TripAdvisor, Inc. Form 10-Q Summary
Business Context and Reporting Period
TripAdvisor is an online travel company providing travel content, price comparison, advertising, reservation and booking services across hotels, experiences, restaurants, rentals and other travel categories. The filing covers the three months ended March 31, 2019, compared with the three months ended March 31, 2018. The company reorganized its reportable segments into Hotels, Media & Platform; Experiences & Dining; and Other, with prior periods reclassified for comparability.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $376 million | $378 million | (1%) |
| Operating income | $31 million | $23 million | 35% |
| Operating margin | 8.2% | 6.1% | +2.1 percentage points |
| Net income | $26 million | $5 million | 420% |
| Net margin | 6.9% | 1.3% | +5.6 percentage points |
| Diluted EPS | $0.18 | $0.04 | +$0.14 |
| Adjusted EBITDA | $89 million | $80 million | 11% |
| Adjusted EBITDA margin | 23.7% | 21.2% | +2.5 percentage points |
| Cash flow from operations | $182 million | $174 million | 5% |
| Capital expenditures | $17 million | $15 million | 13% |
Revenue by segment was $254 million for Hotels, Media & Platform, $80 million for Experiences & Dining and $42 million for Other. Segment Adjusted EBITDA was $105 million, $(24) million and $8 million, respectively.
Cash, cash equivalents and short-term marketable securities totaled $811 million at March 31, 2019, including $771 million of cash and cash equivalents and $40 million of short-term securities, compared with $670 million at December 31, 2018. The company had no outstanding borrowings under its $1.2 billion revolving credit facility or its Chinese credit facilities, and had approximately $1.2 billion of unused borrowing capacity under the primary facility. It had $3 million of outstanding letters of credit.
Total liabilities were $888 million and stockholders’ equity was $1.507 billion at March 31, 2019. Deferred merchant payables increased to $263 million from $164 million at year-end, reflecting the timing of customer bookings and payments to suppliers. Operating and finance lease liabilities totaled approximately $172 million following adoption of the new lease standard.
Material Changes Versus the Prior Comparable Period
- Consolidated revenue was broadly stable, but the mix shifted materially toward Experiences & Dining. Experiences & Dining revenue increased 29% to $80 million, while Other revenue declined 33% to $42 million.
- Hotels, Media & Platform revenue was essentially flat at $254 million, with higher display and platform revenue offsetting lower hotel-related revenue. Revenue per hotel shopper improved, while average monthly hotel shoppers declined by approximately the same proportion.
- Hotels, Media & Platform Adjusted EBITDA increased 36% to $105 million, primarily due to lower SEM and other online paid traffic acquisition costs.
- Experiences & Dining Adjusted EBITDA declined to a loss of $24 million from a loss of $4 million as the company increased product, supply, personnel and marketing investments to support long-term growth.
- Selling and marketing expense declined 10% to $178 million, despite a $6 million increase in television advertising spend. Technology and content expense increased 9% to $73 million.
- The effective tax rate declined to 21.2% from 76.2%, primarily due to excess tax benefits from stock-based compensation and prior-year Transition Tax adjustments.
- Operating cash flow increased to $182 million, while investing cash flow changed to a use of $42 million from a source of $28 million, largely due to purchases of marketable securities.
- Financing cash outflows declined to $24 million from $246 million because the company made no debt repayment or share repurchase during the quarter. Q1 2018 included a $235 million credit-facility repayment and $10 million of share repurchases.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal quantitative revenue, earnings or margin guidance. Management expects continued investment in Experiences & Dining, prioritizing revenue growth and market position over near-term margin expansion. The company expects its seasonal pattern to continue, with financial performance generally strongest in the second and third quarters and weakest in the first and fourth quarters.
Management stated that available cash, expected operating cash flow and available credit capacity should fund foreseeable working capital requirements, capital expenditures, growth initiatives, lease commitments and other obligations for at least the next twelve months.
TripAdvisor adopted ASC 842 lease accounting on January 1, 2019. The adoption produced a $3 million cumulative increase to beginning retained earnings and recognized operating and finance lease right-of-use assets and liabilities, but did not materially affect first-quarter operating income or cash flow.
The company is subject to IRS and other tax audits. Proposed IRS transfer-pricing adjustments relating to 2009, 2010 and 2011 could increase worldwide income tax expense by an estimated $15 million to $20 million, excluding interest and penalties, if the IRS prevails. The company disagrees with the proposed adjustments and intends to contest them.
Key business risks include dependence on search engines and application marketplaces, competition from Google, Expedia, Booking and other travel platforms, reliance on advertising partners, lower mobile monetization, foreign currency volatility, Brexit-related uncertainty, cybersecurity and privacy requirements, regulatory and tax changes, seasonal fluctuations, and the ability to execute investments in Experiences & Dining. Expedia and Booking together represented 37% of 2018 revenue, highlighting customer concentration risk.
Liberty TripAdvisor Holdings beneficially controlled approximately 57.5% of voting power as of March 31, 2019 through its ownership of Class B shares. The company reported effective disclosure controls and no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Whether Experiences & Dining revenue growth can continue while its Adjusted EBITDA losses narrow.
- Whether reduced paid traffic acquisition continues to support Hotels, Media & Platform margin expansion without undermining traffic and revenue growth.
- Trends in hotel shoppers, mobile mix, revenue per hotel shopper and advertising CPC rates.
- The outcome and potential additional exposure from the IRS transfer-pricing audits and other tax examinations.
- The company’s treatment of non-GAAP Adjusted EBITDA, including $27 million of stock-based compensation and $31 million of depreciation and amortization excluded from the measure.
- Cash conversion and the sustainability of working-capital benefits from deferred merchant payables, particularly as seasonal booking patterns reverse later in the year.
- Foreign exchange, Brexit, privacy, cybersecurity, competition and regulatory developments affecting international operations.
- The impact of Liberty TripAdvisor Holdings’ voting control and the remaining $150 million authorization under the share repurchase program.