Expedia (EXPE) to Acquire HomeAway (AWAY) for $3.9B

HomeAway, Inc. (NASDAQ: AWAY), the world's leading online marketplace for the vacation rental industry, today announced its financial results for the third quarter ended September 30, 2015. The company also announced that it has entered into a definitive agreement under which Expedia, Inc. (NASDAQ: EXPE) has agreed to acquire HomeAway®, including all of its brands, for an equity value of approximately $3.9 billion in cash and Expedia common stock, representing a per share price for HomeAway shares of $38.31, based on Expedia's closing price on November 3, 2015. Under the terms of the transaction, Expedia will offer to acquire each outstanding share of common stock of HomeAway in exchange for $10.15 in cash and 0.2065 of a share of Expedia common stock. Under the terms of the transaction, Expedia will acquire each outstanding share of common stock of HomeAway through a tender offer, followed by a second-step merger.

The Boards of Directors of both companies unanimously approved the transaction, which remains subject to customary closing conditions, including regulatory approvals and the tender of a majority of the outstanding shares of HomeAway common stock. The companies expect the transaction to close in the first quarter of 2016.

Management Commentary

"Today we're announcing business model changes, including the addition of a traveler service fee in mid-2016, which will dramatically change our ability to compete and thrive in the coming years," says Brian Sharples, chief executive officer of HomeAway. "Better monetization will allow us to accelerate revenue growth, but most importantly will provide more resources for an even better product and service experience for our owners, property managers and travelers." Mr. Sharples noted traveler service fee, which will be based on a sliding scale, will begin rolling out in Q2 of 2016 and is expected to add an average of roughly 6% to most transactions that run through its online shopping cart. In conjunction with the new traveler service fee, the Company plans to lower commission rates for most of their pay-per-booking customers and provide financial incentives to subscribers based on their annual booking volume through HomeAway's platform.

Mr. Sharples continued, "Separately, we're thrilled to announce our agreement to join the Expedia family of leading travel brands and couldn't be more excited about what this move means for our very bright future. We're eager to benefit from Expedia's distribution, technology and expertise, which will allow us to provide an even better product and service experience for our owners, property managers and travelers. In this way, I believe our combination with Expedia will turbocharge our growth and industry leadership for many years to come."

"We have long had our eyes on the fast growing ~$100 billion alternative accommodations space and have been building on our partnership with HomeAway, a global leader in vacation rentals, for two years. Bringing HomeAway into the Expedia, Inc. family and adding its leading brands to our portfolio of the most trusted brands in travel is a logical next step," said Dara Khosrowshahi, Chief Executive Officer, Expedia, Inc. "We have tremendous respect for the HomeAway team and the business they have built. With our expertise in powering global transactional platforms and our industry-leading technology capabilities, we look forward to partnering with them to accelerate their shift from a classified marketplace to an online, transactional model to create even better experiences for HomeAway's global traveler audience and the owners and managers of its 1.2 million properties around the world."

As a result of the announced transaction, HomeAway will not provide a fiscal 2015 business outlook and the previously scheduled conference call to discuss third quarter 2015 financial results has been canceled. Expedia, Inc. and HomeAway, Inc. will host a conference call to discuss the transaction on Wednesday, November 4, 2015 at 1:45 p.m. Pacific Time / 3:45 p.m. Central Time. Callers in the U.S. and Canada may dial 877-741-4244 and use passcode 4111332. All other international callers may dial 719-325-4784 and use passcode 4111332. A live webcast of the conference call will be available to the public at http://investors.homeaway.com andhttp://ir.expediainc.com. A replay of the call is expected to be available for at least three months.

A copy of the transaction press release is available on the investor relations page of the companies' respective websites at http://investors.homeaway.com and http://ir.expediainc.com.

Third Quarter 2015 Financial Highlights

• Total revenue increased 11.6% to $130.7 million from $117.1 million in the third quarter of 2014. On an FX neutral basis, year-over-year revenue growth was 19.8%. Growth in total revenue primarily reflected an increase in average revenue per subscription listing as a result of tiered pricing and bundled product offerings, the benefit of ancillary product and services revenue and an increase in listings.
• Listing revenue increased 10.2% to $106.5 million from $96.6 million in the third quarter of 2014. On an FX neutral basis, year-over-year listing revenue growth was 19.7%.
• Other revenue, which is comprised of ancillary revenue from owners, managers, and travelers, advertising, software and other items, increased 18.0% to $24.2 million from $20.5 million in the third quarter of 2014. Growth in other revenue primarily reflected increased adoption of value-added owner, manager and traveler products.
• Net income attributable to HomeAway was $10.4 million, or $0.11 per diluted share, compared to net income attributable to HomeAway of $4.9 million, or $0.05 per diluted share, in the third quarter of 2014.
• Adjusted EBITDA increased 27.2% (increased 39.7% FX neutral) to $40.2 million from $31.6 million in the third quarter of 2014. As a percentage of revenue, adjusted EBITDA was 30.8% compared to 27.0% in the third quarter of 2014.
• Free cash flow increased 24.5% to $24.9 million from $20.0 million in the third quarter of 2014. On a trailing twelve month basis, free cash flow increased 8.6% to $127.2 million from $117.2 million in the comparable trailing twelve month period in the prior year.
• Non-GAAP net income was $23.5 million, or $0.24 per diluted share, compared to non-GAAP net income of $18.9 million, or $0.20 per diluted share, in the third quarter of 2014.

Key Business Metrics

• Paid listings at the end of the third quarter of 2015 were approximately 1,195,000, an increase of 15.5% from approximately 1,035,000 at the end of the third quarter of 2014. At the end of the third quarter of 2015, approximately 715,000 of the listings were subscription listings and approximately 480,000 were performance-based listings.
• Average revenue per subscription listing during the third quarter of 2015 was $514, an FX neutral increase of 15.7 % compared to the third quarter of 2014.
• Renewal rate was 72.4% at the end of the third quarter of 2015, compared to 72.2% at the end of the third quarter of 2014 and 71.8% at the end of the second quarter of 2015. Beginning in the second quarter of 2015, customers in Australia were directed to Stayz to list their property and are no longer able to renew HomeAway Australia listings. Accordingly, beginning in the second quarter of 2015, the Company excludes HomeAway Australia from the subscription renewal rate calculation. All periods prior to the second quarter of 2015 have been revised to exclude HomeAway Australia.
• When including in the renewal rate subscribers that have transitioned to the pay-per-booking product, overall subscriber retention at the end of the third quarter of 2015 would have increased by 150 basis points compared to 130 basis points at the end of the second quarter of 2015.
• Visits were 272.4 million during the third quarter of 2015, an increase of 17.3% compared to the third quarter of 2014.

Corporate Developments

On October 1, 2015, the Company acquired Dwellable, Inc., the creator of an online vacation rental search engine and mobile application that provides unique, interactive ways for travelers to find and book vacation rentals, for cash consideration of $18.0 million.

In the fourth quarter of 2013, the Company acquired a controlling interesting in travelmob. In October 2015, the Company acquired the remaining outstanding equity interest of travelmob on an accelerated timeline. In connection with the transaction, the Company expects to recognize an operating expense charge of $3.9 million in the fourth quarter of 2015.

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