UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File Number
(Exact name of Registrant as specified in its charter)
|
|
(Address, including zip code, of Registrant’s principal executive offices)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ | Accelerated Filer ☐ | Smaller Reporting Company | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes
The number of outstanding shares of Liberty TripAdvisor Holdings, Inc. common stock as of April 30, 2023 was:
Series A | Series B | ||||
Liberty TripAdvisor Holdings, Inc. common stock | | | |||
Table of Contents
Part I – Financial Information
I-2
LIBERTY TRIPADVISOR HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(unaudited)
| March 31, |
| December 31, |
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2023 | 2022 |
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amounts in millions |
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Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | |
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Accounts receivable and contract assets, net of allowance for credit losses of $ |
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Income taxes receivable | | | ||||
Other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets not subject to amortization: | ||||||
Goodwill |
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Trademarks |
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Intangible assets subject to amortization, net |
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Other assets, at cost, net of accumulated amortization |
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Total assets | $ | |
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(continued)
See accompanying notes to condensed consolidated financial statements.
I-3
LIBERTY TRIPADVISOR HOLDINGS, INC.
Condensed Consolidated Balance Sheets (Continued)
(unaudited)
| March 31, |
| December 31, |
| ||
2023 | 2022 |
| ||||
amounts in millions |
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Liabilities and Equity | ||||||
Current liabilities: | ||||||
Deferred merchant and other payables | $ | |
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Deferred revenue |
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Accrued liabilities and other current liabilities |
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Total current liabilities |
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Long-term debt, including $ |
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Deferred income tax liabilities |
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Financial instrument liabilities (note 4) | | | ||||
Series A Preferred Stock liability (note 6) | | | ||||
Other liabilities |
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Total liabilities |
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Equity: | ||||||
Series A common stock, $ | | | ||||
Series B common stock, $ | ||||||
Series C common stock, $ | ||||||
Additional paid-in capital | | | ||||
Accumulated other comprehensive earnings (loss), net of taxes |
| — |
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Retained earnings (deficit) |
| ( |
| ( | ||
Total stockholders' equity |
| ( |
| ( | ||
Noncontrolling interests in equity of subsidiaries |
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Total equity |
| |
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Commitments and contingencies (note 8) | ||||||
Total liabilities and equity | $ | |
| | ||
See accompanying notes to condensed consolidated financial statements.
I-4
LIBERTY TRIPADVISOR HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended |
| |||||
March 31, |
| |||||
| 2023 |
| 2022 |
| ||
amounts in millions, except |
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per share amounts |
| |||||
$ | | | ||||
Operating costs and expenses: | ||||||
Operating expense, including stock-based compensation (note 2) |
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Selling, general and administrative, including stock-based compensation (note 2) |
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Depreciation and amortization |
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| | ||
| |
| | |||
Operating income (loss) |
| ( |
| ( | ||
Other income (expense): | ||||||
Interest expense |
| ( |
| ( | ||
Dividend and interest income | | — | ||||
Realized and unrealized gains (losses) on financial instruments, net | ( | ( | ||||
Other, net |
| ( |
| ( | ||
| ( |
| ( | |||
Earnings (loss) before income taxes |
| ( |
| ( | ||
Income tax (expense) benefit |
| ( |
| ( | ||
Net earnings (loss) |
| ( |
| ( | ||
Less net earnings (loss) attributable to noncontrolling interests |
| ( |
| ( | ||
Net earnings (loss) attributable to Liberty TripAdvisor Holdings, Inc. shareholders | $ | ( |
| ( | ||
Basic net earnings (loss) attributable to Series A and Series B Liberty TripAdvisor Holdings, Inc. shareholders per common share (note 3): | $ | ( | ( | |||
Diluted net earnings (loss) attributable to Series A and Series B Liberty TripAdvisor Holdings, Inc. shareholders per common share (note 3): | $ | ( | ( | |||
See accompanying notes to condensed consolidated financial statements.
I-5
LIBERTY TRIPADVISOR HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(unaudited)
Three months ended | ||||||
March 31, | ||||||
2023 | 2022 | |||||
amounts in millions | ||||||
Net earnings (loss) | $ | ( | ( | |||
Other comprehensive earnings (loss), net of taxes: | ||||||
Foreign currency translation adjustments |
| | ( | |||
Credit risk on fair value debt instruments gains (loss) | ( | | ||||
Other comprehensive earnings (loss) |
| ( | ( | |||
Comprehensive earnings (loss) |
| ( | ( | |||
Less comprehensive earnings (loss) attributable to the noncontrolling interests |
| ( | ( | |||
Comprehensive earnings (loss) attributable to Liberty TripAdvisor Holdings, Inc. shareholders | $ | ( | ( | |||
See accompanying notes to condensed consolidated financial statements.
I-6
LIBERTY TRIPADVISOR HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three months ended |
| |||||
March 31, |
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2023 | 2022 |
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amounts in millions |
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Cash flows from operating activities: |
|
|
|
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Net earnings (loss) | $ | ( |
| ( | ||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities | ||||||
Depreciation and amortization |
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Stock-based compensation |
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Realized and unrealized (gains) losses on financial instruments, net | | | ||||
Deferred income tax expense (benefit) |
| |
| ( | ||
Other charges (credits), net |
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Changes in operating assets and liabilities | ||||||
Current and other assets |
| ( |
| ( | ||
Payables and other liabilities |
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Net cash provided (used) by operating activities |
| |
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Cash flows from investing activities: | ||||||
Capital expended for property and equipment, including capitalized website development |
| ( |
| ( | ||
Net cash provided (used) by investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Payment of withholding taxes on net share settlements of equity awards |
| ( |
| ( | ||
Other financing activities, net | ( | ( | ||||
Net cash provided (used) by financing activities |
| ( |
| ( | ||
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash |
| |
| ( | ||
Net increase (decrease) in cash, cash equivalents and restricted cash |
| |
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Cash, cash equivalents and restricted cash at beginning of period |
| |
| | ||
Cash, cash equivalents and restricted cash at end of period | $ | |
| | ||
See accompanying notes to condensed consolidated financial statements.
I-7
LIBERTY TRIPADVISOR HOLDINGS, INC.
Condensed Consolidated Statements of Equity
(unaudited)
Stockholders' equity | ||||||||||||||||||
Accumulated | Noncontrolling | |||||||||||||||||
Additional | other | interest in | ||||||||||||||||
Common Stock | paid-in | comprehensive | Retained | equity of | Total | |||||||||||||
Series A | Series B | Series C | capital | earnings (loss) | earnings (deficit) | subsidiaries | equity | |||||||||||
amounts in millions | ||||||||||||||||||
Balance at January 1, 2023 |
| $ | |
| — |
| — |
| |
| |
| ( |
| |
| | |
Net earnings (loss) | — | — | — | — |
| — |
| ( |
| ( |
| ( | ||||||
Other comprehensive earnings (loss) | — | — | — | — |
| ( |
| — |
| |
| ( | ||||||
Stock-based compensation | — | — | — | |
| — |
| — |
| |
| | ||||||
Withholding taxes on net share settlements of stock-based compensation | — | — | — | ( |
| — |
| — |
| — |
| ( | ||||||
Shares issued by subsidiary | — | — | — | ( | — | — | | — | ||||||||||
Balance at March 31, 2023 | $ | |
| — |
| — |
| |
| — |
| ( |
| |
| | ||
Stockholders' equity | ||||||||||||||||||
Accumulated | Noncontrolling | |||||||||||||||||
Additional | other | interest in | ||||||||||||||||
Common Stock | paid-in | comprehensive | Retained | equity of | Total | |||||||||||||
Series A | Series B | Series C | capital | earnings (loss) | earnings (deficit) | subsidiaries | equity | |||||||||||
amounts in millions | ||||||||||||||||||
Balance at January 1, 2022 |
| $ | |
| — |
| — |
| |
| ( |
| ( |
| |
| | |
Net earnings (loss) | — | — | — | — |
| — |
| ( |
| ( |
| ( | ||||||
Other comprehensive earnings (loss) | — | — | — | — |
| |
| — |
| ( |
| ( | ||||||
Stock-based compensation | — | — | — | |
| — |
| — |
| |
| | ||||||
Withholding taxes on net share settlements of stock-based compensation | — | — | — | ( | — | — | — | ( | ||||||||||
Shares issued by subsidiary | — | — | — | ( | — | — | | — | ||||||||||
Balance at March 31, 2022 | $ | |
| — |
| — |
| |
| ( |
| ( |
| |
| | ||
See accompanying notes to condensed consolidated financial statements.
I-8
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Liberty TripAdvisor Holdings, Inc. and its controlled subsidiaries (collectively, "TripCo," "Consolidated TripCo," the "Company," "we," "us," or “our,” unless the context otherwise requires). TripCo does not have any operations outside of its controlling interest in its subsidiary Tripadvisor, Inc. (“Tripadvisor”).
The accompanying (a) condensed consolidated balance sheet as of December 31, 2022, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. Additionally, certain prior period amounts have been reclassified for comparability with the current period presentation, none of which were material to the presentation of the accompanying unaudited condensed consolidated financial statements. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2022 as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company considers (i) recognition and recoverability of goodwill, intangible and long-lived assets and (ii) accounting for income taxes to be its most significant estimates.
Tripadvisor and the Company were negatively impacted by the risks and uncertainties related to the COVID-19 pandemic. Tripadvisor believes the travel, leisure, hospitality, and restaurant industries, and Tripadvisor’s financial results, would be adversely and materially affected upon a resurgence of COVID-19 or the emergence of any new pandemic or other health crisis which could result in reinstated travel bans and/or other government restrictions and mandates, all of which would likely negatively impact consumer demand, sentiment and discretionary spending patterns.
Additionally, other health-related events, political instability, geopolitical conflicts, acts of terrorism, fluctuations in currency values, changes in global economic conditions, including the impact of a potential U.S. recession, and increased inflation are examples of other events that could have a negative impact on the travel industry, and, as a result, Tripadvisor’s financial results in the future.
Consumer travel expenditures have historically followed a seasonal pattern. Correspondingly, travel partner advertising investments, and therefore Tripadvisor’s revenue and operating profits, have also historically followed a seasonal pattern. Tripadvisor’s financial performance tends to be seasonally highest in the second and third quarters of a given year, which includes the seasonal peak in consumer demand, including traveler accommodation stays, and travel experiences taken, compared to the first and fourth quarters, which represent seasonal low points. In addition, during the first half of the year, experience bookings typically exceed the amount of completed experiences, resulting in higher cash flow related to working capital, while during the second half of the year, particularly in the third quarter, this pattern reverses and cash flows from these transactions are typically negative.
Other factors may also impact typical seasonal fluctuations, including further significant shifts in Tripadvisor’s business mix, adverse economic conditions, or health-related events.
On March 26, 2020, TripCo issued and sold
I-9
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
per share. On March 29, 2021 and April 6, 2021, TripCo repurchased a portion of the Series A Preferred Stock. See further discussion about the Series A Preferred Stock in note 7.
TripCo has entered into certain agreements, including the services agreement, the facilities sharing agreement and the tax sharing agreement, with Qurate Retail, Inc. (“Qurate Retail”) and/or Liberty Media Corporation (“Liberty Media”) (or certain of their subsidiaries). Pursuant to the services agreement (except as described below in respect to Gregory B. Maffei), Liberty Media provides TripCo with general and administrative services including legal, tax, accounting, treasury and investor relations support. TripCo reimburses Liberty Media for direct, out-of-pocket expenses incurred by Liberty Media in providing these services and TripCo pays a services fee to Liberty Media under the services agreement that is subject to adjustment semi-annually, as necessary.
In December 2019, TripCo entered into an amendment to the services agreement with Liberty Media in connection with Liberty Media’s entry into a new employment arrangement with Gregory B. Maffei, TripCo’s Chairman, President and Chief Executive Officer. Under the amended services agreement, components of his compensation will either be paid directly to him by each of TripCo, Liberty Broadband Corporation, and Qurate Retail (collectively, the “Service Companies”) or reimbursed to Liberty Media, in each case, based on allocations among Liberty Media and the Service Companies set forth in the amended services agreement, currently set at
Under the facilities sharing agreement, TripCo shares office space with Liberty Media and related amenities at Liberty Media’s corporate headquarters in Englewood, Colorado.
The tax sharing agreement provides for the allocation and indemnification of tax liabilities and benefits between Qurate Retail and TripCo and other agreements related to tax matters.
Under these agreements, approximately $
(2) Stock-Based Compensation
TripCo Equity Awards
TripCo has granted to certain of its directors and employees restricted stock units (“RSUs”) and stock options to purchase shares of TripCo common stock (collectively, “Awards”). TripCo measures the cost of employee services received in exchange for an equity classified Award based on the grant-date fair value (“GDFV”) of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for a liability classified Award based on the current fair value of the Award, and re-measures the fair value of the Award at each reporting date.
TripCo has calculated the GDFV for all of its equity classified options and any subsequent re-measurement of its liability classified options using the Black-Scholes-Merton model. TripCo estimates the expected term of the options based on historical exercise and forfeiture data. The volatility used in the calculation for options is based on the historical volatility of TripCo common stock. TripCo uses a
I-10
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Included in the accompanying condensed consolidated statements of operations are the following amounts of stock-based compensation, the majority of which relates to Tripadvisor as discussed below:
Three months ended |
| |||||
March 31, |
| |||||
| 2023 |
| 2022 |
| ||
amounts in millions |
| |||||
Operating expense | $ | | | |||
Selling, general and administrative expense |
| |
| | ||
$ | |
| | |||
Stock-based compensation expense related to Tripadvisor was $
TripCo - Outstanding Awards
The following table presents the number and weighted average exercise price (“WAEP”) of options to purchase TripCo common stock granted to certain officers, employees and directors of the Company, as well as the weighted average remaining contractual life and aggregate intrinsic value of the options.
Weighted | |||||||||||
average | |||||||||||
remaining | Aggregate | ||||||||||
contractual | intrinsic | ||||||||||
Series A | WAEP | life | value | ||||||||
in thousands | in years | in millions | |||||||||
Outstanding at January 1, 2023 |
| | $ | | |||||||
Granted |
| — | $ | — | |||||||
Exercised |
| — | $ | — | |||||||
Forfeited/Cancelled |
| — | $ | — | |||||||
Outstanding at March 31, 2023 |
| | $ | |
| $ | — | ||||
Exercisable at March 31, 2023 |
| | $ | |
| $ | — | ||||
As of March 31, 2023, there were
During the three months ended March 31, 2023, pursuant to an agreement among TripCo, Liberty Media Corporation and our CEO, TripCo granted
As of March 31, 2023, the total unrecognized compensation cost related to unvested Awards was approximately $
I-11
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of March 31, 2023, TripCo reserved
Tripadvisor Equity Grant Awards
The following table presents the number and WAEP of the Awards to purchase Tripadvisor common stock (“TRIP common stock”) granted to certain officers, employees and directors of Tripadvisor.
Weighted | |||||||||||
average | |||||||||||
Tripadvisor | remaining | Aggregate | |||||||||
stock | contractual | intrinsic | |||||||||
options | WAEP | life | value | ||||||||
in thousands | in years | in millions | |||||||||
Outstanding at January 1, 2023 |
| | $ | | |||||||
Granted |
| | $ | | |||||||
Cancelled or expired | ( | $ | | ||||||||
Outstanding at March 31, 2023 |
| | $ | |
| $ | | ||||
Exercisable at March 31, 2023 |
| | $ | |
| $ | — | ||||
Vested and expected to vest after March 31, 2023 |
| | $ | |
| $ | | ||||
The weighted average GDFV of options granted was $
As of March 31, 2023, the total unrecognized compensation cost related to unvested Tripadvisor stock options was approximately $
Additionally, during the three months ended March 31, 2023, Tripadvisor granted approximately
(3) Earnings (Loss) Per Common Share (EPS)
Basic earnings (loss) per common share (“EPS”) is computed by dividing net earnings (loss) attributable to common shareholders by the weighted average number of common shares outstanding (“WASO”) for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning
I-12
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
of the periods presented. Excluded from EPS for both of the three months ended March 31, 2023 and 2022 are
Liberty TripAdvisor Holdings Common Stock | ||||
Three months ended | ||||
March 31, | ||||
2023 | 2022 | |||
number of shares in millions | ||||
Basic WASO |
| |
| |
Potentially dilutive shares (1) |
| |
| |
Diluted WASO |
| |
| |
| (1) | Potentially dilutive shares are excluded from the computation of diluted EPS during periods in which losses are reported since the result would be antidilutive. |
(4) Assets and Liabilities Measured at Fair Value
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company does not have any material recurring assets or liabilities measured at fair value that would be considered Level 3.
The Company’s assets and liabilities measured at fair value are as follows:
March 31, 2023 | December 31, 2022 |
| ||||||||||||
Quoted prices | Significant | Quoted prices | Significant |
| ||||||||||
in active | other | in active | other |
| ||||||||||
markets for | observable | markets for | observable |
| ||||||||||
identical assets | inputs | identical assets | inputs |
| ||||||||||
Description | Total | (Level 1) | (Level 2) | Total | (Level 1) | (Level 2) |
| |||||||
amounts in millions |
| |||||||||||||
Cash equivalents |
| $ | |
| |
| |
| | | | |||
TripCo Exchangeable Senior Debentures due 2051 | $ | |
| — |
| |
| | — | | ||||
Financial instrument liabilities, net | $ | | — | | | — | | |||||||
As of March 31, 2023, Tripadvisor had $
The fair value of TripCo’s
I-13
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
On August 10, 2022, TripSPV, a wholly owned subsidiary of the Company, amended its variable prepaid forward contract (the “VPF”) with a financial institution with respect to
As a result of the Repurchase Agreement, as described in note 6, TripCo determined the Series A Preferred Stock required liability treatment and needed to be bifurcated between a debt host and derivative (the “Preferred Stock Derivative”). The Preferred Stock Derivative was recorded at fair value upon the reclassification from temporary equity. Changes in the fair values of the VPF and Preferred Stock Derivative are recognized in realized and unrealized gains (losses) on financial instruments in the condensed consolidated statements of operations.
The fair value of the VPF and Preferred Stock Derivative were derived from a Black-Scholes-Merton model using observable market data as the significant inputs.
Other Financial Instruments
Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, accrued and other current liabilities, and long-term debt (excluding the Debentures). With the exception of debt, the carrying amount approximates fair value due to the short maturity of these instruments as reported on our condensed consolidated balance sheets. See note 5 for a description of the fair value of the Company’s fixed rate debt. See note 6 for a description of the fair value of the debt host component of the Company’s Preferred Stock Derivative.
Realized and Unrealized Gains (Losses) on Financial Instruments
Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following:
Three months ended | ||||||
March 31, | ||||||
| 2023 |
| 2022 |
| ||
amounts in millions | ||||||
TripCo Exchangeable Senior Debentures due 2051 | $ | ( |
| ( |
| |
Financial instrument liabilities, net | | ( | ||||
$ | ( |
| ( |
| ||
The Company has elected to account for the Debentures using the fair value option. Changes in the fair value of the Debentures and financial instrument assets and liabilities recognized in the condensed consolidated statement of operations are primarily due to market factors primarily driven by changes in the fair value of the underlying shares of the financial instruments. The Company isolates the portion of the unrealized gain (loss) attributable to the change in the instrument specific credit risk and recognizes such amount in other comprehensive earnings (loss). The change in the fair value of the Debentures attributable to changes in the instrument specific credit risk was a loss of $
I-14
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(5) Debt
Outstanding debt at March 31, 2023 and December 31, 2022 is summarized as follows:
March 31, | December 31, |
| ||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
TripCo Exchangeable Senior Debentures due 2051 | $ | | | |||
TripCo variable prepaid forward | | | ||||
Tripadvisor Credit Facility | — | — | ||||
Tripadvisor Senior Notes due 2025 | | | ||||
Tripadvisor Convertible Senior Notes due 2026 | | | ||||
Deferred financing costs | ( | ( | ||||
Total consolidated TripCo debt | |
| | |||
Debt classified as current |
| — |
| — | ||
Total long-term debt | $ | |
| | ||
TripCo Exchangeable Senior Debentures due 2051
On March 25, 2021, TripCo issued $
TripCo used a portion of the net proceeds from the sale of the Debentures to fund the cash portion of the purchase price for the repurchase of a portion of the Series A Preferred Stock (see note 6 below).
TripCo Variable Prepaid Forward
The VPF amendment executed in August 2022, as described in note 4, was accounted for as a modification for the debt component of the VPF. The VPF matures in November 2025. At maturity, the accreted loan amount due will be approximately $
Tripadvisor Credit Facility
Tripadvisor is party to a credit agreement with a group of lenders, initially entered into in June 2015 (as amended, the “Credit Agreement”), which, among other things, provides for a $
I-15
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Tripadvisor may borrow from the Credit Facility in U.S. dollars and Euros. In addition, Tripadvisor’s Credit Facility includes $
Tripadvisor amended the Credit Facility during 2020 to, among other things, suspend the leverage ratio covenant for quarterly testing of compliance beginning in the second quarter of 2020, replacing it with a minimum liquidity covenant through June 30, 2021 (requiring Tripadvisor to maintain $
Tripadvisor remained in the Leverage Covenant Holiday as of March 31, 2023. Based on Tripadvisor’s existing leverage ratio, any outstanding or future borrowings under the Credit Facility generally bear interest, at Tripadvisor’s option, at a rate per annum equal to either (i) the Eurocurrency Borrowing rate, or the adjusted London Inter-Bank Offered Rate (“LIBOR rate”) for the interest period in effect for such borrowing; plus an applicable margin ranging from
2025 Senior Notes
On July 9, 2020, Tripadvisor completed the sale of $
As of March 31, 2023, Tripadvisor estimated the fair value of its outstanding 2025 Senior Notes to be approximately $
2026 Convertible Senior Notes
On March 25, 2021, Tripadvisor entered into a purchase agreement for the sale of $
I-16
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
converted, redeemed, or repurchased. The 2026 Convertible Senior Notes are senior unsecured obligations of Tripadvisor, although guaranteed by certain of Tripadvisor’s domestic subsidiaries, with interest payable semiannually in arrears on April 1 and October 1 of each year. As of March 31, 2023 and December 31, 2022, unpaid interest on Tripadvisor’s 2026 Senior Notes was not material.
The initial conversion rate for the 2026 Convertible Senior Notes is
As of March 31, 2023, Tripadvisor estimated the fair value of its outstanding 2026 Convertible Senior Notes to be approximately $
Capped Call Transactions
In connection with the issuance of the 2026 Convertible Senior Notes, Tripadvisor entered into privately negotiated capped call transactions (the “Capped Calls”) with certain of the initial purchasers of the 2026 Convertible Senior Notes and/or their respective affiliates and/or other financial institutions (the “Option Counterparties”) at a cost of approximately $
The Capped Calls cover, subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the 2026 Convertible Senior Notes, the number of shares of TRIP common stock initially underlying the 2026 Convertible Senior Notes, or up to approximately
The Capped Calls are considered indexed to Tripadvisor’s own stock and are considered equity under GAAP. The Capped Calls are reported as a reduction to additional paid-in-capital and noncontrolling interest in equity of subsidiaries within stockholders’ equity as of March 31, 2023 and December 31, 2022.
Debt Covenants
As of March 31, 2023, Tripadvisor was in compliance with its debt covenants.
(6) Redeemable Preferred Stock
On March 15, 2020, TripCo and Gregory B. Maffei entered into an Investment Agreement (the “Investment Agreement”) with Certares Holdings LLC, Certares Holdings (Blockable) LLC and Certares Holdings (Optional) LLC with respect to an investment in TripCo’s Series A Preferred Stock, which was later assigned to Certares LTRIP LLC (“Certares” or the “Purchaser”). Pursuant to the assigned Investment Agreement, on March 26, 2020, TripCo issued
I-17
LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
On March 22, 2021, TripCo and Certares entered into a stock repurchase agreement (the “Repurchase Agreement”). Pursuant to the Repurchase Agreement, on March 29, 2021, TripCo repurchased
There were
Priority
The Series A Preferred Stock ranks senior to the shares of TripCo common stock, with respect to dividend rights, rights of redemption and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of TripCo. The Series A Preferred Stock has a liquidation value equal to the sum of (i) $
Voting and Convertibility
Holders of Series A Preferred Stock are not entitled to any voting powers, except as otherwise specified in the Certificate of Designations or as required by Delaware law. Shares of Series A Preferred Stock are not convertible into TripCo common stock.
Dividends
Dividends on each share of Series A Preferred Stock accrue on a daily basis at a rate of
Redemption
The Company is required to redeem for cash shares of Series A Preferred Stock on the earlier of (i) the first business day after the fifth anniversary of March 26, 2020, or (ii) subject to certain exceptions, a change in control of TripCo. The “Redemption Price” in a mandatory redemption will equal the greater of (i) the sum of the liquidation value on the redemption date, plus all unpaid dividends accrued since the last dividend date, and (ii) the product of the (x) initial liquidation value, multiplied by (y) an accretion factor (determined based on a formula set forth in the Certificate of Designations) with respect to the TRIP common stock, less (z) the aggregate amount of all dividends paid in cash or shares
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LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
of Eligible Common Stock from March 26, 2020 through the applicable redemption date.
Put Right
Following March 26, 2021, during certain periods, the Purchaser had the right to cause TripCo to redeem all of the outstanding shares of Series A Preferred Stock at the Redemption Price for, at the election of TripCo, cash, shares of Eligible Common Stock, shares of TRIP common stock or any combination of the foregoing, subject to certain limitations (the “Put Option”). The Company evaluated the Put Option as an embedded derivative and determined it was not required to be bifurcated. As a result of the Repurchase Agreement, Certares has permanently waived the Put Option.
TripCo Call Right
Pursuant to the Repurchase Agreement, beginning March 27, 2024, TripCo has the option, from time to time, to call and repurchase any and all of the outstanding shares of the Series A Preferred Stock at the optional repurchase price (the "Call Right"), which is the greater of (x) the sum of the liquidation value of a share of Series A Preferred Stock as of the optional repurchase date plus all unpaid dividends accrued on such share from the most recent dividend payment date through such optional repurchase date and (y) (i) the initial liquidation value of such share of Series A Preferred Stock as of the original issue date multiplied by an accretion factor with respect to the TRIP common stock (determined based on the Accretion Factor formula set forth in the Certificate of Designations as modified such that the Reference Stock VWAP is determined as of the date that is
Restriction on transfer of Series A Preferred Stock
Subject to exceptions contained in the Investment Agreement and the Repurchase Agreement, the shares of Series A Preferred Stock generally are non-transferable; provided that TripCo has agreed not to unreasonably withhold its consent to certain transfers of up to
Recognition
Prior to the partial redemption, as the Series A Preferred Stock was redeemable and the redemption triggers were outside of TripCo’s control, the Company was required to classify the shares outside of permanent equity. The Company calculated the carrying value of the Series A Preferred Stock pursuant to the Redemption Price calculation, and any changes in the carrying value of the Series A Preferred Stock were recorded directly to retained earnings. Immediately prior to the partial redemption, the Company recognized a $
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LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
in the condensed consolidated balance sheets.
(7) Stockholders’ Equity
Preferred Stock
TripCo’s preferred stock is issuable, from time to time, with such powers, designations, preferences and relative, participating, optional or other rights and qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or resolutions providing for the issue of such preferred stock adopted by TripCo’s Board of Directors. See note 6 for a description of TripCo’s Series A Preferred Stock.
Common Stock
Series A common stock entitles the holders to
Subsidiary Purchases of Common Stock
As of March 31, 2023, Tripadvisor had approximately $
(8) Commitments and Contingencies
Litigation
In the ordinary course of business, the Company and its subsidiaries are parties to legal proceedings and claims arising out of our operations. These matters may relate to claims involving patent and intellectual property rights (including alleged infringement of third-party intellectual property rights), tax matters (including value-added, excise, transient occupancy and accommodation taxes), regulatory compliance (including competition and consumer matters), defamation and other claims. Although it is reasonably possible that the Company may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.
Income Tax Matters
Tripadvisor had received Notices of Proposed Adjustments from the IRS for the 2009, 2010, and 2011 tax years relating to certain transfer pricing arrangements with its foreign subsidiaries. In response, Tripadvisor had requested competent authority assistance under the Mutual Agreement Procedure (“MAP”) for the 2009 through 2011 tax years. In January 2023, Tripadvisor received a final notice from the IRS regarding a MAP settlement for the 2009 through 2011 tax years, which Tripadvisor accepted in February 2023. In the first quarter of 2023, Tripadvisor recorded additional income tax expense as a discrete item, inclusive of interest, of $
As of December 31, 2022, Tripadvisor had recorded $
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LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
increasing its current income taxes payable by $
(9) Segment Information
TripCo, through its ownership interests in Tripadvisor, is primarily engaged in the online commerce industries. TripCo identifies its reportable segments as (A) those operating segments that represent 10% or more of its consolidated annual revenue, annual adjusted operating income before depreciation and amortization (“Adjusted OIBDA”) or total assets and (B) those equity method affiliates whose share of earnings represent 10% or more of TripCo’s annual pre-tax earnings.
TripCo evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as revenue, Adjusted OIBDA, gross margin, and revenue or sales per customer equivalent. In addition, TripCo reviews nonfinancial measures such as unique website visitors, conversion rates and active customers, as appropriate.
We have
| ● | Tripadvisor Core – This segment includes Tripadvisor-branded hotels revenue, which consists of hotel meta revenue, primarily click-based advertising revenue, and hotel B2B revenue, which includes primarily subscription-based advertising and hotel sponsored placements revenue; Tripadvisor-branded display and platform revenue, which consists primarily of display-based advertising revenue; Tripadvisor experiences and dining revenue, which consists of intercompany (intersegment) revenue related to affiliate marketing commissions earned from experience and restaurant reservation bookings on Tripadvisor-branded websites and mobile apps, fulfilled by Viator and TheFork, respectively; as well as other revenue, which consists of cruises, alternative accommodation rentals, flights and rental car revenue. |
| ● | Viator – Tripadvisor provides information and services for consumers to research and book tours, activities and experiences in popular travel destinations through Viator. |
| ● | TheFork – Tripadvisor provides information and services for consumers to research and book restaurants in popular travel destinations through this dedicated restaurant reservations offering. |
The segment disclosure includes intersegment revenues, which consist of affiliate marketing fees for services provided by the Tripadvisor Core segment to both the Viator and TheFork segments. These intersegment transactions are recorded by each segment at amounts that approximate fair value as if the transactions were between third parties, and therefore, impact segment performance. However, the revenue and corresponding expense are eliminated in consolidation. The elimination of such intersegment transactions is included within Corporate and eliminations in the tables below.
Performance Measures
Tripadvisor disaggregates revenue from contracts with customers into major products/revenue sources. Tripadvisor has determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenue is recognized primarily at a point in time for all reported segments.
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LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Three months ended | ||||||
|
| March 31, | ||||
|
| 2023 |
| 2022 | ||
Major Products/Revenue Sources: |
| amounts in millions | ||||
Tripadvisor Core | ||||||
Tripadvisor-branded hotels | $ | | | |||
Tripadvisor-branded display and platform | | | ||||
Tripadvisor experiences and dining | | | ||||
Other | | | ||||
Total Tripadvisor Core | | | ||||
Viator |
|
| | | ||
TheFork | | | ||||
Intersegment eliminations | ( | ( | ||||
Total Revenue |
| $ | | | ||
The following table provides information about the balances of accounts receivable and contract assets, net of allowance for credit losses, from contracts with customers:
|
| March 31, 2023 |
| December 31, 2022 | ||
amounts in millions | ||||||
Accounts receivable |
| $ |
| |||
Contract assets |
|
| |
| | |
Total |
| $ |
| |||
Accounts receivable are recognized when the right to consideration becomes unconditional. Contract assets are rights to consideration in exchange for services that Tripadvisor has transferred to a customer when that right is conditional on something other than the passage of time, such as commission payments that are contingent upon the completion of the service by the principal in the transaction.
Contract liabilities generally include payments received in advance of performance under the contract, and are realized as revenue as the performance obligation to the customer is satisfied, which Tripadvisor presents as deferred revenue on its consolidated balance sheets. As of January 1, 2023, Tripadvisor had $
For segment reporting purposes, TripCo defines Adjusted OIBDA as revenue less operating expenses, and selling, general and administrative expenses (excluding stock-based compensation), adjusted for specifically identified non-recurring transactions. TripCo believes this measure is an important indicator of the operational strength and performance of its businesses, by identifying those items that are not directly a reflection of each business’ performance or indicative of ongoing business trends. In addition, this measure allows management to view operating results, and perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, equity settled liabilities (including stock-based compensation), separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a
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LIBERTY TRIPADVISOR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. TripCo generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.
Adjusted OIBDA is summarized as follows:
Three months ended March 31, | ||||||
2023 | 2022 | |||||
amounts in millions | ||||||
Tripadvisor Core |
| $ | | | ||
Viator | ( | ( | ||||
TheFork | ( | ( | ||||
Corporate and eliminations | ( | ( | ||||
Consolidated TripCo | $ | | | |||
In addition, we do not report assets, capital expenditures and related depreciation expense by segment as our Chief Operating Decision Maker (“CODM”) does not use this information to evaluate operating segments. Accordingly, we do not regularly provide such information by segment to our CODM.
The following table provides a reconciliation of Adjusted OIBDA to Operating income (loss) and Earnings (loss) before income taxes:
Three months ended | ||||||
March 31, | ||||||
2023 | 2022 | |||||
amounts in millions | ||||||
Adjusted OIBDA |
| $ | |
| | |
Stock-based compensation |
| ( |
| ( | ||
Depreciation and amortization |
| ( |
| ( | ||
Non-recurring expenses (1) | ( | — | ||||
Operating income (loss) | ( | ( | ||||
Interest expense |
| ( |
| ( | ||
Dividend and interest income | | — | ||||
Realized and unrealized gains (losses), net | ( | ( | ||||
Other, net |
| ( |
| ( | ||
Earnings (loss) before income taxes | $ | ( |
| ( | ||
| (1) | Tripadvisor expensed $ |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business and marketing strategies; the impacts of the coronavirus pandemic (“COVID-19”) and other distinct health-related events; political instability; geopolitical conflicts; acts of terrorism; changes in global economic conditions, including the impact of a potential U.S. recession on consumer demand; increased inflation; covenant compliance; our projected sources and uses of cash; anticipated debt obligations; fluctuations in interest rates and foreign exchange rates; and the anticipated impact of certain contingent liabilities related to tax rules and other matters arising in the ordinary course of business. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but such statements necessarily involve risks and uncertainties and there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:
| ● | our ability to obtain cash in amounts sufficient to service our financial obligations and other commitments due to the fact we are a holding company; |
| ● | our ability to access the cash that Tripadvisor, Inc. (“Tripadvisor”) generates from its operating activities; |
| ● | the ability of our Company and Tripadvisor to obtain additional financing, or refinance our existing indebtedness, on acceptable terms; |
| ● | the existence of our 8% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), and its rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders; |
| ● | our ability to realize the full value of our intangible assets; |
| ● | the direct and indirect impacts of COVID-19, including existing or future variants; |
| ● | declines or interruptions in the worldwide travel industry, including health concerns (including pandemics and epidemics), natural disasters, cyber-attacks, technology system failures, terrorist attacks, civil or political unrest or other events outside Tripadvisor’s control; |
| ● | Tripadvisor’s ability to attract a significant amount of visitors and cost-effectively convert these visitors into revenue-generating consumers; |
| ● | failure of internet search engines and application marketplaces to continue to prominently display links to Tripadvisor’s websites; |
| ● | Tripadvisor’s performance marketing efficiency and the general effectiveness of its advertising and marketing efforts; |
| ● | reduction in spending by advertisers on Tripadvisor’s platforms or the loss of Tripadvisor’s significant travel partners; |
| ● | Tripadvisor’s failure to maintain, protect or enhance its brands; |
| ● | the ability of Tripadvisor to offer compelling products on mobile devices or continue to operate effectively on such platforms; |
| ● | declines or disruptions in the economy in general and in the travel industry in particular; |
| ● | failure of Tripadvisor to effectively compete in the global environment in which it operates; |
| ● | Tripadvisor’s failure to adapt to technological developments or industry trends; |
| ● | the ability of Tripadvisor to innovate and provide products, services and features that are useful to consumers; |
| ● | Tripadvisor’s potential for prioritizing rapid innovation and consumer experience over short-term financial results; |
| ● | the ability of Tripadvisor to maintain a quality of traffic in its network to provide value to its travel partners; |
| ● | real or perceived inaccuracies of the assumptions and estimates and data Tripadvisor relies on to calculate certain of its key metrics; |
| ● | the ability of Tripadvisor to hire, retain and motivate the highly skilled personnel on which it relies; |
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| ● | disruptions resulting from any acquisitions, investments, significant commercial arrangements and/or new business strategies; |
| ● | risks due to Tripadvisor operating in many jurisdictions inside and outside the U.S.; |
| ● | claims, lawsuits, government investigations and other proceedings to which Tripadvisor and our Company may be subject, whether in the ordinary course of business or otherwise; |
| ● | the ability of Tripadvisor to protect its intellectual property from copying or use by others; |
| ● | risks due to Tripadvisor’s processing, storage and use of personal information and other data; |
| ● | risks associated with the facilitation of payments from consumers, including fraud and compliance with evolving rules and regulations and reliance on third parties; |
| ● | risks resulting from system security issues, data protection breaches, cyberattacks and system outage issues; |
| ● | Tripadvisor’s indebtedness and the resulting impacts on its business and financial condition; |
| ● | limitations imposed by the various covenants in Tripadvisor’s credit facilities and indenture; |
| ● | risks related to the 2026 Convertible Senior Notes (defined in note 5 to the accompanying condensed consolidated financial statements) and the associated capped calls; |
| ● | fluctuation of Tripadvisor’s financial results; |
| ● | factors that determine Tripadvisor’s effective income tax rate; |
| ● | changes in tax laws that affect Tripadvisor or the examination of Tripadvisor’s tax positions; |
| ● | changes in the tax treatment of companies engaged in e-commerce; |
| ● | challenges by tax authorities in the jurisdictions where Tripadvisor operates; |
| ● | fluctuation in foreign currency exchange rates which affect Tripadvisor; and |
| ● | risks associated with our stock price being disproportionately affected by the results of operations of Tripadvisor and developments in its business. |
For additional risk factors, please see Part I, Item 1A. Risk Factors of the Annual Report on Form 10-K for the year ended December 31, 2022. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.
The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto.
Overview
The accompanying financial statements and the other information herein refer to Liberty TripAdvisor Holdings, Inc. and its controlled subsidiaries as “TripCo,” “Consolidated TripCo,” the “Company,” “us,” “we” and “our” unless the context otherwise requires. We own an approximate 21% economic interest and 56% voting interest in Tripadvisor as of March 31, 2023. All significant intercompany accounts and transactions have been eliminated in the accompanying condensed consolidated financial statements.
On March 15, 2020, TripCo entered into an agreement with Certares LTRIP LLC, with respect to 325,000 shares of TripCo’s newly-created Series A Preferred Stock. On March 29, 2021 and April 6, 2021, TripCo repurchased a portion of the Series A Preferred Stock. See note 6 to the accompanying condensed consolidated financial statements.
Trends
The online travel industry in which Tripadvisor operates is large, highly dynamic and competitive. Current trends affecting Tripadvisor’s overall business and reportable segments, including uncertainties that may impact its ability to execute on its objectives and strategies, are described below. Health-related events, such as a pandemic, political instability, geopolitical conflicts, acts of terrorism, fluctuations in currency values, changes in global economic conditions, including the impact of a potential U.S. recession, and increased inflation, are examples of other events that could have a negative impact on the travel industry, and as a result, Tripadvisor’s financial results in the future.
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Consolidated revenue for the three months ended March 31, 2023 was $371 million, an increase of 42%, when compared to the same period in 2022. In the first quarter of 2023, Tripadvisor continued to observe strong consumer travel demand for its products and services in its core geographies of North America and Europe across all reportable segments. During the first quarter of 2022, Tripadvisor experienced a significant negative impact from the COVID-19 Omicron variant across its business, which also contributed to the year-over-year revenue growth during the first quarter of 2023. Asia-Pacific, which represents a small portion of Tripadvisor’s overall business, has been slower to recover due to longer and sustained travel restrictions as a result of the COVID-19 pandemic. However, in the first quarter of 2023, travel restrictions across Asia began to ease relative to 2022, contributing to increased year-over-year revenue growth within this region.
In response to increased consumer travel demand across all segments, Tripadvisor continued to increase its performance marketing investments during the first quarter of 2023. In Tripadvisor Core, Tripadvisor continued to observe strong performance in hotel meta primarily driven by increased cost-per-click (“CPC”) pricing. This environment continued to allow Tripadvisor to increase performance marketing at a profitable return on advertising spend, while its direct traffic, including search engine optimization (“SEO”) or free traffic, continued to be slower to recover. Prior to Google introducing changes to its search engine results page, Tripadvisor generated a significant amount of direct traffic from search engines, such as Google, through strong SEO performance. Tripadvisor believes its SEO traffic acquisition performance has been negatively impacted in the past, and may be impacted in the future by search engines (primarily Google) increasing the prominence of their own products in search results. Over the long-term, Tripadvisor is focused on driving a greater percentage of its traffic from direct sources and channels which are more profitable than performance marketing channels.
The global experiences market is large, growing, and highly fragmented, with the vast majority of bookings still occurring through traditional offline sources. Tripadvisor is observing a secular shift, however, as this market continues to grow and accelerate the pace of online adoption. Likewise, the global restaurants category is also benefiting from increased online adoption by both consumers and partners, particularly in Europe. Given the competitive positioning of Tripadvisor’s businesses relative to the attractive growth prospects in these categories, Tripadvisor expects to continue to invest in these categories across the business, and in particular, within the Viator and TheFork segments, to continue accelerating revenue growth, operating scale, and market share gains for the long-term.
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Results of Operations—Consolidated—March 31, 2023 and 2022
General. We provide in the tables below information regarding our consolidated Operating Results and Other Income and Expense.
Three months ended |
| |||||
March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
Revenue |
|
|
|
| ||
Tripadvisor Core | $ | 244 |
| 191 | ||
Viator | 115 | 56 | ||||
TheFork |
| 35 |
| 26 | ||
Intersegment eliminations | (23) | (11) | ||||
Total revenue |
| 371 |
| 262 | ||
Operating expense |
| 87 | 67 | |||
Selling, general and administrative expense |
| 257 | 170 | |||
Stock-based compensation |
| 23 |
| 22 | ||
Depreciation and amortization |
| 21 |
| 25 | ||
Operating income (loss) | (17) |
| (22) | |||
Other income (expense): | ||||||
Interest expense | (16) | (17) | ||||
Dividend and interest income | 11 | — | ||||
Realized and unrealized gains (losses) on financial instruments, net | (8) | (12) | ||||
Other, net | (1) | (1) | ||||
(14) | (30) | |||||
Earnings (loss) before income taxes | (31) | (52) | ||||
Income tax (expense) benefit | (57) | (1) | ||||
Net earnings (loss) | $ | (88) | (53) | |||
Adjusted OIBDA | $ | 30 |
| 25 | ||
Revenue. Tripadvisor Core revenue increased $53 million during the three months ended March 31, 2023, when compared to the same period in the prior year. The increase in Tripadvisor Core revenue is detailed as follows:
Three months ended | ||||||
March 31, | ||||||
2023 | 2022 | |||||
amounts in millions | ||||||
Tripadvisor-branded hotels | $ | 168 | 135 | |||
Tripadvisor-branded display and platform | 30 | 26 | ||||
Tripadvisor experience and dining (1) | 33 | 20 | ||||
Other | 13 | 10 | ||||
Total Tripadvisor Core | $ | 244 | 191 | |||
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Tripadvisor-branded hotels revenue includes hotel meta revenue, primarily click-based advertising revenue, and hotel B2B revenue, which includes primarily subscription-based advertising and hotel sponsored placements revenue. For the three months ended March 31, 2023 and 2022, 69% and 71%, respectively, of Tripadvisor Core segment revenue was derived from Tripadvisor-branded hotels revenue. Tripadvisor-branded hotels revenue increased $33 million during the three months ended March 31, 2023, when compared to the same period in 2022. This increase was primarily driven by improved hotel meta revenue across all geographic markets, as well as improved hotel B2B revenue, primarily driven by increased consumer travel demand compared to the first quarter of 2022, which was negatively impacted by the COVID-19 Omicron variant. As consumer travel demand increased, Tripadvisor saw continued improvement in hotel meta monetization, as CPC rates increased when compared to the same quarter of 2022, which enabled increased efficient marketing investment on performance channels.
Tripadvisor-branded display-based advertising revenue increased $4 million during the three months ended March 31, 2023, when compared to the same period in 2022, primarily driven by an increase in marketing spend from Tripadvisor’s advertisers, in correlation with increased consumer travel demand.
Tripadvisor experiences and dining revenue includes intercompany (intersegment) revenue consisting of affiliate marketing commissions earned primarily from experience bookings and, to a lesser extent, restaurant reservation bookings, on Tripadvisor-branded websites and mobile apps fulfilled by Viator and TheFork, respectively, which are eliminated on a consolidated basis, in addition to external revenue generated from Tripadvisor’s restaurant service offerings. Tripadvisor experiences and dining revenue increased $13 million during the three months ended March 31, 2023, when compared to the same periods in 2022, primarily driven by marketing investment on performance channels to capture increased demand, conversion rate improvements and enhancements to Tripadvisor’s online user experience.
Other revenue includes alternative accommodation rentals revenue, in addition to primarily click-based advertising and display-based advertising revenue from cruise, flights and rental cars offerings on Tripadvisor websites and mobile apps. Other revenue increased $3 million during the three months ended March 31, 2023, when compared to the same period in 2022, primarily due to strong performance in Tripadvisor’s cruise category as the cruise industry continues to recover.
Viator revenue increased $59 million during the three months ended March 31, 2023, when compared to the same period in 2022, primarily driven by increased consumer demand for experiences across all geographies. Viator is also benefitting from a larger macro trend, or secular shift, as the large global market in which it operates continues to grow and migrate online from traditional offline sources. Tripadvisor estimates this segment's revenue growth rate was negatively impacted by foreign currency fluctuations of approximately 10% during the three months ended March 31, 2023 when compared to the same period in 2022.
TheFork segment revenue increased $9 million during the three months ended March 31, 2023, when compared to the same period in 2022, driven by increased consumer travel demand compared to the first quarter of 2022, which was negatively impacted by the COVID-19 Omicron variant. Tripadvisor estimates this segment's revenue growth rate was negatively impacted by foreign currency fluctuations of approximately 6% during the three months ended March 31, 2023 when compared to the same period in 2022.
Operating expense. Operating expense increased $20 million for the three months ended March 31, 2023, when compared to the same period in 2022, primarily due to an increase of $13 million in technology and content costs due to increased personnel and overhead costs resulting from additional headcount and contingent staff to support business growth related to the travel demand recovery during 2022, as well as an increase of $7 million in cost of revenue, the majority of which was due to increased direct costs from credit card payment processing fees and other revenue-related transaction costs in the Viator segment in direct correlation with an increase in revenue, as Viator serves as the merchant of record for the majority of its experience booking transactions.
Selling, general and administrative. Selling, general and administrative expense increased $87 million for the three months ended March 31, 2023, when compared to the same period in the prior year. The most significant driver of selling, general and administrative expense is selling and marketing costs, which consist of direct selling and marketing costs and indirect costs, such as personnel and overhead. Tripadvisor’s selling and marketing costs increased $77 million during the three months ended March 31, 2023, when compared to the same period in 2022, primarily due to an increase of
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approximately $63 million in paid online traffic acquisition costs, including Tripadvisor’s search engine marketing (“SEM”) and other paid online traffic acquisition spend, and also other marketing costs, the substantial majority of which was incurred within the Viator and Tripadvisor Core segments, in order to capture increased consumer travel demand and investment in the marketing of Tripadvisor’s experiences offerings within these segments, and to a lesser extent, increased television advertising costs of $6 million in TheFork segment in order to increase brand awareness.
Tripadvisor’s general and administrative costs increased $9 million during the three months ended March 31, 2023, when compared to the same period in 2022, the majority of which was due to an increase in professional service fees, primarily due to a non-recurring expense of $3 million related to previously capitalized transactions costs, and an increase in personnel and overhead costs driven by additional headcount to help support business growth related to the travel demand recovery during 2022.
Operating Income (Loss). Our consolidated operating loss decreased $5 million during the three months ended March 31, 2023, when compared to the same period in the prior year. Operating income (losses) were impacted by the above explanations.
Adjusted OIBDA. To provide investors with additional information regarding our financial results, we also disclose Adjusted OIBDA, which is a non-GAAP financial measure. We define Adjusted OIBDA as Operating income (loss) plus depreciation and amortization, stock-based compensation, separately reported litigation settlements, restructuring, acquisition and other related costs and impairment charges. Our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our business and make decisions about our resources. We believe this is an important indicator of the operational strength and performance of our businesses by identifying those items that are not directly a reflection of each business’ performance or indicative of ongoing business trends. In addition, this measure allows us to view operating results, perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. generally accepted accounting principles. The following table provides a reconciliation of Operating income (loss) to Adjusted OIBDA.
Three months ended | ||||||
March 31, | ||||||
2023 | 2022 | |||||
amounts in millions | ||||||
Operating income (loss) | $ | (17) | (22) | |||
Stock-based compensation |
| 23 | 22 | |||
Depreciation and amortization | 21 | 25 | ||||
Non-recurring expenses (1) | 3 | — | ||||
Adjusted OIBDA | $ | 30 |
| 25 | ||
| (1) | Tripadvisor expensed $3 million of previously capitalized transaction costs during the three months ended March 31, 2023 to selling, general and administrative, including stock-based compensation on the condensed consolidated statement of operations. Tripadvisor considers such costs to be non-recurring in nature. |
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Adjusted OIBDA is summarized as follows:
Three months ended |
| |||||
March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
Adjusted OIBDA | ||||||
Tripadvisor Core | $ | 72 |
| 55 | ||
Viator | (30) | (20) | ||||
TheFork | (9) | (8) | ||||
Corporate |
| (3) |
| (2) | ||
Consolidated TripCo | $ | 30 |
| 25 | ||
Consolidated Adjusted OIBDA increased $5 million during the three months ended March 31, 2023, when compared to the same period in the prior year. Tripadvisor Core Adjusted OIBDA increased $17 million during the three months ended March 31, 2023, when compared to the same period in the prior year, primarily due to an increase in revenue as noted above, partially offset by an increase in direct selling and marketing expenses related to SEM and other online paid traffic acquisition costs in response to increased consumer travel demand, and to a lesser extent, increased personnel and overhead costs to support business growth related to the travel demand recovery during 2022.
Viator Adjusted OIBDA loss increased $10 million during the three months ended March 31, 2023, when compared to the corresponding period in the prior year, primarily due to an increase in selling and marketing expenses related to SEM, other online paid traffic acquisition costs, and other marketing costs in response to increased consumer demand for experiences and to grow market share, and, to a lesser extent, an increase in direct costs from credit card payments and other revenue-related transaction costs in direct correlation with an increase in revenue. In addition, personnel and overhead costs increased to support business growth related to consumer demand and travel demand recovery during 2022. This was largely offset by an increase in revenue as noted above.
The Fork Adjusted OIBDA loss increased $1 million during the three months ended March 31, 2023, when compared to the corresponding period in the prior year, primarily due to an increase in selling and marketing expenses related to television advertising costs, in response to consumer travel and local demand recovery as COVID-19 related government restrictions on restaurants were lifted during 2022 and, to a lesser extent, an increase in personnel and overhead costs to support business growth related to the travel demand recovery during 2022.
Corporate Adjusted OIBDA loss increased $1 million for the three months ended March 31, 2023, when compared to the same period in the prior year. Corporate Adjusted OIBDA includes TripCo level selling, general and administrative expenses.
Interest expense. Interest expense remained relatively flat for the three months ended March 31, 2023, when compared to the same period in the prior year.
Dividend and interest income. Dividend and interest income increased $11 million during the three months ended March 31, 2023, when compared to the same period in the prior year, primarily due to an increase in the average amount of cash invested at Tripadvisor and increased interest rates received on bank deposits and return on money market funds during the quarter.
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Realized and unrealized gains (losses) on financial instruments, net. Realized and unrealized gains (losses) on financial instruments, net are comprised of changes in the fair value of the following:
Three months ended | ||||||
March 31, | ||||||
| 2023 |
| 2022 |
| ||
amounts in millions | ||||||
TripCo Exchangeable Senior Debentures due 2051 | $ | (10) |
| (8) |
| |
Financial instrument liabilities, net | 2 | (4) | ||||
$ | (8) |
| (12) |
| ||
The changes in these accounts are primarily due to market factors and changes in the fair value of the underlying stocks or financial instruments to which these related. Realized and unrealized losses on financial instruments, net decreased $4 million for the three months ended March 31, 2023, compared to the same period in the prior year, primarily driven by decreases in unrealized losses of $6 million related to financial instruments, including the VPF and Preferred Stock Derivative (both defined in note 4 of the accompanying consolidated financial statements), partially offset by increased unrealized losses of $2 million related to the TripCo 0.50% Exchangeable Senior Debentures due 2051 (the “Debentures”).
Other, net. Other, net expense remained flat for the three months ended March 31, 2023, when compared to the same period in the prior year. Activity in the Other, net account primarily relates to share of earnings (losses) of affiliates and foreign exchange gains (losses).
Income taxes. During the three months ended March 31, 2023 and 2022, we had losses before income taxes of $31 million and $52 million and we had income tax expense of $57 million and $1 million, respectively. For the three months ended March 31, 2023, the Company recognized additional tax expense related to Tripadvisor’s settlement with the IRS on its 2009-2011 transfer pricing audit and changes in unrecognized tax benefits resulting from the IRS settlement (see note 8 to the accompanying condensed consolidated financial statements). For the three months ended March 31, 2022, the Company recognized additional tax expense related to an increase in the valuation allowance against certain deferred tax assets.
Net earnings (loss). We had net losses of $88 million and $53 million for the three months ended March 31, 2023 and 2022, respectively. The changes in net earnings were the result of the above described fluctuations in our revenue and expenses.
Liquidity and Capital Resources
As of March 31, 2023, substantially all of our cash and cash equivalents consist of cash on hand in global financial institutions, money market funds and marketable securities with maturities of 90 days or less at the date of purchase.
The following are potential sources of liquidity: available cash balances, proceeds from asset sales, monetization of our investments, outstanding or anticipated debt facilities, debt and equity issuances, and dividend and interest receipts.
As of March 31, 2023, TripCo had a cash and cash equivalents balance of $1,163 million. Approximately $1,132 million of the cash balance, at March 31, 2023, is held at Tripadvisor. Although TripCo has a 56% voting interest in Tripadvisor, Tripadvisor is a separate public company with a significant non-controlling interest, as TripCo has only a 21% economic interest in Tripadvisor. Even though TripCo controls Tripadvisor through its voting interest and board representation, decision making with respect to using Tripadvisor’s cash balances must consider Tripadvisor’s minority holders. Accordingly, any potential distributions of cash from Tripadvisor to TripCo would generally be on a pro rata basis based on economic ownership interests. Covenants in Tripadvisor’s debt instruments also restrict the payment of dividends and cash distributions to stockholders.
Approximately $210 million of the Tripadvisor cash and cash equivalents balance is held by foreign subsidiaries, with approximately 45% located in the United Kingdom. As of March 31, 2023, the significant majority of Tripadvisor’s cash
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was denominated in U.S. dollars. As of March 31, 2023, $471 million of Tripadvisor’s cumulative undistributed foreign earnings were no longer considered to be indefinitely reinvested. Due to the one-time transition tax on the deemed repatriation of undistributed foreign subsidiary earnings and profits in 2017, as a result of the 2017 Tax Cuts and Jobs Act, the majority of previously unremitted earnings have been subjected to U.S. federal income tax. To the extent future distributions from these subsidiaries will be taxable, a deferred income tax liability has been accrued on our condensed consolidated balance sheet, which was not material as of March 31, 2023.
Credit Facility
Tripadvisor is party to a credit agreement with a group of lenders initially entered into in June 2015, which, among other things, provides for a $500 million revolving credit facility (the “Credit Facility”) with a maturity date of May 12, 2024. As of March 31, 2023 and December 31, 2022, Tripadvisor had no outstanding borrowings and was in compliance with its covenants under the Credit Facility. While there can be no assurance that Tripadvisor will be able to meet the leverage ratio covenant after the Leverage Covenant Holiday (as defined in note 5 of the accompanying condensed consolidated financial statements) ceases, based on its current projections, Tripadvisor does not believe there is a material risk it will not remain in compliance throughout the next twelve months.
Three months ended |
| |||||
March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
Cash flow information |
|
|
|
| ||
Tripadvisor cash provided (used) by operating activities | $ | 135 | 86 | |||
Corporate cash provided (used) by operating activities | (1) | (1) | ||||
Net cash provided (used) by operating activities | $ | 134 |
| 85 | ||
Tripadvisor cash provided (used) by investing activities | $ | (16) | (14) | |||
Corporate cash provided (used) by investing activities | — | — | ||||
Net cash provided (used) by investing activities | $ | (16) |
| (14) | ||
Tripadvisor cash provided (used) by financing activities | $ | (11) | (10) | |||
Corporate cash provided (used) by financing activities | — | — | ||||
Net cash provided (used) by financing activities | $ | (11) |
| (10) | ||
During the three months ended March 31, 2023, Tripadvisor’s primary uses of cash were $16 million of capital expended for property and equipment and $9 million related to payments of withholding taxes on net share settlement of equity awards.
The projected use of TripCo’s corporate cash will primarily be to pay fees (not expected to exceed approximately $4 million annually) to Liberty Media Corporation (“Liberty Media”) for providing certain services pursuant to the services agreement and the facilities sharing agreement that TripCo entered into with Liberty Media or certain of its subsidiaries, payment of dividends on the Series A Preferred Stock (unless added to the liquidation preference or paid in shares of Series A common stock of TripCo), interest expense on the Debentures, and to pay any other corporate level expenses. Debt service costs accrue on the variable prepaid forward borrowing described in note 5 to the accompanying condensed consolidated financial statements. TripCo believes that its available cash and cash equivalents will be sufficient for the next several years.
Tripadvisor believes that its available cash and cash equivalents will be sufficient to fund Tripadvisor’s foreseeable working capital requirements, capital expenditures, existing business growth initiatives, debt and interest obligations, lease commitments, tax-related payments and other financial commitments through at least the next twelve months. Tripadvisor’s future capital requirements may also include capital needs for acquisitions, and/or other expenditures in support of its business strategy, and may potentially reduce Tripadvisor’s cash balance and/or require Tripadvisor to borrow under the Credit Facility or to seek other financing alternatives.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk in the normal course of business due to our ongoing investing and financial activities and the conduct of operations by Tripadvisor in different foreign countries. Market risk refers to the risk of loss arising from adverse changes in stock prices, interest rates and foreign currency exchange rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.
We are exposed to changes in interest rates primarily as a result of our borrowing and investment activities, which include investments in fixed and floating rate debt instruments and borrowings used to maintain liquidity and to fund business operations. The nature and amount of our long-term and short-term debt are expected to vary as a result of future requirements, market conditions and other factors. We expect to manage our exposure to interest rates by maintaining what we believe is an appropriate mix of fixed and variable rate debt. We believe this best protects us from interest rate risk. We expect to achieve this mix by (i) issuing fixed rate debt that we believe has a low stated interest rate and significant term to maturity, (ii) issuing variable rate debt with appropriate maturities and interest rates, and (iii) entering into interest rate swap arrangements when we deem appropriate. As of March 31, 2023, our debt is comprised of the following amounts:
Variable rate debt | Fixed rate debt | |||||||||
Principal | Weighted avg | Principal | Weighted avg | |||||||
amount | interest rate | amount | interest rate | |||||||
amount in millions | ||||||||||
Tripadvisor |
| $ | NA |
| NA | 845 |
| 4.2% | ||
TripCo debt | $ | NA | NA | 381 |
| 1.0% | ||||
TripCo is exposed to foreign exchange rate fluctuations related primarily to the monetary assets and liabilities and the financial results of Tripadvisor’s foreign subsidiaries. Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated into U.S. dollars at period-end exchange rates, and the statements of operations are generally translated at the average exchange rate for the period. Exchange rate fluctuations on translating foreign currency financial statements into U.S. dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded in accumulated other comprehensive earnings (loss) as a separate component of stockholders’ equity. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses, which are reflected in income as unrealized (based on period-end translations) or realized upon settlement of the transactions. Cash flows from our operations in foreign countries are translated at the average rate for the period. Accordingly, TripCo may experience economic loss and a negative impact on earnings and equity with respect to our holdings solely as a result of foreign currency exchange rate fluctuations. Tripadvisor enters into foreign currency forward contracts manage its risk related to foreign currency exchange rates when it deems appropriate.
Item 4. Controls and Procedures.
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and its principal accounting and financial officer (the "Executives"), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Executives concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
There has been no change in the Company's internal control over financial reporting that occurred during the three months ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
See note 8 to the accompanying condensed consolidated financial statements for information regarding legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
No shares of Liberty TripAdvisor Holdings, Inc. Series A common stock or Series B common stock were surrendered by our officers and employees to pay withholding taxes and other deductions in connection with the vesting or exercise of restricted stock, restricted stock units or options during the three months ended March 31, 2023.
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Item 6. Exhibits
(a) | Exhibits |
Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
Exhibit No. | Name | ||
10.1 | |||
10.2 | |||
31.1 | |||
31.2 | |||
32 | |||
101.INS | Inline XBRL Instance Document* - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document* | ||
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document* | ||
101.LAB | Inline XBRL Taxonomy Label Linkbase Document* | ||
101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document* | ||
101.DEF | Inline XBRL Taxonomy Definition Document* | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* |
* Filed herewith
** Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIBERTY TRIPADVISOR HOLDINGS, INC. | |||
Date: May 3, 2023 | By: | /s/ GREGORY B. MAFFEI | |
Gregory B. Maffei Chairman, President and Chief Executive Officer | |||
Date: May 3, 2023 | By: | /s/ BRIAN J. WENDLING | |
Brian J. Wendling Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
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