Hotel Reservations Network Posts Robust Quarterly Figures.

22nd Oct 2001

Discount hotel rooms provider, Hotel Reservations Network, a majority-owned subsidiary of USA Networks, Inc.`s Interactive Group, today announced record revenues.

Highlights include:

* Revenue: $151.2 million, up 60%

* EBITDA: $21.8 million, up 57%

* Adjusted EPS: $0.27 per diluted share, up 50%

* 1.2 million hotel room nights sold in Q3

* Over 500 additional properties added in Q3

* Liquidity strong with $212.7 million in cash and investments; no debt

David Litman, Chairman and Chief Executive Officer, commented, “The third quarter of 2001 was another record quarter for Hotel Reservaty`s foundation for future growth. We remain the number one source for discounted hotel rooms worldwide, and more and more customers are attracted to HRN by our values, even during this difficult period.”

Mr. Litman continued, “The terrorist attacks on the United States have hit the travel industry hard, including the hotel and lodging industry. Since the attacks, Americans have been traveling less. The impact of this on all forms of travel, both business and leisure, has been sudden and severe. Most travel suppliers—such as airlines, hotels, cruise lines and car rental companies—have had to cope with drastic reductions in revenues, and many of them have somewhat limited flexibility in managing their expense levels. Customers have cancelled or deferred their travel plans in record numbers.


“Because of these factors,” he continued, “our hotel and lodging partners are increasingly turning to Hotel Reservations Network to help them fill their rooms. We added over 500 new properties in the third quarter, including many in the past six weeks. Over 75% of our hotel partners are now using our proprietary on-line tools to instantly offer specials and to make more rooms available for us to sell. We also added 25 new cities during the quarter, with new hotel relationships and new opportunities for growth. Our extensive distribution platform now includes not only an enormous base of nearly 23,000 Internet and call center affiliates, but also a large and growing direct channel. As a result, we are continuing to expand and strengthen our supply of rooms.”

Bob Diener, President, added, “Although our company has been tested mightily in the past several weeks, we have great resiliency in our business. The HRN business model that we developed 10 years ago has a highly flexible and variable cost structure, and we are confident that HRN will continue to generate substantial profits and positive cash flow under a very wide variety of revenue scenarios.

“Moreover, HRN`s growth opportunities are very strong, even after the events of September 11th. We are actively negotiating dozens of new affiliate distribution deals that should bring additional customers and revenues to HRN throughout 2002. Some of these deals are among the largest that have ever been available to us, and we are excited about the opportunities that they present.”

Mr. Diener continued, “Hotel Reservations Network remains a unique, well-positioned, highly aggressive growth company, with a leadership position in a vast global lodging industry that exceeds $250 billion in revenues annually. We have still barely scratched the surface, as this year we will book less than 1/4 of 1% of this market. Our balance sheet remains solid with over $212 million in cash and investments and no debt, even after having spent over $47 million in cash to acquire TravelNow earlier this year. Our business does not require a significant investment in working capital or heavy capital expenditures. We have always been conservative at adding fixed expenses and managing spending, and we are continuing to carefully watch these factors at the present time.

“We intend to take full advantage of any and all growth opportunities—both internal and external—in 2002 and beyond. We are continuing to evaluate acquisition opportunities, and we expect that HRN will make selective acquisitions in the future. Our goal of delivering continued high growth rates for the foreseeable future is unaffected by recent world events.

“Most important, we are immensely proud of our management and employees, especially during this difficult operating environment in the travel industry. As HRN celebrates its 10th anniversary this month, Dave and I would like to express our deep gratitude to our more than 750 employees worldwide for their contributions to the success of this company.”

The company has revised its outlook for the fourth quarter of 2001 and for the full year 2002. Due to the current uncertainty in the travel market, abnormally high levels of cancellations, and unusually low rates for hotel rooms in many cities, the revenue, EBITDA and cash EPS figures for the fourth quarter of 2001 represent reductions from previously issued guidance for the fourth quarter. The outlook for growth in revenue, EBITDA and cash EPS for 2002 is also reduced somewhat from prior guidance, although the company still expects significant growth in 2002. We expect that hotel room rates will remain at unusually low levels throughout the fourth quarter of 2001, and will gradually increase in 2002.

The company also believes that it has reached the scale of operations where it makes economic sense to increase its marketing expenditures substantially during 2002, which should enable it to grow at even higher rates in the future. We also expect to complete several new affiliate distribution agreements that should become productive during 2002. As a result, the company expects that its rate of growth in the number of transactions (reservations and room nights sold) may outpace its rate of growth in revenues and earnings in 2002. For 2003, the company expects that hotel room rates will be back to at least pre-September 11th levels, and that the rates of growth in revenues and earnings will be similar to the rate of growth in transaction volumes.



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