Trivago N : Q4 2020 Earnings Transcript

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

TRVG.OQ - Q4 2020 Trivago NV Earnings Call

EVENT DATE/TIME: FEBRUARY 10, 2021 / 1:15PM GMT

REFINITIV STREETEVENTS |www.refinitiv.com|Contact Us

CORPORATE PARTICIPANTS

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

CONFERENCE CALL PARTICIPANTS

Alaxandar Wang Morgan Stanley, Research Division - Associate

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

Dae K. Lee JPMorgan Chase & Co, Research Division - Analyst

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

PRESENTATION

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the trivago Q4 Earnings Call 2020. I must advise you this call is being recorded today, Wednesday, the 10th of February 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, Wednesday, February 10, 2021 only. trivago does not undertake any obligation 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 Q4 2020 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'll find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in trivago's operating and financial review, which is posted on 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 2019. With that, let me turn the call over to Axel.

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 Q4 2020 earnings call. It has been a year by now since we filed our Q4 earnings on February 11, 2020. And for the first time since we went public, we did not give any specific guidance for that year. A new virus had started to spread in parts of Asia.

Looking back, I have to say that it was nothing like what we were anticipating a year ago. The collapse of global travel in March, global lockdowns that made the world standstill, strong local travel demand in summer and then the second wave that has hit so many countries in autumn. The burden of contact restrictions is wearing heavily on children, families and the elderly. However, 1 year in there, there's hope. There's a clear path to normalcy, and a lot of progress has been made. Vaccines have been developed in record speed, governments have supported citizens and businesses generously and vaccination programs are rolled out across many markets, focusing on protecting the most vulnerable.

Looking forward, we do believe that every day and every week is bringing us slowly but steadily closer to normalcy from now on. Some countries like Australia, China and New Zealand have through very strict measures already managed to return to an almost normal daily life, while in countries like Israel, the U.K. and the U.S. are progressing rapidly with their vaccination programs and should see gradual improvement in the second quarter.

2

Overall, we believe that by summer, most major markets will have made significant progress to allow for local activities and travel and give their citizens relief and time to relax after a very long and difficult period.

Like in the summer 2020, we believe that there will be very strong demand for local travel, perhaps even international travel. And we continue to prepare for that moment. Travel is a basic need, and we believe it will come back as soon as the pandemic is under control.

For the first half of 2021, this means that we will continue to focus on adapting and improving our value proposition towards our users and advertisers. Our key focus areas will be: New feature development and improvement of our core product, the further development and rollout of our local travel product, adjusting our marketing mix and communication to the current situation, rolling out our new advertiser-facing products to prepare for recovery and to keep morale up and continue to invest into developing and strengthening our team. With that, I now hand over to Matthias.

Matthias Tillmann - trivago N.V. - MD & CFO

Thank you, Axel, and good morning, everyone. We normally experience a decline in travel activity in the fourth quarter as we are coming out of the peak summer holiday season in the Northern Hemisphere. Q4 2020 has not been different. In fact, the sequential seasonal decline in our segment, Developed Europe, was more pronounced compared to prior years as most of our core markets in that segment implemented new lockdown measures, including new travel restrictions to contain the spread of the virus. Consequently, we reduced our marketing activities even more than we usually do in the fourth quarter to preserve our cash.

On the other hand, for countries that entered their peak summer season like Australia or Brazil, we observed a sequential increase in qualified referrals. This led to a substantial improvement in the year-over-year qualified referral decreases in those countries and for our segment Americas overall. However, as overall booking volumes were still significantly below 2019 levels, we continue to be cautious with our marketing activities and focus on high-quality traffic.

The reduction in marketing and operating expenses led to a decrease of our overall costs and expenses by 71% in the fourth quarter compared to the same period in 2019. Excluding advertising expenses, our operational expenses, including share-based compensation, decreased by EUR 18 million or 37% year-over-year as a result of the restructuring that we announced during the summer. Hence, we were able to limit the net loss to EUR 8.6 million and our adjusted EBITDA to minus EUR 3.4 million compared to a net income and adjusted EBITDA of EUR 3.1 million and EUR 18.4 million, respectively, in the same period 2019.

Looking at the full year, we were able to maintain our total cash and short-term investment position at around EUR 228 million without taking on any additional external funding, and we continue to be debt-free. This shows how quickly we can adapt to sudden and very unfavorable changes in our industry. We remain confident that we have the right setup for what remains a challenging and unpredictable foreseeable future.

Globally, the number of new COVID cases increased again during the fourth quarter. A new variance of the virus has emerged that tend to spread faster. Consequently, most of our core markets have implemented new mobility restrictions in particular, in Europe, that were extended into the new year. For example, Germany first extended the lockdown until 10th of January, then until mid-February, and the government is currently discussing to extend it further into March.

Hence, overall, qualified referral growth rates have declined again in January. However, there are regional differentials. In Developed Europe, qualified referrals were down around 80% year-over-year in January. And to put that in perspective, in April last year, when similar restrictions were implemented during the first wave, our qualified referrals declined by over 90% in that segment year-over-year. At the same time, we're observing an increase in the booking window in Europe, with the average booking window being now more than 10 weeks.

In Americas, qualified referrals were down more than 50% in January year-over-year, down slightly more than in the fourth quarter as the year-over-year qualified referral decline in Latin America increased a bit again, whereas we see stable trends in the U.S.

3

Looking at our segment Rest of World. Overall, qualified referrals year-over-year negative growth rates have been stable in January compared to the fourth quarter. When looking at the year-over-year growth rates, please keep in mind that our business started to deteriorate in February 2020 when the virus spread to Europe and Americas. So for the coming months, you need to take the comp effect into account.

Moving on to marketplace dynamics. In all 3 segments, while monetization is still down significantly year-over-year, our revenue per qualified referral has declined by a rate that was stable sequentially in the fourth quarter and we see this continuing in 2021 so far. As a result, our global referral revenue, which is the product of qualified referrals and revenue per qualified referrals, declined by a rate that was slightly higher in January compared to the fourth quarter due to the qualified referral dynamics in the different segments that I just described.

As the overall situation remains volatile, and we continue to have only limited visibility, we will not give specific guidance for 2021 at this point. We focus on what we can control and for the first quarter, this means that we will continue to be cautious with our marketing activities. As mentioned before, we have sustainably reduced our operating expenses. However, as the second wave of new COVID infections has emerged, and overall booking volumes remain muted, we expect our adjusted EBITDA in the first quarter to be more negative than in the fourth quarter.

Overall, we remain confident that we have set up the company for this challenging environment and continue to be optimistic that travel will recover in the second half of this year. With that, let's open the line for questions. Operator, we are now ready to take the first question, please.

QUESTIONS AND ANSWERS

Operator

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

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

Just a couple of questions. So maybe can you give us some more color on the trends that you saw in North America and how they compared to Europe, just for the fourth quarter? If I look at the volume of qualified referrals for North America, it was essentially flat between Q3 and Q4. Europe obviously, saw a pretty strong (inaudible). So can you maybe just speak to that?

And then secondarily, if I think about the back half of 2021 and the recovery, how should we be thinking about your ad spending as demand starts to come back and your spending going into that?

Matthias Tillmann - trivago N.V. - MD & CFO

Sure. Thanks, Naved. So on your first question, trends in North America versus Europe. I mean, I gave some specific numbers for the QR growth rates in January already and would add the following. Qualified referrals will obviously depend on the overall travel demand and our own marketing spend going forward.

But what we see in January so far is that the trend is stable in the U.S. And obviously, as I said, in Europe, it's no surprise that we do not see a change in January so far, given that most countries started to implement new travel restrictions already in November. And that has continued in December and now going into the new year. So overall, as I said, 80% down year-over-year in Europe. So slightly better than what we saw in April 2020 when we first saw travel restriction put into place by governments.

In Americas, I mean, as I said, the U.S. is stable. What we do see is some encouraging signs, and that is obviously correlated, or not obviously, but something you could expect to the progress on the vaccination. So when you look globally, we called out Israel and the U.K. in Europe, where we do see that these countries are making progress.

4