TRX Reports Coming Reduction In Expedia Transactions
Travel technology firm TRX revealed late yesterday that Expedia, its largest client, will significantly reduce transaction volumes processed through TRX products and reduce its use of TRX technology services.
"We have been informed that Expedia intends to decrease the volume of transactions that we service for them, as permitted under our current agreement with Expedia," according to TRX's second-quarter filings with the U.S. Securities and Exchange Commission.
"We are in discussions with Expedia regarding this planned reduction in services, and currently expect the decline in transaction volume to begin in the first quarter of 2009. In addition, a number of global airlines have announced significant capacity reductions, generally beginning in September 2008, due to high fuel prices and the related impact on air travel demand. In general, reduced airline capacity results in lower transaction volumes for us. If a significant decline in our transaction volume were to occur as a result of Expedia's intentions to reduce the level of services requested from us and/or reduced volumes from our other clients, it is possible that our revenues, operating results and cash flows would be impacted and the impact could be material."
According to the 10-Q report, Expedia and its affiliates accounted for 24 percent and 45 percent of TRX's global revenues for the second quarters of 2008 and 2007, respectively, and 32 percent and 39 percent for the first six months of 2008 and 2007. Since Expedia's inception in 1996, it has been a TRX client. A "Master Services Agreement" that runs through 2010 replaced the existing contract in December 2006.
"They made certain decisions about their technology strategy and global vendor framework that will affect the configuration of the relationship with us," said TRX president and CEO Trip Davis today during the company's quarterly earnings call. "We continue to have an effective working relationship with Expedia and their teams in multiple countries, and we expect to continue to be a significant vendor for them in the future. The service levels and quality measures of the technologies and services provided by us to Expedia and its travelers are at their best in history. While the extent and timing of the changes cannot be precisely quantified at this time, we expect a 2009 reduction in the range of $10 million to $20 million in revenue and a proportional impact on earnings as a result. Clearly, this will be another major transition and challenge for us."
An Expedia spokesperson declined comment on how the company would meet its future reservation processing needs, but acknowledged the existing Expedia-TRX agreement encompasses TRX's relationship with its Egencia corporate travel division, formerly called Expedia Corporate Travel.
Accounting for strong growth in the company's second-quarter earnings was the completion of the sale to Citibank of a TRX Data Services license for $4.5 million and other associated technology services for $1.4 million. However, the loss of a considerable portion of Expedia's business and lagging travel demand is expected to weigh on earnings in 2009, executives said.
Total revenues increased 53 percent to $37.7 million compared with the same period in 2007. Technology development increased 3 percent year over year to $3.7 million.
TRX CFO David Cathcart during the earnings call noted, "Ongoing shifts in our volume mix toward more highly automated lower revenue per transaction offerings lowered our average transaction price by 8 percent."