Orbitz's Q1 loss widens to US$10.9M from US$5.3M loss a year ago as revenue falls 1% to US$184.9M; U.S. consumer business underperformed, despite growth in ebookers, private label distribution channel, CEO says

Sandy Yang

CHICAGO , May 6, 2011 (press release) – Orbitz Worldwide, Inc. (NYSE: OWW) today announced results for the first quarter ended March 31, 2011.
“We're not satisfied with our overall Q1 results; performance across our individual businesses in the quarter was mixed. While ebookers and our private label distribution channel delivered strong performance, our US consumer business under performed,” said Barney Harford, CEO of Orbitz Worldwide. “We are optimistic about the strategic investments we're making. We have seen substantial returns on our technology and marketing investments with ebookers, and we feel positive about the benefits the global platform will bring to HotelClub, Orbitz and our other consumer brands as we complete our migration work.”

First Quarter 2011 Financial Highlights
The company reported a net loss of $10.9 million or $0.11 per basic and diluted share for the first quarter 2011 compared with a net loss of $5.3 million or $0.05 per basic and diluted share for the first quarter 2010. Adjusted EBITDA was $17.3 million for the first quarter 2011, a decrease of 44 percent year over year.

Gross Bookings and Net Revenue
Global gross bookings increased two percent (one percent on a constant currency basis) year over year. This increase was due primarily to higher volume for the company's ebookers and Orbitz for Business brands and higher air fares and average daily rates (“ADRs”) for hotel rooms for its domestic leisure brands. Lower air and vacation package volume for the company's domestic leisure brands partially offset this increase.

Net revenue was $184.9 million for the first quarter 2011, a decrease of one percent (three percent on a constant currency basis) year over year. Net revenue was down primarily due to a decline in vacation package revenue and a decline in revenue from the company's airline hosting business. This decline was partially offset by an increase hotel revenue due to higher hotel ADRs and higher breakage revenue.

Air net revenue was $72.5 million in the first quarter 2011, up one percent (flat on a constant currency basis) year over year. ebookers air net revenue increased 19 percent (14 percent on a constant currency basis) year over year due primarily to higher air transactions driven in part by the company's marketing efforts. Air net revenue for the company's domestic leisure brands was down five percent year over year primarily due to lower air transactions, partially offset by higher net revenue per airline ticket. The lower air transactions were due primarily to actions taken by certain airlines to limit the marketing of their fares on meta-search sites, such as Kayak, fare structure changes implemented by a major airline, higher air fares and, to a lesser extent, the lack of American Airlines' content on the company's Orbitz.com site. The higher net revenue per airline ticket was due primarily to an increase in global distribution systems incentive revenue and, to a lesser extent, higher commissions from airlines with variable commission structures driven by higher average air fares.

Hotel net revenue was $45.2 million in the first quarter 2011, up four percent (one percent on a constant currency basis) year over year. Hotel net revenue for the company's domestic leisure brands increased due primarily to higher average net revenue per transaction driven by an increase in ADRs for hotel rooms and higher breakage revenue. ebookers delivered double digit growth in standalone room nights which also contributed to the increase in hotel net revenue. Lower hotel volume for HotelClub partially offset these increases.

Vacation package net revenue decreased seven percent (eight percent on a constant currency basis) in the quarter to $25.9 million. Lower volume, due primarily to higher air fares, higher ADRs and the lack of American Airlines' content on the company's Orbitz.com site, and lower average net revenue per transaction for the company's domestic leisure brands drove the decline. This decline was partially offset by an increase in ebookers vacation package net revenue due to higher transactions driven in part by new product offerings and the company's marketing efforts.

Advertising and media revenue increased four percent (three percent on a constant currency basis) year over year to $12.7 million due primarily to the company's ongoing efforts to monetize its websites globally, partially offset by a $1.2 million decline in revenue from membership discount programs. Effective March 31, 2010, the company ended the membership discount program previously offered on its domestic leisure websites.

Other net revenue, which is primarily comprised of car rental, cruise, destination services, travel insurance and airline hosting revenue, decreased ten percent (11 percent on a constant currency basis) year over year. This decrease was largely driven by a decline in airline hosting revenue due to the termination of one of the company's hosting agreements in the first quarter 2010 and, to a lesser extent, a decline in travel insurance revenue due to lower air transactions and a change in estimate in the first quarter 2010, which resulted in the recognition of four months of travel insurance revenue compared with three months in the first quarter 2011. Higher average air fares and a higher attachment rate partially offset the decline in travel insurance 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.

Cost of revenue increased to 19.6 percent of net revenue in the first quarter 2011 primarily due to higher credit card processing fees driven by a higher mix of merchant gross bookings and higher customer refunds and charge-backs. Lower hosting costs due to the termination of one of the company's airline hosting agreements in the first quarter 2010 partially offset this increase.

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 and hedging and other administrative costs.

SG&A expense for the first quarter 2011 increased eight percent year over year primarily due to an increase in legal costs and higher staffing levels and the use of contract labor to support the company's strategic initiatives, in particular the remaining platform migrations. In addition, the company incurred higher severance expense, due in large part to the platform migrations, and higher facilities costs. Lower stock-based compensation expense and a decline in foreign currency losses and hedging costs partially offset this increase.

Marketing expense

The company's 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. Marketing expense increased eight percent year over year in the first quarter 2011 to $65.4 million. This increase was due primarily to higher marketing investments for ebookers and continued growth in the company's private label channel, partially offset by lower marketing spending for the company's domestic leisure brands. Marketing expense as a percentage of net revenue increased to 35 percent for the first quarter 2011, up from 32 percent in the first quarter 2010.

Interest Expense

Orbitz Worldwide incurred net interest expense of $10.6 million in the first quarter 2011, a decline of seven percent year over year. This decline was due primarily to lower outstanding borrowings and a lower effective interest rate on the company's term loan.

In March 2011, the company made a $19.8 million excess cash flow payment on the term loan. At March 31, 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 4.31 percent at March 31, 2011, down from 4.78 percent at March 31, 2010. At March 31, 2011, the company was in compliance with all financial covenants and conditions of its Credit Agreement.

Cash Flow

Orbitz Worldwide reported operating cash flow of $89.8 million for the first quarter 2011, a decline of six percent year over year. The decline in operating cash flow was primarily driven by lower transaction volume in the first quarter 2011 as compared with the first quarter 2010, partially offset by lower employee incentive compensation payments in the first quarter 2011 compared with the first quarter 2010, changes in the timing of payments received from global distribution systems and changes in other working capital accounts.

At March 31, 2011, cash and cash equivalents were $155.8 million compared with cash and cash equivalents of $161.9 million at March 31, 2010.

Operational Highlights

• During the first quarter, Orbitz Worldwide signed agreements with a number of hotel partners, including Abba Hotels, Grecotel Hotels, SPM Resorts and Florida Spirit Vacation Homes.

• During the first quarter, ebookers signed Pan-European agreements with a number of suppliers, including leading Middle Eastern airline Etihad Airways, car rental suppliers Avis Budget Group and Europcar, and travel insurance provider Mondial Assistance.

• In March 2011, Orbitz launched its Spring Hotel Sale, offering travelers up to 40 percent off, free nights and resort credits at thousands of hotels worldwide.

• During the first quarter, Orbitz Worldwide signed global contracts with destination marketing organizations, including Aruba Tourism Authority, Tourism New Zealand, Mexico Tourism Board, Orlando Convention and Visitors Bureau and San Diego Convention and Visitors Bureau. Orbitz Worldwide now has partner marketing agreements with nearly 200 destination marketing organizations.

• In March 2011, Orbitz for Business added the Chicago Cubs and Universal Studios to its growing portfolio of sports and entertainment clients.

• In March 2011, Orbitz for Business announced a new partnership with GlobalStar Travel Management to extend Orbitz for Business capabilities into 75 new countries across Europe, Latin America, Africa, Asia (including China and India) and the Pacific.

• In March 2011, Orbitz for Business announced a new partnership with SilverRail Technologies which enables Orbitz for Business customers to book rail travel through the Orbitz for Business tool and makes Orbitz for Business the first major online travel company to announce integrated, online rail capabilities for U.S. business travelers.

• In April 2011, Orbitz for Business became the first major online travel company to launch an end-to- end mobile solution (m.orbitzforbusiness.net) that allows business travelers to search for and book flights, hotels and car rentals directly from any web-enabled smart phone. The Orbitz for Business mobile website applies all existing corporate travel policies, controls and compliance guidelines to new reservations.

Outlook
For the second quarter 2011, the company expects: • Net revenue in the range of $194 million to $200 million; and
• Adjusted EBITDA between $29 million and $34 million. This outlook assumes relatively stable foreign exchange rates. Quarterly Conference Call
Orbitz Worldwide will host a conference call to discuss its first quarter 2011 results at 10:00 a.m. EDT (9:00 a.m. CDT) on Thursday, May 5, 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.

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