Tripadvisor, Inc. Form 10-Q Summary
Business context and reporting period
Tripadvisor operates a global online travel platform covering hotels, media, metasearch, experiences, dining, rentals, flights, cruises and related services. This unaudited report covers the three months ended March 31, 2020, compared with the same period in 2019. Results were materially affected by the COVID-19 pandemic, particularly during the second half of March.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $278 million | $376 million | Down 26% |
| Operating income (loss) | $(27) million | $31 million | Declined $58 million |
| Net income (loss) | $(16) million | $26 million | Declined $42 million |
| Adjusted EBITDA | $40 million | $89 million | Down 55% |
| Operating cash flow | $(70) million | $182 million | Declined $252 million |
| Capital expenditures | $20 million | $17 million | Up $3 million |
Revenue declined 26%, and the operating margin fell to approximately negative 9.7% from 8.2% in the prior-year quarter. Adjusted EBITDA margin was approximately 14.4%, versus 23.7% in Q1 2019. Basic and diluted loss per share were $0.12, compared with prior-year basic EPS of $0.19 and diluted EPS of $0.18.
- Hotels, Media & Platform revenue was $169 million, down 33%; hotel revenue was $137 million, down 37%, and display and platform revenue was $32 million, down 16%.
- Experiences & Dining revenue was $83 million, up 4%, including approximately $11 million of incremental revenue from the Bookatable and SinglePlatform acquisitions.
- Other revenue was $26 million, down 38%.
- Cash and cash equivalents were $798 million at March 31, 2020, compared with $319 million at December 31, 2019.
- The Company borrowed $700 million under its revolving credit facility during the quarter, primarily as a precautionary liquidity measure.
- Long-term debt was $700 million at March 31, 2020, versus none at December 31, 2019. The borrowing carried an interest rate of approximately 2.1% at quarter-end and is variable-rate debt.
- Total current assets were $1.012 billion and current liabilities were $311 million at March 31, 2020.
Material changes versus the prior comparable period
- COVID-19 caused a sharp decline in travel demand, cancellations and partner advertising spend. The Company estimated that daily bookings and revenue generally declined by more than 90% year over year during the second half of March and that similar declines continued through April.
- Operating cash flow turned negative primarily because payments to travel suppliers and other working-capital outflows exceeded cash received from travelers amid cancellations and reduced bookings.
- Selling and marketing expense decreased 28% to $129 million as the Company reduced television advertising, search-engine marketing and other traffic-acquisition spending.
- General and administrative expense increased 24% to $52 million, driven by higher bad-debt expense, digital services taxes, consulting and legal costs, and restructuring costs.
- The Company recorded $9 million of restructuring and reorganization costs in Q1, including workforce-reduction costs, and reversed $3 million of previously recognized stock-based compensation because certain performance awards were no longer expected to vest.
- The Company adopted the expected credit loss standard, ASC 326, on January 1, 2020, resulting in a $3 million cumulative reduction to retained earnings; the quarterly income statement impact was not material.
- The Company repurchased 4.7 million shares for $115 million during the quarter. The May 2020 credit-facility amendment subsequently prohibited share repurchases during the covenant holiday.
Guidance, outlook, management commentary and risks
- The Company withdrew its full-year 2020 financial outlook on March 18, 2020 because of uncertainty surrounding the pandemic and global travel trends.
- Management expected Q2 2020 revenue, net income and Adjusted EBITDA to decline significantly year over year, potentially approaching the declines observed in late March and April, with significant declines potentially continuing beyond Q2.
- On April 28, 2020, the Company announced workforce reductions affecting approximately 700 employees, with up to approximately 200 additional employees subject to local consultation; total furloughs during March and April reached approximately 850 employees. Most remaining North American employees were placed on a temporary 20% reduced work schedule and pay reduction.
- The Company expected approximately $30 million to $35 million of pre-tax restructuring and reorganization costs in Q2 2020.
- On May 5, 2020, the revolving facility was amended: commitments were reduced from $1.2 billion to $1.0 billion, the leverage covenant was suspended through a period ending before September 30, 2021 unless ended earlier, and a $150 million minimum liquidity covenant was added. The amendment increased pricing, restricted dividends and repurchases, and secured the facility with substantially all Company and subsidiary assets.
- Management stated that available cash and borrowing capacity were expected to fund foreseeable requirements for at least the next twelve months, but highlighted substantial uncertainty regarding future cash flows, customer collections, supplier and restaurant insolvencies, cancellations and the duration of travel restrictions.
- Goodwill totaled $826 million at March 31, 2020. No impairment was recorded, but management identified all reporting units as being at elevated risk of future impairment if the pandemic causes a prolonged decline in revenue and cash flows.
- IRS transfer-pricing proposed adjustments for 2009 through 2013 could increase worldwide income tax expense by an estimated $35 million to $40 million, excluding interest and penalties, if the IRS prevails. The Company disputes the adjustments.
- Other principal risks include reliance on Expedia and Booking, which together represented approximately 33% of 2019 revenue; dependence on search engines, particularly Google; advertising-market weakness; foreign-exchange volatility; cybersecurity and privacy exposure; regulatory and tax changes; competition; and control by Liberty TripAdvisor Holdings, which held approximately 58.6% of voting power.
Most important facts for investors to verify
- Whether travel demand, bookings, cancellations and advertising spend recovered or remained near the severe declines reported for late March and April 2020.
- Actual Q2 and full-year 2020 revenue, Adjusted EBITDA, operating cash flow and liquidity relative to management’s expectations.
- Compliance with the amended credit facility’s minimum liquidity covenant, borrowing costs, collateral requirements and May 2022 maturity.
- Cash burn, supplier-payable dynamics, customer collections and potential additional debt or equity financing needs.
- Size and timing of restructuring costs, workforce reductions and the effect on operating capacity and future growth.
- Potential goodwill, intangible-asset or investment impairments as pandemic effects persist.
- Resolution and ultimate exposure from the IRS transfer-pricing audits and other tax, regulatory and legal matters.
- Revenue concentration, search-engine dependence and the sustainability of the Hotels, Media & Platform segment’s margins.