01—Abstract
Summary
Summary of the 10-Q filed July 30, 2009. Cited figures are marked; the original filing is the authoritative source.
Expedia Group, Inc. (EXPE) reported its financial results for the quarter and six months ended June 30, 2009.
Total revenue declined by 3%a for the quarter and 5% for the six months compared to the prior year, reflecting weakness in the travel industry exacerbated by macroeconomic conditions and the swine flu outbreak. Operating income saw a significant decrease of 33% for the quarter and 20% for the six months, largely due to substantial charges related to occupancy tax assessments (particularly in San Francisco) and a legal reserve for a class-action lawsuit. Despite these headwinds, the company's revenue margin improved slightly, driven by a favorable shift in business mix away from lower-margin air products towards advertising and media revenue.
The balance sheet shows an increase in cash and cash equivalents, while long-term debt remained relatively stable. However, working capital saw a notable deficit increase, primarily due to significant debt repayments.
The company generated solid cash flow from operations, though it was slightly lower than the prior year, impacted by increased tax and interest payments. The company is actively managing legal proceedings, especially concerning hotel occupancy taxes and class-action lawsuits, which have resulted in significant accruals that impacted profitability.
02—Key points
Key Highlights
- Revenue declined 3% year-over-year for the quarter and 5% for the six months, indicating a challenging market environment.
- Operating income decreased significantly (33% quarterly, 20% year-to-date) due to substantial charges for occupancy tax assessments and class-action lawsuit reserves.
- A positive shift in revenue mix towards higher-margin advertising and media revenue, and away from lower-margin air travel, contributed to an improved overall revenue margin.
- Cash and cash equivalents increased, providing a solid liquidity position, though working capital deficit widened due to debt repayments.
- Significant legal proceedings, particularly concerning hotel occupancy taxes and class-action lawsuits, are ongoing and have resulted in material financial provisions.
- The company continues to invest in technology and content innovation, and global reach expansion, despite the current economic climate.
- Gross bookings decreased by 5% for the quarter and 8% for the six months, influenced by declining airfares and hotel Average Daily Rates (ADR), although transaction volumes saw some increase.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2009, Expedia Group, Inc. kept $0.05.
- Revenue$769.8M100.0%
- Cost of revenue−$148.8M19.3%
- Gross profit$621.0M80.7%
- Operating costs−$506.4M65.8%
- Operating income$114.6M14.9%
- Interest, other & tax−$73.7M9.6%
- Net income$40.9M5.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2009filed July 30, 2009Financial Statements
| Revenue | $769.77M |
| Cost of Revenue | $148.76M |
| Gross Profit | $621.01M |
| Operating Income | $114.64M |
| Interest Expense | $20.80M |
| Net Income | $40.90M |
| EPS (Basic) | $0.28 |
| EPS (Diluted) | $0.28 |
| Shares Outstanding (Basic) | 144.09M |
| Shares Outstanding (Diluted) | 145.44M |
05—Questions
Frequently Asked Questions
What is the primary reason for the significant drop in operating income?
The significant decrease in operating income is primarily attributable to substantial charges recognized in the current period. These include $74 million for occupancy tax assessments and legal reserves, notably related to San Francisco, and a $19 million reserve for a class-action lawsuit. These items were not present in the prior year's comparable periods.
How is the company managing its debt and liquidity?
Expedia's liquidity position remains adequate, supported by cash generated from operations and its revolving credit facility. The company repaid $650 million under its credit facility in the first quarter of 2009, which led to a wider working capital deficit. While debt levels are managed, the company is subject to financial covenants on its credit facility and is monitoring the broader credit market environment.
What are the key risks highlighted in the Management's Discussion and Analysis (MD&A)?
The MD&A highlights significant risks related to the competitive travel industry, global economic downturn, swine flu outbreak, and specific sector challenges. These include declining airfares, reduced hotel ADRs, increasing direct online distribution by suppliers, and intense competition. The company also faces ongoing legal proceedings, particularly regarding hotel occupancy taxes and class-action lawsuits, which pose financial and operational risks.
Can you explain the change in revenue and revenue margin?
Total revenue decreased year-over-year due to declines in air and hotel bookings, impacted by lower prices (airfares and hotel ADRs) and softer demand. However, the overall revenue margin improved slightly. This is driven by a favorable shift in the business mix, with a reduced contribution from lower-margin air travel and an increased contribution from higher-margin advertising and media services.
06—Continue