Expedia Group, Inc. - Q2 2009 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009. Expedia, Inc. operates a global travel marketplace through a diversified portfolio of brands including Expedia.com, hotels.com, Hotwire.com, TripAdvisor Media Network, and Egencia. The company reorganized its reporting segments in Q1 2009 to align with global brands: Leisure, TripAdvisor Media Network, and Egencia.
Key Financial Metrics
| Metric | Q2 2009 | Q2 2008 | YTD 2009 | YTD 2008 |
|---|---|---|---|---|
| Revenue | $769.8 million | $795.0 million | $1,405.5 million | $1,482.9 million |
| Operating Income | $114.6 million | $170.5 million | $207.6 million | $260.5 million |
| Net Income (Attributable to Expedia) | $40.9 million | $96.1 million | $80.3 million | $147.4 million |
| Diluted EPS | $0.14 | $0.33 | $0.28 | $0.50 |
| Operating Cash Flow (YTD) | $844.6 million | $871.1 million | - | - |
| Cash & Equivalents (End of Period) | $862.3 million | - | - | - |
| Long-Term Debt | $894.8 million | - | - | - |
| Revolving Credit Facility | $0 outstanding | $650 million outstanding | - | - |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 3% in Q2 and 5% YTD compared to 2008. This was driven by a 19% decline in hotel Average Daily Rates (ADRs) and a 22% decline in revenue per air ticket due to lower booking fees and commissions.
- Profitability Compression: Operating income fell 33% in Q2 and 20% YTD. This decline was significantly impacted by one-time charges totaling $74.2 million for occupancy tax assessments and legal reserves, plus $6.1 million in restructuring charges.
- Debt Reduction: The company repaid the full $650 million balance on its revolving credit facility in Q1 2009, reducing total indebtedness from $1.54 billion (Dec 2008) to $895 million (June 2009).
- Segment Performance: Leisure revenue declined 3% in Q2. TripAdvisor Media Network revenue remained flat. Egencia revenue declined 11% in Q2 due to reduced corporate travel demand.
Guidance, Outlook, and Risks
- Market Conditions: Management cites a worsening global economic downturn and the swine flu pandemic as factors creating uncertainty and potentially delaying travel demand. No specific financial guidance was provided in this filing.
- Legal Contingencies:
- Occupancy Taxes: The company accrued $55 million for San Francisco tax assessments (paid in July 2009) and $20 million for additional probable assessments. A $21 million reserve exists for other municipality lawsuits.
- Class Action: A settlement agreement was reached regarding a consumer class action lawsuit in Washington. The company accrued $19 million, with a potential loss range of $19 million to $134 million.
- Liquidity: The company maintains a $1 billion credit facility with $950 million available. Management believes cash flows and available borrowings are sufficient to meet foreseeable needs.
Investor Verification Checklist
- Legal Reserves: Verify the final settlement amount for the Washington consumer class action lawsuit and the outcome of the San Francisco occupancy tax litigation.
- Revenue Mix: Monitor the recovery of hotel ADRs and the impact of the removal of booking fees on air ticket revenue per transaction.
- Working Capital: Track changes in "Deferred merchant bookings" and "Accounts payable, merchant" to assess the impact of the merchant model on cash flow, especially given the noted reduction in working capital benefits.
- Restructuring: Confirm the completion of the $15 million restructuring plan and associated cost savings.