Universal Travel Group Announces Second Quarter 2010 Results
08/12/2010|8:52:42 AM|ChinaTravelNews

SHENZHEN, China, Aug. 10 /PRNewswire-Asia-FirstCall/ -- Universal Travel Group (NYSE:UTA) ("Universal Travel Group" or the "Company"), 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 six months ended June 30, 2010.

Second Quarter 2010 Highlights

    -- Revenue increased 99.6% year-over-year to $36.7 million
    -- Excluding contribution of newly acquired businesses, revenue increased 36.4% year-over-year
    -- Gross profit increased 61.6% year-over-year to $10.6 million
    -- Gross margin was 28.7%, compared to 35.5% in the prior year period
    -- Income from operations increased 42.8% to $7.1 million
    -- Adjusted income from operations, which excludes the effect of non-cash charges related to stock-based compensation of $0.3 million, increased 40.4% to $7.4 million(*)
    -- GAAP net income from continuing operations was $6.0 million or $0.33 per diluted share, compared to a loss of $1.9 million or $0.13 per diluted share in the prior year period
    -- Adjusted net income from continuing operations, which excludes the effect of the non-cash gain on change in fair value of derivative liabilities of $0.8 million and the non-cash charge related to stock-based compensation of $0.3 million, increased 29.3% to $5.5 million, or $0.30 per diluted share(*)
-- Acquired two travel service providers in China

"We are pleased to announce another quarter of strong growth in our business," said Ms. Jiangping Jiang, Chairwoman and Chief Executive Officer. "Our second quarter sales grew both organically and via our recently closed acquisitions. During the quarter, we saw strong demand for our travel services as the Chinese economy continues to expand, providing more and more consumers in China with disposal income for travel and tourism. We continue to see success in cross-marketing and selling our travel related products across our three business segments and increased brand awareness from our online presence and the deployment of our TRIPEASY kiosks."

Second Quarter 2010 Financial Results

Revenue for the three months ended June 30, 2010, was $36.7 million compared to $18.4 million for the same period in 2009, an increase of 99.6%. In March 2010, the Company completed the acquisitions of Huangshan Holiday Travel Service Co., Ltd., Hebei Tianyuan International Travel Agency Co., Ltd., and Zhengzhou Yulongkang Travel Agency Co., Ltd. In June 2010, the Company completed the acquisitions of Shanxi Jinyang Travel Agency Co., Ltd. and Kunming Business Travel Agency Co., Ltd. The revenue contribution from these five newly acquired businesses in the second quarter of 2010 was $11.6 million, or 31.7% of the Company's total revenues for the quarter. Excluding the contribution of these newly acquired businesses, revenue for the second quarter of 2010 was $25.1 million, an increase of 36.4% from $18.4 million in the same period last year.

Revenue from air-ticketing was $6.0 million, compared to $3.3 million for the same period last year, an increase of 82.3%. This increase was mainly due to increased demand for air passenger transportation and higher ticket prices.

Revenue generated by the Company's hotel reservation segment was $3.0 million compared to $2.7 million for the same period in 2009, an increase of 11.2%. This increase was mainly due to healthy market demand and the Company's ability to successfully cross-market across its three business segments.

Revenue generated by package tours was $27.7 million compared to $12.4 million for the same period in 2009, an increase of 123.6% from the same period last year. This increase was primarily the result of the five recent acquisitions, the recovery of the domestic economy, the positive impact from the government's stimulus package, and the Company's strong efforts in carrying out various marketing programs.

Gross profit was $10.6 million compared to $6.5 million for the same period last year, an increase of 61.6%. Gross profit margin was 28.7% compared to 35.5% for the same period last year. The decrease in gross profit margin was primarily because the packaged tour business, which has a lower profit margin due to the way revenues are recognized, constituted a higher percentage of the Company's total revenues than during the prior year period.

Selling, general and administrative ("SG&A") expenses totaled $3.5 million compared to $1.6 million for the same period last year, an increase of 121.2%. The SG&A expenses were 9.4% of revenue compared to 8.5% for the same period last year. The increase in SG&A expenses is in connection with the growth in business operations during the three months ended June 30, 2010, as compared to the same period of last year. In addition, during the second quarter of 2010, the Company incurred extra professional fees and consolidation expenses related to the businesses it acquired, as well as from the $20 million common stock offering in June. The Company also incurred increased advertising expenses this quarter relative to the same period last year. In addition, in the second half of 2009 the Company established two subsidiaries (Chongqing Universal Travel E-Business Co., Ltd and Shenzhen Universal Travel Agency Co. Ltd.) and depreciation and amortization expenses for these subsidiaries have been taken into account since the third quarter of 2009.

Income from operations was $7.1 million compared to $5.0 million in the same period last year, an increase of 42.8%. The Company incurred non-cash charges related to stock-based compensation of $0.3 million in the second quarter of 2010, the same amount as in the prior year period. Excluding these non-cash charges, the Company's adjusted income from operations was $7.4 million for the second quarter of 2010, compared to $5.3 million in the prior year period, an increase of 40.4%. Adjusted operating margin was 20.2%.(*)

Net income from continuing operations was $6.0 million, or $0.33 per diluted share, compared to a loss of $1.9 million, or $0.13 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 $0.8 million and the non-cash charge related to stock-based compensation of $0.3 million, the Company's adjusted net income from continuing operations was $5.5 million, or $0.30 per diluted share, compared to $4.3 million, or $0.30 per diluted share, in the second quarter of 2009.(*)

Ms. Jiang added, "Our bottom line performance benefited from our strong sales growth and higher margins in our air ticketing business as airlines in China increased prices in response to the booming travel market. This was offset by an increased proportion of our sales coming from package tours, which have a lower profit margin due to the way revenues are recognized, as well as from lower margins when compared to last year in our hotel reservation segment and our package tour business. The slight decrease in our hotel reservation margin was due to a year-over-year reclassification of costs. The decrease in margin in our package tour business was the result of the five travel service providers we acquired having lower margins than our existing business. Although currently these businesses have lower profit margins than our existing business, we expect their margin contribution to improve as we integrate them into our platform, and their strong local networks are critical in our nationwide expansion strategy."

Six Months Results

Revenue for the six months ended June 30, 2010, was $62.9 million compared to $33.9 million for the same period in 2009, an increase of 85.4%. The revenue contribution from the Company's five newly acquired businesses in the first half of 2010 was $16.9 million, or 26.9% of the Company's total revenues for the first half. Excluding the contribution of these newly acquired businesses, revenue for the first half of 2010 was $46.0 million, an increase of 35.5% from $33.9 million in the same period last year.

Revenue from air-ticketing was $10.4 million, compared to $6.0 million for the same period last year, an increase of 72.7%. Revenue generated by the Company's hotel reservation segment was $6.2 million compared to $5.2 million for the same period in 2009, an increase of 17.9%. Revenue generated by package tours was $46.3 million compared to $22.6 million for the same period in 2009, an increase of 104.3% from the same period last year.

Gross profit was $19.1 million compared to $12.3 million for the same period last year, an increase of 54.9%. Gross profit margin was 30.3% compared to 36.3% for the same period last year.

Selling, general and administrative ("SG&A") expenses totaled $6.5 million compared to $3.1 million for the same period last year, an increase of 110.6%. The SG&A expenses were 10.4% of revenue compared to 9.1% for the same period last year.

Income from operations was $12.5 million compared to $9.2 million in the same period last year, an increase of 36.1%. The Company incurred non-cash charges related to stock-based compensation of $0.7 million in the first half of 2010 compared to $0.5 million in the prior year period. Excluding these non-cash charges, the Company's adjusted income from operations was $13.2 million for the first half of 2010, compared to $9.7 million in the prior year period, an increase of 36.2%. Adjusted operating margin was 21.0%.(*)

Net income from continuing operations was $10.1 million, or $0.57 per diluted share, compared to $1.4 million, or $0.10 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 $0.9 million and the non-cash charge related to stock-based compensation of $0.7 million, the Company's adjusted net income from continuing operations was $9.9 million, or $0.55 per diluted share, compared to $7.6 million, or $0.53 per diluted share, in the first half of 2009.(*)

Financial Condition

Cash and cash equivalents were $43.6 million as of June 30, 2010. Current assets and current liabilities as of June 30, 2010, were $86.2 million and $10.8 million, respectively, yielding working capital of $75.4 million. The Company has no long-term debt. For the six months ended June 30, 2010, net cash provided by operating activities was $4.5 million.

  Recent Developments

    -- In July 2010, the Company announced a partnership with Agoda, a
       subsidiary of Priceline.com, to strengthen its hotel reservation
       business segment and upgrade its website, http://www.cnutg.com . Under
       the agreement, Universal Travel Group will offer its customers access
       to Agoda's international network of hotels. Through the updated
       cnutg.com website, travelers will be able to enjoy special Agoda
       promotions and instant confirmation at tens of thousands of hotels
       worldwide.

    -- In June 2010, the Company acquired Shanxi Jinyang Travel and Kunming
       Business Travel for $8.0 million, of which 90% was paid in cash and 10%
       in stock.

   -- In June 2010, the Company closed a common stock offering and issued
       2,857,143 shares of its common stock at $7.00 per share for an
       aggregate amount of $20 million. The proceeds from this financing were
       used to fund the cash portion of the Company's two recently closed
       acquisitions and are expected to be used to fund the cash portion of
       the two acquisitions that have been announced but have not yet closed
       (Tianjin Hongxun Aviation Agency Co., Ltd. and Shandong Century
       Aviation Development Co., Ltd.) as well as for working capital to
       expand the Company's core business segments.

Business Outlook

Ms. Jiang commented, "In June, a number of Chinese airlines reported that they were authorized to cut the commission paid to travel agencies. Currently there has been no major impact on our existing business since the airlines planned to cut only the commission rates for a few flights departing from Beijing and Shanghai. Based on our analysis of air ticket booking habits in China, we believe that in the coming years the airlines will continue to heavily rely on travel agencies and pay travel agency commissions when selling tickets. Furthermore, we believe that any eventual commission rate cuts will serve to accelerate the consolidation of the travel services industry in China. We expect Universal Travel Group to be a beneficiary of any such consolidation as we believe the larger and more efficient travel service providers will gain more market share and the smaller and weaker players would be hurt most from any further commission rate cuts.

"As part of our strategy to position ourselves as a leader in the fast growing and consolidating China travel market, we closed two acquisitions of travel service providers in the second quarter, which together with our three acquisitions in the first quarter, further expanded our geographic reach. We believe our comprehensive travel service platform and broad customer reach will enable us to improve the sales volume and operating efficiency of these new acquisitions. We also expect these newly acquired businesses to help our existing business by broadening the travel services we offer our customers. With a higher volume of bookings from our acquired businesses, our bargaining power with airlines and hotels should also benefit. Overall, we expect improved sales, margins and earnings as we fully integrate these businesses into our platform.

"Finally, we are very excited about our recently announced partnership with Agoda, a subsidiary of Priceline.com. Under the partnership agreement, we offer our customers access to Agoda's international network of hotels. Through our website, travelers will be able to enjoy special Agoda promotions and instant confirmation at tens of thousands of hotels worldwide. Also through this partnership, Agoda intends to increase its exposure in the large Chinese travel market. This partnership offers us the opportunity to work with one of the world's largest online hotel reservation agencies and further strengthen our hotel reservation segment. We intend to leverage Agoda's global brand awareness and look forward to a higher volume of hotel reservations."

As previously announced, for full year 2010, the Company expects to achieve between $145.0 million and $155.0 million in revenue, $27.0 million and $28.0 million in net income, and $1.35 and $1.40 in diluted EPS, excluding the effect of non-cash charges related to the change in fair value of derivative liabilities and stock-based compensation and assuming no further dilutive effect from financings or acquisitions.

About Universal Travel Group

Universal Travel Group is a leading travel services provider in China offering package tours, air ticketing, and hotel reservation services via the Internet and customer service representatives. The Company also operates TRIPEASY Kiosks, which are placed in shopping malls, office buildings, residential apartment buildings, and tourist sites. These kiosks are designed for travel booking with credit and bank cards, and serve as an advertising platform for Universal Travel Group. The Company's headquarters and main base of operations is in Shenzhen in the Pearl River Delta region of China. More recently, Universal Travel Group has expanded its business into Western China, opening a second home base in the Chongqing Delta region, and other attractive, under-penetrated tier-two travel markets throughout the country.