Booking Holdings Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. The filing attributes the sharp deterioration primarily to COVID-19 and related travel restrictions.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $630 | $3,850 | $2,918 | $6,687 |
| Operating income (loss) | $(484) | $1,247 | $(793) | $1,803 |
| Net income (loss) | $122 | $979 | $(577) | $1,744 |
| Diluted EPS | $2.97 | $22.44 | $(14.07) | $39.17 |
- Q2 revenue declined 83.7% year over year; six-month revenue declined 56.4%. Q2 agency, merchant, and advertising and other revenue fell 86.3%, 74.5%, and 90.1%, respectively.
- Q2 operating margin was approximately -76.8%, versus 32.4% a year earlier; six-month operating margin was approximately -27.2%, versus 27.0%. These are calculated from reported revenue and operating results.
- Q2 net income remained positive despite the operating loss, principally because of $835 million in net gains on marketable equity securities. The filing attributes most of the Q2 gain to an $813 million unrealized gain on Meituan. Six-month net gains on marketable equity securities were $528 million.
- Room nights fell 86.7% in Q2 and 64.6% for the first half; total gross bookings fell 90.8% and 70.9%, respectively. Constant-currency accommodation ADRs declined approximately 35% in Q2 and 18% for the first half.
- Operating expenses included a $489 million goodwill impairment in Q1 related to OpenTable and KAYAK, a $100 million impairment of the Didi investment, and $34 million of Q2 restructuring charges. Expected credit loss expense rose by $195 million year over year for the first half. Six-month revenue also included a $63 million reduction for certain traveler refunds without expected provider recovery.
Cash, liquidity and debt
- At June 30, cash and cash equivalents were $10.4 billion; cash, cash equivalents and long-term investments totaled $13.4 billion. The latter includes marketable and strategic investments and is not all cash.
- Six-month operating cash flow was negative $258 million, versus positive $1.9 billion in 2019. Investing cash flow was positive $2.8 billion, mainly from investment maturities and sales; financing cash flow was positive $1.6 billion.
- Total debt principal was $11.8 billion at June 30, versus $8.7 billion at year-end 2019. Long-term debt carrying value was $10.6 billion, and $973 million of convertible notes was classified as current. The company repaid $1.0 billion principal and $245 million conversion value on notes maturing in June.
- In April, Booking issued $3.25 billion of senior notes and $863 million of convertible notes. It amended its $2.0 billion revolving facility: the leverage covenant was suspended through Q1 2021 and replaced by a minimum liquidity covenant. The company reported compliance at June 30 and no revolver borrowings outstanding.
- Working-capital and liquidity pressures include cancellations, refunds and reduced deferred merchant bookings. The company suspended general share repurchases; first-half repurchases totaled $1.3 billion, primarily before the Q2 suspension.
Outlook, management commentary and risks
- Management said newly booked room nights, excluding cancellations, were down more than 85% year over year in April and approximately 50% in June. The improvement was driven mainly by domestic travel; international recovery remained limited. Cancellation rates improved from April, but future trends remained uncertain.
- Management expected Q3 2020 to be less adversely affected than Q2, while warning that the pandemic would continue to materially harm results for an uncertain period. No quantified revenue or earnings guidance was provided. Marketing expense was expected to remain significantly below 2019 levels for the rest of 2020.
- Cost actions included approximately 1,700 workforce reductions at agoda, KAYAK and OpenTable, with expected annualized personnel savings of about $75 million. In July, priceline began restructuring, with expected annual run-rate savings of about $6 million. On August 4, the company announced plans to reduce Booking.com’s global workforce by up to approximately 25%; preliminary estimated annualized savings were $250–$300 million, subject to consultation and final plans.
- The company recognized $100 million of government assistance in the first half, recorded as a reduction of personnel expense; $84 million had been received by June 30. Executives voluntarily declined or reduced salaries, and directors waived cash fees for the remainder of 2020.
- Key risks include prolonged or renewed travel restrictions and weak demand; provider insolvencies and credit losses; refund outflows; further impairment charges; leverage, refinancing and covenant risks; competition and marketing-channel dependence; foreign exchange and investment-price volatility; and tax, regulatory and litigation exposure.
- Notable contingencies include disputed French tax assessments, including approximately €356 million already paid while contested; Italian and Turkish tax assessments for which no liability was recorded; and a Netherlands pension-fund dispute with an estimated maximum loss of approximately $245 million, excluding potential interest or penalties. The company also disclosed an estimated $25 million reasonably possible loss above its existing accrual for certain travel transaction tax matters.
Most important facts for investors to verify
- Whether room-night, cancellation, ADR and international travel trends continued to improve after June, and whether Q3 was in fact less severely affected.
- How much reported earnings and investment value depended on volatile equity-security gains, particularly Meituan, and how those gains affected cash versus accounting income.
- Whether operating cash flow, refund obligations, partner credit losses and accessible liquidity remained manageable as travel volumes stayed depressed.
- The final scope, timing, costs and realized savings from Booking.com and other brand workforce reductions, and any effects on service, controls or growth capacity.
- Debt maturities, covenant compliance after the temporary covenant amendment, credit ratings and financing access; also monitor major tax and litigation outcomes.