10-QPeriod: Q2 FY2015

Expedia Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2015

Filed July 31, 2015For Securities:EXPE

Summary

Expedia Group, Inc. reported a significant increase in net income for the three and six months ended June 30, 2015, driven by a substantial gain on the sale of its eLong stake and strong revenue growth in its Core Online Travel Agencies (OTA) segment. Total revenue increased by 11% and 13% year-over-year for the respective periods, fueled by a 15% and 16% increase in the Core OTA segment, partially offset by declines in eLong and Egencia. Gross bookings also saw a healthy 19% increase for both periods, indicating continued demand for travel services. The company's financial position strengthened with a significant rise in cash and cash equivalents, largely due to operating cash flows and the proceeds from the eLong sale. However, the company is actively managing ongoing legal proceedings and tax-related contingencies, particularly concerning hotel occupancy taxes, which have led to increased reserves and "pay-to-play" payments in certain jurisdictions. Expedia's strategic initiatives include global expansion, product innovation, and a continued focus on mobile bookings. The pending acquisition of Orbitz Worldwide, Inc. is expected to further consolidate its market position. Investors should monitor the impact of ongoing legal matters and the successful integration of acquisitions on future profitability and financial health.

Financial Highlights

52 data points
Beta

Revenue

$1.66B

80.7% Gross Margin

Net Income

$449.64M

27.0% Net Margin

EPS (Diluted)

$3.38

Total Assets

$11.83B

Cash & Equivalents

$3.19B

Free Cash Flow

$244.89M

Financial Statements
Beta
Revenue$1.66B
Cost of Revenue$321.08M
Gross Profit$1.34B
Operating Income$90.09M
Interest Expense$28.52M
Net Income$449.64M
EPS (Basic)$3.49
EPS (Diluted)$3.38
Shares Outstanding (Basic)128.89M
Shares Outstanding (Diluted)132.96M

Key Highlights

  • 1Net income attributable to Expedia, Inc. surged to $449.6 million for Q2 2015 and $493.8 million for H1 2015, significantly boosted by a $509 million pre-tax gain from the sale of its eLong stake.
  • 2Total revenue grew by 11% to $1.66 billion for Q2 2015 and 13% to $3.04 billion for H1 2015, driven by strong performance in the Core OTA segment.
  • 3Gross bookings increased by 19% year-over-year for both Q2 and H1 2015, indicating robust demand for travel services.
  • 4Cash and cash equivalents more than doubled, reaching $3.19 billion as of June 30, 2015, a significant increase from $1.40 billion at the end of 2014, bolstered by operating cash flows and the eLong sale proceeds.
  • 5The company increased its reserve for hotel occupancy tax litigation to $94 million, reflecting ongoing legal challenges and associated interest expenses.
  • 6Expedia is actively pursuing strategic growth through acquisitions, including the pending acquisition of Orbitz Worldwide, Inc., and global expansion efforts.
  • 7Revenue per room night declined primarily due to unfavorable foreign exchange impacts and strategic margin reductions to expand the global hotel supply portfolio.

Frequently Asked Questions

The primary driver was a substantial pre-tax gain of $509 million ($395 million after tax) recognized from the sale of Expedia's 62.4% ownership stake in eLong, Inc. on May 22, 2015. This one-time gain significantly boosted net income for the periods.

Expedia reported strong top-line growth. Total revenue increased by 11% to $1.66 billion for the three months ended June 30, 2015, and by 13% to $3.04 billion for the six months ended June 30, 2015, compared to the prior year periods. Gross bookings also showed robust growth, increasing by 19% for both periods, driven largely by the Core OTA segment.

Expedia is involved in numerous lawsuits related to hotel occupancy taxes. While the company believes it does not owe these taxes, it has increased its reserve for potential settlements to $94 million as of June 30, 2015, partly due to an increase in estimated interest payments related to a District of Columbia litigation outcome. Some jurisdictions have also required "pay-to-play" payments, where taxes must be paid before litigation can proceed. The company continues to defend these claims vigorously.

Expedia's cash and cash equivalents significantly increased to $3.19 billion as of June 30, 2015, up from $1.40 billion at December 31, 2014. This increase was driven by strong operating cash flows, the proceeds from the eLong sale, and new debt issuance, partially offset by business acquisitions and capital expenditures. The company believes its available cash, operational cash flows, and credit facility provide sufficient resources for its foreseeable liquidity needs.