EXPEDIA GROUP, INC. 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 endedDecember 31, 2020 , Part I, Item 1A, "Risk Factors," as well as those discussed 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 theSEC 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 endedDecember 31, 2020 . OverviewExpedia 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" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 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, 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 since March andApril 2020 . However, travel bookings remain below and cancellation rates still remain elevated compared to pre-COVID levels. 26 -------------------------------------------------------------------------------- Table of Contents 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. While many countries have continued vaccinating their residents against COVID-19, the large scale and challenging logistics of distributing the vaccines, vaccine hesitancy, as well as uncertainty over the impact of the delta or other new variants of the virus, including the efficacy of the vaccine against such variants, may 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, 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 2020 were significantly impacted due to the decrease in travel demand related to COVID-19. While we saw sequential improvement in trends during the second quarter of 2021, the impact to the overall travel market, and our business, has continued. 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. Overall, we continue to expect annualized run-rate fixed cost savings of$700 to$750 million compared to the fourth quarter of 2019 exit rate, and we continue to evaluate additional opportunities to increase efficiency and improve operational effectiveness across the Company. In addition to the actions to reduce fixed costs, we are executing initiatives to reduce certain variable costs and improve our marketing efficiency. 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.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 49% ofU.S. , European and Latin American leisure and unmanaged corporate travel expenditures occurred online. As ofJanuary 2021 , this figure was estimated to reach approximately 53% in 2022. Online penetration rates in the emerging markets, such asAsia Pacific and Latin American regions, have historically lagged behind that ofthe United States andEurope . 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 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 27 -------------------------------------------------------------------------------- Table of Contents (Hotel Collect ) hotel offerings with our hotel supply partners through both agency-only contracts as well as our hybrid Expedia Traveler Preference ("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. Lodging Lodging includes hotel accommodations and alternative accommodations. As a percentage of our total worldwide revenue in the second quarter of 2021, lodging accounted for 73%. As a result of the improvement in travel demand, stayed room nights grew 196% in the second quarter of 2021 and 6% in the first half of 2021, as compared to a decline of 55% in 2020 and growth of 11% in 2019. The timing of a further 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. Average Daily Rates ("ADRs") for rooms booked onExpedia Group websites decreased 1% in 2019, increased 3% in 2020 and increased 18% in the first half of 2021. During 2020 and the first half of 2021, the year-over-year 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 in alternative accommodations during this period. The uncertain environment related to COVID-19, and the potential for a higher degree of discounting activity due to the lower travel demand, could result in variations in hotel ADR declines for a period of time. Similarly, fluctuations in supply and demand for alternative accommodations, could impact ADRs for Vrbo. In addition, travel restrictions and shift in consumer behavior during COVID-19 that impact the mix of our lodging bookings across geographies and types of accommodations could impact total ADRs. Given these dynamics, it is difficult to predict ADR trends in the near-term. As ofJune 30, 2021 , our global lodging marketplace had approximately 3 million lodging properties available, including over 2 million online bookable alternative accommodations listings and approximately 885,000 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. 28 -------------------------------------------------------------------------------- Table of Contents 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. During the third and fourth quarter of 2020, air passenger traffic declines further moderated and remained stable, but continue to lag the recovery in lodging bookings. 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 60 to 65% inmid-October 2020 and, as ofmid-July 2021 , further moderated to down 20 to 25% 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 299% during the second quarter of 2021 and 6% in first half of 2021 compared to a decline of 63% in 2020 and an increase of 7% in 2019. As a percentage of our total worldwide revenue in the second quarter of 2021, air accounted for 4%. 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 the second quarter of 2021, we generated$161 million of advertising and media revenue, a 539% increase from the same period in 2020, representing 8% 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. We expect trivago to continue to experience pressure on revenue and profit until online travel agencies and other hotel suppliers begin to see consumer demand that warrants an increase in their advertising spend with trivago. Business Strategy As we endeavor to power global travel for everyone, everywhere our focus is to: leverage our brand and supply strength, and our platform, to provide greater services and value to our travelers, suppliers and business partners, and generate sustained, profitable growth. Leverage Brand and Supply Strength. We believe the strength of our brand portfolio and enhancements to product and service offerings, which when combined with our global scale and broad based supply, drive increasing value to customers and customer demand. With our significant global audience of travelers, and our deep and broad selection of travel products, there is a rich interplay between supply and demand in our global marketplace that helps us provide value to both travelers planning trips and supply partners wanting to grow their business through a better understanding of travel retailing and consumer demand in addition to reaching consumers in markets beyond their reach. Our multi-brand strategy and deep product and supply footprint allows us to tailor offerings to target different types of consumers and travel needs, employ geographic segmentation in markets around the world, and leverage brand differentiation, among other benefits. Additionally, we know that consumers typically visit multiple travel websites prior to booking travel, and having a multi-brand strategy increases the likelihood that those consumers will visit one or more of our websites. We also market to consumers through a variety of channels, including internet search, metasearch and social media websites, and having multiple brands appear in search results also increases the likelihood of attracting new visitors. Leverage Our Platform. During 2020,Expedia Group shifted to a platform operating model with more centralized technology, product, data engineering and data science teams building services and capabilities that are leveraged across our business units to serve our end customers and provide value-add services to our travel suppliers. This model enables us to deliver more scalable services and operate more efficiently. All of our transaction-based businesses share and benefit from our platform infrastructure, including customer servicing and support, data centers, search capabilities and transaction processing functions, including payment processing and fraud operations. As we continue to evolve our platform infrastructure, our focus is on developing technical capabilities that support various travel products while using common applications and frameworks. We believe this strategy will enable us to: build in parallel because of simpler, standard architecture; ship products faster; create more innovative solutions; and achieve greater 29 -------------------------------------------------------------------------------- Table of Contents scale. Over time, as we enable domains around application development frameworks, we believe we can unlock additional platform service opportunities beyond our internal brands and other business travel partners. 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. 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. Impacts from COVID-19 disrupted our typical seasonal pattern for bookings, revenue, profit and cash flows during 2020. 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 the second quarter of 2021 have increased sequentially and from the end of second quarter of 2020 levels. 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. 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 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 endedDecember 31, 2020 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 ten 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 30 -------------------------------------------------------------------------------- Table of Contents 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 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$48 million as ofJune 30, 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 , 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 , 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.
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 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. 31 -------------------------------------------------------------------------------- Table of Contents Gross Bookings and Revenue Margin Three months ended June 30, Six months ended June 30, 2021 2020 % Change 2021 2020 % Change ($ in millions) ($ in millions) Gross bookings$ 20,815 $ 2,713 667 %$ 36,237 $ 20,598 76 % Revenue margin (1) 10.1 % 20.9 % 9.3 % 13.5 %
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(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 and six months endedJune 30, 2021 , gross bookings increased 667% and 76%, compared to the same periods in 2020. Booking trends for our lodging, air and other travel products all improved sequentially from the first quarter of 2021. Revenue margin for the three and six months endedJune 30, 2020 was higher than in the current periods due in part to significant lodging cancellations in the prior year periods, which reduced gross bookings, creating an unusual mix of bookings and revenue. Results of Operations Revenue Three months ended June 30, Six months ended June 30, 2021 2020 % Change 2021 2020 % Change ($ in millions) ($ in millions) Revenue by Segment Retail$ 1,715 $ 463 270 %$ 2,740 $ 2,045 34 % B2B 305 68 348 % 489 553 (11) % trivago (Third-party revenue) 91 15 509 % 128 118 8 % Corporate (Bodybuilding.com) - 20 N/A - 59 N/A Total revenue$ 2,111 $ 566 273 %$ 3,357 $ 2,775 21 % Revenue increased 273% and 21% for the three and six months endedJune 30, 2021 , compared to the same periods in 2020. Our Retail, B2B and trivago segments revenue all increased in the quarter. The growth in revenue largely reflected continued improvement in leisure travel trends during the quarter. Three months ended June 30, Six months ended June 30, 2021 2020 % Change 2021 2020 % Change ($ in millions) ($ in millions) Revenue by Service Type Lodging$ 1,533 $ 487 215 %$ 2,436 $ 2,029 20 % Air 78 (70) N/A 128 39 221 % Advertising and media(1) 161 25 539 % 249 228 9 % Other 339 124 174 % 544 479 14 % Total revenue$ 2,111 $ 566 273 %$ 3,357 $ 2,775 21 %
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(1)Includes third-party revenue from trivago as well as our transaction-based websites. Lodging revenue increased 215% and 20% for the three and six months endedJune 30, 2021 , compared to the same periods in 2020, on a 196% and 6% increase in room nights stayed and a 7% and 13% increase in revenue per room night. For the three months endedJune 30, 2021 , revenue per room night benefited from higher ADRs driven by an increase in regional rates and a higher mix ofU.S. hotels. Revenue per room night also benefited in the six months endedJune 30, 2021 from an 32 -------------------------------------------------------------------------------- Table of Contents increase in the percentage of stayed room nights contributed by alternative accommodations, which generate a higher revenue per room night than the other lodging products. Air revenue, which is recognized when booked net of an estimate of cancellations, was negative in the second quarter of 2020 due to several revenue offsets that exceeded new booked revenue in the prior year quarter. Air revenue increased for the three and six months endedJune 30, 2021 driven by an increase in air tickets sold of 299% and 6% as air travel demand improved. Advertising and media revenue increased 539% and 9% for the three and six months endedJune 30, 2021 , compared to the same periods in 2020, 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 andBodybuilding.com (through its sale inMay 2020 ), increased 174% and 14% for the three and six months endedJune 30, 2021 , compared to the same periods in 2020 from growth in car as well as travel insurance products. In addition to the above segment and product revenue discussion, our revenue by business model is as follows: Three months ended June 30, Six months ended June 30, 2021 2020 % Change 2021 2020 % Change ($ in millions) ($ in millions) Revenue by Business Model Merchant$ 1,338 $ 368 264 %$ 2,134 $ 1,708 25 % Agency 573 105 442 % 896 667 34 % Advertising, media and other 200 93 115 % 327 400 (18) % Total revenue$ 2,111 $ 566 273 %$ 3,357 $ 2,775 21 % Merchant revenue increased for the three months endedJune 30, 2021 , compared to the same period in 2020, primarily due to an increase in merchant hotel revenue driven by an increase in room nights stayed as well as an increase in Vrbo merchant alternative accommodations revenue. Merchant revenue increased for the six months endedJune 30, 2021 , compared to the same period in 2020, primarily due to an increase in Vrbo merchant alternative accommodations revenue, partially offset by a decline in merchant hotel revenue. Agency revenue increased for the three and six months endedJune 30, 2021 , compared to the same periods in 2020, primarily due to an increase in agency hotel, air and car revenue. Advertising, media and other increased for the three months endedJune 30, 2021 , compared to the same period in 2020, primarily due to an increase in advertising revenue. Advertising, media and other decreased for the six months endedJune 30, 2021 , compared to the same period in 2020, primarily due to declines related to our prior year sale ofBodybuilding.com , partially offset by an increase in advertising revenue. 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. For additional information, see Note 1 - Basis of Presentation in the notes to the consolidated financial statements. Cost of Revenue Three months ended June 30, Six months ended June 30, 2021 2020 % Change 2021 2020 % Change ($ in millions) ($ in millions) Direct costs$ 266 $ 252 6 %$ 467 $ 727 (36) % Personnel and overhead 108 129 (17) % 218 283 (23) % Total cost of revenue$ 374 $ 381 (2) %$ 685 $ 1,010 (32) % % of revenue 17.7 % 67.2 % 20.4 % 36.4 % 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 toBodybuilding.com during our period of ownership as well as related personnel and overhead costs, including stock-based compensation. 33 -------------------------------------------------------------------------------- Table of Contents Cost of revenue decreased$7 million during the three months endedJune 30, 2021 , compared to the same period in 2020, primarily due to a decrease in decreased customer service and personnel costs, lower bad debt expense as well as the absence of expenses related toBodybuilding.com , which was disposed of in the second quarter of 2020. These decreases were partially offset by increase in merchant fees resulting from recovering transaction volumes and higher cloud expense. Cost of revenue decreased$325 million during the six months endedJune 30, 2021 , compared to the same period in 2020, primarily due to a decrease in bad debt expense, which was significantly elevated in the first six months of 2020 due to the initial impacts of COVID-19, decreased customer service and personnel costs, and the absence of expenses related toBodybuilding.com . Selling and Marketing Three months ended June 30, Six months ended June 30, 2021 2020 % Change 2021 2020 % Change ($ in millions) ($ in millions) Direct costs$ 1,002 $ 90 1,019 %$ 1,489 $ 1,044 43 % Indirect costs 197 201 (2) % 374 452 (17) % Total selling and marketing$ 1,199 $ 291 313 %$ 1,863 $ 1,496 25 % % of revenue 56.8 % 51.3 % 55.5 % 53.9 % 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$908 million and$367 million during the three and six months endedJune 30, 2021 , compared to the same periods in 2020, primarily due to an increase in direct costs driven by a significant increase in marketing spend during the second quarter of 2021 in response to the anticipation of a further recovery in travel demand. The change in indirect costs reflect lower personnel costs in connection with previously announced cost savings initiatives, partially offset by higher stock-based compensation expense. Technology and Content Three months ended June 30, Six months ended June 30, 2021 2020 % Change 2021 2020 % Change ($ in millions) ($ in millions) Personnel and overhead$ 204 $ 191 7 %$ 378 $ 415 (9) % Other 72 80 (11) % 145 171 (16) % Total technology and content$ 276 $ 271 2 %$ 523 $ 586 (11) % % of revenue 13.1 % 48.0 % 15.6 % 21.1 % 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$5 million during the three months endedJune 30, 2021 , compared to the same period in 2020, primarily reflecting higher stock-based compensation expense, partially offset by lower other personnel and related costs in connection with previously announced cost savings initiatives. Technology and content expense decreased$63 million during the six months endedJune 30, 2021 , compared to the same period in 2020, primarily reflecting lower personnel and related costs as well as license and maintenance expense in connection with previously announced cost savings initiatives, partially offset by higher stock-based compensation. 34 --------------------------------------------------------------------------------
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General and Administrative
Three months ended June 30, Six months ended June 30,
2021 2020 % Change 2021 2020 % Change
($ in millions) ($ in millions)
Personnel and overhead $ 148 $ 113 30 % $ 268 $ 246 9 %
Professional fees and other 36 36 (1) % 72 88 (19) %
Total general and administrative $ 184 $ 149 23 % $ 340 $ 334 1 %
% of revenue 8.7 % 26.5 % 10.1 % 12.1 %
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 $35 million and $6 million during
the three and six months ended June 30, 2021 , compared to the same periods in
2020, mainly due to an increase in stock-based compensation. For the six months
ended June 30, 2021 , this increase was mostly offset by a decrease in personnel
costs in connection with previously announced savings initiatives.
Depreciation and Amortization
Three months ended June 30, Six months ended June 30,
2021 2020 % Change 2021 2020 % Change
($ in millions) ($ in millions)
Depreciation $ 179 $ 191 (7) % $ 361 $ 376 (4) %
Amortization of intangible assets 26 41 (37) % 53 85 (37) %
Total depreciation and
amortization $ 205 $ 232 (12) % $ 414 $ 461 (10) %
Depreciation decreased $12 million and $15 million during the three and six
months ended June 30, 2021 , compared to the same periods in 2020. Amortization
of intangible assets decreased $15 million and $32 million during the three and
six months ended June 30, 2021 , compared to the same periods in 2020 primarily
due to the completion of amortization related to certain intangible assets as
well as the impact of definite-lived intangible impairments in the prior year.
Impairment of Goodwill and Intangible Assets
During the three months ended June 30, 2020 , we recognized goodwill impairment
charges of $20 million and intangible asset impairment charges of $10 million
due to a decision to streamline operations for a smaller brand within our Retail
segment. During the six months ended June 30, 2020 , primarily as a result of the
significant negative impact related to COVID-19, which had a severe effect on
the entire global travel industry, we recognized goodwill impairment charges of
$785 million as well as intangible asset impairment charges of $131 million . See
Note 3 - Fair Value Measurements in the notes to the consolidated financial
statements for further information.
Legal Reserves, Occupancy Tax and Other
Three months ended June 30, Six months ended June 30,
2021 2020 % Change 2021 2020 % Change
($ in millions) ($ in millions)
Legal reserves, occupancy tax
and other $ (8) $ 8 N/A $ (9) $ (13) (38) %
% of revenue (0.4) % 1.3 % (0.2) % (0.5) %
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.
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During the three and six months ended June 30, 2021 , there were net reductions
to our reserve related to hotel occupancy and other taxes. During the six months
ended June 30, 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.
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 $13
million and $53 million in restructuring and related reorganization charges
during the three months ended June 30, 2021 and 2020 and, during the six months
ended June 30, 2021 and 2020, we recognized $42 million and $128 million . Based
on current plans, which are subject to change, we expect total reorganization
charges primarily in the remainder of 2021 of approximately $15 million to
$20 million . However, we continue to actively evaluate additional cost reduction
efforts and should we make decisions in future periods to take further actions
we will incur additional reorganization charges.
Operating Loss
Three months ended June 30, Six months ended June 30,
2021 2020 % Change 2021 2020 % Change
($ in millions) ($ in millions)
Operating loss $ (132) $ (849) (84) % $ (501) $ (2,143) (77) %
% of revenue (6.3) % (149.9) % (14.9) % (77.3) %
During the three and six months ended June 30, 2021 , we had operating losses of
$132 million and $501 million , compared to operating losses of $849 million and
$2.1 billion for the same periods in 2020. The lower operating losses for the
quarter were primarily due to growth in revenue in excess of operating costs.
The lower operating losses for the year-to-date period was due to revenue growth
as well as the prior year goodwill and intangible impairment charges mentioned
above.
Adjusted EBITDA by Segment
Three months ended June 30, Six months ended June 30,
2021 2020 % Change 2021 2020 % Change
($ in millions) ($ in millions)
Retail $ 303 $ (203) N/A $ 397 $ (181) N/A
B2B (8) (128) (93) % (68) (102) (33) %
trivago 5 (16) N/A 1 (17) N/A
Unallocated overhead costs
(Corporate) (1) (99) (89) 11 % (187) (212) (12) %
Total Adjusted EBITDA (2) $ 201 $ (436) N/A $ 143 $ (512) N/A
____________________________
(1) Includes immaterial operating results ofBodybuilding.com through its sale inMay 2020 . (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 11 - 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. Our Retail, B2B and trivago segments all experienced improvements from the Adjusted EBITDA losses in the prior year periods as a result of the recovering travel environment in the current year as well as impacts of the costs saving initiatives implemented in 2020. Unallocated overhead costs increased$10 million during the three months endedJune 30, 2021 , compared to the same period in 2020, primarily due to an increase in general and administrative expenses. Unallocated overhead costs decreased$25 million during the six months endedJune 30, 2021 , compared to the same period in 2020, primarily due to lower general and administrative as well as technology and content expenses. 36 --------------------------------------------------------------------------------
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Interest Income and Expense
Three months ended June 30, Six months ended June 30,
2021 2020 % Change 2021 2020 % Change
($ in millions) ($ in millions)
Interest income $ 1 $ 3 (55) % $ 3 $ 13 (75) %
Interest expense (83) (95) (12) % (181) (145) 25 %
Loss on debt extinguishment - - N/A (280) - N/A
Interest income decreased for the three and six months ended June 30, 2021 ,
compared to the same periods in 2020, as a result of lower rates of return.
Interest expense decreased for the three months ended June 30, 2021 , compared to
the same period in 2020, primarily as a result of interest related to our prior
year draw on our revolving credit facility, which we fully repaid in December
2020 . Interest expense increased for the six months ended June 30, 2021 ,
compared to the same period in 2020, primarily as a result of higher average
debt balances due to additional debt issued since May 2020 .
As a result of the debt refinancing transactions during the six months ended
June 30, 2021 , we recognized a loss on debt extinguishment of $280 million ,
which included the payment of early payment premiums and fees as well as the
write-off of unamortized debt issuance costs. See Note 4 - Debt in the notes to
the consolidated financial statements for further information.
Other, Net
Other, net is comprised of the following:
Three months ended June 30, Six months ended June 30,
2021 2020 2021 2020
($ in millions)
Foreign exchange rate gains (losses), net $ (7) $ (3) $ (18) $ 42
Gains (losses) on minority equity
investments, net (4) (7) 4 (195)
Other 1 (2) (1) (4)
Total other, net $ (10) $ (12) $ (15) $ (157)
During the six months ended June 30, 2020 , losses on minority equity
investments, net included $134 million of impairment losses related to a
minority investment as well as $60 million of mark-to-market losses related to
our publicly traded marketable equity investment, Despegar. See Note 3 - Fair
Value Measurements in the notes to the consolidated financial statements for
further information.
Provision for Income Taxes
Three months ended June 30, Six months ended June 30,
2021 2020 % Change 2021 2020 % Change
($ in millions) ($ in millions)
Provision for income taxes $ (47) $ (213) (78) % $ (216) $ (295) (27) %
Effective tax rate 21.0 % 22.3 % 22.1 % 12.1 %
We determine our provision for income taxes for interim periods using an
estimate of our annual effective tax rate. We record any changes affecting the
estimated annual tax rate in the interim period in which the change occurs,
including discrete items.
For the three months ended June 30, 2021 , the effective tax rate was a 21.0%
benefit on a pre-tax loss, compared to a 22.3% benefit on pre-tax loss for the
three months ended June 30, 2020 .
For the six months ended June 30, 2021 , the effective tax rate was a 22.1%
benefit on a pre-tax loss, compared to a 12.1% benefit on pre-tax loss for the
six months ended June 30, 2020 . The change in the effective tax rate was
primarily due to nondeductible impairments and a valuation allowance principally
related to unrealized capital losses recorded in the prior year period.
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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.
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. 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.
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The reconciliation of net income (loss) attributable to Expedia Group, Inc. to
Adjusted EBITDA is as follows:
Three months ended June 30, Six months ended June 30,
2021 2020 2021 2020
(In millions)
Net loss attributable to Expedia Group, Inc. $ (172) $ (736) $ (750) $ (2,037)
Net loss attributable to non-controlling
interests (5) (4) (8) (100)
Provision for income taxes (47) (213) (216) (295)
Total other expense, net 92 104 473 289
Operating loss (132) (849) (501) (2,143)
Gain (loss) on revenue hedges related to revenue
recognized 3 36 (6) 30
Restructuring and related reorganization charges 13 53 42 128
Legal reserves, occupancy tax and other (8) 8 (9) (13)
Stock-based compensation 120 54 203 109
Depreciation and amortization 205 232 414 461
Impairment of goodwill - 20 - 785
Impairment of intangible assets - 10 - 131
Adjusted EBITDA $ 201 $ (436) $ 143 $ (512)
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 $5.5 billion and
$3.4 billion at June 30, 2021 and December 31, 2020 . As of June 30, 2021 , the
total cash and cash equivalents and short-term investments held outside the
United States was $925 million ($683 million in wholly-owned foreign
subsidiaries and $242 million in majority-owned subsidiaries). Our credit
facilities were essentially untapped at June 30, 2021 and December 31, 2020 .
Managing our balance sheet prudently and maintaining appropriate liquidity are
high priorities during the current 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. During the six months ended June 30, 2021 , we
continued these actions, including suspension of our share repurchases and
quarterly common stock dividends as well as completed the following:
•0% Convertible Notes Issuance. On February 19, 2021 , we completed our private
placement of $1 billion aggregate principal amount of unsecured 0% convertible
senior notes due 2026 (the "Convertible Notes"). The net proceeds from the
issuance of the Convertible Notes was approximately $983 million after deducting
debt issuance costs. The Convertible Notes will mature on February 15, 2026 ,
unless earlier converted, redeemed or repurchased. The Convertible Notes will
not bear regular interest. The Convertible Notes have an initial conversion rate
of 3.9212 shares of common stock of Expedia Group with a par value $0.0001 per
share, per $1,000 principal amount of Convertible Notes, which is equal to an
initial conversion price of approximately $255.02 per share of our common stock.
The conversion rate is subject to adjustment from time to time upon the
occurrence of certain events, including, but not limited to, the issuance of
stock dividends and payment of cash dividends.
•2.95% Senior Notes Issuance. On March 3, 2021 , we privately placed $1 billion
of senior unsecured notes that are due in March 2031 that bear interest at 2.95%
(the "2.95% Notes"). The 2.95% Notes were issued at a price of 99.081% of the
aggregate principal amount. Interest is payable semi-annually in arrears in
March and September of each year, beginning September 15, 2021 , and the interest
rate is subject to adjustment based on certain ratings events. The net proceeds
from the issuance of the 2.95% Notes was approximately $982 million after
deducting the discount and debt issuance costs.
•Extinguishment of High Cost Debt. On March 3, 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 during the six
months ended June 30, 2021 comprised of early payment premiums and
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fees associated with the tender offer as well as the write-off of unamortized
debt issuance costs.
•Partial Repayment of Preferred Stock. On May 20, 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 date using cash on-hand.
Our credit ratings are periodically reviewed by rating agencies. As of June 30,
2021 , Moody's rating was Baa3 with an outlook of "negative," S&P's rating was
BBB- with an outlook of "negative" and Fitch's rating was BBB- with an outlook
of "negative." In July 2021 , Moody's changed its outlook from "negative" to
"stable" "reflecting Moody's expectation for continued recovery in travel
demand, particularly in the U.S. where the company is a leading online travel
agency, combined with Expedia's commitment to reduce debt balances with excess
cash and restore credit metrics to pre-pandemic levels." Changes in our
operating results, cash flows, financial position, capital structure, financial
policy or capital allocations to share repurchase, dividends, investments and
acquisitions could impact the ratings assigned by the various rating agencies.
Should our credit ratings be adjusted downward, we may incur higher costs to
borrow and/or limited access to capital markets and interest rates on the 6.25%
Notes issued in May 2020 , the 3.6% and 4.625% Notes issued in July 2020 as well
as the 2.95% Notes issued in March 2021 will increase, which could have a
material impact on our financial condition and results of operations.
As of June 30, 2021 , we were in compliance with the covenants and conditions in
our revolving credit facilities and outstanding debt as detailed in Note 4 -
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 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 second quarter 2021 have increased
sequentially and from the end of second quarter 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. We temporarily halted construction on our new headquarters during the
initial quarantine order in March 2020 but restarted construction later in the
year. We spent approximately $850 million on construction between 2016 and 2020
and approximately $23 million was spent during the six months ended June 30,
2021 . As of the end of the second quarter of 2021, the project was substantially
complete and was within the expected total project spend of approximately $900
million .
Our cash flows are as follows:
Six months ended June 30,
2021 2020 $ Change
(In millions)
Cash provided by (used in):
Operating activities $ 4,684 $ (2,630) $ 7,314
Investing activities (413) (341) (72)
Financing activities (378) 5,333 (5,711)Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents
(26) (93) 67
For the six months ended June 30, 2021 , net cash provided by operating
activities was $4.7 billion compared to cash used in operations of $2.6 billion
for the six months ended June 30, 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
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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.
For the six months ended June 30, 2021 , cash used in investing activities was
$413 million compared to cash used in investing activities of $341 million for
the six months ended June 30, 2020 . The increase was largely due to the
settlement of currency forward contract losses in the current year period
compared to gains in the prior year period as well as lower net sales of
maturities of investments, partially offset by lower capital expenditures,
including those related to our new headquarters as our construction winds down.
For the six months ended June 30, 2021 , cash used in financing activities
primarily included payments of approximately $2 billion related to the
extinguishment of debt and $618 million for the 50% redemption of preferred
stock both discussed above as well as $85 million of cash paid for treasury
stock activity related to the vesting of equity instruments and $50 million in
preferred stock dividends. These uses of cash were largely offset by
approximately $2 billion of net proceeds from the issuance of Convertible Notes
and 2.95% Notes issued in February and March 2020 , respectively, as well as $379
million of proceeds from the exercise of options and employee stock purchase
plans. For the six months ended June 30, 2020 , cash provided by financing
activities primarily included $2.7 billion of net proceeds from the issuance of
the 6.25% and 7.0% Notes issued in May 2020 , $1.9 billion of proceeds from our
revolving credit facility draw in March 2020 , $1.1 billion of net proceeds from
a private equity investment as well as $96 million of proceeds from the exercise
of options and employee stock purchase plans. These sources were partially
offset by cash paid to acquire shares of $414 million and cash dividend payments
of $65 million .
During the six months ended June 30, 2021 , we accumulated and paid $50 million
(or $47.11 per share of Series A Preferred Stock) of dividends on our 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 during the six months ended
June 30, 2021 and 2020 of $26 million and $93 million reflecting a net
depreciation in foreign currencies relative to the U.S. dollar during the
periods.
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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