Tripadvisor, Inc. Form 10-Q Summary
Business context and reporting period
Tripadvisor operates a global travel platform covering hotels, travel media, price comparison, experiences, restaurants, rentals, flights, cruises and related services. This unaudited Form 10-Q covers the three and six months ended June 30, 2020, compared with the corresponding 2019 periods. Results were severely affected by the COVID-19 pandemic, travel restrictions, reduced consumer demand and cancellations.
Financial performance and liquidity
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 |
|---|---|---|---|---|
| Revenue | $59 million | $422 million | $337 million | $798 million |
| Operating income (loss) | $(164) million | $66 million | $(191) million | $96 million |
| Net income (loss) | $(153) million | $34 million | $(169) million | $60 million |
| Adjusted EBITDA | $(74) million | $128 million | $(34) million | $217 million |
| Net income (loss) margin | (259%) | 8% | (50%) | 8% |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(148) million | $363 million |
| Capital expenditures | Not separately provided for the quarter | Not separately provided for the quarter | $36 million | $38 million |
Revenue declined 86% year over year in the second quarter and 58% for the first six months. Segment revenue for the quarter was $38 million in Hotels, Media & Platform, $14 million in Experiences & Dining and $7 million in Other. Adjusted EBITDA margins were negative 87%, negative 271% and negative 43%, respectively.
Cash and cash equivalents were $698 million at June 30, 2020, compared with $319 million at December 31, 2019. The increase primarily reflected $700 million drawn under the revolving credit facility, partially offset by operating cash outflows, capital expenditures, share repurchases and other financing uses. Accounts receivable and contract assets declined to $74 million from $183 million, while deferred merchant payables declined to $57 million from $159 million.
Long-term debt was $700 million at June 30, 2020, versus none at year-end 2019. The amended facility had $1.0 billion of total capacity, approximately $297 million of available borrowing capacity after borrowings and letters of credit, and a 3.25% borrowing rate at quarter-end. The company reported compliance with its debt covenants.
Material changes versus the prior comparable period
- COVID-19 caused an unprecedented decline in travel demand, advertising spending, bookings and consumer activity. April and May revenue were approximately 10% of the prior-year comparable periods, while June revenue was approximately 20%.
- Monthly unique users improved sequentially but remained substantially below prior-year levels: approximately 33% of comparable levels in April, 45% in May and 60% in June.
- Hotels, Media & Platform revenue decreased 85% in the quarter and 59% year to date, primarily because of lower hotel auction revenue and reduced display advertising.
- Experiences & Dining revenue decreased 89% in the quarter and 53% year to date. TheFork restaurant reservations recovered to approximately 50% of January and most of February pre-pandemic levels by the end of June.
- Operating expenses were reduced, but not enough to offset the revenue collapse. Selling and marketing expense declined 70% in the quarter, while technology and content expense declined 31%.
- The company recorded $33 million of restructuring costs in the quarter and $42 million year to date, primarily employee severance and related benefits. It eliminated more than 900 positions and furloughed approximately 850 employees during March and April; approximately 150 remained furloughed at June 30.
- Operating cash flow swung to a $148 million use from $363 million provided in the prior-year period, principally because payments to travel suppliers exceeded cash received from travelers and cancellations adversely affected working capital.
- The company repurchased 4.7 million shares for $115 million during the first six months, but subsequent debt amendments prohibited additional repurchases during the leverage covenant holiday.
Guidance, outlook, commentary and unusual items
- Management expected third-quarter 2020 results to be materially below the comparable 2019 period and stated that the timing and shape of recovery were highly uncertain. No quantitative revenue or earnings guidance was provided.
- Management implemented workforce reductions, furloughs, reduced advertising, elimination of discretionary spending, hiring restrictions and office-lease reductions to preserve liquidity and lower the cost structure.
- On July 9, 2020, after quarter-end, Tripadvisor issued $500 million of 7.000% senior notes due July 15, 2025. Net proceeds of approximately $490 million were used to repay part of the revolving credit facility borrowings. The notes are senior unsecured obligations guaranteed by applicable domestic subsidiaries.
- The credit facility amendment suspended the leverage covenant through a period ending before September 30, 2021, replaced it with a minimum liquidity covenant and required substantially all assets to secure the facility. It also restricted dividends and share repurchases during the covenant holiday.
- The CARES Act generated income tax benefits of $5 million in the quarter and $19 million year to date from loss carryback provisions. Total income tax benefits were $26 million in the quarter and $38 million year to date.
- Tripadvisor adopted the expected credit loss standard on January 1, 2020, recording a $3 million cumulative reduction to retained earnings. Allowances for expected credit losses increased in response to COVID-19-related collection risks.
- The company recorded a $5 million loss on the sale of its SmarterTravel business and a $3 million allowance against a long-term note receivable during the quarter.
- Goodwill was $837 million at June 30, 2020. No impairment was recorded, but management identified all reporting units as having elevated future impairment risk if COVID-19 causes a prolonged deterioration in revenue and cash-flow forecasts.
- The IRS has proposed transfer-pricing adjustments for certain 2009–2013 periods that could increase worldwide income tax expense by an estimated $50 million to $60 million, excluding significant interest. Tripadvisor disagrees and intends to defend its position.
Most important facts for investors to verify
- Whether travel demand, bookings, advertising spend and website traffic recover, particularly after any renewed government restrictions or COVID-19 resurgences.
- Liquidity after the July refinancing, including cash balances, remaining revolver capacity, minimum liquidity compliance and the effect of debt service at the 7.000% senior-note rate.
- The duration and cash cost of restructuring actions, furloughs, severance, lease reductions and other cost-saving measures.
- Potential additional working-capital outflows from cancellations, deferred merchant payables, refunds and supplier payments.
- Future goodwill, intangible-asset and investment impairment charges if the recovery is delayed or weaker than assumed.
- Resolution of the IRS transfer-pricing audits and other tax examinations, including potential interest and subsequent-year exposure.
- The effect of search-engine competition, especially Google’s promotion of its own travel products, on organic traffic, customer acquisition costs and hotel revenue.
- Restrictions under the credit facility and senior-note indenture affecting dividends, share repurchases, additional borrowing and asset liens.