Tripadvisor, Inc. — Q2 2023 Form 10-Q Summary
Business context and reporting period
Tripadvisor operates three reportable segments: Tripadvisor Core, Viator, and TheFork. Its platforms provide travel guidance, advertising, experience bookings, and restaurant reservations. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $494 million | $417 million | $865 million | $679 million |
| Operating income | $44 million | $63 million | $30 million | $44 million |
| Net income (loss) | $24 million | $31 million | $(49) million | $(3) million |
| Net income (loss) margin | 4.9% | 7.4% | (5.7)% | (0.4)% |
| Adjusted EBITDA | $90 million | $109 million | $123 million | $137 million |
| Adjusted EBITDA margin | 18.2% | 26.1% | 14.2% | 20.2% |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $240 million | $380 million |
Q2 revenue increased 18%, while six-month revenue increased 27%. Revenue growth was led by Viator, which grew 59% in Q2 and 72% for the first six months. Tripadvisor Core grew 2% in Q2 and 12% year to date; TheFork grew 19% and 26%, respectively.
Profitability declined despite revenue growth. Selling and marketing expense rose 24% in Q2 and 37% year to date, primarily from paid online traffic acquisition, search engine marketing, and brand spending focused on experiences. Technology and content expense increased 34% in Q2, and general and administrative expense increased 68%, partly reflecting the absence of $11 million of COVID-related government assistance received in Q2 2022 and $3 million of previously capitalized transaction costs expensed in Q1 2023.
Interest income increased to $12 million in Q2 and $22 million year to date, compared with $2 million in each 2022 comparable period, due to higher cash balances and interest rates. The six-month tax provision was $78 million, including a $55 million first-quarter impact from an IRS audit settlement and related transfer-pricing reserve adjustment.
At June 30, 2023, cash and cash equivalents were $1.141 billion, compared with $1.021 billion at December 31, 2022. Current assets were $1.478 billion and current liabilities were $854 million. The company reported $240 million of operating cash flow, $31 million of investing cash outflow, and $93 million of financing cash outflow for the first six months. Cash generation benefited from higher deferred merchant payables associated with experience bookings, although management expects this working-capital benefit to reverse seasonally in the second half of the year.
Long-term debt had a carrying value of $838 million and principal of $845 million, consisting of $500 million of 7.0% senior notes due July 2025 and $345 million of convertible senior notes due April 2026. The company had no borrowings under its $500 million revolving credit facility, $496 million of available capacity, and $4 million of undrawn standby letters of credit. The facility was amended in June 2023, extending maturity to June 2028, increasing the total net leverage covenant from 3.5x to 4.5x, and replacing LIBOR with SOFR-related benchmarks. The company stated that it was in compliance with its covenants.
Material changes versus the prior comparable period
- Viator revenue increased to $216 million from $136 million in Q2 and to $331 million from $192 million for the first six months, driven by strong demand for experiences.
- Tripadvisor Core revenue increased modestly in Q2, but hotel revenue declined 7% because of lower European hotel-meta revenue and increased competition in paid channels. Experiences and dining revenue increased 43%.
- Viator reported a $2 million Adjusted EBITDA loss in Q2 and a $31 million loss for the first six months, reflecting increased marketing, transaction, personnel, and overhead costs.
- Tripadvisor Core Adjusted EBITDA declined 17% in Q2 to $96 million, and its margin fell to 34% from 42%. The company cited higher personnel, overhead, and paid marketing costs and weaker European hotel-meta revenue.
- The company repurchased 4.7 million shares for $75 million at an average price of $15.85 per share, completing the existing repurchase authorization.
- Operating cash flow declined $140 million year over year, primarily because of the $113 million federal tax payment related to the IRS settlement, the absence of a $64 million 2022 tax refund, higher vendor payments, and increased net losses.
- The company approved a new 2023 Stock and Annual Incentive Plan and reported approximately 18 million shares reserved for future awards. Stock-based compensation expense was $25 million in Q2 and $48 million year to date.
Guidance, outlook, commentary, risks, and unusual items
The filing does not provide formal consolidated revenue or earnings guidance. Management continues to prioritize growth and market share in experiences and dining, including investment in Viator, TheFork, products, data, technology, and marketing. Tripadvisor introduced a beta AI-powered travel itinerary generator in June 2023.
On July 31, 2023, after the reporting period, the company approved global cost-reduction measures, including targeted workforce reductions, discretionary spending reductions, and potential real-estate savings. Management expects approximately $35 million of annualized cost savings, with implementation largely completed during the remainder of 2023.
Key risks include changes to search-engine algorithms and reduced organic traffic, intense competition in travel and experiences, dependence on major travel partners, seasonal working-capital volatility, foreign-exchange movements, inflation and recession risk, geopolitical conflict, potential health crises, cybersecurity and privacy matters, and regulatory and tax developments.
Tax contingencies remain significant. The company paid Expedia $113 million during Q2 under a tax-sharing agreement related to the resolved 2009–2011 IRS matter and expects a related net cash inflow of approximately $45 million to $55 million over the next twelve months. Separately, potential additional tax expense is estimated at $55 million to $65 million, excluding significant interest and deferred-tax effects, if the IRS prevails in its 2014–2016 transfer-pricing audit. HMRC has proposed potential additional tax expense of $25 million to $35 million, excluding interest, for 2012–2016. The company disputes both matters.
Other unusual items include the $55 million first-quarter tax charge, $3 million of non-recurring transaction costs, the non-recurrence of $11 million of COVID-related government assistance, and a $75 million share repurchase.
Important facts for investors to verify
- Whether Viator can convert rapid revenue growth into sustainable positive Adjusted EBITDA while reducing reliance on paid marketing.
- The persistence of weakness in European hotel-meta revenue and the effect of search-engine changes on organic traffic and customer acquisition costs.
- The timing and amount of the expected $45 million to $55 million tax-related cash inflow.
- Potential additional IRS and HMRC tax liabilities, including interest and deferred-tax consequences.
- The company’s ability to maintain the credit-facility leverage covenant, particularly as seasonal working-capital benefits reverse.
- Progress toward the announced $35 million annualized cost savings and any associated restructuring charges.
- Upcoming liquidity requirements for the $500 million of 2025 Senior Notes and the $345 million of 2026 Convertible Senior Notes.
- The dilution potential from the convertible notes, equity awards, and approximately 18 million shares reserved under the 2023 incentive plan.