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eLong Reports Second Quarter 2011 Unaudited Financial Results
Aug 08, 2011 (06:08 PM EDT)
Quarterly room nights exceed 2 million for the first time in eLong's history
BEIJING, Aug 8, 2011 /PRNewswire-Asia/ -- eLong, Inc. (Nasdaq: LONG), a leading online travel service provider in China, today reported unaudited financial results for the second quarter ended June 30, 2011.
Highlights -- Second Quarter 2011
"eLong's online hotel bookings in Q2 were over 50% of our total hotel bookings the first time ever. This milestone is the result of our focused online strategy and the appealing breadth and competitive prices of our over 21,000 hotels, the largest directly bookable hotel network in China. It also demonstrates customers' continuing transition to online booking as the preferred hotel booking method in China," said Guangfu Cui, Chief Executive Officer of eLong.
Total revenues by product for the second quarter of 2011 and the same period in 2010 were as follows (in RMB million):
Hotel commission revenue increased 22% for the second quarter of 2011 compared to the prior year quarter, primarily due to higher volume, partially offset by lower commission per room night. Room nights booked through eLong in the second quarter increased 43% year-on-year to 2.2 million. Commission per room night decreased 15% year-on-year, primarily due to lower year-on-year average daily rates compared to the higher rates during the 2010 Shanghai World Expo, the rapid growth of lower average daily rate budget hotels and the increase in the number of consumers using our coupon promotion. Hotel commission revenue grew to 70% of total revenues from 68% in the prior year quarter.
Air ticketing commission revenue increased 6% for the second quarter of 2011 compared to the prior year quarter, driven by a 10% increase in commission per segment, partially offset by a 4% decrease in air segments to 568,000. Commission per segment increased due to a mix shift to international tickets and a 7% increase in average ticket price.
Other revenue is primarily derived from advertising and travel insurance. Other revenue increased 13% year-on-year for the second quarter of 2011, mainly driven by increased advertising and travel insurance revenues. Other revenue is 8% of total revenues, consistent with the prior year quarter.
Gross margin in the second quarter of 2011 was 74%, compared to 72% in the second quarter 2010, mainly due to the faster rate of growth of our higher margin hotel business as compared to our air business, an increased proportion of online bookings and improved air commission per segment.
Operating expenses for the second quarter of 2011 and the same period in 2010 were as follows (in RMB million):
Total operating expenses increased 30% for the second quarter of 2011 compared to the second quarter of 2010. Total operating expenses increased to 65% of net revenues in the second quarter of 2011 from 59% in the prior year quarter.
Service development expense consists of expenses related to technology and our product offering, including our websites, platforms, other system development, as well as our supplier relations function. Service development expense increased 20% compared to the prior year quarter, mainly driven by higher employee compensation and increased headcount. Service development expense was 16% of net revenues, consistent with the same quarter of 2010.
Sales and marketing expenses for the second quarter of 2011 increased 42% over the prior year quarter, mainly driven by increased search engine and other online marketing expenses and hotel commission payments to third-party online affiliates and distribution partners. Sales and marketing expense increased to 40% of net revenues in the second quarter of 2011 from 33% in the same quarter of the prior year.
General and administrative expenses for the second quarter of 2011 increased 7% compared to the prior year quarter, mainly driven by higher share-based compensation charges. General and administrative expenses decreased to 9% of net revenues in the second quarter of 2011 from 10% in the prior year quarter.
Other income/(expense) represents interest income, foreign exchange losses and other income/(expense). Other expenses were RMB3.2 million in the second quarter of 2011 compared to other expense of RMB2.9 million in the second quarter of 2010, driven primarily by an increase in foreign exchange loss, which was partially offset by increased interest income. Due to the appreciation of the Renminbi against the US dollar and the additional US$125.6 million in proceeds from the issuance and sale of shares to Tencent and Expedia on May 16, 2011, foreign exchange losses on our cash and cash equivalents and short-term investments increased to RMB8.1 million in the second quarter of 2011, from RMB3.9 million in the second quarter of 2010. Interest income in the second quarter of 2011 increased to RMB5.3 million, compared to RMB1.2 million in the second quarter of 2010, due to higher interest yield from higher interest rates and longer duration deposits.
As of June 30, 2011, eLong held cash and cash equivalents, short-term investments and restricted cash of RMB1,829 million (US$283 million), of which 41% was held in Renminbi and 59% was held in US dollars, compared to the total cash and cash equivalents, short-term investments and restricted cash of RMB1,019 million (US$150 million), of which 27% was held in Renminbi and 73% held in US dollars as of June 30, 2010. In July 2011, eLong converted US$127 million from US dollars to Renminbi to lessen potential future foreign exchange loss in the event of additional appreciation of the Renminbi against the US dollar.
Net income for the second quarter of 2011 was RMB7.1 million, compared to net income of RMB9.4 million during the prior year quarter.
Net income per ADS and diluted net income per ADS for the second quarter of 2011 were RMB0.26 (US$0.04) and RMB0.24 (US$0.04) respectively, compared to net income per ADS and diluted net income per ADS for the prior year quarter of RMB0.40 (US$0.06) and RMB0.36 (US$0.05) respectively. Due to the issuance and sale of shares on May 16, 2011, eLong's outstanding ordinary shares increased to 67.6 million as of June 30, 2011.
eLong currently expects net revenues for the third quarter of 2011 to be within the range of RMB152 million to RMB165 million, equal to an increase of 10% to 20% compared to the third quarter of 2010.
Safe Harbor Statement
It is currently expected that the Business Outlook will not be updated until the release of eLong's next quarterly earnings announcement; however, eLong reserves the right to update its Business Outlook at any time for any reason.
Statements in this press release concerning eLong's future business, operating results and financial condition are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "predict," "should" and "will" and similar expressions as they relate to our company are intended to identify such forward-looking statements, but are not the exclusive means of doing so. These forward-looking statements are based upon management's current views and expectations with respect to future events and are not a guarantee of future performance. Furthermore, these statements are, by their nature, subject to a number of risks and uncertainties that could cause our actual performance and results to differ materially from those discussed in the forward-looking statements. Factors that could affect our actual results and cause our actual results to differ materially from those referred in any forward-looking statement include, but are not limited to, eLong's losses sustained in prior years, declines or disruptions in the travel industry, the international financial crises, slowdown in the PRC economy, damage or interruption to our systems or service due to natural disasters or man-made causes, an outbreak of bird flu, H1N1 flu, SARS or other disease, eLong's reliance on having good relationships with hotel suppliers and airline ticket suppliers, our reliance on the TravelSky GDS system for our air business and Baidu for our search engine marketing, the possibility that eLong will be unable to continue timely compliance with Section 404 or other requirements of the Sarbanes-Oxley Act, the risk that eLong will not be successful in competing against new and existing competitors, risks associated with Expedia, Inc.'s (Nasdaq: EXPE) majority ownership interest and Tencent's strategic investment in eLong, fluctuations in the value of the Renminbi, changes in eLong's management team and other personnel, risks relating to uncertainties in the PRC legal system, including but not limited to, risks relating to our variable-interest operation entities and risks relating to the application of preferential tax policies, and other risks mentioned in eLong's filings with the US Securities and Exchange Commission, including eLong's Annual Report on Form 20-F.
Investors should not rely upon forward-looking statements as predictions of future events. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained in this press release are qualified by reference to this cautionary statement.
eLong will host a conference call to discuss its second quarter 2011 unaudited financial results on August 9, 2011 at 8:00 am Beijing time (August 8, 2011, 8:00 pm ET). The management team will be on the call to discuss the quarterly results and to answer questions. The toll-free number for U.S. participants is +1-866-844-9413. The dial-in number for Hong Kong participants is +852-3001-3802. International participants can dial +1-210-795-0512. Pass code: eLong.
Additionally, an archived web cast of this call will be available on the Investor Relations section of the eLong web site at http://www.elong.net/AboutUs/conference.html for one year.
About eLong, Inc.
eLong, Inc. (NASDAQ: LONG - News) is a leading online travel service provider in China. Headquartered in Beijing, eLong empowers consumers to make informed travel decisions by providing convenient online, mobile (via iPhone and Android applications and m.eLong.com) and 24-hour call center hotel and air ticket booking services as well as easy to use tools such as maps, destination guides, photographs, virtual tours and user reviews. eLong offers consumers the largest directly-bookable hotel product portfolio in China with a selection of more than 21,000 hotels in China and almost 140,000 international hotels in more than 100 countries worldwide, as well as the ability to fulfill domestic and international air ticket reservations in cities across China. eLong is a subsidiary of Expedia, Inc. (NASDAQ:EXPE).
Non-GAAP Financial Measures
To supplement the financial measures calculated in accordance with generally accepted accounting principles in the United States, or GAAP, this press release includes certain non-GAAP financial measures including net income per ADS, diluted net income per ADS, Operating Income Before Amortization ("OIBA"), Adjusted Earnings Before Interests, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), Adjusted Net Income ("ANI") and Adjusted Net Income Per Share. We believe these non-GAAP financial measures may help investors understand eLong's current financial performance and compare business trends among different reporting periods. These non-GAAP financial measures should be considered in addition to financial measures presented in accordance with GAAP, but should not be considered as a substitute for, or superior to, financial measures presented in accordance with GAAP. We seek to compensate for the limitations of the non-GAAP measures presented by also providing the comparable GAAP measures, GAAP financial statements, and descriptions of the reconciling items and adjustments, to derive the non-GAAP measures.
Operating Income Before Amortization ("OIBA") is defined as income from operations plus: (1) share-based compensation charges; (2) acquisition-related impacts, including (i) amortization of intangible assets and impairment of goodwill and intangible assets, and (ii) gains or losses recognized on changes in the fair value of contingent consideration arrangements; and (3) certain items, including restructuring charges. We exclude the items listed above from OIBA because we believe doing so may provide investors greater insight into management decision making at eLong. We believe OIBA is useful to investors because it is one of the primary internal metrics by which management evaluates the performance of our business as a whole and our individual business segments, on which internal budgets are based, and by which management and employees, including our Chief Executive Officer, are compensated. We believe that investors should have access to the same set of tools that management uses to analyze our performance. In addition, we believe that by excluding certain items, such as share-based compensation charges and acquisition-related impacts, OIBA corresponds more closely to the cash operating income generated from our business and allows investors to gain additional understanding of factors and trends affecting the ongoing cash earning capabilities of our business, from which capital investments are made. Although depreciation is also a non-cash expense, it is included in OIBA because it is driven directly by the capital expenditure decisions made by management. OIBA also has certain limitations in that it does not take into account the impact of certain expenses to our consolidated statements of operations.
Operating Income Before Amortization should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP measures. We present a reconciliation of this non-GAAP financial measure to GAAP below.
Adjusted EBITDA is defined as net income plus (1) interest expense (income); (2) income tax expense; (3) depreciation; (4) amortization of intangible assets; (5) share-based compensation charges; (6) foreign exchange losses (gains); (7) acquisition-related impacts, including (i) goodwill and intangible asset impairment, and (ii) losses (gains) recognized on noncontrolling investment basis adjustments when we acquire controlling interests; and (8) certain other items, including restructuring charges. We believe Adjusted EBITDA is a useful financial metric to assess our operating and financial performance before the impact of investing and financing transactions, if any, and income tax expense. Since share-based compensation charges are non-cash expenses, we believe excluding them from our calculation of Adjusted EBITDA allows us to provide investors with a more useful tool for assessing our operating and financial performance. In addition, we believe that Adjusted EBITDA is used by other companies and may be used by investors as a measure of our financial performance. The presentation of Adjusted EBITDA should not be construed as an indication that eLong's future results will be unaffected by other charges and gains we consider to be outside the ordinary course of our business. The use of Adjusted EBITDA has certain limitations. Amortization and depreciation expenses for various non-current assets, share-based compensation, other income/(expenses), and income tax expense have been and will be incurred and are not reflected in the presentation of Adjusted EBITDA. Each of these items should also be considered in the overall evaluation of our results. Additionally, Adjusted EBITDA does not consider capital expenditures and other investing activities and should not be considered as a measure of eLong's liquidity. We seek to compensate for these limitations by providing the relevant disclosure of our amortization and depreciation expenses, and share-based compensation charges in the reconciliations to the GAAP financial measure. The term Adjusted EBITDA is not defined under GAAP, and Adjusted EBITDA is not measure of net income, income from operations, operating performance or liquidity presented in accordance with GAAP. In addition, eLong's Adjusted EBITDA may not be comparable to Adjusted EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate Adjusted EBITDA in the same manner as we do.
Adjusted EBITDA should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP measures. We present a reconciliation of this non-GAAP financial measure to GAAP below.
Adjusted Net Income generally captures all items on the statements of operations that occur in normal course operations and have been, or ultimately will be, settled in cash and is defined as net income plus net of tax: (1) share-based compensation charges; (2) acquisition-related impacts, including (i) amortization of intangible assets, including as part of equity-method investments, and goodwill and intangible asset impairment, (ii) losses (gains) recognized on changes in the value of contingent consideration arrangements, and (iii) losses (gains) recognized on noncontrolling investment basis adjustments when we acquire controlling interests; (3) foreign exchange losses; (4) certain other items, including restructuring charges; and (5) discontinued operations. We believe Adjusted Net Income is useful to investors because it represents eLong's results, taking into account depreciation, which management believes is an ongoing cost of doing business, but excluding the impact of other non-cash expenses, infrequently occurring items and items not directly tied to the core operations of our businesses.
Adjusted Net Income Per Share is defined as Adjusted Net Income divided by adjusted weighted average shares outstanding, which include dilution from options and warrants per the treasury stock method and include all shares relating to Performance Units in shares outstanding for Adjusted Net Income Per Share. This differs from the GAAP method for including Performance Units, which treats them on a treasury stock method basis. Shares outstanding for Adjusted Net Income Per Share purposes are therefore higher than shares outstanding for GAAP Net Income Per Share purposes. We believe Adjusted Net Income Per Share is useful to investors because it represents, on a per share basis, eLong's consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other items which are not allocated to the operating businesses such as interest income and income tax expense, but excluding the effects of non-cash expenses not directly tied to the core operations of our businesses. Adjusted Net Income and Adjusted Net Income Per Share have similar limitations as OIBA and Adjusted EBITDA. In addition, Adjusted Net Income does not include all items that affect our net income and net income per share for the period. Therefore, we think it is important to evaluate these measures along with our consolidated statements of operations.
Adjusted Net Income and Adjusted Net Income Per Share should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP measures. We present a reconciliation of these non-GAAP financial measures to GAAP below.
SOURCE eLong, Inc.