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 endedDecember 31, 2021 and 2020 items and year over year comparisons between 2021 and 2020. Discussions of the year endedDecember 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 endedDecember 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. 30 -------------------------------------------------------------------------------- Table of Contents 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 forExpedia 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 theU.S. and European markets with online penetration rates in the emerging markets, such asAsia 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 theGoogle 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 whichExpedia 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 (previouslyHomeAway , whichExpedia Group acquired inDecember 2015 ) andBooking.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 inEurope .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 payExpedia 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 onExpedia 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. 31 -------------------------------------------------------------------------------- Table of Contents As ofDecember 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 inthe 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 (previouslyHomeAway ) and all of its brands inDecember 2015 , we expanded into the fast growing alternative accommodations market. Vrbo is a leader in this market and represents an attractive growth opportunity forExpedia 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 theTransportation Security Administration ("TSA"), air traveler 7-day average throughput declined 95% inApril 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. 32 -------------------------------------------------------------------------------- Table of Contents 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 inthe 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 anyHotels.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 33 -------------------------------------------------------------------------------- Table of Contents 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 ofGoodwill and Indefinite and Definite-Lived Intangible AssetsGoodwill . We assess goodwill for impairment annually as ofOctober 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 34 -------------------------------------------------------------------------------- Table of Contents 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. 35 -------------------------------------------------------------------------------- Table of Contents 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 inthe 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 ofDecember 31, 2021 and$58 million as ofDecember 31, 2020 . Certain jurisdictions, including without limitation the states ofNew 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 ofNew York , and theDistrict 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 ofNew 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 ofNew York and theDistrict 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 theCity of Los Angeles regarding hotel occupancy taxes, may impose a pay-to-play requirement to challenge an adverse inquiry or audit result in court. 36 -------------------------------------------------------------------------------- Table of Contents 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 andHotels.com inthe United States and localized Expedia andHotels.com websites throughout the world, Vrbo,Orbitz , Travelocity,Wotif Group , ebookers, CheapTickets, Hotwire.com,CarRentals.com andExpedia 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 inNovember 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 vs 2019
($ in millions)
Gross Bookings
Gross bookings $ 72,425 $ 36,796 $ 107,873 97 % (66) %
Revenue 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 vs 2020 2020 vs 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 ofU.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 inNovember 2021 ) andBodybuilding.com (through its sale inMay 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 endedDecember 31 ,
% Change
2021 2020 2019
2021 vs 2020 2020 vs 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 ofBodybuilding.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 37 -------------------------------------------------------------------------------- Table of Contents Cost of Revenue Year ended December 31,
% Change
2021 2020 2019 2021 vs
2020 2020 vs 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 selling and marketing
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$48 million . Technology and Content Year ended December 31, % Change 2021 2020 2019
2021 vs 2020 2020 vs 2019
($ in millions)
Personnel and overhead
6 % (22) % Other 289 324 315 (11) % 3 %
Total technology and content
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$48 million , partially offset by lower license and maintenance expense as well as personnel and related costs in connection with previously announced cost savings initiatives. 38 -------------------------------------------------------------------------------- Table of Contents General and Administrative Year ended December 31, % Change 2021 2020 2019 2021 vs 2020 2020 vs 2019 ($ 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 depreciation and amortization
$ 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 ofGoodwill , 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 reserves, occupancy tax and
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 $231 million in restructuring and related reorganization charges
during 2021 and 2020. We continue to actively evaluate additional cost reduction
efforts and should we make decisions in future periods to take further actions
we may incur additional reorganization charges.
39
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Table of Contents
Operating Income (Loss)
Year ended December 31, % Change
2021 2020 2019 2021 vs 2020 2020 vs 2019
($ 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 inNovember 2021 . (2) Includes immaterial operating results ofBodybuilding.com subsequent to our acquisition inJuly 2019 through its sale inMay 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 toExpedia 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. 40 -------------------------------------------------------------------------------- Table of Contents 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. InNovember 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$6 million of mark-to-market losses related to our publicly traded marketable equity investment, Despegar. See NOTE 3 - Fair Value Measurements in the notes to the consolidated financial statements for further information. Provision for Income Taxes Year ended December 31,
% Change
2021 2020 2019
2021 vs 2020 2020 vs 2019
($ 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
41
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Table of Contents
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 atDecember 31, 2021 and 2020. Our credit facilities were essentially untapped atDecember 31, 2021 and 2020. As ofDecember 31, 2021 , the total cash and cash equivalents and short-term investments held outsidethe 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 42 -------------------------------------------------------------------------------- Table of ContentsDecember 31, 2021 . The unrecognized deferred tax liability related to theU.S. federal income tax consequences of these earnings was$18 million as ofDecember 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. InFebruary 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 onFebruary 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 ofExpedia 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. InMarch 2021 , we privately placed$1 billion of senior unsecured notes that are due inMarch 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, beginningSeptember 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. InMarch 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. InMay 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. InOctober 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. OnFebruary 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 onMarch 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 ofDecember 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 inMay 2020 , the 3.6% and 4.625% Notes issued inJuly 2020 as well as the 2.95% Notes issued inMarch 2021 will increase, which could have a material impact on our financial condition and results of operations. As ofDecember 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 43 -------------------------------------------------------------------------------- Table of Contents 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 on 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 andMarch 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 andJuly 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 theAugust 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) Amount excludes transaction costs.
44 -------------------------------------------------------------------------------- Table of Contents As ofDecember 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 theU.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 theU.S. dollar during the year. Contractual Obligations and Commercial Commitments. Our material cash requirements as ofDecember 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 ofDecember 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 ofDecember 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 ofDecember 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 ofGuaranteed Securities Summarized financial information ofExpedia 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 theObligor 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 45 -------------------------------------------------------------------------------- Table of Contents instruments, including earnings from and investments in these entities.December 31, 2021 (In millions)
Combined Balance Sheets Information:
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 Statements of Operations Information:
Revenue $ 7,146 Operating income (2) 124 Net loss (377) Net loss attributable to Obligors (658)
(1)Current assets include intercompany receivables with non-guarantors of
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