UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-35362
TRIPADVISOR, INC.
(Exact name of registrant as specified in its charter)
Delaware | 80-0743202 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
141 Needham Street
Newton, MA 02464
(Address of principal executive office) (Zip Code)
Registrants telephone number, including area code:
(617) 670-6300
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. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Class |
Outstanding Shares at April 27, 2012 | |
Common Stock, $0.001 par value per share | 121,405,426 shares | |
Class B common stock, $0.001 par value per share | 12,799,999 shares |
Form 10-Q
For the Quarter Ended March 31, 2012
Table of Contents
Page | ||||
Part IFinancial Information |
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Item 1. Unaudited Financial Statements |
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3 | ||||
4 | ||||
Consolidated Balance Sheets (Unaudited) at March 31, 2012 and December 31, 2011 |
5 | |||
6 | ||||
7 | ||||
Notes to Unaudited Consolidated and Combined Financial Statements |
8 | |||
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
19 | |||
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
31 | |||
31 | ||||
32 | ||||
32 | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
32 | |||
32 | ||||
32 | ||||
2
UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months
Ended March 31, |
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2012 | 2011 | |||||||
Revenue |
$ | 132,127 | $ | 95,278 | ||||
Related-party revenue from Expedia |
51,588 | 53,944 | ||||||
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Total revenue |
183,715 | 149,222 | ||||||
Costs and expenses: |
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Cost of revenue (exclusive of amortization) (1) |
2,734 | 2,231 | ||||||
Selling and marketing(2) |
67,389 | 44,195 | ||||||
Technology and content(2) |
17,841 | 13,089 | ||||||
General and administrative(2) |
16,254 | 8,194 | ||||||
Related-party shared services fee to Expedia |
| 1,980 | ||||||
Depreciation |
4,281 | 4,102 | ||||||
Amortization of intangible assets |
1,839 | 2,117 | ||||||
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Total costs and expenses |
110,338 | 75,908 | ||||||
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Operating income |
73,377 | 73,314 | ||||||
Other income (expense): |
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Other interest (expense) income, net |
(2,932 | ) | 98 | |||||
Other, net |
696 | 965 | ||||||
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Total other (expense) income, net |
(2,236 | ) | 1,063 | |||||
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Income before income taxes |
71,141 | 74,377 | ||||||
Provision for income taxes |
(22,970 | ) | (27,006 | ) | ||||
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Net income |
48,171 | 47,371 | ||||||
Net income attributable to noncontrolling interest |
(60 | ) | (93 | ) | ||||
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Net income attributable to TripAdvisor, Inc. |
$ | 48,111 | $ | 47,278 | ||||
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Earnings Per Share attributable to TripAdvisor, Inc: |
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Basic |
$ | 0.36 | $ | 0.35 | ||||
Diluted |
$ | 0.35 | $ | 0.35 | ||||
Weighted Average Common Shares Outstanding: |
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Basic |
133,754 | 133,461 | ||||||
Diluted |
136,158 | 133,461 | ||||||
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(1) Excludes amortization as follows: |
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Amortization of acquired technology included in amortization of intangibles |
$ | 182 | $ | 162 | ||||
Amortization of website development costs included in depreciation |
2,713 | 2,692 | ||||||
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$ | 2,895 | $ | 2,854 | |||||
(2) Includes stock-based compensation as follows: |
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Selling and marketing |
$ | 1,078 | $ | 805 | ||||
Technology and content |
1,512 | 888 | ||||||
General and administrative |
2,102 | 781 |
The accompanying notes are an integral part of these consolidated and combined financial statements.
3
UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
March 31, 2012 |
March 31, 2011 |
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Net income |
$ | 48,171 | $ | 47,371 | ||||
Other comprehensive income: |
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Foreign currency translation adjustments |
1,427 | 785 | ||||||
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Comprehensive income |
$ | 49,598 | $ | 48,156 | ||||
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The accompanying notes are an integral part of these consolidated and combined financial statements.
4
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 31, 2012 |
December 31, 2011 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 208,625 | $ | 183,532 | ||||
Accounts receivable, net of allowance of $3,767 and $5,370 at March 31, 2012 and December 31, 2011, respectively |
98,584 | 67,936 | ||||||
Receivable from Expedia, net |
33,458 | 14,081 | ||||||
Deferred income taxes, net |
6,496 | 6,494 | ||||||
Prepaid expenses and other current assets |
8,158 | 6,279 | ||||||
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Total current assets |
355,321 | 278,322 | ||||||
Property and equipment, net |
37,760 | 34,754 | ||||||
Other long-term assets |
10,759 | 11,888 | ||||||
Intangible assets, net |
42,421 | 44,030 | ||||||
Goodwill |
468,167 | 466,892 | ||||||
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TOTAL ASSETS |
$ | 914,428 | $ | 835,886 | ||||
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 23,806 | $ | 12,097 | ||||
Deferred revenue |
27,014 | 19,395 | ||||||
Credit facility borrowings |
19,627 | 26,734 | ||||||
Borrowings, current |
25,000 | 20,000 | ||||||
Taxes payable |
24,449 | 17,229 | ||||||
Accrued expenses and other current liabilities |
37,520 | 34,938 | ||||||
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Total current liabilities |
157,416 | 130,393 | ||||||
Long-term liabilities: |
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Deferred income taxes, net |
16,106 | 16,004 | ||||||
Other long-term liabilities |
16,196 | 15,952 | ||||||
Borrowings, net of current portion |
370,000 | 380,000 | ||||||
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Total long-term liabilities |
402,302 | 411,956 | ||||||
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Total Liabilities |
559,718 | 542,349 | ||||||
Commitments and Contingencies |
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Stockholders equity: |
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Preferred stock $.001 par value |
| | ||||||
Authorized shares: 100,000,000 |
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Shares issued and outstanding: 0 and 0 |
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Common Stock $.001 par value |
121 | 121 | ||||||
Authorized shares: 1,600,000,000 |
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Shares issued and outstanding: 121,395,744 and 120,661,808 |
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Class B common stock $.001 par value |
13 | 13 | ||||||
Authorized shares 400,000,000 |
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Shares issued and outstanding: 12,799,999 and 12,799,999 |
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Additional paid-in capital |
305,379 | 293,744 | ||||||
Retained earnings |
50,480 | 2,369 | ||||||
Accumulated other comprehensive loss |
(1,283 | ) | (2,710 | ) | ||||
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Total stockholders equity |
354,710 | 293,537 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 914,428 | $ | 835,886 | ||||
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The accompanying notes are an integral part of these consolidated and combined financial statements.
5
UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(in thousands, except share data)
Common Stock |
Class B common stock |
Additional paid-in capital |
Retained earnings |
Accumulated other comprehensive (loss) income |
Total | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance as of December 31, 2011 |
120,661,808 | $ | 121 | 12,799,999 | $ | 13 | $ | 293,744 | $ | 2,369 | $ | (2,710 | ) | $ | 293,537 | |||||||||||||||||
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Net income attributable to TripAdvisor, Inc. |
48,111 | 48,111 | ||||||||||||||||||||||||||||||
Currency translation adjustments |
1,427 | 1,427 | ||||||||||||||||||||||||||||||
Tax benefits on equity awards |
1,643 | 1,643 | ||||||||||||||||||||||||||||||
Issuance of common stock related to exercise of options and warrants and vesting of RSUs |
733,936 | | 8,926 | 8,926 | ||||||||||||||||||||||||||||
Minimum withholding tax on vesting of RSUs |
(2,959 | ) | (2,959 | ) | ||||||||||||||||||||||||||||
Adjustment to the fair value of redeemable noncontrolling interest |
(325 | ) | (325 | ) | ||||||||||||||||||||||||||||
Stock-based compensation expense |
4,350 | 4,350 | ||||||||||||||||||||||||||||||
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Balance as of March 31, 2012 |
121,395,744 | $ | 121 | 12,799,999 | $ | 13 | $ | 305,379 | $ | 50,480 | $ | (1,283 | ) | $ | 354,710 | |||||||||||||||||
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The accompanying notes are an integral part of these consolidated and combined financial statements.
6
UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended March 31, |
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2012 | 2011 | |||||||
Operating activities: |
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Net income |
$ | 48,171 | $ | 47,371 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation of property and equipment, including internal-use software and website development |
4,281 | 4,102 | ||||||
Stock-based compensation |
4,692 | 2,474 | ||||||
Amortization of intangible assets |
1,839 | 2,117 | ||||||
Amortization of deferred financing costs |
264 | | ||||||
Deferred tax expense (benefit) |
(29 | ) | (174 | ) | ||||
Excess tax benefits from stock-based compensation |
(1,683 | ) | (929 | ) | ||||
Provision for doubtful accounts |
(437 | ) | 209 | |||||
Foreign exchange (gain) loss on cash and cash equivalents, net |
(489 | ) | (357 | ) | ||||
Other |
37 | (987 | ) | |||||
Changes in operating assets and liabilities, net of effects from acquisitions: |
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Accounts receivable |
(29,640 | ) | (19,452 | ) | ||||
Related parties |
(26,405 | ) | | |||||
Prepaid expenses and other current assets |
(1,153 | ) | (374 | ) | ||||
Accounts payable |
12,080 | 1,664 | ||||||
Taxes payable |
8,766 | 17,095 | ||||||
Accrued expenses and other current liabilities |
1,963 | (3,874 | ) | |||||
Deferred revenue |
7,462 | 4,431 | ||||||
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Net cash provided by operating activities |
29,719 | 53,316 | ||||||
Investing activities: |
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Acquisitions, net of cash acquired |
| (4,893 | ) | |||||
Capital expenditures, including internal-use software and website development |
(7,339 | ) | (4,993 | ) | ||||
Distribution proceeds from Expedia related to Spin-Off. |
7,028 | | ||||||
Transfers to Expedia, net |
| (62,142 | ) | |||||
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Net cash used in investing activities |
(311 | ) | (72,028 | ) | ||||
Financing activities: |
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Acquisitions funded by Expedia |
| 5,135 | ||||||
Proceeds from credit facilities |
2,893 | 1,504 | ||||||
Payments on credit facilities |
(10,000 | ) | | |||||
Principal payments on long-term debt |
(5,000 | ) | | |||||
Proceeds from exercise of stock options and warrants |
8,926 | | ||||||
Payment of minimum withholding taxes on RSU vesting |
(2,959 | ) | | |||||
Excess tax benefits from stock-based compensation |
1,683 | 929 | ||||||
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Net cash (used in) provided by financing activities |
(4,457 | ) | 7,568 | |||||
Effect of exchange rate changes on cash and cash equivalents |
142 | (72 | ) | |||||
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Net increase (decrease) in cash and cash equivalents |
25,093 | (11,216 | ) | |||||
Cash and cash equivalents at beginning of year |
183,532 | 93,133 | ||||||
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Cash and cash equivalents at end of period |
$ | 208,625 | $ | 81,917 | ||||
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The accompanying notes are an integral part of these consolidated and combined financial statements.
7
UNAUDITED NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
We refer to TripAdvisor, Inc. and our wholly-owned subsidiaries as TripAdvisor, us, we and our in these notes to the consolidated and combined financial statements.
On April 7, 2011, Expedia, Inc. (Expedia) announced its plan to separate into two independent public companies in order to better achieve certain strategic objectives of its various businesses. We refer to this transaction as the Spin-Off.
In connection with the Spin-Off, we were incorporated as a Delaware corporation in July 2011. On November 1, 2011, the Securities and Exchange Commission (SEC) declared the Form S-4 with information pertaining to the Spin-Off, which included a preliminary proxy statement for Expedia and prospectus for Expedia and TripAdvisor, as effective. On December 6, 2011, at Expedias annual meeting of stockholders, Expedias stockholders approved the Spin-Off, and the related proposals submitted. The Spin-Off was also approved by Expedias Board of Directors on December 6, 2011. Also in December 2011 Expedia received a favorable private letter ruling from the Internal Revenue Service (IRS) on the tax-free nature of the Spin-Off.
On December 20, 2011, following the close of trading on the NASDAQ Global Select Market (NASDAQ), the Spin-Off was completed, and TripAdvisor began trading as independent public company on December 21, 2011. Expedia effected the Spin-Off by means of a reclassification of its capital stock that resulted in the holders of Expedia capital stock immediately prior to the time of effectiveness of the reclassification having the right to receive a proportionate amount of TripAdvisor capital stock. A one-for-two reverse stock split of outstanding Expedia capital stock occurred immediately prior to the Spin-Off, with cash paid in lieu of fractional shares.
In connection with the Spin-Off, Expedia contributed or transferred all of the subsidiaries and assets relating to Expedias TripAdvisor Media Group, which were comprised of the TripAdvisor Holdings, LLC combined financial statements, to TripAdvisor and TripAdvisor or one of its subsidiaries assumed all of the liabilities relating to Expedias TripAdvisor Media Group. TripAdvisor now trades on the NASDAQ under the symbol TRIP.
In connection with the Spin-Off, on December 20, 2011, TripAdvisor Holdings, LLC, distributed approximately $406 million in cash to Expedia in the form of a dividend, prior to completion of the Spin-Off. This distribution was funded through borrowings under a new credit agreement, dated as of December 20, 2011, among TripAdvisor, TripAdvisor Holdings, LLC, TripAdvisor LLC, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Europe Limited, as London agent. Such credit agreement together with all exhibits, schedules, annexes, certificates, assignments and related documents contemplated thereby is referred to herein as the Credit Agreement. The Credit Agreement provided for a five-year term loan (the Term Loan) to TripAdvisor Holdings, LLC in a principal amount of $400 million, repayable in quarterly installments equal to 1.25% of the original principal amount in year 2012 and 2.5% of the original principal amount in each year thereafter, with the balance payable on the final maturity date. The Credit Agreement also provides for a revolving credit facility (the Revolving Credit Facility) with a maximum borrowing capacity of $200 million. All outstanding principal and interest under the Term Loan and the Revolving Credit Facility will be due and payable, and the Revolving Credit Facility will terminate, on December 20, 2016.
Per the Separation Agreement we were to retain $165 million in cash on hand immediately following the Spin-off and the agreement also provided for a subsequent reconciliation process to ensure the appropriate amount was retained. The completion of this reconciliation resulted in us recording an additional receivable from Expedia of $7 million at December 31, 2011, which was subsequently received by us during the three months ended March 31, 2012.
Basis of Presentation
The accompanying unaudited consolidated and combined financial statements have been prepared by us in accordance with generally accepted accounting principles, or GAAP, for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles for complete periods have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of our financial position, results of operations and cash flows have been included. All such adjustments are of a normal recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated and combined financial statements for the year ended December 31, 2011 filed with the Securities and Exchange Commission (SEC) in our Annual Report on Form 10-K on March 15, 2012. The results for interim periods are not necessarily indicative of the results to be expected for the full year.
8
The financial statements and related financial information pertaining to the period preceding the Spin-Off have been presented on a combined basis and reflect the results of TripAdvisor that were ultimately transferred to us as part of the Spin-Off. The financial statements and related financial information pertaining to the period subsequent to the Spin-Off have been presented on a consolidated basis. Prior to the Spin-Off, certain functions, including accounting, legal, tax, corporate development, treasury, employee benefits, financial reporting and real estate management, were historically managed by the corporate division of Expedia on behalf of its subsidiaries. The assets, liabilities and expenses related to the support of these centralized corporate functions have been allocated to us on a specific identification basis to the extent possible. Otherwise, allocations related to these services, in the form of a related-party services fee, were primarily based upon an estimate of the proportion of corporate amounts applicable to us. These allocations were determined on a basis that Expedia and we considered to be a reasonable reflection of the cost of services provided or the benefit received by us. These expenses were allocated based on a number of factors including headcount, estimated time spent and operating expenses. In the opinion of management, the assumptions and allocations have been made on a reasonable basis. Management believes that amounts allocated to TripAdvisor reflect a reasonable representation of the types of costs that would have been incurred if we had performed these functions as a stand-alone company. However, as estimation is inherent within the aforementioned allocation process, these combined financial statements do not include all of the actual amounts that would have been incurred had we been a stand-alone entity during the periods presented and also do not necessarily reflect our future financial position, results of operations and cash flows.
Description of Business
TripAdvisor is an online travel company, empowering users to plan and have the perfect trip. TripAdvisors travel research platform aggregates reviews and opinions of members about destinations, accommodations (hotels, bed and breakfasts, specialty lodging and vacation rentals), restaurants and activities throughout the world through our flagship TripAdvisor brand. TripAdvisor-branded websites include tripadvisor.com in the United States and localized versions of the website in 29 other countries, including in China under the brand daodao.com. Beyond travel-related content, TripAdvisor websites also include links to the websites of our travel advertisers allowing travelers to directly book their travel arrangements. In addition to the flagship TripAdvisor brand, we manage and operate websites under 19 other travel brands, connected by the common goal of providing comprehensive travel planning resources across the travel sector. We derive substantially all of our revenue from advertising, primarily through click-based advertising and display-based advertising sales. In addition, we earn revenue through a combination of subscription-based offerings, transaction revenue from our flash sale website, SniqueAway, and from our recently-launched hotel booking site, Tingo, and other revenue including content licensing.
Consolidation
Our consolidated and combined financial statements include the accounts of TripAdvisor, our wholly owned subsidiaries, and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We record our investments in entities that we do not control, but over which we have the ability to exercise significant influence, using the equity method. We record noncontrolling interest in our consolidated and combined financial statements to recognize the minority ownership interest in our consolidated subsidiaries. Noncontrolling interest in the earnings and losses of consolidated subsidiaries represent the share of net income or loss allocated to members or partners in our consolidated entities. Significant intercompany transactions between the TripAdvisor consolidated entities and accounts have been eliminated.
Certain of our subsidiaries that operate in China, have variable interests in affiliated entities in China in order to comply with Chinese laws and regulations, which restrict foreign investment in Internet content provision businesses. Although we do not own the capital stock of some of our Chinese affiliates, we consolidate their results as we are the primary beneficiary of the cash losses or profits of these variable interest affiliates and have the power to direct the activities of these affiliates. Our variable interest entities are not material for all periods presented.
Accounting Estimates
We use estimates and assumptions in the preparation of our consolidated and combined financial statements in accordance with GAAP. Our estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated and combined financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. Our actual financial results could differ significantly from these estimates. The significant estimates underlying our consolidated and combined financial statements include revenue recognition; recoverability of long-lived assets, intangible assets and goodwill; income taxes; useful lives of property and equipment; purchase accounting and stock-based compensation.
Reclassifications
We have reclassified certain amounts related to our prior period results to conform to our current period presentation.
During the fourth quarter of 2011, our management changed our non-GAAP financial measure that we use to measure our operating performance from Operating Income Before Amortization, or OIBA, to Adjusted Earnings Before Interest, Taxes,
9
Depreciation, and Amortization, or Adjusted EBITDA. Consequently we have reclassified all of our depreciation expense, which previously had resided in technology and content expense and general and administrative expense, and have presented it as a separate line item on the consolidated and combined statement of operations. This reclassification had no net effect on either total operating expenses or total operating income. The table below provides a summary of that reclassification for the periods presented.
Three Months Ended March 31. 2011 (in thousands) |
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Depreciation |
$ | 4,102 | ||
Technology and content |
(3,290 | ) | ||
General and administrative |
(812 | ) | ||
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$ | | |||
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Seasonality
Expenditures by travel advertisers tend to be seasonal. Traditionally, our strongest quarter has been the third quarter, which is a key travel research period, with the weakest quarter being the fourth quarter. However, adverse economic conditions or continued growth of our international operations with differing holiday peaks may influence the typical trend of our seasonality in the future.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Recently Adopted Accounting Pronouncements
In September 2011, the FASB issued ASU 2011-08. ASU 2011-08 was issued to amend FASB Accounting Standards Codification (ASC) (Topic 350): IntangiblesGoodwill and Other. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to first make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. If entities determine, on the basis of qualitative factors, that it is more likely than not that the fair value of a reporting unit is less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, and we adopted ASU 2011-08 on October 1, 2011 for the fiscal year 2011 goodwill impairment test. The adoption of ASU 2011-08 did not have a material impact on our consolidated and combined financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation on Comprehensive Income (ASU 2011-05). Under ASU 2011-05, there will no longer be the option to present items of other comprehensive income in the statement of stockholders equity. ASU 2011-05 requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011 on a retrospective basis, with early adoption permitted. Accordingly, we have adopted the presentation requirements of ASU 2011-05 on December 31, 2011. The adoption of ASU 2011-05 did not have a material impact on our consolidated and combined financial statements.
For information about our critical accounting policies and estimates, refer to Note 2Significant Accounting Policies, included in our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011.
NOTE 3: STOCK BASED AWARDS AND OTHER EQUITY INSTRUMENTS
Stock-based compensation expense relates primarily to expense for restricted stock units (RSUs) and stock options. Our outstanding RSUs and stock options generally vest over five years and four years, respectively.
In the three months ended March 31, 2012 and March 31, 2011, we recognized total stock-based compensation expense of $4.7 million and $2.5 million, respectively. The total income tax benefit related to stock-based compensation expense was $1.6 million and $0.9 million for the three months ended March 31 2012 and March 31, 2011, respectively.
10
Stock Based Awards Other Equity Instruments assumed at Spin-Off
Prior to the Spin-Off, we participated in the Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan, under which we, through Expedia, granted RSUs, stock options, and other stock-based awards to our directors, officers, employees and consultants. Following the Spin-Off, these existing Expedia stock-based awards were primarily converted as follows:
| Each vested stock option to purchase shares of Expedia common stock converted into an option to purchase shares of Expedia common stock and an option to purchase shares of TripAdvisor common stock; |
| Each unvested stock option to purchase shares of Expedia common stock converted into a stock option to purchase shares of common stock of the applicable company for which the employee was employed following the Spin-Off; and |
| All RSUs converted into RSUs of the applicable company for which the employee was employed following the Spin-Off. |
In addition, upon Spin-Off, we entered into a warrant agreement (the Warrant Agreement) with Mellon Investor Services LLC and issued warrants exercisable for TripAdvisor common stock in respect of previously outstanding warrants exercisable for Expedia common stock that were adjusted on account of Expedias reverse stock split and the Spin-Off. The warrants, which totaled 32,186,792 at Spin-Off, are not listed on any stock exchange, and expire on May 7, 2012. One tranche of warrants (issued in respect of Expedia warrants that had featured an exercise price of $12.23 per warrant prior to adjustment) are exercisable for 0.25 (one-quarter) of a share of TripAdvisor common stock at an exercise price equal to $6.48 per warrant, and the other tranche of warrants (issued in respect of Expedia warrants that had featured an exercise price of $14.45 per warrant prior to adjustment) are exercisable for 0.25 (one-quarter) of a share of TripAdvisor common stock at an exercise price equal to $7.66 per warrant. The exercise price may be paid in cash or via cashless exercise as set forth in the Warrant Agreement. In total, at Spin-Off, the warrants could be converted into a maximum of 8,046,698 shares of our common stock without any further adjustments to the Warrant Agreement.
Below is a summary of our stock-based awards and warrants issued upon completion of the conversion of existing Expedia stock-based awards and warrants into TripAdvisor stock-based awards and warrants on December 20, 2011 and the related weighted-average grant date exercise price for options and warrants and the weighted-average grant date fair value for RSUs:
Options and Stock Warrants:
Potential Shares of Common Stock (in thousands) |
Weighted Average Grant Date Exercise Price |
|||||||
Options |
6,575 | $ | 23.65 | |||||
Warrants$6.48 TripAdvisor Warrants |
6,047 | $ | 25.92 | |||||
Warrants$7.66 TripAdvisor Warrants |
2,000 | $ | 30.64 |
RSUs:
Potential Shares of Common Stock (in thousands) |
Weighted Average Grant Date Fair Value |
|||||||
RSUs |
893 | $ | 21.09 |
TripAdvisor, Inc. 2011 Stock and Annual Incentive Plan (2011 Incentive Plan)
On December 20, 2011, the 2011 Incentive Plan became effective. A summary of certain important features of the 2011 Incentive Plan can be found in Note 7Stock Based Awards and Other Equity Instruments, in the Notes to our Consolidated and Combined Financial Statements in Item 8 of our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011. The summary of the material terms of the 2011 Incentive Plan is qualified in its entirety by the full text of the 2011 Incentive Plan which is incorporated by reference in our Annual Report on Form 10-K as Exhibit 4.3.
We did not grant any stock options during the three months ended March 31, 2012. During the three months ended March 31, 2012, we issued 59,951 RSUs under the 2011 Incentive Plan for which the fair value was measured based on the quoted price of our common stock at the date of grant of $33.27. We will amortize the fair value, net of estimated forfeitures, as stock-based compensation expense over the vesting term of two years on a straight-line basis.
During the three months ended March 31, 2012 there were 487,220 options exercised at a weighted average exercise price of $14.69 and 275,648 RSUs ( inclusive of 94,839 RSUs withheld to satisfy minimum tax withholding requirements) were vested and released with a weighted average grant date fair value of $13.86.
As of March 31, 2012, we had stock-based awards outstanding representing 6,757,324 shares of our common stock consisting of options to purchase 6,047,787 shares of our common stock with a weighted average exercise price of $24.39 and weighted average remaining life of 4.1 years and approximately 709,537 RSUs.
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Included in RSUs outstanding at March 31, 2012 are 400,000 RSUs awarded to one of our non-employee Directors, for which vesting is tied to achievement of performance targets and a requisite service period.
During the three months ended March 31, 2012, there were 263,630 warrants exercised which resulted in 65,907 shares of our common stock issued at a weighted average exercise price of $26.87. As of March 31, 2012 we had 31,923,162 outstanding warrants which are exercisable to purchase 7,980,791 shares of our common stock at a weighted average exercise price of $27.10.
NOTE 4: INCOME TAXES
Each interim period is considered an integral part of the annual period and, accordingly, we measure our tax expense using an estimated annual effective tax rate. An enterprise is required, at the end of each interim reporting period, to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, as adjusted for discrete taxable events that occur during the interim period.
Our effective tax rate for the three months ended March 31, 2012 and March 31, 2011 was 32.3% and 36.3%, respectively. For the three months ended March 31, 2012, the effective tax rate is less than the federal statutory rate primarily due to earnings in jurisdictions outside the United States, where our effective tax rate is lower, which was partially offset by state income taxes, non-deductible stock compensation and accruals on uncertain tax positions. The change in the effective tax rate for 2012 compared to the 2011 rate was primarily due to an increase in earnings in jurisdictions outside the United States.
Our policy is to recognize accrued interest and penalties related to unrecognized tax benefits and income tax liabilities as part of our income tax expense. As of March 31, 2012, accrued interest is $0.4 million, net of federal benefit, and no penalties have been accrued. We do not anticipate any material releases in the next twelve months.
We are subject to taxation in the United States and various States and foreign jurisdictions. As of March 31, 2012, the Companys tax years for 2008, 2009, 2010 and 2011 are subject to examination by the tax authorities.
NOTE 5: COMMITMENTS AND CONTINGENCIES
There have been no material changes to our commitments and contingencies since December 31, 2011. (Refer to Note 10Commitments and Contingencies, in the Notes to our Consolidated and Combined Financial Statements in Item 8 of our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011.)
In the ordinary course of business, we and our subsidiaries are parties to legal proceedings and claims involving alleged infringement of third-party intellectual property rights, defamation, and other claims. Rules of the SEC require the description of material pending legal proceedings, other than ordinary, routine litigation incident to the registrants business, and advise that proceedings ordinarily need not be described if they primarily involve damages claims for amounts (exclusive of interest and costs) not individually exceeding 10% of the current assets of the registrant and its subsidiaries on a consolidated basis. In the judgment of management, none of the pending litigation matters that the Company and its subsidiaries are defending involves or is likely to involve amounts of that magnitude. There may be claims or actions pending or threatened against us of which we are currently not aware and the ultimate disposition of which would have a material adverse effect on us.
NOTE 6: DEBT
Term Loan Facility Due 2016 and Revolving Credit Facility
Overview
On December 20, 2011, in connection with the Spin-Off, we entered into the Credit Agreement, which provides $600 million of borrowing including:
| the Term Loan Facility, or Term Loan, in an aggregate principal amount of $400 million with a term of five years due December 2016; and |
| the Revolving Credit Facility in an aggregate principal amount of $200 million available in U.S. dollars, Euros and British pound sterling with a term of five years expiring December 2016. |
The Term Loan and any loans under the Revolving Credit Facility bear interest by reference to a base rate or a Eurocurrency rate, in either case plus an applicable margin based on our leverage ratio. We are also required to pay a quarterly commitment fee, on the average daily unused portion of the Revolving Credit Facility for each fiscal quarter and fees in connection with the issuance of letters of credit. The Term Loan and loans under the Revolving Credit Facility currently bear interest at LIBOR plus 175 basis points, or the Eurocurrency Spread, or the alternate base rate (ABR) plus 75 basis points, and undrawn amounts are currently subject to a commitment fee of 30 basis points.
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As of March 31, 2012 we are using a one-month interest period Eurocurrency Spread which is approximately 2.0% per annum. Interest is currently payable on a monthly basis while we are borrowing under the one-month interest rate period. The current interest rates are based on current assumptions, leverage and LIBOR rates and do not take into account that rates will reset periodically.
The Term Loan principal will be repayable in quarterly installments on the last day of each calendar quarter equal to 1.25%, with the first installment of $5 million paid during the three months ended March 31, 2012. The payments for the year ending December 31, 2012 will be equal to 1.25% of the original principal amount and will be equal to 2.5% of the original principal amount in each year thereafter, with the balance due on the final maturity date.
The Revolving Credit Facility includes $40 million of borrowing capacity available for letters of credit and $40 million for borrowings on same-day notice. Immediately following the Spin-Off, $10 million was drawn down under the Revolving Credit Facility, which was repaid during the three months ended March 31, 2012.
Total outstanding borrowings under the Credit Agreement consist of the following (in thousands):
March 31, 2012 |
||||
Short-Term Debt: |
||||
Revolving Credit Facility |
$ | | ||
Term Loan |
25,000 | |||
|
|
|||
Total Short-Term Borrowings |
$ | 25,000 | ||
|
|
|||
Long-Term Debt: |
||||
Term Loan |
$ | 370,000 | ||
|
|
|||
Total Long-Term Borrowings |
$ | 370,000 | ||
|
|
The remaining future minimum principal payment obligations due under the Credit Agreement related to our Term Loan is as follows as of March 31, 2012 (in thousands):
Payment Amount |
||||
2012 |
$ | 15,000 | ||
2013 |
$ | 40,000 | ||
2014 |
$ | 40,000 | ||
2015 |
$ | 40,000 | ||
2016 |
$ | 260,000 | ||
|
|
|||
Total |
$ | 395,000 | ||
|
|
Guarantees
All obligations under the Credit Agreement are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized direct or indirect wholly-owned domestic and foreign restricted subsidiaries, subject to certain exceptions for controlled foreign corporations, foreign subsidiaries where applicable law would otherwise be violated or non-material subsidiaries.
Covenants
The Credit Agreement contains a number of covenants that, among other things, restrict our ability to: incur additional indebtedness, create liens, enter into sale and leaseback transactions, engage in mergers or consolidations, sell or transfer assets, pay dividends and distributions or repurchase our capital stock, make investments, loans or advances, prepay certain subordinated indebtedness, make certain acquisitions, engage in certain transactions with affiliates, amend material agreements governing certain subordinated indebtedness, and change our fiscal year. The Credit Agreement also requires us to maintain a maximum leverage ratio and a minimum cash interest coverage ratio, and contain certain customary affirmative covenants and events of default, including a change of control. If an event of default occurs, the lenders under the Credit Agreement will be entitled to take various actions, including the acceleration of all amounts due under Credit Agreement and all actions permitted to be taken by a secured creditor.
As of March 31, 2012 we believe we are in compliance with all of our debt covenants.
The full text of the Credit Agreement is incorporated by reference on our Annual Report on Form 10-K filed on March 15, 2012 for the year ending December 31, 2011, as Exhibit 4.2.
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Chinese Credit Facilities
In addition to our borrowings under the Credit Agreement, we maintain our Chinese Credit Facilities. As of March 31, 2012 and December 31, 2011, we had $20 million and $17 million of short term borrowings outstanding, respectively.
In August 2010, certain of our Chinese subsidiaries entered into a RMB 67,000,000 (approximately $10 million), one-year revolving credit facility with Bank of America (the Chinese Credit FacilityBOA). In June 2011, the Chinese Credit Facility-BOA was amended to extend the facility to March 2012 and increase the borrowing capacity to RMB 126,000,000 (approximately $20 million). In December 2011 the Chinese Credit FacilityBOA was amended to extend the facility to September 2012. The Chinese Credit FacilityBOA currently bears interest based at 120% of the Peoples Bank of Chinas base rate, which was 6.56% as of March 31, 2012 and December 31, 2011.
In April 2012, we increased our borrowing capacity on the Chinese Credit Facility-BOA to RMB (138,600,000) (approximately $22 million) and also amended the facility to extend the termination date to December 2012.
In addition, during April 2012, certain of our Chinese subsidiaries entered into a RMB 125,000,000 (approximately $20 million) one-year revolving credit facility with J.P. Morgan Chase Bank (Chinese Credit Facility-JPM). This facility currently bears interest based on 100% of the Peoples Bank of Chinas base rate. There have been no borrowings on the Chinese Credit Facility-JPM to date.
NOTE 7: SEGMENT INFORMATION
We have one reportable segment: TripAdvisor. We determined our segment based on how our chief operating decision maker manages our business, makes operating decisions and evaluates operating performance. Our primary operating metric for evaluating segment performance is Adjusted EBITDA. Adjusted EBITDA is defined as operating income plus: (1) depreciation of property and equipment, including internal use software and website development; (2) amortization of intangible assets; (3) stock-based compensation; and (4) non-recurring expenses incurred to effect the Spin-Off during the year ended December 31, 2011. Such amounts are detailed in our segment reconciliation below. In addition, please see our discussion of Adjusted EBITDA in the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations below.
The following table is a reconciliation of Adjusted EBITDA to operating income and net income for the periods presented (in thousands):
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Adjusted EBITDA |
$ | 84,189 | $ | 82,007 | ||||
Depreciation (1) |
(4,281 | ) | (4,102 | ) | ||||
|
|
|
|
|||||
OIBA (2) |
79,908 | 77,905 | ||||||
Amortization of intangible assets |
(1,839 | ) | (2,117 | ) | ||||
Stock-based compensation |
(4,692 | ) | (2,474 | ) | ||||
|
|
|
|
|||||
Operating income |
73,377 | 73,314 | ||||||
Other Interest (expense) income, net |
(2,932 | ) | 98 | |||||
Other, net |
696 | 965 | ||||||
Provision for income taxes |
(22,970 | ) | (27,006 | ) | ||||
|
|
|
|
|||||
Income before income taxes |
48,171 | 47,371 | ||||||
|
|
|
|
|||||
Net income attributable to noncontrolling interest |
(60 | ) | (93 | ) | ||||
|
|
|
|
|||||
Net income attributable to TripAdvisor, Inc. |
$ | 48,111 | $ | 47,278 | ||||
|
|
|
|
(1) | Includes internal use software and website development. |
(2) | Our primary operating metric prior to the Spin-Off for evaluating operating performance was OIBA, as reported on our Registration Statement. OIBA is defined as operating income plus: (1) amortization of intangible assets and any related impairment; (2) stock-based compensation expense; and (3) non-recurring expenses incurred to effect the Spin-Off during the year ended December 31, 2011. This operating metric is no longer being used by our management to measure operating performance and is only being shown above to illustrate the financial impact as we converted to a new operating metric post Spin-Off. |
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NOTE 8: STOCKHOLDERS EQUITY
Common Stock and Class B Common Stock
Our authorized common stock consists of 1.6 billion shares of common stock with par value of $0.001 per share, and 400 million shares of Class B common stock with par value of $0.001 per share. Both classes of common stock qualify for and share equally in dividends, if declared by our Board of Directors. Common stock is entitled to one vote per share and Class B common stock is entitled to 10 votes per share. Holders of TripAdvisor common stock, acting as a single class, are entitled to elect a number of directors equal to 25% percent of the total number of directors, rounded up to the next whole number, which is currently three directors. Class B common stockholders may, at any time, convert their shares into common stock, on a one for one share basis. Upon conversion, the Class B common stock is retired and is not available for reissue. In the event of liquidation, dissolution, distribution of assets or winding-up of TripAdvisor the holders of both classes of common stock have equal rights to receive all the assets of TripAdvisor after the rights of the holders of the preferred stock have been satisfied.
As discussed in our Annual Report on Form 10-K filed March 15, 2012 (Note 1Organization and Basis of Presentation), in connection with the Spin-Off a one-for-two reverse stock split of outstanding Expedia capital stock occurred immediately prior to the Spin-Off, which resulted in 120,661,020 shares of Common Stock and 12,799,999 shares of Class B common stock outstanding immediately following the Spin-Off.
Preferred Stock
In addition to common stock, we are authorized to issue up to 100 million preferred shares, with $ 0.001 par value per share, with terms determined by our Board of Directors, without further action by our stockholders. At March 31, 2012, no preferred shares had been issued.
Share Repurchases
During the period January 1, 2012 through March 31, 2012, our Board of Directors did not authorize any share buyback program and we have not repurchased any shares of outstanding common stock.
Dividends
During the period January 1, 2012 through March 31, 2012, our Board of Directors did not declare any dividends on our outstanding common stock.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) for the three months ended March 31, 2012 and 2011 is comprised of accumulated foreign currency translation adjustments.
NOTE 9: CASH AND CASH EQUIVALENTS
Our cash and cash equivalents consist primarily of cash and liquid financial instruments, including money market funds, with maturities of 90 days or less when purchased.
Cash and cash equivalents by security type at March 31, 2012 were as follows:
(in thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
||||||||||||
Cash |
$ | 139,537 | $ | | $ | | $ | 139,537 | ||||||||
Money market fundscash equivalent |
69,088 | | | 69,088 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 208,625 | $ | | $ | | $ | 208,625 | ||||||||
|
|
|
|
|
|
|
|
15
Cash and cash equivalents by security type at December 31, 2011 were as follows:
(in thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
||||||||||||
Cash |
$ | 114,532 | $ | | $ | | $ | 114,532 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Money market fundscash equivalent |
69,000 | | | 69,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 183,532 | $ | | $ | | $ | 183,532 | ||||||||
|
|
|
|
|
|
|
|
NOTE 10: FAIR VALUE MEASUREMENTS
We disclose the fair value of our financial instruments based on the fair value hierarchy using the following three categories:
Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
The following tables provide a summary of the fair value measurements of our assets as of March 31, 2012 and December 31, 2011:
(in thousands) |
Level 1 | Level 2 | Level 3 | Assets at Fair Value at March 31, 2012 |
||||||||||||
Money market fundscash equivalent (1) |
$ | 69,088 | $ | | $ | | $ | 69,088 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 69,088 | $ | | $ | | $ | 69,088 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(in thousands) |
Level 1 | Level 2 | Level 3 | Assets at Fair Value at December 31, 2011 |
||||||||||||
Money market fundscash equivalent (1) |
$ | 69,000 | $ | | $ | | $ | 69,000 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 69,000 | $ | | $ | | $ | 69,000 | ||||||||
|
|
|
|
|
|
|
|
(1) | Cash equivalents include money market investment accounts that hold excess liquid funds. The fair value measurement of these assets is based on quoted market prices in active markets and, therefore, is recorded at fair value on a recurring basis and classified as Level 1 assets. |
We did not have any Level 2 or 3 assets for the period ended March 31, 2012 or December 31, 2011.
One of our acquisitions made during 2008 includes noncontrolling interests with certain rights whereby we may acquire, and the minority shareholders may sell to us, the additional shares of the subsidiary, at fair value or at adjusted fair values at our discretion, beginning in the fourth quarter of 2012. Fair value determinations are based on various internal valuation techniques, including market comparables and discounted cash flow projections and is considered a Level 3 liability at March 31, 2012 and December 31, 2011. Certain assumptions are used in determining fair value, including revenue growth rates and discount rates. Changes in these assumptions would impact the fair value. Changes in the fair value of the shares for which the minority holders may sell to us are recorded to the redeemable noncontrolling interest with charges or credits to additional paid in capital. Our redeemable noncontrolling interest is not material for all periods presented and is included in other current liabilities.
We currently invest excess cash balances primarily in cash deposits and money market investment accounts at major banks. The carrying amount of cash deposits, trade receivables, related party receivables, trade payables, and accrued and other current liabilities, as reported on the unaudited consolidated and combined balance sheet as of March 31, 2012 and December 31, 2011, approximate their fair value because of the short maturity of those instruments. The carrying value of the borrowings outstanding on our Credit Agreement bear interest at a variable rate and are considered to approximate fair value.
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NOTE 11: EARNINGS PER SHARE
As discussed in our Annual Report on Form 10-K filed March 15, 2012 (Note 1Organization and Basis of Presentation,) in connection with the Spin-Off a one-for-two reverse stock split of outstanding Expedia capital stock occurred immediately prior to the Spin-Off, which resulted in 120,661,020 shares of common stock and 12,799,999 shares of Class B common stock outstanding immediately following the Spin-Off.
Basic Earnings Per Share
For the three months ended March 31, 2012, we computed basic earnings per share using the number of shares of common stock and Class B common stock outstanding as of December 31, 2011 plus the weighted average of any additional shares issued and outstanding during the three months ended March 31, 2012.
For the three months ended March 31, 2011, we computed basic earnings per share using the number of shares of common stock and Class B common stock outstanding immediately following the Spin-Off, as if such shares were outstanding for the entire period.
Diluted Earnings Per Share
For the three months ended March 31, 2012, we computed diluted earnings per share using (i) the number of shares of common stock and Class B common stock outstanding at December 31, 2011, (ii) the weighted average of any additional shares issued and outstanding for the three months ended March 31, 2012, and (iii) if dilutive, the incremental common stock that we would issue upon the assumed exercise of stock options and stock warrants and the vesting of restricted stock units using the treasury stock method as of March 31, 2012.
Under the treasury stock method, the assumed proceeds calculation includes the actual proceeds to be received from the employee upon exercise, the average unrecognized compensation cost during the period and any tax benefits credited upon exercise to additional paid-in-capital. The treasury stock method assumes that a company uses the proceeds from the exercise of an award to repurchase common stock at the average market price for the period. Windfall tax benefits created upon the exercise of an award would be added to assumed proceeds, while shortfalls charged to additional paid-in-capital would be deducted from assumed proceeds. Any shortfalls not covered by the windfall tax pool would be charged to the income statement and would be excluded from the calculation of assumed proceeds, if any.
For the three months ended March 31, 2011, we computed diluted earnings per share using (i) the number of shares of common stock and Class B common stock outstanding immediately following the Spin-Off, as no TripAdvisor equity awards were outstanding prior to the Spin-Off.
Below is a reconciliation of the weighted average number of shares of common stock outstanding (in thousands, except for per share information):
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Numerator: |
||||||||
Net income attributable to TripAdvisor |
$ | 48,111 | $ | 47,278 | ||||
Denominator: |
||||||||
Weighted average shares used to compute Basic EPS |
133,754 | 133,461 | ||||||
Effect of dilutive securities: |
||||||||
Stock options |
1,132 | | ||||||
RSUs |
194 | | ||||||
Stock warrants |
1,078 | | ||||||
|
|
|
|
|||||
Weighted average shares used to compute Diluted EPS |
136,158 | 133,461 | ||||||
|
|
|
|
|||||
Basic EPS |
$ | 0.36 | $ | 0.35 | ||||
Diluted EPS |
$ | 0.35 | $ | 0.35 |
17
Potentially dilutive securities, which include stock options and RSUs, representing the right to acquire 1,820,647 and 59,951 shares of common stock, respectively, during the three months ended March 31, 2012 were outstanding but were not included in the calculation of diluted net income per share because the effect would have been antidilutive. Although these share based awards were antidilutive at March 31, 2012, they may be dilutive in future quarters calculations. In addition, as of March 31, 2012, there are performance based RSUs issued and outstanding representing the right to acquire 400,000 shares of common stock, for which the targets required to trigger vesting have not been achieved; therefore, such awards were also excluded from the calculation of diluted earnings per share at March 31, 2012.
The earnings per share amounts are the same for common stock and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.
NOTE 12: RELATED PARTY TRANSACTIONS
Expedia
Following the Spin-Off, TripAdvisor and Expedia are related parties since they are under common control. Revenue we derived from related party transactions with Expedia was $51.6 million and $53.9 million for the three months ended March 31, 2012 and 2011, respectively, which primarily consisted of click-based advertising and other advertising services provided to Expedia and its subsidiaries and is recorded at contract value, which we believe is a reasonable reflection of the value of the services provided. This related-party revenue represented 28% and 36% of our total revenue for the three months ended March 31, 2012 and 2011, respectively.
Our operating expenses for the three months ended March 31, 2011 included a related-party shared services fee of $2 million, which was comprised of allocations from Expedia for accounting, legal, tax, corporate development, treasury, financial reporting, real estate management and included an allocation of employee compensation within these functions. This related-party shared service fee ended in connection with the Spin-Off. These allocations were determined on a basis that Expedia and we considered to be a reasonable reflection of the cost of services provided or the benefit received by us. These expenses were allocated based on a number of factors including headcount, estimated time spent and operating expenses. It was not practicable to determine the amounts of these expenses that would have been incurred had we operated as an unaffiliated entity. In the opinion of our management, the allocation method was reasonable.
Other related-party operating expenses which were included within Selling and Marketing expense were approximately $2 million and $1 million for the three months ended March 31, 2012 and 2011, respectively, which primarily consisted of marketing expense for exit windows.
Our net related party receivable with Expedia and its subsidiaries reflected in our consolidated and combined balance sheets as of March 31, 2012 and December 31, 2011 were $33.5 million and $14.1 million, respectively. We received $7 million from Expedia during the three months ended March 31, 2012, which was owed to us as a result of the subsequent reconciliation process allowed in the Separation Agreement related to the approximate $406 million distribution paid to Expedia immediately prior to the Spin-Off. This balance was included in our related party receivable balance at December 31, 2011.
For purposes of governing certain of the ongoing relationships between us and Expedia at and after the Spin-Off, and to provide for an orderly transition, we and Expedia entered into various agreements, including, among others, the Separation Agreement, the Tax Sharing Agreement, the Employee Matters agreement, the Transition Services Agreement, and commercial agreements. The various commercial agreements, including click-based advertising agreements, content sharing agreements and display-based and other advertising agreements, have terms of one to three years.
The full texts of the Separation Agreement, the Tax Sharing Agreement, the Employee Matters Agreement, the Transition Services Agreement and the Master Advertising Agreement (CPC) are incorporated by reference in our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011 as Exhibits 2.1, 10.2, 10.3, 10.4 and 10.6 (10.6 filed in redacted form pursuant to confidential treatment request), respectively.
18
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, but not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2011, Part I, Item 1A, Risk Factors, as well as those discussed elsewhere in this report. Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition and
results of operations. Accordingly, readers should not place undue reliance on these forward-looking statements. The use of words such as anticipates, estimates, expects, intends, plans and believes, among others, generally identify forward-looking statements; however, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Please carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission (SEC) that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
The information included in this managements discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated and combined financial statements and the notes included in this Quarterly Report on Form 10-Q, and the audited consolidated and combined financial statements and notes and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed March 15, 2012 for the year ended December 31, 2011.
Overview
We are the worlds largest online travel company, empowering users to plan and have the perfect trip. Our travel research platform aggregates reviews and opinions from our community about destinations, accommodations (including hotels, resorts, motels, B&Bs, specialty lodging and vacation rentals), restaurants and activities throughout the world through our flagship TripAdvisor brand. Our branded websites include tripadvisor.com in the United States and localized versions of the website in 29 other countries, including in China under the brand daodao.com. Our-branded websites globally received more than 50 million unique visitors in January 2012, according to comScore, and we have built a marketable base of more than 20 million members and over 60 million reviews and opinions. Beyond travel-related content, our websites also include links to the websites of our advertisers, including travel advertisers, allowing travelers to directly book their travel arrangements. In addition to the flagship TripAdvisor brand, we now manage and operate websites under 19 other travel brands, connected by the common goal of providing comprehensive travel planning resources across the travel sector. On March 21, 2012 we announced the launch of a new travel brand, Tingo, the first hotel booking site that automatically rebooks hotel rooms at a lower price if the rate drops and then refunds the difference to the travelers credit cards when the traveler books a Money Back room.
In addition to our flagship TripAdvisor-branded websites, our portfolio of managed and operated websites include whereivebeen.com, everytrail.com, holidaylettings.co.uk, kuxun.cn, flipkey.com, onetime.com, virtualtourist.com, airfarewatchdog.com, holidaywatchdog.com, cruisecritic.com, independenttraveler.com, seatguru.com, bookingbuddy.com, smartertravel.com, travelpod.com, travel-library.com, sniqueaway.com, familyvactioncritic.com and tingo.com. For additional information about our portfolio of brands, see Other Travel Brands and Websites in Part I, Item 1, Business, in our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011.
Business Model
We derive substantially all of our revenue from the sale of advertising, primarily through click-based advertising and, to a lesser extent, display-based advertising. The remainder of our revenue is generated through a combination of subscription-based offerings, transactions conducted via our flash sale website, SniqueAway, and our recently-launched Tingo hotel booking site, and other revenue including content licensing.
| Click-Based Advertising Revenue. Our largest source of revenue is click-based advertising, which includes our check rates feature as well as contextually-relevant branded and unbranded textlinks. Our click-based advertising partners are predominantly online travel agencies and direct suppliers in the hotel, airline and cruise product categories. The check rates feature enables users to compare pricing and availability for a particular hotel across different on-line travel agents and hotel partners booking engines and thereby delivers a highly-targeted audience deep into the booking paths of their websites. Click-based advertising is generally priced on a cost-per-click, or CPC, basis, with payments from advertisers based on the number of users who click on each type of link. Advertisers who increase their CPC rates generally get an increased number of clicks from their click-based advertising on our websites. Most of our click-based advertising contracts can be terminated by the advertisers at will or on short notice. |
| Display-Based Advertising Revenue. We also earn revenue from a variety of display-based advertising placements on our websites through which our advertising partners can promote their brands in a contextually-relevant manner. While our display-based advertising clients include direct suppliers in the hotel, airline and cruise categories and online travel agencies, we have also broadened our advertiser base to include destination marketing organizations, casinos, resorts and attractions, as well as advertisers from non-travel categories. We generally sell our display-based advertising on a cost per thousand impressions, or CPM, basis. Our display-based advertising products also include a number of custom-built products including the sponsorship of certain site features and functionality, as well as certain customized co-branded features. |
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| Subscription-Based, Transaction and Other Revenue . We also offer advertising via a subscription model that is sold for a flat fee per time period. Managed by our Trip for Business division, this advertising product, Business Listings, is currently offered to hotels, B&Bs and other specialty lodging properties and allows subscribers to list a website URL, email address and phone number on TripAdvisor-branded websites as well as to post special offers for travelers. Our Vacation Rentals division allows individual vacation property owners or managers to pay a subscription fee to list properties on our Holiday Lettings and FlipKey websites, as well as on select TripAdvisor-branded websites. Other sources of revenue include selling discounted hotel room nights and coupons on our flash sale website, SniqueAway, transactions via our Tingo website and licensing our content to third-party sites. |
Executive Summary
Our financial results are dependent on our ability to drive our click-based advertising revenue and continue to invest in areas of potential growth, including our social, mobile and global initiatives as well as our subscription-based businesses, which include vacation rentals and business listings. We have leveraged our position as the largest online travel company to become a critical partner for online advertisers including hotels, online travel agencies and other travel-related service providers by providing our customers with access to our large audience of highly-qualified, highly-engaged users. The key drivers of our click-based advertising revenue are described below, as well as a summary of our key growth areas and the current trends impacting our business. In December 2011, Expedia, Inc., or Expedia, completed the Spin-Off of the TripAdvisor business into a stand-alone public company.
Key Drivers of Click-Based Advertising Revenue
For the three months ended March 31, 2012 and March 31, 2011, respectively, 79% and 81% of our total revenue came from our core cost-per-click, or CPC, based lead generation product. Revenues derived from CPC based lead generation represented 79% of our total revenue for the year ending December 31, 2011. The key drivers of our click-based advertising revenue include the growth in hotel shoppers, user conversion and lead pricing. Total traffic growth, or growth in monthly visits from unique IP addresses is reflective of our overall brand growth. We continue to refine our ability to track and analyze sub-segments of traffic and its correlation to revenue generation and we believe that hotel shoppers is a more useful indicator of revenue growth. We use the term hotel shoppers to refer to users who view a listing of hotels in a city or visitors who view a specific hotel page.
After hotel shoppers, the second driver of our business is user conversion, which is a measure of how many hotel shoppers ultimately click on a CPC link that generates revenue for us. User conversion on our site is primarily driven by three factors: merchandising, commerce coverage and choice. We think of merchandising as the number and location of ads that are available on a page; commerce coverage is whether we have a client who can take an online booking for a particular property; and choice is the number of clients available for any given property, allowing the user to shop for the best price. In summary, our CPC revenue depends on the number of hotel shoppers that we can get interested in a property, whether there is a commerce link available for that hotel shopper to click on for that property and whether there are several commerce choices available for that property, so the hotel shopper can shop around. The other key driver that we look at is the CPC price that online travel agencies and hoteliers are willing to pay us for our leads.
Key Growth Areas
We do not intend to alter our growth strategy now that we are a stand-alone public company. We continue to invest in areas of potential growth, including our social, mobile and global initiatives as well as our subscription-based businesses, which include vacation rentals and business listings.
Social. Our Wisdom of Friends initiative is a core component of our strategic growth plan; 76% of respondents to a recent Nielsen study cited recommendations from people I know as the information source that they trust most. We believe that having a strong social presence drives traffic to and engagement on our sites and improves the sites stickiness amongst the users. As a result, we continue to deepen our integration with Facebooks Friend Graph. As of March 31, 2012, TripAdvisor has offered nearly 120 million users (according to Facebook Insights) a personalized and social travel planning experience that enables travelers to engage first with their own Facebook friends reviews and opinions when planning their perfect trip on TripAdvisor.
Mobile. Mobile is an investment area that is geared towards creating a more complete user experience by reinforcing the TripAdvisor brand when users are in-market. In the year ended December 31, 2011, we saw strong user uptake, reaching an aggregate of 13 million mobile downloads and approximately 16 million monthly unique users, as measured by our own log files, and as of March 31, 2012, we reached an aggregate of 17 million mobile downloads and approximately 23 million monthly unique users. We believe that mobile devices, including smartphones and tablet devices, are increasingly used when travelers begin to plan trips. In
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order to capture an increasing percentage of these users, we have designed our mobile product to be user-friendly and have chosen not to monetize that platform to its full potential at this time. We expect the long-term benefits of a more engaged mobile audience to outweigh the short-term revenue that we could generate from, for example, an increased number of advertisements.
Vacation Rentals. This product addresses a highly-fragmented $85 billion dollar per-year industry, according to a 2010 Radius Global Market study. Historically, we have built our supply content through acquisitions, namely our U.S.-based FlipKey and U.K.-based Holiday Lettings businesses, but during the fourth quarter of 2011 we announced partnerships aimed at increasing our supply content. We believe that our nearly 200,000 properties, as of December 31, 2011, and our highly-engaged and motivated community, position us extremely well for success.
Business Listings. This product was created in early 2010 to allow hotel and accommodation owners to list pertinent information on TripAdvisor, bringing them closer to the traveler and thereby increasing direct bookings. In the year ended December 31, 2011, we saw nearly 80% subscriber growth, reaching our approximately 35,000 Business Listing customers by the end of the year, which is still only around 6% of our current hotel listings on our TripAdvisor branded sites. We continue to expand our sales force and improve features to attract additional customers from our installed base.
Current Trends Affecting Our Business
Increasing Competition. The travel review industry and, more generally, the business of collecting and aggregating travel-related resources and information, have become increasingly competitive. In recent years, an increasing number of companies, such as search companies Google Inc. and Baidu.com, Inc. and several large online travel agencies, have begun to collect and aggregate travel information and resources. We plan to continue to invest in order to remain the leading source of travel reviews as well as continuing to enhance our content and user experience.
Increasing Use of Internet and Social Media to Access Travel Information. Commerce, information and advertising continue to migrate to the Internet and away from traditional media outlets. We believe that this trend will create strategic growth opportunities, allowing us to attract new consumers and develop unique and effective advertising solutions. Consumers are increasingly using online social media, such as Facebook, as a means to communicate and exchange information, including travel information and opinions.
Consumers are also increasingly using mobile and tablet computing devices to access the Internet. To address these demands, we have developed and plan to continue to extend the platform to develop mobile and tablet applications to allow greater access to our travel information and resources. In addition, we have made significant efforts related to social networking in order to leverage the expanding use of this channel.
Click-Based Advertising Revenue. In recent years, the majority of our revenue growth resulted from higher click-based advertising revenue due to increased traffic on our websites, an increase in the volume of clicks on advertisers placements, and, in 2011, an increase in the average CPC price. Although click-based advertising revenue growth has generally been driven by traffic volume, we remain focused on the various factors that could impact revenue growth, including, but not limited to, the growth in hotel shoppers, CPC pricing fluctuations, the overall economy, the ability of advertisers to monetize our traffic, the quality and mix of traffic to our websites, and the quality and mix of traffic from our advertising placements to advertisers, as well as advertisers evolving approach to transaction attribution models and return on investment targets.
Global Economic Conditions. In late 2008 and throughout 2009, weak global economic conditions created uncertainty for travelers and suppliers, and put pressure on discretionary spending on travel and advertising. As a result, our revenue growth slowed in 2009, with a corresponding pull back in sales and marketing and a reduction in general and administrative expenses. Since 2010 the travel industry has been gradually improving. With the improved economic conditions, we reaccelerated sales and marketing spending and increased other operating costs to support expansion and have experienced increased click volumes and revenue growth during these periods. Global economic conditions remain uncertain and, as such, our near-term visibility remains limited.
Our Strategy
In expanding our global reach, we leverage significant investments in technology, operations, brand-building, and advertiser and other partner relationships. For example, we are able to aggregate a large base of consumer reviews, in a variety of languages, across our global core platform. We expect to continue leveraging this investment when launching additional points of sale in new countries, introducing new product features and adding new business model offerings.
| Investment in Technology. We believe that our ability to continue to innovate by providing additional functionality to our main Internet sites, while at the same time extending that functionality to various platforms such as mobile and tablets, will enable us to continue providing an industry-leading user experience. We have a strong culture of speed-to-market with our innovations. By innovating and releasing updates quickly, we believe that we can continue to grow our site visitors and over 60 million reviews and opinions, increase revenue and effectively compete with our competitors. |
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| New Social Sharing Tools. We intend to continue to expand our integration with social media, including Facebook, Twitter and other social sharing platforms. We believe that this integration will be critical to continuing to grow and maintain engagement with our user base and increase our content. For example, by tapping into Facebooks rich social data, TripAdvisor connects users to their friends and shares helpful content about where their friends have traveled and where they would like to visit in the future. While on the TripAdvisor website, friends can discuss their travel plans and recommendations and build out personal profiles of places they have been. As of March 31, 2012, TripAdvisor has offered more than 120 million users (according to Facebook Insights) a personalized and social travel planning experience that enables travelers to engage first with their own Facebook friends reviews and opinions when planning their perfect trip on TripAdvisor. |
| Investment in Search Engine Marketing. One of the ways that we look to penetrate new markets is to leverage our expertise in search engine marketing, or SEM. SEM is a form of Internet marketing that involves the promotion of websites by increasing their visibility in search engine results pages through the use of paid placement, contextual advertising, and paid inclusion. In certain markets we may bid on keywords to break even or at a loss in order to drive traffic, build our brand, gain more users to our product, collect content and scale more quickly. We think SEM is an important channel because it delivers a significant number of brand impressions and can be a cost-effective method to get people to try our sites. |
| International Expansion. We are focused on expanding our footprint globally. We are continuing to expand in Europe, Asia and South America, especially in emerging markets, such as Brazil, Russia, India and China. During 2011, we added new points-of-sale in Taiwan, Malaysia and Egypt, bringing our total TripAdvisor-branded websites to 30 countries and 21 languages. These and the other newer sites in Asia-Pacific represent a longer-term opportunity for us. We believe that China represents a large international opportunity for our business. We currently have two lead product offerings in the Chinese marketDaoDao and Kuxunboth headquartered in Beijing. We continue to invest heavily and operate at a loss in the Chinese market. |
| Acquisitions. We have a history of successfully acquiring and integrating companies that expand our footprint either geographically or in market sectors that are complementary to our flagship properties. We intend to continue to seek acquisition targets. |
Segment
We have one reportable segment. The segment is determined based on how our chief operating decision maker manages our business, makes operating decisions and evaluates operating performance.
Seasonality
Expenditures by travel advertisers tend to be seasonal. Traditionally, our strongest quarter has been the third quarter, which is a key travel research period, with the weakest quarter historically being the fourth quarter. However, adverse economic conditions or continued growth of our international operations with differing holiday peaks may influence the typical trend of our seasonality in the future.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated and combined financial statements because they require that we use judgment and estimates in applying those policies. We prepare our consolidated and combined financial statements and accompanying notes in accordance with generally accepted accounting principles in the United States (GAAP). Preparation of the consolidated and combined financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated and combined financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated and combined financial statements. We consider an accounting estimate to be critical if:
| It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and |
| Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations. |
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For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 2Significant Accounting Policies, in the notes to the consolidated and combined financial statements on this Quarterly Report on Form 10-Q. We are an issuer (as defined in Section 2(a) of the Sarbanes-Oxley Act of 2002), and, as such, are required to comply with all new and revised accounting standards applicable to public companies.
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Results of Operations
Selected Financial Data
(in thousands, except per share data)
Three Months Ended March 31, | % Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
Revenue |
$ | 132,127 | $ | 95,278 | 39 | % | ||||||
Related-party revenue from Expedia |
51,588 | 53,944 | (4 | )% | ||||||||
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Total revenue |
183,715 | 149,222 | 23 | % | ||||||||
Costs and expenses: |
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Cost of revenue (exclusive of amortization) (1) |
2,734 | 2,231 | 23 | % | ||||||||
Selling and marketing(2) |
67,389 | 44,195 | 52 | % | ||||||||
Technology and content(2) |
17,841 | 13,089 | 36 | % | ||||||||
General and administrative(2) |
16,254 | 8,194 | 98 | % | ||||||||
Related-party shared services fee to Expedia |
| 1,980 | (100 | )% | ||||||||
Depreciation |
4,281 | 4,102 | 4 | % | ||||||||
Amortization of intangible assets |
1,839 | 2,117 | (13 | %) | ||||||||
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Total costs and expenses |
110,338 | 75,908 | 45 | % | ||||||||
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Operating income |
73,377 | 73,314 | | |||||||||
Other income (expense): |
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Other interest (expense) income, net |
(2,932 | ) | 98 | (3,092 | )% | |||||||
Other, net |
696 | 965 | (28 | )% | ||||||||
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Total other (expense) income, net |
(2,236 | ) | 1,063 | (310 | )% | |||||||
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Income before income taxes |
71,141 | 74,377 | (4 | )% | ||||||||
Provision for income taxes |
(22,970 | ) | (27,006 | ) | (15 | )% | ||||||
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Net income |
48,171 | 47,371 | 2 | % | ||||||||
Net income attributable to noncontrolling interest |
(60 | ) | (93 | ) | (36 | %) | ||||||
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Net income attributable to TripAdvisor, Inc. |
$ | 48,111 | $ | 47,278 | 2 | % | ||||||
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Earnings Per Share attributable to TripAdvisor, Inc: |
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Basic |
$ | 0.36 | $ | 0.35 | 3 | % | ||||||
Diluted |
$ | 0.35 | $ | 0.35 | | |||||||
Weighted Average Common Shares Outstanding: |
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Basic |
133,754 | 133,461 | | |||||||||
Diluted |
136,158 | 133,461 | 2 | % | ||||||||
Other Financial Data: |
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Adjusted EBITDA (3) |
$ | 84,189 | $ | 82,007 | 3 | % | ||||||
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(1) Excludes amortization as follows: |
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Amortization of acquired technology included in amortization of intangibles |
$ | 182 | $ | 162 | ||||||||
Amortization of website development costs included in depreciation |
2,713 | 2,692 | ||||||||||
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$ | 2,895 | $ | 2,854 | |||||||||
(2) Includes stock-based compensation as follows: |
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Selling and marketing |
$ | 1,078 | $ | 805 | ||||||||
Technology and content |
1,512 | 888 | ||||||||||
General and administrative |
2,102 | 781 |
(3) | See Adjusted EBITDA below for more information and for a reconciliation of Adjusted EBITDA to operating income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
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Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed Adjusted EBITDA in our Quarterly Report on Form 10-Q, a non-GAAP financial measure. We have provided reconciliations below of Adjusted EBITDA to operating income, the most directly comparable GAAP financial measure. A non-GAAP financial measure refers to a numerical measure of a companys historical or future financial performance, financial position, or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP in such companys financial statements.
We define Adjusted EBITDA as operating income (loss), excluding depreciation of property and equipment, which includes internal use software and website development, amortization of intangible assets, stock-based compensation and non-recurring expenses incurred to effect the Spin-Off from Expedia during the year ended December 31, 2011. Adjusted EBITDA is the primary metric by which management evaluates the performance of its business and on which internal budgets are based. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis. Adjusted EBITDA eliminates items that are either not part of our core operations such as the costs incurred to spin-off from Expedia or those costs that do not require a cash outlay, such as stock-based compensation. Adjusted EBITDA also excludes depreciation and amortization expense, which is based on our estimates of the useful life of tangible and intangible assets. These estimates could vary from actual performance of the asset, are based on historical costs and other factors and may not be indicative of current or future capital expenditures. We believe that by excluding certain items, such as stock-based compensation and non-recurring expenses, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business and allows investors to gain an understanding of the factors and trends affecting the ongoing cash earnings capabilities of our business, from which capital investments are made and debt is serviced.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results reported in accordance with GAAP. Some of these limitations are:
| Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| Adjusted EBITDA does not consider the potentially dilutive impact of stock-based compensation; |
| Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; and |
| Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results.
The following table is a reconciliation of Adjusted EBITDA to operating income for the periods presented:
Three Months Ended March 31, | ||||||||
(in thousands) | ||||||||
2012 | 2011 | |||||||
Adjusted EBITDA |
$ | 84,189 | $ | 82,007 | ||||
Depreciation (1) |
(4,281 | ) | (4,102 | ) | ||||
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OIBA (2) |
79,908 | 77,905 | ||||||
Amortization of intangible assets |
(1,839 | ) | (2,117 | ) | ||||
Stock-based compensation |
(4,692 | ) | (2,474 | ) | ||||
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Operating income |
73,377 | 73,314 | ||||||
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(1) | Includes internal use software and website development. |
(2) | Our primary operating metric prior to the Spin-Off for evaluating operating performance was Operating Income Before Amortization, or OIBA, as reported on our Form S-4 filed with the SEC on November 1, 2011. OIBA is defined as operating income plus: (1) amortization of intangible assets and any related impairment; (2) stock-based compensation expense; and (3) non-recurring expenses incurred to effect the Spin-Off during the year ended December 31, 2011. This operating metric is no longer being used by our management to measure operating performance and is only being shown above to illustrate the financial impact of our conversion to a new operating metric post Spin-Off. |
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Reclassifications
Certain reclassifications have been made to conform the prior periods data to the current format.
Our management has changed the non-GAAP financial measure that we use to measure our operating performance from OIBA to Adjusted EBITDA. Consequently we have reclassified depreciation expense, which previously had resided in technology and content expense and general and administrative expense, and have presented it as a separate line item on the consolidated and combined statement of operations. This reclassification had no net effect on either total operating expenses or total operating income for any period. The table below provides a reconciliation of that reclassification for the periods presented.
Three Months Ended March 31. 2011 (in thousands) |
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Depreciation |
$ | 4,102 | ||
Technology and content |
(3,290 | ) | ||
General and administrative |
(812 | ) | ||
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$ | | |||
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Revenue
We derive substantially all of our revenue through the sale of advertising, primarily through click-based advertising and, to a lesser extent, display-based advertising. In addition, we earn revenue through a combination of subscription-based offerings, transaction revenue from our flash sale website, SniqueAway, our recently-launched, hotel booking site, Tingo, and other revenue including content licensing.
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
($ in millions) | ||||||||||||
Click-based advertising |
$ | 145 | $ | 120 | 20 | % | ||||||
Display-based advertising |
22 | 19 | 17 | % | ||||||||
Subscription, transaction and other |
17 | 10 | 67 | % | ||||||||
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Total revenue |
$ | 184 | $ | 149 | 23 | % | ||||||
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Revenue increased $35 million or 23% during the three months ended March 31, 2012 when compared to the same period in 2011, primarily due to an increase in click-based advertising revenue of $25 million or 20%. The primary driver of the increase in click-based advertising revenue was an increase in hotel shoppers of over 30% during the three months ended March 31, 2012 when compared to the same period in 2011, and, to a much lesser extent, an increase in the average cost per click rates offset by fewer monetization opportunities due to our site redesign in the third quarter of 2011. Subscription, transaction and other revenue increased by $7 million or 67% in 2012, primarily due to growth in Business Listings.
In addition to the above product revenue discussion, related-party revenue from Expedia, which consists primarily of click-based advertising, is as follows:
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
($ in millions) | ||||||||||||
Related party revenue from Expedia |
$ | 52 | $ | 54 | (4 | %) | ||||||
% of revenue |
28.1 | % | 36.2 | % |
TripAdvisor and Expedia entered into new commercial arrangements in connection with the Spin-Off. The arrangements generally have terms one to three years and are described in Note 9Related Party Transactions in the notes to our consolidated and combined financial statements in our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011. In connection with the Spin-Off, Expedia expected to lower its CPC pricing by 10-15%. This change was rolled out throughout the fourth quarter of 2011, and trended towards the upper end of the expected discount range. We expect the decrease in CPC pricing paid by Expedia to continue to negatively impact total revenue for the year ended 2012 by approximately 5%. Some of this lost revenue may be replaced by advertising revenue from other customers, however, we have not included this in our forward looking revenue assumptions.
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Cost of Revenue
Cost of revenue consists of expenses that are closely correlated or directly related to revenue generation, including ad serving fees, flight search fees, credit card fees and data center costs.
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Cost of revenue |
$ | 3 | $ | 2 | 23 | % | ||||||
% of revenue |
1.5 | % | 1.5 | % |
Cost of revenue increased $0.5 million or 23% during the three months ended March 31, 2012 when compared to the same period in 2011, primarily due to increased ad serving fees and increased credit card merchant fees.
Selling and Marketing
Sales and marketing expenses primarily consist of direct costs, including search engine marketing, or SEM, other traffic acquisition costs, syndication costs and affiliate program commissions, brand advertising and public relations. In addition, our indirect sales and marketing expense consists of personnel and overhead expenses, including salaries, commissions, benefits, stock-based compensation expense and bonuses for sales, sales support, customer support and marketing employees.
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Direct costs |
$ | 47 | $ | 27 | 72 | % | ||||||
Personnel and overhead |
20 | 17 | 20 | % | ||||||||
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Total selling and marketing |
$ | 67 | $ | 44 | 52 | % | ||||||
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% of revenue |
36.7 | % | 29.6 | % |
Direct selling and marketing costs increased $23 million or 52% during the three months ended March 31, 2012 when compared to the same period in 2011, primarily due to increased search engine marketing costs and traffic acquisition costs. We also increased our spending on social media in the three months ended March 31, 2012 compared to the same period in 2011, in order to increase social engagement on our websites. Personnel and overhead costs increased $3 million or 20% during the period ended March 31, 2012 when compared to the same period in 2011, primarily due to an increase in headcount to support business growth, including international expansion.
Technology and Content
Technology and content expenses consist of personnel and overhead expenses, including salaries and benefits, stock-based compensation expense and bonuses for salaried employees and contractors engaged in the design, development, testing and maintenance of our website. Other costs include licensing and maintenance expense.
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Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Personnel and overhead |
$ | 16 | $ | 12 | 38 | % | ||||||
Other |
2 | 1 | 26 | % | ||||||||
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Total technology and content |
$ | 18 | $ | 13 | 36 | % | ||||||
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% of revenue |
9.7 | % | 8.8 | % |
Technology and content costs increased $5 million or 36% during the three months ended March 31, 2012 when compared to the same period in 2011, primarily due to increased personnel costs from increased headcount to support business growth, including international expansion, enhanced site features and mobile initiatives.
As discussed in our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011, all depreciation costs of technology assets, including web servers and purchased and capitalized website and development activities for all prior periods have been reclassified to depreciation expense on our consolidated and combined statement of operations.
General and Administrative
General and administrative expense consists primarily of personnel and related overhead costs, including executive leadership, finance, legal and human resource functions and stock-based compensation as well as professional service fees and other fees including audit, legal, tax and accounting, and other costs including bad debt expense.
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Personnel and overhead |
$ | 11 | $ | 7 | 64 | % | ||||||
Professional service fees and other |
5 | 1 | 243 | % | ||||||||
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Total general and administrative |
$ | 16 | $ | 8 | 98 | % | ||||||
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% of revenue |
8.8 | % | 5.5 | % |
General and administrative costs increased $8 million or 98% during the three months ended March 31, 2012, when compared to the same period in 2011, primarily due to increased personnel costs from increased headcount as a result of the Spin-Off to support business growth and additional hiring as well as additional professional service fees in order to support our operations as a standalone public company. In addition, in connection with the Spin-Off, we assumed Expedias obligation to fund a charitable foundation. Our expense related to the funding of this charitable foundation was $1.7 million for the three months ended March 31, 2012.
As discussed above, all depreciation costs of capitalized assets, primarily consisting of furniture and office equipment for prior periods have been reclassified in our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011 to depreciation expense on our consolidated and combined statement of operations.
Related-Party Shared Services Fee
Prior to the Spin-Off, our related-party shared services fee was comprised of allocations from Expedia for accounting, legal, tax, corporate development, treasury, financial reporting, real estate management and included an allocation of employee compensation within these functions. These allocations were determined based on what we and Expedia considered being reasonable reflections of the utilization of services provided or the benefit received by us.
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Related-party shared services fee |
$ | | $ | 2 | (100 | %) | ||||||
% of revenue |
0.0 | % | 1.3 | % |
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Related-party shared services fee costs incurred for the use of Expedia shared services ceased in connection with the Spin-Off. Refer to Note 12Related Party Transactions, in this Quarterly Report on Form 10-Q for further information on our relationship with Expedia.
Depreciation
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Depreciation |
$ | 4 | $ | 4 | 4 | % | ||||||
% of revenue |
2.3 | % | 2.7 | % |
Depreciation expense increased slightly during the three months ended March 31, 2012 when compared to the same period in 2011 primarily due to increased amortization related to capitalized software and website development costs.
Amortization of Intangible Assets
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Amortization of intangible assets |
$ | 2 | $ | 2 | (13 | %) | ||||||
% of revenue |
1.0 | % | 1.4 | % |
Amortization of intangible assets decreased slightly during the three months ended March 31, 2012 when compared to the same period in 2011, primarily due to the completion of amortization related to certain technology intangible assets.
Operating Income
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Operating income |
$ | 73 | $ | 73 | 0 | % | ||||||
% of revenue |
40.0 | % | 49.1 | % |
Operating income increased slightly for the three months ended March 31, 2012 when compared to the same period in 2011, primarily due to an increase in revenue of $35 million or 23%, which was offset by a corresponding increase to operating expenses of $35 million or 45%, particularly in personnel costs to support business growth and operations as a standalone public company as well as traffic acquisition costs to drive higher revenue.
Other Interest ( Expense )Income, Net
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Other interest (expense) income, net |
$ | (3 | ) | $ | | (3,092 | )% | |||||
% of revenue |
(1.6 | )% | 0.0 | % |
Other interest expense, increased $3 million during the three months ended March 31, 2012 when compared to the same period in 2011, primarily due to interest expense on our term loan and revolving credit facilities.
Other, Net
Other, net is primarily comprised of net foreign exchange gains for the periods presented.
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Provision for Income Taxes
Three Months Ended March 31, |
% Change | |||||||||||
2012 | 2011 | 2012 vs 2011 | ||||||||||
($ in millions) | ||||||||||||
Provision for income taxes |
$ | 23 | $ | 27 | 15 | % | ||||||
Effective tax rate |
32.3 | % | 36.3 | % |
For the three months ended March 31, 2012, the effective tax rate is less than the federal statutory tax rate primarily due to earnings in jurisdictions outside the United States, where our effective tax rate is lower, which was partially offset by state income taxes, non-deductible stock compensation and accruals on uncertain tax positions. The change in the effective tax rate for 2012 compared to the 2011 rate was primarily due to an increase in earnings in jurisdictions outside the United States.
Financial Position, Liquidity and Capital Resources
For the three months ended March 31, 2012 we had $209 million of cash and cash equivalents, and at December 31, 2011 we had $184 million of cash and cash equivalents. The cash and cash equivalent balances consisted of cash and a money market account held in the United Kingdom ($169 million and $165 million for the period ended March 31, 2012 and December 31, 2011, respectively) related to earnings we intend to reinvest permanently outside the United States. Should we distribute earnings of foreign subsidiaries in the form of dividends or otherwise, we may be subject to U.S. income taxes. Cash held is primarily denominated in U.S. dollars and British pound sterling.
In connection with the Spin-Off, we entered into our Revolving Credit Facility with a borrowing capacity of $200 million and have also entered into our five-year, $400 million Term Loan, as discussed in Note 6 Debt, in this Quarterly Report on Form 10-Q. Immediately prior to the Spin-Off, we transferred approximately $406 million in the form of a dividend to Expedia, which included an estimate of our cash in excess of $165 million. This distribution included the proceeds from our $400 million Term Loan.
Historically, the cash we generate has been sufficient to fund our working capital and capital expenditure requirements. Management believes that our cash and cash equivalents, combined with expected cash flows generated by operating activities and the our Revolving Credit Facility will be sufficient to fund our ongoing working capital needs, capital expenditure requirements and business growth initiatives and to meet our long term debt obligations and commitments and fund acquisitions for at least the next 12 months.
Our cash flows are as follows (in millions):
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Net cash provided by (used in): |
||||||||
Operating activities |
$ | 30 | $ | 53 | ||||
Investing activities |
$ | | $ | (72 | ) | |||
Financing activities |
$ | (4 | ) | $ | 8 |
Operating Activities
For the three months ended March 31, 2012, net cash provided by operating activities decreased by $23.6 million or 44% when compared to the same period in 2011, primarily due to a decrease in working capital movements which is driven by related party activity with Expedia of $26.4 million subsequent to the Spin-Off being classified in operating activities as compared to investing activities in the prior year.
Investing Activities
For the three months ended March 31, 2012, net cash provided by investing activities increased by $72 million when compared to the same period in 2011 primarily due to lower net cash transfers to Expedia related to business operations of $62 million which occurred regularly up through the Spin-Off. In addition, we received $7 million during the three months ended March 31, 2012, from Expedia which was owed to us.
30
Financing Activities
For the three months ended March 31, 2012, net cash provided by financing activities decreased by $12 million when compared to the same period in 2011 primarily due to a $5 million principal payment on our term loan and a $10 million repayment of our outstanding borrowing on our Revolving Credit Facility in the first quarter of 2012. This was partially offset by proceeds from the exercise of our stock options and warrants of $ 9 million, net of payment of minimum withholding taxes related to the vesting of our RSUs of $3 million during the three months ended March 31, 2012. In addition, during the three months ended March 31, 2011, we received $5 million of funding from Expedia related to an external acquisition, which did not reoccur in 2012.
Commitments and Contingencies and Off-Balance Sheet Arrangements
There have been no material changes to our commitments and contingencies and off-balance sheet arrangements since December 31, 2011. (See Commitments, Contingencies and Off-Balance Sheet Arrangements in the Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K filed on March 15, 2012 for the year ended December 31, 2011.) Other than our contractual obligations and commercial commitments, we did not have any off-balance sheet arrangements as of March 31, 2012 or December 31, 2011.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market Risk Management
There has been no material change in our market risk during the three months ended March 31, 2012. For additional information, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in Part II of our Annual Report on Form 10-K for the year ended December 31, 2011.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of March 31, 2012, our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2012, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions, or the SECs, rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting.
There were no changes to our internal control over financial reporting that occurred during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 1. | Legal Proceedings |
In the ordinary course of business, we and our subsidiaries are parties to legal proceedings and claims involving alleged infringement of third-party intellectual property rights, defamation, and other claims. Rules of the SEC require the description of material pending legal proceedings, other than ordinary, routine litigation incident to the registrants business, and advise that proceedings ordinarily need not be described if they primarily involve damages claims for amounts (exclusive of interest and costs) not individually exceeding 10% of the current assets of the registrant and its subsidiaries on a consolidated basis. In the judgment of management, none of the pending litigation matters that TripAdvisor and our subsidiaries are defending involves or is likely to involve amounts of that magnitude. There may be claims or actions pending or threatened against us of which we are currently not aware and the ultimate disposition of which would have a material adverse effect on us.
Item 1A. | Risk Factors |
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part IItem 1A., Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition or future results. During the quarter ended March 31, 2012, there have been no material changes in our risk factors from those disclosed in Part 1, Item 1A., Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the quarter ended March 31, 2012, we did not issue or sell any shares of our common stock, Class B common stock or other equity securities pursuant to unregistered transactions in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 6. | Exhibits |
The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.
Exhibit No. |
Exhibit Description |
Filed |
Incorporated by Reference | |||||||||
Form |
SEC File No. |
Exhibit |
Filing Date | |||||||||
31.1 | Certification of the Chairman and Senior Executive Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
31.2 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
31.3 | Certification of the Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
32.1 | Certification of the Chairman and Senior Executive pursuant Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
32.2 | Certification of the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
32.3 | Certification of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 | X |
32
101* | The following financial statements from the Companys Quarterly Report on Form 10-Q for the three months ended March 31, 2012, formatted in XBRL: (i) Unaudited Consolidated and Combined Statements of Operations, (ii) Unaudited Consolidated and Combined Statements of Comprehensive Income, (iii) Unaudited Consolidated Balance Sheets, (iv) Unaudited Consolidated Statement of Changes in Stockholders Equity, (v) Unaudited Consolidated and Combined Statements of Cash Flows, and (vi) Unaudited Notes to Consolidated and Combined Financial Statements, tagged as blocks of text. |
* | XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document. |
33
Pursuant to the requirements of the Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
TripAdvisor, Inc. | ||
By: | /s/ JULIE M.B. BRADLEY | |
Julie M.B. Bradley Chief Financial Officer |
May 3, 2012
34
Exhibit 31.1
Certification
I, Barry Diller, Chairman and Senior Executive of TripAdvisor, Inc., certify that:
1. | I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2012 of TripAdvisor, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | [Intentionally omitted]; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 3, 2012 | /s/ BARRY DILLER | |||
Barry Diller | ||||
Chairman and Senior Executive |
Exhibit 31.2
Certification
I, Stephen Kaufer, Chief Executive Officer of TripAdvisor, Inc., certify that:
1. | I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2012 of TripAdvisor, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | [Intentionally omitted]; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 3, 2012 | /s/ STEPHEN KAUFER | |||
Stephen Kaufer | ||||
President and Chief Executive Officer |
Exhibit 31.3
Certification
I, Julie M.B. Bradley, Chief Financial Officer of TripAdvisor, Inc. certify that:
1. | I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2012 of TripAdvisor, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | [Intentionally omitted]; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 3, 2012 | /s/ JULIE M.B. BRADLEY | |||
Julie M.B. Bradley | ||||
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of TripAdvisor, Inc. (the Company) for the quarter ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Barry Diller, Chairman and Senior Executive of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) | the Report which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 3, 2012 | /s/ BARRY DILLER | |||
Barry Diller | ||||
Chairman and Senior Executive |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of TripAdvisor, Inc. (the Company) for the quarter ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Stephen Kaufer, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) | the Report which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 3, 2012 | /s/ STEPHEN KAUFER | |||
Stephen Kaufer | ||||
President and Chief Executive Officer |
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of TripAdvisor, Inc. (the Company) for the quarter ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Julie M.B. Bradley, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) | the Report which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 3, 2012 | /s/ JULIE M.B. BRADLEY | |||
Julie M.B. Bradley | ||||
Chief Financial Officer |