Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, but not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2015, Part I, Item 1A, “Risk Factors,” as well as those discussed elsewhere in this report. Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition and results of operations. Accordingly, readers should not place undue reliance on these forward-looking statements. The use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” among others, generally identify forward-looking statements; however, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Please carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission (“SEC”) that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
The information included in this management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
Overview
Expedia, Inc. is an online travel company, empowering business and leisure travelers with the tools and information they need to efficiently research, plan, book and experience travel. We have created a global travel marketplace used by a broad range of leisure and corporate travelers, offline retail travel agents and travel service providers. We make available, on a stand-alone and package basis, travel products and services provided by numerous airlines, lodging properties, car rental companies, destination service providers, cruise lines, vacation rental property owners and managers, and other travel product and service companies. We also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our various media and advertising offerings on our transaction-based websites.
Our portfolio of brands includes Expedia.com
®
, Hotels.com
®
, Orbitz Worldwide, Expedia
®
Affiliate Network (“EAN”), trivago, HomeAway, Egencia
®
, Travelocity
®
, Hotwire.com
™,
Wotif Group, Classic Vacations
®
, CarRentals.com
™,
Expedia Local Expert
™
and Expedia
®
CruiseShipCenters
®
. In addition, many of these brands have related international points of sale, including those as part of AirAsia Expedia
™
. For additional information about our portfolio of brands, see “Portfolio of Brands” in Part I, Item 1, “Business,” in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
All percentages within this section are calculated on actual, unrounded numbers.
Trends
The travel industry, including offline agencies, online agencies and other suppliers of travel products and services, has historically been characterized by intense competition, as well as rapid and significant change. Generally, 2015 and 2016 represented years of continuing improvement for the travel industry. However, political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, sovereign debt issues and macroeconomic concerns are examples of events that contribute to a somewhat uncertain environment, which could have a negative impact on the travel industry in the future.
Online Travel
Increased usage and familiarity with the internet have driven rapid growth in online penetration of travel expenditures. According to Phocuswright, an independent travel, tourism and hospitality research firm, in 2016, over 50% of U.S. and European leisure, unmanaged and corporate travel expenditures occurred online. Online penetration rates in the emerging markets, such as Asia Pacific and Latin American regions, are lagging behind that of the United States and Europe, and are estimated to be in the range of 30% to 35%. These penetration rates have increased over the past few years, and are expected to
continue growing, which has attracted many competitors to online travel. This competition intensified in recent years, and the industry is expected to remain highly competitive for the foreseeable future. In addition to the growth of online travel agencies, airlines and lodging companies have aggressively pursued direct online distribution of their products and services. Competitive entrants such as “metasearch” companies, including Kayak.com (owned by The Priceline Group), trivago (in which Expedia owns a majority interest) as well as TripAdvisor, introduced differentiated features, pricing and content compared with the legacy online travel agency companies, as well as various forms of direct or assisted booking tools, the impact of which is currently uncertain. In addition, the increasing popularity of the “sharing economy,” accelerated by online penetration, has had a direct impact on the travel and lodging industry. Players such as Airbnb and HomeAway (which Expedia acquired in December 2015) have emerged as the leaders, bringing incremental alternative accommodation and vacation rental inventory to the market. Many other competitors, including vacation rental metasearch players, continue to emerge in this space, which is estimated to account for approximately $100 billion of annual travel spend and expected to continue to grow as a percentage of the global accommodation market. Furthermore, we have seen increased interest in the online travel industry from search engine companies as evidenced by recent innovations including direct booking functionality, as well as licensing deals and proposed and actual acquisitions by companies such as Google. Finally, traditional consumer e-commerce and group buying websites have been expanding their local offerings into the travel market by adding hotel offers to their sites.
The online travel industry has also seen the development of alternative business models and variations in the timing of payment by travelers and to suppliers, which in some cases place pressure on historical business models. In particular, the agency hotel model saw rapid adoption in Europe. Expedia has both merchant (Expedia Collect) and agency (Hotel Collect) hotel offerings for our hotel supply partners and we expect our use of these models to continue to evolve, including through the continued expansion of our ETP program, which offers travelers the choice of whether to pay Expedia at the time of booking or pay the hotel at the time of stay.
Intense competition also historically led to aggressive marketing efforts by the travel suppliers and intermediaries, and a meaningful unfavorable impact on our overall marketing efficiencies and operating margins. We manage our selling and marketing spending on a brand basis at the local or regional level, making decisions in each market that we think are appropriate based on the relative growth opportunity, the expected returns and the competitive environment. In certain cases, particularly in emerging markets, we are pursuing and expect to continue to pursue long-term growth opportunities for which our marketing efficiency is less favorable than that for our consolidated business, but for which we still believe the opportunity to be attractive. The crowded online travel environment is now driving certain secondary and tertiary online travel companies to establish marketing agreements with global players in order to leverage distribution and technology capabilities while focusing resources on capturing consumer mind share.
In May 2015, Expedia sold its 62.4% equity stake in eLong for approximately $671 million to several purchasers including Ctrip.com International, Ltd (“Ctrip”). Expedia and Ctrip also reached agreement on cooperation for certain travel products in specified geographic markets. The transaction closed on May 22, 2015. Unless otherwise noted, all discussion in the “Trends” and “Growth Strategy” sections refers to results for Expedia, Inc. excluding eLong.
Lodging
Lodging includes hotel accommodations as well as alternative accommodations primarily made available through HomeAway. As a percentage of our total worldwide revenue in the first quarter of 2017, lodging accounted for 64%. Our room night growth has been healthy, with room nights excluding eLong growing 36% in 2015, 32% in 2016, and 12% for the first quarter of 2017. ADRs for rooms booked on Expedia and HomeAway sites excluding eLong declined 5% in 2015, increased 11% in 2016 due to the acquisition of HomeAway, and increased 2% for the first quarter of 2017.
Hotel.
We generate the majority of our revenue through the facilitation of hotel reservations (stand-alone and package bookings). Although our relationships with our hotel supply partners have remained broadly stable in the past few years, as part of the global rollout of ETP, we reduced negotiated economics in certain instances to compensate for hotel supply partners absorbing expenses such as credit card fees and customer service costs, which has negatively impacted the margin of revenue we earn per booking. In addition, as we continue to expand the breadth and depth of our global hotel offering, in some cases we have reduced and expect to continue to reduce our economics in various geographies based on local market conditions. These impacts are due to specific initiatives intended to drive greater global size and scale through faster overall room night growth. Additionally, increased promotional activities such as growing loyalty programs contribute to declines in revenue per room night. Lastly, currency exchange rate fluctuations have had a negative effect on unit economics due to unfavorable book-to-stay as well as translation impacts.
Since our hotel supplier agreements are generally negotiated on a percentage basis, any increase or decrease in ADRs has an impact on the revenue we earn per room night. Over the course of the last several years, occupancies and ADRs in the lodging industry have generally increased on a currency-neutral basis in a gradually improving overall travel environment. However, U.S. dollar-denominated ADRs declined in 2015, 2016, and the first quarter of 2017 due to the currency translation
impact. Current occupancy rates remain at record highs; however, U.S. hotel supply growth has been accelerating, which may put additional pressure on ADRs. In international markets, hotel supply is being added at a faster rate as hotel owners and operators try to take advantage of opportunities in faster growing regions such as China and India, among others. Companies like Airbnb have also added incremental global supply in the alternative accommodations space. In addition, while the global lodging industry remains very fragmented, there has been consolidation in the hotel space among chains as well as ownership groups. In the meantime, certain hotel chains have been focusing on driving direct bookings on their own websites and mobile applications by advertising lower rates than those available on third-party websites as well as incentives such as loyalty points, increased or exclusive product availability and complimentary Wi-Fi. We have had success adding supply to our marketplace with nearly 385,000 properties on our global websites as of March 31, 2017, including certain HomeAway vacation rental properties now available on Expedia.com.
Alternative Accommodations.
With our acquisition of HomeAway and all of its brands in December 2015, we have expanded into the fast growing $100 billion alternative accommodations market. HomeAway is a leader in this market and represents an attractive growth opportunity for Expedia. HomeAway has been undergoing a transition from a listings-based classified advertising model to an online transactional model that optimizes for both travelers and homeowner and property manager partners, with a goal of increasing monetization and driving growth through investments in marketing as well as in product and technology. In addition, HomeAway rolled out a traveler service fee in the United States and Europe during the first half of 2016, consistent with market practice. The fee is expected to continue to contribute to HomeAway’s revenue growth and help fund marketing investment, programs to better protect travelers and future growth initiatives. Furthermore, HomeAway moved to a single subscription option globally in July 2016. In the first quarter of 2017, HomeAway began integrating Expedia vacation rental properties onto its sites. Combined with HomeAway's existing inventory, there are now nearly 1.4 million online bookable listings
available on HomeAway.
Air
Significant airline sector consolidation in the United States in recent years has generally resulted in lower overall capacity and higher fares, which combined with the significant declines in fuel prices led to record levels of profitability for the U.S. air carriers, further strengthening their position. However, in 2015 and 2016 and for the first quarter of 2017, there has been evidence of discounting by the U.S. carriers while currency headwinds and weaker macroeconomic trends put pressure on international results. Ticket prices on Expedia sites excluding eLong declined 11% in 2015, 6% in 2016, and 3% in the first quarter of 2017 as short-haul traffic and low cost carriers grew alongside increasingly competitive airline pricing. We continue to encounter pressure on air remuneration as air carriers combine and as certain supply agreements renew.
Air ticket volumes excluding eLong increased 35% in 2015 and 32% in 2016, primarily due to the acquisition of Orbitz, and 8% in the first quarter of 2017. As a percentage of our total worldwide revenue in the first quarter of 2017, air accounted for 10%.
Advertising & Media
Our advertising and media business is principally driven by revenue generated by trivago, a leading hotel metasearch site, in addition to Expedia Media Solutions, which is responsible for generating advertising revenue on our global online travel brands. In the first quarter of 2017, we generated a total of $257 million of advertising and media revenue representing 12% of our total worldwide revenue, up from $174 million in the first quarter of 2016.
Growth Strategy
Product Innovation.
Each of our leading brands was a pioneer in online travel and has been responsible for driving key innovations in the space for more than two decades. Each Expedia technology platform is operated by a dedicated technology team, which drives innovations that make researching and shopping for travel increasingly easier and help customers find and book the best possible travel options. In the past several years, we made key investments in technology, including significant development of our technical platforms that makes it possible for us to deliver innovations at a faster pace. For example, we launched new global platforms for Hotels.com and Brand Expedia, enabling us to significantly increase the innovation cycle, thereby improving conversion and driving faster growth rates for those brands. In 2013, Expedia signed an agreement to power the technology, supply and customer service platforms for Travelocity-branded sites in the United States and Canada, enabling Expedia to leverage its investments in each of these key areas. The shift of Travelocity-branded sites to the Expedia technology platform was successfully completed over the course of 2014. In November 2014, Expedia completed the acquisition of Wotif Group and subsequently converted the Wotif.com site to the Expedia platform. In January 2015, we acquired the Travelocity brand and other associated assets from Sabre. The strategic marketing and other related agreements previously entered into were terminated. In September 2015, Expedia completed the acquisition of Orbitz Worldwide, including all of its brands. The migration of the Orbitz.com, CheapTickets.com and ebookers sites to the Expedia technology platform was completed in the first half of 2016, and Orbitz for Business customers were migrated to the Egencia technology platform as of July 2016. In
December 2015, Expedia completed the acquisition of HomeAway, Inc., including all of its brands. We intend to continue leveraging these investments when launching additional points of sale in new countries, introducing new website features, adding supplier products and services including new business model offerings, as well as proprietary and user-generated content for travelers. In addition, while we aim to drive the top-line growth in our global brands, we are managing our regional brands, such as Travelocity, Orbitz.com, Wotif.com, ebookers and CheapTickets.com, with a greater focus on profitability.
Global Expansion.
Our Expedia, Hotels.com, Egencia, and EAN brands operate both domestically and through international points of sale, including in Europe, Asia Pacific, Canada and Latin America. In addition, ebookers offers multi-product online travel reservations in Europe and Wotif Group has a leading portfolio of travel brands, including Wotif.com, Wotif.co.nz, lastminute.com.au, lastminute.com.nz and travel.com.au. Egencia, our corporate travel business, operates in over 65 countries around the world and continues to expand. The HomeAway portfolio has over 50 vacation rental sites all around the world. We own a majority share of trivago, a leading hotel metasearch company. Officially launched in 2005, trivago is one of the best known travel brands in Europe and North America. trivago continues to operate independently and rapidly grow revenue through global expansion, including aggressive expansion in new countries. In December 2016, trivago successfully completed its IPO and trades on the Nasdaq Global Select Market under the symbol "TRVG." In addition, we have commercial agreements in place with Ctrip and eLong in China, as well as Decolar.com, Inc. in Latin America. In the first quarter of 2017, approximately 36% of our worldwide gross bookings and 43% of worldwide revenue were through international points of sale compared to just 21% for both worldwide gross bookings and revenue in 2005. We have a goal of generating more than two-thirds of our revenue through businesses and points of sale outside of the United States.
In expanding our global reach, we leverage significant investments in technology, operations, brand building, supplier relationships and other initiatives that we have made since the launch of Expedia.com in 1996. Our scale of operations enhances the value of technology innovations we introduce on behalf of our travelers and suppliers. We believe that our size and scale afford the company the ability to negotiate competitive rates with our supply partners, provide breadth of choice and travel deals to our traveling customers through an expanding supply portfolio and create opportunities for new value added offers for our customers such as our loyalty programs. The size of Expedia’s worldwide traveler base makes our sites an increasingly appealing channel for travel suppliers to reach customers. In addition, the sheer size of our user base and search query volume allows us to test new technologies very quickly in order to determine which innovations are most likely to improve the travel research and booking process, and then roll those features out to our worldwide audience in order to drive improvements in conversion.
New Channel Penetration
. Technological innovations and developments continue to create new opportunities for travel bookings made through mobile devices, in addition to more traditional methods like desktop and laptop computers. In the past few years, each of our brands made significant progress creating new mobile websites and mobile applications that are receiving strong reviews and solid download trends, and some of our brands now see more traffic via mobile devices than via traditional desktops. Mobile bookings via smartphones continue to present an opportunity for incremental growth as they are often completed within one or two days of the travel or stay, which is a much shorter booking window than we had historically experienced via more traditional online booking methods. In addition, we are seeing increasing cross-device usage among our customers, who connect to our websites and apps across multiple devices and platforms throughout their travel planning process. We also believe mobile represents an efficient marketing channel given the opportunity for direct traffic acquisition, increase in share of wallet and in repeat customers, particularly through mobile applications. During the first quarter of 2017,
nearly one in three Expedia, Inc. transactions were booked globally on a mobile device.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel products and services. For example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and winter holiday travel. The number of bookings typically decreases in the fourth quarter. Because revenue for most of our travel products, including merchant and agency hotel, is recognized when the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks or longer. The seasonal revenue impact is exacerbated with respect to income by the nature of our variable cost of revenue and direct sales and marketing costs, which we typically realize in closer alignment to booking volumes, and the more stable nature of our fixed costs. Furthermore, operating profits for our primary advertising business, trivago, are experienced in the second half of the year as selling and marketing costs offset revenue in the first half of the year as we aggressively market during the busy booking period for spring, summer and winter holiday travel. Additionally, trivago has historically earned a substantial portion of its operating profits in the fourth quarter. As a result on a consolidated basis, revenue and income are typically the lowest in the first quarter and highest in the third quarter. The continued growth of our international operations, advertising business or a change in our product mix, including the assimilation and growth of HomeAway, may influence the typical trend of the seasonality in the future. We expect that as HomeAway continues its shift to more of a transaction-based business model for vacation rental listings its seasonal trends will generally trend similar to our other traditional leisure businesses over time.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes in accordance with generally accepted accounting principles in the United States (“GAAP”). Preparation of the consolidated financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:
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It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and
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•
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Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.
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For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
Occupancy and Other Taxes
Legal Proceedings.
We are currently involved in eighteen lawsuits brought by or against states, cities and counties over issues involving the payment of hotel occupancy and other taxes. We continue to defend these lawsuits vigorously. With respect to the principal claims in these matters, we believe that the statutes and ordinances at issue do not apply to the services we provide, namely the facilitation of hotel reservations, and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the statutes and ordinances at issue generally impose occupancy and other taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations.
Recent developments include:
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City of Chicago Litigation.
On April 25, 2017, the parties reached a settlement in principle.
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Nassau County, New York Litigation.
On March 22, 2017, the court granted the defendant online travel companies’ motion for summary judgment against intervening plaintiffs Chautauqua, Erie, Orange, Oswego, Rensselaer, Saratoga, Steuben and Westchester Counties and the City of Saratoga Springs.
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State of Louisiana/City of New Orleans Litigation.
On March 6, 2017, the court denied the defendant online travel companies’ motion for judgment on the pleadings with respect to plaintiffs’ non-tax claims. On April 5, 2017, defendants filed an application for supervisory writ to the Louisiana Court of Appeals seeking to reverse the trial court's denial of the motion.
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Portland, Oregon HomeAway Litigation.
On March 10, 2017, the federal district court granted in part and denied in part HomeAway’s motion to dismiss the City of Portland’s amended complaint. On March 20, 2017, the court granted in part and denied in part HomeAway’s motion for a preliminary injunction.
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Indiana State Sales Tax and County Innkeeper Tax Assessments.
On March 7, 2017, the Tax Court entered orders dismissing the cases against Travelscape, Hotels.com and Hotwire, thereby ending the matter.
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Denver, Colorado Litigation.
On April 24, 2017, the Colorado Supreme Court, in a 3-1-3 split opinion, reversed the Court of Appeals and found that Denver’s tax applied to the online travel companies and their compensation. The case has been remanded for further proceedings.
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State of Maine Litigation.
The online travel companies reached a final settlement with the State of Maine and the parties have filed stipulations of dismissal, thereby ending the case.
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For additional information on these and other legal proceedings, see Part II, Item 1, Legal Proceedings.
We have established a reserve for the potential settlement of issues related to hotel occupancy tax litigation, consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount of
$90 million
as of
March 31, 2017
, and
$71 million
as of
December 31, 2016
.
Pay-to-Play
. Certain jurisdictions may assert that we are required to pay any assessed taxes prior to being allowed to contest or litigate the applicability of the ordinances. This prepayment of contested taxes is referred to as “pay-to-play.” Payment of these amounts is not an admission that we believe we are subject to such taxes and, even when such payments are made, we continue to defend our position vigorously. If we prevail in the litigation, for which a pay-to-play payment was made, the jurisdiction collecting the payment will be required to repay such amounts and also may be required to pay interest.
If we prevail in the litigation for which a pay-to-play payment was made, the jurisdiction collecting the payment will be required to repay such amounts and also may be required to pay interest. However, any significant pay-to-play payment or litigation loss could negatively impact our liquidity. For additional information, including significant pay-to-play payments made by Expedia companies, see
Note 9 – Commitments and Contingencies
- Legal Proceedings - Pay-to-Play in the notes to the consolidated financial statements.
Legislation.
Certain jurisdictions, including the states of New York, North Carolina, Minnesota, Oregon, Rhode Island, and Maryland, the city of New York, and the District of Columbia, have enacted legislation seeking to tax online travel company services as part of sales taxes for hotel occupancy. We are currently remitting taxes to a number of jurisdictions, including to the states of New York, South Carolina, North Carolina, Minnesota, Georgia, Wyoming, Oregon, Rhode Island, Montana, Maryland and Kentucky, the District of Columbia and the city of New York, as well as certain other county and local jurisdictions.
Segments
We have four reportable segments: Core Online Travel Agencies (“Core OTA”), trivago, Egencia and HomeAway. Our Core OTA segment provides a full range of travel and advertising services to our worldwide customers through a variety of brands including: Expedia.com and Hotels.com in the United States and localized Expedia and Hotels.com websites throughout the world, Orbitz.com, EAN, Hotwire.com, Travelocity, Wotif Group, CarRentals.com, and Classic Vacations. Our trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites. Our Egencia segment provides managed travel services to corporate customers worldwide. Our HomeAway segment operates an online marketplace for the vacation rental industry.
Operating Metrics
Our operating results are affected by certain metrics, such as gross bookings and revenue margin, which we believe are necessary for understanding and evaluating us. Gross bookings generally represent the total retail value of transactions booked for agency, merchant and HomeAway transactions, recorded at the time of booking reflecting the total price due for travel by travelers, including taxes, fees and other charges, and are reduced for cancellations and refunds. As travelers have increased their use of the internet to book travel arrangements, we have generally seen our gross bookings increase, reflecting the growth in the online travel industry, our organic market share gains and our business acquisitions. Revenue margin is defined as revenue as a percentage of gross bookings.
Gross Bookings and Revenue Margin
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Three months ended March 31,
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2017
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2016
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% Change
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($ in millions)
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Gross Bookings
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Core OTA
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$
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19,109
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$
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17,226
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11
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%
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trivago
(1)
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—
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—
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N/A
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Egencia
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1,804
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1,656
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9
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%
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HomeAway
(2)
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2,697
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1,817
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48
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%
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Total gross bookings
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$
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23,610
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$
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20,699
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14
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%
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Revenue Margin
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Core OTA
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8.9
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%
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8.9
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%
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trivago
(1)
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N/A
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N/A
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Egencia
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6.8
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%
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6.6
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%
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HomeAway
(2)
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6.9
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%
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7.8
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%
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Total revenue margin
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9.3
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%
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9.2
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%
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____________________________
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(1)
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trivago, which is comprised of a hotel metasearch business that differs from our transaction-based websites, does not have associated gross bookings or revenue margin. However, third-party revenue from trivago is included in revenue used to calculate total revenue margin.
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(2)
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In the first quarter of 2017, we began reporting HomeAway gross bookings along with the historical comparable information. HomeAway gross bookings include on-platform transactions from all HomeAway brands, with the exception of BedandBreakfast.com and TopRural (which, if included would collectively add less then an estimated 2% to gross bookings). On-platform gross bookings for Stayz, Bookabach and Travelmob (which collectively represent less than 10% of total on-platform transactions) represent our best estimates.
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The increase in worldwide gross bookings for the
three
months ended
March 31, 2017
, as compared to the same period in
2016
, was primarily driven by growth in the Core OTA segment, including growth at Brand Expedia, Hotels.com and EAN, as well as HomeAway.
The increase in revenue margin for the
three
months ended
March 31, 2017
, as compared to the same period in
2016
, was primarily due to the growth in advertising and media revenue, partially offset by lower HomeAway revenue margins.
Results of Operations
Revenue
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Three months ended March 31,
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2017
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2016
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% Change
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($ in millions)
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Revenue by Segment
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Core OTA
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$
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1,700
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$
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1,540
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10
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%
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trivago (Third-party revenue)
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181
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112
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62
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%
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Egencia
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123
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110
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12
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%
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HomeAway
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185
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142
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30
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%
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Total revenue
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$
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2,189
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$
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1,904
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15
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%
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Revenue increased for the
three
months ended
March 31, 2017
, compared to the same period in
2016
, primarily driven by growth in the Core OTA segment, including growth at Brand Expedia, Hotels.com and EAN, as well as growth at trivago.
Lodging revenue, which includes hotel and HomeAway revenue, increased 12% for the
three
months ended
March 31, 2017
, compared to the same period in
2016
. The increase was primarily due to a 12% increase in room nights stayed driven by growth at Brand Expedia, Hotels.com, EAN and HomeAway.
Worldwide air revenue increased 4% for the
three
months ended
March 31, 2017
, compared to the same period in
2016
, due to an 8% increase in air tickets sold, partially offset by a 4% decline in revenue per ticket.
The remaining worldwide revenue, other than lodging and air discussed above, which includes advertising and media, car rental, destination services and fee revenue related to our corporate travel business, increased by 27% for the
three
months ended
March 31, 2017
, compared to the same period in
2016
, primarily due to strong growth in advertising and media revenue as well as growth in our travel insurance and car rental products.
In addition to the above segment and product revenue discussion, our revenue by business model is as follows:
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|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Revenue by Business Model
|
|
|
|
|
|
Merchant
|
$
|
1,176
|
|
|
$
|
1,065
|
|
|
10
|
%
|
Agency
|
571
|
|
|
523
|
|
|
9
|
%
|
Advertising and media
(1)
|
257
|
|
|
174
|
|
|
47
|
%
|
HomeAway
|
185
|
|
|
142
|
|
|
30
|
%
|
Total revenue
|
$
|
2,189
|
|
|
$
|
1,904
|
|
|
15
|
%
|
____________________________
|
|
(1)
|
Includes third-party revenue from trivago as well as our transaction-based websites.
|
Merchant revenue increased for the
three
months ended
March 31, 2017
, compared to the same period in
2016
, primarily due to the increase in merchant hotel revenue driven by an increase in room nights stayed.
Agency revenue increased for the
three
months ended
March 31, 2017
, compared to the same period in
2016
, primarily due to the growth in agency hotel and agency air.
Advertising and media revenue increased for the
three
months ended
March 31, 2017
, compared to the same period in
2016
, primarily due to continued growth in revenue at trivago and Expedia Media Solutions.
HomeAway revenue increased for the
three
months ended
March 31, 2017
, compared to the same period in
2016
, primarily due to growth in transactional revenue of 171% driven by a benefit from the traveler service fee, partially offset by lower subscription revenue of 25%.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Customer operations
|
$
|
185
|
|
|
$
|
180
|
|
|
3
|
%
|
Credit card processing
|
127
|
|
|
134
|
|
|
(5
|
)%
|
Data center, cloud and other
|
110
|
|
|
89
|
|
|
24
|
%
|
Total cost of revenue
|
$
|
422
|
|
|
$
|
403
|
|
|
5
|
%
|
% of revenue
|
19.3
|
%
|
|
21.1
|
%
|
|
|
Cost of revenue primarily consists of (1) customer operations, including our customer support and telesales as well as fees to air ticket fulfillment vendors, (2) credit card processing, including merchant fees, fraud and chargebacks, and (3) other costs, primarily including data center and cloud costs to support our websites, supplier operations, destination supply and stock-based compensation.
During the
three
months ended
March 31, 2017
, the increase in cost of revenue expense as compared to the same period in
2016
was driven by
$21 million
of higher data center, cloud and other costs, including $9 million of cloud expenses and $8 million related to an increase in data center related depreciation expense.
Selling and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Direct costs
|
$
|
1,053
|
|
|
$
|
841
|
|
|
25
|
%
|
Indirect costs
|
217
|
|
|
199
|
|
|
9
|
%
|
Total selling and marketing
|
$
|
1,270
|
|
|
$
|
1,039
|
|
|
22
|
%
|
% of revenue
|
58.0
|
%
|
|
54.6
|
%
|
|
|
Selling and marketing expense primarily relates to direct costs, including traffic generation costs from search engines and internet portals, television, radio and print spending, private label and affiliate program commissions, public relations and other costs. The remainder of the expense relates to indirect costs, including personnel and related overhead in our various brands and global supply organization, as well as stock-based compensation costs.
Selling and marketing expenses increased
$231 million
during the
three
months ended
March 31, 2017
, compared to the same period in
2016
, driven by increases of
$212 million
of direct costs, including online and offline marketing expenses. trivago, Brand Expedia, Hotels.com and HomeAway accounted for the majority of the total direct cost increases. In addition, higher indirect costs of
$18 million
also contributed to the increase and were driven by growth in personnel.
Technology and Content
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Personnel and overhead
|
$
|
157
|
|
|
$
|
156
|
|
|
1
|
%
|
Depreciation and amortization of technology assets
|
103
|
|
|
80
|
|
|
29
|
%
|
Other
|
62
|
|
|
56
|
|
|
11
|
%
|
Total technology and content
|
$
|
322
|
|
|
$
|
292
|
|
|
10
|
%
|
% of revenue
|
14.7
|
%
|
|
15.3
|
%
|
|
|
Technology and content expense includes product development and content expense, as well as information technology costs to support our infrastructure, back-office applications and overall monitoring and security of our networks, and is principally comprised of personnel and overhead, depreciation and amortization of technology assets including hardware, and purchased and internally developed software, and other costs including cloud expense, licensing and maintenance expense and stock-based compensation.
Technology and content expense increased
$30 million
during the
three
months ended
March 31, 2017
, compared to the same period in
2016
, primarily due to increased depreciation and amortization of technology assets of
$23 million
.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Personnel and overhead
|
$
|
100
|
|
|
$
|
98
|
|
|
3
|
%
|
Professional fees and other
|
58
|
|
|
48
|
|
|
19
|
%
|
Total general and administrative
|
$
|
158
|
|
|
$
|
146
|
|
|
8
|
%
|
% of revenue
|
7.2
|
%
|
|
7.7
|
%
|
|
|
General and administrative expense consists primarily of personnel-related costs, including our executive leadership, finance, legal and human resource functions as well as fees for external professional services including legal, tax and accounting, and other costs including stock-based compensation.
General and administrative expense increased
$12 million
during the
three
months ended
March 31, 2017
, compared to the same period in
2016
, due primarily to higher professional fees and other.
Amortization of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Amortization of intangible assets
|
$
|
67
|
|
|
$
|
90
|
|
|
(26
|
)%
|
% of revenue
|
3.0
|
%
|
|
4.7
|
%
|
|
|
Amortization of intangible assets decreased
$23 million
during the
three
months ended
March 31, 2017
, compared to the same period in
2016
, primarily due to the completion of amortization of certain intangible assets.
Legal Reserves, Occupancy Tax and Other
Legal reserves, occupancy tax and other consists of changes in our reserves for court decisions and the potential and final settlement of issues related to hotel occupancy taxes, expenses recognized related to monies paid in advance of occupancy and other tax proceedings (“pay-to-play”) as well as certain other legal reserves.
Legal reserves, occupancy tax and other were
$21 million
and
$2 million
for the
three
months ended
March 31, 2017
and
2016
.
Restructuring and Related Reorganization Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Restructuring and related reorganization charges
|
$
|
2
|
|
|
$
|
30
|
|
|
(94
|
)%
|
% of revenue
|
0.1
|
%
|
|
1.6
|
%
|
|
|
In connection with the migration of technology platforms and centralization of technology, supply and other operations, primarily related to previously disclosed acquisitions, we recognized $
2 million
in restructuring and related reorganization charges during the
three
months ended
March 31, 2017
compared to
$30 million
during the
three months ended March 31, 2016
. Based on current plans, which are subject to change, we expect to incur approximately
$15 million
to $20 million in
2017
related to these integrations and estimates do not include any possible future acquisition integrations.
Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Operating loss
|
$
|
(73
|
)
|
|
$
|
(97
|
)
|
|
25
|
%
|
% of revenue
|
(3.3
|
)%
|
|
(5.1
|
)%
|
|
|
Operating loss decreased for the
three
months ended
March 31, 2017
, compared to the same period in 2016, primarily due to the growth in revenue, lower restructuring and related reorganization charges as well as lower amortization of intangible assets in the current period, partially offset by growth in selling and marketing expense in excess of revenue growth.
Interest Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Interest income
|
$
|
6
|
|
|
$
|
4
|
|
|
75
|
%
|
Interest expense
|
(43
|
)
|
|
(44
|
)
|
|
(2
|
)%
|
Interest income increased for the
three
months ended
March 31, 2017
, compared to the same period in
2016
, primarily due to higher average cash balances and to a lesser extent higher rates of return. Interest expense was consistent period over period.
Other, Net
Other, net is comprised of the following:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2017
|
|
2016
|
|
($ in millions)
|
Foreign exchange rate losses, net
|
$
|
(20
|
)
|
|
$
|
(19
|
)
|
Other
|
(2
|
)
|
|
(9
|
)
|
Total other, net
|
$
|
(22
|
)
|
|
$
|
(28
|
)
|
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
($ in millions)
|
|
|
Provision for income taxes
|
$
|
(47
|
)
|
|
$
|
(57
|
)
|
|
(19
|
)%
|
Effective tax rate
|
35.6
|
%
|
|
34.6
|
%
|
|
|
We determine our provision for income taxes for interim periods using an estimate of our annual effective tax rate. We record any changes affecting the estimated annual tax rate in the interim period in which the change occurs, including discrete tax items.
For the
three
months ended
March 31, 2017
and
2016
, we recorded a
35.6%
and
34.6%
tax rate benefit on pre-tax losses, which was relatively consistent between periods.
We are subject to taxation in the United States and various other state and foreign jurisdictions. We are under examination by the Internal Revenue Service ("IRS") for our 2009 through 2013 tax years. Our 2014 and subsequent years remain open to examination by the IRS. We do not anticipate a significant impact to our gross unrecognized tax benefits within the next 12 months related to these years. During first quarter of 2017, the IRS issued proposed adjustments relating to transfer pricing with our foreign subsidiaries for our 2009 to 2010 audit cycle. The proposed adjustments would increase our U.S. taxable income by $105 million, which would result in federal tax expense of approximately $37 million, subject to interest. We do not agree with the position of the IRS and will formally protest the IRS position.
Financial Position, Liquidity and Capital Resources
Our principal sources of liquidity are cash flows generated from operations; our cash and cash equivalents and short-term investment balances, which were
$3.4 billion
and
$1.9 billion
at
March 31, 2017
and
December 31, 2016
, including $1.3 billion and $1.1 billion of cash and short-term investment balances held in wholly-owned foreign subsidiaries, (which includes $927 million and $737 million related to earnings indefinitely invested outside the United States) as well as $310 million and $313 million held in majority-owned subsidiaries, which is also indefinitely invested outside the United States; and our $1.5 billion revolving credit facility, which is essentially untapped and expires in February 2021. The revolving credit facility bears interest based on the Company’s credit ratings with the applicable interest rate on drawn amounts at LIBOR plus 137.5 basis points and the commitment fee on undrawn amounts at 17.5 basis points as of
March 31, 2017
.
Our credit ratings are periodically reviewed by rating agencies. As of
March 31, 2017
, Moody’s rating was Ba1 with an outlook of “stable,” S&P’s rating was BBB- with an outlook of “stable” and Fitch’s rating was BBB- with an outlook of “stable.” Changes in our operating results, cash flows, financial position, capital structure, financial policy or capital allocations to share repurchase, dividends, investments and acquisitions could impact the ratings assigned by the various rating agencies. Should our credit ratings be adjusted downward, we may incur higher costs to borrow and/or limited access to capital markets, which could have a material impact on our financial condition and results of operations.
As of
March 31, 2017
, we were in compliance with the covenants and conditions in our revolving credit facility and outstanding debt, which was comprised of $500 million in registered senior unsecured notes due in August 2018 that bear interest at 7.456%, $750 million in registered senior unsecured notes due in August 2020 that bear interest at 5.95%, $500 million in registered senior unsecured notes due in August 2024 that bear interest at 4.5%, Euro 650 million of registered senior unsecured notes due in June 2022 that bear interest at 2.5% and $750 million of senior unsecured notes due in February 2026 that bear interest at 5.0%.
Under the merchant model, we receive cash from travelers at the time of booking and we record these amounts on our consolidated balance sheets as deferred merchant bookings. We pay our airline suppliers related to these merchant model bookings generally within a few weeks after completing the transaction, but we are liable for the full value of such transactions until the flights are completed. For most other merchant bookings, which is primarily our merchant hotel business, we generally pay after the travelers’ use and, in some cases, subsequent billing from the hotel suppliers. Therefore, generally we receive cash from the traveler prior to paying our supplier, and this operating cycle represents a working capital source of cash to us. As long as the merchant hotel business grows, we expect that changes in working capital related to merchant hotel transactions will positively impact operating cash flows. However, we are using both the merchant model and the agency model in many of our markets. If the merchant hotel model declines relative to our other business models that generally consume working capital such as agency hotel, managed corporate travel, advertising or certain Expedia Affiliate Network relationships, or if there are changes to the merchant model, supplier payment terms, or booking patterns that compress the time period between our receipt of cash from travelers and our payment to suppliers, such as with mobile bookings via smartphones, our overall working capital benefits could be reduced, eliminated or even reversed. Our future working capital benefits could also be impacted by HomeAway's continued shift to more of a transactional model from a subscription model.
As our ETP program continues to expand, and depending on relative traveler and supplier adoption rates and customer payment preferences, among other things, the scaling up of ETP has and will continue to negatively impact near term working capital cash balances, cash flow, relative liquidity during the transition, and hotel revenue margins.
Seasonal fluctuations in our merchant hotel bookings affect the timing of our annual cash flows. During the first half of the year, hotel bookings have traditionally exceeded stays, resulting in much higher cash flow related to working capital. During the second half of the year, this pattern reverses and cash flows are typically negative. While we expect the impact of seasonal fluctuations to continue, merchant hotel growth rates, changes to the model or booking patterns, changes in the relative mix of merchant hotel transactions compared with transactions in our working capital consuming businesses, including ETP, as well as the transformation of the HomeAway vacation rental listing business, may counteract or intensify the anticipated seasonal fluctuations.
As of
March 31, 2017
, we had a deficit in our working capital of $
2.7 billion
, which is consistent with the deficit of $2.7 billion as of December 31, 2016.
We continue to invest in the development and expansion of our operations. Ongoing investments include but are not limited to improvements in infrastructure, which include our servers, networking equipment and software, release improvements to our software code, platform migrations and consolidation and search engine marketing and optimization efforts. In addition, in 2016, we began our expansion into the cloud computing environment. While we expect our cloud computing expenses to increase significantly over the next few years they are expected to result in lower overall capital expenditures related to our data centers over time. Our future capital requirements may include capital needs for acquisitions (including purchases of non-controlling interest), share repurchases, dividend payments or expenditures in support of our business strategy; thus reducing our cash balance and/or increasing our debt. Excluding capital expenditures associated with the build out of our new corporate headquarters, we expect total capital expenditures for full year 2017 to decline slightly over 2016 spending levels. Our current estimates for the new headquarters total approximately $650 million, of which approximately $30 million was spent in 2016 and less than $100 million will be spent in 2017. The remainder will be split roughly evenly between 2018 and 2019.
Our cash flows are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
|
(In millions)
|
Cash provided by (used in):
|
|
|
|
|
|
|
Operating activities
|
|
$
|
1,673
|
|
|
$
|
1,108
|
|
|
$
|
565
|
|
Investing activities
|
|
(950
|
)
|
|
(159
|
)
|
|
(791
|
)
|
Financing activities
|
|
(48
|
)
|
|
(613
|
)
|
|
565
|
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
|
31
|
|
|
51
|
|
|
(20
|
)
|
For the
three months ended March 31, 2017
, net cash provided by operating activities increased by
$565 million
primarily due to an increased benefits from working capital changes driven mostly from a change in deferred merchant bookings.
For the
three months ended March 31, 2017
, cash used in investing activities increased by $
791 million
primarily due to higher net purchases of investments of
$782 million
.
For the
three months ended March 31, 2017
, cash used in financing activities primarily included cash paid to acquire shares of
$45 million
, including the repurchased shares under the authorizations discussed below, and a
$42 million
cash dividend payment, partially offset by
$58 million
of proceeds from the exercise of options and employee stock purchase plans. For the
three months ended March 31, 2016
, cash used in financing activities primarily included the repayment of
$400 million
of HomeAway Convertible Notes, cash paid to acquire shares of
$187 million
and a
$36 million
cash dividend payment, partially offset by
$26 million
of proceeds from the exercise of options and employee stock purchase plans.
In February 2015, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 10 million shares of our common stock. During the three months ended March 31, 2017 and 2016, we repurchased, through open market transactions,
0.3 million
and 1.7 million shares under these authorization for a total cost of
$39 million
and $183 million, excluding transaction costs. As of March 31, 2017,
6.9 million
shares remain authorized for repurchase under this authorization with no fixed termination date for the repurchases. Subsequent to
March 31, 2017
, we repurchased an additional
0.1 million
shares for a total cost of
$14 million
, excluding transaction costs, representing an average price of
$127.90
per share.
During the
three months ended March 31, 2017
and
2016
, the Executive Committee, acting on behalf of the Board of Directors, declared and we paid the following dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Dividend
Per Share
|
|
Record Date
|
|
Total Amount
(in thousands)
|
|
Payment Date
|
February 7, 2017
|
|
$
|
0.28
|
|
|
March 9, 2017
|
|
$
|
42,247
|
|
|
March 30, 2017
|
February 8, 2016
|
|
0.24
|
|
|
March 10, 2016
|
|
36,174
|
|
|
March 30, 2016
|
In addition, in April 2017, the Executive Committee, acting on behalf of the Board of Directors, declared a quarterly cash dividend of
$0.28
per share of outstanding common stock payable on
June 15, 2017
to stockholders of record as of the close of business on
May 25, 2017
. Future declarations of dividends are subject to final determination by our Board of Directors.
The effect of foreign exchange on our cash balances denominated in foreign currency for the
three months ended March 31, 2017
, compared to the same period in
2016
, showed a net change of
$(20) million
reflecting lower appreciations in foreign currencies in the current year period compared to the prior year period.
In our opinion, available cash, funds from operations and available borrowings will provide sufficient capital resources to meet our foreseeable liquidity needs. There can be no assurance, however, that the cost or availability of future borrowings, including refinancings, if any, will be available on terms acceptable to us.
Contractual Obligations, Commercial Commitments and Off-balance Sheet Arrangements
There have been no material changes outside the normal course of business to our contractual obligations and commercial commitments since
December 31, 2016
. Other than our contractual obligations and commercial commitments, we did not have any off-balance sheet arrangements as of
March 31,
2017 or
December 31, 2016
.
Part I. Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
.
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chairman and Senior Executive, Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chairman and Senior Executive, Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in internal control over financial reporting.
There were no changes to our internal control over financial reporting that occurred during the quarter ended
March 31, 2017
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Item 1. Legal Proceedings
In the ordinary course of business, Expedia and its subsidiaries are parties to legal proceedings and claims involving property, personal injury, contract, alleged infringement of third party intellectual property rights and other claims. A discussion of certain legal proceedings can be found in the section titled “Legal Proceedings,” of our Annual Report on Form 10-K for the year ended
December 31, 2016
. The following are developments regarding such legal proceedings:
Litigation Relating to Occupancy and Other Taxes
Actions Filed by Individual States, Cities and Counties
City of Chicago Litigation.
On April 25, 2017, the parties reached a settlement in principle.
City of San Antonio, Texas Litigation.
On February 16, 2017, the district court referred the plaintiffs’ request for attorneys’ fees and costs to a magistrate judge for review and recommendation. On April 10, 2017, the defendant online travel companies filed a motion to stay further proceedings pending resolution of their substantive appeal to the United States Fifth Circuit Court of Appeals. On April 17, 2017, the magistrate judge issued a report and recommendation as to attorneys' fees. On April 20, 2017, the district court stayed further proceedings on plaintiff's fee petition pending resolution of the parties' appeal to the Fifth Circuit Court of Appeals.
Nassau County, New York Litigation.
On March 22, 2017, the court granted the defendant online travel companies’ motion for summary judgment against intervening plaintiffs Chautauqua, Erie, Orange, Oswego, Rensselaer, Saratoga, Steuben and Westchester Counties and the City of Saratoga Springs.
State of Louisiana/City of New Orleans Litigation.
On March 6, 2017, the court denied the defendant online travel companies’ motion for judgment on the pleadings with respect to plaintiffs’ non-tax claims. On April 5, 2017, defendants filed an application for supervisory writ to the Louisiana Court of Appeals seeking to reverse the trial court's denial of the motion.
Portland, Oregon Litigation.
On March 10, 2017, the federal district court granted in part and denied in part HomeAway’s motion to dismiss the City of Portland’s amended complaint. On March 20, 2017, the court granted in part and denied in part HomeAway’s motion for a preliminary injunction.
Actions Filed by Expedia
Indiana State Sales Tax and County Innkeeper Tax Assessments.
On March 7, 2017, the Tax Court entered orders dismissing the cases against Travelscape, Hotels.com and Hotwire, thereby ending the matter.
Denver, Colorado Litigation.
On April 24, 2017, the Colorado Supreme Court, in a 3-1-3 split opinion, reversed the Court of Appeals and found that Denver’s tax applied to the online travel companies and their compensation. The case has been remanded for further proceedings.
State of Maine Litigation.
The online travel companies reached a final settlement with the State of Maine, and the parties have filed stipulations of dismissal, thereby ending the case.
Non-Tax Litigation and Other Legal Proceedings
Putative Class Action Litigation
Buckeye Tree Lodge and 2020 O Street Corporation Lawsuits.
On March 7, 2017, a related putative class action was filed in the same court as the
Buckeye Tree Lodge
lawsuit,
2020 O Street Corporation, Inc. v. Expedia, Inc., et al.
, Case No. 3:17-cv-01186-JSC, asserting Lanham Act claims, and claims for unfair competition, unjust enrichment and restitution. The court determined that the case was related to the earlier filed
Buckeye Tree Lodge
case, and therefore assigned the matter to the same judge.
Israeli Putative Class Action Lawsuit.
On March 15, 2017, Hotels.com filed an application with the court challenging service of process.
Cases Against HomeAway.com, Inc.
On March 10, 2017, HomeAway filed a motion to dismiss the complaint in the
Arnold
case.
Other Legal Proceedings
HRC of San Francisco, California Litigation.
Oral argument on HRC’s appeal to the California Court of Appeals has been set for April 27, 2017.
Part II. Item 1. Legal Proceedings
Santa Monica, California Litigation.
The city passed an amended ordinance that took effect on February 23, 2017. The city has agreed to stay enforcement of the amended ordinance pending the disposition of the
HRC of San Francisco, California Litigation
.
Ryanair Lawsuit.
On or about February 15, 2017, Ryanair D.A.C. filed a lawsuit against Expedia, Inc. in the Irish High Court. The case involves claims over alleged selling of flights using data from Ryanair’s website.
Ryanair D.A.C. v. Expedia, Inc.
(Case No. 2017/11 IA).
Competition Reviews, Litigation and Legislation Regarding Parity Clauses
For a discussion of certain matters related to competition review and legislation regarding parity clauses, see
Note 9 – Commitments and Contingencies
- Legal Proceedings - Matters Relating to Competition Reviews and Legislation Relating to Parity Clauses in the notes to consolidated financial statements.
Part II. Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended
December 31, 2016
, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchases
During 2015, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 10 million shares of our common stock. A summary of the repurchase activity for the first quarter of 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Period
|
|
Total Number of
Shares Purchased
|
|
Average Price
Paid Per Share
|
|
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
|
|
Maximum
Number of
Shares that
May Yet Be
Purchased
Under Plans or
Programs
|
|
|
(In thousands, expect per share data)
|
January 1-31, 2017
|
|
263
|
|
|
$
|
113.42
|
|
|
263
|
|
|
6,998
|
|
February 1-28, 2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,998
|
|
March 1-31, 2017
|
|
73
|
|
|
127.67
|
|
|
73
|
|
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6,925
|
|
Total
|
|
336
|
|
|
|
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336
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Part II. Item 6. Exhibits
The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.
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Exhibit
No.
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Exhibit Description
|
Filed
Herewith
|
|
Incorporated by Reference
|
|
|
Form
|
SEC File No.
|
Exhibit
|
Filing Date
|
10.1
|
Third Amendment, dated as of April 25, 2017, to the Amended and Restated Credit Agreement dated as of September 5, 2014 among Expedia, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, LLC, a Nevada limited liability company, Hotwire, Inc., a Delaware corporation, the other Borrowing Subsidiaries from time to time party thereto, the Lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Europe Limited, as London Agent
|
X
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31.1
|
Certification of the Chairman and Senior Executive pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
|
|
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|
|
|
|
|
|
|
|
31.2
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
|
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|
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|
|
|
|
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31.3
|
Certification of the Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002
|
X
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32.1
|
Certification of the Chairman and Senior Executive pursuant Section 906 of the Sarbanes-Oxley Act of 2002
|
X
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|
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|
|
|
|
|
|
|
|
|
32.2
|
Certification of the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
|
|
|
|
|
|
|
|
|
|
|
32.3
|
Certification of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
|
|
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|
101
|
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.
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X
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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April 27, 2017
|
Expedia, Inc.
|
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By:
|
/s/ MARK D. OKERSTROM
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Mark D. Okerstrom
|
|
|
Chief Financial Officer
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