Orbitz, Inc. Reports Profit for Second Quarter of 2004 -- Reported
net income was $10.4 million, or 24 cents per diluted share
CHICAGO, Aug. 4 /PRNewswire-FirstCall/ -- Orbitz, Inc.
(NASDAQ:ORBZ) today announced $10.4 million in net income for the
second quarter of 2004, benefiting from growth across all major
product lines that was led by a 96 percent increase in non-air
travel revenues. For the quarter ended June 30, 2004, net revenues
increased 30 percent to $75.6 million from $58.3 million for the
second quarter of 2003. Orbitz reported net income of $10.4
million, or 24 cents per diluted share, which includes $1.4 million
of non-cash compensation charges relating to an April 2002
restructuring of Orbitz' outstanding stock options(1) and a $1.0
million tax-related expense due to a tax sharing agreement with its
Class B shareholders(2). Excluding these two charges, adjusted
pre-tax net income for the second quarter of 2004 would have been
$12.7 million, or 30 cents per diluted share. In the second quarter
of 2003, Orbitz reported a net loss of $2.9 million, or 9 cents per
pro forma diluted share(3). In addition, Orbitz generated $12.2
million in operating cash flow during the quarter, which was
Orbitz' seventh consecutive quarter of positive cash flow from
operations. "Orbitz achieved a solid quarter, with non-air revenues
nearly doubling versus last year, strong gross margin expansion and
net income of $10 million," said Jeff Katz, president and chief
executive officer of Orbitz. "Going forward, we are focused on
growing our revenue with significant product enhancements. These
include rolling out the final phase of our dynamic packaging engine
and vacations product, improved hotel display management
capabilities and continued technology innovations." Second Quarter
2004 Highlights Gross bookings and revenues. For the second quarter
of 2004, Orbitz' gross travel bookings increased 21 percent to more
than $1.0 billion versus $865.7 million for the same period of
2003. Second quarter 2004 net revenues of $75.6 million benefited
from growth in each of Orbitz' three revenue categories: -- Air
revenues. Air revenues increased 12 percent to $44.2 million for
the second quarter of 2004 from $39.4 million for the second
quarter of 2003. Revenues benefited from increased transaction
volume, with higher consumer service fee revenues offset in part by
the effect of a contractual step-down in airline charter associate
transaction fee rates on June 1. In the second quarter of 2004,
Orbitz' Supplier Link program accounted for 39 percent of
transactions, versus 29 percent for the second quarter of 2003. --
Other travel revenues. Other travel revenues rose 96 percent to
$22.0 million for the second quarter of 2004 from $11.2 million for
the same period of 2003. This category includes revenues from
hotel, car, vacations, cruise and attractions and services. Hotel
revenues more than doubled, primarily benefiting from growth of the
company's Orbitz Merchant Hotel (OMH) program. Through this
program, Orbitz sold 327,000 merchant room nights in the second
quarter of 2004, a 600 percent increase from 46,000 merchant room
nights in the second quarter of 2003. The Orbitz Merchant Hotel
program generated 52 percent of hotel revenues in the second
quarter of 2004, versus 12 percent in the same quarter of 2003.
Also during the quarter, car revenues grew nearly 50 percent, while
vacation revenues nearly tripled. Dynamic packaging enhancements
contributed to improved air, hotel and car revenues during the
quarter. -- Other revenues. This category includes advertising
revenues and airline website hosting revenues. Other revenues
increased 23 percent to $9.3 million for the second quarter of 2004
from $7.6 million for the same period a year ago, led by an
increase in advertising revenues. Gross profit and cost of
revenues. Gross profit increased 40 percent to $55.8 million for
the second quarter of 2004, versus $39.8 million for the
year-earlier period. The gross margin was 74 percent in the second
quarter of 2004, compared with 68 percent in the second quarter of
2003, benefiting from growth in higher-margin non-air products and
in Supplier Link transactions, as well as lower per-transaction
customer service costs. Cost of revenues increased 7 percent to
$19.8 million for the second quarter of 2004 from $18.5 million for
the same period of 2003. The largest absolute increase occurred in
credit card processing fees due to a higher Orbitz Merchant Hotel
volume, offset by lower rebates of reservation system booking
incentives to airlines caused by a shift in volume to Orbitz'
Supplier Link program. Operating expenses. Operating expenses were
$45.3 million for the second quarter of 2004, compared with $42.9
million for the same period of 2003. Excluding the non-cash charge
of $1.4 million, operating expenses were $43.9 million, about level
with the second quarter of 2003. The company benefited from lower
spending in several areas, including offline marketing and
incentive compensation. Operating cash flow. Orbitz generated $12.2
million in cash flow from operations in the second quarter of 2004,
compared with $5.6 million for the second quarter of 2003. The
increase was due primarily to Orbitz' improved profitability.
Recent Highlights -- Orbitz.com was recognized by Forbes.com as a
"Best of the Web" site for booking general travel, last-minute
getaways and cruises. -- In May, Orbitz rolled out Phase 2 of its
dynamic packaging engine, which displays hotel and car rental
combinations and enabled Orbitz to become the first travel site to
display multiple hotel and car options on a single screen with
estimated total pricing that includes all car rental taxes and
fees. Planned for the third quarter, dynamic packaging Phase 3 will
integrate Orbitz' prepaid (merchant) hotel properties, special
vacation fares on air travel and web-only airfares. -- Also in May,
Orbitz enhanced the homepage of its website to improve navigation
and increase the prominence of product combinations. The changes
increased the percentage of visitors who conduct searches from its
homepage, as well as the number of hotel searches. --
OrbitzSaver(TM) discount hotel rates are now offered at more than
7,600 properties through the Orbitz Merchant Hotel program and at
another 9,000 brand-name Travelweb hotels. Orbitz.com offers
merchant and published rates at more than 65,000 resorts,
independent hotels and brand name chains worldwide. -- More than
5,500 properties in the Orbitz Merchant Hotel program now use the
"OrbitzConnect" seamless booking channel to instantaneously
register Orbitz merchant hotel reservations in the hotels' systems,
update room rates and provide other hotel information on
Orbitz.com. -- Ace Hardware and Dresser Inc. recently chose Orbitz
for Business(SM) as its designated travel management provider.
Orbitz for Business now has more than 1,200 corporate clients. --
Alaska Airlines, the nation's ninth largest carrier, and sister
carrier Horizon Air implemented Orbitz' exclusive Supplier Link
technology to bypass traditional global distribution systems and
reduce distribution costs. Supplier Link connects Orbitz with an
airline's internal reservation system in order to store passenger
records, manage information and book tickets. Six airlines have
implemented Supplier Link since its introduction in August 2002.
First Half Highlights Gross bookings and revenues. For the first
six months of 2004, Orbitz' gross travel bookings increased 29
percent to $2.1 billion, compared with $1.6 billion for the same
period of 2003. Net revenues were $145.9 million for the first half
of 2004, up 35 percent from $107.8 million for the comparable
period of 2003. -- Air revenues. Air revenues increased 17 percent
to $87.3 million for the first half of 2004 from $74.8 million for
the same period of 2003, benefiting from higher transaction volume
and a $1 increase in per- ticket service fees, partially offset by
a lower rate on airline charter associate transaction fees.
Supplier Link transactions represented 40 percent of transactions
in the first half of 2004, compared with 28 percent in the first
six months of 2003. -- Other travel revenues. Other travel revenues
increased 114 percent to $39.7 million for the first six months of
2004 from $18.6 million for the same period of 2003, primarily
because of the Orbitz Merchant Hotel program, which contributed 51
percent of hotel revenues in the first half of 2004 versus 8
percent of hotel revenues in the same period of 2003. The Orbitz
Merchant Hotel program sold 636,000 merchant room nights in the
first half of 2004, compared with 48,000 merchant room nights in
the first half of 2003. -- Other revenues. Other revenues increased
31 percent to $18.8 million for the first half of 2004 from $14.3
million for the same period a year ago, primarily due to higher
advertising revenues. Gross profit and cost of revenues. Gross
profit increased 48 percent to $106.1 million for the first two
quarters of 2004, versus $71.5 million for the year-earlier period.
The gross margin was 73 percent for the 2004 period, compared with
66 percent for the first six months of 2003. Cost of revenues
increased 10 percent to $39.8 million for the first six months of
2004 from $36.3 million for the same period of 2003, with the
largest absolute increase in credit card processing fees as Orbitz
Merchant Hotel transactions grew. Operating expenses. Operating
expenses were $94.2 million for the first half of 2004, compared
with $77.2 million for the same period of 2003. Excluding the
non-cash compensation charge of $2.9 million, operating expenses
were $91.3 million for the first six months of 2004. Contributing
to the increase were public company-related expenditures, higher
total compensation due to growth in the number of employees, and
online marketing costs. Net income. The company reported net income
of $12.2 million, or 28 cents per diluted share, for the first half
of 2004. Excluding the $2.9 million non-cash charge and the $1.0
million tax sharing expense, adjusted pre-tax net income for the
first six months of 2004 would have been $16.0 million, or 37 cents
per diluted share. In the first six months of 2003, Orbitz reported
a net loss of $5.3 million, or 16 cents per pro forma diluted
share. Orbitz Outlook For the quarter ending Sept. 30, 2004, Orbitz
expects to achieve: -- Revenue of $72 million to $77 million. --
Adjusted pre-tax income of $5 million to $7 million, excluding IPO-
related stock-based compensation charges of approximately $1.4
million(4) and tax sharing expense of $500,000 to $1 million. --
Adjusted pre-tax diluted earnings per share of 11 cents to 16
cents(5). -- Reported pre-tax income of $3 million to $4.5 million;
reported pre-tax diluted earnings per share of 7 cents to 11 cents.
Orbitz maintains its guidance for the full year 2004: -- Revenues
of $295 million to $305 million. -- Adjusted pre-tax income of $35
million to $40 million. -- Adjusted pre-tax diluted earnings per
share of 80-91 cents. These figures exclude IPO-related stock-based
compensation charges of approximately $5.6 million and tax sharing
expense of $4 million to $5 million. -- Reported pre-tax income of
$25.5 million to $29.5 million; reported pre-tax diluted earnings
per share of 58 cents to 67 cents. About Orbitz Orbitz is a leading
online travel company that enables travelers to search for and
purchase a broad array of travel products, including airline
tickets, lodging, rental cars, cruises and vacation packages. Since
launching its website to the general public in June 2001, Orbitz
has become the third largest online travel site based on gross
travel bookings. On http://www.orbitz.com/ , consumers can search
more than 455 airlines, as well as rates at over 65,000 lodging
properties and at 22 car rental companies. Orbitz, Inc. became a
publicly traded company on Dec. 17, 2003, when its shares were
listed on the Nasdaq National Market under the ticker symbol ORBZ.
For more information on the company, visit http://www.orbitz.com/ .
Statements in this press release regarding Orbitz that are not
historical facts are forward-looking statements and are subject to
risks, assumptions and uncertainties that could cause such
statements to differ materially from actual future events or
results. Any such forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The following factors, among others, could
cause Orbitz' actual results to differ materially from those
described in a forward-looking statement: Orbitz' ability to retain
and attract customers on a cost-effective basis; increasing
competition from existing or new competitors; relationships with
Orbitz' controlling stockholders and with other travel suppliers;
limitations that could affect the expansion of our Supplier Link
business; risks relating to our ability to expand our business
generally; specific risks that could affect our ability to achieve
growth plans for portions of our business, such as hotels; rapid
technological change affecting our industry; technical and
operational issues, such as journey control restrictions, that
result from changes in travel suppliers' distribution methodologies
that could affect our results; risks associated with litigation or
government regulation; declines, disruptions or events affecting
the travel industry; potential fluctuations in our quarterly and
annual results. This list is intended to identify only certain of
the principal factors that could cause actual results to differ.
Readers are referred to the reports and documents filed from time
to time by Orbitz with the Securities and Exchange Commission for a
discussion of these and other important risk factors. Readers are
cautioned not to place undue reliance on forward-looking
statements, which are made as of the date of this press release.
Orbitz undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or any other reason. Orbitz, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (in thousands) June 30, 2004
Dec. 31, 2003 (unaudited) Current assets: Cash and cash equivalents
$133,286 $173,939 Short-term investments 34,935 7,537 Accounts
receivable, net 18,418 11,031 Due from related parties 4,828 3,305
Prepaid expenses 7,315 4,973 Other current assets 1,850 1,394 Total
current assets 200,632 202,179 Property and equipment, net 15,396
17,146 Other long-term assets: Long-term investments 44,923 1,265
Other assets, net 1,326 355 Total other long-term assets 46,249
1,620 Total assets $262,277 $220,945 Liabilities and Shareholders'
Equity Current liabilities: Accounts payable $5,180 $5,206 Accrued
compensation 3,750 6,309 Accrued supplier rebates 754 899 Due to
related parties 4,256 2,810 Accrued expenses 32,787 24,932 Deferred
revenue 26,065 11,896 Current portion of capital lease obligations
256 --- Total current liabilities 73,048 52,052 Long-term
liabilities 8,086 6,924 Redeemable convertible preferred stock
11,452 11,323 Shareholders' equity 169,691 150,646 Total
liabilities and shareholders' equity $262,277 $220,945 Orbitz, Inc.
and Subsidiaries Consolidated and Combined Statements of Operations
(in thousands, except per share data; unaudited) Quarter Quarter
Six Months Six Months Ended Ended Ended Ended June 30, June 30,
June 30, June 30, 2004 2003 2004 2003 Revenues, net: Air revenues,
net $44,210 $39,436 $87,326 $74,828 Other travel revenues 22,046
11,226 39,745 18,585 Other revenues 9,338 7,623 18,780 14,340 Total
revenues, net 75,594 58,285 145,851 107,753 Cost of revenues 19,753
18,487 39,770 36,252 Gross profit 55,841 39,798 106,081 71,501
Operating expenses: Sales and marketing 31,214 30,074 63,706 52,648
Technology and development 7,091 7,545 15,036 13,916 General and
administrative 5,258 5,056 11,980 9,893 Stock-based compensation(1)
1,704 257 3,459 756 Total operating expenses 45,267 42,932 94,181
77,213 Operating income (loss)(1) 10,574 (3,134) 11,900 (5,712)
Interest income 743 194 1,277 386 Tax sharing expense (967) ---
(967) --- Income (loss) before provision for income taxes 10,350
(2,940) 12,210 (5,326) Provision for income taxes --- --- --- ---
Net income (loss)(1) $10,350 $(2,940) $12,210 $(5,326) Less:
dividends and accretion on preferred stock (141) (141) (283) (283)
Net income available to common shareholders $10,209 $(3,081)
$11,927 $(5,609) Earnings per common share and pro forma net loss
per common share(2) Basic $0.25 $(0.09) $0.30 $(0.16) Diluted 0.24
(0.09) 0.28 (0.16) Weighted average shares outstanding and pro
forma weighted average shares outstanding(3) Basic 40,302 35,665
40,144 35,652 Diluted 42,524 35,665 42,483 35,652 Orbitz, Inc. and
Subsidiaries Other Data (in thousands) Quarter Six Months Ended
Ended June 30, June 30, 2004 2004 Pre-tax net income $10,350
$12,210 Stock-based compensation, related to April 2002
restructuring of capitalization, triggered by IPO closing(1) 1,399
2,852 Tax sharing expense(2) 967 967 Adjusted pre-tax net income
$12,716 $16,029 Less: dividends and accretion on preferred stock
(141) (283) Adjusted pre-tax net income available to common
shareholders $12,575 $15,746 Adjusted pre-tax basic earnings per
share $0.31 $0.39 Adjusted pre-tax diluted earnings per share $0.30
$0.37 Quarter Quarter Six Months Six Months Ended Ended Ended Ended
June 30, June 30, June 30, June 30, 2004 2003 2004 2003 Net income
(loss) $10,350 $(2,940) $12,210 $(5,326) Interest income (743)
(194) (1,277) (386) Income tax benefit (expense) --- --- --- ---
Depreciation and amortization expense 3,035 3,476 6,585 6,397
Earnings before interest, income taxes, depreciation and
amortization (EBITDA)(6) $12,642 $342 $17,518 $685 Stock-based
compensation, related to April 2002 restructuring of
capitalization, triggered by IPO closing 1,399 --- 2,852 --- Tax
sharing expense 967 --- 967 --- Adjusted EBITDA(6) $15,008 $342
$21,337 $685 Gross bookings $1,045,180 $865,697 $2,101,514
$1,633,367 Gross profit 55,841 39,798 106,081 71,501 Orbitz
Merchant Hotel room nights 327 46 636 48 Orbitz, Inc. and
Subsidiaries Footnotes (1) As more fully discussed in Management's
Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K, a portion of Orbitz'
stock-based compensation charges, equal to $1.4 million for the
second quarter of 2004, relates to the April 2002 restructuring of
then-outstanding stock options. This restructuring triggered a
non-cash stock-based compensation charge of $33.4 million, of which
$29.4 million has been recorded to date. The remaining amount will
be triggered as the options vest in 2004, 2005 and 2006. Because
the restructuring event that triggered the charge is unusual and
non-recurring, management believes that excluding the resulting
non-cash stock-based compensation charge is more representative of
the company's performance. (2) Under the terms of a tax sharing
agreement in connection with a restructuring to facilitate Orbitz'
initial public offering in December 2003, Orbitz agreed to pay to
its founder airlines 87 percent of the amount of any tax benefit
Orbitz realizes as a result of deductions that are attributable to
the restructuring. Such payments are included as other expense on
Orbitz' income statements. Management believes that excluding this
charge from an analysis of pre-tax net income is more
representative of Orbitz' performance, because without the tax
sharing agreement, such amounts would be reflected as income tax
expense on Orbitz' income statements and therefore, would
ordinarily be excluded from pre-tax net income. (3) Before the
December 2003 IPO, ownership in the enterprise was reflected
primarily through membership in Orbitz, LLC, with only a small
number of outstanding shares in Orbitz, Inc. The financial
statements of Orbitz, Inc. and Orbitz, LLC were presented on a
combined basis and accordingly, there is no single capital
structure upon which to calculate historical earnings per share
information. In addition, management has determined that
presentation of earnings per share for 2003 and prior periods is
not meaningful to investors. On Dec. 19, 2003, the members of
Orbitz, LLC exchanged their membership units for shares of common
stock and preferred stock of Orbitz, Inc. Pro forma earnings (loss)
per share is calculated based on the weighted average number of
shares outstanding assuming that all units held by members in
Orbitz, LLC had been converted to shares in Orbitz, Inc. as of the
beginning of each period presented, after giving effect to the
1-for-3 reverse stock split that occurred on Nov. 25, 2003 and the
automatic conversion of Class C common stock to Class A common
stock that occurred immediately prior to the IPO. Net income
available to common shareholders reflects charges for dividends and
accretion on the preferred stock as if it had been outstanding at
the beginning of each period presented. In periods where a loss is
shown, basic and diluted loss per common share are the same,
because the effect of including common stock equivalents would have
been anti- dilutive. Earnings per common share and the weighted
average shares outstanding for the quarter and six months ended
June 30, 2004 are based on actual shares outstanding. (4) Total
stock compensation charges for the full year 2004 are expected to
be approximately $6.9 million, which includes $5.6 million related
to the April 10, 2002 restructuring discussed in Note 1. (5) The
company expects third quarter 2004 weighted average diluted shares
outstanding to be approximately 43.6 million, and expects 2004
weighted average diluted shares outstanding to be approximately
44.0 million. Outstanding options are calculated via the treasury
method. (6) Management believes that EBITDA is a useful supplement
to net income (loss) available to common shareholders and other
operating statement data to help investors understand Orbitz'
ability to generate cash flows from operations that are available
for taxes, debt service and capital expenditures. Furthermore,
management believes that adjusted EBITDA provides a better
indication of the cash-generating nature of our business because
the restructuring event that triggered the non- cash stock-based
compensation charge is unusual and non-recurring, and because the
tax sharing expense ordinarily would be excluded from pre- tax net
income. EBITDA is not intended to represent cash flow for the
period, is not presented as an alternative to operating income
(loss) as an indicator of operating performance, and should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted
accounting principles. Note: ORBZ analyst call today at 10 a.m.
Central time at http://ir.orbitz.com/ . DATASOURCE: Orbitz, Inc.
CONTACT: Media, Maryellen Thielen, +1-312-894-4815, , or Investors,
Frank Petito, +1-312-894-4830, , both of Orbitz, Inc. Web site:
http://www.orbitz.com/
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