Booking Holdings Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Booking Holdings operates online travel and restaurant platforms, including Booking.com, Priceline, Agoda, KAYAK, Rentalcars.com and OpenTable. Results were significantly affected by the COVID-19 pandemic, travel restrictions, cancellations and reduced demand.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $2.288 billion | $2.837 billion | Down 19.3% (about 17% constant currency) |
| Operating income (loss) | $(309) million | $556 million | Operating margin: approximately (13.5)% vs. 19.6% |
| Net income (loss) | $(699) million | $765 million | Basic and diluted loss per share: $17.01 |
| Cash from operating activities | $(380) million | $150 million | Down $530 million |
| Cash and cash equivalents | $6.363 billion | $6.312 billion at Dec. 31, 2019 | |
| Short- and long-term investments | $2.882 billion | $5.475 billion at Dec. 31, 2019 | |
| Debt principal outstanding | Approximately $8.6 billion | Approximately $8.7 billion | $1.0 billion of 2020 convertible notes was current |
- Agency revenue fell 26.9% to $1.424 billion; merchant revenue rose 9.3% to $659 million; advertising and other revenue fell 28.1% to $205 million.
- Gross bookings declined 51.2% to $12.393 billion. Room nights fell 42.8% to 124 million, rental-car days fell 36.4% to 12 million, and accommodation ADRs declined 15% on a constant-currency basis.
- Net loss included a $489 million goodwill impairment for OpenTable and KAYAK, a $100 million impairment of the Didi investment, and $307 million of net losses on marketable equity securities. The prior-year period included $451 million of net gains on those securities.
- Sales and other expenses rose 75.4% to $377 million, including $183 million of additional expected-credit-loss expense. The receivables allowance increased to $245 million from $49 million at year-end.
- Operating cash use reflected the downturn and working-capital movements, including a $1.1 billion decrease in deferred merchant bookings and other current liabilities. Investing activities provided $1.733 billion, mainly from investment sales and maturities; financing activities used $1.281 billion, primarily for share repurchases.
- At March 31, cash, cash equivalents and investments totaled about $9.2 billion, as reported by management. The $2.0 billion revolving facility had no borrowings outstanding at quarter-end. Current assets were $9.260 billion and current liabilities were $4.136 billion.
Material changes and unusual items
- COVID-related cancellations led to a $63 million revenue reduction for refunds on certain non-refundable bookings where the company did not estimate recovery from providers. Higher-than-normal refund outflows were expected to continue.
- Stock-based compensation expense was $6 million versus $74 million a year earlier; the company recorded a $73 million reduction due to lower expected performance against award targets.
- The effective tax rate was 3.1%, compared with 21.0%. The 2020 rate reflected the non-deductible goodwill impairment and valuation allowances; the company did not receive the Dutch Innovation Box Tax benefit in Q1 2020.
- The company repurchased $1.251 billion of shares in Q1. It said it had made no repurchases in Q2 through the filing and did not intend to resume until it had better visibility on recovery.
- In April 2020, Booking Holdings issued approximately $4.1 billion of senior and convertible notes. It also amended its revolver, suspending the maximum leverage covenant through Q1 2021 and replacing it temporarily with a minimum-liquidity covenant. These were post-quarter events.
Outlook, risks and contingencies
- Management expected Q2 2020 results to be affected much more severely than Q1 and anticipated significantly reduced travel and restaurant bookings for the foreseeable future. Newly booked room nights, excluding cancellations, were down more than 85% year over year in April. The company did not provide numerical financial guidance.
- Management cited uncertainty around pandemic duration, travel restrictions, consumer demand, provider solvency, cancellations, refunds, credit losses and the pace of recovery. Additional impairment charges and losses were possible.
- Cost and liquidity actions included reducing marketing, freezing hiring, furloughs and workforce reductions, limiting travel and other costs, reducing capital expenditures, suspending repurchases and seeking government wage-support programs. Executives and directors also voluntarily reduced or waived compensation.
- Tax and legal exposures include contested French, Italian and Turkish tax assessments for which the company had not recorded liabilities; it had paid approximately €356 million to French authorities in 2019 while contesting that assessment. A Dutch pension-fund dispute had an estimated maximum loss of about $200 million, excluding potential interest and penalties, with no liability recorded.
- Other risks include competition and consumer-protection reviews, foreign-exchange exposure, investment-value volatility, substantial indebtedness and dependence on travel partners. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How Q2 and subsequent booking, cancellation, ADR and revenue trends compared with management’s expectation of a substantially worse Q2 and April room-night decline exceeding 85%.
- Whether cash generation, refund outflows, partner credit losses and provider failures materially changed after quarter-end.
- Use of the approximately $4.1 billion raised in April, repayment or conversion of the $1.0 billion June 2020 notes, and compliance with the amended revolver’s liquidity covenant.
- Whether further goodwill or investment impairments were recorded, particularly given the recovery assumptions underlying the OpenTable and KAYAK valuation.
- Developments in the French, Italian and Turkish tax disputes and the Dutch pension litigation, including any change in estimated exposure or recorded liabilities.