10-QPeriod: Q3 FY2013

Expedia Group, Inc. Quarterly Report for Q3 Ended Sep 30, 2013

Filed October 31, 2013For Securities:EXPE

Summary

Expedia Group, Inc. (EXPE) reported strong revenue growth for the nine months ended September 30, 2013, with total revenue increasing 18% year-over-year to $3.62 billion. This growth was driven primarily by the Leisure segment, which saw a 17% increase in revenue, largely fueled by strong performance in hotel and advertising/media revenues, including contributions from the recent acquisition of trivago. The Egencia corporate travel segment also showed robust growth of 31% in revenue. Despite the revenue gains, net income attributable to Expedia, Inc. for the nine months ended September 30, 2013, decreased significantly to $138 million from $273 million in the prior year. This decline was impacted by substantial charges related to the Hawaii general excise tax litigation, totaling $64 million for the period, and acquisition-related expenses of $66 million, primarily from the trivago acquisition. The company's balance sheet shows a significant increase in Goodwill to $3.66 billion and Intangible Assets to $1.13 billion, reflecting strategic acquisitions. Expedia's liquidity remains strong, with $1.39 billion in cash and cash equivalents. The company actively manages its capital through share repurchases and dividend payments, demonstrating a commitment to returning value to shareholders. Investors should monitor the ongoing legal proceedings, particularly those related to various tax liabilities, which could materially impact future financial performance.

Financial Highlights

52 data points
Beta

Revenue

$1.40B

80.3% Gross Margin

Net Income

$170.86M

12.2% Net Margin

EPS (Diluted)

$1.22

Total Assets

$8.20B

Cash & Equivalents

$1.39B

Free Cash Flow

-$301.77M

Financial Statements
Beta
Revenue$1.40B
Cost of Revenue$276.32M
Gross Profit$1.13B
Operating Income$238.69M
Interest Expense$21.97M
Net Income$170.86M
EPS (Basic)$1.25
EPS (Diluted)$1.22
Shares Outstanding (Basic)136.38M
Shares Outstanding (Diluted)140.45M

Key Highlights

  • 1Total revenue for the nine months ended September 30, 2013, increased by 18% to $3.62 billion, driven by strong performance in the Leisure segment.
  • 2Net income attributable to Expedia, Inc. for the nine months decreased to $138.1 million from $273.4 million in the prior year, impacted by significant legal and acquisition-related charges.
  • 3The acquisition of trivago in March 2013 contributed to increased goodwill and intangible assets on the balance sheet, as well as higher amortization expenses.
  • 4Operating income decreased by 47% for the nine months, largely due to the $64 million charge for Hawaii general excise tax litigation and $66 million in acquisition-related expenses.
  • 5Cash and cash equivalents stood at $1.39 billion as of September 30, 2013, with the company maintaining a $1 billion unsecured revolving credit facility.
  • 6The company repurchased approximately 6.3 million shares of common stock for $348 million during the nine months ended September 30, 2013, and declared dividends totaling $56 million.
  • 7Significant legal matters, particularly related to hotel occupancy taxes and Hawaii's general excise tax, represent ongoing financial risks and potential liabilities.

Frequently Asked Questions

The primary driver of Expedia's revenue growth was the strong performance in its Leisure segment, which benefited from increased hotel revenues and advertising/media revenue, particularly from the acquired trivago business. The Egencia corporate travel segment also contributed with significant revenue growth.

Net income was significantly impacted by several factors, including substantial charges related to the Hawaii general excise tax litigation ($64 million for the nine months), acquisition-related expenses ($66 million for the nine months primarily from the trivago acquisition), and an increase in amortization of intangible assets due to recent acquisitions. These items, among others, offset the revenue growth.

Expedia maintained a strong liquidity position with $1.39 billion in cash and cash equivalents as of September 30, 2013. The company also had access to a $1 billion unsecured revolving credit facility. Long-term debt remained stable at approximately $1.25 billion, consisting of senior notes.

The most significant legal and tax-related risks involve ongoing litigation concerning hotel occupancy taxes in various U.S. jurisdictions, and the Hawaii general excise tax litigation. The company has established reserves for potential settlements, but adverse outcomes could materially impact financial results. Additionally, there are ongoing investigations into hotel booking practices in the UK and other European countries.