10-QPeriod: Q3 FY2005

Expedia Group, Inc. Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 14, 2005For Securities:EXPE

Summary

Expedia Group, Inc. reported strong revenue growth of 16% for both the three and nine months ended September 30, 2005, compared to the prior year, reaching $584.7 million and $1.62 billion respectively. This growth was primarily driven by increases in merchant hotel revenue, acquisitions, and air revenue, despite headwinds from the hurricane season and terrorist activities. The company successfully completed its spin-off from IAC/InterActiveCorp on August 9, 2005, becoming an independent publicly traded entity. Net income for the third quarter was $82.0 million, or $0.23 per diluted share, a significant increase from $58.1 million, or $0.17 per diluted share, in the same period last year. Operationally, the company saw a substantial increase in operating income, up 85% and 83% for the three and nine-month periods, respectively. This improvement was driven by revenue growth, operational efficiencies, and a notable decrease in non-cash compensation expenses due to a change in estimated forfeiture rates. The balance sheet reflects a significant reduction in total assets from $9.54 billion to $7.78 billion, largely due to the extinguishment of intercompany balances with IAC and the spin-off transaction. The company also secured a $1.0 billion unsecured revolving credit facility, providing ample liquidity for future operations and investments.

Key Highlights

  • 1Revenue grew by 16% year-over-year for both the three and nine months ended September 30, 2005, demonstrating strong top-line performance.
  • 2Net income significantly increased to $82.0 million in Q3 2005 from $58.1 million in Q3 2004, with diluted EPS rising to $0.23 from $0.17.
  • 3The company successfully completed its spin-off from IAC/InterActiveCorp on August 9, 2005, becoming a standalone public entity, which impacts historical financial comparisons.
  • 4Operating income saw substantial growth of 85% and 83% for the three and nine months ended September 30, 2005, driven by revenue growth and improved operational efficiencies.
  • 5A substantial benefit of $35.3 million was recorded in the quarter related to a change in the estimated forfeiture rate for stock-based compensation, positively impacting net income.
  • 6The company secured a $1.0 billion unsecured revolving credit facility on July 11, 2005, enhancing its financial flexibility and liquidity.
  • 7Total assets decreased from $9.54 billion to $7.78 billion, reflecting the impact of the spin-off and the extinguishment of intercompany receivables from IAC.

Frequently Asked Questions

The spin-off, completed on August 9, 2005, means that Expedia is now a standalone public company. The financial statements for periods prior to the spin-off are presented on a combined basis, and the balance sheet reflects the separation, including the extinguishment of intercompany balances with IAC and a significant change in total assets. Post-spin-off operations are presented on a consolidated basis.

Expedia reported a 16% increase in revenue for both the three months ($584.7 million vs. $503.8 million) and the nine months ($1.62 billion vs. $1.40 billion) ended September 30, 2005, compared to the same periods in 2004. This growth was primarily driven by strong performance in the merchant hotel segment, acquisitions, and the air travel business.

The substantial increase in operating income (85% for Q3 and 83% for the first nine months of 2005) was due to a combination of factors: increased revenue, operational efficiencies leading to higher gross profit, and a notable decrease in non-cash compensation expense. The latter was significantly influenced by a one-time benefit recognized due to a change in the estimated forfeiture rate for stock-based compensation.

Yes, the company appears to have sufficient liquidity. As of September 30, 2005, Expedia had $227.9 million in cash and cash equivalents. Furthermore, on July 11, 2005, it entered into a $1.0 billion unsecured revolving credit facility. Management believes its available cash, internally generated funds, and the credit facility provide sufficient capital resources for foreseeable liquidity needs.