01—Abstract
Summary
Summary of the 10-Q filed October 30, 2015. Cited figures are marked; the original filing is the authoritative source.
Expedia Group, Inc. (EXPE) reported strong revenue growth for the three and nine months ended September 30, 2015, compared to the prior year, driven by the Core OTA segment and a significant gain from the sale of its eLong stake.
The acquisition of Orbitz Worldwide in Q3 2015, while contributing to revenue, also resulted in substantial restructuring charges. Despite an increase in operating income for the quarter, the nine-month period saw a decline, impacted by higher operating expenses and restructuring costs.
The company's balance sheet expanded significantly, largely due to acquisitions, with increased debt levels to finance these strategic moves. Expedia also saw positive developments in ongoing tax litigation, particularly a significant refund from Hawaii, which positively impacted the 'Legal reserves, occupancy tax and other' line item.
02—Key points
Key Highlights
- Total revenue increased by 13% to $1.94 billion for the three months ended September 30, 2015, and by 13% to $4.97 billion for the nine months ended September 30, 2015, compared to the prior year periods.
- Net income attributable to Expedia, Inc. grew to $283 million for the three months ended September 30, 2015, a 10% increase year-over-year, and surged to $777 million for the nine months ended September 30, 2015, a 134% increase year-over-year, primarily due to a $509 million pre-tax gain on the sale of the eLong stake.
- The acquisition of Orbitz Worldwide, Inc. was completed in September 2015 for $1.8 billion, significantly increasing goodwill and intangible assets on the balance sheet.
- Restructuring and related reorganization charges amounted to $72 million and $82 million for the three and nine months ended September 30, 2015, respectively, primarily related to acquisition integrations, notably Orbitz.
- The company received a significant refund of $132 million related to Hawaii general excise tax litigation, resulting in a $115 million benefit to 'Legal reserves, occupancy tax and other' for the three months ended September 30, 2015.
- Long-term debt increased to $2.48 billion as of September 30, 2015, up from $1.75 billion at December 31, 2014, reflecting new debt issuance, including €650 million in senior notes.
- Diluted earnings per share were $2.12 for the three months ended September 30, 2015, up from $1.94 in the prior year, and $5.86 for the nine months ended September 30, 2015, up from $2.48 in the prior year.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2015, Expedia Group, Inc. kept $0.15.
- Revenue$1.94B100.0%
- Cost of revenue−$328.1M16.9%
- Gross profit$1.61B83.1%
- Operating costs−$1.26B65.3%
- Operating income$345.0M17.8%
- Interest, other & tax−$61.8M3.2%
- Net income$283.2M14.6%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2015filed October 30, 2015Financial Statements
Q3 FY2015 against Q3 FY2014
| Line item | Q3 FY2015Q3 FY2014 | Change |
|---|---|---|
| Revenue | $1.94B$1.71B | +13.2% |
| Cost of Revenue | $328.07M$299.71M | +9.5% |
| Gross Profit | $1.61B$1.41B | +13.9% |
| Operating Income | $345.00M$296.84M | +16.2% |
| Interest Expense | $33.26M$25.56M | +30.1% |
| Net Income | $283.22M$257.06M | +10.2% |
| EPS (Basic) | $2.18$2.01 | +8.5% |
| EPS (Diluted) | $2.12$1.94 | +9.3% |
| Shares Outstanding (Basic) | 129.99M127.91M | +1.6% |
| Shares Outstanding (Diluted) | 133.42M132.27M | +0.9% |
05—Questions
Frequently Asked Questions
What was the impact of the Orbitz acquisition on Expedia's financials?
The acquisition of Orbitz Worldwide, Inc. in September 2015 significantly increased Expedia's assets, including goodwill and intangible assets. It contributed $19 million in revenue and $86 million in operating losses for the third quarter of 2015, largely due to $69 million in restructuring charges related to the integration. The acquisition also led to an increase in long-term debt and a substantial increase in total assets and liabilities on the balance sheet.
How did the sale of eLong affect Expedia's net income?
The sale of Expedia's 62.4% stake in eLong, Inc. on May 22, 2015, resulted in a significant pre-tax gain of $509 million ($395 million after tax) recognized during the nine months ended September 30, 2015. This gain substantially boosted net income for the nine-month period, contributing to a large year-over-year increase.
What is the status of Expedia's hotel occupancy tax litigation, and what was the financial impact?
Expedia continues to defend against numerous lawsuits related to hotel occupancy taxes. A significant development in the nine months ended September 30, 2015, was the receipt of a $132 million refund from the State of Hawaii related to general excise tax litigation. This resulted in a substantial benefit recognized in 'Legal reserves, occupancy tax and other,' turning a charge in the prior year into a significant gain for the current period. Expedia maintains a reserve of $47 million as of September 30, 2015, for potential settlements of these issues.
How has Expedia's debt structure changed, and what is the outlook for liquidity?
Expedia's long-term debt increased to $2.48 billion as of September 30, 2015, up from $1.75 billion at the end of 2014. This increase is primarily due to the issuance of Euro 650 million in senior notes in June 2015 to help finance acquisitions and other strategic initiatives. Despite increased debt, the company's liquidity is considered sufficient, supported by operating cash flows, existing cash and investments, and an undrawn revolving credit facility. However, potential future borrowings and capital allocations for acquisitions and share repurchases could impact this.
06—Continue