Second part. Item 7. Management report and analysis of the financial situation and operating results


Overview

Expedia Group's mission is to power global travel for everyone, everywhere. We
believe travel is a force for good. Travel is an essential human experience that
strengthens connections, broadens horizons and bridges divides. We help reduce
the barriers to travel, making it easier, more enjoyable, more attainable and
more accessible. We bring the world within reach for customers and partners
around the globe. We leverage our supply portfolio, platform and technology
capabilities across an extensive portfolio of consumer brands, and provide
solutions to our business partners, to orchestrate the movement of people and
the delivery of travel experiences on both a local and global basis. We make
available, on a stand-alone and package basis, travel services provided by
numerous lodging properties, airlines, car rental companies, activities and
experiences providers, cruise lines, alternative accommodations property owners
and managers, and other travel product and service companies. We also offer
travel and non-travel advertisers access to a potential source of incremental
traffic and transactions through our various media and advertising offerings on
our websites. For additional information about our portfolio of brands, see the
disclosure set forth in Part I, Item 1, Business, under the caption "Management
Overview."
This section of this Form 10-K generally discusses the years ended December 31,
2021 and 2020 items and year over year comparisons between 2021 and 2020.
Discussions of the year ended December 31, 2019 items and the year over year
comparisons between 2020 and 2019 that are not included in this Form 10-K can be
found in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2020 ("2020 Form 10-K"). All
percentages within this section are calculated on actual, unrounded numbers.
Trends
The COVID-19 pandemic, and measures to contain the virus, including government
travel restrictions and quarantine orders, have had a significant negative
impact on the travel industry. COVID-19 has negatively impacted consumer
sentiment and consumer's ability to travel, and many of our supply partners,
particularly airlines and hotels, continue to operate at reduced service levels.
As the spread of the virus has been contained to varying degrees in certain
countries during different times, travel restrictions have been lifted and
consumers have become more comfortable traveling, particularly to domestic
locations. This led to a moderation of the declines in travel bookings and in
cancellation rates at certain points in 2021. However, travel bookings remain
below and cancellation rates still remain elevated compared to pre-COVID levels
due largely to the most recent Omicron variant.
The degree of containment of the virus, and the recovery in travel, has varied
country by country. During the recovery period, there have been instances where
cases of COVID-19 have started to increase again after a period of decline,
which in some cases impacted the recovery of travel in certain countries.
Additionally, there continues to be uncertainty over the impact of the Omicron
or other new variants of the virus, including the efficacy of the vaccines
against such variants, which has contributed, and may continue to contribute, to
delays in economic recovery. COVID-19 has also had broader economic impacts,
including an increase in unemployment levels and reduction in economic activity
globally, which if COVID-19 starts to increase again, could lead to a reduction
in consumer or business spending on travel activities, which may negatively
impact the timing and level of a recovery in travel demand. Broader, sustained
negative economic impacts could also put strain on our suppliers, business and
service partners which increases the risk of credit losses and service level or
other disruptions.
Our financial and operating results for 2021 were significantly impacted due to
the continued decrease in travel demand related to COVID-19. The full duration
and total impact of COVID-19 remains uncertain and it is difficult to predict
how the recovery will unfold for the travel industry and, in particular, our
business.
Additionally, further health-related events, political instability, geopolitical
conflicts, acts of terrorism, significant fluctuations in currency values,
sovereign debt issues, and natural disasters, are examples of other events that
could have a negative impact on the travel industry in the future.
Prior to the onset of COVID-19, we began to execute a cost savings initiative
aimed at simplifying the organization and increasing efficiency. Following the
onset of COVID-19, we accelerated execution on several of these cost savings
initiatives and took additional actions to reduce costs to help mitigate the
impact to demand from COVID-19 and reduce our monthly cash usage. While some
cost actions during COVID-19 are temporary and intended to minimize cash usage
during this disruption, we expect to continue to benefit from the majority of
the savings when business conditions return to more normalized levels. In 2021,
we successfully achieved the previously outlined annualized run-rate fixed cost
savings of $700 to $750 million compared to the fourth quarter of 2019 exit
rate, as well as the greater than $200 million in variable costs savings, at
2019 volume levels. We also believe we have improved our marketing efficiency
and continue to evaluate additional opportunities to increase efficiency and
improve operational effectiveness across the Company.
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As a result of these cost savings initiatives, we expect Adjusted EBITDA margins
to increase compared to historical levels when revenue returns to more
normalized levels.
For additional information about our business strategy for Expedia Group, see
the disclosure set forth in Part I, Item 1, Business, under the caption
"Marketing Opportunity and Business Strategy."
Online Travel
Increased usage and familiarity with the internet has continued to drive rapid
growth in online penetration of travel expenditures. Online penetration is
higher in the U.S. and European markets with online penetration rates in the
emerging markets, such as Asia Pacific and Latin American regions, historically
lagging behind those regions. The emerging market penetration rates increased
over the past few years, and are expected to continue growing, which presents an
attractive growth opportunity for our business, while also attracting many
competitors to online travel. This competition intensified in recent years, and
the industry is expected to remain highly competitive for the foreseeable
future. In addition to the growth of online travel agencies, we see increased
interest in the online travel industry from search engine companies such as
Google, evidenced by continued product enhancements, including new trip planning
features for users and the integration of its various travel products into the
Google Travel offering, as well as further prioritizing its own products in
search results. Competitive entrants such as "metasearch" companies, including
Kayak.com (owned by Booking Holdings), trivago (in which Expedia Group owns a
majority interest) as well as TripAdvisor, introduced differentiated features,
pricing and content compared with the legacy online travel agency companies, as
well as various forms of direct or assisted booking tools. Further, airlines and
lodging companies are aggressively pursuing direct online distribution of their
products and services. In addition, the increasing popularity of the "sharing
economy," accelerated by online penetration, has had a direct impact on the
travel and lodging industry. Businesses such as Airbnb, Vrbo (previously
HomeAway, which Expedia Group acquired in December 2015) and Booking.com (owned
by Booking Holdings) have emerged as the leaders, bringing incremental
alternative accommodation and vacation rental inventory to the market. Many
other competitors, including vacation rental metasearch players, continue to
emerge in this space, which is expected to continue to grow as a percentage of
the global accommodation market. Finally, traditional consumer ecommerce and
group buying websites expanded their local offerings into the travel market by
adding hotel offers to their websites.
The online travel industry also saw the development of alternative business
models and variations in the timing of payment by travelers and to suppliers,
which in some cases place pressure on historical business models. In particular,
the agency hotel model saw rapid adoption in Europe. Expedia Group facilitates
both merchant (Expedia Collect) and agency (Hotel Collect) hotel offerings with
our hotel supply partners through both agency-only contracts as well as our
hybrid ETP program, which offers travelers the choice of whether to pay Expedia
Group at the time of booking or pay the hotel at the time of stay.
In 2020, we shifted to managing our marketing investments holistically across
the brand portfolio in our Retail segment to optimize results for the Company,
and making decisions on a market by market and customer segment basis that we
think are appropriate based on the relative growth opportunity, the expected
returns and the competitive environment. Over time, intense competition
historically led to aggressive marketing efforts by the travel suppliers and
intermediaries, and a meaningful unfavorable impact on our overall marketing
efficiencies and operating margins. During 2020, we increased our focus on
opportunities to differentiate brands across customer and geographic segments,
increase marketing efficiency, drive a higher proportion of transactions through
direct channels and ultimately improve the balance of transaction growth and
profitability. For more detail, see Part I, Item 1A, Risk Factors - "We rely on
the value of our brands, and the costs of maintaining and enhancing our brand
awareness are increasing" and "Our international operations involve additional
risks and our exposure to these risks will increase as our business expands
globally."
Lodging
Lodging includes hotel accommodations and alternative accommodations. As a
percentage of our total worldwide revenue in 2021, lodging accounted for 75%. As
a result of the impact on travel demand from the COVID-19 outbreak, room nights
grew 35% in 2021 as compared to a decline 55% in 2020 and a growth of 11% in
2019. The timing of recovery in consumer sentiment on travel and on staying at
hotels will be a factor in our level of room night growth, and as noted above,
we expect that to vary by country. ADRs for rooms booked on Expedia Group
websites decreased 1% in 2019, increased 3% in 2020, and increased 20% in 2021.
During 2021 and 2020, the increase in ADRs for our Vrbo business remained
elevated compared to years prior to the COVID-19 outbreak. Vrbo carries a higher
ADR than hotels and has accounted for a higher percentage of room nights due to
the faster recovery and shift to alternative accommodations during these
periods.
The uncertain environment as a result of COVID-19, including travel restrictions
and shifts in consumer behavior, the mix of our lodging bookings across
geographies and types of accommodations, and general variability in supply and
demand, make it difficult to predict ADR trends in the near-term.
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As of December 31, 2021, our global lodging marketplace had approximately 3
million lodging properties available, including over 2 million online bookable
alternative accommodations listings and approximately 875,000 hotels.
Hotel. We generate the majority of our revenue through the facilitation of hotel
reservations (stand-alone and package bookings). After rolling out ETP globally
over a period of several years, during which time we reduced negotiated
economics in certain instances to compensate for hotel supply partners absorbing
expenses such as credit card fees and customer service costs, our relationships
and overall economics with hotel supply partners have been broadly stable in
recent years. As we continue to expand the breadth and depth of our global hotel
offering, in some cases we have reduced our economics in various geographies
based on local market conditions. These impacts are due to specific initiatives
intended to drive greater global size and scale through faster overall room
night growth. Additionally, increased promotional activities such as growing
loyalty programs contribute to declines in revenue per room night and
profitability.
Since our hotel supplier agreements are generally negotiated on a percentage
basis, any increase or decrease in ADRs has an impact on the revenue we earn per
room night. Over the course of the last several years, occupancies and ADRs in
the lodging industry generally increased on a currency-neutral basis in a
gradually improving overall travel environment. However, due to COVID-19,
current occupancy rates for hotels in the United States are at reduced levels.
In addition, other factors could pressure ADR trends, including the continued
growth in hotel supply in recent years and the increase in alternative
accommodation inventory. Further, while the global lodging industry remains very
fragmented, there has been consolidation in the hotel space among chains as well
as ownership groups. In the meantime, certain hotel chains have been focusing on
driving direct bookings on their own websites and mobile applications by
advertising lower rates than those available on third-party websites as well as
incentives such as loyalty points, increased or exclusive product availability
and complimentary Wi-Fi.
Alternative Accommodations. With our acquisition of Vrbo (previously HomeAway)
and all of its brands in December 2015, we expanded into the fast growing
alternative accommodations market. Vrbo is a leader in this market and
represents an attractive growth opportunity for Expedia Group. Vrbo has
transitioned from a listings-based classified advertising model to an online
transactional model that optimizes for both travelers and homeowner and property
manager partners, with a goal of increasing monetization and driving growth
through investments in marketing as well as in product and technology. Vrbo
offers hosts subscription-based listing or pay-per-booking service models. It
also generates revenue from a traveler service fee for bookings. In addition, we
have actively moved to integrate Vrbo listings into our global Retail services,
as well as directly add alternative accommodation listings to our offerings, to
position our key global brands to offer a full range of lodging options for
consumers.
Air
The airline industry has been dramatically impacted by COVID-19. As a result of
the significantly reduced air travel demand due to government travel
restrictions and the impact on consumer sentiment related to COVID-19, airlines
have been operating with less capacity and passenger traffic has declined
significantly. While we experienced some improvement in air bookings during 2021
versus 2020, it continues to lag lodging bookings and is still meaningfully
below 2019 levels. The recovery in air travel remains difficult to predict, and
may not correlate with the recovery in lodging demand. According to the
Transportation Security Administration ("TSA"), air traveler 7-day average
throughput declined 95% in April 2020 compared to prior year levels. The
declines moderated to approximately 50% by the end of 2020, and further improved
in 2021 with throughput down approximately 20% at the end of the year, compared
to 2019 levels.
In addition, there is significant correlation between airline revenue and fuel
prices, and fluctuations in fuel prices generally take time to be reflected in
air revenue. Given current volatility, it is uncertain how fuel prices could
impact airfares. We could encounter pressure on air remuneration as air carriers
combine, certain supply agreements renew, and as we continue to add airlines to
ensure local coverage in new markets.
Air ticket volumes increased 7% in 2019, declined 63% in 2020, and increased 43%
during 2021. As a percentage of our total worldwide revenue in 2021, air
accounted for 3%.
Advertising & Media
Our advertising and media business is principally driven by revenue generated by
trivago, a leading hotel metasearch website, and Expedia Group Media Solutions,
which is responsible for generating advertising revenue on our global online
travel brands. In 2021, we generated $603 million of advertising and media
revenue, a 49% increase from 2020, representing 7% of our total worldwide
revenue. Given the decline in travel demand related to COVID-19, online travel
agencies dramatically reduced marketing spend, including on trivago, and given
the uncertain duration and impact of COVID-19 it is difficult to predict when
spend will recover to normalized levels. In response, in 2020, trivago
significantly reduced its marketing spend and took additional actions to lower
operating expenses, which continued throughout 2021. We expect trivago to
continue to experience pressure on revenue and profit until online travel
agencies and other hotel suppliers see consumer demand that warrants increasing
in their advertising spend with trivago.
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Seasonality
We generally experience seasonal fluctuations in the demand for our travel
services. For example, traditional leisure travel bookings are generally the
highest in the first three quarters as travelers plan and book their spring,
summer and winter holiday travel. The number of bookings typically decreases in
the fourth quarter. Since revenue for most of our travel services, including
merchant and agency hotel, is recognized as the travel takes place rather than
when it is booked, revenue typically lags bookings by several weeks for our
hotel business and can be several months or more for our alternative
accommodations business. Historically, Vrbo has seen seasonally stronger
bookings in the first quarter of the year, with the relevant stays occurring
during the peak summer travel months. The seasonal revenue impact is exacerbated
with respect to income by the nature of our variable cost of revenue and direct
sales and marketing costs, which we typically realize in closer alignment to
booking volumes, and the more stable nature of our fixed costs. Furthermore,
operating profits for our primary advertising business, trivago, have typically
been experienced in the second half of the year, particularly the fourth
quarter, as selling and marketing costs offset revenue in the first half of the
year as we typically increase marketing during the busy booking period for
spring, summer and winter holiday travel. As a result on a consolidated basis,
revenue and income are typically the lowest in the first quarter and highest in
the third quarter. The growth of our international operations, advertising
business or a change in our product mix, including the growth of Vrbo, may
influence the typical trend of the seasonality in the future.
Impacts from COVID-19 disrupted our typical seasonal pattern for bookings,
revenue, profit and cash flows during 2020 and 2021. Significantly higher
cancellations and reduced booking volumes, particularly in the first half of
2020, resulted in material operating losses and negative cash flow. Although
travel volumes remain materially lower than historic levels, booking and travel
trends improved during the second half of 2020, and in 2021. This resulted in
working capital benefits and positive cash flow more akin to typical historical
trends. It remains difficult to forecast the seasonality for the upcoming
quarters, given the uncertainty related to the duration of the impact from
COVID-19 and the shape and timing of any sustained recovery.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are
important in the preparation of our consolidated financial statements because
they require that we use judgment and estimates in applying those policies. We
prepare our consolidated financial statements and accompanying notes in
accordance with generally accepted accounting principles in the United States
("GAAP"). Preparation of the consolidated 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 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 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.
For more information on each of these policies, see NOTE 2 - Significant
Accounting Policies, in the notes to consolidated financial statements. We
discuss information about the nature and rationale for our critical accounting
estimates below.
Accounting for Certain Merchant Revenue
We accrue the cost of certain merchant revenue based on the amount we expect to
be billed by suppliers. In certain instances when a supplier invoices us for
less than the cost we accrued, we generally reduce our merchant accounts payable
and the supplier costs within net revenue six months in arrears, net of an
allowance, when we determine it is not probable that we will be required to pay
the supplier, based on historical experience. Actual revenue could be greater or
less than the amounts estimated due to changes in hotel billing practices or
changes in traveler behavior.
Deferred Loyalty Rewards
We currently offer certain internally administered traveler loyalty programs to
our travelers, such as our Hotels.com Rewards program, our Expedia Rewards
program and our Orbitz Rewards program. Hotels.com Rewards offers travelers one
free night at any Hotels.com partner property after that traveler stays 10
nights, subject to certain restrictions. Expedia Rewards enables participating
travelers to earn points on all hotel, flight, package and activities made on
various Brand Expedia websites. Orbitz Rewards allows travelers to earn Orbucks,
the currency of Orbitz Rewards, on flights, hotels and vacation
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packages and instantly redeem those Orbucks on future bookings at various hotels
worldwide. In 2021, we announced plans to unify and expand our existing loyalty
programs into one global rewards platform spanning all products and global
brands. As travelers accumulate points towards free travel products, we defer
the relative standalone selling price of earned points, net of expected
breakage, as deferred loyalty rewards within deferred merchant bookings on the
consolidated balance sheet. In order to estimate the standalone selling price of
the underlying services on which points can be redeemed for all loyalty
programs, we use an adjusted market assessment approach and consider the
redemption values expected from the traveler. We then estimate the number of
rewards that will not be redeemed based on historical activity in our members'
accounts as well as statistical modeling techniques. Revenue is recognized when
we have satisfied our performance obligation relating to the points, that is
when the travel service purchased with the loyalty award is satisfied. Both the
actual standalone selling price of the underlying services and ultimate
redemption rates could differ materially from our estimates due to a number of
factors, including fluctuations in reward value, product utilization and
divergence from historical member behavior.
Recoverability of Goodwill and Indefinite and Definite-Lived Intangible Assets
Goodwill. We assess goodwill for impairment annually as of October 1, or more
frequently, if events and circumstances indicate impairment may have occurred.
During 2020, as a result of the significant turmoil related to COVID-19, we
concluded that sufficient indicators existed to require us to perform multiple
interim impairment assessments. In the evaluation of goodwill for impairment, we
typically perform a quantitative assessment and compare the fair value of the
reporting unit to the carrying value and, if applicable, record an impairment
charge based on the excess of the reporting unit's carrying amount over its fair
value. Periodically, we may choose to perform a qualitative assessment, prior to
performing the quantitative analysis, to determine whether the fair value of the
goodwill is more likely than not impaired.
We generally base our measurement of fair value of reporting units, except for
trivago, which is a separately listed company on the Nasdaq Global Select
Market, on a blended analysis of the present value of future discounted cash
flows and market valuation approach with the exception of our standalone
publicly traded subsidiary, which is based on market valuation. The discounted
cash flows model indicates the fair value of the reporting units based on the
present value of the cash flows that we expect the reporting units to generate
in the future. Our significant estimates in the discounted cash flows model
include: our weighted average cost of capital; long-term rate of growth and
profitability of our business; and working capital effects. The market valuation
approach indicates the fair value of the business based on a comparison of the
Company to comparable publicly traded firms in similar lines of business. Our
significant estimates in the market approach model include identifying similar
companies with comparable business factors such as size, growth, profitability,
risk and return on investment and assessing comparable revenue and operating
income multiples in estimating the fair value of the reporting units. The fair
value estimate for the trivago reporting unit was based on trivago's stock
price, a Level 1 input, adjusted for an estimated control premium.
We believe the weighted use of discounted cash flows and market approach is the
best method for determining the fair value of our reporting units because these
are the most common valuation methodologies used within the travel and internet
industries; and the blended use of both models compensates for the inherent
risks associated with either model if used on a stand-alone basis.
In addition to measuring the fair value of our reporting units as described
above, we consider the combined carrying and fair values of our reporting units
in relation to the Company's total fair value of equity plus debt as of the
assessment date. Our equity value assumes our fully diluted market
capitalization, using either the stock price on the valuation date or the
average stock price over a range of dates around the valuation date, plus an
estimated acquisition premium which is based on observable transactions of
comparable companies. The debt value is based on the highest value expected to
be paid to repurchase the debt, which can be fair value, principal or principal
plus a premium depending on the terms of each debt instrument.
Indefinite-Lived Intangible Assets. We base our measurement of fair value of
indefinite-lived intangible assets, which primarily consist of trade name and
trademarks, using the relief-from-royalty method. This method assumes that the
trade name and trademarks have value to the extent that their owner is relieved
of the obligation to pay royalties for the benefits received from them. This
method requires us to estimate the future revenue for the related brands, the
appropriate royalty rate and the weighted average cost of capital.
Definite-Lived Intangible Assets. We review the carrying value of long-lived
assets or asset groups to be used in operations whenever events or changes in
circumstances indicate that the carrying amount of the assets might not be
recoverable. Factors that would necessitate an impairment assessment include a
significant adverse change in the extent or manner in which an asset is used, a
significant adverse change in legal factors or the business climate that could
affect the value of the asset, or a significant decline in the observable market
value of an asset, among others. If such facts indicate a potential impairment,
we would assess the recoverability of an asset group by determining if the
carrying value of the asset group exceeds the sum of the projected undiscounted
cash flows expected to result from the use and eventual disposition of the
assets
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over the remaining economic life of the primary asset in the asset group. If the
recoverability test indicates that the carrying value of the asset group is not
recoverable, we will estimate the fair value of the asset group using
appropriate valuation methodologies, which would typically include an estimate
of discounted cash flows. Any impairment would be measured as the difference
between the asset groups carrying amount and its estimated fair value.
The use of different estimates or assumptions in determining the fair value of
our goodwill, indefinite-lived and definite-lived intangible assets may result
in different values for these assets, which could result in an impairment or, in
the period in which an impairment is recognized, could result in a materially
different impairment charge.
For additional information on our goodwill and intangible asset impairments
recorded in 2021 and 2020, see NOTE 3 - Fair Value Measurements in the notes to
the consolidated financial statements.
Income Taxes
We record income taxes under the liability method. Deferred tax assets and
liabilities reflect our estimation of the future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for book and
tax purposes. We determine deferred income taxes based on the differences in
accounting methods and timing between financial statement and income tax
reporting. Accordingly, we determine the deferred tax asset or liability for
each temporary difference based on the enacted tax rates expected to be in
effect when we realize the underlying items of income and expense.
We consider many factors when assessing the likelihood of future realization of
our deferred tax assets, including our recent earnings experience by
jurisdiction, expectations of future taxable income, and the carryforward
periods available to us for tax reporting purposes, as well as other relevant
factors. We may establish a valuation allowance to reduce deferred tax assets to
the amount we believe is more likely than not to be realized. Due to inherent
complexities arising from the nature of our businesses, future changes in income
tax law, tax sharing agreements or variances between our actual and anticipated
operating results, we make certain judgments and estimates. Therefore, actual
income taxes could materially vary from these estimates. All deferred income
taxes are classified as long-term on our consolidated balance sheets.
We account for uncertain tax positions based on a two-step process of evaluating
recognition and measurement criteria. The first step assesses whether the tax
position is more likely than not to be sustained upon examination by the tax
authority, including resolution of any appeals or litigation, based on the
technical merits of the position. If the tax position meets the more likely than
not criteria, the portion of the tax benefit greater than 50% likely to be
realized upon settlement with the tax authority is recognized in the financial
statements. The ultimate resolution of these tax positions may be greater or
less than the liabilities recorded.
Other Long-Term Liabilities
Various Legal and Tax Contingencies. We record liabilities to address potential
exposures related to business and tax positions we have taken that have been or
could be challenged by taxing authorities. In addition, we record liabilities
associated with legal proceedings and lawsuits. These liabilities are recorded
when the likelihood of payment is probable and the amounts can be reasonably
estimated. The determination for required liabilities is based upon analysis of
each individual tax issue, or legal proceeding, taking into consideration the
likelihood of adverse judgments and the range of possible loss. In addition, our
analysis may be based on discussions with outside legal counsel. The ultimate
resolution of these potential tax exposures and legal proceedings may be greater
or less than the liabilities recorded.
Occupancy and Other Taxes. Some states and localities impose taxes (e.g.
transient occupancy, accommodation tax, sales tax and/or business privilege tax)
on the use or occupancy of hotel accommodations or other traveler services.
Generally, hotels collect taxes based on the rate paid to the hotel and remit
these taxes to the various tax authorities. When a customer books a room through
one of our travel services, we collect a tax recovery charge from the customer
which we pay to the hotel. We calculate the tax recovery charge by applying the
applicable tax rate supplied to us by the hotels to the amount that the hotel
has agreed to receive for the rental of the room by the consumer. In most
jurisdictions, we do not collect or remit taxes, nor do we pay taxes to the
hotel operator, on the portion of the customer payment we retain. Some
jurisdictions have questioned our practice in this regard. While the applicable
tax provisions vary among the jurisdictions, we generally believe that we are
not required to pay such taxes. A limited number of taxing jurisdictions have
made similar claims against certain of our companies for tax amounts due on the
rental amounts charged by owners of alternative accommodations properties or for
taxes on our services. We are an intermediary between a traveler and a party
renting an alternative accommodations property and we believe are similarly not
liable for such taxes. We are engaged in discussions with tax authorities in
various jurisdictions to resolve these issues. Some tax authorities have brought
lawsuits or have levied assessments asserting that we are required to collect
and remit tax. The ultimate resolution in all jurisdictions cannot be determined
at this time. Certain jurisdictions may require us to pay tax assessments,
including occupancy and other transactional tax assessments, prior to contesting
any such assessments.
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We have established a reserve for the potential settlement of issues related to
hotel occupancy and other tax litigation for prior and current periods,
consistent with applicable accounting principles and in light of all current
facts and circumstances. A variety of factors could affect the amount of the
liability (both past and future), which factors include, but are not limited to,
the number of, and amount of revenue represented by, jurisdictions that
ultimately assert a claim and prevail in assessing such additional tax or
negotiate a settlement and changes in relevant statutes.
We note that there are more than 10,000 taxing jurisdictions in the United
States, and it is not feasible to analyze the statutes, regulations and judicial
and administrative rulings in every jurisdiction. Rather, we have obtained the
advice of state and local tax experts with respect to tax laws of certain states
and local jurisdictions that represent a large portion of our hotel revenue.
Many of the statutes and regulations that impose these taxes were established
before the emergence of the internet and ecommerce. Certain jurisdictions have
enacted, and others may enact, legislation regarding the imposition of taxes on
businesses that facilitate the booking of hotel or alternative accommodations.
We continue to work with the relevant tax authorities and legislators to clarify
our obligations under new and emerging laws and regulations. We will continue to
monitor the issue closely and provide additional disclosure, as well as adjust
the level of reserves, as developments warrant. Additionally, certain of our
businesses are involved in tax related litigation, which is discussed in Part I,
Item 3, Legal Proceedings.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see NOTE 2 - Significant
Accounting Policies in the notes to consolidated financial statements.
Occupancy and Other Taxes
We are currently involved in eight lawsuits brought by or against states, cities
and counties over issues involving the payment of hotel occupancy and other
taxes. We continue to defend these lawsuits vigorously. With respect to the
principal claims in these matters, we believe that the statutes and/or
ordinances at issue do not apply to us or the services we provide, namely the
facilitation of travel planning and reservations, and, therefore, that we do not
owe the taxes that are claimed to be owed. We believe that the statutes and
ordinances at issue generally impose occupancy and other taxes on entities that
own, operate or control hotels (or similar businesses) or furnish or provide
hotel rooms or similar accommodations.
For additional information and other recent developments on these and other
legal proceedings, see Part I, Item 3, Legal Proceedings.
We have established a reserve for the potential settlement of issues related to
hotel occupancy and other tax litigation, consistent with applicable accounting
principles and in light of all current facts and circumstances, in the amount of
$50 million as of December 31, 2021 and $58 million as of December 31, 2020.
Certain jurisdictions, including without limitation the states of New York, New
Jersey, North Carolina, Minnesota, Oregon, Rhode Island, Maryland, Pennsylvania,
Hawaii, Iowa, Massachusetts, Arizona, Wisconsin, Idaho, Arkansas, Indiana,
Maine, Nebraska, Vermont, Mississippi, Virginia, the city of New York, and the
District of Columbia, have enacted legislation seeking to tax online travel
company services as part of sales or other taxes for hotel and/or other
accommodations and/or car rental. In addition, in certain jurisdictions, we have
entered into voluntary collection agreements pursuant to which we have agreed to
voluntarily collect and remit taxes to state and/or local taxing jurisdictions.
We are currently remitting taxes to a number of jurisdictions, including without
limitation the states of New York, New Jersey, South Carolina, North Carolina,
Minnesota, Georgia, Wyoming, West Virginia, Oregon, Rhode Island, Montana,
Maryland, Kentucky, Maine, Pennsylvania, Hawaii, Iowa, Massachusetts, Arizona,
Wisconsin, Idaho, Arkansas, Indiana, Nebraska, Vermont, Colorado, Mississippi,
Virginia, the city of New York and the District of Columbia, as well as certain
other jurisdictions.
Pay-to-Play
Certain jurisdictions may assert that we are required to pay any assessed taxes
prior to being allowed to contest or litigate the applicability of the
ordinances. This prepayment of contested taxes is referred to as "pay-to-play."
Payment of these amounts is not an admission that we believe we are subject to
such taxes and, even when such payments are made, we continue to defend our
position vigorously. If we prevail in the litigation, for which a pay-to-play
payment was made, the jurisdiction collecting the payment will be required to
repay such amounts and also may be required to pay interest. However, any
significant pay-to-play payment or litigation loss could negatively impact our
liquidity.
Other Jurisdictions. We are also in various stages of inquiry or audit with
various tax authorities, some of which, including the City of Los Angeles
regarding hotel occupancy taxes, may impose a pay-to-play requirement to
challenge an adverse inquiry or audit result in court.
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Segments
We have the following reportable segments: Retail, B2B, and trivago. Our Retail
segment provides a full range of travel and advertising services to our
worldwide customers through a variety of consumer brands including: Expedia.com
and Hotels.com in the United States and localized Expedia and Hotels.com
websites throughout the world, Vrbo, Orbitz, Travelocity, Wotif Group, ebookers,
CheapTickets, Hotwire.com, CarRentals.com and Expedia Cruises. Our B2B segment
is comprised of our Expedia Business Services organization including Expedia
Partner Solutions, which offers private label and co-branded products to make
travel services available to travelers through third-party company branded
websites, and, through its sale in November 2021, Egencia, a full-service travel
management company that provides travel services to businesses and their
corporate customers. Our trivago segment generates advertising revenue primarily
from sending referrals to online travel companies and travel service providers
from its hotel metasearch websites.
Operating Metrics
Our operating results are affected by certain metrics, such as gross bookings
and revenue margin, which we believe are necessary for understanding and
evaluating us. Gross bookings generally represent the total retail value of
transactions booked for agency and merchant transactions, recorded at the time
of booking reflecting the total price due for travel by travelers, including
taxes, fees and other charges, and are reduced for cancellations and refunds.
Revenue margin is defined as revenue as a percentage of gross bookings.

Gross bookings and revenue margin

                              Year ended December 31,                       

% Change

                        2021           2020            2019         2021 vs 

2020 2020 versus 2019

                                  ($ in millions)
Gross Bookings
Gross bookings       $ 72,425       $ 36,796       $ 107,873                97  %            (66) %

Commercial margin (1) 11.9% 14.1% 11.2%

___________________________________

(1)trivago, which is comprised of a hotel metasearch business that differs from
our transaction-based websites, does not have associated gross bookings or
revenue margin. However, third-party revenue from trivago is included in revenue
used to calculate total revenue margin.
The increase in worldwide gross bookings in 2021 compared to 2020 reflected
improvements in the travel environment.
Revenue margin in 2021 was lower than 2020 due in part to significant lodging
cancellations in the prior year period, which reduced gross bookings, creating
an unusual mix of bookings and revenue.
Results of Operations
Revenue
                                       Year ended December 31,                       % Change
                                   2021         2020          2019       

2021 versus 2020 2020 versus 2019

                                           ($ in millions)
Revenue by Segment
Retail                          $  6,821      $ 3,993      $  8,808               71  %            (55) %
B2B                                1,460          942         2,579               55  %            (64) %
trivago (Third-party revenue)        317          205           622               54  %            (67) %
Corporate (Bodybuilding.com)           -           59            58                 N/A              4  %
Total revenue                   $  8,598      $ 5,199      $ 12,067               65  %            (57) %


Similar to the gross bookings increase, revenue increased 65% in 2021 compared
to 2020. Our Retail, B2B and trivago segments revenue all increased compared to
prior year with the growth reflecting improvements in travel trends during 2021.
                                  Year Ended December 31,                       % Change
                              2021         2020          2019        2021 vs 2020      2020 vs 2019
                                      ($ in millions)
Revenue by Service Type
Lodging                    $  6,449      $ 4,051      $  8,362               59  %            (52) %
Air                             254          105           869              141  %            (88) %
Advertising and media(1)        603          405         1,104               49  %            (63) %
Other                         1,292          638         1,732              103  %            (63) %
Total revenue              $  8,598      $ 5,199      $ 12,067               65  %            (57) %

___________________________________

(1)Includes third-party revenue from trivago as well as our transaction-based
websites.
Lodging revenue increased 59% in 2021 on a 35% increase in room nights stayed
and an 18% increase in revenue per room night across hotel and alternative
accommodations. Revenue per room night in 2021 benefited from higher ADRs driven
by an increase in regional rates and a higher mix of U.S. hotels.
Air revenue increased 141% in 2021 driven by an increase in air tickets sold of
43% as air travel demand improved as well as the prior year impact of certain
significant COVID-19 related accruals that did not repeat in 2021.
Advertising and media revenue increased 49% in 2021 due to increases at both
trivago and Expedia Group Media Solutions. All other revenue, which includes car
rental, insurance, destination services, fee revenue related to our corporate
travel business (through Egencia's sale in November 2021) and Bodybuilding.com
(through its sale in May 2020), increased 103% in 2021 from growth in travel
insurance products as well as car.
In addition to the above segment and product revenue discussion, our revenue by
business model is as follows:
                                      Year ended December 31,               

% Change

                                  2021         2020          2019        

2021 versus 2020 2020 versus 2019

                                          ($ in millions)
Revenue by Business Model
Merchant                       $  5,537      $ 3,261      $  6,763               70  %            (52) %
Agency                            2,307        1,267         3,882               82  %            (67) %
Advertising, media and other        754          671         1,422               12  %            (53) %
Total revenue                  $  8,598      $ 5,199      $ 12,067               65  %            (57) %


The increase in merchant revenue in 2021 was primarily due to an increase in
merchant hotel revenue driven by an increase in room nights stayed, an increase
in Vrbo merchant alternative accommodations revenue and the growth in travel
insurance products.
The increase in agency revenue in 2021 was primarily due to an increase in
agency hotel, car and air revenue.
Advertising, media and other increased 12% in 2021 compared to 2020 primarily
due to an increase in advertising revenue, partially offset by declines related
to our prior year sale of Bodybuilding.com and certain miscellaneous other
declines.

In the below discussion, we reclassified certain prior period information to
conform to the current period presentation primarily related to the
classification of licensing and maintenance costs within our operating expenses.
These prior period reclassifications did not alter our discussion of year over
year comparisons between 2020 and 2019, which can be referenced in our 2020 Form
10-K. For additional information, see NOTE 2 - Significant Accounting Policies
in the notes to the consolidated financial statements
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Cost of Revenue
                                Year ended December 31,                     

% Change

                            2021          2020          2019        2021 vs 

2020 2020 versus 2019

                                    ($ in millions)
Direct costs             $ 1,118       $ 1,148       $ 1,462                (3) %            (21) %
Personnel and overhead       404           501           604               (19) %            (17) %
Total cost of revenue    $ 1,522       $ 1,649       $ 2,066                (8) %            (20) %
% of revenue                17.7  %       31.7  %       17.1  %


Cost of revenue primarily consists of direct costs to support our customer
operations, including our customer support and telesales as well as fees to air
ticket fulfillment vendors; credit card processing, including merchant fees,
fraud and chargebacks; and other costs, primarily including data center and
cloud costs to support our websites, supplier operations, destination supply,
certain transactional level taxes, costs related to Bodybuilding.com during our
period of ownership as well as related personnel and overhead costs, including
stock-based compensation.
Cost of revenue decreased $127 million during 2021 compared to 2020, primarily
due to a decrease in bad debt expense, which was significantly elevated in 2020
due to the initial impacts of COVID-19, decreased customer service and personnel
costs, and the absence of expenses related to Bodybuilding.com, which was
disposed of in the second quarter of 2020. These decreases were partially offset
by an increase in merchant fees resulting from recovering transaction volumes.

Selling and Marketing
                                     Year ended December 31,                        % Change
                                 2021          2020          2019        2021 vs 2020      2020 vs 2019
                                         ($ in millions)
Direct costs                  $ 3,499       $ 1,728       $ 5,025               103  %            (66) %
Indirect costs                    722           799         1,035               (10) %            (23) %

Total Sales and Marketing $4,221 $2,527 $6,060

      67  %            (58) %
% of revenue                     49.1  %       48.6  %       50.2  %


Selling and marketing expense primarily relates to direct costs, including
traffic generation costs from search engines and internet portals, television,
radio and print spending, private label and affiliate program commissions,
public relations and other costs. The remainder of the expense relates to
indirect costs, including personnel and related overhead in our various brands
and global supply organization as well as stock-based compensation costs.
Selling and marketing expenses increased $1.7 billion during 2021 compared to
2020 primarily due to an increase in direct costs as marketing spend increased
in response to improved demand. The change in indirect costs reflect lower
personnel costs in connection with previously announced cost savings
initiatives, partially offset by higher stock-based compensation expense of $48
million.
Technology and Content
                                      Year ended December 31,                        % Change
                                  2021          2020          2019       

2021 versus 2020 2020 versus 2019

                                          ($ in millions)

Staff and overheads $785 $744 $948

        6  %            (22) %
Other                              289           324           315               (11) %              3  %

Total technology and content $1,074 $1,068 $1,263

        1  %            (15) %
% of revenue                      12.5  %       20.5  %       10.5  %


Technology and content expense includes product development and content expense,
as well as information technology costs to support our infrastructure,
back-office applications and overall monitoring and security of our networks,
and is principally comprised of personnel and overhead, including stock-based
compensation, as well as other costs including cloud expense and licensing and
maintenance expense.
Technology and content expense increased $6 million for 2021 compared to 2020
primarily reflecting higher stock-based compensation of $48 million, partially
offset by lower license and maintenance expense as well as personnel and related
costs in connection with previously announced cost savings initiatives.
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General and Administrative
                                                          Year ended December 31,                                   % Change
                                               2021                   2020              2019            2021 vs 2020         2020 vs 2019
                                                              ($ in millions)
Personnel and overhead                     $     562               $    434          $    601                   30  %               (28) %
Professional fees and other                      143                    155               206                   (8) %               (25) %
Total general and administrative           $     705               $    589          $    807                   20  %               (27) %
% of revenue                                     8.2   %               11.3  %            6.7  %


General and administrative expense consists primarily of personnel-related
costs, including our executive leadership, finance, legal and human resource
functions and related stock-based compensation, as well as fees for external
professional services.
General and administrative expense increased $116 million in 2021 compared to
2020 mainly due to an increase in stock-based compensation of $107 million.
Depreciation and Amortization
                                                     Year ended December 31,                                 % Change
                                             2021              2020              2019            2021 vs 2020         2020 vs 2019
                                                         ($ in millions)
Depreciation                             $     715          $    739          $    712                   (3) %                 4  %
Amortization of intangible assets               99               154               198                  (36) %               (22) %

Total amortization $814 $893

   $    910                   (9) %                (2) %



Depreciation decreased $24 million in 2021 compared to 2020. Amortization of
intangible assets decreased $55 million in 2021 compared to 2020 primarily due
to the completion of amortization related to certain intangible assets or sold
entities as well as the impact of definite-lived intangible impairments in the
prior year.
Impairment of Goodwill, Intangible and Other Long-term Assets
During 2021, we recognized a goodwill impairment charge of $14 million and
intangible and other long-term asset impairment charges of $6 million related to
our B2B segment. During 2020, as a result of the significant negative impact
related to COVID-19, which has had a severe effect on the entire global travel
industry, we recognized goodwill impairment charges of $799 million as well as
intangible asset impairment charges of $175 million. See NOTE 3 - Fair Value
Measurements in the notes to the consolidated financial statements for further
information.
Legal Reserves, Occupancy Tax and Other
                                                 Year ended December 31,                                    % Change
                                         2021              2020              2019             2021 vs 2020            2020 vs 2019
                                                     ($ in millions)

Legal reservations, tourist tax and $1 $ (13) $

     34                        N/A                    N/A

other


Legal reserves, occupancy tax and other primarily consists of increases in our
reserves for court decisions and the potential and final settlement of issues
related to hotel occupancy and other taxes, expenses recognized related to
monies paid in advance of occupancy and other tax proceedings ("pay-to-play") as
well as certain other legal reserves.
Legal reserves, occupancy tax and other for year ended December 31, 2021
included a charge for certain other legal reserves, mostly offset by net
reductions to our reserve related to hotel occupancy and other taxes. During
2020, we recorded a $25 million gain in relation to a legal settlement, which
was partially offset by changes in our reserves related to occupancy and other
matters.
Restructuring and Related Reorganization Charges
In 2020, we committed to restructuring actions intended to simplify our
businesses and improve operational efficiencies, which have resulted in
headcount reductions and office consolidations. As a result, we recognized $55
million and $231 million in restructuring and related reorganization charges
during 2021 and 2020. We continue to actively evaluate additional cost reduction
efforts and should we make decisions in future periods to take further actions
we may incur additional reorganization charges.
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Operating Income (Loss)
                                 Year ended December 31,                        % Change
                             2021          2020          2019       2021 vs 2020         2020 vs 2019
                                     ($ in millions)
Operating income (loss)   $   186       $ (2,719)      $ 903                  N/A                  N/A
% of revenue                  2.2  %       (52.3) %      7.5  %


In 2021, we had operating income of $186 million compared to operating loss of
$2.7 billion in 2020. The improvement in 2021 was primarily due to growth in
revenue in excess of operating costs as well as the absence in 2021 of the
significant prior year goodwill and intangible impairment charges mentioned
above.
Adjusted EBITDA by Segment
                                                   Year ended December 31,                                  % Change
                                           2021               2020              2019            2021 vs 2020         2020 vs 2019
                                                       ($ in millions)
Retail                                $   1,782            $    298          $  2,171                  498  %               (86) %
B2B(1)                                      110                (190)              470                     N/A                  N/A
trivago                                      39                 (14)               85                     N/A                  N/A
Unallocated overhead costs                 (454)               (462)             (592)                  (2) %               (22) %
(Corporate)(2)
  Total Adjusted EBITDA(3)            $   1,477            $   (368)         $  2,134                     N/A                  N/A

______________________________________

(1) Includes operating results of Egencia through its sale in November 2021.
(2) Includes immaterial operating results of Bodybuilding.com subsequent to our
acquisition in July 2019 through its sale in May 2020.
(3) Adjusted EBITDA is a non-GAAP measure. See "Definition and Reconciliation of
Adjusted EBITDA" below for more  information.
Adjusted EBITDA is our primary segment operating metric. See NOTE 19 - Segment
Information in the notes to the consolidated financial statements for additional
information on intersegment transactions, unallocated overhead costs and for a
reconciliation of Adjusted EBITDA by segment to net income (loss) attributable
to Expedia Group, Inc. for the periods presented above. During the fourth
quarter of 2021, we consolidated our divisional finance teams into one global
finance organization, which resulted in the reclassification of expenses from
Retail and B2B into our Corporate function. We have reclassified prior period
segment information to conform to our current period presentation.
Our Retail, B2B and trivago segments all experienced improvements in Adjusted
EBITDA in 2021 as a result of the recovering travel environment as well as
impacts of the costs saving initiatives implemented in 2020.
Our Retail, B2B and trivago segment Adjusted EBITDA significantly declined
during 2020, compared to 2019, resulting from impacts of the COVID-19 pandemic,
which drove meaningful revenue declines, partially offset by a decline in direct
sales and marketing expense as a percent of revenue. Unallocated overhead costs
decreased $130 million during 2020 primarily due to lower general and
administrative expenses.
Interest Income and Expense
                                                         Year ended December 31,                                  % Change
                                               2021                2020               2019            2021 vs 2020         2020 vs 2019
                                                             ($ in millions)
Interest income                            $        9          $      18          $      59                  (48) %               (69) %
Interest expense                                 (351)              (360)              (173)                  (2) %               108  %
Loss on debt extinguishment                      (280)                 -                  -                     N/A                  N/A


Interest income decreased in 2021 compared to 2020 as a result of lower rates of
return. Interest expense decreased in 2021 compared to 2020, largely as a result
of prior year interest expense related to the outstanding revolving credit
facility.
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As a result of debt refinancing transactions during 2021, we recognized a loss
on debt extinguishment of $280 million, which included the payment of early
payment premiums and fees as well as the write-off of unamortized debt issuance
costs. See NOTE 7 - Debt in the notes to the consolidated financial statements
for further information.
Gain (Loss) on Sale of Business, net
In 2021, we had a net gain on sale of businesses of $456 million compared to a
net loss on sale of businesses of $13 million in 2020. In November 2021, we
completed the sale of Egencia to GBT and, as a result, we recognized a
$401 million gain on the sale. Additionally, in 2021, we completed the sale of
certain of our smaller businesses within our Retail segment, which resulted in
net gains of $57 million. For additional information on these and other
transactions, see NOTE 16 - Divestitures in the notes to the consolidated
financial statements.
Other, Net
Other, net is comprised of the following:
                                                              Year ended December 31,
                                                            2021             2020       2019
                                                                   (In millions)
Foreign exchange rate gains (losses), net            $     (48)             $  71      $ (34)
Gains (losses) on minority equity investments, net         (29)              (142)         8
Other                                                       19                 (6)        12
Total other, net                                     $     (58)             $ (77)     $ (14)


During 2020, losses on minority equity investments, net included $134 million of
impairment losses related to a minority investment as well as $6 million of
mark-to-market losses related to our publicly traded marketable equity
investment, Despegar. See NOTE 3 - Fair Value Measurements in the notes to the
consolidated financial statements for further information.
Provision for Income Taxes
                                     Year ended December 31,                

% Change

                                2021              2020         2019       

2021 versus 2020 2020 versus 2019

                                         ($ in millions)
Provision for income taxes   $   (53)           $ (423)      $ 203               (88) %               N/A
Effective tax rate             139.9   %          13.4  %     26.2  %


Our effective tax rate for 2021 was higher than the 21% federal statutory income
tax rate due to excess tax benefits related to stock-based compensation, release
of valuation allowance and research and experimentation credits, partially
offset by nondeductible compensation, measured against a pre-tax loss. Our
effective tax rate for 2020 was lower than the 21% federal statutory income tax
rate due to valuation allowances and nondeductible impairments measured against
a pre-tax loss.
We are subject to taxation in the United States and foreign jurisdictions. Our
income tax filings are regularly examined by federal, state and foreign tax
authorities. During the fourth quarter of 2019, the Internal Revenue Service
("IRS") issued final adjustments related to transfer pricing with our foreign
subsidiaries for our 2011 to 2013 tax years. The proposed adjustments would
increase our U.S. taxable income by $696 million, which would result in federal
tax of approximately $244 million, subject to interest. We do not agree with the
position of the IRS. We filed a protest with the IRS for our 2011 to 2013 tax
years and Appeals returned our case to Exam for further review. We are also
under examination by the IRS for our 2014 to 2016 tax years. Subsequent years
remain open to examination by the IRS. We do not anticipate a significant impact
to our gross unrecognized tax benefits within the next 12 months related to
these years.
For additional information, see NOTE 10 - Income Taxes in the notes to the
consolidated financial statements.
Definition and Reconciliation of Adjusted EBITDA
We report Adjusted EBITDA as a supplemental measure to U.S. generally accepted
accounting principles ("GAAP"). Adjusted EBITDA is among the primary metrics by
which management evaluates the performance of the business and on which internal
budgets are based. Management believes that investors should have access to the
same set of tools that management uses to analyze our results. This non-GAAP
measure should be considered in addition to results prepared in accordance with
GAAP, but should not be considered a substitute for or superior to GAAP.
Adjusted EBITDA has certain limitations in that it does not take into account
the impact of certain expenses to our consolidated statements of operations. We
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endeavor to compensate for the limitation of the non-GAAP measure presented by
also providing the most directly comparable GAAP measure and a description of
the reconciling items and adjustments to derive the non-GAAP measure. Adjusted
EBITDA also excludes certain items related to transactional tax matters, which
may ultimately be settled in cash, and we urge investors to review the detailed
disclosure regarding these matters included above, in the Legal Proceedings
section, as well as the notes to the financial statements. The non-GAAP
financial measure used by the Company may be calculated differently from, and
therefore may not be comparable to, similarly titled measures used by other
companies.
Adjusted EBITDA is defined as net income (loss) attributable to Expedia Group,
Inc. adjusted for (1) net income (loss) attributable to non-controlling
interests; (2) provision for income taxes; (3) total other expenses, net; (4)
stock-based compensation expense, including compensation expense related to
certain subsidiary equity plans; (5) acquisition-related impacts, including (i)
amortization of intangible assets and goodwill and intangible asset impairment,
(ii) gains (losses) recognized on changes in the value of contingent
consideration arrangements, if any, and (iii) upfront consideration paid to
settle employee compensation plans of the acquiree, if any; (6) certain other
items, including restructuring; (7) items included in legal reserves, occupancy
tax and other; (8) that portion of gains (losses) on revenue hedging activities
that are included in other, net that relate to revenue recognized in the period;
and (9) depreciation.
The above items are excluded from our Adjusted EBITDA measure because these
items are noncash in nature, or because the amount and timing of these items is
unpredictable, not driven by core operating results and renders comparisons with
prior periods and competitors less meaningful. We believe Adjusted EBITDA is a
useful measure for analysts and investors to evaluate our future on-going
performance as this measure allows a more meaningful comparison of our
performance and projected cash earnings with our historical results from prior
periods and to the results of our competitors. Moreover, our management uses
this measure internally to evaluate the performance of our business as a whole
and our individual business segments. In addition, we believe that by excluding
certain items, such as stock-based compensation and acquisition-related impacts,
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.
The reconciliation of net income (loss) attributable to Expedia Group, Inc. to
Adjusted EBITDA is as follows:
                                                                     Year ended December 31,
                                                          2021                2020                2019
                                                                          (In millions)
Net income (loss) attributable to Expedia Group, Inc. $       12          $   (2,612)         $      565
Net income (loss) attributable to non-controlling              3                (116)                  7

interests

Provision for income taxes                                   (53)               (423)                203
Total other expense, net                                     224                 432                 128
Operating income (loss)                                      186              (2,719)                903
Gain (loss) on revenue hedges related to revenue             (17)                 61                  22

recognized

Restructuring and related reorganization charges              55                 231                  24
Legal reserves, occupancy tax and other                        1                 (13)                 34
Stock-based compensation                                     418                 205                 241
Depreciation and amortization                                814                 893                 910
Impairment of goodwill                                        14                 799                   -
Intangible and other long-term asset impairment                6                 175                   -
Adjusted EBITDA                                       $    1,477          $     (368)         $    2,134



Financial Position, Liquidity and Capital Resources
Our principal sources of liquidity are typically cash flows generated from
operations, cash available under our credit facilities as well as our cash and
cash equivalents and short-term investment balances, which were $4.3 billion and
$3.4 billion at December 31, 2021 and 2020. Our credit facilities were
essentially untapped at December 31, 2021 and 2020.
As of December 31, 2021, the total cash and cash equivalents and short-term
investments held outside the United States was $676 million ($375 million in
wholly-owned foreign subsidiaries and $301 million in majority-owned
subsidiaries). The amount of undistributed earnings in foreign subsidiaries
where the foreign subsidiary has or will invest undistributed earnings
indefinitely outside of the Unites States, and for which future distributions
could be taxable, was $69 million as of
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December 31, 2021. The unrecognized deferred tax liability related to the U.S.
federal income tax consequences of these earnings was $18 million as of
December 31, 2021.
Managing our balance sheet prudently and maintaining appropriate liquidity have
been high priorities during the COVID-19 pandemic. In 2020, in order to best
position the Company to navigate our temporary working capital changes and
depressed revenue, we took a number of actions to bolster our liquidity and
preserve financial flexibility. In 2021, we continued certain of these actions,
including suspension of our share repurchases and quarterly common stock
dividends, but, with an improvement in market condition and trends in the
current year, we were able to complete the following actions to reduce our cost
of capital:
•0% Convertible Notes Issuance. In February 2021, we completed our private
placement of $1 billion aggregate principal amount of unsecured 0% convertible
senior notes due 2026 (the "Convertible Notes"). The net proceeds from the
issuance of the Convertible Notes was approximately $983 million after deducting
debt issuance costs. The Convertible Notes will mature on February 15, 2026,
unless earlier converted, redeemed or repurchased. The Convertible Notes will
not bear regular interest. The Convertible Notes have an initial conversion rate
of 3.9212 shares of common stock of Expedia Group with a par value $0.0001 per
share, per $1,000 principal amount of Convertible Notes, which is equal to an
initial conversion price of approximately $255.02 per share of our common stock.
The conversion rate is subject to adjustment from time to time upon the
occurrence of certain events, including, but not limited to, the issuance of
stock dividends and payment of cash dividends.
•2.95% Senior Notes Issuance. In March 2021, we privately placed $1 billion of
senior unsecured notes that are due in March 2031 that bear interest at 2.95%
(the "2.95% Notes"). The 2.95% Notes were issued at a price of 99.081% of the
aggregate principal amount. Interest is payable semi-annually in arrears in
March and September of each year, beginning September 15, 2021, and the interest
rate is subject to adjustment based on certain ratings events. The net proceeds
from the issuance of the 2.95% Notes was approximately $982 million after
deducting the discount and debt issuance costs.
•Extinguishment of High Cost Debt. In March 2021, we used the net proceeds from
the Convertible Notes and 2.95% Notes and completed the redemption of all of our
outstanding 7.0% Notes as well as settled the tender offer to purchase $956
million in aggregate principal of our 6.25% Notes, which resulted in the
recognition of a loss on debt extinguishment of $280 million in 2021 comprised
of early payment premiums and fees associated with the tender offer as well as
the write-off of unamortized debt issuance costs.
•Repayment of Preferred Stock. In May 2021, we completed the prepayment of 50%
of the outstanding Series A Preferred Stock at a price equal to 103% of the
Preference Amount, plus accrued and unpaid distributions as to the redemption
dates using cash on-hand. In October 2021, we prepaid the remaining 50% of the
outstanding Series A Preferred Stock under the same terms as the May prepayment
using cash on-hand.
On February 1, 2022, notice was provided to the holders of the Company's 2.5%
Notes due 2022 that the Company will redeem all of the €650 million of
outstanding aggregate principal amount of such notes on March 3, 2022. The
redemption price for the notes will be equal to 100% of the aggregate principal
amount thereof plus accrued and unpaid interest thereon through the redemption
date.
Our credit ratings are periodically reviewed by rating agencies. As of
December 31, 2021, Moody's rating was Baa3 with an outlook of "stable," S&P's
rating was BBB- with an outlook of "stable" and Fitch's rating was BBB- with an
outlook of "negative." Changes in our operating results, cash flows, financial
position, capital structure, financial policy or capital allocations to share
repurchase, dividends, investments and acquisitions could impact the ratings
assigned by the various rating agencies. Should our credit ratings be adjusted
downward, we may incur higher costs to borrow and/or limited access to capital
markets and interest rates on the 6.25% Notes issued in May 2020, the 3.6% and
4.625% Notes issued in July 2020 as well as the 2.95% Notes issued in March 2021
will increase, which could have a material impact on our financial condition and
results of operations.
As of December 31, 2021, we were in compliance with the covenants and conditions
in our revolving credit facilities and outstanding debt as detailed in NOTE 7 -
Debt in the notes to the consolidated financial statements.
Under the merchant model, we receive cash from travelers at the time of booking
and we record these amounts on our consolidated balance sheets as deferred
merchant bookings. We pay our airline suppliers related to these merchant model
bookings generally within a few weeks after completing the transaction. For most
other merchant bookings, which is primarily our merchant lodging business, we
generally pay after the travelers' use and, in some cases, subsequent billing
from the hotel suppliers. Therefore, generally we receive cash from the traveler
prior to paying our supplier, and this operating cycle represents a working
capital source of cash to us. Typically, the seasonal fluctuations in our
merchant hotel bookings have affected the timing of our annual cash flows.
Generally, during the first half of the year, hotel bookings have traditionally
exceeded stays, resulting in much higher cash flow related to working capital.
During the second half of the year, this pattern typically reverses and cash
flows are typically negative. During 2020, impacts of COVID-19 disrupted our
typical working
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capital trends. Significantly higher cancellations and reduced booking volumes,
particularly in the first half of 2020, resulted in material operating losses
and negative cash flow. Although travel volumes remain materially lower than
historic levels, booking and travel trends normalized during the second half of
2020, and during 2021 have increased from 2020 levels, resulting in working
capital benefits and positive cash flow in the current period more akin to
typical historical trends. However, it remains difficult to forecast the working
capital trends for the upcoming quarters, given the uncertainty related to the
duration of the impact from COVID-19 and the shape and timing of any sustained
recovery.
Prior to COVID-19, we embarked on an ambitious cost reduction initiative to
simplify the organization and increase efficiency. In response to COVID-19, we
took several additional actions to further reduce costs to help mitigate the
financial impact from COVID-19 and continue to improve our long-term cost
structure. In addition, certain capital expenditures were deferred in 2020,
including temporarily halting construction on several real estate projects. In
2021, as economic conditions improved, we substantially completed the
construction of our new headquarters and the project was within the expected
total project spend of approximately $900 million. For 2022, we expect total
capital expenditures for the full year to increase over 2021 spending levels.
Our cash flows are as follows:
                                                   Year ended December 31,                                   $ Change
                                           2021              2020              2019             2021 vs 2020           2020 vs 2019
                                                                               (In millions)
Cash provided by (used in) operations:
Operating activities                   $   3,748          $ (3,834)         $  2,767          $       7,582          $      (6,601)
Investing activities                        (931)             (263)           (1,553)                  (668)                 1,290
Financing activities                        (973)            4,077               175                 (5,050)                 3,902
Effect of foreign exchange rate             (177)               61                 3                   (238)                    58

changes in cash and cash equivalents


In 2021, net cash provided by operating activities was $3.7 billion compared to
cash used in operating activities of $3.8 billion for 2020. In the prior year
period, impacts from the COVID-19 pandemic resulted in a significant use of cash
to fund working capital changes and operating losses compared to a current year
cash benefit from working capital. The largest driver of the swing in working
capital relates to a significant use of cash in the prior year for deferred
merchant bookings as refunds for cancelled bookings exceeded new bookings
compared to a meaningful increase in booking volumes and deferred merchant
bookings in the current year period.
In 2021, $668 million more cash was used in investing activities primarily due
to net purchase of investments of $178 million in 2021 compared to net sales and
maturities of investments of $476 million in 2020, partially offset by lower
capital expenditures, including those related to our new headquarters as our
construction winds down.
Cash used in financing activities in 2021 primarily included payments of
approximately $2 billion related to the extinguishment of debt and $1.2 billion
for the redemption of preferred stock both discussed above as well as $165
million of cash paid for treasury stock activity related to the vesting of
equity instruments and $67 million in preferred stock dividends. These uses of
cash were largely offset by approximately $2 billion of net proceeds from the
issuance of Convertible Notes and 2.95% Notes issued in February and March 2021,
respectively, as well as $503 million of proceeds from the exercise of options
and employee stock purchase plans. Cash provided by financing activities in 2020
primarily included $3.9 billion of net proceeds from the issuance of senior
notes in May and July 2020, $1.1 billion of net proceeds from our private equity
issuance, as well as $319 million of proceeds from the exercise of options and
employee stock purchase plans. These sources of cash were partially offset by
the August 2020 repayment of $750 million of 5.95% Notes, cash paid to acquire
shares of $425 million, including the repurchased shares in the first quarter of
2020 and treasury stock activity related to the vesting of equity instruments,
and cash dividend payments of $123 million.
Our Board of Directors, or the Executive Committee, acting on behalf of the
Board of Directors, have authorized share repurchases under authorized programs.
As disclosed above, these programs were temporarily halted in early 2020 but
repurchases prior to that time were as follows:
                                                     Year ended December 

31,

                                                      2020                  

2019

Number of shares repurchased                            3.4 million       5.6 million
Average price per share                      $      109.88             $    

122.72

Total cost of repurchases (in millions)(1)   $         370             $    

683

______________________________________

(1) The amount excludes transaction costs.

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As of December 31, 2021, there were approximately 23.3 million shares remaining
under prior repurchase authorizations. There is no fixed termination date for
the repurchases.
During 2021, while we didn't pay common stock dividends, we did pay $67 million
(or $74.96 per share of Series A Preferred Stock) of dividends on the Series A
Preferred Stock. During 2020, the total dividend payment of $123 million
included a common stock dividend of $0.34 per share for the first quarter of
2020 as well as $75 million (or $62.47 per share of Series A Preferred Stock) of
dividends on the Series A Preferred Stock. At this time, we do not expect to
make future quarterly dividend payments on our common stock. Future declarations
of dividends are subject to final determination by our Board of Directors.
Foreign exchange rate changes resulted in a decrease of our cash and restricted
cash balances denominated in foreign currency in 2021 of $177 million reflecting
a net depreciation in foreign currencies relative to the U.S. dollar during the
year. Foreign exchange rate changes resulted in increases of our cash balances
denominated in foreign currency in 2020 of $61 million, reflecting a net
appreciation in foreign currencies relative to the U.S. dollar during the year.
Contractual Obligations and Commercial Commitments. Our material cash
requirements as of December 31, 2021 include the following contractual
obligations and commercial commitments arising in the normal course of business:
•Principal payments related to our debt that is included in our consolidated
balance sheet and the related periodic interest payments. The Company had Senior
Notes and Convertible Notes, as described in NOTE 7 - Debt in the notes to our
consolidated financial statements, with varying maturities and an aggregate
principal amount of $8.5 billion, with $735 million payable within 12 months.
Based on current stated fixed rates and current exchange rates, if applicable,
future interest payments associated with the Senior Notes total approximately
$1.6 billion, with approximately $304 million payable within 12 months;
•Our operating leases had fixed lease payment obligations, including imputed
interest, of $504 million, with $91 million payable within 12 months; and
•Purchase obligations representing the minimum obligations we have under
agreements with certain of our vendors and marketing partners. These minimum
obligations are less than our projected use for those periods, and payments may
be more than the minimum obligations based on actual use. The Company had
purchase obligations of $824 million, with $589 million payable within 12
months.
In addition, we had $275 million of net unrecognized tax benefits recorded on
our balance sheet as of December 31, 2021, for which we cannot make a reasonably
reliable estimate of the amount and period of payment.
See NOTE 15 - Commitments and Contingencies in the notes to the consolidated
financial statements for further information related to our purchase obligations
as well as amounts outstanding as of December 31, 2021 related to letters of
credit and guarantees. Other than the items described above, we do not have any
off-balance sheet arrangements as of December 31, 2021.
In our opinion, our liquidity position provides sufficient capital resources to
meet our foreseeable cash needs. There can be no assurance, however, that the
cost or availability of future borrowings, including refinancings, if any, will
be available on terms acceptable to us.
Certain Relationships and Related Party Transactions
For a discussion of certain relationships and related party transactions, see
NOTE 17 - Liberty Expedia Holdings Transaction and NOTE 18 - Related Party
Transactions in the notes to the consolidated financial statements.
Summarized Financial Information for Guarantors and the Issuer of Guaranteed
Securities
Summarized financial information of Expedia Group, Inc. (the "Parent") and our
subsidiaries that are guarantors of our debt facility and instruments (the
"Guarantor Subsidiaries") is shown below on a combined basis as the "Obligor
Group." The debt facility and instruments are guaranteed by certain of our
wholly-owned domestic subsidiaries and rank equally in right of payment with all
of our existing and future unsecured and unsubordinated obligations. The
guarantees are full, unconditional, joint and several with the exception of
certain customary automatic subsidiary release provisions. In this summarized
financial information of the Obligor Group, all intercompany balances and
transactions between the Parent and Guarantor Subsidiaries have been eliminated
and all information excludes subsidiaries that are not issuers or guarantors of
our debt facility and
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instruments, including earnings from and investments in these entities.
                                                  December 31, 2021
                                                    (In millions)

Information on the combined balance sheets:

   Current Assets (1)                            $            7,003
   Non-Current Assets                                        10,255
   Current Liabilities                                        8,701
   Non-Current Liabilities                                    8,224

                                                      Year Ended
                                                  December 31, 2021

Combined Income Statement Information:

   Revenue                                       $            7,146
   Operating income (2)                                         124
   Net loss                                                    (377)
   Net loss attributable to Obligors                           (658)

(1) Current assets include intra-group receivables with non-guarantors of
$705 million from December 31, 2021. (2) Operating income includes internal charges with non-guarantors of
$472 million for the year ended December 31, 2021.

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