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Form 10-Q Liberty TripAdvisor Hold For: Sep 30

November 7, 2022 4:52 PM EST

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

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 001-36603

LIBERTY TRIPADVISOR HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

46-3337365
(I.R.S. Employer
Identification No.)

12300 Liberty Boulevard, Englewood, Colorado 80112

(Address, including zip code, of Registrant’s principal executive offices)

Registrant’s telephone number, including area code: (720875-5200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Series A common stock

LTRPA

The Nasdaq Stock Market LLC

Series B common stock

LTRPB

The Nasdaq Stock Market LLC

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    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer 

Non-accelerated Filer 

Smaller Reporting Company 

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes   No 

The number of outstanding shares of Liberty TripAdvisor Holdings, Inc. common stock as of October 31, 2022 was:

Series A

Series B

Liberty TripAdvisor Holdings, Inc. common stock

72,487,203

3,370,368

Table of Contents

Part I – Financial Information

Item 1. Financial Statements

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Balance Sheets (unaudited)

I-3

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Statements of Operations (unaudited)

I-5

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Statements of Comprehensive Earnings (Loss) (unaudited)

I-6

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Statements of Cash Flows (unaudited)

I-7

LIBERTY TRIPADVISOR HOLDINGS, INC. Condensed Consolidated Statements of Equity (unaudited)

I-8

LIBERTY TRIPADVISOR HOLDINGS, INC. Notes to Condensed Consolidated Financial Statements (unaudited)

I-10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

I-31

Item 3. Quantitative and Qualitative Disclosures about Market Risk

I-41

Item 4. Controls and Procedures

I-41

Part II Other Information

Item 1. Legal Proceedings

II-1

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

II-1

Item 6. Exhibits

II-2

SIGNATURES

II-3

I-2

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(unaudited)

    

September 30,

    

December 31,

 

2022

2021

 

amounts in millions

 

Assets

Current assets:

Cash and cash equivalents

$

1,101

 

760

Accounts receivable and contract assets, net of allowance for credit losses of $28 million and $28 million, respectively

 

205

 

142

Income taxes receivable

1

48

Other current assets

 

39

 

26

Total current assets

 

1,346

 

976

Property and equipment, net

 

106

 

118

Intangible assets not subject to amortization (note 6):

Goodwill

 

2,181

 

2,220

Trademarks

 

720

 

730

 

2,901

 

2,950

Intangible assets subject to amortization, net

 

113

 

133

Other assets, at cost, net of accumulated amortization

 

181

 

199

Total assets

$

4,647

 

4,376

(continued)

See accompanying notes to condensed consolidated financial statements.

I-3

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Balance Sheets (Continued)

(unaudited)

    

September 30,

    

December 31,

 

2022

2021

 

amounts in millions

 

Liabilities and Equity

Current liabilities:

Deferred merchant and other payables

$

307

 

140

Deferred revenue

 

51

 

36

Accrued liabilities and other current liabilities

 

218

 

180

Total current liabilities

 

576

 

356

Long-term debt, including $240 million and $268 million measured at fair value as of September 30, 2022 and December 31, 2021, respectively (note 7)

 

1,126

 

1,143

Deferred income tax liabilities

 

144

 

144

Financial instrument liabilities (note 5)

53

85

Series A Preferred Stock liability (note 8)

225

212

Other liabilities

 

341

 

309

Total liabilities

 

2,465

 

2,249

Equity:

Series A common stock, $.01 par value. Authorized 200,000,000 shares; issued and outstanding 72,487,203 shares at September 30, 2022 and 72,447,462 at December 31, 2021

1

1

Series B common stock, $.01 par value. Authorized shares 7,500,000; issued and outstanding 3,370,368 shares at September 30, 2022 and 3,216,047 at December 31, 2021

Series C common stock, $.01 par value. Authorized 200,000,000 shares; no shares issued.

Additional paid-in capital

283

288

Accumulated other comprehensive earnings (loss), net of taxes

 

(3)

 

(21)

Retained earnings (deficit)

 

(459)

 

(469)

Total stockholders' equity

 

(178)

 

(201)

Noncontrolling interests in equity of subsidiaries

 

2,360

 

2,328

Total equity

 

2,182

 

2,127

Commitments and contingencies (note 10)

Total liabilities and equity

$

4,647

 

4,376

See accompanying notes to condensed consolidated financial statements.

I-4

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(unaudited)

Three months ended

 

Nine months ended

 

September 30,

 

September 30,

 

    

2022

    

2021

    

2022

    

2021

 

amounts in millions, except

 

per share amounts

 

Total revenue, net

$

459

303

1,138

661

Operating costs and expenses:

Operating expense, including stock-based compensation (note 3)

 

87

 

75

247

215

Selling, general and administrative, including stock-based compensation (note 3)

 

283

 

188

714

476

Depreciation and amortization

 

23

 

36

73

112

 

393

 

299

1,034

803

Operating income (loss)

 

66

 

4

104

(142)

Other income (expense):

Interest expense

 

(16)

 

(16)

(49)

(43)

Realized and unrealized gains (losses) on financial instruments, net

(24)

82

35

189

Other, net

 

1

 

(1)

(2)

(2)

 

(39)

 

65

(16)

144

Earnings (loss) before income taxes

 

27

 

69

88

2

Income tax (expense) benefit

 

(38)

 

(1)

(61)

22

Net earnings (loss)

 

(11)

 

68

27

24

Less net earnings (loss) attributable to noncontrolling interests

 

19

 

(4)

17

(111)

Net earnings (loss) attributable to Liberty TripAdvisor Holdings, Inc. shareholders

$

(30)

 

72

10

135

Net earnings (loss) available to common shareholders (note 4)

$

(30)

72

10

(235)

Basic net earnings (loss) attributable to Series A and Series B Liberty TripAdvisor Holdings, Inc. shareholders per common share (note 4):

$

(0.39)

0.95

0.13

 

(3.13)

Diluted net earnings (loss) attributable to Series A and Series B Liberty TripAdvisor Holdings, Inc. shareholders per common share (note 4):

$

(0.39)

0.94

0.13

 

(3.13)

See accompanying notes to condensed consolidated financial statements.

I-5

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Earnings (Loss)

(unaudited)

Three months ended

Nine months ended

September 30,

September 30,

2022

2021

2022

2021

amounts in millions

Net earnings (loss)

$

(11)

68

27

24

Other comprehensive earnings (loss), net of taxes:

Foreign currency translation adjustments

 

(26)

(11)

(59)

(20)

Credit risk on fair value debt instruments gains (losses)

(11)

30

8

Reclassification adjustment for net losses included in net income

2

2

Other comprehensive earnings (loss)

 

(37)

(9)

(29)

(10)

Comprehensive earnings (loss)

 

(48)

59

(2)

14

Less comprehensive earnings (loss) attributable to the noncontrolling interests

 

(2)

(12)

(30)

(126)

Comprehensive earnings (loss) attributable to Liberty TripAdvisor Holdings, Inc. shareholders

$

(46)

71

28

140

See accompanying notes to condensed consolidated financial statements.

I-6

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

Nine months ended

 

September 30,

 

2022

2021

 

amounts in millions

 

Cash flows from operating activities:

    

    

    

    

Net earnings (loss)

$

27

 

24

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities

Depreciation and amortization

 

73

 

112

Stock-based compensation

 

68

 

93

Realized and unrealized (gains) losses on financial instruments, net

(35)

(189)

Deferred income tax expense (benefit)

 

8

 

(29)

Other charges (credits), net

 

28

 

15

Changes in operating assets and liabilities

Current and other assets

 

(13)

 

(96)

Payables and other liabilities

 

277

 

105

Net cash provided (used) by operating activities

 

433

 

35

Cash flows from investing activities:

Capital expended for property and equipment, including capitalized website development

 

(41)

 

(40)

Other investing activities, net

4

(1)

Net cash provided (used) by investing activities

 

(37)

 

(41)

Cash flows from financing activities:

Borrowings of debt

 

9

 

675

Repurchase of Series A Preferred Stock

(281)

Payment of withholding taxes on net share settlements of equity awards

 

(18)

 

(39)

Subsidiary purchase of capped calls

(35)

Other financing activities, net

(9)

(8)

Net cash provided (used) by financing activities

 

(18)

 

312

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash

 

(37)

 

(7)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

341

 

299

Cash, cash equivalents and restricted cash at beginning of period

 

760

 

423

Cash, cash equivalents and restricted cash at end of period

$

1,101

 

722

See accompanying notes to condensed consolidated financial statements.

I-7

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Equity

(unaudited)

Stockholders' equity

Accumulated

Noncontrolling

Additional

other

interest in

Common Stock

paid-in

comprehensive

Retained

equity of

Total

Series A

Series B

Series C

capital

earnings (loss)

earnings (deficit)

subsidiaries

equity

amounts in millions

Balance at January 1, 2022

    

$

1

    

    

    

288

    

(21)

    

(469)

    

2,328

    

2,127

Net earnings (loss)

 

 

10

    

17

    

27

Other comprehensive earnings (loss)

 

18

 

    

(47)

    

(29)

Stock-based compensation

18

 

 

    

57

    

75

Withholding taxes on net share settlements of stock-based compensation

(18)

 

 

    

    

(18)

Shares issued by subsidiary

(5)

5

Balance at September 30, 2022

$

1

 

 

 

283

 

(3)

 

(459)

    

2,360

    

2,182

Stockholders' equity

Accumulated

Noncontrolling

Additional

other

interest in

Common Stock

paid-in

comprehensive

Retained

equity of

Total

Series A

Series B

Series C

capital

earnings (loss)

earnings (deficit)

subsidiaries

equity

amounts in millions

Balance at June 30, 2022

$

1

288

 

13

 

(429)

    

2,341

    

2,214

Net earnings (loss)

(30)

19

(11)

Other comprehensive earnings (loss)

(16)

(21)

(37)

Stock-based compensation

6

19

25

Withholding taxes on net share settlements of stock-based compensation

(9)

(9)

Shares issued by subsidiary

(2)

2

Balance at September 30, 2022

$

1

283

(3)

(459)

2,360

2,182

See accompanying notes to condensed consolidated financial statements.

I-8

LIBERTY TRIPADVISOR HOLDINGS, INC.

Condensed Consolidated Statements of Equity

(unaudited)

Stockholders' equity

Accumulated

Noncontrolling

Additional

other

interest in

Common Stock

paid-in

comprehensive

Retained

equity of

Total

Series A

Series B

Series C

capital

earnings (loss)

earnings (deficit)

subsidiaries

equity

amounts in millions

Balance at January 1, 2021

    

$

1

    

    

    

257

    

(23)

    

(278)

    

2,350

    

2,307

Net earnings (loss)

 

 

135

    

(111)

    

24

Other comprehensive earnings (loss)

 

5

 

    

(15)

    

(10)

Stock-based compensation

25

 

 

    

78

    

103

Withholding taxes on net share settlements of stock-based compensation

(39)

(39)

Shares issued by subsidiary

(9)

17

8

Preferred stock adjustment (note 8)

(370)

(370)

Subsidiary purchase of capped calls, net of tax (note 7)

(6)

(20)

(26)

Preferred stock repurchased with subsidiary shares (note 8)

 

 

 

58

 

 

    

34

    

92

Balance at September 30, 2021

$

1

 

 

 

286

 

(18)

 

(513)

    

2,333

    

2,089

Stockholders' equity

 

Accumulated

Noncontrolling

 

Additional

other

interest in

 

Common Stock

paid-in

comprehensive

Retained

equity of

Total

 

Series A

Series B

Series C

capital

earnings (loss)

earnings (deficit)

subsidiaries

equity

 

amounts in millions

 

Balance at June 30, 2021

$

1

 

 

 

290

 

(17)

 

(585)

    

2,318

    

2,007

Net earnings (loss)

72

(4)

68

Other comprehensive earnings (loss)

(1)

(8)

(9)

Stock-based compensation

8

25

33

Withholding taxes on net share settlements of stock-based compensation

(10)

(10)

Shares issued by subsidiary

(2)

2

Balance at September 30, 2021

$

1

 

 

 

286

 

(18)

 

(513)

    

2,333

    

2,089

See accompanying notes to condensed consolidated financial statements.

I-9

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Liberty TripAdvisor Holdings, Inc. and its controlled subsidiaries (collectively, "TripCo," "Consolidated TripCo," the "Company," "we," "us," or “our,” unless the context otherwise requires). TripCo does not have any operations outside of its controlling interest in its subsidiary Tripadvisor, Inc. (“Tripadvisor”).

The accompanying (a) condensed consolidated balance sheet as of December 31, 2021, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. Additionally, certain prior period amounts have been reclassified for comparability with the current period presentation. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2021 as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company considers (i) recognition and recoverability of goodwill, intangible and long-lived assets and (ii) accounting for income taxes to be its most significant estimates.

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China, and on March 11, 2020 was declared a global pandemic. Tripadvisor and the Company continue to be subject to risks and uncertainties related to the COVID-19 pandemic.

Continued widespread vaccine distributions, efficacy against existing variants and future variants, if any, of COVID-19, whether there will be resurgences of the virus and subsequent government restrictions, the extent and effectiveness of containment actions taken, and whether consumers’ demand for travel and hospitality services continue to be or become negatively impacted remains uncertain. Tripadvisor does not know the future path or potential rate of global or regional COVID-19 resurgences, including existing COVID-19 variants and future variants, if any, nor does it have visibility into when any remaining or reinstated restrictions will be lifted, and where additional restrictions may be implemented or reinstated in the future due to resurgence of the virus.

Therefore, the extent of the future impact of the COVID-19 pandemic on Tripadvisor’s business, results of operations, liquidity and financial condition remains uncertain, and is dependent on future developments that cannot be accurately predicted at this time. Tripadvisor continues to believe the travel, leisure, hospitality, and restaurant industries (collectively, the “travel industry”), and Tripadvisor’s financial results, would be adversely and materially affected upon a resurgence of existing COVID-19 variants or if new variants emerge which result in reinstated travel bans and/or other government restrictions and mandates, all of which negatively impact consumer demand, sentiment and discretionary spending patterns.

Additionally, further health-related events, political instability, geopolitical conflicts, acts of terrorism, fluctuations in currency values, changes in global economic conditions, and increased inflation, are examples of other events that could have a negative impact on the travel industry and Tripadvisor’s financial results in the future.

Consumers’ travel expenditures have historically followed a seasonal pattern. Correspondingly, travel partners’ advertising investments, and therefore Tripadvisor’s revenue and operating profits, have also historically followed a seasonal pattern. Tripadvisor’s financial performance tends to be seasonally highest in the second and third quarters of a

I-10

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

given year, which includes the seasonal peak in consumer demand, including traveler hotel and rental stays, and travel activities and experiences taken, compared to the first and fourth quarters, which represent seasonal low points. During the first half of the year, experience and rentals bookings typically exceed the amount of completed experiences and rental stays, resulting in higher cash flow related to working capital, while during the second half of the year, particularly in the third quarter, this pattern reverses and cash flows from these transactions are typically negative.

Other factors may also impact typical seasonal fluctuations, which include further significant shifts in Tripadvisor’s business mix or adverse economic conditions that could result in future seasonal patterns that are different from historical trends. For example, although consumer travel demand was materially lower than historic levels due to the impact of COVID-19 on Tripadvisor’s business during 2020, these trends generally improved, albeit unevenly, during 2021, resulting in increased revenues, and working capital and operating cash flow more akin to typical historical seasonality trends, which has continued during the first three quarters of 2022. However, it is difficult to predict the seasonality for the upcoming quarters, given the sustained uncertainty related to the COVID-19 pandemic and whether there will be resurgences, or if new variants will emerge, and the pace of continued recovery in Tripadvisor’s key markets.

On March 26, 2020, TripCo issued and sold 325,000 shares of TripCo’s newly-created 8% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), for a purchase price of $1,000 per share. On March 29, 2021 and April 6, 2021, TripCo repurchased a portion of the Series A Preferred Stock. See further discussion about the Series A Preferred Stock in note 8.    

TripCo has entered into certain agreements, including the services agreement, the facilities sharing agreement and the tax sharing agreement, with Qurate Retail, Inc. (“Qurate Retail”) and/or Liberty Media Corporation (“Liberty Media”) (or certain of their subsidiaries).  Pursuant to the services agreement (except as described below in respect to Gregory B. Maffei), Liberty Media provides TripCo with general and administrative services including legal, tax, accounting, treasury and investor relations support. TripCo reimburses Liberty Media for direct, out-of-pocket expenses incurred by Liberty Media in providing these services and TripCo pays a services fee to Liberty Media under the services agreement that is subject to adjustment semi-annually, as necessary.

In December 2019, TripCo entered into an amendment to the services agreement with Liberty Media in connection with Liberty Media’s entry into a new employment arrangement with Gregory B. Maffei, TripCo’s Chairman, President and Chief Executive Officer.  Under the amended services agreement, components of his compensation will either be paid directly to him by each of TripCo, Liberty Broadband Corporation, and Qurate Retail (collectively, the “Service Companies”) or reimbursed to Liberty Media, in each case, based on allocations among Liberty Media and the Service Companies set forth in the amended services agreement, currently set at 5% for the Company.

Under the facilities sharing agreement, TripCo shares office space with Liberty Media and related amenities at Liberty Media’s corporate headquarters in Englewood, Colorado.

The tax sharing agreement provides for the allocation and indemnification of tax liabilities and benefits between Qurate Retail and TripCo and other agreements related to tax matters.

Under these agreements, approximately $1 million was reimbursable to Liberty Media for both of the three months ended September 30, 2022 and 2021, and approximately $2 million and $3 million was reimbursable to Liberty Media for the nine months ended September 30, 2022 and 2021, respectively.

I-11

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(2) Revenue Recognition

Commencing in the second quarter of 2022, Tripadvisor changed its reportable segments (see note 11). Accordingly, the nature of services provided and revenue recognition policies related to the current reportable segments are presented below.

Tripadvisor generates all of its revenue from contracts with customers. It recognizes revenue when it satisfies a performance obligation by transferring control of the promised services to a customer in an amount that reflects the consideration that it expects to receive in exchange for those services. When Tripadvisor acts as an agent in the transaction, it recognizes revenue for only its commission on the arrangement. Tripadvisor determines revenue recognition through the following steps:

(1)Identification of the contract, or contracts, with a customer
(2)Identification of the performance obligations in the contract
(3)Determination of the transaction price
(4)Allocation of the transaction price to the performance obligations in the contract
(5)Recognition of revenue when, or as, Tripadvisor satisfies a performance obligation

At contract inception, Tripadvisor assesses the services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a service (or bundle of services) that is distinct. To identify the performance obligations, Tripadvisor considers all of the services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. There was no significant revenue recognized in the three and nine months ended September 30, 2022 and 2021 related to performance obligations satisfied in prior periods. Tripadvisor has applied a practical expedient and does not disclose the value of unsatisfied performance obligations that have an original expected duration of less than one year. Tripadvisor expects to complete its performance obligations within one year from the initial transaction date. The value related to Tripadvisor’s remaining or partially satisfied performance obligations relates to subscription services that are satisfied over time or services that are recognized at a point in time, but not yet achieved.  The timing of services, invoicing and payments do not include a significant financing component. Tripadvisor’s customer invoices are generally due 30 days from the time of invoicing.

Tripadvisor Core Segment

Tripadvisor-branded Hotels Revenue. The largest source of Tripadvisor Core segment revenue is generated from click-based advertising on Tripadvisor-branded websites, which is Tripadvisor’s hotel auction (or hotel meta) revenue, which is primarily comprised of contextually-relevant booking links to Tripadvisor’s travel partners’ websites. Click-based advertising is generally priced on a cost-per-click, or “CPC,” basis, with payments from travel partners determined by the number of travelers who click on a link multiplied by the CPC rate for each specific click as determined in a dynamic, competitive auction process.

Tripadvisor also generates revenue from its cost-per-action, or “CPA” model, which consists of contextually-relevant booking links to its travel partners’ websites which are advertised on its platform. Tripadvisor earns a commission from its travel partners, based on a pre-determined contractual commission rate, for each traveler who clicks to and books a hotel reservation on the travel partners’ website, which results in a traveler stay. CPA revenue is billable only upon the completion of each traveler’s stay resulting from a hotel reservation. The travel partners provide the service to the travelers and Tripadvisor acts as an agent under ASC 606 – Revenue from Contracts with Customers (“ASC 606”). Tripadvisor’s performance obligation is complete at the time of the hotel reservation booking, and the commission earned is recognized upon booking, as Tripadvisor has no post-booking service obligations. Tripadvisor recognizes this revenue net of an estimate of the impact of cancellations, using historical cancellation rates and current trends. Contract assets are recognized at the time of booking for commissions that are billable upon the completion of a traveler’s stay. CPA revenue is generally billed to Tripadvisor’s travel partners monthly for traveler stays completed in that month.

I-12

Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

In addition, Tripadvisor offers hotel business to business solutions, including subscription-based advertising to hotels, owners of B&Bs and other specialty lodging properties. Subscription-based advertising services are predominantly sold for a flat fee for a contracted period of time of one year or less and revenue is recognized on a straight-line basis over the period of the subscription service as efforts are expended evenly throughout the contract period.

To a lesser extent, Tripadvisor also offers travel partners the opportunity to advertise and promote their business through hotel sponsored placements on its platform. This service is generally priced on a CPC basis, with payments from travel partners determined by the number of travelers who click on the sponsored link multiplied by the CPC rate for each specific click. CPC rates for hotel sponsored placements that Tripadvisor’s travel partners pay are generally based on bids submitted as part of an auction by its travel partners. When a CPC bid is submitted, the travel partner agrees to pay Tripadvisor the bid amount each time a traveler clicks on a link to its travel partner’s websites. Bids may be submitted periodically – as often as daily – on a property-by-property basis. Tripadvisor records this click-based advertising revenue as the click occurs and traveler leads are sent to the travel partner as its performance obligation is fulfilled at that time. Hotel sponsored placements revenue is generally billed to Tripadvisor’s travel partners monthly, consistent with the timing of the service.

Tripadvisor-branded Display and Platform Revenue. Tripadvisor offers travel partners the ability to promote their brands through display-based advertising placements across Tripadvisor’s platform. Tripadvisor display-based advertising clients are predominantly direct suppliers of hotels, airlines and cruises, as well as destination marketing organizations. Tripadvisor also sells display-based advertising to online travel agencies and other travel related businesses, as well as advertisers from non-travel categories. Display-based advertising is sold predominantly on a cost per thousand impressions basis.  The performance obligation in Tripadvisor’s display-based advertising arrangements is to display a number of advertising impressions on its platform and recognize revenue for impressions as they are delivered. Services are generally billed monthly.

Tripadvisor-Experiences and Dining Revenue. Tripadvisor generates revenue from its experiences and restaurant service offerings on Tripadvisor-branded websites and mobile apps.  Tripadvisor receives intercompany (intersegment) revenue consisting of affiliate marketing commissions earned primarily from experience bookings and, to a lesser extent, restaurant reservations bookings, on Tripadvisor-branded websites and mobile apps that are fulfilled by Viator and TheFork, respectively, which are eliminated on a consolidated basis. The performance obligations, timing of customer payments for Tripadvisor’s experiences and dining transactions, and methods of revenue recognition are consistent with the Viator segment and TheFork segment, respectively, as described below. In addition, Tripadvisor offers restaurant partners the opportunity to advertise and promote their business through restaurant media advertising placements on its platform. This service is generally priced on a CPC basis similar to the Tripadvisor-branded hotels revenue stream discussed above.

Other. Tripadvisor provides information and services that allow travelers to research and book vacation and short-term rental properties. The Rentals offering primarily generates revenue by offering individual property owners and managers the ability to list their properties on Tripadvisor’s platform, thereby connecting with travelers through a free-to-list, commission-based option. Tripadvisor earns commissions associated with rental transactions through its free-to-list model from both the traveler, and the property owner or manager.  Tripadvisor provides post-booking service to the travelers, property owners and managers until the time the rental commences, which is the time the performance obligation is completed.

In addition, Other also includes revenue generated from cruises, flights, and cars offerings on Tripadvisor-branded websites and mobile apps and Tripadvisor’s portfolio of travel media brands, which primarily includes click-based advertising and display-based advertising revenue.

Viator Segment

Tripadvisor provides an online marketplace that allows travelers to research and book tours, activities and attractions

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Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

in popular travel destinations across the globe through its stand-alone Viator branded platform, which includes website, mobile web, and mobile app. Tripadvisor generates commissions for each booking transaction it facilitates through its online reservation system in exchange for certain activities, including the use of Tripadvisor’s booking platform, post-booking customer support (24/7) until the time of the experience and payment processing activities as the merchant of record, which is the completion of the performance obligation. Tripadvisor collects payment from the customer prior to the experience occurring, which includes both its commission and the amount due to the operator. Tripadvisor records its commissions as deferred revenue on its condensed consolidated balance sheet when payment is received, including amounts which are refundable subject to cancellation, until the experience occurs when revenue is recognized.

TheFork Segment

Tripadvisor provides information and services for consumers to research and book restaurant reservations through its dedicated online restaurant reservations platform, TheFork. Tripadvisor primarily generates transaction fees (or per seated diner fees) that are paid by its restaurant customers for diners seated primarily from bookings through TheFork’s online reservation system.  The transaction fee is recognized as revenue after the reservation is fulfilled, or as diners are seated by Tripadvisor’s restaurant customers. Tripadvisor invoices restaurants monthly for transaction fees.

Practical Expedients and Exemptions

Tripadvisor expenses costs to obtain a contract as incurred, such as sales incentives, when the amortization period would have been one year or less.

Tripadvisor does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.

Disaggregation of Revenue

Tripadvisor disaggregates revenue from contracts with customers into major products/revenue sources. Tripadvisor has determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenue is recognized primarily at a point in time for all reported segments.

Three months ended

Nine months ended

September 30,

September 30,

2022

    

2021

2022

    

2021

Major Products/Revenue Sources:

amounts in millions

Tripadvisor Core

Tripadvisor-branded hotels

$

188

143

510

347

Tripadvisor-branded display and platform

33

29

97

69

Tripadvisor experiences and dining

45

23

101

51

Other

18

17

41

36

Total Tripadvisor Core

284

212

749

503

Viator

174

73

366

125

TheFork

35

30

93

55

Intersegment eliminations

(34)

(12)

(70)

(22)

Total Revenue

$

459

303

1,138

661

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Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table provides information about the balances of accounts receivable and contract assets, net of allowance for credit losses, from contracts with customers:

September 30, 2022

December 31, 2021

amounts in millions

Accounts receivable

$

150

105

Contract assets

55

37

Total

$

205

142

Accounts receivable are recognized when the right to consideration becomes unconditional. Contract assets are rights to consideration in exchange for services that Tripadvisor has transferred to a customer when that right is conditional on something other than the passage of time, such as commission payments that are contingent upon the completion of the service by the principal in the transaction. Contract assets increased because of increase in consumer travel demand, and increased utilization of Tripadvisor’s cost-per-action model by travel partners.

Contract liabilities generally include payments received in advance of performance under the contract, and are realized as revenue as the performance obligation to the customer is satisfied, which Tripadvisor presents as deferred revenue on its consolidated balance sheets. As of January 1, 2022, Tripadvisor had $36 million recorded as deferred revenue on its condensed consolidated balance sheet, of which $5 million and $31 million were recognized as revenue during the three and nine months ended September 30, 2022, respectively. During the three months ended September 30, 2022, refunds due to cancellations by travelers were not material, while $2 million was refunded due to cancellations by travelers during the nine months ended September 30, 2022. As of January 1, 2021, Tripadvisor had $28 million recorded as deferred revenue in the condensed consolidated balance sheet, of which $4 million and $21 million were recognized as revenue during the three and nine months ended September 30, 2021, respectively.  During the three months ended September 30, 2021, refunds due to cancellations by travelers were not material, while $3 million was refunded due to cancellations by travelers during the nine months ended September 30, 2021. 

The difference between the opening and closing balances of Tripadvisor’s deferred revenue primarily results from the timing differences between when Tripadvisor receives customer payments and the time in which Tripadvisor satisfies its performance obligations. The difference between the opening and closing balances of Tripadvisor’s contract assets primarily results from the timing difference between when Tripadvisor satisfies its performance obligations and the time when the principal completes the service in the transaction. There were no significant changes in contract assets or deferred revenue during the three and nine months ended September 30, 2022 and 2021 related to business combinations, impairments, cumulative catch-ups or other material adjustments. However, to the extent the COVID-19 pandemic resurges, or new variants emerge, Tripadvisor may incur additional significant and unanticipated cancellations by consumers related to future travel, accommodations, and tour bookings, which had been prepaid by travelers and recorded as deferred revenue as of September 30, 2022.

(3) Stock-Based Compensation

TripCo Equity Awards

TripCo has granted to certain of its directors and employees restricted stock units (“RSUs”) and stock options to purchase shares of TripCo common stock (collectively, “Awards”). TripCo measures the cost of employee services received in exchange for an equity classified Award based on the grant-date fair value (“GDFV”) of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award).  The Company measures the cost of employee services received in exchange for a liability classified Award based on the current fair value of the Award, and re-measures the fair value of the Award at each reporting date.

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Table of Contents

LIBERTY TRIPADVISOR HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

TripCo has calculated the GDFV for all of its equity classified Awards and any subsequent re-measurement of its liability classified Awards using the Black-Scholes-Merton model. TripCo estimates the expected term of the Awards based on historical exercise and forfeiture data. The volatility used in the calculation for Awards is based on the historical volatility of TripCo common stock. TripCo uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options.

Included in the accompanying condensed consolidated statements of operations are the following amounts of stock-based compensation, the majority of which relates to Tripadvisor as discussed below:

Three months ended