Tripadvisor, Inc. Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. The filing presents unaudited consolidated U.S. GAAP results. Tripadvisor operates a global travel platform spanning hotels, media, advertising, experiences, dining, rentals, flights, cruises and related services.
Financial Performance and Position
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue | $151 million | $428 million | $488 million | $1,225 million |
| Operating income (loss) | $(46) million | $68 million | $(237) million | $164 million |
| Net income (loss) | $(48) million | $50 million | $(217) million | $110 million |
| Net income (loss) margin | (31.8%) | 11.7% | (44.5%) | 9.0% |
| Adjusted EBITDA | $15 million | $129 million | $(18) million | $347 million |
| Adjusted EBITDA margin | 9.9% | 30.1% | (3.7%) | 28.3% |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(180) million | $364 million |
- Q3 revenue declined 65%, and nine-month revenue declined 60%, primarily because COVID-19 reduced travel, restaurant and leisure demand and partner advertising spend.
- Hotels, Media & Platform revenue was $80 million in Q3, down 66%, and $287 million for nine months, down 62%. Experiences & Dining revenue was $53 million in Q3, down 62%, and $150 million for nine months, down 57%.
- Total costs and expenses declined 45% in Q3 and 32% for the nine-month period, reflecting lower marketing, personnel and operating costs. Cost reductions did not offset the revenue decline.
- Interest expense increased to $13 million in Q3 and $22 million for nine months, compared with $2 million and $5 million, respectively, in the prior-year periods.
- Q3 included a $3 million goodwill impairment charge related to Tripadvisor China. Nine-month results included $42 million of restructuring and reorganization costs, primarily employee severance.
- Cash and cash equivalents were $446 million at September 30, 2020, compared with $319 million at December 31, 2019. Accounts receivable and contract assets declined to $91 million from $183 million.
- Total liabilities were $1.088 billion at September 30, 2020, compared with $823 million at year-end 2019. Stockholders’ equity was $908 million, down from $1.161 billion.
Material Changes Versus the Prior Comparable Period
- The travel downturn caused a significant reversal from profitability to losses: Q3 net income of $50 million in 2019 became a $48 million net loss in 2020, while nine-month net income of $110 million became a $217 million net loss.
- Adjusted EBITDA fell 88% year over year in Q3, from $129 million to $15 million, and was negative $18 million for the first nine months versus positive $347 million in 2019.
- Operating cash flow shifted from $364 million provided in the first nine months of 2019 to $180 million used in 2020. The principal working-capital pressure was cash paid to travel suppliers and other counterparties related to deferred merchant payables, cancellations and reduced bookings.
- Headcount reductions, furloughs, lower advertising, reduced discretionary spending and vendor reductions were implemented. The company had approximately 2,650 employees at September 30, 2020, approximately 30% fewer than a year earlier.
- Tripadvisor issued $500 million of 7.000% senior notes due July 2025. Net proceeds of approximately $490 million were used to repay credit-facility borrowings.
- The company repaid the $700 million precautionary draw under its 2015 Credit Facility during Q3. No borrowings were outstanding under that facility at September 30, 2020, although approximately $1 billion of capacity remained available, subject to covenants.
- The company repurchased 4.7 million shares for $115 million during the first nine months, but the amended credit facility currently prohibits further repurchases during the covenant holiday.
Guidance, Outlook, Risks and Unusual Items
- Management expected Q4 2020 results to remain materially negatively affected by COVID-19. The filing provides no specific revenue or earnings guidance.
- Revenue improved sequentially during Q3: July was approximately 30% of the prior-year comparable month, while August and September were approximately 40%. Monthly unique users were approximately 67%, 73% and 74% of prior-year levels in July, August and September, respectively. Management noted that improvement flattened in September and that renewed restrictions in Europe were expected to pressure Q4 trends.
- Management stated that travel recovery remains highly uncertain because of potential virus resurgence, travel bans, government restrictions, consumer behavior changes and vaccine timing. The company may incur additional cancellations, refunds, credit losses and supplier-related cash outflows.
- The amended credit facility replaced the leverage covenant temporarily with a minimum liquidity covenant requiring $150 million of unrestricted cash, cash equivalents and short-term investments less deferred merchant payables plus available revolver capacity. The leverage covenant is scheduled to return before September 30, 2021, unless ended earlier by the company.
- Interest on the senior notes is payable at 7.000% annually through July 2025. The new debt increases fixed interest obligations and senior notes and credit-facility agreements restrict certain activities, including dividends and share repurchases.
- IRS transfer-pricing proposed adjustments for 2009 through 2016 could increase worldwide income tax expense by an estimated $105 million to $115 million if the IRS prevails, excluding potentially significant interest and deferred-tax effects. Tripadvisor disputes the proposed adjustments.
- The company recorded $48 million of income tax benefits for the first nine months, including $22 million related to CARES Act loss-carryback provisions. Government grants and other assistance reduced personnel and overhead costs by $10 million during the same period.
- Goodwill remains subject to elevated impairment risk because of COVID-19-related uncertainty. The company recognized a $3 million impairment for Tripadvisor China and stated that future impairments could be material.
- Key operating risks include continued travel disruption, advertiser and supplier insolvency, dependence on Expedia and Booking, search-engine competition particularly from Google, cybersecurity and privacy exposure, foreign exchange volatility, Brexit-related uncertainty and regulatory or tax changes.
- Liberty Tripadvisor Holdings beneficially controlled approximately 58.5% of voting power through its Class B shares, creating controlled-company governance and shareholder-alignment risks.
Most Important Facts for Investors to Verify
- Whether revenue and monthly traffic recovery continued after September 2020 amid renewed travel restrictions.
- Cash burn, deferred merchant-payable trends, cancellation and refund obligations, and the adequacy of the $446 million cash balance and revolver capacity.
- Compliance with the amended minimum liquidity covenant and the company’s ability to satisfy the leverage covenant when it returns.
- The impact of the 7.000% senior notes on annual interest expense, liquidity and refinancing needs through July 2025.
- Potential outcomes, timing and interest exposure related to the $105 million to $115 million IRS transfer-pricing dispute.
- Further goodwill or other asset impairments, particularly in light of uncertain travel demand and strategic changes.
- Whether cost reductions and lower headcount can offset structurally lower traffic monetization, advertising demand and search-engine dependence.