Priceline.com Reports 1st Quarter 2005 Financial Results; $507 Million

Priceline.com Reports 1st Quarter 2005 Financial Results; $507 Million in Gross Travel Bookings

    Business Editors

    NORWALK, Conn.--(BUSINESS WIRE)--May 9, 2005--Priceline.com Incorporated (Nasdaq: PCLN) today reported its financial results for the 1st quarter 2005. Gross travel bookings for the quarter (the total Dollar value, inclusive of taxes and fees, of all travel services purchased by consumers) grew 40.8% year-over-year to $507 million. Revenues were $233.4 million, a 4.1% increase over a year ago. First quarter 2005 results include the operating results of Active Hotels, acquired in September 2004, and Travelweb, acquired in May 2004.
    Priceline.com's GAAP gross profit for the 1st quarter 2005 was $57.7 million, up 33.0% over the previous year, while GAAP net income for the 1st quarter was $4.1 million, or $0.10 per diluted share, a decrease of 9.1% over the previous year. GAAP net income was negatively impacted in the 1st quarter of 2005 by previously disclosed non-cash amortization expenses associated with the acquisitions of Travelweb and Active Hotels. Pro forma gross profit for the 1st quarter 2005 was $58.1 million, up 33.9% over a year ago. Pro forma net income for the 1st quarter 2005 was $8.4 million, or $0.21 per diluted share, which exceeds First Call analyst estimates of $0.20 per share and represents an increase of more than 60% over the prior year. The section below entitled "Non-GAAP Financial Measures" provides a definition and information about the use of pro forma financial measures used in this press release and the attached financial and statistical supplement reconciles pro forma financial information with priceline.com's financial results under GAAP.
    Airline ticket unit bookings, which include retail and opaque (Name Your Own Price(R)) tickets, grew 20.2% compared to the same period a year ago. Hotel room night unit bookings, which include retail and opaque rooms, grew 52.5% over last year. Rental car day unit bookings, which include retail and opaque rentals, grew 5.3% compared to last year.
    "With $507 million in gross travel bookings in the 1st quarter, priceline.com's bookings have more than doubled over the last two years," said priceline.com President and Chief Executive Officer Jeffery H. Boyd. "We believe our strong long-term performance has been due in large part to the introduction of new services and markets, and the online and offline marketing that we are putting behind our well-known brand."
    "With the 1st quarter 2005 launch of our new retail hotel service, we have completed the transition from a niche Name Your Own Price(R) travel service to a one-stop, full-service travel company. Today, priceline.com's search technology and leading travel inventory allows customers to choose between published-price and opaque airline tickets, hotel rooms, packages and rental cars. This unique ability to shop, compare and save on priceline.com is being communicated through a new TV advertising campaign featuring William Shatner. With the extensive published hotel inventory and content now available on priceline.com, in addition to our TV campaign, we are now also able to be more aggressive in online channels where customers are looking for information about hotels before buying."
    "Throughout the balance of the year, we intend to continue to pursue service improvements, such as optimization of the new hotel service, inventory and destination enhancements for packages and roll-out of cross-sell and destination services offerings. Active Hotels intends to continue building its business in rapidly growing European markets and we intend to continue efforts to integrate inventory, for example with the recent relaunch of priceline.co.uk, which now offers both priceline.com and Active Hotels services. We believe the combination of new service and market initiatives and our brand and marketing investments position us well to continue growing the business."

    Forward Guidance

    For the 2nd quarter 2005, priceline.com is guiding investors to the following financial targets:

--	Year-over-year increases in gross travel bookings and pro forma gross profit of approximately 25%.
--	Year-over-year increase in revenue of approximately 5%.
--	Pro forma net income of between $0.34 to $0.40 per diluted share, and GAAP net income of between $0.25 and $0.31 per diluted share.

    "We believe solid growth and operating performance in 2005 will allow us to continue our investments in service and market expansion and advertising," said Mr. Boyd. "Our guidance assumes only a modest positive contribution from the new hotel service, as it is too soon to predict the longer-term results of the relaunch and new advertising. That said, we are comfortable with the current First Call analysts consensus estimates of $1.20 per diluted share of pro forma net income for full-year 2005."
    A reconciliation of pro forma financial results to GAAP results is included in the attached financial and statistical supplement. Pro forma net income per diluted share guidance for the 2nd quarter and full-year 2005 excludes the after-tax effects of non-cash amortization expense of acquisition-related intangibles (primarily associated with the acquisitions of Travelweb and Active Hotels), stock-based compensation expense, option payroll tax expense, and, as applicable, the payment of non-cash preferred stock dividends, which, when aggregated, are expected to total approximately $4.0 million and $17.5 million, respectively. In addition, pro forma net income per diluted share guidance for the 2nd quarter 2005 and full-year 2005 excludes the anticipated impact of EITF 04-08 ("Effect of Contingently Convertible Debt on Diluted Earnings per Share"), which was effective as of December 15, 2004 and which revises the method for calculating diluted shares outstanding for purposes of computing GAAP net income per diluted share.

    About Priceline.com

    Priceline.com is a travel service that offers leisure airline tickets, hotel rooms, rental cars, vacation packages and cruises. Priceline.com also has a personal finance service that offers home mortgages, refinancing and home equity loans through an independent licensee. Priceline.com operates the retail travel Web sites Travelweb.com, Activereservations.com, Lowestfare.com, RentalCars.com and BreezeNet.com. Priceline.com licenses its business model to independent licensees, including pricelinemortgage and certain international licensees.

    Information About Forward-Looking Statements

    This press release may contain forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals and similar expressions including, without limitation, "believe(s)," "intend," "expect(s)," "will," "may," "should," "could," "plan(s)," "anticipate(s)," "estimate(s)," "predict(s)," "potential," "target(s)," or "continue," reflecting something other than historical fact are intended to identify forward-looking statements. The following factors, among others, could cause the Company's actual results to differ materially from those described in the forward-looking statements:

    -- adverse changes in general market conditions for leisure and
    other travel services as the result of, among other things,
    terrorist attacks;

    -- adverse changes in the Company's relationships with airlines
    and other product and service providers which could include,
    without limitation, the withdrawal of suppliers from the
    priceline.com system (either priceline.com's retail or
    "opaque" services, or both):

    -- the loss or reduction of global distribution fees;

    -- the bankruptcy or insolvency of another major domestic
    airline;

    -- the effects of increased competition, including, without
    limitation, adverse effects from the continued consolidation
    of on-line travel intermediaries;

    -- systems-related failures and/or security breaches;

    -- difficulties integrating recent acquisitions, including,
    without limitation, the acquisitions of Active Hotels and
    Travelweb;

    -- final adjustments made in closing the quarter;

    -- legal and regulatory risks; and

    -- the ability to attract and retain qualified personnel.

    For a detailed discussion of these and other factors that could cause the Company's actual results to differ materially from those described in the forward-looking statements, please refer to the Company's most recent Form 10-Q, Form 10-K and Form 8-K filings with the Securities and Exchange Commission. Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

    Non-GAAP Financial Measures

    Pro forma gross profit excludes the after-tax effects of non-cash amortization expense of acquisition-related intangibles primarily associated with the acquisition of Travelweb LLC. Pro forma net income excludes the after-tax effects of non-cash amortization expense of acquisition-related intangibles (primarily associated with the acquisition of Active Hotels Ltd. and Travelweb LLC), stock based compensation expense, option payroll tax expense and, when applicable, the payment of non-cash preferred stock dividends. In addition, pro forma net income per share excludes the accounting impact of EITF 04-08 ("Effect of Contingently Convertible Debt on Diluted Earnings per Share"), which was effective as of December 15, 2004 and revises the method for calculating diluted shares outstanding for purposes of computing GAAP net income per share.
    Pro forma gross profit, pro forma net income and pro forma net income per share are "non-GAAP financial measures," as such term is defined by the Securities and Exchange Commission, and may differ from non-GAAP financial measures used by other companies. Priceline.com believes that pro forma gross profit, pro forma net income and pro forma net income per share that exclude the after-tax effects of non-cash amortization expense of acquisition-related intangibles are useful for investors to evaluate priceline.com's future on-going performance because they enable a more meaningful comparison of priceline.com's projected cash earnings and performance with its historical results from prior periods. Stock based compensation expense and the non-cash expense associated with the payment of preferred stock dividends are excluded from pro forma net income and pro forma net income per share because they do not impact cash earnings and are reflected in earnings per share through increased share counts. Option payroll tax expense often shows volatility unrelated to operating results since the expense is driven primarily by option exercise activity and the market price of priceline.com's common stock. Finally, the accounting impact of EITF 04-08 ("Effect of Contingently Convertible Debt on Diluted Earnings per Share"), which requires that priceline.com use the "if-converted" method of accounting for convertible debt instruments when calculating earnings per share, has been excluded because the common stock that underly priceline.com's 1% Convertible Senior Notes and priceline.com's 2.25% Convertible Senior Notes are generally not issuable unless our common stock trades at prices of $44.00 per share and $45.54 per share, respectively.
    The presentation of this financial information should not be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles in the United States. The attached financial and statistical supplement reconciles historical pro forma financial information with priceline.com's financial results under GAAP.

priceline.com Incorporated CONSOLIDATED BALANCE SHEETS (unaudited) (In thousands, except per share data)

March 31, December 31, ASSETS 2005 2004 ----------- -----------

Current assets: Cash and cash equivalents $ 100,071 $ 101,270 Restricted cash 23,855 23,572 Short-term investments 141,967 122,812 Accounts receivable, net of allowance for doubtful accounts of $1,211 and $1,390, respectively 25,915 18,314 Prepaid expenses and other current assets 6,419 6,578 ----------- -----------

Total current assets 298,227 272,546

Property and equipment, net 17,672 15,827 Intangible assets, net 94,195 98,908 Goodwill 132,540 138,859 Other assets 17,164 15,942 ----------- -----------

Total assets $ 559,798 $ 542,082 =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities: Accounts payable $ 58,900 $ 40,612 Accrued expenses 19,620 23,649 Deferred merchant bookings 7,950 5,641 Other current liabilities 4,047 4,475 ----------- ----------- Total current liabilities 90,517 74,377

Deferred taxes 22,624 25,668 Other long-term liabilities 1,573 692 Minority interest 4,459 4,314 Long-term debt 223,576 224,418 ----------- ----------- Total liabilities 342,749 329,469 ----------- -----------

Commitments and Contingencies (See Note 16)

SERIES B MANDATORILY REDEEMABLE PREFERRED STOCK, $0.01 par value, 80,000 authorized shares; $1,000 liquidation value per share; 80,000 shares issued 13,470 and 13,470 shares outstanding, respectively 13,470 13,470

Stockholders' equity: Common stock, $0.008 par value, authorized 1,000,000,000 shares, 41,737,559 and 41,356,576 shares issued, respectively 319 317 Treasury stock, 2,496,326 and 2,496,326, respectively (350,628) (350,628) Additional paid-in capital 2,071,625 2,064,224 Deferred compensation (6,146) (1,264) Accumulated deficit (1,521,333) (1,525,447) Accumulated other comprehensive income 9,742 11,941 ----------- ----------- Total stockholders' equity 203,579 199,143 ----------- -----------

Total liabilities and stockholders' equity $ 559,798 $ 542,082 =========== ===========

priceline.com Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share data)

Three Months Ended March 31, ------------------------- 2005 2004 ---------- ----------

Merchant revenues $ 216,944 $ 217,011 Agency revenues 14,925 6,448 Other revenues 1,523 672 ---------- ---------- Total revenues 233,392 224,131

Cost of merchant revenues 175,685 180,757 Cost of agency revenues - - Cost of other revenues - - ---------- ---------- Total costs of revenues 175,685 180,757 ---------- ----------

Gross profit 57,707 43,374 ---------- ----------

Operating expenses: Advertising - Offline 11,072 10,664 Advertising - Online 9,932 4,741 Sales and marketing 8,208 6,706 Personnel, including stock based compensation of $714 and $106, respectively 11,222 8,341 General and administrative, including option payroll taxes of $18 and $40, respectively 4,237 3,509 Information technology 2,739 2,514 Depreciation and amortization 5,466 2,220 Restructuring reversal (336) - ---------- ----------

Total operating expenses $ 52,540 $ 38,695 ---------- ----------

Operating income 5,167 4,679

Other income: Interest income 1,456 1,110 Interest expense (1,293) (566) Other (654) 6 ---------- ---------- Total other income (loss) (491) 550 ---------- ----------

Earnings before income taxes and equity in income (loss) of investees 4,676 5,229 Income tax benefit 290 - Equity in income (loss) of investees, net 26 (126) ---------- ---------- Net income 4,992 5,103 Preferred stock dividend (878) (772) ---------- ----------

Net income applicable to common stockholders $ 4,114 $ 4,331 ========== ==========

Net income applicable to common stockholders per basic common share $ 0.11 $ 0.12 ========== ==========

Weighted average number of basic common shares outstanding 38,863 37,588 ========== ==========

Net income applicable to common stockholders per diluted common share $ 0.10 $ 0.11 ========== ==========

Weighted average number of diluted common shares outstanding 39,764 38,905 ========== ==========

priceline.com Incorporated RECONCILIATION OF GAAP GROSS PROFIT AND NET INCOME TO PRO FORMA GROSS PROFIT AND NET INCOME (unaudited) (In thousands, except per share data)

Three Months Ended March 31, 2005 ------------------------------- GAAP Adjustments Pro-Forma --------- ----------- ---------

Merchant revenues $216,944 $216,944 Agency revenues 14,925 14,925 Other revenues 1,523 1,523 -------- -------- Total revenues 233,392 233,392

Cost of merchant revenues 175,685 (361) (a) 175,324 Cost of agency revenues - - Cost of other revenues - - -------- -------- -------- Total costs of revenues 175,685 (361) 175,324 -------- ------- --------

Gross profit 57,707 361 58,068 -------- ------- --------

Operating expenses: Advertising - Offline 11,072 11,072 Advertising - Online 9,932 9,932 Sales and marketing 8,208 8,208 Personnel, including stock based compensation of $714 and $106, respectively 11,222 (714) (b) 10,508 General and administrative, including option payroll taxes of $18 and $40, respectively 4,237 (18) (c) 4,219 Information technology 2,739 2,739 Depreciation and amortization 5,466 (3,158) (d) 2,308 Restructuring charge/(reversal) (336) 336 (e) - -------- ------- --------

Total operating expenses $ 52,540 $(3,554) $ 48,986 -------- ------- --------

Operating income 5,167 3,915 9,082

Other loss: Interest income 1,456 1,456 Interest expense (1,293) (1,293) Other (654) (26) (f) (680) -------- ------- -------- Total other loss (491) (26) (517) -------- ------- --------

Earnings before income taxes and equity in income (loss) of investees 4,676 3,889 8,565 Income tax benefit/(expense) 290 (482) (g) (192) Equity in income of investees, net 26 26 -------- -------- -------- Net income 4,992 3,407 8,399 Preferred stock dividend (878) 878 (h) - -------- ------- --------

Net income applicable to common stockholders $ 4,114 $ 4,285 $ 8,399 ======== ======= ========

Net income applicable to common stockholders per basic common share $ 0.11 $ 0.22 ======== ========

Weighted average number of basic common shares outstanding 38,863 38,863 ======== ========

Net income applicable to common stockholders per diluted common share $ 0.10 $ 0.21 ======== ========

Weighted average number of diluted common shares outstanding 39,764 1,112 (i) 40,876 (j) ======== ======= ========

(a) Cost of merchant revenue adjustment for Travelweb acquired intangibles.

(b) Adjustment for stock-based compensation. (c) Adjustment for option payroll taxes.

(d) Amortization adjustment for acquistion-related intangibles, primarily related to Active Hotels and Travelweb. (e) Adjustment for restructuring reversal.

(f) Impact on minority interest of pro forma adjustments. (g) Adjustment for acquisition-related income tax benefit.

(h) Adjustment for preferred stock dividend.

(i) Includes common stock underlying warrants attached to priceline.com's outstanding preferred stock and includes shares of restricted stock that were excluded under GAAP earnings per share calculations. (j) EITF 04-08 did not impact the calculation of weighted average diluted common shares outstanding during the first quarter 2005 or GAAP earnings per share. The impact of EITF 04-08 was excluded from the calculation of pro forma diluted earnings per share.

priceline.com Incorporated --------------------------------------------------------------------- Statistical Data In thousands

Gross Bookings 1Q04 2Q04 3Q04 4Q04 1Q05 ------------------- --------- --------- --------- --------- ---------

Agency $244,816 $295,718 $276,726 $217,295 $240,655 Merchant 115,363 174,657 155,292 196,211 266,357 -------- -------- -------- -------- -------- Total $360,179 $470,375 $432,018 $413,506 $507,012

Year/Year Growth 45.5% 58.3% 43.8% 61.4% 40.8%

Units Sold 1Q04 2Q04 3Q04 4Q04 1Q05 ------------------- --------- --------- --------- --------- ---------

Airline Tickets 620 819 722 641 745 Year/Year Growth 28.2% 59.8% 64.9% 60.7% 20.2%

Hotel Room-Nights 1,669 1,983 2,081 1,997 2,544 Year/Year Growth 35.2% 31.8% 26.7% 51.4% 52.5%

Rental Car Days 1,213 1,409 1,364 1,065 1,278 Year/Year Growth 83.1% 62.5% 12.3% 15.5% 5.3%

1Q04 2Q04 3Q04 4Q04 1Q05 --------- --------- --------- --------- ---------

Revenue $224,131 $259,389 $235,882 $194,968 $233,392 Year/Year Growth 11.8% 8.3% -3.1% 8.2% 4.1%

Gross Profit $ 43,374 $ 53,779 $ 51,104 $ 49,897 $ 57,707 Year/Year Growth 31.5% 32.8% 25.7% 56.8% 33.0%

Gross Bookings represent the total dollar value of travel booked, inclusive of taxes and fees.

The gross bookings and units sold information included above reflects results from U.S. operations and Active Hotels since acquisition.

--30--MT/ny*

CONTACT: Priceline.com Brian Ek, 203-299-8167 brian.ek@priceline.com

KEYWORD: CONNECTICUT INDUSTRY KEYWORD: TRANSPORTATION TRAVEL RETAIL INTERNET E-COMMERCE EARNINGS SOURCE: Priceline.com

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