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)
|
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(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, |
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2023 | 2022 |
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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 | $ | |
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See accompanying notes to condensed consolidated financial statements.
I-4
LIBERTY TRIPADVISOR HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended |
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March 31, |
| |||||
| 2023 |
| 2022 |
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amounts in millions, except |
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per share amounts |
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$ | | | ||||
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 |
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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) |
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| ( | ||
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 |
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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 $
I-19
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
I-22
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 $ |
I-23
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; |