Universal Travel Group, a leading travel services provider in China offering package tours, air ticketing, and hotel reservation services online and via customer service representatives, today announced financial results for the three and nine months ended September 30, 2011.

Third Quarter 2011 Highlights

• Revenues decreased 8.1% year-over-year to $41.8 million.
• Gross profit decreased 12.0% year-over-year to $10.1 million.
• Gross margin was 24.2%, compared to 25.2% in the prior year same period.
• Income from operations decreased 17.3% to $7.9 million.
• Net income was $5.9 million or $0.30 per basic and diluted share, compared to $7.3 million or $0.37 per basic share and $0.36 per diluted share in the prior year same period, a year over year decrease of 18.9%.
• Foreign currency translation adjustments were $1.3 million, compared to $0.9 million in the prior year same period, a year over year increase of 43.1%.
• Total comprehensive income, including foreign currency translation adjustments, was $7.2 million, compared to $8.2 million in the prior year same period, a year over year decrease of 12.1%.

Business in third quarter, compared to third quarter 2010 was impacted by a few factors. First, revenues in the third quarter 2010 were elevated, boosted by the Shanghai World Expo which fueled substantial growth in tourism. With no similar event this year, tourism demand was softer this quarter. Second, the Company shifted its hotel reservation business strategy to concentrate on direct sales and exit all hotel room wholesale operations as the former is substantially more profitable. Lastly, the Company tightened its credit risk management and terminated its business relationships with customers with deteriorating credit quality in both air ticketing and packaged tours. The Company is confident that these measures will deliver healthier and more sustainable growth in the future as the prospects for China's tourism industry remain very strong.

Third Quarter 2011 Financial Results

Revenues for the three months ended September 30, 2011, were $41.8 million compared to $45.5 million for the same period in 2010, a decrease of 8.1%. This slight decrease was due to a higher than normal sales for the same period in 2010 contributed by large exhibitions in the PRC, including the Shanghai World Expo.   

evenues from the air-ticketing segment were $5.5 million, compared to $5.7 million for the same period last year, a decrease of 4.5%. This slight decrease was due to lower air-ticket sales volume in the third quarter of 2011 than in the same quarter last year, when the Shanghai World Expo contributed significantly to higher air-ticket sales.

Revenues from the hotel reservation segment were $2.9 million, compared to $4.4 million for the same period last year, a decrease of 33.2%. The decrease is associated with the transition of the Company's strategy in this segment. The Company ceased all hotel room wholesale operations, which were previously conducted through the China Booking Association platform. Instead, the Company focused its strategy on the more profitable direct sales of packaged hotel products. As a result, revenue fell during this transition period.

Revenues from the packaged tour segment were $33.4 million compared to $35.4 million for the same period in 2010, a decrease of 5.6% from the same period last year. The slight decrease was a result of the Company's efforts to reduce its business with customers with bad credit in order to control the amount of uncollectable accounts receivables and reduce the balance of bad debt allowance.

Gross profit was $10.1 million compared to $11.5 million for the same period last year, a decrease of 12.0%. This decrease was a result of decreased revenues in the third quarter this year than the same period last year when Company had higher revenues during the Shanghai World Expo. Gross profit margin was 24.2% compared to 25.2% for the same period last year. The stability in gross margin was mainly due to integration among segments and the Company's strategy to focus more on online development.

Selling, general and administrative ("SG&A") expenses totaled $2.3 million compared to $2.0 million for the same period last year, an increase of 14.7%. The SG&A expenses were 5.6% of revenue compared to 4.5% for the same period last year. This increase was mainly due to extra professional fees and higher stock based compensation expenses related to options granted under the 2010 incentive stock plan issued in December 2010.

Income from operations was $7.9 million compared to $9.5 million in the same period last year, a decrease of 17.3%.      

Net income from continuing operations was $5.9 million, or $0.30 per basic and diluted share, compared to $7.3 million, or $0.37 per basic share and $0.36 per diluted share, for the same period last year, a decrease of 18.9%. The decrease in net income was mostly associated with decreased sales in the third quarter this year compared to the same quarter last year, which benefited from the Shanghai World Expo.

Nine Months Results

Revenues for the nine months ended September 30, 2011, were $108.5 million compared to $97.8 million for the same period in 2010, an increase of 10.9%. This increase was driven by business expansion, especially in the packaged tour segment, along with the strong demand for travel as a result of the recovery of the PRC economy, and the continuing effect of the PRC government's stimulus package, benefiting the whole industry.

Revenues from the air-ticketing segment were $15.8 million, compared to $14.4 million for the same period last year, an increase of 9.1%. This increase was due to the increase in air-ticket sales volume and higher air-ticket prices. The Company attributed the higher air ticket sales to the booming tourism, and general inflation in the PRC economy, as well as reduced competition among airlines.

Revenues from the hotel reservation segment were $9.3 million, compared to $10.9 million for the same period prior year, a decrease of 14.1%. The decrease was due to the Company's shift in strategy to focus on more profitable direct sales of packaged hotel products, resulting in a decrease in revenue but a slight increase in gross profit because of substantially reduced costs of services during this transition period.

Revenues from the packaged tour segment were $83.4 million, compared to $72.5 million for the same quarter last year, an increase of 15.0%. This increase was associated with the Company's expansion in this segment. Subsidiaries acquired in 2010 in this segment contributed approximately $32.0 million for the nine months ended September 30, 2011, compared to $18.2 million for the same period prior year, when the revenues of the newly acquired subsidiaries before the acquisition were not included in the revenues for the nine months ended September 30, 2010.

Gross profit was $27.7 million, compared to $26.5 million for the same period last year, an increase of 4.8%. Gross profit margin was 25.6%, compared to 27.1% for the same period last year.  

Selling, general and administrative ("SG&A") expenses totaled $7.9 million, compared to $5.7 million for the same period last year, an increase of 38.7%. The SG&A expenses were 7.3% of revenue compared to 5.8% for the same period last year.  

Income from operations was $19.9 million, compared to $20.8 million in the same period last year, a decrease of 4.5%.      

Net income from continuing operations was $14.8 million, or $0.74 per basic share and $0.73 per diluted share, compared to $16.6 million, or $0.92 per basic share and $0.88 per diluted share, for the same period last year. Excluding the effect of the non-cash gain on change in fair value of derivative liabilities of $0.5 million, the non-cash charge related to stock-based compensation of $2.4 million and the $0.7 million one-time, non-cash gain on disposal of fixed assets, the Company's adjusted net income from continuing operations was $16.6 million, or $0.84 per basic share and $0.82 per diluted share, compared to $16.2 million, or $0.90 per basic share and $0.86 per diluted share, in the first nine months of 2010, a year-over-year growth of 2.5%.

Financial Condition

Cash and cash equivalents were $53.0 million as of September 30, 2011, compared to $39.6 million as of December 31, 2010. Current assets and current liabilities as of September 30, 2011, were $132.9 million and $11.7 million, respectively, yielding working capital of $121.3 million. The Company has no long-term debt.  For the nine months ended September 30, 2011, net cash provided by operating activities was $20.6 million.

Use of Adjusted Financial Measures

GAAP results for the nine months ended September 30, 2011 and 2010 include non-cash gains and losses related to the change in fair value of derivative liabilities, non-cash charges related to stock-based compensation and a one-time non-cash gain associated with the disposal of fixed assets.  To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided adjusted financial information excluding the impact of these items in this release. It is a departure of U.S. GAAP; however, the Company's management believes that this adjusted measure provides investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies.