intend” and “expect,” 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;

 

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    our failure to modify to our current business models and practices or adopt new business models or practices in order to compete in a dynamic industry;

 

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

 

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

 

    declines or disruptions in the travel industry;

 

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

 

    declines or disruptions in the travel industry;

 

    our failure to invest in and adapt to technological developments or industry trends;

 

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

 

    risks related to HomeAway’s transition to a primarily transaction-based business;

 

    risks relating to our operations in international markets;

 

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

 

    adverse application of existing tax, rules or regulations are subject to interpretation by taxing authorities;

 

    interruption, security breaches and lack of redundancy in our information systems;

 

    unfavorable amendment to existing tax laws, rules or regulations or enactment of new unfavorable laws, rules or regulations;

 

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

 

    risks related to payments and fraud;

 

    fluctuations in foreign exchange rates;

 

    volatility in our stock price;

 

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

 

    our failure to comply with governmental regulation and other legal obligations related to our processing, storage, use, disclosure and protection of personal information, payment card information and other consumer data;

 

    our 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;

 

    risks related to our long-term indebtedness, including our failure to effectively operate our businesses due to restrictive covenants in the agreements governing our indebtedness;

 

    our failure to protect our intellectual property and proprietary information from copying or use by others, including potential 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, 2016. 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. (NASDAQ: EXPE) is the world’s largest online travel company, with an extensive brand portfolio that includes leading online travel brands, such as:

 

    Expedia.com®, a leading full service online travel company with localized sites in 33 countries

 

    Hotels.com®, a leading global lodging expert operating 89 localized websites in 39 languages with its award winning Hotels.com® Rewards loyalty program

 

    Orbitz Worldwide, including leading U.S. travel websites Orbitz.com and CheapTickets.com, as well as ebookers, a full-service travel brand with websites in seven European countries

 

Page 24 of 25


    Expedia® Affiliate Network (EAN), a global B2B brand that powers the hotel business of leading airlines, top consumer brands, online travel agencies and thousands of other partners through its API and template solutions

 

    trivago®, a leading online hotel search platform with sites in 55 countries worldwide

 

    HomeAway®, a global online marketplace for the vacation rental industry, which also includes the VRBO, VacationRentals.com® and BedandBreakfast.com® brands, among others

 

    Egencia®, a leading corporate travel management company

 

    Travelocity®, a leading online travel brand in the U.S. and Canada delivering customer service when and where our customers need it with the Customer 1st Guarantee

 

    Hotwire®, inspiring spontaneous travel through Hot Rate® deals

 

    Expedia® Media Solutions, the advertising sales division of Expedia, Inc. that builds media partnerships and enables brand advertisers to target a highly-qualified audience of travel consumers

 

    Wotif Group, a leading portfolio of travel brands including Wotif.com®, Wotif.co.nz, lastminute.com.au®, lastminute.co.nz and travel.com.au®

 

    Classic Vacations®, a top luxury travel specialist

 

    CarRentals.comTM, a premier online car rental booking company with localized sites in 13 countries

 

    Expedia Local Expert®, a provider of online and in-market concierge services, activities, experiences and ground transportation in over a thousand destinations worldwide

 

    Expedia® CruiseShipCenters®, a provider of exceptional value and expert advice for travelers booking cruises and vacations through its network of over 230 retail travel agency franchises across North America

For corporate and industry news and views, visit us at www.expediainc.com or follow us on Twitter @expediainc.

© 2017 Expedia, Inc. All rights reserved. Trademarks and logos are the property of their respective owners. CST: 2029030-50

 

Contacts     
Investor Relations      Communications
(425) 679-3759      (425) 679-4317
ir@expedia.com      press@expedia.com

 

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