Expedia : Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect the views of our management regarding current
expectations and projections about future events and are based on currently
available information. Actual results could differ materially from those
contained in these forward-looking statements for a variety of reasons,
including, but not limited to, those discussed in our Annual Report on Form 10-K
for the year ended December 31, 2019, Part I, Item 1A, "Risk Factors," in
Exhibit 99.2 to our Current Report on Form 8-K filed with the SEC on April 23,
2020, as well as those discussed in the Risk Factor section and elsewhere in
this report. COVID-19, and the volatile regional and global economic conditions
stemming from it, and additional or unforeseen effects from the COVID-19
pandemic, could also give rise to or aggravate these risk factors, which in turn
could materially adversely affect our business, financial condition, liquidity,
results of operations (including revenues and profitability) and/or stock price.
Further, COVID-19 may also affect our operating and financial results in a
manner that is not presently known to us or that we currently do not consider to
present significant risks to our operations. Other unknown or unpredictable
factors also could have a material adverse effect on our business, financial
condition and results of operations. Accordingly, readers should not place undue
reliance on these forward-looking statements. The use of words such as
"anticipates," "believes," "could," "estimates," "expects," "goal," "intends,"
"likely," "may," "plans," "potential," "predicts," "projected," "seeks,"
"should" and "will," or the negative of these terms or other similar
expressions, among others, generally identify forward-looking statements;
however, these words are not the exclusive means of identifying such statements.
In addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements. These forward-looking statements are inherently subject to
uncertainties, risks and changes in circumstances that are difficult to predict.
We are not under any obligation to, and do not intend to, publicly update or
review any of these forward-looking statements, whether as a result of new
information, future events or otherwise, even if experience or future events
make it clear that any expected results expressed or implied by those
forward-looking statements will not be realized. Please carefully review and
consider the various disclosures made in this report and in our other reports
filed with the SEC that attempt to advise interested parties of the risks and
factors that may affect our business, prospects and results of operations.
The information included in this management's discussion and analysis of
financial condition and results of operations should be read in conjunction with
our consolidated financial statements and the notes included in this Quarterly
Report, and the audited consolidated financial statements and notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2019.
Overview
Expedia Group is one of the world's largest travel companies. We help reduce the
barriers to travel, making it easier, more attainable and more accessible,
bringing the world within reach for customers and partners around the globe. We
leverage our platform and technology capabilities across an extensive portfolio
of businesses and brands 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
"Portfolio of Brands" in Part I, Item 1, "Business", in our Annual Report on
Form 10-K for the year ended December 31, 2019.
All percentages within this section are calculated on actual, unrounded numbers.
Trends
During the first quarter of 2020, the outbreak and spreading of 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 forced many of our supply partners,
particularly airlines and hotels, to operate at significantly reduced service
levels, and has negatively impacted consumer sentiment and consumers ability to
travel. Our financial and operating results for the first quarter of 2020 were
significantly impacted due to the decrease in travel demand related to COVID-19
with the impact worsening during the quarter as the virus developed into a
global pandemic.
We currently expect COVID-19 to have significantly greater impact on our second
quarter of 2020 results as we will see the full global impact of the virus for
the entire quarter, compared to a partial quarter of impact in the first
quarter. The ultimate duration and impact of COVID-19 remains uncertain and it
is difficult to predict the timing and nature of a recovery for the travel
industry and, in particular, our business.

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COVID-19 has had broader economic impacts, including a significant increase in
unemployment levels and reduction in economic activity, which could lead to a
recession, and further reduction in consumer or business spending on travel
activities, which may negatively impact the timing and level of a recovery in
travel demand. 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. We expect these
efforts, which include a significant reduction in headcount, to generate $300 to
$500 million in annualized run-rate cost savings by the end of 2020.
Following the onset of COVID-19, we took several additional actions to reduce
costs to help mitigate the impact to demand from COVID-19. This included a
significant reduction in our variable costs, of which direct marketing is the
largest component. We also achieved cost savings in several other areas, which
we expect to continue to benefit from when business conditions return to more
normalized levels. We continue to evaluate additional opportunities to increase
efficiency and improve operational effectiveness across the Company.
As a result of the cost savings effort launched prior to COVID-19 and additional
cost reductions during COVID-19 that we expect to remain in place, we expect
Adjusted EBITDA margins to increase compared to historical levels when revenue
returns to more normalized levels.
Lodging
Lodging includes hotel accommodations and alternative accommodations. As a
percentage of our total worldwide revenue in the first three months of 2020,
lodging accounted for 69%. As a result of the COVID-19 outbreak and impact on
travel demand, room nights declined 14% in the first three months of 2020. Many
hotel partners were forced to shut a number of properties due to the virus, and
some remain closed. The timing of hotel operations returning to normal levels,
and recovery in consumer sentiment on staying at hotels will be a factor in our
level of room night growth. Average Daily Rates ("ADRs") for rooms booked on
Expedia Group websites increased 2% in the first three months of 2020. The
uncertain environment related to COVID-19, and the potential that suppliers
reduce prices, including a higher degree of discounting activity due to the
lower travel demand, could result in ADR declines for a period of time. Travel
restrictions and shift in consumer behavior during COVID-19 could also impact
the geographic mix of our hotel bookings, which could impact ADRs.
Hotel. We generate the majority of our revenue through the facilitation of hotel
reservations (stand-alone and package bookings). After rolling out Expedia
Traveler Preference ("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, with certain travel
restrictions and quarantine orders implemented due to COVID-19, current
occupancy rates for hotels in the United States are at historically low levels
and ADRs could decline for a period of time. 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.
We have continued to add supply to our global lodging marketplace with over 1.7
million properties on our global websites as of March 31, 2020, including over
880,000 integrated Vrbo alternative accommodations listings.
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. As of March 31,
2020, there are over 2.1 million online bookable listings available on Vrbo. In
addition, we have

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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 limited capacity and passenger traffic has declined
significantly. According to the International Air Transport Association
("IATA"), global flights were down approximately 80% from the beginning of the
year by early April 2020 and global passenger traffic is expected to decline
approximately 48% in 2020. The recovery in air travel remains difficult to
predict, and may not correlate with the recovery in lodging demand.
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 5% in 2018 and 7% in 2019. In the first three
months of 2020, air ticket volumes declined 26%. As a percentage of our total
worldwide revenue in the first three months of 2020, air accounted for 5%.
Advertising & Media
Our advertising and media business is principally driven by revenue generated by
trivago, a leading hotel metasearch website, in addition to Expedia Group Media
Solutions, which is responsible for generating advertising revenue on our global
online travel brands. In the first three months of 2020, we generated $203
million of advertising and media revenue, a 23% decline from the same period in
2019, representing 9% of our total worldwide revenue. Given the decline in
travel demand related to COVID-19, online travel agencies have 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. In
response, trivago has significantly reduced its marketing spend and taken
additional actions to lower operating expenses. We expect trivago to continue to
experience significant pressure on revenue and profit until online travel
agencies and other hotel suppliers begin to see consumer demand that warrants an
increase in marketing spend.
Online Travel
Increased usage and familiarity with the internet are driving rapid growth in
online penetration of travel expenditures. According to Phocuswright, an
independent travel, tourism and hospitality research firm, in 2019,
approximately 45% of U.S. and European leisure and unmanaged corporate travel
expenditures occurred online. This figure was estimated to reach approximately
50% in 2020, prior to the outbreak of COVID-19. Online penetration rates in the
emerging markets, such as Asia Pacific and Latin American regions, are lagging
behind that of the United States and Europe. These 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.

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We manage our marketing spending on a brand basis, making decisions in each
applicable market that we think are appropriate based on the relative growth
opportunity, the expected returns and the competitive environment. Intense
competition also 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. More recently, we have increased
our focus on opportunities to increase marketing efficiency, drive a higher
proportion of transactions through direct channels and improve the balance of
transaction growth and profitability.
Growth Strategy
Global Expansion. Our Brand Expedia, Hotels.com, Vrbo portfolio, Expedia Partner
Solution and Egencia brands operate both domestically and through international
points of sale, including in Europe, Asia Pacific, Canada and Latin America. In
addition, ebookers offers multi-product online travel reservations in Europe and
the Wotif portfolio of brands are focused principally on the Australia and New
Zealand markets. We own a majority share of trivago, a leading metasearch
company. In December 2016, trivago successfully completed its initial public
offering and trades on the Nasdaq Global Select Market under the symbol "TRVG."
In addition, we have commercial agreements in place with Trip.com and eLong in
China, Traveloka in Southeast Asia, as well as Despegar in Latin America, among
many others. In conjunction with the commercial arrangements with Traveloka and
Despegar, we have also made strategic investments in both companies. In the
first three months of 2020, approximately 40% of worldwide revenue was through
international points of sale. Our strategy is focused on continuing to grow our
international market share, and over the longer term we aim to increase our mix
of international revenue as we execute to strengthen our brands and products in
key international markets.
In expanding our global reach, we leverage significant investments in
technology, operations, brand building, supplier relationships and other
initiatives that we have made since the launch of Expedia.com in 1996. More
recently, we have invested in migrating parts of our technology platform to the
cloud, as well as focused on expanding our lodging supply, particularly in key
international markets. Our scale of operations enhances the value of technology
innovations we introduce on behalf of our travelers and suppliers. We believe
that our size and scale afford the company the ability to negotiate competitive
rates with our supply partners, provide breadth of choice and travel deals to
our traveling customers through an expanding supply portfolio and create
opportunities for new value added offers for our customers such as our loyalty
programs. The size of Expedia Group's worldwide traveler base makes our websites
an increasingly appealing channel for travel suppliers to reach customers. In
addition, the sheer size of our user base and search query volume allows us to
test new technologies very quickly to determine which innovations are most
likely to improve the travel research and booking process, and then roll those
features out to our worldwide audience to drive improvements in conversion.
Product Innovation. Each of our leading brands was a pioneer in online travel
and has been responsible for driving key innovations in the space for more than
two decades. We have made key investments in technology, including significant
development of our technical platforms, that make it possible for us to deliver
innovations at a faster pace. Improvements in our global platforms for
Hotels.com, Brand Expedia and Vrbo continue to enable us to significantly
increase the innovation cycle, thereby improving conversion and driving faster
growth rates for those brands. Since 2014, we have acquired Travelocity, Wotif
Group and Orbitz Worldwide, including Orbitz, CheapTickets and ebookers, and
migrated their brands to the Brand Expedia technology platform. In addition,
Orbitz for Business customers were migrated to the Egencia technology platform
in 2016. We intend to continue leveraging these technology investments when
launching additional points of sale in new countries, introducing new website
features, adding supplier products and services including new business model
offerings, as well as proprietary and user-generated content for travelers.
Channel Expansion. Technological innovations and developments continue to create
new opportunities for travel bookings. In the past few years, each of our brands
made significant progress innovating on its mobile websites and mobile
applications, contributing to solid download trends, and many of our brands now
see more traffic via mobile devices than via traditional PCs and an increasing
percentage of transactions are coming through mobile. Mobile bookings continue
to present an opportunity for incremental growth as they are often completed
with a much shorter booking window than we historically experienced via more
traditional online booking methods. Additionally, our brands are implementing
new technologies like voice-based search, chatbots and messaging apps as
mobile-based options for travelers. In addition, we are seeing significant
cross-device usage among our customers, who connect to our websites and apps
across multiple devices and platforms throughout their travel planning process.
We also believe mobile represents an efficient marketing channel given the
opportunity for direct traffic acquisition, increase in share of wallet and in
repeat customers, particularly through mobile applications. During 2019, more
than 40% of transactions across Expedia Group's Retail brands were booked on a
mobile device.
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

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holiday travel. The number of bookings typically decreases in the fourth
quarter. Because 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.
Due to COVID-19, which impacted travel bookings made in the first quarter and
led to significant cancellations for future travel, we do not expect our typical
seasonal pattern for bookings, revenue and profit during 2020. In addition, with
the lower new bookings and elevated cancellations in the merchant business
model, our typical, seasonal working capital source of cash has been
significantly disrupted resulting in the Company experiencing unfavorable
working capital trends and material negative cash flow. This is expected to
continue until cancellations stabilize and travel demand begins to recover from
current levels, at which time we expect merchant bookings and cash flow to
increase. It is 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 a 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.


The COVID-19 pandemic has created and may continue to create significant
uncertainty in macroeconomic conditions, which may cause further business
disruptions and adversely impact our results of operations. As a result, many of
our estimates and assumptions required increased judgment and carry a higher
degree of variability and volatility. As events continue to evolve and
additional information becomes available, our estimates may change materially in
future periods.
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 the first quarter of 2020, as a result of the significant turmoil related
to COVID-19, we concluded that sufficient indicators existed to require us to
perform an interim impairment assessment. 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. 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

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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
our trivago reporting unit is 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
generally 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 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 as a result of our interim impairment testing during the first quarter
of 2020, see Note 3 - Fair Value Measurements in the notes to the consolidated
financial statements.
For additional information about our other critical accounting policies and
estimates, see the disclosure included in our Annual Report on Form 10-K for the
year ended December 31, 2019 as well as updates in the current fiscal year
provided in Note 2 - Summary of Significant Accounting Policies in the notes to
the consolidated financial statements.
Occupancy and Other Taxes
Legal Proceedings. 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.
Recent developments include:
•       City of San Antonio, Texas Litigation. On May 11, 2020, the United States
        Fifth Circuit Court of Appeals affirmed the district court's award of
        over $2 million in appeal bond costs against the city.



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• Palm Beach, Florida Litigation. On March 25, 2020, the Florida Fourth

District Court of Appeals affirmed the trial court's decision that
        defendants are not subject to tax.

• Miami Dade County, Florida Litigation. The parties reached a settlement

and on April 7, 2020, the county filed a notice of voluntary dismissal

without prejudice, thereby ending the matter.

For additional information on these and other legal proceedings, see Part II,
Item 1, 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
$52 million as of March 31, 2020, and $48 million as of December 31, 2019.
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, 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, 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
domestic and foreign tax authorities, some of which, including the City of Los
Angeles regarding hotel occupancy taxes and the United Kingdom regarding the
application of value added tax ("VAT") to our European Union related
transactions, may impose a pay-to-play requirement to challenge an adverse
inquiry or audit result in court.
Segments
Beginning in the first quarter of 2020, 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,
CruiseShipCenters, Classic Vacations and SilverRail Technologies, Inc. Our B2B
segment is comprised of our Expedia Business Services organization including
Expedia Partner Solutions, which operates private label and co-branded programs
to make travel services available to leisure travelers through third-party
company branded websites, and 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. As
travelers have increased their use of the internet to book travel arrangements,
we have generally seen our gross bookings increase, reflecting the growth in the
online travel industry, our organic market share gains and our business
acquisitions. Revenue margin is defined as revenue as a percentage of gross
bookings.


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Gross Bookings and Revenue Margin

                      Three months ended March 31,
                         2020               2019          % Change
                             ($ in millions)
Gross bookings     $      17,885       $      29,409       (39 )%
Revenue margin (1)          12.4 %               8.9 %

____________________________

(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.


During the three months ended March 31, 2020, gross bookings decreased 39%
compared to the same period in 2019. In January 2020, gross bookings growth was
positive, as COVID-19 modestly impacted results, with the virus largely limited
to the Asia Pacific region. In February 2020, gross bookings declined
year-over-year as the virus spread, particularly into Europe by later in the
month. During March 2020, with COVID-19 becoming a global pandemic, including
significantly impacting North America, our largest region, cancellations
exceeded new bookings, and total gross bookings were negative for the month.
Results of Operations
Revenue
                                     Three months ended March 31,
                                           2020                   2019      % Change
                                           ($ in millions)
Revenue by Segment
Retail                        $         1,582                   $ 1,901      (17 )%
B2B                                       485                       556      (13 )%
trivago (Third-party revenue)             103                       152      (32 )%
Corporate (Bodybuilding.com)               39                         -      N/A
   Total revenue              $         2,209                   $ 2,609      (15 )%


Revenue decreased 15% for the three months ended March 31, 2020, compared to the
same period in 2019. First quarter 2020 revenue declined less than gross
bookings since revenue is recognized at the time of stay thus was not impacted
by cancellations for future stays. Revenue grew for both January and February
2020 before significantly declining year-over-year in March 2020.
                                Three months ended March 31,
                                      2020                   2019      % Change
                                      ($ in millions)
Revenue by Service Type
Lodging                  $         1,518                   $ 1,687      (10 )%
Air                                  109                       248      (56 )%
Advertising and media(1)             203                       265      (23 )%
Other                                379                       409       (7 )%
Total revenue            $         2,209                   $ 2,609      (15 )%


____________________________

(1) Includes third-party revenue from trivago as well as our transaction-based

websites.

Lodging revenue decreased 10% for the three months ended March 31, 2020,
compared to the same period in 2019, on a 14% decrease in room nights stayed,
partially offset by a 5% increase in revenue per room night.
Air revenue decreased 56% for the three months ended March 31, 2020, compared to
the same period in 2019, driven by a 41% decrease in revenue per ticket and a
26% decline in air tickets sold. The declines in air revenue reflect the adverse
impact of COVID-19 on air travel, including elevated cancellation activity
during March 2020.

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Advertising and media revenue decreased 23% for the three months ended March 31,
2020, compared to the same period in 2019, due to declines at trivago and
Expedia Group Media Solutions. All other revenue, which includes car rental,
insurance, destination services, fee revenue related to our corporate travel
business and Bodybuilding.com, decreased 7% for the three months ended March 31,
2020, compared to the same period in 2019, due to declines in insurance and car
revenue, partially offset by the inorganic benefit related to the acquisition of
Bodybuilding.com during the third quarter of 2019.
In addition to the above segment and product revenue discussion, our revenue by
business model is as follows:
                                    Three months ended March 31,
                                          2020                   2019      % Change
                                          ($ in millions)
Revenue by Business Model
Merchant                     $         1,340                   $ 1,435       (7 )%
Agency                                   562                       842      (33 )%
Advertising, media and other             307                       332       (7 )%
   Total revenue             $         2,209                   $ 2,609      (15 )%


Merchant revenue decreased for the three months ended March 31, 2020, compared
to the same period in 2019, primarily due to the decrease in merchant hotel
revenue driven by a decrease in room nights stayed, partially offset by an
increase in Vrbo merchant alternative accommodations revenue.
Agency revenue decreased for the three months ended March 31, 2020, compared to
the same period in 2019, primarily due to the decline in agency air and hotel as
well as Vrbo agency alternative accommodations revenue.
Advertising, media and other decreased for the three months ended March 31,
2020, compared to the same period in 2019, primarily due to declines in
advertising revenue, partially offset by the inorganic impact of the
Bodybuilding.com acquisition.
Cost of Revenue
                          Three months ended March 31,
                             2020                2019         % Change
                                 ($ in millions)
Direct costs           $        468         $        335         40 %
Personnel and overhead          161                  155          3 %
Total cost of revenue  $        629         $        490         28 %
% of revenue                   28.5 %               18.8 %


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 as well as
related personnel and overhead costs, including stock-based compensation.
Cost of revenue increased $139 million during the three months ended March 31,
2020, compared to the same period in 2019, primarily due to an increase in bad
debt expense related to future collection risk from the impact of COVID-19, an
inorganic impact related to the Bodybuilding.com acquisition and higher cloud
expenses.

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Selling and Marketing
                               Three months ended March 31,
                                  2020               2019          % Change
                                      ($ in millions)
Direct costs                $         959       $       1,261       (24 )%
Indirect costs                        251                 260        (3 )%

Total selling and marketing $ 1,210 $ 1,521 (20 )% % of revenue

                         54.8 %              58.3 %


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 decreased $311 million during the three months
ended March 31, 2020, compared to the same period in 2019, primarily due to a
$302 million decrease in direct costs, including a significant reduction in
marketing spend in March 2020 related to the impact on travel demand from
COVID-19.

Technology and Content
                                Three months ended March 31,
                                   2020                2019        % Change
                                       ($ in millions)
Personnel and overhead       $        219         $        228       (4 )%
Other                                  89                   69       29  %

Total technology and content $ 308 $ 297 4 % % of revenue

                         13.9 %               11.4 %


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 $11 million during the three months
ended March 31, 2020, compared to the same period in 2019, primarily due to
higher cloud expenses as well as higher licensing and maintenance expense.

General and Administrative
                                    Three months ended March 31,
                                       2020                2019        % Change
                                           ($ in millions)
Personnel and overhead           $        133         $        138       (3 )%
Professional fees and other                54                   46       17  %

Total general and administrative $ 187 $ 184 2

%

% of revenue                              8.5 %                7.0 %


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 including legal, tax and accounting.
General and administrative expense increased $3 million during the three months
ended March 31, 2020, compared to the same period in 2019, mainly driven by
higher business taxes, partially offset lower stock-based compensation.


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Depreciation and Amortization
                                                      Three months ended March 31,
                                                          2020              2019        % Change
                                                            ($ in millions)
Depreciation                                        $           185     $      176          5  %
Amortization of intangible assets                                44             52        (16 )%
Total depreciation and amortization                 $           229     $   

228 - %

Depreciation increased $9 million during the three months ended March 31, 2020,
compared to the same period in 2019, due to depreciation related to our new
headquarters and higher internal-use software and website development
depreciation, partially offset by lower data center depreciation. Amortization
of intangible assets decreased $8 million during the three months ended
March 31, 2020, compared to the same period in 2019 primarily due to the
completion of amortization related to certain intangible assets.
Impairment of Goodwill and Intangible Assets

During three months ended March 31, 2020, as a result of the significant
negative impact related to the COVID-19, which has had a severe effect on the
entire global travel industry, we concluded that sufficient indicators existed
to require us to perform an interim quantitative assessment of goodwill and
long-lived assets. As a result, we recognized goodwill impairment charges of
$765 million and intangible asset impairment charges of $121 million. See Note 3
- Fair Value Measurements in the notes to the consolidated financial statements
for further information.
Legal Reserves, Occupancy Tax and Other
                                            Three months ended March 31,
                                               2020                 2019    

% Change

                                                  ($ in millions)

Legal reserves, occupancy tax and other $ (21 ) $ 10

        N/A
% of revenue                                    (0.9 )%                0.4 %


Legal reserves, occupancy tax and other consists of changes 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.
During the three months ended March 31, 2020, we recorded a $25 million gain in
relation to a legal settlement, which was partially offset by changes in our
reserve related to hotel occupancy and other taxes. The amount for the three
months ended March 31, 2019 primarily related to changes in our reserve related
to hotel occupancy and other taxes.
Restructuring and Related Reorganization Charges
In late February 2020, we committed to restructuring actions intended to
simplify our businesses and improve operational efficiencies, which have
resulted in headcount reductions. As a result, we recognized $75 million in
restructuring and related reorganization charges during the three months
ended March 31, 2020. Based on current plans, which are subject to change, we
expect total reorganization charges in the remainder of 2020 in the range of $60
million to $115 million. These costs could be higher or lower should we make
additional decisions in future periods that impact our reorganization efforts.
We also engaged in certain smaller scale restructure actions in 2019 to
centralize and migrate certain operational functions and systems, for which we
recognized $10 million in restructuring and related reorganization charges
during the three months ended March 31, 2019, which were primarily related to
severance and benefits.

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Operating Loss
                  Three months ended March 31,
                      2020               2019        % Change
                         ($ in millions)
Operating loss $      (1,294 )       $     (131 )       888 %
% of revenue           (58.6 )%            (5.0 )%


Operating loss increased for the three months ended March 31, 2020, compared to
the same period in 2019, primarily due to the goodwill and intangible asset
impairment charges mentioned above as well as declining revenue in the current
year resulting from the COVID-19 pandemic.
Adjusted EBITDA by Segment
                                                       Three months ended March 31,
                                                          2020                2019         % Change
                                                              ($ in millions)
Retail                                              $         22         $        195        (88 )%
B2B                                                           26                   72        (65 )%
trivago                                                       (1 )                 24        N/A
Unallocated overhead costs (Corporate) (1)                  (123 )               (115 )        7  %
Total Adjusted EBITDA (2)                           $        (76 )       $        176        N/A


 ____________________________

(1) Includes immaterial operating results of Bodybuilding.com subsequent to our

acquisition on July 26, 2019.

(2) 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 10 - 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.
Our Retail, B2B and trivago segment Adjusted EBITDA all declined during the
three months ended March 31, 2020, compared to the same period in 2019,
resulting from impacts of the COVID-19 pandemic as revenue decreased for the
current year period, partially offset by a decline in direct sales and marketing
expense.
Unallocated overhead costs increased $8 million during the three months ended
March 31, 2020, compared to the same period in 2019, primarily due to higher
general and administrative expenses.
Interest Income and Expense
                     Three months ended March 31,
                       2020                  2019         % Change
                            ($ in millions)
Interest income  $         10           $         11       (11 )%
Interest expense          (50 )                  (41 )      22  %



Interest income decreased for the three months ended March 31, 2020, compared to
the same period in 2019, as a result of lower rates of return, partially offset
by higher invested balances. Interest expense increased for the three months
ended March 31, 2020, compared to the same period in 2019, as a result of
additional interest on the $1.25 billion senior unsecured notes issued in
September 2019.
Other, Net
Other, net is comprised of the following:

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                                                                Three months ended March 31,
                                                                   2020                 2019
                                                                       ($ in millions)
Foreign exchange rate gains (losses), net                   $           45         $        (14 )
Gains (losses) on minority equity investments, net                    (188 )                 22
Other                                                                   (2 )                 12
Total other, net                                            $         (145 )       $         20


During the three months ended March 31, 2020, (gains) losses on minority equity
investments, net included a $113 million impairment loss related to a minority
investment as well as $75 million of mark-to-market losses related to our
publicly traded marketable equity investment, Despegar. Gains recorded during
the three months ended March 31, 2019 primarily relate to Despegar. See Note 3 -
Fair Value Measurements in the notes to the consolidated financial statements
for further information.
Provision for Income Taxes
                              Three months ended March 31,
                                 2020                2019        % Change
                                     ($ in millions)
Provision for income taxes $        (82 )       $        (41 )      100 %
Effective tax rate                  5.6 %               29.2 %


Ordinarily, our interim provision for income taxes is determined using an
estimate of our annual effective tax rate ("estimated annual effective tax rate
method"), and we record any changes affecting the estimated annual effective tax
rate in the interim period in which the change occurs, including discrete tax
items. Due to the COVID-19 pandemic and difficulty forecasting the fiscal year
2020 mix of income by jurisdiction, we determined the estimated annual effective
rate method would not provide a reliable estimate of the Company's overall
annual effective tax rate. As such, we have calculated the tax provision using
the actual effective rate for the three months ended March 31, 2020.
For the three months ended March 31, 2020, the effective tax rate was a 5.6%
benefit on a pre-tax loss, compared to a 29.2% benefit on a pre-tax loss for the
three months ended March 31, 2019. The change in the effective tax rate was
primarily driven by the mix of income across jurisdictions, nondeductible
impairment charges and a valuation allowance principally related to unrealized
capital losses in the first quarter of 2020.
We are subject to taxation in the United States and various other state and
foreign jurisdictions. We are under examination by the Internal Revenue Service
("IRS") for our 2011 to 2013 tax years. During the fourth quarter of 2019, the
IRS issued final adjustments related to transfer pricing with our foreign
subsidiaries for our 2011 to 2013 audit cycle. 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
proposed adjustments and are formally protesting the IRS position. 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.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief,
and Economic Security ("CARES") Act, which, along with earlier issued IRS
guidance, provides for deferral of certain taxes. The CARES Act, among other
things, also contains numerous other provisions which may benefit the Company.
We continue to assess the effect of the CARES Act and ongoing government
guidance related to COVID-19 that may be issued.
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
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.

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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
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 loss attributable to Expedia Group, Inc. to Adjusted
EBITDA is as follows:
                                                                 Three months ended March 31,
                                                                     2020               2019
                                                                         (In millions)
Net loss attributable to Expedia Group, Inc.                  $        (1,301 )     $      (103 )
Net income (loss) attributable to non-controlling interests               (96 )               3
Provision for income taxes                                                (82 )             (41 )
Total other expense, net                                                  185                10
Operating loss                                                         (1,294 )            (131 )
Gain (loss) on revenue hedges related to revenue recognized                (6 )               3
Restructuring and related reorganization charges                           75                10
Legal reserves, occupancy tax and other                                   (21 )              10
Stock-based compensation                                                   55                56
Depreciation and amortization                                             229               228
Impairment of goodwill                                                    765                 -
Impairment of intangible assets                                           121                 -
Adjusted EBITDA                                               $           (76 )     $       176


Financial Position, Liquidity and Capital Resources
Our principal sources of liquidity are typically cash flows generated from
operations, cash available under our revolving credit facility as well as our
cash and cash equivalents and short-term investment balances, which were $4.1
billion and $3.8 billion at March 31, 2020 and December 31, 2019. As of
March 31, 2020, the total cash and cash equivalents and short-term investments
held outside the United States was $888 million ($656 million in wholly-owned
foreign subsidiaries and $232 million in majority-owned subsidiaries).
Managing our balance sheet prudently and maintaining appropriate liquidity are
high priorities during the current COVID-19 pandemic. In order to best position
the Company to navigate our temporary working capital changes and depressed
revenue, we have taken a number of actions to bolster our liquidity and preserve
financial flexibility, including:
•      Suspension of Share Repurchases. We have not repurchased any shares since
       our last earnings call on February 13, 2020, and have suspended future
       share repurchases.



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• Suspension of Quarterly Dividends. We do not expect to declare quarterly

       dividends on our common stock, at least until the current economic and
       operating environment improves.

• Credit Facility Draw. On March 18, 2020, we increased our cash on hand by

borrowing $1.9 billion under our $2 billion revolving credit facility. The

revolving credit facility bore interest based on the Company's credit

ratings with the applicable interest rate on drawn amounts at LIBOR plus

112.5 basis points, or 2.01%, and the commitment fee on undrawn amounts at

15 basis points as of March 31, 2020. The proceeds from the draw are

available to be used for general corporate purposes, including working

capital. This existing revolving credit facility was subsequently amended

       in May 2020 as discussed below.


•      Private Equity Investment. On April 23, 2020, we entered into an

investment agreement with AP Fort Holdings, L.P., an affiliate of Apollo

Global Management, Inc., and an investment agreement with SLP Fort

Aggregator II, L.P. and SLP V Fort Holdings II, L.P., affiliates of Silver

Lake Group, L.L.C., to raise approximately $1.2 billion in gross proceeds

in a private placement of shares of a newly created series of preferred

       stock and warrants to purchase our common stock. The transaction was
       completed on May 5, 2020.

• Senior Notes Issuance. On May 5, 2020, we privately placed $2 billion of

unsecured 6.250% senior notes that are due in May 2025 (the "6.25% Notes")

and $750 million of unsecured 7.000% senior notes due May 2025 (the "7.0%

Notes", and, together with the 6.25% Notes, the "6.25% and 7.0% Notes").

The 7.0% notes have certain redemption provisions starting with the second

       anniversary of the issuance. The 6.25% and 7.0 % Notes were issued at a
       price of 100% of the aggregate principal amount. Interest is payable
       semi-annually in arrears in May and November of each year, beginning
       November 1, 2020. We expect to use the net proceeds of this offering for

general corporate purposes, which may include, but are not limited to, the

       repayment or redemption of our 5.95% senior notes due 2020.


•      Credit Facility Amendment. In connection with the issuance of the Notes
       and private placement transaction, on May 4, 2020, we executed a

restatement agreement, which amends and restates our existing revolving

credit facility (as amended and restated, the "Amended Credit Facility")

to, among other things, provide additional flexibility under pliable

covenant provisions.

Our credit ratings are periodically reviewed by rating agencies. As of March 31,
2020, Moody's rating was Baa3 with an outlook of "negative," S&P's rating was
BBB with an outlook of "watch negative" and Fitch's rating was BBB- with an
outlook of "negative." Subsequent to quarter end, S&P downgraded its ratings to
BBB- with an outlook of "negative." The recent rating agency downgrades were in
connection with the severe disruption to global travel caused by the COVID-19
pandemic. 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% and 7.0% Notes issued in May 2020 will increase,
which could have a material impact on our financial condition and results of
operations.
As of March 31, 2020, we were in compliance with the covenants and conditions in
our revolving credit facility and outstanding debt, which was comprised of
$750 million in registered senior unsecured notes due in August 2020 that bear
interest at 5.95%, $500 million in registered senior unsecured notes due in
August 2024 that bear interest at 4.5%, Euro 650 million of registered senior
unsecured notes due in June 2022 that bear interest at 2.5%, $750 million of
registered senior unsecured notes due in February 2026 that bear interest at
5.0%, $1 billion of registered senior unsecured notes due in February 2028 that
bear interest at 3.8% and $1.25 billion in registered senior unsecured notes due
in February 2030 that bear interest at 3.25%.
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. With the impacts of the COVID-19 pandemic,
including the high degree of cancellations and customer refunds and the lower
new bookings in the merchant business model, these seasonal influences and the
working capital source of cash to us has been significantly disrupted resulting
in the Company temporarily experiencing unfavorable working capital trends and
material negative cash flow. This is expected to continue until cancellations
stabilize and travel demand begins to recover from current levels, at which time
we expect merchant bookings and cash flow to increase.

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Prior to COVID-19, we embarked on an ambitious cost reduction initiative to
simplify the organization and increase efficiency. In response to COVID-19,
Expedia Group has taken 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 have been
deferred, including temporarily halting construction on several real estate
projects, and we continue to evaluate opportunities to defer other capital
expenditures that are not critical to our operations. After temporarily halting
construction on our new headquarters during initial quarantine orders, we
recently restarted construction. We expect to spend approximately $900 million
in total for the project. Of the total, approximately $680 million was spent
between 2016 and 2019, and approximately $80 million was spent during the first
quarter of 2020. Due to the delays related to COVID-19, we now expect the
project to be complete in the first half of 2021.
Our cash flows are as follows:
                                                        Three months ended March 31,
                                                          2020               2019          $ Change
                                                                      (In millions)
 Cash provided by (used in):
Operating activities                                 $      (784 )     $       2,149      $ (2,933 )
Investing activities                                          32                (706 )         738
Financing activities                                       1,517                  21         1,496
 Effect of foreign exchange rate changes on cash,
cash equivalents and restricted cash and cash
equivalents                                                 (141 )          

(11 ) (130 )

For the three months ended March 31, 2020, net cash used in operating activities
was $784 million compared to cash provided by operations of $2,149 million for
the three months ended March 31, 2019 with the change due to a significant use
of cash for working capital changes in the current year compared to a prior year
cash benefit from working capital driven by the COVID-19 pandemic. Merchant
accounts payable was a larger driver of the use of working capital due to a
significant decrease in stayed room nights in the current quarter. In our
typical seasonal pattern, we usually generate strong cash flow in the first
quarter from new merchant bookings. The significant increase in refunds that we
experienced related to travel impacted by COVID-19 led to materially negative
cash flow in March 2020, offsetting the increase in merchant bookings earlier in
the quarter. We expect the impact from COVID-19 on travel to continue to impact
our cash balance and overall liquidity position until cancellations stabilize
and travel demand begins to recover from current levels.
For the three months ended March 31, 2020 cash provided by investing activities
was $32 million compared to cash used in investing activities of $706 million
for the three months ended March 31, 2019. The change was due to net sales and
maturities of investments of $300 million during the current year period
compared to net purchases of investments of $438 million in the prior year.
For the three months ended March 31, 2020, cash provided by financing activities
primarily included $1.9 billion of proceeds from our revolving credit facility
draw as well as $86 million of proceeds from the exercise of options and
employee stock purchase plans, partially offset by cash paid to acquire shares
of $410 million, including the repurchased shares under the authorization
discussed below, and cash dividend payments of $48 million. For the three months
ended March 31, 2019, cash provided by financing activities primarily included
$91 million of proceeds from the exercise of options and employee stock purchase
plans, partially offset by cash dividend payments of $47 million and treasury
stock activity related to the vesting of equity instruments of $25 million.
During the three months ended March 31, 2020, we repurchased, through open
market transactions, 3.4 million shares under share authorizations for a total
cost of $370 million, excluding transaction costs. As previously noted, we have
since halted future share repurchases. As of March 31, 2020, there were
approximately 23.3 million shares remaining under our authorizations. There is
no fixed termination date for the repurchases. We did not repurchase any shares
through open market transactions during the three months ended March 31, 2019.

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Table of Contents

During the first three months of 2020 and 2019, the Executive Committee, acting
on behalf of the Board of Directors, declared and we paid the following
dividends:
                                       Dividend                         Total Amount
Declaration Date                      Per Share       Record Date       (in millions)      Payment Date
Three Months Ended March 31, 2020
February 13, 2020                   $       0.34     March 10, 2020   $            48      March 26, 2020
Three Months Ended March 31, 2019
February 6, 2019                            0.32      March 7, 2019         

47 March 27, 2019

The Company does not expect to make future quarterly dividend payments on our
common stock, at least until the current economic and operating environment
improves. 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 during the three months ended
March 31, 2020 of $141 million reflecting a net depreciation in foreign
currencies relative to the U.S. dollar during the period. Foreign exchange rate
changes resulted in a decrease of our cash and restricted cash balances
denominated in foreign currency during the three months ended March 31, 2019 of
$11 million.
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.

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 instruments, including earnings from and investments in
these entities.

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