Trivago N : Q1 2021 Earnings Transcript

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EDITED TRANSCRIPT

TRVG.OQ - Q1 2021 Trivago NV Earnings Call

EVENT DATE/TIME: MAY 04, 2021 / 12:15PM GMT

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MAY 04, 2021 / 12:15PM, TRVG.OQ - Q1 2021 Trivago NV Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Axel Hefer trivago N.V. - CEO, MD of Finance, Legal, International, Marketing, Product, People and Culture & Mgmt Board Member

Matthias Tillmann trivago N.V. - MD, CFO & Mgmt Board Member

C O N F E R E N C E C A L L P A R T I C I P A N T S

Alaxandar Wang Morgan Stanley, Research Division - Associate

Brian Nicholas Fitzgerald Wells Fargo Securities, LLC, Research Division - Senior Analyst

Douglas Till Anmuth JPMorgan Chase & Co, Research Division - MD

James Lee Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Internet Sector Analyst Kevin Campbell Kopelman Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

Lloyd Wharton Walmsley Deutsche Bank AG, Research Division - Research Analyst

Naved Ahmad Khan Truist Securities, Inc., Research Division - Analyst

Ryan Michael Lister Susquehanna Financial Group, LLLP, Research Division - Associate

Thomas Cauthorn White D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

P R E S E N T A T I O N

Operator

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the trivago Q1 Earnings Call 2021.

I must advise you that the call is being recorded today, Tuesday, the 4th of May 2021.

We are pleased to be joined on the call today by Axel Hefer, trivago's CEO and Managing Director; and Matthias Tillmann, trivago's CFO and Managing Director.

The following discussion, including responses to your questions, reflects management's views as of today, Tuesday, May 4, 2021, only.

trivago does not undertake any obligations to update or revise this information.

As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to the Q1 2021 operating and financial review and the company's other filings with the SEC for information about factors, which could cause trivago's actual results to differ materially from these forward-looking statements.

You will find a reconciliation of non-GAAP measures to the most comparable GAAP measures discussed today in trivago's operating and financial review, which is posted in the company's IR website at ir.trivago.com.

You are encouraged to periodically visit trivago's Investor Relations site for important content.

Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2020 (corrected by company after the call).

With that, let me turn the call over to Axel.

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MAY 04, 2021 / 12:15PM, TRVG.OQ - Q1 2021 Trivago NV Earnings Call

Axel Hefer - trivago N.V. - CEO, MD of Finance, Legal, International, Marketing, Product, People and Culture & Mgmt Board Member

Good morning, everybody, and welcome to our first quarter 2021 earnings call. For the first time since the pandemic has begun, I want to start our earnings call on a positive note. Although the pandemic is definitely not over and the second and third waves have hit countries like India very hard and are still limiting mobility in many of our core markets, the recovery has begun.

With the continuation of the rollout of vaccines in many key markets, we have seen a return of local, and in some parts, also international travel across a few markets. Israel has reached 2019 activity levels already, and the U.S. is continuing to gain momentum with a strong acceleration of demand in the past few weeks. This positive trend is giving us a lot of comfort for a broader return of the travel market in summer and later in the year.

But it is not only the early start of the recovery that is giving us comfort. With users coming back, we have also managed to launch the first initiatives that we've been working on during the pandemic. We are excited to get real customer feedback and accelerate the speed of iterations and improvement. The launch of our activities offering and partnership with TUI Musement and the release of our Weekend offering in the U.K. and the U.S. are even more exciting as they are the first tangible results of the evolution of our strategy during the pandemic.

Leveraging our strength in city and weekend trips, we are increasing the engagement with and our relevance to our users by adding more products and features. Activities allow us to extend our offering to the destination of travel, while the more inspirational Weekend product is engaging with our users even before they've made a decision of where and when to travel to. We are excited to get first direct customer feedback on our new direction, and we are looking forward to continue to add new features and products later in the year.

With that, I now hand over to Matthias.

Matthias Tillmann - trivago N.V. - MD, CFO & Mgmt Board Member

Thank you, Axel, and good morning, everyone. The first quarter was still significantly impacted by the pandemic in all our regions. Our qualified referrals declined by 55% year-over-year, and our revenue declined by 73% year-over-year. Our net loss improved sequentially to EUR 6.7 million compared to EUR 8.6 million in the fourth quarter last year while our adjusted EBITDA declined slightly in the first quarter to minus EUR 4.8 million from minus EUR 3.4 million in the prior quarter, in line with our guidance.

Normally, we experience a significant pickup in demand at the beginning of the year when we are coming out of the winter holiday season, in particular, in our segment Developed Europe. Historically, we have increased our marketing activities in January compared to December and usually start airing new brand campaigns on TV.

In 2021, the start of the year was much slower. As in most of our core markets, lockdowns were still in place and were extended throughout the quarter. With most European countries having travel restrictions in place, we experienced very limited travel activity in our segment Developed Europe and adjusted our marketing activities accordingly.

In our segment Americas, we saw the usual seasonal decline in Latin America starting in February, which was more pronounced than in prior years. On the other hand, in our largest market in that segment, the U.S., travel demand started to pick up in February and the trend significantly improved in March.

We observed similar travel trends that we have seen last year in other regions when demand picked up, namely, very limited recovery in international and in particular intercontinental travel and a shift from city trips towards nature and beach destinations. Based on these trends, we started to ramp up our marketing activities in the U.S., including TV advertisement in March.

On a global level, we significantly reduced our advertising spend in Q1 compared to the same period in 2020 as travel demand continues to be heavily impacted by the pandemic. This led to a decrease of 68% or EUR 100.4 million in our total cost and expenses, excluding impairment of

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MAY 04, 2021 / 12:15PM, TRVG.OQ - Q1 2021 Trivago NV Earnings Call

goodwill charges compared to the fourth quarter in 2020. Excluding advertising expenses and impairment of goodwill charges, our operational expenses decreased by EUR 16.4 million or 37% year-over-year, in line with the decrease we have reported to you for the last quarter, as we continued to benefit from the permanent reduction in expenses as a result of the restructuring that we announced last year.

We remain well capitalized with a cash and short-term investment position of over EUR 210 million, and we continued to be debt-free. We filed an F-3 shelf registration statement to replace the one that expired in April. And in addition, we launched an at-the-market equity program, which increases our flexibility to further invest in the business. We will be opportunistic with this program and disciplined around price levels.

Moving on to trends in April. First, let me remind you that April 2020 was the first month that was fully impacted by the first wave of the pandemic. Hence, all metrics are significantly up year-over-year. Thus, I will discuss the most recent trends by looking at the comparison versus 2019 only.

In Developed Europe, qualified referrals were still significantly down in April compared to 2019. However, there is a positive trend and we did see a considerable improvement versus the first quarter in countries like Spain, Italy or Portugal. There was already a positive trend in Q1 in the U.K. as the country provided a step-by-step plan to lift restrictions, and the trend continued in April as the country is gradually opening up. Overall, qualified referrals in Developed Europe in April improved to around 35% of 2019 levels compared to around 20% in the first quarter. At the same time, we started to see an improvement in the auction, which led to a slight increase in the year over 2-year revenue per qualified referral growth rates as well.

As mentioned in our shareholder letter, we saw a very positive trend in the U.S. with qualified referrals in April improving to approximately 70% of 2019 levels. For the segment Americas, qualified referrals improved to more than 50% of 2019 levels.

As travel demand is coming back, we also observed an improvement in our auction. In Americas, revenue per qualified referral increased to more than 80% in April compared to less than 50% in January of 2019 levels.

In our segment Rest of World, we also see a positive trend. However, the performance is more mixed. We called out Israel, which obviously is a small country, but it proves that there's a lot of pent-up demand, and when people feel comfortable traveling again, they do so. In April, as Axel mentioned, qualified referrals were significantly up compared to the same period in 2019 in that country. On the other hand, the recent spike in new COVID cases in India led to a significant decline in qualified referrals in that country.

For the segment overall, qualified referrals were approximately 35% of 2019 levels. And due to improved auction dynamics in that segment, revenue per qualified referrals improved to approximately 70% of 2019 levels in April.

Overall, we are very pleased with the trends that we are seeing in the second quarter so far. In addition to an increase in travel demand in certain regions, we see that most countries, in particular, in Europe, are now speeding up their vaccination programs. We believe that this will ultimately be very positive for the summer travel period, and we expect a lot of pent-up demand.

That brings me to our guidance. As we see trends generally improving and as we are coming closer to the summer travel period, we plan to ramp up our marketing activities and invest in the business. As a result, we expect our adjusted EBITDA in the second quarter to be similar to that in the first quarter and expect to return to positive adjusted EBITDA in the second half of 2021.

With that, let's open the line for questions. Operator, we are now ready to take the first question, please.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions) And our first question comes from the line of Naved Khan from Truist Securities.

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MAY 04, 2021 / 12:15PM, TRVG.OQ - Q1 2021 Trivago NV Earnings Call

Naved Ahmad Khan - Truist Securities, Inc., Research Division - Analyst

Maybe just a question on the guidance. So for the second half, you mentioned positive EBITDA, and I know you're not guiding for the full year, but is there a case that you could be EBITDA positive for the full year based on the trends you're looking at?

And then I had a follow-up question on the city travel. So as we think about city travel coming back in the back half of this year and think about where that could be versus 2019 levels, how should we be thinking about that? Would it be 50%? Would it be like more than that? How should we -- could you give us some framework to think about that.

Matthias Tillmann - trivago N.V. - MD, CFO & Mgmt Board Member

Sure. Thanks, Naved. I will take your first question on guidance, and then Axel will cover your second question.

So I mean, as a caveat, I have to say it's very, very difficult to make precise predictions right now for the rest of the year as, overall, the situation remains dynamic. And I mean we do see positive travel demand trends in some countries, as we called out, and we expect in particular Developed Europe the trend will accelerate and volumes to increase in more and more countries as we are approaching the summer travel season. But on the other hand, I mentioned India. So it shows that It's not a straight line. It will go in ways. And what I said in the guidance is that we focus in the near term and then also in the third quarter on capturing our market share.

So we want to bring people back to our platform. And what that means in terms of top line growth is hard to predict at this point. It will largely depend on the overall recovery. But regardless of the exact shape and level of recovery, we have to recalibrate our advertising spend and we expect that to be a dynamic process.

And TV will be an important channel in that mix, but it is clear that even if the market recovers to, let's say, and I'm randomly picking numbers, 70% or 80%, we cannot reach the same efficiency as before as it is a mass medium and it is difficult to exclude the share of people that did not come back to the market yet. So clearly, if you think that through, that means our marketing efficiency will be slightly lower and -- but we want to invest in the opportunity. And that's why we expect a similar EBITDA in Q2 as we just disclosed for Q1 despite an expected increase in overall travel activity.

And at this point, I would view that similar in the third quarter, but that is further out and we'll have to see how we're getting into second quarter. So probably expect an update from us next time, obviously. But overall, yes, what will happen exactly in the second half is a bit more uncertain at this point.

Axel Hefer - trivago N.V. - CEO, MD of Finance, Legal, International, Marketing, Product, People and Culture & Mgmt Board Member

Yes. Just coming to your second question on the city trips. We added one page to the deck where we are giving some idea of the different recovery stages of the different kind of trips in the U.S. And what you can see there is that city trips, which is really our strength where our product is best and offers most value to our users, is significantly lagging beach and nature trips. And we do expect that gap to narrow over time until end of the year.

Having said that, as Matthias just said, it is very, very difficult to predict the exact levels of the recovery later in the year because there are a lot of uncertainties in terms of -- not so much in terms of vaccination progress in the Western markets, but more in terms of potential variants that might come up and what that will mean for international travel. That also has an impact on city trips.

So the way we are thinking about it is that we are on a sustainable recovery path that will still have some ups and downs, but the direction is very positive. And that is what we think we need for our business. But what is also important for travelers around the world to really see a gradual improvement with some ups and downs, whether the slope of the recovery will get steeper in the end of the year or a bit flatter to then get steeper next year. That's impossible to predict, to be honest, and we will need to see.

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