Tripadvisor, Inc. quarterly report, Q3 FY2023

Tripadvisor, Inc. Form 10-Q Summary

Reporting period: Quarter and nine months ended September 30, 2023. Tripadvisor operates three reportable segments: Tripadvisor Core, Viator, and TheFork. The company connects travelers and diners with travel guidance, advertising, accommodations, experiences, and restaurant marketplaces.

Financial Performance and Position

Metric	Q3 2023	Q3 2022	9M 2023	9M 2022
Revenue	$533 million	$459 million	$1.398 billion	$1.138 billion
Operating income	$64 million	$70 million	$94 million	$113 million
Net income (loss)	$27 million	$25 million	$(22) million	$22 million
Adjusted EBITDA	$127 million	$115 million	$250 million	$252 million
Net income margin	5.1%	5.4%	(1.6%)	1.9%
Operating cash flow	Not separately provided	Not separately provided	$254 million	$440 million

Revenue growth: Q3 revenue increased 16%; nine-month revenue increased 23% year over year.
Segment revenue: Q3 Tripadvisor Core revenue was $290 million, Viator $245 million, and TheFork $42 million. Viator was the primary growth driver, increasing 41% in Q3 and 57% for the nine months.
Segment profitability: Q3 Adjusted EBITDA was $111 million for Tripadvisor Core, $17 million for Viator, and negative $1 million for TheFork. Nine-month Adjusted EBITDA was $279 million, negative $15 million, and negative $14 million, respectively.
Margins: Consolidated Adjusted EBITDA margin was approximately 24% in Q3 and 18% for the nine months. Q3 operating margin was approximately 12%, compared with 15% in the prior-year quarter.
Cash and liquidity: Cash and cash equivalents were $1.124 billion at September 30, 2023, compared with $1.021 billion at December 31, 2022. The company reported $496 million of available borrowing capacity under its revolving credit facility.
Debt: Long-term debt had $845 million of principal and an $839 million carrying value, consisting of $500 million of 7.0% senior notes due July 2025 and $345 million of convertible senior notes due April 2026. There were no borrowings under the revolving credit facility.
Cash flow: Nine-month operating cash flow declined by $186 million year over year, primarily because of a $113 million federal tax payment related to an IRS settlement, the absence of a $64 million CARES Act refund received in 2022, lower net income, and working-capital timing.
Capital allocation: The company repurchased $75 million of stock during the second quarter, completing its prior program. A new $250 million, two-year authorization was approved in September; no shares were repurchased under the new program during Q3.

Material Changes Versus the Prior Comparable Period

Viator revenue increased substantially as demand for experiences grew across geographies, with higher booking volume and pricing. Management continued investing in paid traffic, brand marketing, and market-share expansion, which kept Viator’s nine-month Adjusted EBITDA negative.
Tripadvisor Core revenue grew modestly in Q3. Experiences and dining and display/platform revenue increased, while hotel revenue declined because of lower hotel-meta click volumes, particularly in Europe and the U.S., amid greater paid-channel competition and product changes.
TheFork revenue increased and its Adjusted EBITDA loss narrowed, supported by stronger dining demand, increased bookings and pricing, and lower paid traffic acquisition costs.
Consolidated selling and marketing expense increased 16% in Q3 and 29% for the nine months, primarily because of investments in experiences marketing and paid traffic acquisition.
Operating income declined despite revenue growth because expense growth, restructuring costs, and increased investment outpaced revenue gains.
Nine-month net income moved to a loss, primarily because of a $55 million incremental income tax expense recorded in Q1 related to an IRS audit settlement and related transfer-pricing reserve adjustment. The prior-year period also benefited from $11 million of COVID-related government assistance that did not recur.

Guidance, Outlook, Commentary, Risks, and Unusual Items

Restructuring: The company recorded $18 million of pre-tax restructuring and reorganization costs in Q3, primarily severance. It expects an additional $3 million to $4 million in Q4 and expects most accrued costs to be paid in Q4 2023 and Q1 2024.
Cost savings: Management expects approximately $35 million of annualized savings in Tripadvisor Core, including corporate general and administrative costs, and approximately $10 million in TheFork, primarily from workforce reductions. The company had nearly 3,000 employees at September 30, 2023, down approximately 4% from Q2.
Outlook: The filing does not provide formal consolidated revenue or earnings guidance. Management expects continued investment in Viator, TheFork, and Tripadvisor Core products, marketing, data, and technology, with potential strategic acquisitions considered opportunistically.
Liquidity outlook: Management believes available cash, operating cash flow, and borrowing capacity will be sufficient for foreseeable working capital, capital expenditures, growth initiatives, debt service, leases, and other commitments for at least the next twelve months.
Tax contingencies: The company estimates potential additional tax expense of $55 million to $65 million, excluding significant interest and deferred tax effects, if the IRS prevails in its 2014–2016 transfer-pricing audit. A separate HMRC matter could result in $25 million to $35 million of additional tax expense, excluding interest, if HMRC prevails.
Completed IRS settlement: Tripadvisor paid $113 million to Expedia in Q2 related to the 2009–2011 IRS matter and received a $49 million competent-authority refund in Q3. It expects a net cash inflow of approximately $5 million to $10 million from remaining related federal and state tax settlements over the next twelve months.
Business risks: Key risks include dependence on travel demand, seasonality, macroeconomic weakness, geopolitical conflicts, public-health events, foreign exchange volatility, competition, Google search-result changes and SEO traffic dependence, customer concentration, regulatory and tax matters, and potential data privacy or consumer-protection claims.
Governance and controls: Liberty Tripadvisor Holdings had approximately 57% of voting power through its Class B shares. Management concluded that disclosure controls were effective, and no material change occurred in internal control over financial reporting during the quarter.

Facts Investors Should Verify

Whether Viator can convert strong revenue growth and increased marketing investment into sustained positive Adjusted EBITDA and cash flow.
The effect of reduced hotel-meta click volumes, Google search changes, and competitive paid traffic costs on Tripadvisor Core revenue and margins.
The timing and magnitude of restructuring savings versus the remaining $3 million to $4 million of expected restructuring costs.
The maturity and refinancing or repayment plan for the $500 million of 7.0% senior notes due July 2025.
The outcome and timing of the IRS and HMRC transfer-pricing audits and any resulting cash tax payments, interest, or deferred tax effects.
The impact of seasonality and the reversal of experience-related working capital during the second half of the year on operating cash flow.
Execution of the new $250 million share-repurchase authorization and its effect on liquidity, leverage, and share count.