eLong Reports Third Quarter 2015 Unaudited Financial Results

BEIJING, Nov. 19, 2015 /PRNewswire/ -- eLong, Inc. (Nasdaq: LONG), a leading mobile and online travel service provider in China, today reported unaudited financial results for the third quarter ended September 30, 2015.

Highlights

• Accommodation reservation¹ room nights stayed in the third quarter increased 19% to 11.2 million room nights compared to 9.4 million in the prior year period.
• Gross revenue earned from accommodation reservation (Non-GAAP)² reached RMB404 million, increasing 20% in the third quarter of 2015 compared to the same period in 2014. Accommodation reservation revenue (GAAP) was RMB298 million, increasing 10% year-on-year in the third quarter of 2015. Net commissions earned from accommodation reservation (Non-GAAP)³ were RMB238 million, decreasing 11% year-on-year in the third quarter of 2015.

• Net revenues for the third quarter increased 2% to RMB307.2 million (US$48.3 million), compared to RMB301.5 million in the third quarter of 2014.   
• Mobile bookings comprised more than 75% of eLong brand room nights⁴ in the third quarter, and cumulative downloads of eLong mobile apps reached approximately 390 million.
• Domestic hotel coverage network expanded 94% to over 300,000 domestic hotels as of September 30, 2015, compared to 155,000 as of September 30, 2014.
• More than 65,000 properties have contracted to use the free, cloud-based, multi-device hotel property management systems, Yunzhanggui and Zhuzhe, produced by our investee companies.

"We continue to execute our mobile accommodation-focused strategy and our mobile lodging transactions have surpassed 180,000 per day on peak days. We are glad to see our top line in the third quarter is back to growth after the continuous declines in the previous three quarters. Facing a dynamic market in China, we will continue to invest in our mobile products, technology team and marketing campaign to achieve a solid room night growth rate," said Hao Jiang, Chief Executive Officer of eLong.

Business Results

Total Revenues

Total revenues by product for the third quarter of 2015 as compared to the same period in 2014 were as follows (in RMB million):

Net Revenues

Net revenues for the third quarter increased 2% to RMB307.2 million (US$48.3 million), compared to RMB301.5 million in the third quarter of 2014.    

Accommodation Reservation

Accommodation reservation revenue increased 10% in the third quarter of 2015 compared to the same period in 2014, primarily due to higher volume, partially offset by lower revenue per room night. Room nights stayed in the third quarter increased 19% year-on-year to 11.2 million, and revenue per room night decreased due to the growth of our aggressive coupon program in our agency accommodation business, the significant cash-back discounts in our merchant accommodation business, and the lower commission rate room nights for which we recognize revenues on a net basis, partially offset by the growth of room night transactions for which we take inventory risk and recognize revenues on a gross basis. Accommodation reservation revenue comprised 92% of total revenues, compared to 84% in the prior year quarter.

Transportation Ticketing

Transportation tickets increased to 1.8 million in the third quarter, representing an increase of 62% compared to the prior year period, primarily due to the growth of train tickets. Transportation ticketing revenue decreased 21% in the third quarter, primarily due to a decrease in air commission revenue per ticket. The decline in air commission revenue per ticket was primarily due to the lowering by major Chinese airlines of the base air commission rate from 2% to 1% in February 2015 and then to 0% in June 2015. Transportation ticketing revenue decreased to 7% of our total revenues from 8% in the prior year quarter.

Other

Other revenues are primarily derived from advertising business. Other revenue decreased by 85% year-on-year in the third quarter of 2015, mainly driven by decreased advertising revenue as a result of our disposition of Nanjing Xici Information Technology Share Co., Ltd. in the first quarter of 2015. Other revenues decreased to 1% of total revenues in the third quarter from 8% in the prior year quarter.

Gross Margin

Gross margin in the third quarter of 2015 decreased to 54% from 70% in the prior year quarter.The decline in gross margin in the third quarter of 2015 was primarily due to lower revenue per room night and the growth of room night transactions for which we take inventory risk and recognize revenue on a gross basis.

Operating Expenses

Operating expenses for the third quarter of 2015 as compared to the same period in 2014 were as follows (in RMB million):

Total operating expenses increased by 19% in the third quarter of 2015, compared to the prior year quarter. Operating expenses were 113% of net revenue in the third quarter of 2015, compared to 96% in the prior year quarter. Operating loss was RMB180.9 million in the third quarter of 2015, compared to operating loss of RMB79.5 million in the prior year quarter.

Service development expenses are expenses related to technology and our product offerings, including our mobile applications and websites, as well as our supplier relations function. In the third quarter of 2015, service development expenses increased by 26%, primarily due to increased headcount. Service development expenses increased to 30% of net revenues in the third quarter of 2015, compared to 25% in the third quarter of 2014.

Sales and marketing expenses for the third quarter of 2015 increased by 25% over the prior year quarter, driven by increased costs for new mobile customer acquisition, partially offset by decreased media and online marketing expenses. Sales and marketing expenses increased to 73% of net revenues in the third quarter of 2015 from 59% in the third quarter of 2014.

General and administrative expenses for the third quarter of 2015 decreased by 33% compared to the prior year quarter, driven by lower share-based compensation charges, partially offset by increased professional fees. General and administrative expenses decreased to 8% of net revenues in the third quarter of 2015 from 12% in the third quarter of 2014. 

Other income was RMB22.9 million in the third quarter of 2015, compared to other income of RMB19.1 million in the third quarter of 2014.

Income tax expense for the third quarter of 2015 was RMB0.9 million, compared to income tax benefit of RMB4.9 million during the prior year quarter.

Net loss for the third quarter of 2015 was RMB156.3 million, compared to net loss of RMB58.3 million during the prior year quarter.

Basic net loss per ADS and diluted net loss per ADS for the third quarter of 2015 were each RMB4.22 (US$0.66), compared to both basic net loss per ADS and diluted net loss per ADS of RMB1.64 (US$0.26) in the prior year quarter.

As of September 30, 2015, eLong held cash and cash equivalents, short-term investments and restricted cash of RMB1.4 billion (US$218 million), of which 86% was held in Renminbi and 14% was held in US dollars.

Recent Developments

On August 3, 2015, eLong announced that its Board of Directors (the "Board") had received a preliminary non-binding "going-private" proposal letter (the "Transaction") from Tencent Holdings Limited ("Tencent").

On August 13, 2015, the Board formed a special committee (the "Special Committee") consisting of three independent and disinterested directors, Ms. May Wu, Mr. Shengli Wang and Mr. Adam J. Zhao, to consider the "going-private" proposal letter. Ms. May Wu is the chair of the Special Committee. On August 20, 2015, the Special Committee retained Duff & Phelps (Duff & Phelps Securities, LLC and Duff & Phelps, LLC) as its financial advisor, and Kirkland & Ellis as its legal counsel, to assist it in this process.

On September 18, 2015, TCH Sapphire Limited, a wholly owned subsidiary of Tencent; C-Travel International Limited, a wholly-owned subsidiary of Ctrip.com International, Ltd.; and Ocean Imagination L.P. signed a Consortium Agreement to form a consortium (the "Consortium") to undertake the Transaction.

The Board cautions our shareholders and others considering trading in our securities that no decisions have been made by the Special Committee with respect to the response to the Transaction. There can be no assurance that any definitive offer will be made by the Consortium, that any agreement will be executed with the Consortium or that the Transaction or any comparable transaction will be approved or consummated. eLong does not undertake any obligation to provide any updates with respect to the Transaction or any other transaction, except as required under applicable law.

Safe Harbor Statement

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," "future," "is/are likely to," "should" and "will" and similar expressions as they relate to eLong 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. Forward-looking statements include, but are not limited to, statements about our anticipated growth strategies, our future business development, results of operations and financial condition, our ability to control costs, limit losses and/or return to profitability, our ability to attract customers and leverage our brand, and trends and competition in the travel industry in China and globally. 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 to in any forward-looking statement include, but are not limited to, declines or disruptions in the travel industry, international financial, political or economic crises, a slowdown in the PRC economy, an outbreak of bird flu or other disease, eLong's reliance on maintaining good relationships with, and stable air and hotel inventory from, hotel suppliers and airline ticket suppliers, and on establishing new relationships with suppliers on similar terms, our reliance on the TravelSky GDS system for our air business, Baidu and Qihoo for our search engine marketing, our reliance on maintaining commercial cooperation with online hotel inventory distribution partners, the risk that eLong will not be able to increase its brand recognition, the possibility that eLong will be unable to continue timely compliance with the Sarbanes-Oxley Act or other regulatory requirements, the risk that eLong will not be successful in competing against new and existing competitors, the risk that our infrastructure and technology are damaged, fail or become obsolete, risks associated with Ctrip's large ownership interest in eLong, risks relating to eLong's investments in, and acquisitions of, other businesses and assets, fluctuations in the value of the Renminbi, inflation in China, 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 affiliated Chinese operating entities, risks and uncertainties relating to litigation and arbitration in China, risks relating to the application of preferential tax policies, the risk that eLong will continue to incur losses, and other risks mentioned in eLong's filings with the U.S. Securities and Exchange Commission, including eLong's Annual Report on Form 20-F.

If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward looking-statements. 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.

Conference Call

eLong will host a conference call to discuss its third quarter 2015 unaudited financial results on November 19, 2015 at 10:00 am Beijing time (November 18, 2015, 9:00 pm ET). The dial-in number is +1-866-297-1588 for U.S. participants; +852-3001-3842 for Hong Kong participants; and 86-400-810-4761 for participants in mainland China. International participants can dial +1-210-795-1143. Participant pass code: 5083685. An archived web cast of this call will be available for one year on the Investor Relations section of the eLong web site at http://elong.investorroom.com/.

About eLong, Inc.

eLong, Inc. (Nasdaq: LONG) is a leader in mobile and online accomodations reservations in China. eLong technology enables travelers to book hotels, guesthouses, apartments and other accommodations, as well as air and train tickets, through convenient mobile and tablet applications, websites (www.eLong.com), 24 hour customer service, and easy to use tools such as destination guides, maps and user reviews. eLong's largest shareholders are Ctrip.com International, Ltd. (Nasdaq: CTRP); Ocean Imagination L.P.; and Tencent Holdings Ltd. (HKSE: 0700).

For further information, please contact:
eLong, Inc.
Investor Relations
ir@corp.elong.com 
+86-10-6436-7570

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 basic net (loss)/income per ADS, diluted net (loss)/income per ADS, Adjusted Earnings Before Interests, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), Gross revenue earned from accommodation reservation and Net commissions earned from accommodation reservation. 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. 

Adjusted EBITDA is defined as net (loss)/income plus (1) interest expense (income); (2) income tax expense (benefit); (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 non-controlling investment basis adjustments when we acquire controlling interests; (8) losses (gains) from disposition of subsidiary; and (9) certain other items, including restructuring charges, impairment loss and disposition gains on equity method investments and equity in net loss/(income) of affiliates. 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 (benefit). 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 charges, other income/(expenses), and income tax expense (benefit) 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 a measure of net (loss)/income, (loss)/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.

Gross revenue earned from accommodation reservation is defined as accommodation reservation revenue plus (1) cash rebates to customers from the coupon program in our agency accommodation business that were recorded as contra revenue; and (2) the portion of the loss from significant cash-back discounts in our merchant accommodation business that was recorded as contra revenue. We believe gross revenue earned from accommodation reservation is a useful operating and financial metric to assess our performance before the impact of our promotion activities, including the coupon program and cash-back discounts.

Net commissions earned from accommodation reservation are defined as accommodation reservation revenue minus the excess of gross-up revenues over our commissions for accommodation reservation transactions, where we take inventory risk and accordingly recognize revenues on a gross basis. We believe net commissions earned from accommodation reservation is a useful operating and financial metric to assess our performance excluding the excess of revenues recognized on a gross basis over commissions earned from accommodation reservation, which allows us to provide investors more information as to the financial impact of our room night transactions for which we take inventory risk.

The presentation of gross revenue earned from accommodation reservation and net commissions earned from accommodation reservation should not be construed as an indication that eLong's future results will be unaffected by other activities we consider to be outside the ordinary course of our business. The use of gross revenue earned from accommodation reservation and net commissions earned from accommodation reservation has certain limitations. The two terms are not defined under GAAP, and are not measures of revenues in accordance with GAAP.

Gross revenue earned from accommodation reservation and net commissions earned from accommodation reservation 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 two non-GAAP financial measures to GAAP below.