trivago N.V.

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Trivago Fourth Quarter Earnings Call 2021. At this time, all participants are in listen-only mode. There will be a presentation followed by the question and answer session, at which time, if you wish to ask a question, you will need to press star and 1 on your telephone keypad. I must advise you that the call is being recorded today, Wednesday, the 9th of February, 2022. We are pleased to be joined on the call today by Axel Heifer, Trivago's CEO and Managing Director, and Matthias Tillmann, Trivago's CFO and Managing Director. The following discussion, including responses to your questions, reflects management's view as of today, Wednesday, February 9, 2022 only. Trivago does not undertake any obligation to update or revise this information. As always, Some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate, or similar statements. Please refer to the fourth quarter 2021 operating and financial review and the company's other filings with the SEC for the information about factors which could cause Trivago's actual results to differ materially from these forward-looking statements. You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in Trivago's operating and financial review, which is posted on the company's IR website at ir.trivago.com. You are encouraged to periodically visit Trivago's investor relations site for important content. Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2020. With that, let me turn the call over to Axel Heifer.

Thank you everyone for joining us today for our Q4 2021 earnings call. I hope everyone managed to take a break and get some rest leading into new year. 2021 is now behind us and we believe the worst is too. Finally, more and more countries have lifted restrictions and there seems to be growing consensus that we've reached the new normal. with a highly contagious virus that, thanks to a combination of vaccinations, precautions and treatment, can be brought under control. The last two years have been very tough for the travel industry and for our employees. Despite dealing with a lot of change and uncertainty, I'm very proud of how well they have managed the situation, how they have kept their confidence and commitment to serve our travelers as they return. We're looking forward to what we think will be a strong spring and summer travel season. City trips will come back and should provide us with some tailwind during summer and the second half of the year. Labor shortages will be a key challenge for the hospitality industry during the recovery, and as industry players are reacting with different strategies, we will see a combination of supply shortages, lower service levels, and higher prices, with the latter becoming the dominant strategy over time. In that dynamic, we believe that matter will play a key role in the recovery. We think there will be a strong emphasis from consumers on finding accommodation that fits their needs and budgets without overpaying for services that will no longer receive. We have used 2021 to prepare for the recovery this year with significant progress across the business, ranging from our cloud migration, rollout of CPA invoicing, the launch of our first new B2B products and various marketing and product tests. For us, this year is all about focusing on our core value proposition and supporting our users when they re-experience travel, when they rediscover the value of price comparison.

Great. Thank you, Axel. And good morning, everyone, also from me. We are very pleased with our fourth quarter financial results. Our net income increased significantly from €5.5 million in the third quarter to €15.2 million in the fourth quarter. The increase reflects our strong operating results. In addition, we took advantage of a COVID-19 subsidy program in relation to losses incurred in the fourth quarter of 2020 and the first half in 2021 and received a payment of €12 million from the German government. Our operating income and our adjusted EBITDA, both of which are not affected by the subsidy payment, increased sequentially as well, exceeding our own expectations. Although we saw a larger seasonal decline in travel demand in November and December than in pre-pandemic years, it was less pronounced than in 2020 when most European countries had implemented full lockdowns, something that did not repeat this year. Amid the uncertainty due to the spread of the new COVID-19 variant Omicron, we cut back on our planned marketing activities, which together with our continued cost discipline resulted in an improvement in our profit margin. In the fourth quarter, we achieved an adjusted EBITDA margin of 22%, the highest margin since we have become a public company in 2016. Globally, qualified referrals and referral revenue increased 54% and 184% year-over-year respectively. Many countries introduced new travel restrictions during the quarter and travel demand started to slow down in November with the spread of Omicron. However, we did not observe full lockdowns or travel bans to the same extent as last year, which had a positive impact on our year-over-year growth numbers. This is particularly true for our segment Develop Europe. While referral revenue in that segment almost halved in December compared to October, the year-over-year increase for the whole quarter was the highest among our segments as a result of the Comp Effect, with referral revenue up over 300%. In Americas, the performance throughout the quarter was more stable. As we experienced the normal seasonal drop in November and December in the US, which was partly offset by the seasonal increase in Latin America. Our segment rest of world continued to lag in the recovery and did not significantly improve sequentially in the fourth quarter. As we usually do in the fourth quarter, we cut back our marketing investments in all regions as we approach the low season in many of our core markets. This led to the sequential increase in ROAS from 139% in the third quarter to 199% in the fourth quarter. For the full year, we were able to keep our marketing efficiency relatively stable at 156% ROS, while growing our revenue 47% year over year. Other revenue increased to 5.4 million euro in the fourth quarter, or by 86% year over year, partly driven by a reclassification from referral revenue to other revenue during the fourth quarter. In addition, revenue from new B2B products contributed to the increase. As we wrote in our shareholders letter, we are very early in the process of rolling out B2B products, and it does not represent a significant part of our total revenue today. But we believe this is an exciting opportunity for us to leverage our data and tech infrastructure. Excluding advertising expenses, our operational expenses increased by 11.1% compared to the fourth quarter in 2020. The increase was mostly driven by higher professional fees and by items that scale with the traffic on our platforms like cloud-related costs or digital sales taxes. In addition, commission fees related to our new white label B2B products are included in selling and marketing. We did not incur such fees in the fourth quarter of 2020. Going forward, commission fees will depend on our ability to scale certain B2B products. This cost item will therefore scale with revenue that we report under other revenue. We further improved our cash position as cash and cash equivalents increased from 194.8 million euro at the beginning of the quarter to 256.7 million euro at year end, an increase of 62 million euro. The increase reflects our strong profitability in the quarter, as well as a decrease in our accounts receivables balance due to the seasonal decline in revenue. Looking at trends on our platform in January, we did observe the usual seasonal uptick in qualified referrals at the beginning of the year, but the increase was less pronounced compared to pre-pandemic years. Travel overall continues to be impacted by the COVID situation, and in particular, intercontinental travel is still significantly below pre-pandemic levels. But there are signs that the situation overall is improving. In our core European markets, we saw a shift of click share from destinations like Dubai, which was very popular in January 2021, back to big cities like London, Berlin, or Paris. Very recently, a few countries like Denmark or Norway lifted almost all restrictions. The UK has lifted most restrictions as well. As of February 11th, travelers that are vaccinated do not need a negative test anymore when entering the UK, for example. Overall, we saw an improvement in qualified referral and referral revenue year-over-year growth rates in our segment Develop Europe in January. Qualified referrals grew by over 200% in January, while referral revenue increased by over 400% year on year. Let me remind you that the high growth rates in that segment are also a result of the low base in January 2021, when most countries in Europe had full lockdowns in place. In America, our qualified referral year-over-year growth rate was stable compared to the fourth quarter at around 30%. Our revenue per qualified referral growth decelerated from above 100% in the fourth quarter to below 100% in January. As a result, our referral revenue grew around 150% year-over-year in January. And as mentioned before, our segment, Rest of World, continues to lag in the recovery. Qualified referral and referral revenue year-over-year growth rates were around 15% and 30% in January, respectively. That brings me to our outlook for the first quarter. We expect that the positive trend in our year-over-year growth rates in January compared to December will continue through the quarter as we are getting more and more signs that countries are gradually lifting restrictions again. Given the uncertainty due to the spread of Omicron, we were cautious with our marketing investments in Europe in January, but we are becoming now more optimistic and expect to increase our investments in the near term. As discussed over the last couple of quarters, we significantly reduced our operating expenses at the beginning of the pandemic in 2020. Restructuring costs in 2020 that did not repeat in 2021, lower average headcount and lower office expenses were the main drivers for the further decrease in our operating expenses in 2021 compared to 2020. We expect that our total operating expenses in 2022 will be above 2021 due to higher personal cost and cost items that scale with revenue, but below 2020 levels. As a result, we expect our operating expenses to remain significantly below pre-pandemic levels. And with that, let's open the line for question. Operator, we are now ready to take the first question, please.