Tripadvisor, Inc. Form 10-Q Summary
Business Context and Reporting Period
Tripadvisor operates a global travel guidance and booking platform covering hotels, media and advertising, experiences, dining, rentals, flights, cars and cruises. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Results continued to be materially affected by COVID-19, although travel demand and operating trends improved substantially during the second and third quarters of 2021.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $303 million | $151 million | $661 million | $488 million |
| Operating income (loss) | $16 million | $(46) million | $(103) million | $(237) million |
| Net income (loss) | $1 million | $(48) million | $(119) million | $(217) million |
| Net margin | 0.3% | (31.8)% | (18.0)% | (44.5)% |
| Adjusted EBITDA | $72 million | $15 million | $71 million | $(18) million |
| Operating cash flow | Not separately provided | Not separately provided | $43 million | $(180) million |
| Capital expenditures | Not separately provided | Not separately provided | $40 million | $46 million |
Q3 revenue increased 101% year over year, while nine-month revenue increased 35%. Q3 operating income returned to positive territory, and nine-month operating loss narrowed by $134 million. Q3 selling and marketing expense was $148 million, or 48.8% of revenue, compared with 46.4% in the prior-year quarter, reflecting increased performance marketing investment. Stock-based compensation was $29 million in Q3 and $89 million for the nine-month period.
Revenue and Segment Performance
- Hotels, Media & Platform: Q3 revenue was $172 million, up 115%; nine-month revenue was $417 million, up 45%. Q3 Adjusted EBITDA was $51 million, compared with $4 million in the prior-year period.
- Experiences & Dining: Q3 revenue was $114 million, up 115%; nine-month revenue was $209 million, up 39%. Q3 Adjusted EBITDA was $10 million, compared with $1 million; nine-month Adjusted EBITDA remained negative at $(26) million, improving from $(56) million.
- Other: Q3 revenue was $17 million, down 6%; nine-month revenue was $35 million, down 31%, partly reflecting the sale of the SmarterTravel business in 2020.
Compared with 2019, Q3 consolidated revenue recovered to approximately 71% of the comparable period, monthly unique users on Tripadvisor-branded websites reached approximately 76%, and Experiences & Dining revenue reached approximately 81%. U.S. hotel auction revenue exceeded Q3 2019 levels, while Europe and other international markets remained below pre-pandemic levels.
Liquidity, Cash Flow and Debt
- Cash and cash equivalents were $682 million at September 30, 2021, compared with $418 million at December 31, 2020.
- Operating cash flow was $43 million for the first nine months of 2021, an improvement of $223 million from the prior-year outflow, primarily due to improved working capital and higher deferred merchant payables and deferred revenue.
- Long-term debt was $832 million carrying value, comprising $500 million of 7.0% senior notes due 2025 and $345 million of 0.25% convertible senior notes due 2026. Aggregate principal was $845 million.
- The company had no borrowings under its $500 million revolving credit facility and approximately $500 million of available borrowing capacity, subject to facility terms. It remained in compliance with its debt covenants.
- The company issued the 2026 Senior Notes in March 2021, receiving approximately $340 million of net proceeds, and paid approximately $35 million for capped call transactions intended to reduce potential dilution.
- Management stated that available cash and liquidity should fund foreseeable working capital, capital expenditures, debt service and other commitments for at least the next twelve months.
Material Changes Versus the Prior Comparable Period
- Travel recovery drove significant revenue growth, particularly in the United States and, later in the period, Europe.
- Operating performance improved despite increased selling and marketing spending to capture recovering demand.
- Operating cash flow turned positive, largely because of improved booking activity and favorable working-capital movements.
- Interest expense increased to $34 million for the first nine months, from $22 million, primarily because of the 2025 Senior Notes issued in 2020.
- No restructuring costs were recorded in 2021, compared with $42 million in the first nine months of 2020. The prior-year period also included a $3 million goodwill impairment charge.
- The company adopted new convertible-debt accounting guidance early in 2021 and accounts for the 2026 Senior Notes as amortized-cost debt.
Outlook, Risks, Contingencies and Unusual Items
- Management remained optimistic about continued travel improvement during the remainder of 2021 but expected COVID-19 to continue having a material negative impact on fourth-quarter 2021 results.
- Key uncertainties include new COVID-19 variants, uneven vaccination progress, renewed government restrictions, consumer travel demand, cancellations and changes in travel behavior.
- The company is exposed to customer concentration: Expedia and Booking each represented at least 10% of 2020 consolidated revenue and together represented approximately 25%.
- IRS proposed transfer-pricing adjustments for 2009–2016 could increase worldwide income tax expense by an estimated $95 million to $105 million, excluding potentially significant interest and deferred-tax effects.
- HMRC proposed adjustments for 2012–2016 could increase worldwide income tax expense by an estimated $45 million to $55 million, excluding interest.
- The company expects a $48 million U.S. federal tax refund related to the CARES Act NOL carryback, recorded as an income-tax receivable.
- The 2026 Senior Notes may become convertible upon specified conditions, potentially affecting liquidity, diluted earnings per share and reported working capital. Capped-call counterparties could also default, increasing dilution or cash exposure.
- The company’s Class B shares give Liberty TripAdvisor Holdings approximately 57.0% of voting power, although it holds approximately 13.1% of outstanding common shares and would hold approximately 21.2% assuming conversion of its Class B shares.
Important Facts for Investors to Verify
- Whether travel demand, traffic and revenue continue converging toward 2019 levels, particularly outside the United States and Europe.
- Whether positive operating cash flow is sustained after seasonal working-capital reversals in the second half of the year.
- The company’s ability to comply with leverage requirements when the credit-facility covenant holiday ends or is otherwise terminated.
- Refinancing, redemption or repurchase plans for the 7.0% 2025 Senior Notes.
- The eventual outcomes and cash-tax consequences of the IRS and HMRC transfer-pricing matters.
- The potential dilution, accounting reclassification and liquidity effects associated with the 2026 Senior Notes and capped calls.
- The extent to which increased performance marketing spending produces sustainable revenue and margin improvement.