Orbitz Worldwide, Inc. Reports Third Quarter 2011 Results
Chicago, November 3, 2011 - Orbitz Worldwide, Inc. (NYSE: OWW) today announced results for the third quarter and nine months ended September 30, 2011.
"We had a solid quarter and the company performed well on a number of fronts," said Barney Harford, CEO of Orbitz Worldwide. "ebookers in Europe continued to generate strong results with 39 percent net revenue growth. We were encouraged by improving Orbitz and CheapTickets room night performance during the quarter and into October as compared with the year over year performance in the first half. While the private label channel lapped the launch of some new partners and partner site enhancements during the quarter, we are excited to have entered into a number of new partnerships, including one with the American Express Consumer Travel Network which will launch in the second half of 2012."
| Three Months Ended | Nine Months Ended | ||||||||||||
| (in thousands, except | September 30, | September 30, | |||||||||||
| per share data) | 2011 | 2010 | Change(a) | 2011 | 2010 | Change(a) | |||||||
| Gross bookings | $2,850,150 | $2,811,546 | 1 | % | $8,822,507 | $8,819,428 | — | % | |||||
| Net revenue | $202,924 | $194,479 | 4 | % | $589,673 | $575,123 | 3 | % | |||||
| Net revenue margin(b) | 7.1 | % | 6.9 | % | 0.2 ppt | 6.7 | % | 6.5 | % | 0.2 ppt | |||
| Net income | $11,233 | $15,332 | (27 | )% | $9,228 | $19,804 | (53 | )% | |||||
| Basic EPS | $0.11 | $0.15 | (28 | )% | $0.09 | $0.20 | (55 | )% | |||||
| Diluted EPS | $0.11 | $0.15 | (27 | )% | $0.09 | $0.19 | (54 | )% | |||||
| Operating cash flow | $11,344 | $8,989 | 26 | % | $113,873 | $123,649 | (8 | )% | |||||
| Capital spending | $12,276 | $10,747 | 14 | % | $35,740 | $27,846 | 28 | % | |||||
| EBITDA(c) | $37,808 | $45,341 | (17 | )% | $88,097 | $112,336 | (22 | )% | |||||
| Impairments | $0 | $0 | ** | $0 | $1,704 | (100 | )% | ||||||
| Other adjustments | $2,920 | $2,038 | 43 | % | $8,647 | $12,066 | (28 | )% | |||||
| Adjusted EBITDA(c) | $40,728 | $47,379 | (14 | )% | $96,744 | $126,106 | (23 | )% | |||||
** Not meaningful.
| (a) | Percentages are calculated on unrounded numbers. |
| (b) | Represents net revenue as a percentage of gross bookings. |
(c) | Non-GAAP financial measures. Definitions of EBITDA and Adjusted EBITDA and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measure are contained in Appendix A. |
Third Quarter 2011 Financial Highlights
The company reported net income of $11.2 million or $0.11 per diluted share for the third quarter 2011 compared with net income of $15.3 million or $0.15 per diluted share for the third quarter 2010. Adjusted EBITDA was $40.7 million for the third quarter 2011, a decrease of 14 percent year over year.
Gross Bookings and Net Revenue
Gross bookings increased one percent year over year. The increase in gross bookings was driven by higher volume for ebookers, higher air fares, higher average daily rates ("ADRs") for hotel rooms and foreign currency impacts, partially offset by lower volume for the company's domestic leisure brands. Total hotel gross bookings, comprised of hotels booked on a standalone basis and as part of a vacation package, increased eight percent year over year due primarily to ADR expansion.
Net revenue was $202.9 million for the third quarter 2011, up four percent year over year. Net revenue increased due primarily to higher hotel, vacation package, car and advertising and media revenue,
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partially offset by lower air net revenue. Total hotel net revenue, comprised of hotels booked on a standalone basis and as part of a vacation package, represented 36 percent of the company's total net revenue for the trailing twelve months ended September 30, 2011, up from 35 percent for the trailing twelve months ended September 30, 2010. Net revenue from ebookers represented 22 percent of the company's total net revenue on a trailing twelve month basis ended September 30, 2011.
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| (in thousands) | 2011 | 2010 | Change | 2011 | 2010 | Change | |||||||
| Gross Bookings | |||||||||||||
| Standalone Air | $2,026,135 | $2,049,480 | (1 | )% | $6,347,929 | $6,530,241 | (3 | )% | |||||
| Non-air | 824,015 | 762,066 | 8 | % | 2,474,578 | 2,289,187 | 8 | % | |||||
| Total Gross Bookings | $2,850,150 | $2,811,546 | 1 | % | $8,822,507 | $8,819,428 | — | % | |||||
| Domestic | $2,250,943 | $2,353,323 | (4 | )% | $7,041,608 | $7,448,838 | (5 | )% | |||||
| International | 599,207 | 458,223 | 31 | % | 1,780,899 | 1,370,590 | 30 | % | |||||
| Total Gross Bookings | $2,850,150 | $2,811,546 | 1 | % | $8,822,507 | $8,819,428 | — | % | |||||
| Net Revenue | |||||||||||||
| Standalone Air | $63,850 | $65,200 | (2 | )% | $205,872 | $207,688 | (1 | )% | |||||
| Standalone Hotel | 59,094 | 56,537 | 5 | % | 159,479 | 152,110 | 5 | % | |||||
| Vacation Package | 32,393 | 30,175 | 7 | % | 91,730 | 89,189 | 3 | % | |||||
| Advertising and Media | 14,310 | 12,189 | 17 | % | 40,624 | 36,827 | 10 | % | |||||
| Other | 33,277 | 30,378 | 10 | % | 91,968 | 89,309 | 3 | % | |||||
| Total Net Revenue | $202,924 | $194,479 | 4 | % | $589,673 | $575,123 | 3 | % | |||||
| Domestic | $142,214 | $148,573 | (4 | )% | $418,573 | $443,878 | (6 | )% | |||||
| International | 60,710 | 45,906 | 32 | % | 171,100 | 131,245 | 30 | % | |||||
| Total Net Revenue | $202,924 | $194,479 | 4 | % | $589,673 | $575,123 | 3 | % | |||||
| ▪ | Standalone air net revenue was $63.9 million in the third quarter 2011, down two percent year over year. Air net revenue for the company's domestic leisure brands declined due to lower air volume, partially offset by higher net revenue per airline ticket. The lower air volume was due primarily to actions taken by certain airlines to limit the forward distribution of their fares on meta-search sites, such as Kayak, higher air fares and a fare structure change implemented by a major airline. The higher net revenue per airline ticket was due primarily to a shift in supplier mix towards airlines from which the company earns higher commissions. ebookers air net revenue increased due primarily to higher air volume. |
| ▪ | Standalone hotel net revenue was $59.1 million in the third quarter 2011, up five percent year over year. ebookers hotel net revenue increased due to another strong quarter of standalone hotel room night growth. Hotel net revenue for the company's domestic leisure business was relatively flat. HotelClub hotel net revenue increased due to foreign currency impacts, partially offset by lower hotel volume. |
| • | Vacation package net revenue increased seven percent in the quarter to $32.4 million. ebookers vacation package net revenue increased due primarily to higher volume as a result of new product offerings and the company's marketing efforts. Vacation package net revenue for the company's domestic leisure brands decreased in the quarter due to lower vacation package volume driven largely by higher air fares and higher ADRs. |
| ▪ | Advertising and media revenue increased 17 percent year over year to $14.3 million due primarily to strength in display revenue. |
| ▪ | Other net revenue, which is primarily comprised of car rental, cruise, destination services, travel insurance and airline hosting revenue, increased ten percent year over year. This increase was |
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due primarily to higher car revenue.
In order to provide a more comparable view of the company's operating performance across periods, Appendix A to this press release adjusts gross bookings and net revenue for currency impacts. The company has also included a schedule of trended operating metrics in Appendix B to this press release.
Operating Expenses
Cost of revenue
Cost of revenue is primarily comprised of costs to operate customer service call centers, credit card processing fees and other costs, which include customer refunds and charge-backs, hosting costs and connectivity and other processing costs.
| Three Months Ended September 30, | $ | % | |||||||||||||
| 2011 | 2010 | Change | Change | ||||||||||||
| (in thousands) | |||||||||||||||
| Customer service costs | $ | 13,766 | $ | 13,593 | $ | 173 | 1 | % | |||||||
| Credit card processing fees | 12,389 | 11,594 | 795 | 7 | % | ||||||||||
| Other (a) | 9,940 | 9,302 | 638 | 7 | % | ||||||||||
| Total cost of revenue (a) | $ | 36,095 | $ | 34,489 | $ | 1,606 | 5 | % | |||||||
| % of net revenue | 17.8 | % | 17.7 | % | |||||||||||
(a) During the first quarter 2011, the company changed its classification of expenses for commissions to private
label partners ("affiliate commissions") from cost of revenue to marketing expense to better reflect the nature of these costs and more closely align with general industry practice. The company has reclassified affiliate commissions of $4.2 million from cost of revenue to marketing expense for the three months ended September 30, 2010 to conform to the current year presentation.
Cost of revenue for the third quarter 2011 increased 5 percent year over year due primarily to an increase in credit card processing fees driven by higher volume at ebookers and higher customer refunds and charge-backs. Cost of revenue as a percentage of net revenue for the third quarter 2011 was relatively flat year over year.
Selling, general and administrative (SG&A) expense
SG&A expense is primarily comprised of wages and benefits, contract labor costs, network communications, systems maintenance and equipment costs and other costs, which include legal, foreign currency transaction and hedging costs and other administrative costs.
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| Three Months Ended September 30, | $ | % | |||||||||||||
| 2011 | 2010 | Change | Change | ||||||||||||
| (in thousands) | |||||||||||||||
| Wages and benefits | $ | 36,291 | $ | 33,725 | $ | 2,566 | 8 | % | |||||||
| Contract labor | 7,311 | 4,968 | 2,343 | 47 | % | ||||||||||
Network communications, systems maintenance and equipment | 6,765 | 6,083 | 682 | 11 | % | ||||||||||
| Other | 17,312 | 13,064 | 4,248 | 33 | % | ||||||||||
| Total SG&A | $ | 67,679 | $ | 57,840 | $ | 9,839 | 17 | % | |||||||
| % of net revenue | 33.4 | % | 29.7 | % | |||||||||||
SG&A expense for the third quarter 2011 increased 17 percent year over year due primarily to higher staffing levels and use of contract labor required to support the company's strategic initiatives, such as the remaining platform migrations. In addition, the company incurred higher legal costs, due to ongoing litigation and the absence of insurance reimbursements, and higher foreign currency losses.
Marketing expense
Marketing expense is primarily comprised of online marketing costs, such as search and banner advertising and affiliate commissions, and offline marketing costs, such as television, radio and print advertising.
| Three Months Ended September 30, | $ | % | |||||||||||||
| 2011 | 2010 | Change | Change | ||||||||||||
| (in thousands) | |||||||||||||||
| Marketing expense | $ | 61,351 | $ | 56,809 | $ | 4,542 | 8 | % | |||||||
| % of net revenue | 30.2 | % | 29.2 | % | |||||||||||
Marketing expense increased eight percent year over year in the third quarter 2011. Marketing expense as a percentage of net revenue increased 100 basis points to 30.2 percent for the third quarter 2011, up from 29.2 percent in the third quarter 2010. This increase was driven primarily by a mix shift towards the Company's private label distribution channel and ebookers.
Interest Expense
Orbitz Worldwide incurred net interest expense of $9.7 million in the third quarter 2011, a decline of 13 percent year over year. This decline was due primarily to a lower effective interest rate on the company's term loan and lower outstanding borrowings. In July 2011, the company entered into a floating-to-fixed interest rate swap that fixes the interest rate on $100 million of the company's term loan at an effective rate of 3.68 percent through July 2013.
At September 30, 2011, $300.0 million of the $472.2 million outstanding on the term loan had fixed interest rates through interest rate swaps. The weighted-average effective interest rate on the term loan was 3.75 percent at September 30, 2011, down from 4.28 percent at September 30, 2010. At September 30, 2011, Orbitz Worldwide was in compliance with all financial covenants and conditions of its Credit Agreement.
Cash Flow
Orbitz Worldwide reported operating cash flow of $113.9 million for the nine months ended September 30, 2011, a decline of eight percent year over year. The decline in operating cash flow was primarily
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driven by higher spending to support the company's strategic initiatives and higher legal costs, partially offset by changes in the company's working capital. The net working capital changes were primarily driven by the timing of payments received from Travelport, partially offset by changes in merchant payable balances due to lower transaction volume.
At September 30, 2011, cash and cash equivalents were $140.8 million compared with cash and cash equivalents of $139.1 million at September 30, 2010.
Operational Highlights
Consumer Brands
| • | In August 2011, CheapTickets became the first major U.S. online travel brand to offer vacation package booking functionality via mobile, adding the capability to shop for and book a vacation package on the mobile-web version of the site, m.cheaptickets.com. |
| • | In August 2011, Orbitz launched a highly successful Facebook promotion which doubled the Orbitz fan base to over 280,000, and generated over 3.5 million bids and 130,000 wall posts. |
| • | In September 2011, ebookers launched the ebookers Hotels App for iPad, a native application that gives customers an intuitive search-and-book experience designed specifically for iPad. |
| • | In September 2011, Orbitz launched the Recommended Hotels module that displays alternate hotel recommendations to visitors on certain hotel landing pages. These recommendations are based on bookings by other consumers who viewed the same hotel. |
| • | In October 2011, Orbitz Worldwide reached another milestone in its Global Platform migration efforts, migrating HotelClub.com to the Global Platform. |
| • | In October 2011, ebookers launched "Insider Deals," a weekly members-only flash sale that offers 50 percent or more off handpicked hotels in top destinations around the world and reaches over 2 million ebookers members by email each week. |
| • | Orbitz Worldwide was ranked #12 on the Internet Retailer's list of Top 300 mobile commerce companies for 2011 based on proprietary estimations and forecasts of total mobile sales for the full year. |
| • | Orbitz, ebookers and HotelClub either launched or expanded flash sale products reaching millions of customers in an efficient, low-cost and effective engagement of known travelers. |
Private Label Distribution
| • | In September 2011, Orbitz Worldwide announced a new partnership with American Express under which Orbitz Worldwide will provide private label services to power air, car, hotel, vacation package and activities & services bookings for the American Express Consumer Travel Network beginning in the second half of 2012. |
| • | In October 2011, Orbitz Worldwide signed a private label distribution agreement with Hawaiian Airlines to power functionality on Hawaiian Airlines' website launching later in 2011. |
| • | Orbitz Worldwide signed an agreement with, and in December 2011 will begin providing private label services to, the Chicago Convention and Tourism Bureau, which each year welcomes to Chicago nearly 40 million visitors who spend nearly $11 billion annually. |
| • | Orbitz Worldwide recently entered into a private label partnership with Rearden Commerce to provide hotel booking services to the Rearden Commerce network of B2B and B2C partner websites. |
| • | Orbitz Worldwide expects the business relating to its signed, but not yet launched, partnerships will generate more than 10 percent of total Orbitz Worldwide net revenue and Adjusted EBITDA on an annualized basis, although only part of this will benefit 2012 given launch timing. |
Corporate Travel
| • | Orbitz for Business launched Orbitz for Business Meetings, a new meetings booking channel that allows customers to quickly and easily source meeting venues from and send e-RFPs to hotels and other suppliers. Orbitz for Business Meetings allows customers and meeting planners to access thousands of potential venues, compare highly competitive supplier rates and review project status |
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using an integrated online booking process.
Partner Services
| • | During the third quarter, Orbitz Worldwide reached partnership agreements with a number of regional hotels and hotel groups including Orient Express Hotels in South America, the Rosewood MayaKoba Hotel in Mexico, Diamond Resorts in the United Kingdom, Hotels Charm in Paris, Mardi Gras in Italy, CFP in Switzerland, Welcome Group in Germany, and Beatriz, Bensaude Turismo Hotels, Bellver, JS Hotels and Garden Hotels in Spain. |
| • | In October 2011, Orbitz Worldwide and Dollar Thrifty Automotive Group announced an extension to the agreement under which the Dollar Rent A Car and Thrifty Car Rental brands are marketed through the Orbitz Worldwide family of sites until the end of 2014. |
| • | During the third quarter, Orbitz Worldwide signed partner marketing contracts with a number of destination marketing organizations including Missouri Division of Tourism, Tourism Fiji, Maine Office of Tourism, Tourism Ireland, Tahiti Tourisme, Beverly Hills Tourism, Proexport Colombia, PromPeru, Miami Convention and Visitors Bureau, West Virginia Division of Tourism, Embratur Brazilian Tourist Board and Spain Tourism. Orbitz Worldwide now has partner marketing agreements with over 200 destination marketing organizations. |
Outlook
For the fourth quarter 2011, the company expects:
| • | Net revenue in the range of $170 million to $174 million; and |
| • | Adjusted EBITDA between $28 million and $32 million. |
For the full year 2011, the company expects:
| • | Net revenue in the range of $760 million to $764 million; and |
| • | Adjusted EBITDA between $125 million and $129 million. |
This outlook assumes stable foreign exchange rates.
Quarterly Conference Call
Orbitz Worldwide will host a conference call to discuss its third quarter 2011 results at 10:00 a.m. EDT (9:00 a.m. CDT) on Thursday, November 3, 2011. A live webcast of the conference call can be accessed through the Orbitz Worldwide Investor Relations website at investors.orbitz.com. An archive of the webcast and a transcript will also be available on the website for a period of at least 30 days.
About Orbitz Worldwide
Orbitz Worldwide is a leading global online travel company that uses innovative technology to enable leisure and business travelers to research, plan and book a broad range of travel products. Orbitz Worldwide owns a portfolio of consumer brands that includes Orbitz (www.orbitz.com), CheapTickets (www.cheaptickets.com), ebookers (www.ebookers.com), HotelClub (www.hotelclub.com), RatesToGo (www.ratestogo.com) and the Away Network (www.away.com). Also within the Orbitz Worldwide family, Orbitz Worldwide Distribution (corp.orbitz.com/partnerships/distribution) delivers private label travel solutions to a broad range of partners including many of the world's largest airlines, and Orbitz for Business (www.orbitzforbusiness.com) delivers managed corporate travel solutions for corporations. For more information on partnership opportunities with Orbitz Worldwide, visit corp.orbitz.com.
Orbitz Worldwide uses its Investor Relations website to make information available to its investors and the public at investors.orbitz.com. You can sign up to receive email alerts whenever the company posts new information to the website.
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Forward-Looking Statements
This press release and its attachments may contain forward-looking statements that involve risks, uncertainties and other factors concerning, among other things, the company's expected financial performance and its strategic operational plans. The results presented are unaudited. The company's actual results could differ materially from the results expressed or implied by such forward-looking statements and reported results should not be considered as an indication of future performance. The potential risks, uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements in this press release and its attachments include, but are not limited to, competition in the travel industry; factors affecting the level of travel activity, particularly air travel volume; the termination of any major supplier's participation on the company's websites; maintenance and protection of the company's information technology and intellectual property; the outcome of pending litigation; the company's level of indebtedness; risks associated with doing business in multiple currencies; trends in the travel industry; and general economic and business conditions. More information regarding these and other risks, uncertainties and factors is contained in the section entitled "Risk Factors" in the company's filings with the Securities and Exchange Commission ("SEC") which are available on the SEC's website at www.sec.gov or the company's Investor Relations website at investors.orbitz.com. You are cautioned not to unduly rely on these forward-looking statements, which speak only as of the date of this press release. All information in this press release and its attachments is as of November 3, 2011, and Orbitz Worldwide undertakes no obligation to publicly revise any forward-looking statement.
About Non-GAAP Financial Measures
This press release and its attachments include certain non-GAAP financial measures as defined by the SEC. These measures may be different from non-GAAP measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP). Further information regarding the non-GAAP financial measures included in this press release is contained in Appendix A attached to this press release.
Media Contact: Investor Contact:
Chris Chiames Melissa Hayes
+1 312 894 6890 +1 312 260 2428
chris.chiames@orbitz.com melissa.hayes@orbitz.com
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Orbitz Worldwide, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||
| Net revenue | $ | 202,924 | $ | 194,479 | $ | 589,673 | $ | 575,123 | |||||||
| Cost and expenses | |||||||||||||||
| Cost of revenue | 36,095 | 34,489 | 107,906 | 104,019 | |||||||||||
| Selling, general and administrative | 67,679 | 57,840 | 204,180 | 181,265 | |||||||||||
| Marketing | 61,351 | 56,809 | 189,867 | 175,817 | |||||||||||
| Depreciation and amortization | 14,939 | 17,780 | 45,655 | 56,449 | |||||||||||
| Impairment of other assets | — | — | — | 1,704 | |||||||||||
| Total operating expenses | 180,064 | 166,918 | 547,608 | 519,254 | |||||||||||
| Operating income | 22,860 | 27,561 | 42,065 | 55,869 | |||||||||||
| Other income (expense) | |||||||||||||||
| Net interest expense | (9,746 | ) | (11,180 | ) | (30,052 | ) | (33,434 | ) | |||||||
| Other income | 9 | — | 377 | 18 | |||||||||||
| Total other expense | (9,737 | ) | (11,180 | ) | (29,675 | ) | (33,416 | ) | |||||||
| Income before income taxes | 13,123 | 16,381 | 12,390 | 22,453 | |||||||||||
| Provision for income taxes | 1,890 | 1,049 | 3,162 | 2,649 | |||||||||||
| Net income | $ | 11,233 | $ | 15,332 | $ | 9,228 | $ | 19,804 | |||||||
| Net income per share - basic | |||||||||||||||
| Net income per share | $ | 0.11 | $ | 0.15 | $ | 0.09 | $ | 0.20 | |||||||
| Weighted-average shares outstanding | 104,652,402 | 103,066,070 | 103,906,153 | 100,600,016 | |||||||||||
| Net income per share - diluted | |||||||||||||||
| Net income per share | $ | 0.11 | $ | 0.15 | $ | 0.09 | $ | 0.19 | |||||||
| Weighted-average shares outstanding | 105,509,043 | 105,339,916 | 105,492,208 | 104,023,529 | |||||||||||
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Orbitz Worldwide, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
| September 30, 2011 | December 31, 2010 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 140,795 | $ | 97,222 | |||
| Accounts receivable (net of allowance for doubtful accounts of $1,162 and $956, respectively) | 62,481 | 54,702 | |||||
| Prepaid expenses | 15,718 | 17,425 | |||||
| Due from Travelport, net | 15,415 | 15,449 | |||||
| Other current assets | 9,932 | 3,627 | |||||
| Total current assets | 244,341 | 188,425 | |||||
| Property and equipment, net | 147,991 | 158,063 | |||||
| Goodwill | 676,379 | 677,964 | |||||
| Trademarks and trade names | 128,154 | 128,431 | |||||
| Other intangible assets, net | 4,501 | 7,649 | |||||
| Deferred income taxes, non-current | 5,649 | 8,147 | |||||
| Other non-current assets | 15,819 | 48,024 | |||||
| Total Assets | $ | 1,222,834 | $ | 1,216,703 | |||
| Liabilities and Shareholders' Equity | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 24,898 | $ | 26,491 | |||
| Accrued merchant payable | 268,845 | 233,850 | |||||
| Accrued expenses | 121,001 | 105,798 | |||||
| Deferred income | 37,485 | 30,850 | |||||
| Term loan, current | 21,200 | 19,808 | |||||
| Other current liabilities | 1,639 | 5,994 | |||||
| Total current liabilities | 475,068 | 422,791 | |||||
| Term loan, non-current | 451,013 | 472,213 | |||||
| Tax sharing liability | 63,091 | 101,545 | |||||
| Unfavorable contracts | 5,550 | 8,068 | |||||
| Other non-current liabilities | 19,028 | 22,233 | |||||
| Total Liabilities | 1,013,750 | 1,026,850 | |||||
| Commitments and contingencies | |||||||
| Shareholders' Equity: | |||||||
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding | — | — | |||||
Common stock, $0.01 par value, 140,000,000 shares authorized, 103,364,150 and 102,342,860 shares issued and outstanding, respectively | 1,034 | 1,023 | |||||
| Treasury stock, at cost, 25,237 shares held | (52 | ) | (52 | ) | |||
| Additional paid in capital | 1,034,571 | 1,029,215 | |||||
| Accumulated deficit | (834,381 | ) | (843,609 | ) | |||
Accumulated other comprehensive income (net of accumulated tax benefit of $2,558) | 7,912 | 3,276 | |||||
| Total Shareholders' Equity | 209,084 | 189,853 | |||||
| Total Liabilities and Shareholders' Equity | $ | 1,222,834 | $ | 1,216,703 | |||
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Orbitz Worldwide, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Nine Months Ended September 30, | ||||||||
| 2011 | 2010 | |||||||
| Operating activities: | ||||||||
| Net income | $ | 9,228 | $ | 19,804 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Net gain on extinguishment of debt | — | (57 | ) | |||||
| Depreciation and amortization | 45,655 | 56,449 | ||||||
| Impairment of other assets | — | 1,704 | ||||||
| Amortization of unfavorable contract liability | (1,136 | ) | (2,703 | ) | ||||
| Non-cash net interest expense | 10,900 | 11,929 | ||||||
| Deferred income taxes | 2,444 | 2,719 | ||||||
| Stock compensation | 6,793 | 10,660 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (6,896 | ) | (6,953 | ) | ||||
| Deferred income | 6,395 | 6,186 | ||||||
| Due from Travelport, net | 1,458 | (14,741 | ) | |||||
| Accrued merchant payable | 31,012 | 56,405 | ||||||
| Accounts payable, accrued expenses and other current liabilities | 11,548 | (8,277 | ) | |||||
| Other | (3,528 | ) | (9,476 | ) | ||||
| Net cash provided by operating activities | 113,873 | 123,649 | ||||||
| Investing activities: | ||||||||
| Property and equipment additions | (35,740 | ) | (27,846 | ) | ||||
| Changes in restricted cash | (3,657 | ) | (176 | ) | ||||
| Net cash used in investing activities | (39,397 | ) | (28,022 | ) | ||||
| Financing activities: | ||||||||
| Proceeds from issuance of common stock, net of issuance costs | — | 48,930 | ||||||
| Payments of fees to repurchase a portion of the term loan | — | (248 | ) | |||||
| Payments on the term loan | (19,808 | ) | (20,994 | ) | ||||
| Payments to extinguish debt | — | (13,488 | ) | |||||
Employee tax withholdings related to net share settlements of equity-based awards | (1,426 | ) | (2,884 | ) | ||||
| Proceeds from exercise of employee stock options | — | 65 | ||||||
| Payments on tax sharing liability | (8,847 | ) | (14,058 | ) | ||||
| Payments on line of credit | — | (42,221 | ) | |||||
| Proceeds from note payable | — | 800 | ||||||
| Payments on note payable | (171 | ) | — | |||||
| Net cash used in financing activities | (30,252 | ) | (44,098 | ) | ||||
| Effects of changes in exchange rates on cash and cash equivalents | (651 | ) | (1,119 | ) | ||||
| Net increase in cash and cash equivalents | 43,573 | 50,410 | ||||||
| Cash and cash equivalents at beginning of period | 97,222 | 88,656 | ||||||
| Cash and cash equivalents at end of period | $ | 140,795 | $ | 139,066 | ||||
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| Supplemental disclosure of cash flow information: | ||||||||
| Income tax payments, net | $ | 1,352 | $ | 1,140 | ||||
Cash interest payments, net of capitalized interest of $0 and $17, respectively | $ | 20,039 | $ | 21,184 | ||||
| Non-cash investing activity: | ||||||||
| Capital expenditures incurred not yet paid | $ | 59 | $ | 47 | ||||
| Non-cash financing activity: | ||||||||
| Repayment of term loan in connection with debt-equity exchange | $ | — | $ | 49,564 | ||||
11
Appendix A: Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
EBITDA is a performance measure used by management that is defined as net income or net loss plus: net interest expense, provision for income taxes and depreciation and amortization. Adjusted EBITDA represents EBITDA as adjusted for certain non-cash and unusual or non-recurring items as described below. Orbitz Worldwide uses and believes investors and other external users of the company's financial statements benefit from the presentation of EBITDA and Adjusted EBITDA in evaluating its operating performance because:
| • | These measures provide greater insight into management decision making at Orbitz Worldwide as they are among the primary metrics by which management evaluates the operating performance of the company's business. Management believes that when viewed with GAAP results and the accompanying reconciliation, EBITDA and Adjusted EBITDA provide additional information that is useful for management and other external users to gain an understanding of the factors and trends affecting the ongoing cash earnings capability of the company's business, from which capital investments are made and debt is serviced. These supplemental measures are used by management and the board of directors to evaluate the company's actual results against management's expectations. |
| • | EBITDA measures performance apart from items such as interest expense, income taxes and depreciation and amortization. Management believes that the exclusion of interest expense is necessary to evaluate the cash earnings capability of the business. The company generally only funds working capital requirements with borrowed funds (specifically, funds borrowed under its revolving credit facility), if at all, in the fourth quarter of the year when its cash balances are typically the lowest. As a result, nearly all of the company's interest expense is not incurred to fund its operating activities. In addition, excluding interest expense from the company's non-GAAP measures is consistent with the company's intent to disclose the ongoing cash earnings capability of the business, from which capital investments are made and debt is serviced. Management believes that the exclusion of non-cash depreciation and amortization is also necessary to evaluate the cash earnings capability of the business. Management believes that the review of its non-GAAP measures in conjunction with other GAAP metrics, such as capital expenditures, is more useful in understanding the company's business than the inclusion of depreciation and amortization expense in the non-GAAP measures used by management, since depreciation and amortization expense has historically fluctuated as a result of purchase accounting and this expense involves management judgment (e.g. estimated useful lives). |
| • | Adjusted EBITDA corresponds more closely to the ongoing cash earnings capability of the company's business, by excluding the items described above, as well as certain other non-cash items, such as goodwill and intangible asset impairment charges and stock-based compensation, and other unusual and non-recurring items, such as restructuring charges and litigation settlements. |
EBITDA and Adjusted EBITDA, as presented for the three and nine months ended September 30, 2011 and September 30, 2010, are not defined under GAAP and do not purport to be an alternative to net income or net loss as a measure of operating performance. EBITDA and Adjusted EBITDA have certain limitations in that they do not take into account the impact of certain expenses to the company's income statement, such as stock-based compensation, goodwill and intangible asset impairment charges and certain one-time items, if applicable. Because not all companies use identical calculations, this presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly-titled measures used by other companies.
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The following table provides a reconciliation of net income to EBITDA:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||
| Net income | $ | 11,233 | $ | 15,332 | $ | 9,228 | $ | 19,804 | |||||||||||
| Net interest expense | 9,746 | 11,180 | 30,052 | 33,434 | |||||||||||||||
| Provision for income taxes | 1,890 | 1,049 | 3,162 | 2,649 | |||||||||||||||
| Depreciation and amortization | 14,939 | 17,780 | 45,655 | 56,449 | |||||||||||||||
| EBITDA | $ | 37,808 | $ | 45,341 | $ | 88,097 | $ | 112,336 | |||||||||||
EBITDA was adjusted by the items listed and described in more detail below. The following table provides a reconciliation of EBITDA to Adjusted EBITDA:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||
| EBITDA | $ | 37,808 | $ | 45,341 | $ | 88,097 | $ | 112,336 | |||||||||||
| Impairment of other assets (a) | — | — | — | 1,704 | |||||||||||||||
| Stock-based compensation expense (b) | 1,866 | 2,085 | 6,793 | 10,987 | |||||||||||||||
Acceleration of amortization of net unfavorable contract liability (c) | 664 | — | 1,444 | — | |||||||||||||||
| Litigation settlements (d) | 390 | — | 410 | 1,288 | |||||||||||||||
| Net gain on extinguishment of debt (e) | — | — | — | (57 | ) | ||||||||||||||
| Restructuring (f) | — | (47 | ) | — | (152 | ) | |||||||||||||
| Adjusted EBITDA | $ | 40,728 | $ | 47,379 | $ | 96,744 | $ | 126,106 | |||||||||||
| (a) | Represents a non-cash charge recorded to impair an asset related to in-kind marketing and promotional support from Northwest Airlines under its former Charter Associate Agreement with the company. | |
| (b) | Primarily represents non-cash stock compensation expense; the nine months ended September 30, 2010 also includes expense related to restricted cash awards granted prior to the company's initial public offering in July 2007. These restricted cash awards became fully vested in May 2010. | |
| (c) | Represents a non-cash charge recorded to accelerate the amortization of the in-kind marketing and promotional support asset from Continental Airlines under its Charter Associate Agreement with the company. The useful life of this asset was shortened in 2010 following the merger of Continental Airlines and United Airlines. | |
| (d) | Represents charges related to accruals established for certain legal proceedings. | |
| (e) | Represents the net gain recorded upon extinguishment of portions of the company's term loan. | |
| (f) | Represents a change in estimate related to a restructuring charge recorded in the second half of 2009. | |
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Gross Bookings and Net Revenue, at Constant Currency
The company's reporting currency is the U.S. Dollar. As a result, reported financial results are impacted by the strength or weakness of the U.S. Dollar relative to the currencies of the international markets in which the company operates, particularly the Pound sterling, Euro, Swiss franc and Australian dollar. Management evaluates the company's operating performance with and without the impact of changes in foreign exchange rates because it believes excluding the impact of foreign exchange rates provides a more comparable view of the company's operating performance across periods. Management believes that when viewed with GAAP results and the accompanying reconciliation, management and other external users are better able to gain an understanding of the factors and trends affecting operating performance. The following table adjusts gross bookings and net revenue for foreign currency impacts across the relevant periods:
| Three Months Ended | ||||||||||||
| (in thousands) | Domestic | International | Total Orbitz Worldwide | |||||||||
| Gross Bookings | ||||||||||||
| Q3, 2011 Reported Gross Bookings | $ | 2,250,943 | $ | 599,207 | $ | 2,850,150 | ||||||
| Q3, 2010 Reported Gross Bookings | $ | 2,353,323 | $ | 458,223 | $ | 2,811,546 | ||||||
| Impact of Foreign Exchange Rates | — | 54,570 | 54,570 | |||||||||
| Q3, 2010 Gross Bookings at Constant Currency | $ | 2,353,323 | $ | 512,793 | $ | 2,866,116 | ||||||
| Reported Gross Bookings Growth | (4 | )% | 31 | % | 1 | % | ||||||
| Gross Bookings Growth at Constant Currency | (4 | )% | 17 | % | (1 | )% | ||||||
| Net Revenue | ||||||||||||
| Q3, 2011 Reported Net Revenue | $ | 142,214 | $ | 60,710 | $ | 202,924 | ||||||
| Q3, 2010 Reported Net Revenue | $ | 148,573 | $ | 45,906 | $ | 194,479 | ||||||
| Impact of Foreign Exchange Rates | — | 6,015 | 6,015 | |||||||||
| Q3, 2010 Net Revenue at Constant Currency | $ | 148,573 | $ | 51,921 | $ | 200,494 | ||||||
| Reported Net Revenue Growth | (4 | )% | 32 | % | 4 | % | ||||||
| Net Revenue Growth at Constant Currency | (4 | )% | 17 | % | 1 | % | ||||||
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| Nine Months Ended | ||||||||||||
| (in thousands) | Domestic | International | Total Orbitz Worldwide | |||||||||
| Gross Bookings | ||||||||||||
| Q3, 2011 Reported Gross Bookings | $ | 7,041,608 | $ | 1,780,899 | $ | 8,822,507 | ||||||
| Q3, 2010 Reported Gross Bookings | $ | 7,448,838 | $ | 1,370,590 | $ | 8,819,428 | ||||||
| Impact of Foreign Exchange Rates | — | 144,468 | 144,468 | |||||||||
| Q3, 2010 Gross Bookings at Constant Currency | $ | 7,448,838 | $ | 1,515,058 | $ | 8,963,896 | ||||||
| Reported Gross Bookings Growth | (5 | )% | 30 | % | — | % | ||||||
| Gross Bookings Growth at Constant Currency | (5 | )% | 18 | % | (2 | )% | ||||||
| Net Revenue | ||||||||||||
| Q3, 2011 Reported Net Revenue | $ | 418,573 | $ | 171,100 | $ | 589,673 | ||||||
| Q3, 2010 Reported Net Revenue | $ | 443,878 | $ | 131,245 | $ | 575,123 | ||||||
| Impact of Foreign Exchange Rates | — | 16,177 | 16,177 | |||||||||
| Q3, 2010 Net Revenue at Constant Currency | $ | 443,878 | $ | 147,422 | $ | 591,300 | ||||||
| Reported Net Revenue Growth | (6 | )% | 30 | % | 3 | % | ||||||
| Net Revenue Growth at Constant Currency | (6 | )% | 16 | % | — | % | ||||||
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Appendix B: Trended Operating Metrics
| 2009 | 2010 | 2011 | |||||||||||||||||||||||||
| Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | |||||||||||||||||||
| Gross Bookings (in thousands) | |||||||||||||||||||||||||||
| Domestic | |||||||||||||||||||||||||||
| Air | $ | 1,595,580 | $ | 1,627,674 | $ | 1,816,137 | $ | 2,073,924 | $ | 1,768,632 | $ | 1,638,738 | $ | 1,744,530 | $ | 1,834,354 | $ | 1,671,058 | |||||||||
| Non-air | 540,456 | 455,896 | 621,260 | 584,194 | 584,691 | 476,179 | 632,074 | 579,707 | 579,885 | ||||||||||||||||||
| Total | 2,136,036 | 2,083,570 | 2,437,397 | 2,658,118 | 2,353,323 | 2,114,917 | 2,376,604 | 2,414,061 | 2,250,943 | ||||||||||||||||||
| International | |||||||||||||||||||||||||||
| Air | 212,524 | 234,811 | 316,107 | 274,593 | 280,848 | 268,084 | 375,404 | 367,506 | 355,077 | ||||||||||||||||||
| Non-air | 151,793 | 138,374 | 176,739 | 144,928 | 177,375 | 167,748 | 223,142 | 215,640 | 244,130 | ||||||||||||||||||
| Total | 364,317 | 373,185 | 492,846 | 419,521 | 458,223 | 435,832 | 598,546 | 583,146 | 599,207 | ||||||||||||||||||
| Orbitz Worldwide | |||||||||||||||||||||||||||
| Air | 1,808,104 | 1,862,485 | 2,132,244 | 2,348,517 | 2,049,480 | 1,906,822 | 2,119,934 | 2,201,860 | 2,026,135 | ||||||||||||||||||
| Non-air | 692,249 | 594,270 | 797,999 | 729,122 | 762,066 | 643,927 | 855,216 | 795,347 | 824,015 | ||||||||||||||||||
| Total | $ | 2,500,353 | $ | 2,456,755 | $ | 2,930,243 | $ | 3,077,639 | $ | 2,811,546 | $ | 2,550,749 | $ | 2,975,150 | $ | 2,997,207 | $ | 2,850,150 | |||||||||
| Year over Year Gross Bookings Growth | |||||||||||||||||||||||||||
| Domestic | (5 | )% | 15 | % | 21 | % | 17 | % | 10 | % | 2 | % | (2 | )% | (9 | )% | (4 | )% | |||||||||
| International | (16 | )% | 35 | % | 41 | % | 19 | % | 26 | % | 17 | % | 21 | % | 39 | % | 31 | % | |||||||||
| Orbitz Worldwide | (7 | )% | 18 | % | 24 | % | 17 | % | 12 | % | 4 | % | 2 | % | (3 | )% | 1 | % | |||||||||
| At Constant Currency | |||||||||||||||||||||||||||
| Domestic | (5 | )% | 15 | % | 21 | % | 17 | % | 10 | % | 2 | % | (2 | )% | (9 | )% | (4 | )% | |||||||||
| International | (9 | )% | 16 | % | 25 | % | 20 | % | 29 | % | 18 | % | 16 | % | 20 | % | 17 | % | |||||||||
| Orbitz Worldwide | (5 | )% | 15 | % | 22 | % | 18 | % | 13 | % | 4 | % | 1 | % | (5 | )% | (1 | )% | |||||||||
Orbitz Worldwide Transaction Growth | 7 | % | 20 | % | 20 | % | 5 | % | 5 | % | 1 | % | (7 | )% | (9 | )% | (7 | )% | |||||||||
Orbitz Worldwide Hotel Room Night Growth | 3 | % | 13 | % | 13 | % | 9 | % | 5 | % | 4 | % | (2 | )% | (1 | )% | (1 | )% | |||||||||
| Net Revenue (in thousands) | |||||||||||||||||||||||||||
| Domestic | |||||||||||||||||||||||||||
| Air Transactional | $ | 47,945 | $ | 46,408 | $ | 52,846 | $ | 53,867 | $ | 48,280 | $ | 49,757 | $ | 50,095 | $ | 47,650 | $ | 43,977 | |||||||||
| Non-air Transactional | 79,675 | 70,372 | 77,420 | 84,896 | 88,357 | 73,743 | 71,610 | 81,772 | 85,444 | ||||||||||||||||||
| Non-transactional | 16,393 | 18,095 | 13,729 | 12,547 | 11,936 | 12,207 | 12,628 | 12,604 | 12,793 | ||||||||||||||||||
| Total | 144,013 | 134,875 | 143,995 | 151,310 | 148,573 | 135,707 | 134,333 | 142,026 | 142,214 | ||||||||||||||||||
| International | |||||||||||||||||||||||||||
| Air Transactional | 11,930 | 13,066 | 18,779 | 16,996 | 16,920 | 17,123 | 22,405 | 21,872 | 19,873 | ||||||||||||||||||
| Non-air Transactional | 29,616 | 25,511 | 23,404 | 24,191 | 27,683 | 28,170 | 26,978 | 35,943 | 38,944 | ||||||||||||||||||
| Non-transactional | 1,044 | 1,241 | 975 | 994 | 1,303 | 1,364 | 1,207 | 1,985 | 1,893 | ||||||||||||||||||
| Total | 42,590 | 39,818 | 43,158 | 42,181 | 45,906 | 46,657 | 50,590 | 59,800 | 60,710 | ||||||||||||||||||
| Orbitz Worldwide | $ | 186,603 | $ | 174,693 | $ | 187,153 | $ | 193,491 | $ | 194,479 | $ | 182,364 | $ | 184,923 | $ | 201,826 | $ | 202,924 | |||||||||
International as a % of Total Net Revenue | 23 | % | 23 | % | 23 | % | 22 | % | 24 | % | 26 | % | 27 | % | 30 | % | 30 | % | |||||||||
| Year over Year Net Revenue Growth | |||||||||||||||||||||||||||
| Transactional | |||||||||||||||||||||||||||
| Domestic | (24 | )% | (12 | )% | (7 | )% | 5 | % | 7 | % | 6 | % | (7 | )% | (7 | )% | (5 | )% | |||||||||
| International | (18 | )% | 49 | % | 37 | % | 9 | % | 7 | % | 17 | % | 17 | % | 40 | % | 32 | % | |||||||||
| Orbitz Worldwide | (23 | )% | (2 | )% | 1 | % | 6 | % | 7 | % | 9 | % | (1 | )% | 4 | % | 4 | % | |||||||||
| Transactional at Constant Currency | |||||||||||||||||||||||||||
| Domestic | (24 | )% | (12 | )% | (7 | )% | 5 | % | 7 | % | 6 | % | (7 | )% | (7 | )% | (5 | )% | |||||||||
| International | (12 | )% | 25 | % | 19 | % | 6 | % | 7 | % | 16 | % | 10 | % | 19 | % | 17 | % | |||||||||
| Orbitz Worldwide | (22 | )% | (5 | )% | (2 | )% | 5 | % | 7 | % | 8 | % | (2 | )% | — | % | 1 | % | |||||||||
| Non-transactional | (12 | )% | (10 | )% | (16 | )% | (22 | )% | (24 | )% | (30 | )% | (6 | )% | 8 | % | 11 | % | |||||||||
| Orbitz Worldwide | (22 | )% | (3 | )% | (1 | )% | 3 | % | 4 | % | 4 | % | (1 | )% | 4 | % | 4 | % | |||||||||
Orbitz Worldwide at Constant Currency | (21 | )% | (6 | )% | (3 | )% | 2 | % | 4 | % | 4 | % | (3 | )% | — | % | 1 | % | |||||||||
16