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 ("COVID-19"); improvements
in revenue; cost reduction measures and related impacts; our projected sources
and uses of cash; the payment of dividends by Tripadvisor, Inc. ("Tripadvisor");
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:
general business conditions, economic uncertainty or downturn, including the
? impacts of COVID-19 pandemic to unemployment levels and demand within the
travel, hospitality, restaurant and leisure industry;
? our ability to obtain cash in amounts sufficient to service our obligations;
? the ability of our Company and Tripadvisor to obtain additional financing or of
Tripadvisor to refinance its existing indebtedness in the future;
? the effects of Tripadvisor's current or our Company's and Tripadvisor's future
indebtedness and the related agreements;
? impairments of intangible assets;
? Tripadvisor's ability to attract visitors to its websites and mobile apps and
cost-effectively convert visitors into revenue-generating users;
? the impact of changes in search engine algorithms and dynamics or search engine
disintermediation;
? reductions in spending by advertisers or the loss of advertising partners;
? damage to Tripadvisor' brands;
? declines or disruptions in the economy in general or the travel industry in
particular;
? the ability of Tripadvisor to successfully compete in an increasingly
competitive global environment;
? the ability of Tripadvisor to adapt to technological developments or industry
trends;
? the retention and motivation of key personnel;
? the impact of acquisitions, investments, significant commercial arrangements
and new business strategies on Tripadvisor's ongoing business;
? challenges associated with operating globally;
? claims, lawsuits, government investigations and other proceedings as well as
changes to laws, rules and regulations and any resulting adverse outcomes;
? infringement on intellectual property rights by competitors or Tripadvisor;
? the occurrence of system security issues, data protection breaches,
cyberattacks and system outage issues;
? fluctuations in foreign currency exchange rates;
? consumer spending levels, including the availability and amount of individual
consumer debt; and
? threatened terrorist attacks, political unrest in international markets and
ongoing military action around the world.
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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, 2019, as well as Part
II, Item 1A. Risk Factors in each of the Quarterly Report on Form 10-Q for the
quarter ended March 31, 2020 and this Quarterly Report on Form 10-Q. 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. as "TripCo," "Consolidated TripCo," the
"Company," "us," "we" and "our" unless the context otherwise requires. We own an
approximate 23% economic interest and 59% voting interest in Tripadvisor as of
June 30, 2020. All significant intercompany accounts and transactions have been
eliminated in the accompanying condensed consolidated financial statements.
In December 2019, a novel strain of coronavirus ("COVID-19") was reported in
Wuhan, China, and on March 11, 2020 was declared a global pandemic, followed by
government travel restrictions and quarantine orders around the globe. The
COVID-19 pandemic has caused a significant negative impact on the travel,
hospitality, restaurant, and leisure industry; and consequently adversely and
materially affected Tripadvisor's business, results of operations and financial
condition during the three and six months ended June 30, 2020. Among other
impacts, COVID-19 has negatively impacted global consumer demand and consumers'
ability to travel, thereby resulting in many of Tripadvisor's travel partners,
particularly hotels, experience providers and restaurants to operate at
significantly reduced service levels.
Beginning in late February 2020 and progressively worsening through March 2020,
Tripadvisor experienced a significant decline in consumer demand for its
products and services as well as an increase in customer cancellations. The
adverse impact to Tripadvisor's business from COVID-19 intensified in the second
half of March, driven by the pandemic's proliferation and increased governmental
restrictions and mandates globally that additionally impacted the travel,
hospitality, restaurant, and leisure industry and further dampened consumer
demand for Tripadvisor's products and services. In the second half of March and
throughout April, significant year-over-year revenue declines generally
stabilized across Tripadvisor's segments and products. During April 2020 and May
2020 consolidated revenue was approximately 10% of last year's comparable period
and June 2020 revenue was approximately 20% of last year's comparable period. In
addition, while still down significantly year-over-year, monthly unique users,
which is reflective of traffic growth trends on Tripadvisor's websites, have
improved since April 2020. In April, May, and June of 2020, monthly unique users
on Tripadvisor websites were approximately 33%, 45%, and 60% of last year's
comparable periods, respectively.
In addition, Tripadvisor incurred significant and unanticipated cancellations by
travelers related to future travel, accommodations and tour bookings in the
post-COVID-19 timeframe, which had been reserved by travelers in the
pre-COVID-19 timeframe, including a significant number of bookings recorded as
deferred revenue as of December 31, 2019. Tripadvisor has been working with
travelers and travel partners to address cancellations, re-bookings, and in
certain cases it has provided its travel partners extended payment terms,
discounts and other incentives. Tripadvisor also has business continuity
programs in place to ensure that employees are safe and that its teams continue
to function effectively while working remotely. As the COVID-19 pandemic
continues to develop, governments, corporations and other authorities may
continue to implement restrictions, reinstate restrictions where restrictions
were previously lifted, or other policies that continue to adversely impact
Tripadvisor's business. Tripadvisor also believes the travel industry and its
business will continue to be materially and adversely affected while such travel
restrictions remain in place. Although Tripadvisor cannot predict with certainty
the full impact of the COVID-19 pandemic on its third quarter 2020 financial
results, it currently expects that its third quarter 2020 financial results will
be negatively impacted to a material degree, in comparison to the same period in
2019.
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The ultimate extent of the COVID-19 pandemic and its impact on travel, regional
and global markets, and overall economic activity in currently affected
countries or globally is unknown and difficult to predict. Therefore, the extent
and duration of the impact of the COVID-19 pandemic on Tripadvisor's business
over the long term remains largely uncertain and dependent on future
developments that cannot be accurately predicted at this time, such as the
severity and transmission rate of COVID-19, the timing and availability of a
vaccine, the extent and effectiveness of containment actions taken, including
mobility and travel restrictions, and the impact of these and other factors on
consumer travel behavior.
In response to the impact of COVID-19, Tripadvisor has taken several steps to
further strengthen its financial position and balance sheet, and maintain
financial liquidity and flexibility, including restructuring and reducing its
ongoing operating expenses, by borrowing funds from its 2015 Credit Facility,
amending its 2015 Credit Facility, and issuing its $500 million in Senior Notes
in July 2020, all of which are described in more detail below.
During the six months ended June 30, 2020, Tripadvisor borrowed $700 million
from its 2015 Credit Facility. Tripadvisor used these proceeds to reinforce its
liquidity position in light of uncertainty in the global markets resulting from
the COVID-19 pandemic. In addition, on May 5, 2020, Tripadvisor amended its 2015
Credit Facility (the "Second Amendment") to, among other things, suspend the
leverage ratio covenant for each fiscal quarter ending after the effective date
of the Second Amendment and ending prior to September 30, 2021; and replace it
with a minimum liquidity covenant, and provide collateral to secure the
obligations under the agreement, as well as downsize its capacity to $1.0
billion from $1.2 billion. Tripadvisor believes this additional flexibility
will be important given its limited ability to predict its future financial
performance due to the uncertainty associated with COVID-19 and the measures
implemented in reaction to COVID-19. Also, on July 9, 2020, Tripadvisor
completed the sale of $500 million aggregate principal amount of 7.000% senior
notes due July 15, 2025 (the "Senior Notes") in a private offering. The
Indenture provides, among other things, that interest is payable on the Senior
Notes on January 15 and July 15 of each year, beginning on January 15, 2021. The
Senior Notes are senior unsecured obligations of Tripadvisor and are guaranteed
by each of its domestic subsidiaries that guarantees Tripadvisor's 2015 Credit
Facility. Tripadvisor subsequently used the proceeds of $490 million, net of $10
million in debt issuances costs, to repay a portion of its 2015 Credit Facility
borrowings outstanding as of June 30, 2020.
In addition, due to the impact of COVID-19 to Tripadvisor's business,
Tripadvisor did not experience its typical seasonal pattern for revenue and
profit during the three months ended June 30, 2020. In addition, cash outflows
to travel suppliers related to deferred merchant payables significantly exceeded
cash received from travelers during the first six months of 2020, reflecting the
decline in consumer demand for Tripadvisor products and cancellations of
reservations related to COVID-19, contributing significantly to unfavorable
working capital trends and material negative operating cash flow during the six
months ended June 30, 2020. It is difficult to forecast the seasonality for the
upcoming quarters, given the uncertainty related to the extent and duration of
the impact from COVID-19 and the shape and timing of a recovery.
During the first quarter of 2020, Tripadvisor instituted a cost reduction
initiatives to preserve cash flows, including targeted workforce reduction
measures largely in the Experiences and Dining segment, in addition to
optimizing and reducing brand advertising as Tripadvisor pivots to leverage
newer and expectantly more effective mediums to its historically
television-focused campaign.
In response to the economic impact of the COVID-19 pandemic, Tripadvisor
instituted additional cost reduction measures during the latter part of the
first quarter of 2020, which included the elimination of the majority of
discretionary spending, business travel, non-critical vendor relationships,
brand advertising, cessation of nearly all new hiring and contingent staff,
reduction of targeted employee benefits, and the furloughing of over 100
employees. On April 28, 2020, management approved and Tripadvisor announced an
additional cost reduction initiative in response to the continued economic and
financial impacts to Tripadvisor as a result of the COVID-19 pandemic, to
include the following:
? Enacted a workforce reduction eliminating more than 900 employees;
Furloughing additional employees bringing the total furloughed employees during
? March and April 2020 to approximately 850 employees, primarily in Tripadvisor's
European operations at TheFork; and
? Making targeted reductions of Tripadvisor's office lease portfolio, primarily
either through subleasing or allowing property leases to expire.
As of June 30, 2020, Tripadvisor had approximately 150 employees who remained
furloughed.
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Tripadvisor incurred total pre-tax restructuring and other related
reorganization costs of approximately $33 million and $42 million during the
three and six months ended June 30, 2020, respectively, as a result of these
measures.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and
Economic Security Act ("CARES Act"), which among other things, includes
provisions relating to refundable payroll tax credits, deferment of employer
side social security payments, net operating loss carryback periods,
modifications to the net interest deduction limitations and technical
corrections to tax depreciation methods for qualified improvement property.
Based on Tripadvisor's preliminary evaluation of the CARES Act, it qualifies for
certain employer payroll tax credits and the deferral of payroll and other tax
payments in the future, as well as certain income tax related provisions. Most
notably, during the three and six months ended June 30, 2020, Tripadvisor
recorded an income tax benefit of $5 million and $19 million, respectively,
resulting from a loss carryback provision under the CARES Act. In addition,
during the three months ended June 30, 2020, Tripadvisor recorded qualified
payroll tax credits which reduced operating expenses by $4 million.
Due to the impact of COVID-19 on Tripadvisor's future revenue outlook, TripCo
recorded a trademark impairment of $250 million during the three months ended
June 30, 2020 related to the hotels, media and platform reporting unit. Based on
the quantitative assessment performed during the three months ended June 30,
2020 and the resulting impairment loss recorded, the carrying fair value of the
trademark approximates its estimated fair value as of June 30, 2020. Further
declines in Tripadvisor's future revenue outlook could result in a decrease in
the fair value of the trademark. TripCo will continue to monitor events and
circumstances that may affect the fair value or carrying value of its trademark.
Due to the impact of COVID-19 on Tripadvisor's operating results, which led to a
decline in Tripadvisor's stock price, TripCo recorded a goodwill impairment of
$279 million during the three months ended June 30, 2020, related to the hotels,
media and platform reporting unit. Based on the quantitative assessment
performed during the second quarter and the resulting impairment loss recorded,
the carrying value of the Hotels, Media and Platform reporting unit approximates
its estimated fair value as of June 30, 2020. Declines in the future revenue
outlook, cash flows, or other changes in the business, may necessitate future
impairments, which could be material. TripCo will continue to monitor
Tripadvisor's financial performance, stock price and other events and
circumstances that may negatively impact the estimated fair values to determine
if future impairment assessments may be necessary.
Tripadvisor's stock price declined in March 2020, which triggered the mandatory
prepayment of TripCo's margin loan (see note 6 to the accompanying condensed
consolidated financial statements). In order to repay the margin loan, TripCo
entered into an agreement with Certares LTRIP LLC ("Certares"), with respect to
325,000 shares of TripCo's newly-created 8% Series A Cumulative Redeemable
Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock") (see
note 7 to the accompanying condensed consolidated financial statements).
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