WASHINGTON, D.C. 20549
The number of shares outstanding of each of the registrant’s classes of common stock as of October 13, 2017July 21, 2023 was:
See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
Notes to Consolidated Financial Statements
SeptemberJune 30, 20172023
(Unaudited)
Note 1 – Basis of Presentation
Description of Business
Expedia Group, Inc. and its subsidiaries provide travel products and services to leisure and corporate travelers in the United States and abroad as well as various media and advertising offerings to travel and non-travel advertisers. These travel products and services are offered through a diversified portfolio of brands including: Expedia.com®Brand Expedia®, Hotels.com®Hotels.com®, Hotwire.comTMExpedia® Partner Solutions, Vrbo®, Travelocity®trivago®, Expedia® Affiliate Network, Classic Vacations®Orbitz®, Travelocity®, Hotwire®, Wotif®, ebookers®, CheapTickets®, Expedia Local Expert®,Group™ Media Solutions, CarRentals.com™ and Expedia® CruiseShipCenters®, CarRentals.com CruisesTM, Wotif Group, Orbitz®, CheapTickets®, ebookers®, SilverRail Technologies, Inc., Egencia®, trivago®, and HomeAway®. In addition, many of these brands have related international points of sale, including those as part of AirAsia-Expedia.sale. We refer to Expedia Group, Inc. and its subsidiaries collectively as “Expedia Group,” the “Company,” “us,” “we” and “our” in these consolidated financial statements.
Basis of Presentation
These accompanying financial statements present our results of operations, financial position and cash flows on a consolidated basis. The unaudited consolidated financial statements include Expedia Group, Inc., our wholly-owned subsidiaries, and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We record our investments in entities that we do not control, but over which we have the ability to exercise significant influence, using the equity method or at fair value. We have eliminated significant intercompany transactions and accounts.
We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. We have included all adjustments necessary for a fair presentation of the results of the interim period. These adjustments consist of normal recurring items. Our interim unaudited consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016,2022 (“2022 Form 10-K”), previously filed with the Securities and Exchange Commission. Upon closing of its initial public offering on December 16, 2016,Commission (“SEC”). trivago becameis a separately listed company on the Nasdaq Global Select Market and, therefore is subject to its own reporting and filing requirements, which could result in possible differences that are not expected to be material to Expedia Inc.Group.
Accounting Estimates
We use estimates and assumptions in the preparation of our interim unaudited consolidated financial statements in accordance with GAAP. Our estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our interim unaudited consolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. Our actual financial results could differ significantly from these estimates. The significant estimates underlying our interim unaudited consolidated financial statements include revenue recognition; recoverability of current and long-lived assets, intangible assets and goodwill; income and transactional taxes, such as potential settlements related to occupancy and excise taxes; loss contingencies; deferred loyalty program liabilities; acquisition purchase price allocations;rewards; stock-based compensation andcompensation; accounting for derivative instruments.instruments and provisions for credit losses, customer refunds and chargebacks.
Reclassifications
We have reclassified certain amounts related to our prior period resultsfinancial statements to conform to ourthe current period presentation.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel products and 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. BecauseSince revenue for most of our travel products,services, including merchant and agency hotel, is recognized whenas 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 longer.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
Notes to Consolidated Financial Statements – (Continued)
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 aggressively market during the busy booking period
Notes to Consolidated Financial Statements – (Continued)
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 continued growth of our international operations, advertising business or a change in our product mix, including the assimilation and growth of HomeAway, may influence the typical trend of the seasonality in the future, and there may also be business or market driven dynamics that result in short-term impacts to revenue or profitability that differ from the typical seasonal trends. We expect that as HomeAway continues its shift to more of a transaction-based business model for vacation rental listings its seasonal trends may be somewhat more pronounced than our other traditional leisure businesses.
Note 2 – Summary of Significant Accounting Policies
Recent Adopted Accounting Policies Not Yet Adopted
Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standard's Board ("FASB") issued an Accounting Standards Update ("ASU") amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued an ASU deferring the effective date of the revenue standard so it would be effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption prohibited before December 15, 2016. In addition, the FASB has also issued several amendments to the standard which clarify certain aspects of the guidance, including principal versus agent considerations and identifying performance obligations.
The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective). We will adopt this new guidance in the first quarter of 2018 and apply the modified retrospective method.
We have determined the new guidance will not change our previous conclusions on net presentation. We have also determined that the standard will impact our loyalty program accounting as we will no longer be permitted to use the incremental cost method when recording the financial impact of rewards earned in conjunction with our traveler loyalty programs. Instead, we will be required to re-value our liability using a relative fair value approach. Additionally, due to the new definition of variable consideration, we will be required to estimate and record certain variable payments earlier than currently recorded. Both modifications will result in cumulative-effect adjustments to opening retained earnings, with an insignificant change to revenue on a go-forward basis. The new guidance will likely also result in insignificant changes in the timing and classification of certain other revenue streams.
As of January 1, 2023, we complete our overall assessment, we will identify and implement changes to our accounting policies and practices, business processes, and controls to supportadopted the new revenue recognition standard and disclosure requirements.
Recognition and Measurement of Financial Instruments. In January 2016, the FASB issued new guidance related to accounting for equity investments, financialrecognizing and measuring contract assets and contract liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.from contracts with customers acquired in a business combination. The new standard is effective for annual periods,guidance requires acquiring entities to apply Topic 606 to recognize and interim periods within those annual periods, beginning after December 15, 2017. The most significant impact for the Company is with respectmeasure contract assets and contract liabilities in a business combination as compared to the requirement that equity investments with readily determinable fair values,current GAAP where an acquirer generally recognizes such as our investment in Despegar.com, Corp ("Despegar"), must be carrieditems at fair value on the acquisition date. The adoption of this new guidance had no impact on our consolidated financial statements.
Significant Accounting Policies
Below are the significant accounting policies with changesinterim disclosure requirements. For a comprehensive description of our accounting policies, refer to our 2022 Form 10-K.
Revenue
Prepaid Merchant Bookings. We classify payments made to suppliers in fairadvance of Vrbo performance obligations as prepaid merchant bookings included within prepaid and other current assets. Prepaid merchant bookings was $685 million as of June 30, 2023 and $480 million as of December 31, 2022.
Deferred Merchant Bookings. We classify cash payments received in advance of our performance obligations as deferred merchant bookings. At December 31, 2022, $6.2 billion of advance cash payments was reported within deferred merchant bookings, $4.5 billion of which was recognized resulting in $716 million of revenue during the six months ended June 30, 2023. At June 30, 2023, the related balance was $10.6 billion.
At December 31, 2022, $961 million of deferred loyalty rewards was reported within deferred merchant bookings, $467 million of which was recognized within revenue during the six months ended June 30, 2023. At June 30, 2023, the related balance was $964 million.
Deferred Revenue. At December 31, 2022, $163 million was recorded as deferred revenue, $100 million of which was recognized as revenue during the six months ended June 30, 2023. At June 30, 2023, the related balance was $185 million.
Practical Expedients and Exemptions. We have used the portfolio approach to account for our loyalty points as the rewards programs share similar characteristics within each program in relation to the value recorded through net income. Today, such investmentprovided to the traveler and their breakage patterns. Using this portfolio approach is designated as available for sale and is recorded at fair value with changes in fair value recorded through other comprehensive income. Upon adoption innot expected to differ materially from applying the first quarter of 2018,guidance to individual contracts. However, we will recordcontinue to assess and refine, if necessary, how a cumulative-effect adjustmentportfolio within each rewards program is defined.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Cash, Restricted Cash, and Cash Equivalents
Our cash and cash equivalents include cash and liquid financial instruments, including money market funds and term deposit investments, with maturities of three months or less when purchased.Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to certain traveler deposits and to a lesser extent collateral for office leases. The following table reconciles cash, cash equivalents and restricted cash reported in our consolidated balance sheets to the consolidated balance sheet as of the beginning of the annual period of adoption related to unrealized gains/losses, net of tax, previously classified within other comprehensive income and will begin recording fair value changes within other, net ontotal amount presented in our consolidated statements of operations. Fair value changes could vary significantly period to period. In addition, we intend to elect to measure minority equity investments that do not have a readily determinable fair value at cost less impairment, adjusted by observable price changes as permitted by the new guidance with changes recorded within other, net on our consolidated statements of operations.cash flows:
Definition of a Business. In January 2017, the FASB issued new guidance clarifying the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted for transactions that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. The standard must be applied prospectively. Upon adoption, the standard will impact how we assess acquisitions (or disposals) of assets or businesses.
Statement of Cash Flows. In August and November 2016, the FASB issued new guidance related to the statement of cash flows which clarifies how companies present and classify certain cash receipts and cash payments as well as amends current
| | | | | | | | | | | |
| June 30,
2023 | | December 31,
2022 |
| (in millions) |
| Cash and cash equivalents | $ | 6,274 | | | $ | 4,096 | |
| Restricted cash and cash equivalents | 2,484 | | | 1,755 | |
| | | |
| Total cash, cash equivalents and restricted cash and cash equivalents in the consolidated statements of cash flows | $ | 8,758 | | | $ | 5,851 | |
Notes to Consolidated Financial Statements – (Continued)
Accounts Receivable and Allowances
guidance to address the classificationAccounts receivable are generally due within thirty days and presentation of changes in restricted cash in the statement of cash flows. The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. We plan to adopt this new guidance on January 1, 2018 retrospectively and currently anticipate the most significant impact will be to include in our cash and cash-equivalent balances in the consolidated statement of cash flow those amounts that are deemed to be restricted cash and restricted cash equivalents.
Intra-entity Transfers of Assets Other Than Inventory. In October 2016, the FASB issued new guidance amending the accounting for income taxes associated with intra-entity transfers of assets other than inventory. This accounting update, which is part of the FASB's simplification initiative, is intended to reduce diversity in practice and the complexity of tax accounting, particularly for those transfers involving intellectual property. This new guidance requires an entity to recognize the income tax consequencesrecorded net of an intra-entity transferallowance for expected uncollectible amounts. We consider accounts outstanding longer than the contractual payment terms as past due. The risk characteristics we generally review when analyzing our accounts receivable pools primarily include the type of an asset other than inventory when the transfer occurs. The new standard is effective for annual periods,receivable (for example, credit card vs hotel collect), collection terms and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. We are in the processhistorical or expected credit loss patterns. For each pool, we make estimates of evaluating the impact of adopting this new guidance on our consolidated financial statements.
Leases. In February 2016, the FASB issued new guidance related to accounting and reporting guidelines for leasing arrangements. The new guidance requires entities that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted and should be applied using a modified retrospective approach. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
Hedge Accounting. In August 2017, the FASB amended the existing accounting guidance for hedge accounting. The amendments require expanded hedge accounting for both non-financial and financial risk components and refine the measurement of hedge results to better reflect an entity's hedging strategies. The new guidance also amends the presentation and disclosure requirements and changes how entities assess hedge effectiveness. The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption permitted. The new guidance must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued new guidance on the measurement ofexpected credit losses for financial assets measured at amortized cost, which includesour allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history continually updated for new collections data, the credit quality of our customers, current economic conditions, reasonable and available-for-sale debt securities.supportable forecasts of future economic conditions and other factors that may affect our ability to collect from customers. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will resultprovision for estimated credit losses is recorded as cost of revenue in more timely recognition of credit losses. This update is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within those annual periods. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
Simplifying the Goodwill Impairment Test. In January 2017, the FASB issued new guidance simplifying subsequent goodwill measurement by eliminating Step 2 from the goodwill impairment test. Under this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair valuestatements of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 with early adoption permitted for annual goodwill impairment tests performed after January 1, 2017. The standard must be applied prospectively. Upon adoption, the standard will impact how we assess goodwill for impairment. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
Note 3 – Acquisitions and Other Investments
operations. During the ninesix months ended SeptemberJune 30, 2017,2023, we completed several business combinations, onerecorded approximately $24 million of which we made an initial investment in during 2015. The following summarizes the preliminary aggregate purchase price allocationincremental allowance for these acquisitions, in thousands:expected uncollectible accounts, offset by $13 million of write-offs.
Notes to Consolidated Financial Statements – (Continued)
|
| | | | |
| Goodwill | | $ | 126,388 |
|
Intangibles with definite lives (1) | | 75,894 |
|
Net assets and non-controlling interests acquired (2) | | 11,887 |
|
| Deferred tax liabilities | | (20,814 | ) |
Total (3) | | $ | 193,355 |
|
| |
(1) | Acquired intangible assets with definite lives have a weighted average useful life of 3.8 years. |
| |
(2) | Includes cash acquired of $5 million. |
| |
(3) | The total purchase price includes noncash consideration of $10 million related to the removal of a cost method investment upon our acquisition of a controlling interest as well as $8 million related to replacement stock awards attributable to pre-acquisition service, with the remainder paid in cash during the period. |
The redeemable non-controlling interest in one of our acquisitions is redeemable at an amount other than fair value requiring that each period we adjust the non-controlling interest to redemption value through earnings. In addition, another of our acquisitions made during the period includes redeemable non-controlling interests, which are redeemable at fair value requiring that each period we adjust the changes in the fair value of the non-controlling interest through retained earnings (or additional paid-in capital if there is no retained earnings). Fair value determinations are based on various valuation techniques, including market comparables and discounted cash flow projections.
Of the goodwill recorded for the business combinations, $12 million is expected to be deductible for tax purposes with the remainder not expected to be deductible. The purchase price allocations were based on preliminary valuations of the assets acquired and liabilities assumed and are subject to revision. The results of operations were immaterial from the transaction close dates through September 30, 2017. Pro forma results have not been presented as such pro forma financial information would not be materially different from historical results.
Other Investments. On July 27, 2017, we announced that Expedia and Traveloka Holding Limited ("Traveloka"), a Southeast Asian online travel company, have expanded our partnership to include deeper cooperation on hotel supply and that we made a $350 million investment in Traveloka, the majority of which is accounted for as a cost method investment and included within long-term investment and other assets on the consolidated balance sheet with a small portion allocated to intangible assets.
Note 43 – Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis as of SeptemberJune 30, 20172023 are classified using the fair value hierarchy in the table below:
|
| | | | | | | | | | | |
| | Total | | Level 1 | | Level 2 |
| | (In thousands) |
| Assets | | | | | |
| Cash equivalents: | | | | | |
| Money market funds | $ | 49,734 |
| | $ | 49,734 |
| | $ | — |
|
| Time deposits | 732,907 |
| | — |
| | 732,907 |
|
| Restricted cash: | | | | | |
| Time deposits | 2,362 |
| | — |
| | 2,362 |
|
| Investments: | | | | | |
| Time deposits | 504,070 |
| | — |
| | 504,070 |
|
| Corporate debt securities | 42,178 |
| | — |
| | 42,178 |
|
| Marketable equity securities | 306,900 |
| | 306,900 |
| | — |
|
| Total assets | $ | 1,638,151 |
| | $ | 356,634 |
| | $ | 1,281,517 |
|
| | | | | | |
| Liabilities | | | | | |
| Derivatives: | | | | | |
| Foreign currency forward contracts | $ | 7,457 |
| | $ | — |
| | $ | 7,457 |
|
Notes to Consolidated Financial Statements – (Continued)
| | | | | | | | | | | | | | | | | |
| Total | | Level 1 | | Level 2 |
| | (In millions) |
| Assets | | | | | |
| Cash equivalents: | | | | | |
| Money market funds | $ | 4 | | | $ | 4 | | | $ | — | |
| | | | | |
| Term deposits | 194 | | | — | | | 194 | |
| Derivatives: | | | | | |
| | | | | |
| Cross-currency interest rate swaps | 15 | | | — | | | 15 | |
| Investments: | | | | | |
| Term deposits | 27 | | | — | | | 27 | |
| Equity investments | 622 | | | 68 | | | 554 | |
| Total assets | $ | 862 | | | $ | 72 | | | $ | 790 | |
| | | | | |
| Liabilities | | | | | |
| Derivatives: | | | | | |
| Foreign currency forward contracts | $ | 26 | | | $ | — | | | $ | 26 | |
| | | | | |
Financial assets measured at fair value on a recurring basis as of December 31, 20162022 are classified using the fair value hierarchy in the table below:
| | | | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | |
| | (In thousands) | | (In millions) |
| Assets | | | | | | Assets | | |
| Cash equivalents: | | | | | | Cash equivalents: | | |
| Money market funds | $ | 113,955 |
| | $ | 113,955 |
| | $ | — |
| Money market funds | $ | 3 | | | $ | 3 | | | $ | — | | |
| Time deposits | 299,585 |
| | — |
| | 299,585 |
| |
| | Term deposits | | Term deposits | 188 | | | — | | | 188 | | |
| Derivatives: | | Derivatives: | | |
| Foreign currency forward contracts | | Foreign currency forward contracts | 15 | | | — | | | 15 | | |
| Cross-currency interest rate swaps | | Cross-currency interest rate swaps | 21 | | | — | | | 21 | | |
| Investments: | | | | | | Investments: | | |
| Time deposits | 24,576 |
| | — |
| | 24,576 |
| |
| Corporate debt securities | 64,227 |
| | — |
| | 64,227 |
| |
| Term deposits | | Term deposits | 48 | | | — | | | 48 | | |
| Equity investments | | Equity investments | 564 | | | 49 | | | 515 | | |
| Total assets | $ | 502,343 |
| | $ | 113,955 |
| | $ | 388,388 |
| Total assets | $ | 839 | | | $ | 52 | | | $ | 787 | | |
| | | | | | | |
| Liabilities | | | | | | |
| Derivatives: | | | | | | |
| Foreign currency forward contracts | $ | 4,402 |
| | $ | — |
| | $ | 4,402 |
| |
|
We classify our cash equivalents and investments within Level 1 and Level 2 as we value our cash equivalents and investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets, a Level 2 input.
Notes to Consolidated Financial Statements – (Continued)
Valuation of the cross-currency interest rate swaps is based on foreign currency exchange rates and December 31, 2016, our cash and cash equivalents consisted primarily of prime institutional money market funds with maturities of three months or less, time deposits as well as bank account balances.the current interest rate curve, Level 2 inputs.
We invest in investment grade corporate debt securities, all of which are classified as available for sale. As of September 30, 2017, we had $37 million of short-term and $6 million of long-term available for sale investments and the amortized cost basis of the investments approximated their fair value with gross unrealized gains and gross unrealized losses both of less than $1 million. As of December 31, 2016, we had $48 million of short-term and $16 million of long-term available for sale investments and the amortized cost basis of the investments approximated their fair value with both gross unrealized gains and gross unrealized losses of less than $1 million.
On September 20, 2017, Despegar completed its initial public offering and, therefore we designated our previous cost method investment in Despegar as available for sale. As of September 30, 2017, the cost basis was $273 million and related gross unrealized gain was $34 million.
We also hold timeterm deposit investments with financial institutions. TimeTerm deposits with original maturities of less than three months are classified as cash equivalents and thoseequivalents. Those with remaining maturities of less than one year are classified within short-term investments. Additionally, we have timeinvestments and those with remaining maturities of greater than one year are classified within long-term investments and other assets.
As of June 30, 2023 and December 31, 2022, our cash and cash equivalents consisted primarily of term deposits classified as restricted cash for certain traveler deposits.and money market funds with maturities of three months or less and bank account balances.
Derivative instruments are carried at fair value on our consolidated balance sheets. We use foreign currency forward contracts to economically hedge certain merchant revenue exposures, foreign denominated liabilities related to certain of our loyalty programs and our other foreign currency-denominated operating liabilities. Our goal in managing our foreign exchange risk is to reduce, to the extent practicable, our potential exposure to the changes that exchange rates might have on our earnings, cash flows and financial position. Our foreign currency forward contracts are typically short-term and, as they do not qualify for hedge accounting treatment, we classify the changes in their fair value in other, net. As of SeptemberJune 30, 2017,2023, we were party to outstanding forward contracts hedging our liability and revenue exposures with a total net notional value of $2.6$5.0 billion. We had a net forward liability of $7$26 million and $4($44 million gross forward liability) as of June 30, 2023 recorded in accrued expenses and other current liabilities and a net forward asset of $15 million ($29 million gross forward asset) as of September 30, 2017 and December 31, 2016.2022 recorded in prepaid expenses and other current assets. We recorded $(11)$35 million and $4$49 million in net gains (losses)losses from foreign currency forward contracts during the three months ended SeptemberJune 30, 20172023 and 20162022, as well as $(2)$15 million and $(44)$84 million in net gains (losses) during the ninesix months ended SeptemberJune 30, 20172023 and 2016.2022.
On March 2, 2022, we entered into two fixed-to-fixed cross-currency interest rate swaps with an aggregate notional amount of €300 million and maturity dates of February 2026. The swaps were designated as net investment hedges of Euro assets with the objective to protect the U.S. dollar value of our net investments in the Euro foreign operations due to movements in foreign currency. The fair value of the cross-currency interest rate swaps was a $15 million asset as of June 30, 2023 and a $21 million asset as of December 31, 2022, recorded in long-term investments and other assets. The gain recognized in interest expense was $3 million and $2 million during the six months ended June 30, 2023 and 2022.
Our equity investments include our marketable equity investment in Despegar, a publicly traded company, which is included in long-term investments and other assets in our consolidated balance sheets. During the six months ended June 30, 2023 and 2022, we recognized a gain of approximately $18 million and a loss of approximately $16 million within other, net in our consolidated statements of operations related to the fair value changes of this equity investment.
In addition, as of June 30, 2023, we had an equity investment related to our approximately 16% ownership interest in GBT JerseyCo Ltd (“GBT”) and a commensurate voting interest in the publicly traded company, Global Business Travel Group, Inc. (“GBTG”). Our shares in GBT are exchangeable on a 1:1 basis for GBTG shares, and as such, we valued our investment based on the GBTG’s share price at the end of the second quarter of 2023, which resulted in a gain of $36 million within other, net in our consolidated statements of operations during the six months ended June 30, 2023. For the six months ended June 30, 2022, we recorded a loss of approximately $335 million related to this investment. In July 2023, GBTG simplified its organizational structure, and we exchanged our GBT shares for an equal number of GBTG shares with no change to our ownership interest. As a result, as of the third quarter of 2023, we will reclassify our investment from Level 2 to a Level 1 asset.
Assets Measured at Fair Value on a Non-recurring Basis
Our non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity and cost method investments for which we have not elected the fair value option, are adjusted to fair value only when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs. We measure our minority investments that do not have readily determinable fair values at cost less impairment, adjusted by observable price changes with changes recorded within other, net on our consolidated statements of operations.
Cost Method Investments. Intangible Assets. During the three and six months ended June 30, 2022, we recognized intangible impairment charges of $29 million related to an indefinite-lived trade name within our trivago segment that resulted from changes in the weighted average cost of capital. The indefinite-lived trade name asset, classified as Level 3 measurements, was valued using the relief-from-royalty method, which includes unobservable inputs, including projected revenues, royalty rates and weighted average cost of capital. As noted above, trivago is subject to its own reporting and filing requirements and, therefore, assesses goodwill at a lower level, which could result in possible differences in the ultimate amount or timing of impairments recognized.
Minority Investments without Readily Determinable Fair Values. As of Septemberboth June 30, 20172023 and December 31, 2016,2022, the carrying values of our minority investments accounted for under the cost methodwithout readily determinable fair values totaled $372 million and $323$330 million. We periodically evaluate the recoverability of each investment and record a write-down to fair value if a decline in value is determined to be other-than-temporary. During the nine
three and six months ended June 30, 2023 and 2022, we had no material gains or losses recognized related to these minority investments. As of June 30, 2023, total cumulative adjustments made to the initial cost basis of these investments included $2 million in unrealized upward adjustments and $105 million in unrealized downward adjustments (including impairments).
Notes to Consolidated Financial Statements – (Continued)
months ended September 30, 2017, we recorded $14 million in net losses related to cost method investments, which included $6 million in other-than-temporary impairments during the first six months of 2017 as well as a loss recognized on the liquidation of an investment of $9 million during the third quarter of 2017. During the nine months ended September 30, 2016, we recorded an $11 million other-than-temporary impairment related to a cost method investment.
Note 54 – Debt
The following table sets forth our outstanding debt:
| | | | | | | | | | | |
| June 30,
2023 | | December 31,
2022 |
| | (In millions) |
| 6.25% senior notes due 2025 | $ | 1,038 | | | $ | 1,036 | |
| 5.0% senior notes due 2026 | 747 | | | 746 | |
| 0% convertible senior notes due 2026 | 991 | | | 989 | |
| 4.625% senior notes due 2027 | 746 | | | 745 | |
| 3.8% senior notes due 2028 | 995 | | | 995 | |
| 3.25% senior notes due 2030 | 1,238 | | | 1,237 | |
| 2.95% senior notes due 2031 | 492 | | | 492 | |
Long-term debt(1) | $ | 6,247 | | | $ | 6,240 | |
| | | |
| | | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| | (In thousands) |
| 7.456% senior notes due 2018 | $ | 500,000 |
| | $ | 500,000 |
|
| 5.95% senior notes due 2020 | 747,626 |
| | 747,020 |
|
| 2.5% (€650 million) senior notes due 2022 | 762,264 |
| | 677,503 |
|
| 4.5% senior notes due 2024 | 494,987 |
| | 494,472 |
|
| 5.0% senior notes due 2026 | 741,073 |
| | 740,341 |
|
| 3.8% senior notes due 2028 | 989,786 |
| | — |
|
Total debt(1) | 4,235,736 |
| | 3,159,336 |
|
| Current maturities of long-term debt | (500,000 | ) | | — |
|
| Long-term debt, excluding current maturities | $ | 3,735,736 |
| | $ | 3,159,336 |
|
(1)Net of applicable discounts and debt issuance costs.
| |
(1) | Net of applicable discounts and debt issuance costs. |
Long-term Debt
Our $500 million in registeredAdditional information about our $1 billion aggregate principal amount of unsecured 0% convertible senior unsecured notes due 2026 (the “Convertible Notes”) and our otheroutstanding at September 30, 2017 are due in August 2018 and bear interest at 7.456% (the “7.456%senior notes (collectively the “Senior Notes”). Interest is payable semi-annually in February and August of each year. At any time Expedia may redeem the 7.456% Notes at a redemption price of 100%, see Note 7 – Debt of the principal plus accrued interest, plus a “make-whole” premium, in whole or in part.
Our $750 million in registered senior unsecured notes outstanding at September 30, 2017 are due in August 2020 and bear interest at 5.95% (the “5.95% Notes”). The 5.95% Notes were issued at 99.893% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in February and August of each year. We may redeem the 5.95% Notes at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium, in whole or in part.
Our Euro 650 million in registered senior unsecured notes outstanding at September 30, 2017 are due in June 2022 and bear interest at 2.5% (the “2.5% Notes”). The 2.5% Notes were issued at 99.525% of par resulting in a discount, which is being amortized over their life. Interest is payable annually in arrears in June of each year. We may redeem the 2.5% Notes at our option, at whole or in part, at any time or from time to time. If we elect to redeem the 2.5% Notes prior to March 3, 2022, we may redeem them at a specified “make-whole” premium. If we elect to redeem the 2.5% Notes on or after March 3, 2022, we may redeem them at a redemption price of 100% of the principal plus accrued and unpaid interest. Subject to certain limited exceptions, all payments of interest and principal for the 2.5% Notes will be made in Euros.
The aggregate principal value of the 2.5% Notes is designated as a hedge of our net investment in certain Euro functional currency subsidiaries. The notes are measured at Euro to U.S. Dollar exchange rates at each balance sheet date and transaction gains or losses due to changes in rates are recorded in accumulated other comprehensive income (loss) (“OCI”). The Euro-denominated net assets of these subsidiaries are translated into U.S. Dollars at each balance sheet date, with effects of foreign currency changes also reported in accumulated OCI. Since the notional amount of the recorded Euro-denominated debt is less than the notional amount of our net investment, we do not expect to incur any ineffectiveness on this hedge.
Our $500 million in registered senior unsecured notes outstanding at September 30, 2017 are due in August 2024 and bear interest at 4.5% (the “4.5% Notes”). The 4.5% Notes were issued at 99.444% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in February and August of each year. We may redeem the 4.5% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 4.5% Notes prior to May 15, 2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 4.5% Notes on or after May 15, 2024, we may redeem them at a redemption price of 100% of the principal plus accrued interest.
Notes to Consolidated Financial Statements – (Continued)in our 2022 Form 10-K.
Our $750 million in registered senior unsecured notesAll of our outstanding at September 30, 2017 are due in February 2026 and bear interest at 5.0% (the “5.0% Notes”). The 5.0%Senior Notes were issued at 99.535% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year. We may redeem the 5.0% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 5.0% Notes prior to November 12, 2025, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 5.0% Notes on or after November 12, 2025, we may redeem them at a redemption price of 100% of the principal plus accrued interest.
In September 2017, we privately placed $1 billion of senior unsecured notes that are due in February 2028 and bear interest at 3.8% (the "3.8% Notes"). The 3.8% Notes were issued at 99.747% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year, beginning February 15, 2018. We may redeem the 3.8% Notes at our option at any time in whole or from time to time in part. If we elect to redeem the 3.8% Notes prior to November 15, 2027, we may redeem them at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. If we elect to redeem the 3.8% Notes on or after November 15, 2027, we may redeem them at a redemption price of 100% of the principal plus accrued interest. We also entered into a registration rights agreement with respect to the 3.8% Notes, under which we agreed to use commercially reasonable best efforts to file a registration statement to permit the exchange of the 3.8% Notes for registered notes having the same financial terms and covenants as the 3.8% Notes, and cause such registration statement to become effective and complete the related exchange offer within 365 days of the issuance of the 3.8% Notes. If we fail to satisfy certain of its obligations under the registration rights agreement, we will be required to pay additional interest of 0.25% per annum to the holders of the 3.8% Notes until such registrations right default is cured.
The 7.456%, 5.95%, 4.5%, 2.5%, 5.0% and 3.8% Notes (collectively the “Notes”) are senior unsecured obligations issued by Expedia Group and guaranteed by certain domestic Expedia Group subsidiaries. The Senior Notes rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations of Expedia Group and the guarantor subsidiaries. For further information, see Note 12 – Guarantor and Non-Guarantor Supplemental Financial Information. In addition, the Senior Notes include covenants that limit our ability to (i) create certain liens, (ii) enter into sale/leaseback transactions and (iii) merge or consolidate with or into another entity or transfer substantially all of our assets. Accrued interest related to the Notes was $25 million and $63 million as of September 30, 2017 and December 31, 2016. The 5.95%, 4.5%, 2.5%, 5.0% and 3.8%Senior Notes are redeemable in whole or in part, at the option of the holders thereof, upon the occurrence of certain change of control triggering events at a purchase price in cash equal to 101% of the principal plus accrued and unpaid interest. Accrued interest related to the Senior Notes was $73 million as of both June 30, 2023 and December 31, 2022.
Estimated Fair Value.The following table sets forth the approximatetotal estimated fair value of our outstanding debt, which isSenior Notes was approximately $5.0 billion and $4.9 billion as of June 30, 2023 and December 31, 2022. Additionally, the estimated fair value of the Convertible Notes was $878 million and $871 million as of June 30, 2023 and December 31, 2022. The fair value was determined based on quoted market prices in less active markets (Leveland is categorized according as Level 2 inputs):in the fair value hierarchy.
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| | (In thousands) |
| 7.456% senior notes due 2018 | $ | 524,000 |
| | $ | 541,000 |
|
| 5.95% senior notes due 2020 | 822,000 |
| | 823,000 |
|
2.5% (€650 million) senior notes due 2022 (1) | 820,000 |
| | 718,000 |
|
| 4.5% senior notes due 2024 | 531,000 |
| | 511,000 |
|
| 5.0% senior notes due 2026 | 819,000 |
| | 782,000 |
|
| 3.8% senior notes due 2028 | 992,000 |
| | — |
|
| |
(1) | Approximately 694 million Euro as of September 30, 2017 and 682 million Euro as of December 31, 2016. |
Credit Facility
As of June 30, 2023, Expedia Inc. maintainsGroup maintained a $1.5$2.5 billion unsecured revolving credit facility with a group of lenders, which is unconditionally guaranteed by certain domestic Expedia subsidiaries that are the same as under the Notes and expiresmatures in February 2021.April 2027. As of SeptemberJune 30, 20172023 and December 31, 2016,2022, we had no revolving credit facility borrowings outstanding. TheLoans under the revolving credit facility bearsbear interest basedat a rate equal to an index rate plus a margin (a) in the case of term benchmark loans, ranging from 1.00% to 1.75% per annum, depending on the Company’sExpedia Group’s credit ratings, with drawn amounts bearing interestand (b) in the case of base rate loans, ranging from 0.00% to 0.75% per annum, depending on Expedia Group’s credit ratings. A fee is payable quarterly in respect of undrawn commitments under the revolving credit facility at LIBOR plus 137.5 basis points anda rate ranging from 0.10% to 0.25% per annum, depending on Expedia Group’s credit ratings. The terms of the commitment fee on undrawn amounts at 17.5 basis pointsrevolving credit facility require Expedia Group to not exceed a specified maximum consolidated leverage ratio as of September 30, 2017. The facility contains covenants including maximum leverage and minimum interest coverage ratios.the end of each fiscal quarter.
The amount of stand-by lettersrevolving credit facility has a $120 million letter of credit (“LOC”) sublimit, and the amount of LOCs issued under the facility reducesreduced the credit amount available. As September 30, 2017 and December 31, 2016, there were $16 million and $19 million of outstandingOutstanding stand-by LOCs issued under the facility.
Notes to Consolidated Financial Statements – (Continued)
In addition, one of our international subsidiaries maintains a Euro 50 million uncommitted credit facility, which is guaranteed by Expedia, Inc., that may be terminated at any time by the lender. As of SeptemberJune 30, 20172023 and December 31, 2016, there were no borrowings outstanding.2022, respectively.
Note 65 – Stockholders’ Equity
Dividends on our CommonTreasury Stock
The Executive Committee, acting on behalfAs of June 30, 2023, the BoardCompany’s treasury stock was comprised of Directors, declared the following dividends during the periods presented:
|
| | | | | | | | | | | |
| Declaration Date | Dividend Per Share | | Record Date | | Total Amount (in thousands) | | Payment Date |
| Nine Months Ended September 30, 2017 | | | | | | | |
| February 7, 2017 | $ | 0.28 |
| | March 9, 2017 | | $ | 42,247 |
| | March 30, 2017 |
| April 26, 2017 | 0.28 |
| | May 25, 2017 | | 42,438 |
| | June 15, 2017 |
| July 26, 2017 | 0.30 |
| | August 24, 2017 | | 45,578 |
| | September 14, 2017 |
| Nine Months Ended September 30, 2016 | | | | | | | |
| February 8, 2016 | 0.24 |
| | March 10, 2016 | | 36,174 |
| | March 30, 2016 |
| April 26, 2016 | 0.24 |
| | May 26, 2016 | | 35,773 |
| | June 16, 2016 |
| July 27, 2016 | 0.26 |
| | August 25, 2016 | | 39,062 |
| | September 15, 2016 |
In addition, in October 2017, the Executive Committee, acting on behalf of the Board of Directors, declared a quarterly cash dividend of $0.30 per share of outstandingapproximately 141.1 million common stock payable onand 7.3 million Class B shares. As of December 7, 2017 to stockholders31, 2022, the Company’s treasury stock was comprised of record as of the close of business on November 16, 2017. Future declarations of dividends are subject to final determination by our Board of Directors.
Share Repurchases
In February 2015, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 10approximately 130.5 million shares of our common stock. There is no fixed termination date for the repurchases. During the nine months ended September 30, 2017, we repurchased, through open market transactions, 1.0 million shares under this authorization for the total cost of $139 million, excluding transaction costs, representing an average repurchase price of $135.49 per share. As of September 30, 2017, 6.2 million shares remain authorized for repurchase under the 2015 authorization.
Stock-based Awards
Stock-based compensation expense relates primarily to expense for stock options and restricted stock units (“RSUs”). As of September 30, 2017, we had stock-based awards outstanding representing approximately 19 million shares of our common stock consisting of options to purchase approximately 16and 7.3 million shares of our common stock with a weighted average exercise price of $93.89 and weighted average remaining life of 4.6 years and approximately 2 million RSUs.
During the third quarter of 2017, as a result of the recent departure of our former CEO and the related forfeiture of certain of his stock-based awards, we reversed $41 million of previously recognized stock-based compensation within general and administrative expense. For the three months ended September 30, 2017, we recognized $6 million of total stock-based compensation expense, compared to $48 million for the same period in 2016.
Accumulated Other Comprehensive Income (Loss)
The balance for each class of accumulated other comprehensive loss as of September 30, 2017 and December 31, 2016 is as follows:Class B shares.
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| | (In thousands) |
Foreign currency translation adjustments, net of tax(1) | $ | (144,653 | ) | | $ | (280,426 | ) |
Net unrealized gain on available for sale securities, net of tax(2) | 20,680 |
| | 27 |
|
| Accumulated other comprehensive loss | $ | (123,973 | ) | | $ | (280,399 | ) |
12
Notes to Consolidated Financial Statements – (Continued)
Share Repurchases. In 2019, the Board of Directors and the Executive Committee, pursuant to a delegation of authority from the Board, authorized the repurchase of up to 20 million shares of our common stock. During the six months ended June 30, 2023, we repurchased, through open market transactions, 10.2 million shares under these authorizations for a total cost of $1.0 billion, excluding transaction costs, representing an average repurchase price of $100.00 per share. As of June 30, 2023, 7.9 million shares remain authorized for repurchase with no fixed termination date for the repurchases. Subsequent to the end of the second quarter of 2023, we repurchased an additional 1.6 million shares for a total cost of $183 million, excluding transaction costs, representing an average purchase price of $115.97 per share.
| |
(1) | Accumulated Other Comprehensive Income (Loss) The balance of AOCI as of June 30, 2023 and December 31, 2022 was comprised of foreign currency translation adjustments. These translation adjustments include foreign currency transaction gains as of June 30, 2023 of $11 million ($15 million before tax) and $16 million ($21 million before tax) as of December 31, 2022 associated with our cross-currency interest rate swaps as described in Note 3 – Fair Value Measurements. Additionally, translation adjustments include foreign currency transaction losses of $7 million ($10 million before tax) as of both June 30, 2023 and December 31, 2022 associated with previously settled Euro-denominated notes that were designated as net investment hedges. Foreign currency translation adjustments, net of tax, include foreign currency transaction losses at September 30, 2017 of $37 million ($59 million before tax) and gains at December 31, 2016 of $16 million ($25 million before tax) associated with our 2.5% Notes. The 2.5% Notes are Euro-denominated debt designated as hedges of certain of our Euro-denominated net assets. See Note 5 – Debt for more information. The remaining balance in currency translation adjustments excludes income taxes as a result of our current intention to indefinitely reinvest the earnings of our international subsidiaries outside of the United States.
|
| |
(2) | The net unrealized gain on available for sale securities before tax at September 30, 2017 was $34 million. |
Note 76 – Earnings (Loss) Per Share
The following table presents our basic and diluted earnings (loss) per share:
|
| | | | | | | | | | | | | | | |
| | Three months ended
September 30, | | Nine months ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In thousands, except per share data) |
| Net income attributable to Expedia, Inc. | $ | 352,238 |
| | $ | 279,331 |
| | $ | 322,805 |
| | $ | 202,391 |
|
| Earnings per share attributable to Expedia, Inc. available to common stockholders: | | | | | | | |
| Basic | $ | 2.32 |
| | $ | 1.86 |
| | $ | 2.13 |
| | $ | 1.35 |
|
| Diluted | 2.23 |
| | 1.81 |
| | 2.06 |
| | 1.31 |
|
| Weighted average number of shares outstanding: | | | | | | | |
| Basic | 152,088 |
| | 150,239 |
| | 151,406 |
| | 150,281 |
|
| Dilutive effect of: | | | | | | | |
| Options to purchase common stock | 5,009 |
| | 3,745 |
| | 4,564 |
| | 3,815 |
|
| Other dilutive securities | 663 |
| | 252 |
| | 550 |
| | 236 |
|
| Diluted | 157,760 |
| | 154,236 |
| | 156,520 |
| | 154,332 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended
June 30, | | Six months ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (In millions, except share and per share data) |
| Net income (loss) attributable to Expedia Group, Inc. | $ | 385 | | | $ | (185) | | | $ | 240 | | | $ | (307) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Earnings (loss) per share attributable to Expedia Group, Inc. available to common stockholders: | | | | | | | |
| Basic | $ | 2.62 | | | $ | (1.17) | | | $ | 1.60 | | | $ | (1.96) | |
| Diluted | 2.54 | | | (1.17) | | | 1.55 | | | (1.96) | |
| Weighted average number of shares outstanding (000's): | | | | | | | |
| Basic | 147,168 | | | 157,290 | | | 149,808 | | | 156,831 | |
| Dilutive effect of: | | | | | | | |
| Convertible Notes | 3,921 | | | — | | | 3,921 | | | — | |
| Stock-based awards | 748 | | | — | | | 690 | | | — | |
| Other dilutive securities | 7 | | | — | | | 6 | | | — | |
| Diluted | 151,844 | | | 157,290 | | | 154,425 | | | 156,831 | |
Basic earnings per share is calculated using our weighted-average outstanding common shares. The earnings per share amounts are the same for common stock and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.
Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards and common stock warrants as determined under the treasury stock method and of our Convertible Notes using the if-converted method.In periods when we recognize a net loss, we exclude the impact of outstanding stock awards and the potential share settlement impact related to our Convertible Notes from the diluted loss per share calculation as their inclusion would have an antidilutive effect. For the three and ninesix months ended SeptemberJune 30, 2017,2023, approximately 17 million ofshares from outstanding stock awards werehave been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive. For the three and ninesix months ended SeptemberJune 30, 2016,2022, approximately 911 million ofshares from outstanding stock awards have been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive.
Note 8 – Restructuring and Related Reorganization Charges
In connection with activities to centralize and optimize certain operations as well as migrate technology platforms in the prior year, primarilyapproximately 4 million shares related to previously disclosed acquisitions, we recognized $16 million and $46 million in restructuring and related reorganization charges during the nine months ended September 30, 2017 and 2016. Based on current plans, which are subject to change, we expect to incur less than $5 million during the remainder of 2017potential share settlement impact related to these integrations and estimates do not include any possible future acquisition integrations. Accrued restructure liabilitiesour Convertible Notes were $15 million and $18 million as of September 30, 2017 and December 31, 2016.excluded.
Note 97 – Income Taxes
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 effective tax rate in the interim period in which the change occurs, including discrete tax items.
Notes to Consolidated Financial Statements – (Continued)
For the ninethree months ended SeptemberJune 30, 2017, we recorded a 6.6% tax rate expense on pre-tax income, which was driven by discrete income tax items, specifically2023, the recognition of excess tax benefits related to share-based payments. The effective tax rate for the nine months ended September 30, 2016 was a 9.2% tax rate benefit16.7% measured against pre-tax income, compared to (46.2)% measured against a pre-tax income, andloss in the prior year period. The change in the effective tax rate was primarily due to discrete income tax items including release of a valuation allowance for net operating lossesnondeductible mark-to-market adjustments to our minority equity investments recorded in the first quarter of 2016,prior year period.
For the six months ended June 30, 2023, the effective tax rate was 38.7% measured against pre-tax income, compared to 8.0% measured against a pre-tax loss in the prior year period. The increase in the effective tax rate was primarily due to the TripAdvisor audit assessment discussed below as well as recognition of excess tax benefits related to share-based payments resulting fromnondeductible mark-to-market adjustments recorded in the adoption of new accounting guidance for share-based paymentsas of January 1, 2016.
In addition to the above, our effective tax rate for all periods was lower than the 35% federal statutory rate due to earnings in foreign jurisdictions outside of the United States, predominately Switzerland, where our statutory income tax rate is lower as well as excess tax benefits.prior year period.
We are subject to taxation in the United States and various otherforeign jurisdictions. Our income tax filings are regularly examined by federal, state and foreign jurisdictions. We are under examination bytax authorities. During the fourth quarter of 2019, the Internal Revenue Service ("IRS"(“IRS”) issued final adjustments related to transfer pricing with our foreign subsidiaries for our 2009 through2011 to 2013 tax years. Our 2014 and subsequent years remain openThe adjustments would increase our U.S. taxable income by $696 million, which would result in federal tax of approximately $244 million, subject to examination byinterest. We do not agree with the position of the IRS. We do not anticipatehave formally filed a significant impactprotest for our 2011 to our gross unrecognized2013 tax benefits withinyears and the next 12 months related to these years.case is currently in Appeals. During firstthe fourth quarter of 2017,2022, the IRS issued similar proposed adjustments related to transfer pricing with our foreign subsidiaries for our 20092014 to 2010 audit cycle.2016 tax years. The proposed adjustments would increase our U.S. taxable income by $105 million,$1.232 billion, which would result in federal tax expense of approximately $37$431 million, subject to interest. We do not agree with the position of the IRS and intend to formally file a protest. We are formally protestingalso under examination by the IRS position.for our 2017 to 2020 tax years. We believe it is reasonably possible that the audit of the 2011 to 2013 tax years will conclude within the next 12 months.
On December 20, 2011, we completed a spin-off of TripAdvisor into a separate publicly-traded corporation. Pursuant to the tax sharing agreement between Expedia Group and TripAdvisor, TripAdvisor is responsible for its potential tax liabilities in connection with any consolidated income tax returns filed as a part of Expedia Group’s consolidated income tax return prior to or in connection with the spin-off. TripAdvisor is required to indemnify Expedia Group for any such taxes, including interest, penalties, legal, and professional fees. In the first half of 2023, TripAdvisor agreed in principle with the IRS to an assessed amount of $120 million, inclusive of interest and state tax effects, for transfer pricing adjustments with its foreign subsidiaries for the 2009 through 2011 tax years. The assessment is a tax liability for tax years when TripAdvisor was part of Expedia Group's consolidated income tax return and is covered by the indemnification pursuant to the tax sharing agreement. In May 2023, Expedia Group received from the IRS the final assessment for the 2009 through 2011 tax years related to the TripAdvisor matter. Expedia Group remitted $113 million in settlement payments to the IRS, as the primary obligor for this assessment, and received the reimbursement required from TripAdvisor in settlement of the indemnification receivable for this matter. To date, we have recorded $67 million of additional income tax expense and a corresponding tax indemnification adjustment in other, net in our consolidated statements of operations representing the estimate of the incremental assessed payment to the IRS, including state tax effects.
Note 108 – Commitments and Contingencies
Legal Proceedings
In the ordinary course of business, we are a party to various lawsuits. Management does not expect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Expedia.Expedia Group. We also evaluate other potential contingent matters, including value-added tax, excise tax, sales tax, transient occupancy or accommodation tax and similar matters. We do not believe that the aggregate amount of liability that could be reasonably possible with respect to these matters would have a material adverse effect on our financial results; however, litigation is inherently uncertain and the actual losses incurred in the event that our legal proceedings were to result in unfavorable outcomes could have a material adverse effect on our business and financial performance.
Litigation Relating to Occupancy Taxes. Ninety-sixOne hundred three lawsuits have been filed by or against cities, counties and states involving hotel occupancy and other taxes. SeventeenEight lawsuits are currently active. These lawsuits are in various stages and we continue to defend against the claims made in them vigorously. With respect to the principal claims in these matters, we believe that the statutes or ordinances at issue do not apply to us or the services we provide and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the statutes or 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. To date, forty-oneforty-nine of these lawsuits have been dismissed. Some of these dismissals have been without prejudice and, generally, allow the governmental entity or entities to seek administrative remedies prior to pursuing further litigation. Twenty-sevenThirty-four dismissals were based on a finding that we and the other defendants were not subject to the local hotel occupancy tax ordinance or that the local government lacked standing to pursue theirits claims. As a result of this litigation and other attempts by certain jurisdictions to levy such taxes, we have established a reserve for the potential settlement of issues related to hotel occupancy and other taxes, consistent with applicable accounting principles and in light of all current facts and circumstances,
Notes to Consolidated Financial Statements – (Continued)
in the amount of $40$46 million and $71$44 million as of SeptemberJune 30, 20172023 and December 31, 2016.2022, respectively. Our settlement reserve is based on our best estimate of probable losses and the ultimate resolution of these contingencies may be greater or less than the liabilities recorded. An estimate for a reasonably possible loss or range of loss in excess of the amount reserved cannot be made. Changes to the settlement reserve are included within legal reserves, occupancy tax and other in the consolidated statements of operations.
In addition, we have been audited by the state of Colorado. The state has issued assessments for claimed tax, interest and penalty in the approximate amount of $23 million for the periods December 1, 1999 through December 31, 2011. We do not agree with these assessments and have filed protests.
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.
Hawaii (General Excise Tax). During 2013, the Expedia companies were required to “pay-to-play” and paid a total of $171 million in advance of litigation relating to general excise taxes for merchant model hotel reservations in the State of Hawaii. In September 2015, following a ruling by the Hawaii Supreme Court, the State of Hawaii refunded the Expedia companies $132 million of the original “pay-to-play” amount. Orbitz also received a similar refund of $22 million from the
Notes to Consolidated Financial Statements – (Continued)
State of Hawaii in September 2015. The amount paid, net of refunds, by the Expedia companies and Orbitz to the State of Hawaii in satisfaction of past general excise taxes on their services for merchant model hotel reservations was $44 million. The parties reached a settlement relating to Orbitz merchant model hotel tax liabilities, and on October 5, 2016, the Expedia companies paid the State of Hawaii for the tax years 2012 through 2015. The Expedia companies, including Orbitz, have now resolved all assessments by the State of Hawaii for merchant model hotel taxes through 2015.
The Department of Taxation also issued final assessments for general excise taxes against the Expedia companies, including Orbitz, dated December 23, 2015 for the time period 2000 to 2014 for hotel and car rental revenue for “agency model” transactions. Those assessments are currently under review in the Hawaii tax courts. The Hawaii tax court has scheduled trial on the agency hotel and car rental matters for February 9, 2019.
Final assessments by the Hawaii Department of Taxation for general exercise taxes against the Expedia companies, including Orbitz, relating to merchant car rental transactions during the years 2000 to 2014 are also currently under review in the Hawaii tax courts. With respect to merchant model car rental transactions at issue for the tax years 2000 through 2013, the Hawaii tax court held on August 5, 2016 that general excise tax is due on the online travel companies’ services to facilitate car rentals. The court further ruled that for merchant model car rentals in Hawaii, the online travel companies are required to pay general excise tax on the total amount paid by consumers, with no credit for tax amounts already remitted by car rental companies to the State of Hawaii for tax years 2000 through 2013, thus resulting in a double tax on the amount paid by consumers to car rental companies for the rental of the vehicle. The court, however, ruled that when car rentals are paid for as part of a vacation package, tax is only due once on the amount paid by consumers to the car rental company for the rental of the vehicle. In addition, the court ruled that the online travel companies are required to pay interest and certain penalties on the amounts due. On April 25, 2017, the court entered a stipulated order and final judgment. On May 15, 2017, the Expedia companies paid under protest the full amount claimed due, or approximately $16.7 million, as a condition of appeal. The parties filed notices of cross-appeal from the order. The appeals have been transferred to the Hawaii Supreme Court and remain pending. The Hawaii tax court’s decision did not resolve merchant car rental transactions for the tax year 2014, which also remain under review.
San Francisco (Occupancy Tax). During 2009, Expedia companies were required to “pay-to-play” and paid $48 million in advance of litigation relating to occupancy tax proceedings with the city of San Francisco and, in May 2014, the Expedia companies paid an additional $25.5 million under protest in order to contest additional assessments for later time periods. In addition, Orbitz in total has paid $4.6 million to the city of San Francisco to contest similar assessments issued against it by the city. On August 6, 2014, the California Court of Appeals stayed this case pending review and decision by the California Supreme Court of the City of San Diego, California Litigation. The California Court of Appeals has lifted the stay for this case and the appeal is proceeding.
Other Jurisdictions.We are also in various stages of inquiry or audit with domestic and foreignvarious tax authorities, some of which, including in the United KingdomCity of Los Angeles regarding the application of value added tax (“VAT”) to our European Union related transactions as discussed below,hotel occupancy taxes, may impose a pay-to-play requirement to challenge an adverse inquiry or audit result in court.
The ultimate resolution of these contingencies may be greater or less than the pay-to-play payments made and our estimates of additional assessments mentioned above.
Matters Relating to International VAT.We are in various stages of inquiry or audit in multiple European Union jurisdictions including in the United Kingdom, regarding the application of VAT to our European Union related transactions. While we believe we comply with applicable VAT laws, rules and regulations in the relevant jurisdictions, the tax authorities may determine that we owe additional taxes. In certain jurisdictions, including the United Kingdom, we may be required to “pay-to-play” any VAT assessment prior to contesting its validity. While we believe that we will be successful based on the merits of our positions with regard to the United Kingdom and other VAT audits in pay-to-play jurisdictions, it is nevertheless reasonably possible that we could be required to pay any assessed amounts in order to contest or litigate the applicability of any assessments and an estimate for a reasonably possible amount of any such payments cannot be made.
Matters Relating to Competition Reviews and Legislation Relating to Parity Clauses. Over the last several years, the online travel industry has become the subject of investigations by various national competition authorities ("NCAs"), particularly in Europe. Expedia is or has been involved in investigations predominately related to whether certain parity clauses in contracts between Expedia entities and accommodation providers, sometimes also referred to as "most favored nation" or "MFN" provisions, are anti-competitive.
In Europe, investigations or inquiries into contractual parity provisions between hotels and online travel companies, including Expedia, were initiated in 2012, 2013 and 2014 by NCAs in Austria, Belgium, Czech Republic, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Poland, Sweden and Switzerland. While the ultimate outcome of some of these investigations or inquiries remains uncertain, and Expedia’s circumstances are distinguishable from other online travel companies subject to similar investigations and inquiries, we note in this context that on April 21, 2015, the French, Italian and Swedish NCAs, working in close cooperation with the European Commission, announced that they had accepted formal
Notes to Consolidated Financial Statements – (Continued)
commitments offered by Booking.com to resolve and close the investigations against Booking.com in France, Italy and Sweden by Booking.com removing and/or modifying certain rate, conditions and availability parity provisions in its contracts with accommodation providers in France, Italy and Sweden as of July 1, 2015, among other commitments. Booking.com voluntarily extended the geographic scope of these commitments to accommodation providers throughout Europe as of the same date.
With effect from August 1, 2015, Expedia waived certain rate, conditions and availability parity clauses in its agreements with its European hotel partners for a period of five years. While Expedia maintains that its parity clauses have always been lawful and in compliance with competition law, these waivers were nevertheless implemented as a positive step towards facilitating the closure of the open investigations into such clauses on a harmonized pan-European basis. Following the implementation of Expedia's waivers, nearly all NCAs in Europe have announced either the closure of their investigation or inquiries involving Expedia or a decision not to open an investigation or inquiry involving Expedia. Below are descriptions of additional rate parity-related matters of note in Europe.
The German Federal Cartel Office ("FCO") has required another online travel company, Hotel Reservation Service ("HRS"), to remove certain clauses from its contracts with hotels. HRS’ appeal of this decision was rejected by the Higher Regional Court Düsseldorf on January 9, 2015. On December 23, 2015, the FCO announced that it had also required Booking.com by way of an infringement decision to remove certain clauses from its contracts with German hotels. Booking.com has appealed the decision and the appeal was heard by the Higher Regional Court Düsseldorf on February 8, 2017.
The Italian competition authority's case closure decision against Booking.com and Expedia has subsequently been appealed by two Italian hotel trade associations, i.e., Federalberghi and AICA. These appeals remain at an early stage and no hearing date has been fixed.
On November 6, 2015, the Swiss competition authority announced that it had issued a final decision finding certain parity terms existing in previous versions of agreements between Swiss hotels and each of Expedia, Booking.com and HRS to be prohibited under Swiss law. The decision explicitly notes that Expedia's current contract terms with Swiss hotels are not subject to this prohibition. The Swiss competition authority imposed no fines or other sanctions against Expedia and did not find an abuse of a dominant market position by Expedia. The FCO’s case against Expedia’s contractual parity provisions with accommodation providers in Germany remains open but is still at a preliminary stage with no formal allegations of wrong-doing having been communicated to Expedia to date.
The Directorate General for Competition, Consumer Affairs and Repression of Fraud (the “DGCCRF”), a directorate of the French Ministry of Economy and Finance with authority over unfair trading practices, brought a lawsuit in France against Expedia entities objecting to certain parity clauses in contracts between Expedia entities and French hotels. In May 2015, the French court ruled that certain of the parity provisions in certain contracts that were the subject of the lawsuit were not in compliance with French commercial law, but imposed no fine and no injunction. The DGCCRF appealed the decision and, on June 21, 2017, the Paris Court of Appeal published a judgment overturning the decision. The court annulled parity clauses contained in the agreements at issue, ordered Expedia to amend its contracts, and imposed a fine. Expedia intends to appeal the decision. Any such appeal will not stay payment of the fine.
Hotelverband Deutschland (“IHA”) e.V. (a German hotel association) brought proceedings before the Cologne regional court against Expedia, Inc., Expedia.com GmbH and Expedia Lodging Partner Services Sàrl. IHA applied for a ‘cease and desist’ order against these companies in relation to the enforcement of certain rate and availability parity clauses contained in contracts with hotels in Germany. On or around February 16, 2017, the court dismissed IHA’s action and declared the claimant liable for the Expedia defendants’ statutory costs. IHA has appealed the decision.
A working group of 10 European NCAs (Belgium, Czech Republic, Denmark, France, Hungary, Ireland, Italy, Netherlands, Sweden and the United Kingdom) and the European Commission has been established by the European Competition Network (“ECN”) at the end of 2015 to monitor the functioning of the online hotel booking sector, following amendments made by a number of online travel companies (including Booking.com and Expedia) in relation to certain parity provisions in their contracts with hotels. The working group issued questionnaires to online travel agencies including Expedia, metasearch sites and hotels in 2016. The underlying results of the ECN monitoring exercise were published on April 6, 2017.
Legislative bodies in certain countries have also adopted, or are proposing to adopt, new domestic anti-parity clause legislation. On July 9, 2015, the French National Assembly adopted Article 133 of the Loi Macron ("Article 133") that seeks to define the nature of the relationship between online reservation platforms and French hotels. Article 133 became effective on August 8, 2015. Expedia considers that Article 133 was drafted ambiguously and can be interpreted in a way that violates both EU and French legal principles. Therefore Expedia has submitted a complaint to the European Commission relating to Article 133. However, following the effective date, Expedia has been in contact with its hotel partners in France regarding the impact of Article 133. Legislation banning certain parity provisions in contracts between online travel companies and Austrian accommodation providers became effective on December 31, 2016. Expedia believes this legislation violates both EU and Austrian legal principles and therefore, Expedia has submitted a complaint to the European Commission relating to this
Notes to Consolidated Financial Statements – (Continued)
legislation. Furthermore, legislation banning certain parity provisions in contracts between online travel companies and Italian accommodation providers became effective on August 29, 2017. Expedia believes this legislation violates both EU and Italian legal principles and therefore, Expedia will also challenge this legislation at the European Commission.
A motion requesting the Swiss government to take action on narrow price parity has been adopted in the Swiss parliament. Moreover, in Belgium, the government is also reviewing narrow parity provisions. The Company is unable to predict whether these proposals in their current form or in another form will ultimately be adopted and, if so, when this might be the case. It is not yet clear how any adopted domestic anti-parity clause legislations and/or any possible future legislation in this area may affect Expedia’s business.
Outside of Europe, a number of NCAs have also opened investigations or inquired about contractual parity provisions in contracts between hotels and online travel companies in their respective territories, including Expedia. A Brazilian hotel sector association -- Forum de Operadores Hoteleiros do Brasil -- filed a complaint with the Brazilian Administrative Council for Economic Defence (“CADE”) against a number of online travel companies, including Booking.com, Decolar.com and Expedia, on July 27, 2016 with respect to parity provisions in contracts between hotels and online travel companies. On September 13, 2016, Expedia submitted its response to the complaint to CADE. Expedia recently resolved the concerns of the Australia and New Zealand NCAs based on implementation of the waivers substantially similar to those provided to accommodation providers in Europe on September 1, 2016 in Australia and on October 28, 2016 in New Zealand. The Australian NCA, however, recently indicated that it is reopening its investigation. Expedia is in ongoing discussions with a limited number of NCAs in other countries in relation to its contracts with hotels. Expedia is currently unable to predict the impact the implementation of the waivers both in Europe and elsewhere will have on Expedia's business, on investigations or inquiries by NCAs in other countries, or on industry practice more generally.
The Company is unable to predict how any pending appeals of administrative decisions and the remaining open investigations and inquiries by NCAs will ultimately be resolved, or whether further action in Europe will be taken as a result of the ECN’s working group's assessment and findings. Possible outcomes include requiring Expedia to amend or remove certain parity clauses from its contracts with accommodation providers in those jurisdictions and/or the imposition of fines.
It is not yet clear how any adopted domestic anti-parity clause legislations and/or any possible future legislation in this area may affect Expedia’s business. Competition-related investigations, legislation or issues could also give rise to private litigation. For example, Expedia is involved in private litigation in Germany related to its current contractual parity provisions (see above). We are unable to predict how such litigation will be resolved, or whether it will impact Expedia’s business in Germany.
Note 119 – Segment Information
We have fourthe following reportable segments: Core Online Travel Agencies (“Core OTA”)B2C (formerly referred to as Retail), trivago, HomeAwayB2B, and Egencia.trivago. Our Core OTAB2C segment which consists of the aggregation of operating segments, 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, CheapTickets, ebookers, Expedia Affiliate Network, Hotwire.com, Travelocity, Wotif Group, CarRentals.com, Classic Vacationsebookers, CheapTickets, Hotwire.com and SilverRail Technologies, Inc.CarRentals.com. Our B2B segment is primarily comprised of Expedia Partner Solutions, which offers private label and co-branded products to make travel services available to travelers through third-party company branded websites. Our trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites. Our HomeAway segment operates an online marketplace for the vacation rental industry. Our Egencia segment provides managed travel services to corporate customers worldwide.
We determined our operating segments based on how our chief operating decision makers manage our business, make operating decisions and evaluate operating performance. Our primary operating metric is adjustedAdjusted EBITDA. Adjusted EBITDA for our Core OTAB2C and EgenciaB2B segments includes allocations of certain expenses, primarily cost of revenue and facilities, and our Core OTA segment includes the total costs ofrelated to our global travel supply organizationsorganization and the majority of costs from our product and technology platform, as well as facility costs and the realized foreign currency gains or losses related to the forward contracts hedging a component of our net merchant hotellodging revenue. We base the allocations primarily on transaction volumes and other usage metrics. We do not allocate certain shared expenses such as accounting, human resources, certain information technology and legal to our reportable segments. We include these expenses in Corporate and Eliminations. Our allocation methodology is periodically evaluated and may change.
Our segment disclosure includes intersegment revenues, which primarily consist of advertising and media services provided by our trivago segment to our Core OTAB2C segment. These intersegment transactions are recorded by each segment at amounts that approximate fair value as if the transactions were between third parties, and therefore, impact segment performance. However, the revenue and corresponding expense are eliminated in consolidation. The elimination of such intersegment transactions is included within Corporate and Eliminations in the table below. In addition, when HomeAway properties are booked through our Core OTA websites and vice versa, the segments split the third-party revenue for management and segment reporting purposes with the majority of the third-party revenue residing with the website marketing the property or room.
Notes to Consolidated Financial Statements – (Continued)
Corporate and Eliminations also includes unallocated corporate functions and expenses. In addition, we record amortization of intangible assets and any related impairment, as well as stock-based compensation expense, restructuring and related reorganization charges, legal reserves, occupancy tax and other, and other items excluded from segment operating performance in Corporate and Eliminations. Such amounts are detailed in our segment reconciliation below.
The following tables present our segment information for the three and ninesix months ended SeptemberJune 30, 20172023 and September 30, 2016.2022. As a significant portion of our property and equipment is not allocated to our operating segments and depreciation is not included in our segment measure, we do not report the assets by segment as it would not be meaningful. We do not regularly provide such information to our chief operating decision makers.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2017 |
| | Core OTA | | trivago | | HomeAway | | Egencia | | Corporate &
Eliminations | | Total |
| | (In thousands) |
| Third-party revenue | $ | 2,313,717 |
| | $ | 221,143 |
| | $ | 304,757 |
| | $ | 126,231 |
| | $ | — |
| | $ | 2,965,848 |
|
| Intersegment revenue | — |
| | 116,439 |
| | — |
| | — |
| | (116,439 | ) | | — |
|
| Revenue | $ | 2,313,717 |
| | $ | 337,582 |
| | $ | 304,757 |
| | $ | 126,231 |
| | $ | (116,439 | ) | | $ | 2,965,848 |
|
| Adjusted EBITDA | 737,121 |
| | (8,435 | ) | | 125,939 |
| | 20,444 |
| | (165,804 | ) | | 709,265 |
|
| Depreciation | (78,339 | ) | | (2,168 | ) | | (10,707 | ) | | (10,968 | ) | | (53,962 | ) | | (156,144 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | — |
| | (71,011 | ) | | (71,011 | ) |
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | (6,279 | ) | | (6,279 | ) |
| Legal reserves, occupancy tax and other | — |
| | — |
| | — |
| | — |
| | 1,499 |
| | 1,499 |
|
| Restructuring and related reorganization charges | — |
| | — |
| | — |
| | — |
| | (3,983 | ) | | (3,983 | ) |
| Realized (gain) loss on revenue hedges | 8,381 |
| | — |
| | — |
| | — |
| | — |
| | 8,381 |
|
| Operating income (loss) | $ | 667,163 |
| | $ | (10,603 | ) | | $ | 115,232 |
| | $ | 9,476 |
| | $ | (299,540 | ) | | 481,728 |
|
| Other expense, net | | | | | | | | | | | (66,297 | ) |
| Income before income taxes | | | | | | | | | | | 415,431 |
|
| Provision for income taxes | | | | | | | | | | | (66,078 | ) |
| Net income | | | | | | | | | | | 349,353 |
|
| Net loss attributable to non-controlling interests | | | | | | | | 2,885 |
|
| Net income attributable to Expedia, Inc. | | | | | | | | | | $ | 352,238 |
|
Notes to Consolidated Financial Statements – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2023 |
| | B2C | | B2B | | trivago | | Corporate &
Eliminations | | Total |
| | (In millions) |
| Third-party revenue | $ | 2,415 | | | $ | 861 | | | $ | 82 | | | $ | — | | | $ | 3,358 | |
| Intersegment revenue | — | | | — | | | 54 | | | (54) | | | — | |
| Revenue | $ | 2,415 | | | $ | 861 | | | $ | 136 | | | $ | (54) | | | $ | 3,358 | |
| Adjusted EBITDA | $ | 653 | | | $ | 206 | | | $ | 13 | | | $ | (125) | | | $ | 747 | |
| Depreciation | (130) | | | (27) | | | (1) | | | (26) | | | (184) | |
| Amortization of intangible assets | — | | | — | | | — | | | (15) | | | (15) | |
| | | | | | | | | |
| Stock-based compensation | — | | | — | | | — | | | (106) | | | (106) | |
| Legal reserves, occupancy tax and other | — | | | — | | | — | | | (1) | | | (1) | |
| | | | | | | | | |
| Realized (gain) loss on revenue hedges | 6 | | | (4) | | | — | | | — | | | 2 | |
| Operating income (loss) | $ | 529 | | | $ | 175 | | | $ | 12 | | | $ | (273) | | | 443 | |
| Other income, net | | | | | | | | | 21 | |
| Income before income taxes | | | | | | | | | 464 | |
| Provision for income taxes | | | | | | | | | (77) | |
| Net income | | | | | | 387 | |
| Net income attributable to non-controlling interests | | | | | | (2) | |
| Net income attributable to Expedia Group, Inc. | | | | | | $ | 385 | |
| | | | | | | | | |
| | | | | | |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2022 |
| | B2C | | B2B | | trivago | | Corporate &
Eliminations | | Total |
| | (In millions) |
| Third-party revenue | $ | 2,420 | | | $ | 650 | | | $ | 111 | | | $ | — | | | $ | 3,181 | |
| Intersegment revenue | — | | | — | | | 43 | | | (43) | | | — | |
| Revenue | $ | 2,420 | | | $ | 650 | | | $ | 154 | | | $ | (43) | | | $ | 3,181 | |
| Adjusted EBITDA | $ | 582 | | | $ | 156 | | | $ | 33 | | | $ | (123) | | | $ | 648 | |
| Depreciation | (127) | | | (20) | | | (3) | | | (26) | | | (176) | |
| Amortization of intangible assets | — | | | — | | | — | | | (21) | | | (21) | |
| | | | | | | | | |
| Impairment of intangible assets | — | | | — | | | — | | | (29) | | | (29) | |
| Stock-based compensation | — | | | — | | | — | | | (93) | | | (93) | |
| Legal reserves, occupancy tax and other | — | | | — | | | — | | | (2) | | | (2) | |
| Realized (gain) loss on revenue hedges | 15 | | | 3 | | | — | | | — | | | 18 | |
| Operating income (loss) | $ | 470 | | | $ | 139 | | | $ | 30 | | | $ | (294) | | | 345 | |
| Other expense, net | | | | | | | | | (472) | |
| Loss before income taxes | | | | | | | | | (127) | |
| Provision for income taxes | | | | | | | | | (58) | |
| Net loss | | | | | | (185) | |
| Net loss attributable to non-controlling interests | | | | | | — | |
| Net loss attributable to Expedia Group, Inc. | | | | | | $ | (185) | |
| | | | | | | | | |
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
| | Core OTA | | trivago | | HomeAway | | Egencia | | Corporate &
Eliminations | | Total |
| | (In thousands) |
| Third-party revenue | $ | 2,083,393 |
| | $ | 175,953 |
| | $ | 209,797 |
| | $ | 111,762 |
| | $ | — |
| | $ | 2,580,905 |
|
| Intersegment revenue | — |
| | 100,520 |
| | — |
| | — |
| | (100,520 | ) | | — |
|
| Revenue | $ | 2,083,393 |
| | $ | 276,473 |
| | $ | 209,797 |
| | $ | 111,762 |
| | $ | (100,520 | ) | | $ | 2,580,905 |
|
| Adjusted EBITDA | $ | 713,849 |
| | $ | 5,725 |
| | $ | 77,342 |
| | $ | 18,155 |
| | $ | (148,383 | ) | | $ | 666,688 |
|
| Depreciation | (65,251 | ) | | (2,622 | ) | | (4,954 | ) | | (8,342 | ) | | (42,386 | ) | | (123,555 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | — |
| | (74,939 | ) | | (74,939 | ) |
| Impairment of intangible assets | — |
| | — |
| | — |
| | — |
| | (2,141 | ) | | (2,141 | ) |
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | (48,263 | ) | | (48,263 | ) |
| Legal reserves, occupancy tax and other | — |
| | — |
| | — |
| | — |
| | (22,332 | ) | | (22,332 | ) |
| Restructuring and related reorganization charges, excluding stock-based compensation | — |
| | — |
| | — |
| | — |
| | (5,591 | ) | | (5,591 | ) |
| Realized (gain) loss on revenue hedges | (3,715 | ) | | — |
| | — |
| | — |
| | — |
| | (3,715 | ) |
| Operating income (loss) | $ | 644,883 |
| | $ | 3,103 |
| | $ | 72,388 |
| | $ | 9,813 |
| | $ | (344,035 | ) | | 386,152 |
|
| Other expense, net | | | | | | | | | | | (46,597 | ) |
| Income before income taxes | | | | | | | | | | | 339,555 |
|
| Provision for income taxes | | | | | | | | | | | (60,627 | ) |
| Net income | | | | | | | | | | | 278,928 |
|
| Net loss attributable to non-controlling interests | | | | | | | | 403 |
|
| Net income attributable to Expedia, Inc. | | | | | | | | | | $ | 279,331 |
|
Notes to Consolidated Financial Statements – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2023 |
| | B2C | | B2B | | trivago | | Corporate &
Eliminations | | Total |
| | (In millions) |
| Third-party revenue | $ | 4,336 | | | $ | 1,529 | | | $ | 158 | | | $ | — | | | $ | 6,023 | |
| Intersegment revenue | — | | | — | | | 97 | | | (97) | | | — | |
| Revenue | $ | 4,336 | | | $ | 1,529 | | | $ | 255 | | | $ | (97) | | | $ | 6,023 | |
| Adjusted EBITDA | $ | 801 | | | $ | 339 | | | $ | 33 | | | $ | (241) | | | $ | 932 | |
| Depreciation | (256) | | | (52) | | | (2) | | | (51) | | | (361) | |
| Amortization of intangible assets | — | | | — | | | — | | | (30) | | | (30) | |
| | | | | | | | | |
| Stock-based compensation | — | | | — | | | — | | | (209) | | | (209) | |
| Legal reserves, occupancy tax and other | — | | | — | | | — | | | (6) | | | (6) | |
| | | | | | | | | |
| Realized (gain) loss on revenue hedges | 2 | | | (6) | | | — | | | — | | | (4) | |
| Operating income (loss) | $ | 547 | | | $ | 281 | | | $ | 31 | | | $ | (537) | | | 322 | |
| Other income, net | | | | | | | | | 81 | |
| Income before income taxes | | | | | | | | | 403 | |
| Provision for income taxes | | | | | | | | | (156) | |
| Net income | | | | | | | | | 247 | |
| Net income attributable to non-controlling interests | | | | | | (7) | |
| Net income attributable to Expedia Group, Inc. | | | | | | $ | 240 | |
| | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2022 |
| | B2C | | B2B | | trivago | | Corporate &
Eliminations | | Total |
| | (In millions) |
| Third-party revenue | $ | 4,160 | | | $ | 1,082 | | | $ | 188 | | | $ | — | | | $ | 5,430 | |
| Intersegment revenue | — | | | — | | | 82 | | | (82) | | | — | |
| Revenue | $ | 4,160 | | | $ | 1,082 | | | $ | 270 | | | $ | (82) | | | $ | 5,430 | |
| Adjusted EBITDA | $ | 770 | | | $ | 236 | | | $ | 58 | | | $ | (243) | | | $ | 821 | |
| Depreciation | (255) | | | (40) | | | (5) | | | (51) | | | (351) | |
| Amortization of intangible assets | — | | | — | | | — | | | (43) | | | (43) | |
| Impairment of intangible assets | — | | | — | | | — | | | (29) | | | (29) | |
| Stock-based compensation | — | | | — | | | — | | | (183) | | | (183) | |
| Legal reserves, occupancy tax and other | — | | | — | | | — | | | (23) | | | (23) | |
| Realized (gain) loss on revenue hedges | 15 | | | 3 | | | — | | | — | | | 18 | |
| Operating income (loss) | $ | 530 | | | $ | 199 | | | $ | 53 | | | $ | (572) | | | 210 | |
| Other expense, net | | | | | | | | | (545) | |
| Loss before income taxes | | | | | | | | | (335) | |
| Provision for income taxes | | | | | | | | | 27 | |
| Net loss | | | | | | | | | (308) | |
| Net loss attributable to non-controlling interests | | | | | | 1 | |
| Net loss attributable to Expedia Group, Inc. | | | | | | $ | (307) | |
| | | | | | | | | |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2017 |
| | Core OTA | | trivago | | HomeAway | | Egencia | | Corporate &
Eliminations | | Total |
| | (In thousands) |
| Third-party revenue | $ | 6,022,651 |
| | $ | 620,545 |
| | $ | 713,833 |
| | $ | 383,607 |
| | $ | — |
| | $ | 7,740,636 |
|
| Intersegment revenue | — |
| | 330,905 |
| | — |
| | — |
| | (330,905 | ) | | — |
|
| Revenue | $ | 6,022,651 |
| | $ | 951,450 |
| | $ | 713,833 |
| | $ | 383,607 |
| | $ | (330,905 | ) | | $ | 7,740,636 |
|
| Adjusted EBITDA | $ | 1,531,355 |
| | $ | 13,854 |
| | $ | 171,105 |
| | $ | 75,122 |
| | $ | (481,401 | ) | | $ | 1,310,035 |
|
| Depreciation | (225,391 | ) | | (5,969 | ) | | (27,212 | ) | | (30,477 | ) | | (159,695 | ) | | (448,744 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | — |
| | (203,966 | ) | | (203,966 | ) |
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | (103,592 | ) | | (103,592 | ) |
| Legal reserves, occupancy tax and other | — |
| | — |
| | — |
| | — |
| | (22,956 | ) | | (22,956 | ) |
| Restructuring and related reorganization charges | — |
| | — |
| | — |
| | — |
| | (15,590 | ) | | (15,590 | ) |
| Realized (gain) loss on revenue hedges | (3,524 | ) | | — |
| | — |
| | — |
| | — |
| | (3,524 | ) |
| Operating income (loss) | $ | 1,302,440 |
| | $ | 7,885 |
| | $ | 143,893 |
| | $ | 44,645 |
| | $ | (987,200 | ) | | 511,663 |
|
| Other expense, net | | | | | | | | | | | (170,805 | ) |
| Income before income taxes | | | | | | | | | | 340,858 |
|
| Provision for income taxes | | | | | | | | | | | (22,374 | ) |
| Net income | | | | | | | | | | | 318,484 |
|
| Net loss attributable to non-controlling interests | | | | | | | | 4,321 |
|
| Net income attributable to Expedia, Inc. | | | | | | | | $ | 322,805 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2016 |
| | Core OTA | | trivago | | HomeAway | | Egencia | | Corporate &
Eliminations | | Total |
| | (In thousands) |
| Third-party revenue | $ | 5,388,178 |
| | $ | 422,852 |
| | $ | 523,588 |
| | $ | 346,117 |
| | $ | — |
| | $ | 6,680,735 |
|
| Intersegment revenue | — |
| | 230,314 |
| | — |
| | — |
| | (230,314 | ) | | — |
|
| Revenue | $ | 5,388,178 |
| | $ | 653,166 |
| | $ | 523,588 |
| | $ | 346,117 |
| | $ | (230,314 | ) | | $ | 6,680,735 |
|
| Adjusted EBITDA | $ | 1,434,424 |
| | $ | 20,466 |
| | $ | 132,926 |
| | $ | 59,986 |
| | $ | (473,665 | ) | | $ | 1,174,137 |
|
| Depreciation | (186,308 | ) | | (5,593 | ) | | (12,721 | ) | | (23,267 | ) | | (116,944 | ) | | (344,833 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | — |
| | (249,119 | ) | | (249,119 | ) |
| Impairment of intangible assets | — |
| | — |
| | — |
| | — |
| | (2,141 | ) | | (2,141 | ) |
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | (197,602 | ) | | (197,602 | ) |
| Legal reserves, occupancy tax and other | — |
| | — |
| | — |
| | — |
| | (28,650 | ) | | (28,650 | ) |
| Restructuring and related reorganization charges, excluding stock-based compensation | — |
| | — |
| | — |
| | — |
| | (33,584 | ) | | (33,584 | ) |
| Realized (gain) loss on revenue hedges | (3,692 | ) | | — |
| | — |
| | — |
| | — |
| | (3,692 | ) |
| Operating income (loss) | $ | 1,244,424 |
| | $ | 14,873 |
| | $ | 120,205 |
| | $ | 36,719 |
| | $ | (1,101,705 | ) | | 314,516 |
|
| Other expense, net | | | | | | | | | | | (153,042 | ) |
| Income before income taxes | | | | | | | | | | | 161,474 |
|
| Provision for income taxes | | | | | | | | | | | 14,929 |
|
| Net income | | | | | | | | | | | 176,403 |
|
| Net loss attributable to non-controlling interests | | | | | | | | 25,988 |
|
| Net income attributable to Expedia, Inc. | | | | | | | | | | $ | 202,391 |
|
Notes to Consolidated Financial Statements – (Continued)
Revenue by Business Model and Service Type
The following table presents revenue by business model and service type:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended
June 30, | | Six months ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in millions) |
| Business Model: | | | | | | | |
| Merchant | $ | 2,300 | | | $ | 2,125 | | | $ | 4,094 | | | $ | 3,610 | |
| Agency | 824 | | | 808 | | | 1,490 | | | 1,374 | |
| Advertising, media and other | 234 | | | 248 | | | 439 | | | 446 | |
| Total revenue | $ | 3,358 | | | $ | 3,181 | | | $ | 6,023 | | | $ | 5,430 | |
| Service Type: | | | | | | | |
| Lodging | $ | 2,698 | | | $ | 2,400 | | | $ | 4,727 | | | $ | 4,010 | |
| Air | 111 | | | 95 | | | 224 | | | 169 | |
| Advertising and media | 201 | | | 213 | | | 376 | | | 379 | |
Other(1) | 348 | | | 473 | | | 696 | | | 872 | |
| Total revenue | $ | 3,358 | | | $ | 3,181 | | | $ | 6,023 | | | $ | 5,430 | |
Note 12 – Guarantor____________________________
(1)Other includes car rental, insurance, activities and Non-Guarantor Supplemental Financial Informationcruise revenue, among other revenue streams, none of which are individually material.
Condensed consolidating financial information of Expedia, Inc. (the “Parent”), our subsidiaries that are guarantors of our debt facility
Our B2C and instruments (the “Guarantor Subsidiaries”),B2B segments generate revenue from the merchant, agency and our subsidiaries that are not guarantors of our debt facilityadvertising, media and instruments (the “Non-Guarantor Subsidiaries”)other business models as well as all service types. trivago segment revenue is shown below. The debt facilitygenerated through advertising 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, and joint and several with the exception of certain customary automatic subsidiary release provisions. In this financial information, the Parent and Guarantor Subsidiaries account for investments in their wholly-owned subsidiaries using the equity method.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three months ended September 30, 2017
media.
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (In thousands) |
| Revenue | $ | — |
| | $ | 2,227,363 |
| | $ | 856,241 |
| | $ | (117,756 | ) | | $ | 2,965,848 |
|
| Costs and expenses: | | | | | | | | | |
| Cost of revenue | — |
| | 347,447 |
| | 115,751 |
| | (4,639 | ) | | 458,559 |
|
| Selling and marketing | — |
| | 1,012,045 |
| | 561,794 |
| | (113,132 | ) | | 1,460,707 |
|
| Technology and content | — |
| | 250,460 |
| | 99,601 |
| | — |
| | 350,061 |
|
| General and administrative | — |
| | 72,498 |
| | 68,785 |
| | 15 |
| | 141,298 |
|
| Amortization of intangible assets | — |
| | 45,009 |
| | 26,002 |
| | — |
| | 71,011 |
|
| Legal reserves, occupancy tax and other | — |
| | (1,499 | ) | | — |
| | — |
| | (1,499 | ) |
| Restructuring and related reorganization charges | — |
| | 1,266 |
| | 2,717 |
| | — |
| | 3,983 |
|
| Intercompany (income) expense, net | — |
| | 204,903 |
| | (204,903 | ) | | — |
| | — |
|
| Operating income | — |
| | 295,234 |
| | 186,494 |
| | — |
| | 481,728 |
|
| Other income (expense): | | | | | | | | | |
| Equity in pre-tax earnings of consolidated subsidiaries | 379,632 |
| | 162,089 |
| | — |
| | (541,721 | ) | | — |
|
| Other, net | (43,448 | ) | | (32,138 | ) | | 9,289 |
| | — |
| | (66,297 | ) |
| Total other income (expense), net | 336,184 |
| | 129,951 |
| | 9,289 |
| | (541,721 | ) | | (66,297 | ) |
| Income before income taxes | 336,184 |
| | 425,185 |
| | 195,783 |
| | (541,721 | ) | | 415,431 |
|
| Provision for income taxes | 16,054 |
| | (42,975 | ) | | (39,157 | ) | | — |
| | (66,078 | ) |
| Net income | 352,238 |
| | 382,210 |
| | 156,626 |
| | (541,721 | ) | | 349,353 |
|
| Net loss attributable to non-controlling interests | — |
| | — |
| | 2,885 |
| | — |
| | 2,885 |
|
| Net income attributable to Expedia, Inc. | $ | 352,238 |
| | $ | 382,210 |
| | $ | 159,511 |
| | $ | (541,721 | ) | | $ | 352,238 |
|
| Comprehensive income attributable to Expedia, Inc. | $ | 416,605 |
| | $ | 461,760 |
| | $ | 261,118 |
| | $ | (722,878 | ) | | $ | 416,605 |
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three months ended September 30, 2016
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (In thousands) |
| Revenue | $ | — |
| | $ | 1,989,806 |
| | $ | 696,558 |
| | $ | (105,459 | ) | | $ | 2,580,905 |
|
| Costs and expenses: | | | | | | | | | |
| Cost of revenue | — |
| | 333,872 |
| | 86,609 |
| | (3,574 | ) | | 416,907 |
|
| Selling and marketing | — |
| | 848,930 |
| | 457,559 |
| | (101,968 | ) | | 1,204,521 |
|
| Technology and content | — |
| | 220,809 |
| | 80,567 |
| | 70 |
| | 301,446 |
|
| General and administrative | — |
| | 117,924 |
| | 47,892 |
| | 13 |
| | 165,829 |
|
| Amortization of intangible assets | — |
| | 54,169 |
| | 20,770 |
| | — |
| | 74,939 |
|
| Impairment of intangible assets | — |
| | — |
| | 2,141 |
| | — |
| | 2,141 |
|
| Legal reserves, occupancy tax and other | — |
| | 22,332 |
| | — |
| | — |
| | 22,332 |
|
| Restructuring and related reorganization charges | — |
| | 4,358 |
| | 2,280 |
| | — |
| | 6,638 |
|
| Intercompany (income) expense, net | — |
| | 128,787 |
| | (128,787 | ) | | — |
| | — |
|
| Operating income | — |
| | 258,625 |
| | 127,527 |
| | — |
| | 386,152 |
|
| Other income (expense): | | | | | | | | | |
| Equity in pre-tax earnings of consolidated subsidiaries | 305,307 |
| | 115,361 |
| | — |
| | (420,668 | ) | | — |
|
| Other, net | (41,199 | ) | | (18,905 | ) | | 13,507 |
| | — |
| | (46,597 | ) |
| Total other income (loss), net | 264,108 |
| | 96,456 |
| | 13,507 |
| | (420,668 | ) | | (46,597 | ) |
| Income before income taxes | 264,108 |
| | 355,081 |
| | 141,034 |
| | (420,668 | ) | | 339,555 |
|
| Provision for income taxes | 15,223 |
| | (47,643 | ) | | (28,207 | ) | | — |
| | (60,627 | ) |
| Net income | 279,331 |
| | 307,438 |
| | 112,827 |
| | (420,668 | ) | | 278,928 |
|
| Net loss attributable to non-controlling interests | — |
| | — |
| | 403 |
| | — |
| | 403 |
|
| Net income attributable to Expedia, Inc. | $ | 279,331 |
| | $ | 307,438 |
| | $ | 113,230 |
| | $ | (420,668 | ) | | $ | 279,331 |
|
| Comprehensive income attributable to Expedia, Inc. | $ | 271,785 |
| | $ | 303,969 |
| | $ | 109,258 |
| | $ | (413,227 | ) | | $ | 271,785 |
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine months ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (In thousands) |
| Revenue | $ | — |
| | $ | 5,874,289 |
| | $ | 2,201,332 |
| | $ | (334,985 | ) | | $ | 7,740,636 |
|
| Costs and expenses: | | | | | | | | | |
| Cost of revenue | — |
| | 1,017,582 |
| | 314,184 |
| | (12,513 | ) | | 1,319,253 |
|
| Selling and marketing | — |
| | 2,919,254 |
| | 1,577,429 |
| | (322,509 | ) | | 4,174,174 |
|
| Technology and content | — |
| | 736,820 |
| | 277,819 |
| | (8 | ) | | 1,014,631 |
|
| General and administrative | — |
| | 292,706 |
| | 185,652 |
| | 45 |
| | 478,403 |
|
| Amortization of intangible assets | — |
| | 136,812 |
| | 67,154 |
| | — |
| | 203,966 |
|
| Legal reserves, occupancy tax and other | — |
| | 22,956 |
| | — |
| | — |
| | 22,956 |
|
| Restructuring and related reorganization charges | — |
| | 4,679 |
| | 10,911 |
| | — |
| | 15,590 |
|
| Intercompany (income) expense, net | — |
| | 591,165 |
| | (591,165 | ) | | — |
| | — |
|
| Operating income | — |
| | 152,315 |
| | 359,348 |
| | — |
| | 511,663 |
|
| Other income (expense): | | | | | | | | | |
| Equity in pre-tax earnings of consolidated subsidiaries | 403,375 |
| | 330,799 |
| | — |
| | (734,174 | ) | | — |
|
| Other, net | (127,787 | ) | | (77,793 | ) | | 34,775 |
| | — |
| | (170,805 | ) |
| Total other income (expense), net | 275,588 |
| | 253,006 |
| | 34,775 |
| | (734,174 | ) | | (170,805 | ) |
| Income before income taxes | 275,588 |
| | 405,321 |
| | 394,123 |
| | (734,174 | ) | | 340,858 |
|
| Provision for income taxes | 47,217 |
| | 9,234 |
| | (78,825 | ) | | — |
| | (22,374 | ) |
| Net income | 322,805 |
| | 414,555 |
| | 315,298 |
| | (734,174 | ) | | 318,484 |
|
| Net loss attributable to non-controlling interests | — |
| | — |
| | 4,321 |
| | — |
| | 4,321 |
|
| Net income attributable to Expedia, Inc. | $ | 322,805 |
| | $ | 414,555 |
| | $ | 319,619 |
| | $ | (734,174 | ) | | $ | 322,805 |
|
| Comprehensive income attributable to Expedia, Inc. | $ | 479,231 |
| | $ | 623,868 |
| | $ | 550,984 |
| | $ | (1,174,852 | ) | | $ | 479,231 |
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine months ended September 30, 2016
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| | (In thousands) |
| Revenue | $ | — |
| | $ | 5,159,351 |
| | $ | 1,754,111 |
| | $ | (232,727 | ) | | $ | 6,680,735 |
|
| Costs and expenses: | | | | | | | | | |
| Cost of revenue | — |
| | 974,040 |
| | 261,545 |
| | (9,728 | ) | | 1,225,857 |
|
| Selling and marketing | — |
| | 2,367,393 |
| | 1,254,774 |
| | (223,305 | ) | | 3,398,862 |
|
| Technology and content | — |
| | 659,532 |
| | 251,148 |
| | 241 |
| | 910,921 |
|
| General and administrative | — |
| | 319,156 |
| | 185,174 |
| | 65 |
| | 504,395 |
|
| Amortization of intangible assets | — |
| | 169,988 |
| | 79,131 |
| | — |
| | 249,119 |
|
| Impairment of intangible assets | — |
| | — |
| | 2,141 |
| | — |
| | 2,141 |
|
| Legal reserves, occupancy tax and other | — |
| | 28,650 |
| | — |
| | — |
| | 28,650 |
|
| Restructuring and related reorganization charges | — |
| | 28,135 |
| | 18,139 |
| | — |
| | 46,274 |
|
| Intercompany (income) expense, net | — |
| | 497,160 |
| | (497,160 | ) | | — |
| | — |
|
| Operating income | — |
| | 115,297 |
| | 199,219 |
| | — |
| | 314,516 |
|
| Other income (expense): | | | | | | | | | |
| Equity in pre-tax earnings of consolidated subsidiaries | 280,012 |
| | 210,051 |
| | — |
| | (490,063 | ) | | — |
|
| Other, net | (123,110 | ) | | (51,294 | ) | | 21,362 |
| | — |
| | (153,042 | ) |
| Total other income (loss), net | 156,902 |
| | 158,757 |
| | 21,362 |
| | (490,063 | ) | | (153,042 | ) |
| Income before income taxes | 156,902 |
| | 274,054 |
| | 220,581 |
| | (490,063 | ) | | 161,474 |
|
| Provision for income taxes | 45,489 |
| | 13,556 |
| | (44,116 | ) | | — |
| | 14,929 |
|
| Net income | 202,391 |
| | 287,610 |
| | 176,465 |
| | (490,063 | ) | | 176,403 |
|
| Net loss attributable to non-controlling interests | — |
| | — |
| | 25,988 |
| | — |
| | 25,988 |
|
| Net income attributable to Expedia, Inc. | $ | 202,391 |
| | $ | 287,610 |
| | $ | 202,453 |
| | $ | (490,063 | ) | | $ | 202,391 |
|
| Comprehensive income attributable to Expedia, Inc. | $ | 180,173 |
| | $ | 277,161 |
| | $ | 165,262 |
| | $ | (442,423 | ) | | $ | 180,173 |
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2017
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (In thousands) |
| ASSETS | | | | | | | | | |
| Total current assets | $ | 340,976 |
| | $ | 3,833,431 |
| | $ | 2,403,496 |
| | $ | (594,101 | ) | | $ | 5,983,802 |
|
| Investment in subsidiaries | 10,199,706 |
| | 4,243,396 |
| | — |
| | (14,443,102 | ) | | — |
|
| Intangible assets, net | — |
| | 1,780,868 |
| | 596,729 |
| | — |
| | 2,377,597 |
|
| Goodwill | — |
| | 6,369,003 |
| | 1,857,170 |
| | — |
| | 8,226,173 |
|
| Other assets, net | 4,107 |
| | 1,670,938 |
| | 785,430 |
| | (12,815 | ) | | 2,447,660 |
|
| TOTAL ASSETS | $ | 10,544,789 |
| | $ | 17,897,636 |
| | $ | 5,642,825 |
| | $ | (15,050,018 | ) | | $ | 19,035,232 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
| Total current liabilities | $ | 593,743 |
| | $ | 7,187,492 |
| | $ | 1,085,422 |
| | $ | (594,101 | ) | | $ | 8,272,556 |
|
| Long-term debt | 3,735,736 |
| | — |
| | — |
| | — |
| | 3,735,736 |
|
| Other liabilities | — |
| | 543,894 |
| | 258,082 |
| | (12,815 | ) | | 789,161 |
|
| Redeemable non-controlling interests | — |
| | 10,518 |
| | 11,951 |
| | — |
| | 22,469 |
|
| Stockholders’ equity | 6,215,310 |
| | 10,155,732 |
| | 4,287,370 |
| | (14,443,102 | ) | | 6,215,310 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 10,544,789 |
| | $ | 17,897,636 |
| | $ | 5,642,825 |
| | $ | (15,050,018 | ) | | $ | 19,035,232 |
|
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2016
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (In thousands) |
| ASSETS | | | | | | | | | |
| Total current assets | $ | 293,759 |
| | $ | 2,535,711 |
| | $ | 1,829,191 |
| | $ | (1,208,410 | ) | | $ | 3,450,251 |
|
| Investment in subsidiaries | 9,536,273 |
| | 3,410,687 |
| | — |
| | (12,946,960 | ) | | — |
|
| Intangible assets, net | — |
| | 1,921,519 |
| | 525,133 |
| | — |
| | 2,446,652 |
|
| Goodwill | — |
| | 6,392,479 |
| | 1,549,544 |
| | — |
| | 7,942,023 |
|
| Other assets, net | 4,107 |
| | 1,608,218 |
| | 331,818 |
| | (5,523 | ) | | 1,938,620 |
|
| TOTAL ASSETS | $ | 9,834,139 |
| | $ | 15,868,614 |
| | $ | 4,235,686 |
| | $ | (14,160,893 | ) | | $ | 15,777,546 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
| Total current liabilities | $ | 981,700 |
| | $ | 5,733,755 |
| | $ | 620,153 |
| | $ | (1,208,410 | ) | | $ | 6,127,198 |
|
| Long-term debt | 3,159,336 |
| | — |
| | — |
| | — |
| | 3,159,336 |
|
| Other liabilities | — |
| | 629,634 |
| | 173,798 |
| | (5,523 | ) | | 797,909 |
|
| Stockholders’ equity | 5,693,103 |
| | 9,505,225 |
| | 3,441,735 |
| | (12,946,960 | ) | | 5,693,103 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 9,834,139 |
| | $ | 15,868,614 |
| | $ | 4,235,686 |
| | $ | (14,160,893 | ) | | $ | 15,777,546 |
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2017
|
| | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidated |
| | (In thousands) |
| Operating activities: | | | | | | | |
| Net cash provided by operating activities | $ | — |
| | $ | 1,316,665 |
| | $ | 605,360 |
| | $ | 1,922,025 |
|
| Investing activities: | | | | | | | |
| Capital expenditures, including internal-use software and website development | — |
| | (378,384 | ) | | (147,212 | ) | | (525,596 | ) |
| Purchases of investments | — |
| | (1,157,533 | ) | | (555,662 | ) | | (1,713,195 | ) |
| Sales and maturities of investments | — |
| | 757,856 |
| | 163,024 |
| | 920,880 |
|
| Acquisitions, net of cash acquired | — |
| | (169,490 | ) | | (803 | ) | | (170,293 | ) |
| Transfers (to) from related parties | — |
| | (5,031 | ) | | 5,031 |
| | — |
|
| Other, net | — |
| | 1,676 |
| | 6,350 |
| | 8,026 |
|
| Net cash used in investing activities | — |
| | (950,906 | ) | | (529,272 | ) | | (1,480,178 | ) |
| Financing activities: | | | | | | | |
| Proceeds from issuance of long-term debt, net of issuance costs | 992,470 |
| | — |
| | — |
| | 992,470 |
|
| Purchases of treasury stock | (154,050 | ) | | — |
| | — |
| | (154,050 | ) |
| Payment of dividends to stockholders | (130,263 | ) | | — |
| | — |
| | (130,263 | ) |
| Proceeds from exercise of equity awards | 179,982 |
| | — |
| | 49 |
| | 180,031 |
|
| Transfers (to) from related parties | (882,740 | ) | | 763,262 |
| | 119,478 |
| | — |
|
| Other, net | (5,399 | ) | | (12,966 | ) | | (9,311 | ) | | (27,676 | ) |
| Net provided by financing activities | — |
| | 750,296 |
| | 110,216 |
| | 860,512 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | 38,764 |
| | 101,952 |
| | 140,716 |
|
| Net increase in cash and cash equivalents | — |
| | 1,154,819 |
| | 288,256 |
| | 1,443,075 |
|
| Cash and cash equivalents at beginning of the period | — |
| | 425,471 |
| | 1,371,340 |
| | 1,796,811 |
|
| Cash and cash equivalents at end of the period | $ | — |
| | $ | 1,580,290 |
| | $ | 1,659,596 |
| | $ | 3,239,886 |
|
Notes to Consolidated Financial Statements – (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidated |
| | (In thousands) |
| Operating activities: | | | | | | | |
| Net cash provided by operating activities | $ | — |
| | $ | 1,094,505 |
| | $ | 449,173 |
| | $ | 1,543,678 |
|
| Investing activities: | | | | | | | |
| Capital expenditures, including internal-use software and website development | — |
| | (474,982 | ) | | (92,062 | ) | | (567,044 | ) |
| Transfers (to) from related parties | — |
| | (172,731 | ) | | 172,731 |
| | — |
|
| Purchases of investments | — |
| | — |
| | (20,446 | ) | | (20,446 | ) |
| Sales and maturities of investments | — |
| | 28,257 |
| | 3,380 |
| | 31,637 |
|
| Acquisitions, net of cash acquired | — |
| | — |
| | (777 | ) | | (777 | ) |
| Other, net | — |
| | (30,158 | ) | | (2,135 | ) | | (32,293 | ) |
| Net cash provided by (used in) investing activities | — |
| | (649,614 | ) | | 60,691 |
| | (588,923 | ) |
| Financing activities: | | | | | | | |
| Proceeds from issuance of long-term debt, net of issuance costs | (1,792 | ) | | — |
| | — |
| | (1,792 | ) |
| Payment of HomeAway Convertible Notes | — |
| | (401,424 | ) | | — |
| | (401,424 | ) |
| Purchases of treasury stock | (366,723 | ) | | — |
| | — |
| | (366,723 | ) |
| Payment of dividends to stockholders | (111,009 | ) | | — |
| | — |
| | (111,009 | ) |
| Proceeds from exercise of equity awards | 103,760 |
| | — |
| | — |
| | 103,760 |
|
| Transfers (to) from related parties | 377,321 |
| | (126,989 | ) | | (250,332 | ) | | — |
|
| Other, net | (1,557 | ) | | (8,038 | ) | | (28,514 | ) | | (38,109 | ) |
| Net cash used in financing activities | — |
| | (536,451 | ) | | (278,846 | ) | | (815,297 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | 15,920 |
| | 12,798 |
| | 28,718 |
|
| Net increase (decrease) in cash and cash equivalents | — |
| | (75,640 | ) | | 243,816 |
| | 168,176 |
|
| Cash and cash equivalents at beginning of period | — |
| | 841,696 |
| | 834,603 |
| | 1,676,299 |
|
| Cash and cash equivalents at end of period | $ | — |
| | $ | 766,056 |
| | $ | 1,078,419 |
| | $ | 1,844,475 |
|
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, 2016,2022, Part I, Item 1A, “Risk Factors,” as well as those discussed elsewhere in this report. 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,” “plans”“likely,” “may,” “plans,” “potential,” “predicts,” “projected,” “seeks,” “should” and “believes,“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 Securities and Exchange Commission (“SEC”)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, 2016.2022.
Overview
Expedia Inc.Group's mission is to power global travel for everyone, everywhere. We believe travel is a force for good. Travel is an onlineessential human experience that strengthens connections, broadens horizons and bridges divides. We help reduce the barriers to travel, company, empoweringmaking 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 and leisurepartners, to empower travelers with the tools and information they need to efficiently research, plan, book and experience travel. We created a global travel marketplace used by a broad range of leisure and corporate travelers, offline retail travel agents and travel service providers. We make available, on a stand-alone and package basis, travel products and services provided by numerous airlines, lodging properties, airlines, car rental companies, destination serviceactivities and experiences providers, cruise lines, vacation rentalalternative 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 transaction-based websites.
Our portfolio of brands includes Expedia.com®, Hotels.com®, Expedia® Affiliate Network (“EAN”), trivago®, HomeAway, Egencia®, Orbitz®, Travelocity®, Hotwire.com™, Wotif Group, CheapTickets®, ebookers®, Classic Vacations®, CarRentals.com™, SilverRail Technologies, Inc. ("SilverRail"), Expedia Local Expert™ and Expedia® CruiseShipCenters®. In addition, many of these brands have related international points of sale, including those as part of AirAsia Expedia™. 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, 2016.
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, had an unprecedented impact on the global travel industry and materially and negatively impacted our business, financial results and financial condition. In May 2023, the World Health Organization formally declared an end to the COVID-19 global health emergency and countries around the world are generally open for international travel. However, it remains difficult to predict with any certainty any future impact that COVID-19, including offline agencies, online agenciesany future variations, may have on the travel industry and, in particular, our business.
More recently, inflation and other macroeconomic pressures in the U.S. and the global economy, such as rising interest rates, currency fluctuations and energy price volatility, have contributed to an increasingly complex macroeconomic environment. Our future operational results may be subject to volatility, particularly in the short-term, due to the impact of the aforementioned trends. Broad, sustained negative economic impacts could put strain on our suppliers, business and service partners, which increases the risk of travel productscredit losses and services, has historically been characterized by intense competition, as well as rapid and significant change. Generally, 2015 and 2016 represented years of continuing improvement for the travel industry. However,service level or other disruptions.
Additionally, further health-related events, political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, sustained levels of increased inflation, sovereign debt issues, and natural disasters, and macroeconomic concerns are examples of other events that contribute to a somewhat uncertain environment, which could have a negative impact on the travel industry in the future.
Despite these factors, we have witnessed a healthy recovery of travel demand, which remains strong and is attributable to factors including pent-up demand from the COVID-19 pandemic, and consumers prioritizing spend on travel and experiences over other discretionary spending.
Online Travel
Increased usage and familiarity with the internet have drivencontinued to drive rapid growth in online penetration of travel expenditures. According to Phocuswright, an independent travel, tourism and hospitality research firm,Online penetration is higher in 2016, over 50% ofthe U.S. and Western European leisure, unmanaged and corporate travel expenditures occurred online. Onlinemarkets with online penetration rates in thesome emerging markets, such as Asia PacificLatin America and Latin AmericanEastern European regions, are lagging behind that of the United States and Europe, and are
estimatedthose regions. Emerging markets continue to be in the range of 30% to 40%. These penetration rates have increased over the past few years, and are expected to continue growing, which has attractedpresent an attractive growth opportunity for our business, while also attracting many competitors to online travel. This competition intensified in recent years, and theThe industry is expected to remain highly competitive for the foreseeable future. In addition to the growth of online travel agencies, airlineswe have seen continued interest in the online travel industry from search engine companies such as Google, evidenced by continued product enhancements, and lodging companies have aggressively pursued direct online distribution of theirprioritizing its own AdWords and metasearch products such as Google Hotel Ads and services.Google Flights, in search results. Competitive entrants such as “metasearch” companies, including Kayak.com (owned by The Priceline Group)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, the impacttools. Further, airlines and lodging companies are aggressively pursuing direct online distribution of which is currently uncertain.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. PlayersBusinesses such as Airbnb, Vrbo and HomeAway (which Expedia acquired in December 2015)Booking.com have emerged as the leaders, bringing incremental alternative accommodation and vacation rental inventory to the market. Many otherOther competitors have arisen, including vacation rental metasearch players, continueproperty managers such as Vacasa, who operate their own booking sites in addition to emerge in this space, which is estimated by analysts to account for approximately $100 billion of annual travel spendlisting on Airbnb, Vrbo, and Booking.com, and are expected to continue to grow as a percentage of the global accommodationaccommodations market. Furthermore, we saw increased interest in the online travel industry from search engine companies as evidenced by recent innovations including direct booking functionality, as well as licensing deals and proposed and actual acquisitions by companies such as Google. Finally,Additionally, traditional consumer e-commerce and group buying websitesecommerce players have expanded their local offerings into the travel market by adding hotel offers to their sites.websites. Most recently, ride sharing app Uber has added transportation and experience offerings to its app via partnerships with other travel providers. Our B2B business has grown significantly but faces competition from other online travel agencies (“OTAs”) with B2B offerings, as well as other competitors.
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 distributesGroup facilitates both merchant (Expedia Collect) and agency (Hotel Collect) hotel offerings forwith our hotel supply partners through both agency-only contracts as well as our hybrid Expedia Traveler Preference ("ETP"(“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.
Intense competition also historically ledIn 2022, we began evolving our strategy from being largely transactionally focused, where we were primarily focused on acquiring customers through performance channels, to aggressivebuilding a direct relationship with our customers by allocating more marketing spend towards our loyalty programs, paid app downloads, and brand awareness. While we maintain a large portfolio of consumer brands, we put the majority of our marketing efforts by the travel supplierstowards our three core consumer brands: Expedia, Hotels.com and intermediaries, and a meaningful unfavorable impact on our overall marketing efficiencies and operating margins. We manage our selling and 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. In certain cases, particularly in emerging markets, we are pursuing and expect to continue to pursue long-term growth opportunities for which our marketing efficiency is less favorable than that for our consolidated business, but for which we still believe the opportunity to be attractive. The crowded online travel environment is now driving certain secondary and tertiary online travel companies to establish marketing agreements with global players in order to leverage distribution and technology capabilities while focusing resources on capturing traveler mind share.
In May 2015, Expedia sold its 62.4% equity stake in eLong for approximately $671 million to several purchasers including Ctrip.com International, Ltd (“Ctrip”). Expedia and Ctrip also reached agreement on cooperation for certain travel products in specified geographic markets. The transaction closed on May 22, 2015. Unless otherwise noted, all discussion in the “Trends” and “Growth Strategy” sections refers to results for Expedia, Inc. excluding eLong.Vrbo.
Lodging
Lodging includes both hotel accommodations as well asand alternative accommodations primarily made available through HomeAway.accommodations. As a percentage of our total worldwide revenue in the first three quarterssecond quarter of 2017,2023, lodging accounted for 68%80%. Our room night growth has been healthy, with roomRoom nights excluding eLong growing 36%booked grew 15% in 2015, 32% in 2016, and 17% for the first three quartershalf of 2017. ADRs2023, as compared to growth of 26% in 2022 and 71% in 2021. Average Daily Rates (“ADRs”) booked for rooms booked on Expedia and HomeAway sites excluding eLongGroup declined 5%2% in 2015, increased 11% in 2016 due to the acquisitionfirst half of HomeAway,2023 and increased 3% forin 2022 and 28% in 2021.Over the first three quarterslast couple of 2017.years, our lodging business saw a significant increase in ADRs compared to pre-pandemic levels, which were driven by broader industry trends, a mix shift to Vrbo and high ADR geographies.
As of June 30, 2023, our global lodging marketplace had over 3 million lodging properties available, including over 2 million online bookable alternative accommodations listings through Vrbo and approximately 940,000 hotels and alternative accommodations through our other brands.
Hotel. We generate the majority of our revenue through the facilitation of hotel reservations (stand-alone and package bookings). Although ourOur relationships and overall economics with our hotel supply partners have remainedbeen broadly stable in the past few years, as part of the global rollout of ETP, we reduced negotiated economics in certain instances to compensate for hotel supply partners absorbing expenses such as credit card fees and customer service costs, which has negatively impacted the margin of revenue we earn per booking. In addition, asrecent 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, contributediscounting, and couponing have contributed to declines in revenue per room night and profitability. Lastly, currency exchange rate fluctuations have had a negative effect on unit economics due to unfavorable book-to-stay as well as translation impacts.profitability in certain cases.
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,
U.S. dollar-denominated hotel ADRs declined in 2015 and 2016, due to the currency translation impact, and increased in the first three quarters of 2017. Current occupancy rates for hotels in the United States remain high; however, U.S. hotel supply growth has been accelerating, which may put additional pressure on ADRs. In international markets, hotel supply is being added at a faster rate as hotel owners and operators try to take advantage of opportunities in faster growing regions such as Asia and certain Latin American markets. Companies like Airbnb and HomeAway also added incremental global supply in the alternative accommodations space. In addition,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,programs, increased or exclusive product availability and complimentary Wi-Fi. We have had success adding supply to our marketplace with over 500,000 properties on our global websites as of September 30, 2017, including approximately 95,000 HomeAway vacation rental properties now available on Expedia.com.benefits.
Alternative Accommodations. With our acquisition of HomeAway and all of its brands in December 2015,Accommodations. Over the past decade, we expanded into the fast growing $100 billionfast-growing alternative accommodations market. HomeAwayVrbo is a leader, specializing in this marketunique whole home inventory, primarily in North American leisure markets, and represents an attractive growth opportunity for Expedia. HomeAwayExpedia Group.
Vrbo has been undergoing a transitiontransitioned 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. In addition, HomeAway rolled outVrbo offers hosts subscription-based listing or pay-per-booking service models. It also generates revenue from a traveler service fee for bookings.
Since our hotel and alternative accommodation supplier agreements are generally negotiated on a percentage basis, any increase or decrease in ADRs has an impact on the United States and Europe during the first half of 2016, consistent with market practice. The fee is expected to continue to contribute to HomeAway’s revenue growth and help fund marketing investment, programs to better protect travelers and future growth initiatives. Furthermore, HomeAway moved to a single subscription option globally in July 2016.we earn per room night. In the first quarter of 2017, HomeAway began integrating Expedia vacation rental properties onto its sites. Combined with HomeAway's existing inventory, there are nearly 1.5 million online bookable listingsavailable on HomeAway.future, we could see macroeconomic factors influence ADR trends, including rising living costs due to inflation and higher interest rates. Other factors that could lead to moderating ADRs include growth in hotel supply and the increase in alternative accommodation inventory.
Air
Significant airline sector consolidationSimilar to the rest of travel, the airlines experienced a surge in pent-up demand when COVID-19 restrictions were lifted, however they continued to operate at reduced capacity due to staffing shortages and supply chain disruptions.
In the United States in recent years generally resulted in lower overall capacity and higher fares, which combined with the significant declines in fuel prices led to record levels of profitability for the U.S. air carriers, further strengthening their position. However, in 2015 and 2016 and for the first three quarters of 2017, there has been evidence of discounting by the U.S. carriers while currency headwinds and weaker macroeconomic trends put pressure on international results. Ticket prices on Expedia sites excluding eLong declined 11% in 2015, 6% in 2016, and 1% in the first three quarters of 2017 as short-haul traffic and low cost carriers grew alongside increasingly competitive airline pricing. We canfuture, we could encounter pressure on air remuneration as air carriers combine, and as certain supply agreements renew, and as we continue to add airlines to ensure local coverage in new markets.
Air ticket volumes excluding eLong increased 35% in 2015 and 32% in 2016, primarily due to the acquisition of Orbitz, and 5%4% in the first three quartershalf of 2017.2023, and increased 8% in 2022 and 43% in 2021. As a percentage of our total worldwide revenue in the first three quarterssecond quarter of 2017,2023, air accounted for 8%3%.
Advertising & Media
Our advertising and media business is principally driven by revenue generated by trivago, a leading hotel metasearch site, in addition towebsite, and Expedia Group Media Solutions, which is responsible for generating advertising revenue on our global online travel brands. In the first three quartershalf of 2017,2023, we generated a total of $858$376 million of advertising and media revenue, representing 11%a 1% decrease from the same period in 2022. As a percentage of our total worldwide revenue up from $617 million in the first three quarterssecond quarter of 2016.2023, advertising and media accounted for 6%.
Growth Strategy
Global Expansion. Our Expedia, Hotels.com, Egencia, and EAN brands operate both domestically and through international pointsSince the onset of sale, including in Europe, Asia Pacific, Canada and Latin America. In addition, ebookers offers multi-productCOVID-19, online travel reservations in Europeagencies, including ourselves, have reduced marketing spend on trivago. In response, trivago has reduced its own marketing spend and Wotif Group has a leadinglowered operating costs to preserve profitability. We expect trivago to continue to experience revenue pressure going forward.
Business Strategy
As we endeavor to power global travel for everyone, everywhere our focus is to: leverage our brand, supply and platform technology strength, to provide greater services and value to our travelers, suppliers and business partners, and build longer-lasting direct relationships with our customers.
Leverage Brand and Supply Strength to Power the Travel Ecosystem. We believe the strength of our core brand portfolio and consistent enhancements to product and service offerings, 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 brands, including Wotif.com, Wotif.co.nz, lastminute.com.au, lastminute.com.nzproducts, we are also able to provide value to supply partners seeking to grow their business through sophisticated technology, a better understanding of travel retailing and travel.com.au, focused principally on the Australiareaching consumers in markets beyond their reach. Our deep product and New Zealand markets. Egencia, our corporatesupply footprint allows us to tailor offerings to target different types of consumers and travel business, operatesneeds, employ geographic segmentation in over 65 countriesmarkets around the world, and continuesleverage brand differentiation, among other benefits. We also market to expand. The HomeAway portfolio has over 50 vacation rental sitesconsumers through a variety of channels, including internet search, metasearch and social and digital media.
In 2021, we announced plans to unify and expand our existing loyalty programs into one global rewards platform called “One Key” spanning all around the world. We own a majority share of trivago, a leading hotel metasearch company. Officiallyour main brands, which launched in 2005, trivago is one of the best known travel brands in Europe and North America. trivago continues to operate independently and rapidly grow revenue through global expansion, including aggressive expansion in new countries. 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 Ctrip and eLong in China, Traveloka in Southeast Asia, as well as Decolar.com, Inc. in Latin America, among many others. In the first three quarters of 2017, approximately 37% of our worldwide gross bookings and 45% of worldwide revenue were through
international points of sale compared to just 21% for both worldwide gross bookings and revenue in 2005. We have a goal of generating more than two-thirds of our revenue through businesses and points of sale outside of the United States.
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. 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’s worldwide traveler base makes our sites 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 in order 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 in order 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. Each Expedia technology platform is operated by a dedicated technology team, which drives innovations that make researching and shopping for travel increasingly easier and helps customers find and book the best possible travel options. In the past several years, we made key investments in technology, including significant development of our technical platforms that makes it possible for us to deliver innovations at a faster pace. For example, we launched new global platforms for Hotels.com and Brand Expedia, enabling us to significantly increase the innovation cycle, thereby improving conversion and driving faster growth rates for those brands. In 2013, Expedia signed an agreement to power the technology, supply and customer service platforms for Travelocity-branded sitesJuly 2023 in the United States with other markets to follow. We also market to consumers through a variety of channels, including internet search, metasearch and Canada, enablingsocial and digital media.
Leverage Our Platform to Deliver More Rapid Product Innovation Resulting in Better Traveler Experiences. During 2020, Expedia Group unified its technology, product, data engineering and data science teams to leverage its investments in eachbuild services and capabilities that can be leveraged across our business units to provide value-add services to our travel suppliers and serve our end customers. The unified team structure enables us to deliver more scalable services and operate more efficiently. All of these key areas. During 2014, the Travelocity-branded sites were successfully migrated to the Expedia technology platform. In November 2014, Expedia completed the acquisitionour transaction-based businesses also now benefit from our shared platform infrastructure, including customer servicing and support, data centers, search capabilities, payment processing and fraud operations.
As we acquired the Travelocity brand and other associated assets from Sabre. The strategic marketing and other related agreements previously entered into were terminated. In September 2015, Expedia acquired Orbitz Worldwide, including all of its brands. The Orbitz, CheapTickets and ebookers sites were migrated to the Expedia technology platform in the first half of 2016, and Orbitz for Business customers were migrated to the Egencia technology platform by July 2016. In December 2015, Expedia acquired HomeAway, Inc., including all of its brands. Additionally, in June 2017, Expedia acquired a majority stake in SilverRail, a leading rail technology distributor. We intend to continue leveraging these 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. While we aim to drive the top-line growth in our global brands, we are managing our regional brands, such as Travelocity, Orbitz, Wotif, ebookers and CheapTickets, with a greater focus on profitability.
New Channel Penetration. Technological innovations and developments continue to evolve our shared platform infrastructure, our focus is on developing technical capabilities that support various travel products while using simpler, standard architecture and common applications and frameworks. We believe this strategy will enable us to: simultaneously build pieces of technology that work in tandem; ship products faster; create newmore innovative solutions; and achieve greater scale. Ultimately, we believe this will result in faster product innovation and therefore better traveler experiences. In addition, over time, as we execute on our streamlined application development framework, we believe we can unlock additional platform service opportunities for travel bookings made through mobile devices, in addition to more traditional methods like desktop and laptop computers. Inbeyond the past few years, eachscope of our internal brands made significant progress creating new mobile websites and mobile applications that are receiving strong reviews and solid download trends, and some of our brands now see more traffic via mobile devices than via traditional PCs. Mobile bookings continue to present an opportunity for incremental growth as they are often completed within one or two days of thebusiness travel or stay, which is a much shorter booking window than we historically experienced via more traditional online booking methods. Additionally, our brands implemented new technologies like voice-based search, chatbots and messaging apps as mobile-based options for travelers. In addition, we are seeing increasing 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 the first three quarters of 2017, approximately one in three Expedia, Inc. transactions were booked globally on a mobile device.partners.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel products and 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. BecauseSince revenue for most of our travel products,services, including merchant and agency hotel, is recognized whenas 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 longer.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 aggressively market 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 continued growth ofin our B2B segment, international operations, advertising business or a change in our product mix, including the assimilation and growth of HomeAway,among others, may also influence the typical trend of the seasonality in the future, and there may also be business or market driven dynamics that result in short-term impacts to revenue or profitability that differ from the typical seasonal trends. We expect that as HomeAway continues its shift to more of a transaction-based business model for vacation rental listings its seasonal trends may be somewhat more pronounced than our other traditional leisure businesses.future.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes in accordance with generally accepted accounting principles in the United States (“GAAP”). Preparation of the consolidated financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:
•It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and
•Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.
For 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, 2016.2022 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 seventeeneight 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 andand/or ordinances at issue do not apply to us or the services we provide, namely the facilitation of hoteltravel 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 September 26, 2017, the United States Fifth Circuit Court of Appeals heard argument on the parties’ cross appeals.
Denver, Colorado Litigation. The parties have reached a settlement. On October 13, 2017, the Colorado Court of Appeals granted the parties' motion to dismiss their respective appeals, thereby ending the case.
State of New Hampshire Litigation. On October 18, 2017, the trial court issued its post-trial order finding that the defendant online travel companies are not subject to the New Hampshire meals and room tax and that their business practices do not violate the state consumer protection act.
For additional information and other recent developments 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 $40$46 million and $44 million as of SeptemberJune 30, 2017,2023 and $71 million as of December 31, 2016.2022, respectively.
Certain jurisdictions, including without limitation the states of New York, New Jersey, North Carolina, Minnesota, Oregon, Rhode Island, Maryland, Pennsylvania, Hawaii, Iowa, Massachusetts, Arizona, Wisconsin, Idaho, Arkansas, Indiana, Maine, Nebraska, Vermont, Mississippi, Virginia, the city of New York, and the District of Columbia, have enacted legislation seeking to tax online travel company services as part of sales or other taxes for hotel and/or other accommodations and/or car rental. In addition, in certain jurisdictions, we have entered into voluntary collection agreements pursuant to which we have agreed to voluntarily collect and remit taxes to state and/or local taxing jurisdictions. We are currently remitting taxes to a number of jurisdictions, including without limitation the states of New York, New Jersey, South Carolina, North Carolina, Minnesota, Georgia, Wyoming, West Virginia, Oregon, Rhode Island, Montana, Maryland, Kentucky, Maine, Pennsylvania, Hawaii, Iowa, Massachusetts, Arizona, Wisconsin, Idaho, Arkansas, Indiana, Nebraska, Vermont, Colorado, Mississippi, Virginia, the city of New York and the District of Columbia, as well as certain other jurisdictions.
Pay-to-Play.
Certain jurisdictions may assert that we are required to pay any assessed taxes prior to being allowed to contest or litigate the applicability of the ordinances. This prepayment of contested taxes is referred to as “pay-to-play.” Payment of these amounts is not an admission that we believe we are subject to such taxes and, even when such payments are made, we continue to defend our position vigorously. If we prevail in the litigation, for which a pay-to-play payment was made, the jurisdiction collecting the payment will be required to repay such amounts and also may be required to pay interest.
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. For additional information, including significant pay-to-play payments made by Expedia companies, see Note 10 - Commitments and Contingencies - Legal Proceedings - Pay-to-Play
Other Jurisdictions. We are also in the notes to the consolidated financial statements.
Legislation. Certain jurisdictions,various stages of inquiry or audit with various tax authorities, some of which, including the statesCity of New York, North Carolina, Minnesota, Oregon, Rhode Island, and Maryland, the city of New York, and the District of Columbia, have enacted legislation seekingLos Angeles regarding hotel occupancy taxes, may impose a pay-to-play requirement to tax online travel company services as part of sales taxes for hotel occupancy. We are currently remitting taxes to a number of jurisdictions, including to the states of New York, South Carolina, North Carolina, Minnesota, Georgia, Wyoming, Oregon, Rhode Island, Montana, Maryland, Kentucky and Maine, the District of Columbia and the city of New York, as well as certain other county and local jurisdictions.challenge an adverse inquiry or audit result in court.
Segments
We have fourthe following reportable segments: Core Online Travel Agencies (“Core OTA”)B2C (formerly referred to as Retail), trivago, HomeAwayB2B, and Egencia.trivago. Our Core OTAB2C 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, CheapTickets, ebookers, EAN, Hotwire.com, Travelocity, Wotif Group, CarRentals.com, Classic Vacationsebookers, CheapTickets, Hotwire.com and SilverRail Technologies, Inc.CarRentals.com. Our B2B segment is primarily comprised of Expedia Partner Solutions, which offers private label and co-branded products to make travel services available to travelers through third-party company branded websites. Our trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites. Our HomeAway segment operates an online marketplace for the vacation rental industry. Our Egencia segment provides managed travel services to corporate customers worldwide.
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 merchant and HomeAwaymerchant 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.
When HomeAway properties are booked through our Core OTA websites and vice versa, the segments split the third-party revenue for management and segment reporting purposes with the majority of the third-party revenue residing with the website marketing the property or room. The operating metrics, including gross bookings and room nights, are not split but instead generally reside entirely with the website marketing the property or room.
Gross Bookings and Revenue Margin
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Gross Bookings | | | | | | | | | | | |
| Core OTA | $ | 18,456 |
| | $ | 17,006 |
| | 9 | % | | $ | 56,519 |
| | $ | 51,414 |
| | 10 | % |
trivago(1) | — |
| | — |
| | N/A |
| | — |
| | — |
| | N/A |
|
HomeAway(2) | 2,013 |
| | 1,403 |
| | 44 | % | | 6,833 |
| | 4,681 |
| | 46 | % |
| Egencia | 1,728 |
| | 1,579 |
| | 9 | % | | 5,293 |
| | 4,914 |
| | 8 | % |
| Total gross bookings | $ | 22,197 |
| | $ | 19,988 |
| | 11 | % | | $ | 68,645 |
| | $ | 61,009 |
| | 13 | % |
| | | | | | | | | | | | |
| Revenue Margin | | | | | | | | | | | |
| Core OTA | 12.5 | % | | 12.3 | % | | | | 10.7 | % | | 10.5 | % | | |
trivago(1) | N/A |
| | N/A |
| | | | N/A |
| | N/A |
| | |
HomeAway(2) | 15.1 | % | | 15.0 | % | | | | 10.4 | % | | 11.2 | % | | |
| Egencia | 7.3 | % | | 7.1 | % | | | | 7.2 | % | | 7.0 | % | | |
| Total revenue margin | 13.4 | % | | 12.9 | % | | | | 11.3 | % | | 11.0 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| ($ in millions) | | | | ($ in millions) | | |
| Gross bookings | $ | 27,321 | | | $ | 26,139 | | | 5 | % | | $ | 56,722 | | | $ | 50,551 | | | 12 | % |
Revenue margin (1) | 12.3 | % | | 12.2 | % | | | | 10.6 | % | | 10.7 | % | | |
____________________________
| |
(1) | (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. |
| |
(2) | In the first quarter of 2017, we began reporting HomeAway gross bookings along with the historical comparable information. HomeAway gross bookings include on-platform transactions from all HomeAway brands, with the exception of BedandBreakfast.com and TopRural (which, if included would collectively add less than an estimated 2% to gross bookings). On-platform gross bookings for Stayz, Bookabach and Travelmob (which collectively represent less than 10% of total on-platform transactions) represent our best estimates. |
The increase in worldwide gross bookings foror revenue margin. However, third-party revenue from trivago is included in revenue used to calculate total revenue margin.
During the three and ninesix months ended SeptemberJune 30, 2017, as2023, gross bookings increased 5% and 12%, compared to the same periods in 2016, was primarily driven by growth in the Core OTA segment, including growth at Brand Expedia, Hotels.com2022, as gross bookings for lodging improved due to increasing travel demand. Booked room nights for our lodging business increased 9% and EAN, as well as HomeAway.
The increase in revenue margin15% for the three and ninesix months ended SeptemberJune 30, 2017, as2023.
Revenue margin remained relatively consistent period over period with a slight increase during the three months ended June 30, 2023 and a slight decrease during the six months ended June 30, 2023 compared to the same periods in 2016, was primarily due to a mix shift to higher margin products, including the growth in advertising and media revenue, and the favorable impact2022.
Results of Operations
Revenue
| | | | Three Months Ended September 30, | | | | Nine months ended September 30, | | | | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | |
| Revenue by Segment | | | | | | | | | | | | Revenue by Segment | |
| Core OTA | $ | 2,314 |
| | $ | 2,083 |
| | 11 | % | | $ | 6,022 |
| | $ | 5,388 |
| | 12 | % | |
| B2C | | B2C | $ | 2,415 | | | $ | 2,420 | | | — | % | | $ | 4,336 | | | $ | 4,160 | | | 4 | % |
| B2B | | B2B | 861 | | | 650 | | | 32 | % | | 1,529 | | | 1,082 | | | 41 | % |
| trivago (Third-party revenue) | 221 |
| | 176 |
| | 26 | % | | 621 |
| | 423 |
| | 47 | % | trivago (Third-party revenue) | 82 | | | 111 | | | (25) | % | | 158 | | | 188 | | | (16) | % |
| HomeAway | 305 |
| | 210 |
| | 45 | % | | 714 |
| | 524 |
| | 36 | % | |
| Egencia | 126 |
| | 112 |
| | 13 | % | | 384 |
| | 346 |
| | 11 | % | |
| Total revenue | $ | 2,966 |
| | $ | 2,581 |
| | 15 | % | | $ | 7,741 |
| | $ | 6,681 |
| | 16 | % | Total revenue | $ | 3,358 | | | $ | 3,181 | | | 6 | % | | $ | 6,023 | | | $ | 5,430 | | | 11 | % |
Revenue increased 6% and 11% for the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016, primarily driven by2022, on strong growth in the Core OTAour B2B segment including growth at Brand Expedia and EAN,resulting from increased lodging revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| ($ in millions) | | | | ($ in millions) | | |
| Revenue by Service Type | | | | | | | | | | | |
| Lodging | $ | 2,698 | | | $ | 2,400 | | | 12 | % | | $ | 4,727 | | | $ | 4,010 | | | 18 | % |
| Air | 111 | | | 95 | | | 17 | % | | 224 | | | 169 | | | 33 | % |
Advertising and media(1) | 201 | | | 213 | | | (6) | % | | 376 | | | 379 | | | (1) | % |
| Other | 348 | | | 473 | | | (26) | % | | 696 | | | 872 | | | (20) | % |
| Total revenue | $ | 3,358 | | | $ | 3,181 | | | 6 | % | | $ | 6,023 | | | $ | 5,430 | | | 11 | % |
____________________________
(1)Includes third-party revenue from trivago as well as growth at HomeAway and trivago.our transaction-based websites.
Lodging revenue which includes hotelincreased 12% and HomeAway revenue, increased 15%18% for both the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016. The increase was2022, primarily due to a 16% and 17%driven by an increase in room nights stayed, driven by growth at Brand Expedia, HomeAway and EAN, partially offset by a 1% and 2% decreaseslight decline in revenue per room night.stayed ADRs.
Worldwide air revenue decreased 7% for the three months ended September 30, 2017, compared to the same period in 2016, due to a 10% decrease in revenue per ticket, partially offset by a 4% increase in air tickets sold. Worldwide airAir revenue increased 1% for the nine months ended September 30, 2017, compared to the same period in 2016, due to a 5% increase in air tickets sold, partially offset by a 4% decrease in revenue per ticket.
The remaining worldwide revenue, other than lodging17% and air discussed above, which includes advertising and media, car rental, destination services and fee revenue related to our corporate travel business, increased by 22% and 26%33% for the three and ninesix months ended SeptemberJune 30, 2017,2023 primarily driven by an increase in revenue per air ticket.
Advertising and media revenue decreased 6% and 1% for the three and six months ended June 30, 2023, compared to the same periods in 2016, primarily2022, due to growtha decline in advertisingtrivago revenue, partially offset by an increase at Expedia Group Media Solutions. All other revenue, which includes car rental, insurance, cruise and media revenue as well as growthactivities, decreased 26% and 20% for the three and six months ended June 30, 2023, compared to the same periods in our2022, from a decrease in travel insurance and car rental products.revenue.
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, | | |
| | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Revenue by Business Model | | | | | | | | | | | |
| Merchant | $ | 2,300 | | | $ | 2,125 | | | 8 | % | | $ | 4,094 | | | $ | 3,610 | | | 13 | % |
| Agency | 824 | | | 808 | | | 2 | % | | 1,490 | | | 1,374 | | | 8 | % |
| Advertising, media and other | 234 | | | 248 | | | (6) | % | | 439 | | | 446 | | | (2) | % |
| Total revenue | $ | 3,358 | | | $ | 3,181 | | | 6 | % | | $ | 6,023 | | | $ | 5,430 | | | 11 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine months ended September 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Revenue by Business Model | | | | | | | | | | | |
| Merchant | $ | 1,559 |
| | $ | 1,407 |
| | 11 | % | | $ | 4,111 |
| | $ | 3,682 |
| | 12 | % |
| Agency | 803 |
| | 723 |
| | 11 | % | | 2,058 |
| | 1,858 |
| | 11 | % |
Advertising and media(1) | 299 |
| | 241 |
| | 24 | % | | 858 |
| | 617 |
| | 39 | % |
| HomeAway | 305 |
| | 210 |
| | 45 | % | | 714 |
| | 524 |
| | 36 | % |
| Total revenue | $ | 2,966 |
| | $ | 2,581 |
| | 15 | % | | $ | 7,741 |
| | $ | 6,681 |
| | 16 | % |
____________________________
| |
(1) | Includes third-party revenue from trivago as well as our transaction-based websites. |
Merchant revenue increased for the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016,2022, primarily due to thean increase in merchant hotel revenue driven by an increase in room nights stayed.
Agency revenue increased for the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016,2022, primarily due to the growthan increase in agency hotel.hotel and air revenue.
Advertising, media and media revenue increasedother decreased for the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016,2022, primarily due to continued growtha decrease in revenue at trivago and Expedia Media Solutions.
HomeAway revenue increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to growth in transactional revenue of approximately 115% and 130% driven by a benefit from the traveler service fee, partially offset by subscription revenue decreasing approximately 35% and 30%.advertising revenue.
Cost of Revenue
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine months ended September 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Customer operations | $ | 203 |
| | $ | 189 |
| | 8 | % | | $ | 578 |
| | $ | 558 |
| | 4 | % |
| Credit card processing | 129 |
| | 137 |
| | (6 | )% | | 389 |
| | 399 |
| | (2 | )% |
| Data center, cloud and other | 127 |
| | 91 |
| | 39 | % | | 352 |
| | 269 |
| | 31 | % |
| Total cost of revenue | $ | 459 |
| | $ | 417 |
| | 10 | % | | $ | 1,319 |
| | $ | 1,226 |
| | 8 | % |
| % of revenue | 15.5 | % | | 16.2 | % | | | | 17.0 | % | | 18.3 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Direct costs | $ | 319 | | | $ | 345 | | | (7) | % | | $ | 649 | | | $ | 644 | | | 1 | % |
| Personnel and overhead | 88 | | | 74 | | | 17 | % | | 172 | | | 146 | | | 17 | % |
| Total cost of revenue | $ | 407 | | | $ | 419 | | | (3) | % | | $ | 821 | | | $ | 790 | | | 4 | % |
| % of revenue | 12.1 | % | | 13.2 | % | | | | 13.6 | % | | 14.6 | % | | |
Cost of revenue primarily consists of (1)direct costs to support our customer operations, including our customer support and telesales as well as fees to air ticket fulfillment vendors, (2)vendors; credit card processing, including merchant fees, fraud and chargebacks,chargebacks; and (3) other
costs, primarily including data center and cloud costs to support our websites, supplier operations, destination supply, certain transactional level taxes as well as related personnel and overhead costs, including stock-based compensation.
DuringCost of revenue decreased $12 million during the three and nine months ended SeptemberJune 30, 2017, the increase in cost of revenue expense,2023, compared to the same periodsperiod in 2016, was driven by $36 million and $83 million of higher data center, cloud2022, primarily due to lower costs associated with our direct customer service costs and other operations, partially offset by higher cloud costs including $8and customer service personnel costs as a result of increased transaction volumes. Cost of revenue increased $31 million during the six months ended June 30, 2023, compared to the same period in 2022, primarily due to higher cloud costs and $23 million related to an increase in data center related depreciation expense. Personnel expenses alsocustomer service personnel costs as a result of increased in the the current year periods primarily to supporttransaction volumes, partially offset by lower costs associated with our direct customer service and other operations. Cloud expense inAs a percentage of revenue, cost of revenue during the third quarter of 2017 was $17 million, compared to $1 million in the third quarter of 2016,decreased for both periods on leverage driven by ongoing efficiencies across our customer support and $38 million during the nine months ended September 30, 2017 compared to $2 million in 2016.other operations.
Selling and Marketing
| | | | Three Months Ended September 30, | | | | Nine months ended September 30, | | | | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | |
| Direct costs | $ | 1,224 |
| | $ | 1,007 |
| | 22 | % | | $ | 3,485 |
| | $ | 2,776 |
| | 26 | % | Direct costs | $ | 1,579 | | | $ | 1,549 | | | 2 | % | | $ | 3,066 | | | $ | 2,725 | | | 13 | % |
| Indirect costs | 237 |
| | 198 |
| | 20 | % | | 689 |
| | 623 |
| | 11 | % | Indirect costs | 191 | | | 167 | | | 14 | % | | 378 | | | 330 | | | 14 | % |
| Total selling and marketing | $ | 1,461 |
| | $ | 1,205 |
| | 21 | % | | $ | 4,174 |
| | $ | 3,399 |
| | 23 | % | Total selling and marketing | $ | 1,770 | | | $ | 1,716 | | | 3 | % | | $ | 3,444 | | | $ | 3,055 | | | 13 | % |
| % of revenue | 49.3 | % | | 46.7 | % | | | | 53.9 | % | | 50.9 | % | | | % of revenue | 52.7 | % | | 53.9 | % | | 57.2 | % | | 56.3 | % | |
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 increased $256$54 million and $775$389 million during the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016,2022, primarily driven by increases of $217 million and $709 million of directan increase in B2B partner commissions to support strong growth. Indirect costs including online and offline marketing expenses. trivago, Brand Expedia, EAN and Hotels.com accounted for the majority of the total direct cost increases. In addition, higher indirect costs of $39 million and $66 million also contributed to the increase and were driven by growth in personnel, partially offset by lower stock-based compensation in the nine months ended September 30, 2017 whenincreased compared to the sameprior year period in 2016, which included incremental charges from certain trivago awards pursuantdue to liability treatment.higher headcount.
Technology and Content
| | | | Three Months Ended September 30, | | | | Nine months ended September 30, | | | | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | |
| Personnel and overhead | $ | 165 |
| | $ | 140 |
| | 18 | % | | $ | 487 |
| | $ | 447 |
| | 9 | % | Personnel and overhead | $ | 251 | | | $ | 207 | | | 21 | % | | $ | 485 | | | $ | 409 | | | 19 | % |
| Depreciation and amortization of technology assets | 113 |
| | 92 |
| | 23 | % | | 325 |
| | 260 |
| | 25 | % | |
| Other | 72 |
| | 69 |
| | 4 | % | | 203 |
| | 204 |
| | (1 | )% | Other | 93 | | | 77 | | | 23 | % | | 176 | | | 145 | | | 22 | % |
| Total technology and content | $ | 350 |
| | $ | 301 |
| | 16 | % | | $ | 1,015 |
| | $ | 911 |
| | 11 | % | Total technology and content | $ | 344 | | | $ | 284 | | | 22 | % | | $ | 661 | | | $ | 554 | | | 19 | % |
| % of revenue | 11.8 | % | | 11.7 | % | | | | 13.1 | % | | 13.6 | % | | | % of revenue | 10.3 | % | | 8.9 | % | | 11.0 | % | | 10.2 | % | |
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, depreciation and amortization of technology assets including hardware, and purchased and internally developed software, andstock-based compensation, as well as other costs including cloud expense and licensing and maintenance expense and stock-based compensation.expense.
Technology and content expense increased $49$60 million and $104$107 million during the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016,2022, primarily due to higher personnel costs from increased depreciation and amortizationheadcount to support our strategic initiatives, as well as higher stock-based compensation of technology assets of $21$9 million and $65 million. In addition, personnel and overhead increased for both periods on higher headcount, including the addition of SilverRail, which was partially offset by lower stock-based compensation for trivago in the nine months ended September 30, 2017 when compared to the same$17 million period in 2016. Cloud expense in technology andover period.
content during the third quarter of 2017 was $11 million, compared to $10 million in the third quarter of 2016, and $27 million during the nine months ended September 30, 2017 compared to $23 million in 2016.
General and Administrative
| | | | Three Months Ended September 30, | | | | Nine months ended September 30, | | | | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | |
| Personnel and overhead | $ | 115 |
| | $ | 100 |
| | 15 | % | | $ | 326 |
| | $ | 303 |
| | 8 | % | Personnel and overhead | $ | 159 | | | $ | 149 | | | 7 | % | | $ | 311 | | | $ | 292 | | | 7 | % |
| Professional fees and other | 26 |
| | 66 |
| | (60 | )% | | 152 |
| | 201 |
| | (24 | )% | Professional fees and other | 35 | | | 40 | | | (13) | % | | 67 | | | 83 | | | (20) | % |
| Total general and administrative | $ | 141 |
| | $ | 166 |
| | (15 | )% | | $ | 478 |
| | $ | 504 |
| | (5 | )% | Total general and administrative | $ | 194 | | | $ | 189 | | | 2 | % | | $ | 378 | | | $ | 375 | | | 1 | % |
| % of revenue | 4.8 | % | | 6.4 | % | | | | 6.2 | % | | 7.5 | % | | | % of revenue | 5.8 | % | | 6.0 | % | | 6.3 | % | | 6.9 | % | |
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, and other costs including stock-based compensation.services.
General and administrative expense decreased $25 million and $26 million during the three and ninesix months ended SeptemberJune 30, 2017,2023 increased slightly compared to the same periods in 2016, primarily due to the current period reversal of approximately $41 million of previously recognized stock-based compensation expense related to the recent departure of our former CEO,2022 as headcount increases were partially offset by higher personnellower professional fees and overhead costs, including the addition of SilverRail. In addition, the year-to-date period decrease also resulted from lower stock-based compensation expense at trivago.miscellaneous business taxes.
Depreciation and Amortization of Intangible Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Depreciation | $ | 184 | | | $ | 176 | | | 5 | % | | $ | 361 | | | $ | 351 | | | 3 | % |
| Amortization of intangible assets | 15 | | | 21 | | | (29) | % | | 30 | | | 43 | | | (31) | % |
| Total depreciation and amortization | $ | 199 | | | $ | 197 | | | 1 | % | | $ | 391 | | | $ | 394 | | | (1) | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine months ended September 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Amortization of intangible assets | $ | 71 |
| | $ | 75 |
| | (5 | )% | | $ | 204 |
| | $ | 249 |
| | (18 | )% |
| Impairment of intangible assets | — |
| | 2 |
| | N/A |
| | — |
| | 2 |
| | N/A |
|
Amortization of intangible assets decreased $4Depreciation increased $8 million and $45$10 million during the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016,2022. Amortization of intangible assets decreased $6 million and $13 million during the three and six months ended June 30, 2023, compared to the same periods in 2022 primarily due to the prior period completion of amortization in the fourth quarter of 2022 related to certain intangible assets.
Impairment of Intangible Assets
During the three and six months ended June 30, 2022, we recognized intangible impairment charges of $29 million related to an indefinite-lived trade name within our trivago segment. See Note 3 – Fair Value Measurements in the notes to the consolidated financial statements for further information.
Legal Reserves, Occupancy Tax and Other
| | | | Three Months Ended September 30, | | | | Nine months ended September 30, | | | | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | |
| Legal reserves, occupancy tax and other | $ | (1 | ) | | $ | 22 |
| | N/A | | 23 |
| | 29 |
| | (20 | )% | Legal reserves, occupancy tax and other | $ | 1 | | | $ | 2 | | | (58) | % | | $ | 6 | | | 23 | | | (76) | % |
| % of revenue | (0.1 | )% | | 0.9 | % | | 0.3 | % | | 0.4 | % | | | % of revenue | — | % | | — | % | | 0.1 | % | | 0.4 | % | |
Legal reserves, occupancy tax and other primarily consists of changesincreases 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.
The amounts inLegal reserves, occupancy tax and other for the three and ninesix months ended SeptemberJune 30, 2017 related2023 primarily included changes to changes in our reserve related to hotel occupancy and other taxes. During the three and ninesix months ended SeptemberJune 30, 2016, we recognized approximately $11 million for amounts expected to be paid in advance of litigation2022, the charges primarily related to "merchant model” car rental transactions in connection with Hawaii's general excise tax litigation. The remaining expense incertain other legal reserves for trivago.
Operating Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Operating income | $ | 443 | | | $ | 345 | | | 28 | % | | $ | 322 | | | $ | 210 | | | 53 | % |
| % of revenue | 13.2 | % | | 10.9 | % | | | | 5.3 | % | | 3.9 | % | | |
During the three and ninesix months ended SeptemberJune 30, 2016 related to changes2023, the increase in our reserve related to hotel occupancy and other taxes.
Restructuring and Related Reorganization Charges
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine months ended September 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Restructuring and related reorganization charges | $ | 4 |
| | $ | 7 |
| | (40 | )% | | 16 |
| | 46 |
| | (66 | )% |
| % of revenue | 0.1 | % | | 0.3 | % | | | | 0.2 | % | | 0.7 | % | | |
In connection with activities to centralize and optimize certain operations as well as migrate technology platformsoperating income in the priorcurrent year primarily related to previously disclosed acquisitions, we recognized $4 million and $16 million in restructuring and related reorganization charges during the three and nine months ended September 30, 2017 compared to $7 million and $46 million during the same periods in 2016. Based on current plans, which are subject to change, we expect to incur less than $5 million during the remainder of 2017 related to these integrations and estimates do not include any possible future acquisition integrations.
Operating Income
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine months ended September 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Operating income | $ | 482 |
| | $ | 386 |
| | 25 | % | | 512 |
| | 315 |
| | 63 | % |
| % of revenue | 16.2 | % | | 15.0 | % | | | | 6.6 | % | | 4.7 | % | | |
Operating income increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016,was primarily due to growth in revenue and a decrease in most major expense categories as a percentageexcess of revenue, partially offset by growth in sales and marketing as a percentage of revenue in the current year periods.operating costs.
Adjusted EBITDA by Segment | | | | | | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, | |
| | Three Months Ended September 30, | | | | Nine months ended September 30, | | | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | | ($ in millions) | | | | ($ in millions) | | |
| | ($ in millions) | | | | ($ in millions) | | | |
| Core OTA | $ | 737 |
| | $ | 714 |
| | 3 | % | | 1,531 |
| | 1,434 |
| | 7 | % | |
| B2C | | B2C | $ | 653 | | | $ | 582 | | | 12 | % | | $ | 801 | | | $ | 770 | | | 4 | % |
| B2B | | B2B | 206 | | | 156 | | | 32 | % | | 339 | | | 236 | | | 43 | % |
| trivago | (8 | ) | | 6 |
| | N/A |
| | 14 |
| | 20 |
| | (32 | )% | trivago | 13 | | | 33 | | | (60) | % | | 33 | | | 58 | | | (42) | % |
| HomeAway | 126 |
| | 77 |
| | 63 | % | | 171 |
| | 133 |
| | 29 | % | |
| Egencia | 20 |
| | 18 |
| | 13 | % | | 75 |
| | 60 |
| | 25 | % | |
| Unallocated overhead costs (Corporate) | (166 | ) | | (148 | ) | | (12 | )% | | (481 | ) | | (473 | ) | | (2 | )% | Unallocated overhead costs (Corporate) | (125) | | | (123) | | | 2 | % | | (241) | | | (243) | | | (1) | % |
Total Adjusted EBITDA (1) | $ | 709 |
| | $ | 667 |
| | 6 | % | | $ | 1,310 |
| | $ | 1,174 |
| | 12 | % | Total Adjusted EBITDA (1) | $ | 747 | | | $ | 648 | | | 15 | % | | $ | 932 | | | $ | 821 | | | 13 | % |
____________________________
| |
(1) | Adjusted EBITDA is a non-GAAP measure. See "Definition and Reconciliation of Adjusted EBITDA" below for more information. |
(1) 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 119 – 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.
Core OTAOur B2C segment Adjusted EBITDA increased $23 million and $97 million during the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016, primarily due to2022, as a result of marketing efficiencies and deferral of marketing spend. Our B2B segment experienced an increase
trivago Adjusted EBITDA declined $14 million during the three months ended September 30, 2017, compared to the same period in 2016, with the deterioration largely driven by changes in trivago’s marketplace that led to a deceleration in
revenue growth that occurred more quickly than planned television advertising spend could be reduced to an efficient level. The factors impacting the third quarter also impacted the year-to-date period with a declineimprovement in Adjusted EBITDA of $6 million.
HomeAway Adjusted EBITDA increased $49 million and $38 million during the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016, due to an increase2022, primarily as a result of $95 million and $190 million instrong revenue partially offset by higher selling and marketing and technology and content expense. During the current year, HomeAway has continued to invest in offline and online brand marketing to bring more demand to its growing supply base and in growing its product and technology teams.
Egenciagrowth. Our trivago segment Adjusted EBITDA increased $2 million and $15 milliondecreased during the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016, primarily due to an increase in revenue of $14 million and $38 million2022, as a result of adding new corporate clients and room night growth as well as scale efficiencies, partially offset by investments in sales, product and technology.revenue declines.
Unallocated overhead costs increased $18 million during the three months ended September 30, 2017, compared to the same period in 2016, primarily due to higher general and administrative personnel and overhead costs as well as professional fees. Unallocated overhead costs increased slightly during the year-to-date period due primarily to the higher general and administrative expenses during the current quarter, mostly offset by lower technology and content expense as we lap over an accelerated pace of technology hiring in the prior year.
Interest Income and Expense | | | | Three Months Ended September 30, | | | | Nine months ended September 30, | | | | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | | | ($ in millions) | | |
| Interest income | $ | 9 |
| | $ | 6 |
| | 60 | % | | 25 |
| | 14 |
| | 73 | % | Interest income | $ | 63 | | | $ | 10 | | | N/A | | $ | 106 | | | $ | 13 | | | N/A |
| Interest expense | (44 | ) | | (43 | ) | | 1 | % | | (130 | ) | | (130 | ) | | — | % | Interest expense | (61) | | | (73) | | | (16) | % | | (122) | | | (154) | | | (20) | % |
| Loss on debt extinguishment | | Loss on debt extinguishment | — | | | (24) | | | N/A | | — | | | (24) | | | N/A |
Interest income increased for the three and ninesix months ended SeptemberJune 30, 2017,2023, compared to the same periods in 2016, primarily due to higher average cash balances and to2022, as a lesser extentresult of higher rates of return. Interest expense was consistent period over period.decreased for the three and six months ended June 30, 2023, compared to the same periods in 2022, as a result of lower average senior notes outstanding in the current year periods.
As a result of the early redemption of the 3.6% and 4.5% senior unsecured notes during the three and six months ended June 30, 2022, we recognized a loss on debt extinguishment of $24 million, which primarily included the payment of early payment premiums as well as the write-off of unamortized discount and debt issuance costs.
Other, Net
Other, net is comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| ($ in millions) |
| Foreign exchange rate losses, net | $ | (35) | | | $ | (14) | | | $ | (48) | | | $ | (31) | |
| Gains (losses) on minority equity investments, net | 53 | | | (373) | | | 54 | | | (352) | |
| TripAdvisor tax indemnification adjustment | (2) | | | — | | | 67 | | | — | |
| Gain on sale of businesses, net | 4 | | | — | | | 24 | | | 2 | |
| Other | (1) | | | 2 | | | — | | | 1 | |
| Total other, net | $ | 19 | | | $ | (385) | | | $ | 97 | | | $ | (380) | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | ($ in millions) |
| Foreign exchange rate losses, net | $ | (21 | ) | | $ | (6 | ) | | $ | (47 | ) | | $ | (23 | ) |
| Loss on investments, net | (9 | ) | | (4 | ) | | (14 | ) | | (11 | ) |
| Other | (2 | ) | | 1 |
| | (5 | ) | | (3 | ) |
| Total other, net | $ | (32 | ) | | $ | (9 | ) | | $ | (66 | ) | | $ | (37 | ) |
During the six months ended June 30, 2023, we recognized $24 million in gains related to sales of businesses in prior years.
For the three and six months ended June 30, 2022, losses on minority equity investments, net included $333 million and $335 million of losses related to mark-to-market adjustments in the fair value of our Global Business Travel Group, Inc (“GBTG”) investment.
Provision for Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | Six months ended June 30, | | |
| | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Provision for income taxes | $ | 77 | | | $ | 58 | | | 33 | % | | $ | 156 | | | $ | (27) | | | N/A |
| Effective tax rate | 16.7 | % | | (46.2) | % | | | | 38.7 | % | | 8.0 | % | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine months ended September 30, | | |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| | ($ in millions) | | | | ($ in millions) | | |
| Provision for income taxes | $ | 66 |
| | $ | 61 |
| | 9 | % | | $ | 22 |
| | $ | (15 | ) | | N/A |
| Effective tax rate | 15.9 | % | | 17.9 | % | | | | 6.6 | % | | (9.2 | )% | | |
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 tax items.
For the three months ended SeptemberJune 30, 2017 and 2016, we recorded a 15.9% and 17.9% tax rate expense on pre-tax income, which were both driven by discrete income tax items, specifically2023, the recognition of excess tax benefits related to share-based payments.
For the nine months ended September 30, 2017, we recorded a 6.6% tax rate expense on pre-tax income, which was driven by discrete income tax items, specifically the recognition of excess tax benefits related to share-based payments. The effective tax rate for the nine months ended September 30, 2016 was a 9.2% tax rate benefit16.7% measured against pre-tax income, compared to (46.2)% measured against a pre-tax income, andloss in the prior year period. The change in the effective tax rate was primarily due to discrete income tax items including release of a valuation allowance for net operating lossesnondeductible mark-to-market adjustments to our minority equity investments recorded in the first quarter of 2016,prior year period.
For the six months ended June 30, 2023, the effective tax rate was 38.7% measured against pre-tax income, compared to 8.0% measured against a pre-tax loss in the prior year period. The increase in the effective tax rate was primarily due to the TripAdvisor audit assessment discussed below as well as recognition of excess tax benefits related to share-based payments resulting fromnondeductible mark-to-market adjustments recorded in the adoption of new accounting guidance for share-based paymentsas of January 1, 2016.
In addition to the above, our effective tax rate for all periods was lower than the 35% federal statutory rate due to earnings in foreign jurisdictions outside of the United States, predominately Switzerland, where our statutory income tax rate is lower as well as excess tax benefits.prior year period.
We are subject to taxation in the United States and various otherforeign jurisdictions. Our income tax filings are regularly examined by federal, state and foreign jurisdictions. We are under examination bytax authorities. During the fourth quarter of 2019, the Internal Revenue Service ("IRS"(“IRS”) issued final adjustments related to transfer pricing with our foreign subsidiaries for our 2009 through2011 to 2013 tax years. Our 2014 and subsequent years remain openThe adjustments would increase our U.S. taxable income by $696 million, which would result in federal tax of approximately $244 million, subject to examination byinterest. We do not agree with the position of the IRS. We do not anticipatehave formally filed a significant impactprotest for our 2011 to our gross unrecognized2013 tax benefits withinyears and the next 12 months related to these years.case is currently in Appeals. During firstthe fourth quarter of 2017,2022, the IRS issued similar proposed adjustments related to transfer pricing with our foreign subsidiaries for our 20092014 to 2010 audit cycle.2016 tax years. The proposed adjustments would increase our U.S. taxable income by $105 million,$1.232 billion, which would result in federal tax expense of approximately $37$431 million, subject to interest. We do not agree with the position of the IRS and intend to formally file a protest. We are formally protestingalso under examination by the IRS position.for our 2017 to 2020 tax years. We believe it is reasonably possible that the audit of the 2011 to 2013 tax years will conclude within the next 12 months.
On December 20, 2011, we completed a spin-off of TripAdvisor into a separate publicly-traded corporation. Pursuant to the tax sharing agreement between Expedia Group and TripAdvisor, TripAdvisor is responsible for its potential tax liabilities in connection with any consolidated income tax returns filed as a part of Expedia Group’s consolidated income tax return prior to or in connection with the spin-off. TripAdvisor is required to indemnify Expedia Group for any such taxes, including interest, penalties, legal, and professional fees.
In the first half of 2023, TripAdvisor agreed in principle with the IRS to an assessed amount of $120 million, inclusive of interest and state tax effects, for transfer pricing adjustments with its foreign subsidiaries for the 2009 through 2011 tax years. The assessment is a tax liability for tax years when TripAdvisor was part of Expedia Group's consolidated income tax return and is covered by the indemnification pursuant to the tax sharing agreement. In May 2023, Expedia Group received from the IRS the final assessment for the 2009 through 2011 tax years related to the TripAdvisor matter. Expedia Group remitted $113 million in settlement payments to the IRS, as the primary obligor for this assessment, and received the reimbursement required from TripAdvisor in settlement of the indemnification receivable for this matter. To date, we have recorded $67 million of additional income tax expense and a corresponding tax indemnification adjustment in other, net in our consolidated statements of operations representing the estimate of the incremental assessed payment to the IRS, including state tax effects.
Definition and Reconciliation of Adjusted EBITDA
We report Adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles ("GAAP"(“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, Inc. adjusted for (1) net income (loss) attributable to non-controlling interests; (2) provision for income taxes; (3) total other expenses, net; (4) stock-based compensation expense, including compensation expense related to certain subsidiary equity plans; (5) acquisition-related impacts, including (i) amortization of intangible assets and goodwill and intangible asset impairment, (ii) gains (losses) recognized on changes in the value of contingent consideration arrangements, if any, and (iii) upfront consideration paid to settle employee compensation plans of the acquiree, if any; (6) certain other items, including restructuring; (7) items included in
legal reserves, occupancy tax and other; (8) that portion of gains (losses) on revenue hedging activities that are included in other, net that relate to revenue recognized in the period; and (9) depreciation.
The above items are excluded from our Adjusted EBITDA measure because these items are noncash in nature, or because the amount and timing of these items is unpredictable, not driven by core operating results and renders comparisons with prior periods and competitors less meaningful. We believe Adjusted EBITDA is a useful measure for analysts and investors to evaluate our future on-going performance as this measure allows a more meaningful comparison of our performance and projected cash earnings with our historical results from prior periods and to the results of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments. In addition, we believe that by excluding certain items, such as stock-based compensation and acquisition-related impacts, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business and allows investors to gain an understanding of the factors and trends affecting the ongoing cash earnings capabilities of our business, from which capital investments are made and debt is serviced.
The reconciliation of net income (loss) attributable to Expedia Group, Inc. to Adjusted EBITDA is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| | | (In millions) |
| Net income (loss) attributable to Expedia Group, Inc. | | $ | 385 | | | $ | (185) | | | $ | 240 | | | $ | (307) | |
| Net income (loss) attributable to non-controlling interests | | 2 | | | — | | | 7 | | | (1) | |
| Provision for income taxes | | 77 | | | 58 | | | 156 | | | (27) | |
| Total other (income) expense, net | | (21) | | | 472 | | | (81) | | | 545 | |
| Operating income | | 443 | | | 345 | | | 322 | | | 210 | |
| Gain (loss) on revenue hedges related to revenue recognized | | (2) | | | (18) | | | 4 | | | (18) | |
| Legal reserves, occupancy tax and other | | 1 | | | 2 | | | 6 | | | 23 | |
| Stock-based compensation | | 106 | | | 93 | | | 209 | | | 183 | |
| Depreciation and amortization | | 199 | | | 197 | | | 391 | | | 394 | |
| Impairment of intangible assets | | — | | | 29 | | | — | | | 29 | |
| Adjusted EBITDA | | $ | 747 | | | $ | 648 | | | $ | 932 | | | $ | 821 | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| | | (In millions) |
| Net income attributable to Expedia, Inc. | | $ | 352 |
| | $ | 279 |
| | $ | 323 |
| | $ | 202 |
|
| Net loss attributable to non-controlling interests | | (2 | ) | | (1 | ) | | (3 | ) | | (25 | ) |
| Provision for income taxes | | 66 |
| | 61 |
| | 22 |
| | (15 | ) |
| Total other expense, net | | 66 |
| | 47 |
| | 170 |
| | 153 |
|
| Operating income | | 482 |
| | 386 |
| | 512 |
| | 315 |
|
| Gain (loss) on revenue hedges related to revenue recognized | | (9 | ) | | 4 |
| | 4 |
| | 4 |
|
| Restructuring and related reorganization charges, excluding stock-based compensation | | 4 |
| | 6 |
| | 16 |
| | 34 |
|
| Legal reserves, occupancy tax and other | | (1 | ) | | 22 |
| | 23 |
| | 29 |
|
| Stock-based compensation | | 6 |
| | 48 |
| | 103 |
| | 197 |
|
| Amortization of intangible assets | | 71 |
| | 75 |
| | 204 |
| | 249 |
|
| Impairment of intangible assets | | — |
| | 2 |
| | — |
| | 2 |
|
| Depreciation | | 156 |
| | 124 |
| | 448 |
| | 344 |
|
| Adjusted EBITDA | | $ | 709 |
| | $ | 667 |
| | $ | 1,310 |
| | $ | 1,174 |
|
Financial Position, Liquidity and Capital Resources
Our principal sources of liquidity are typically cash flows generated from operations;operations, cash available under our credit facility as well as our cash and cash equivalents and short-term investment balances, which were $3.8$6.3 billion and $1.9$4.1 billion at SeptemberJune 30, 20172023 and December 31, 2016, including $1.4 billion and $1.1 billion2022. As of June 30, 2023, the total cash and cash equivalents and short-term investment balancesinvestments held outside the United States was $791 million ($468 million in wholly-owned foreign subsidiaries (which includes $903and $323 million and $737 million related to earnings indefinitely invested outside the United States) as well as $317 million and $313 million held in majority-owned subsidiaries, which is also indefinitely invested outside the United States; and our $1.5 billionsubsidiaries). Our revolving credit facility which iswith aggregate commitments of $2.5 billion was essentially untapped and expires in February 2021. The revolving credit facility bears interest based on the Company’s credit ratings with the applicable interest rate on drawn amounts at LIBOR plus 137.5 basis points and the commitment fee on undrawn amounts at 17.5 basis points as of SeptemberJune 30, 2017.
In September 2017, we privately placed $1 billion of senior unsecured notes that are due in February 2028 and bear interest at 3.8% (the "3.8% Notes"). The 3.8% Notes were issued at 99.747% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in arrears in February and August of each year, beginning February 15, 2018. We used or expect to use the net proceeds of this offering for general corporate purposes, which may include, but are not limited to, the repayment, prepayment, redemption or repurchase of our indebtedness (including, but not limited to, our 7.456% senior notes due 2018) as well as working capital, capital expenditures and acquisitions.2023.
Our credit ratings are periodically reviewed by rating agencies. As of SeptemberJune 30, 2017,2023, Moody’s rating was Ba1Baa3 with an outlook of “stable,“positive,” S&P’s rating was BBB-BBB with an outlook of “stable” and Fitch’s rating was BBB- with an outlook of “stable.“positive.” 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 our 6.25% senior notes, 4.625% senior notes as well as our 2.95% senior notes will increase, which could have a material impact on our financial condition and results of operations.
As of SeptemberJune 30, 2017,2023, we were in compliance with the covenants and conditions in our revolving credit facility and outstanding debt which was comprised of $500 millionas detailed in registered senior unsecuredNote 4 – Debt in the notes due in August 2018 that bear interest at 7.456%, $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 senior unsecured notes due in February 2026 that bear interest at 5.0% andto the $1 billion of senior unsecured notes due in February 2028 that bear interest at 3.8%.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, but we are liable for the full value of such transactions until the flights are completed.transaction. For most other merchant bookings, which is primarily our merchant hotellodging 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. As long asTypically, the merchant hotel business grows, we expect that changes in working capital related to merchant hotel transactions will positively impact operating cash flows. However, we are using both the merchant model and the agency model in many of our markets. If the merchant hotel model declines relative to our other business models that generally consume working capital such as agency hotel, managed corporate travel, advertising or certain Expedia Affiliate Network relationships, or if there are changes to the merchant model, supplier payment terms, or booking patterns that compress the time period between our receipt of cash from travelers and our payment to suppliers, such as with mobile bookings via smartphones, our overall working capital benefits could be reduced, eliminated or even reversed. Our future working capital benefits could also be impacted by HomeAway's continued shift to more of a transactional model from a subscription model.
As our ETP program continues to expand, and depending on relative traveler and supplier adoption rates and customer payment preferences, among other things, the scaling up of ETP has and will continue to negatively impact near term working capital cash balances, cash flow, relative liquidity during the transition, and hotel revenue margins.
Seasonalseasonal fluctuations in our merchant hotel bookings affecthave affected the timing of our annual cash flows. DuringGenerally, 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. While we expect the impact of seasonal fluctuations to continue, merchant hotel growth rates, changes to the model or booking patterns, changes in the relative mix of merchant hotel transactions compared with transactions in our working capital consuming businesses, including ETP, as well as the transformation of the HomeAway vacation rental listing business, may counteract or intensify the anticipated seasonal fluctuations.
As of September 30, 2017, we had a deficit in our working capital of $2.3 billion, which decreased compared to the deficit of $2.7 billion as of December 31, 2016. The change in the deficit was primarily due to operating cash flows as well as proceeds from the 3.8% Notes issued in September 2017, partially offset by investing activities, including capital expenditures and cash paid for acquisitions.
We continue to invest in the development and expansion of our operations. Ongoing investments include but are not limited to improvements in infrastructure, which include our servers, networking equipment and software, release improvements to our software code, platform migrations and consolidation and search engine marketing and optimization efforts. In addition, in 2016, we began our expansion into the cloud computing environment. While we expect our cloud computing expenses to increase significantly over the next few years they are expected to result in lower overall capital expenditures related to our data centers over time. Our future capital requirements may include capital needs for acquisitions (including purchases of non-controlling interest), share repurchases, dividend payments or expenditures in support of our business strategy; thus reducing our cash balance and/or increasing our debt. Excluding capital expenditures associated with the build out of our new corporate headquarters,For 2023, we expect total capital expenditures for the full year 2017 to decline slightly over 2016increase relative to our 2022 spending levels. Our current estimates for the new headquarters total approximately $700levels as we look to $900 million, with final estimates contingent on completion of design planscontinue to improve our technology platforms, infrastructure, operational capabilities, and final determination of completed office space required in the initial build out. Of the total approximately $30 million was spent in 2016development of service offerings and less than $100 million will be spent in 2017. The majorityexpansion of the remaining expenditures for the new headquarters are planned for 2018 and 2019.our operations.
Our cash flows are as follows: | | | | | Nine months ended September 30, | | | | | Six months ended June 30, | | |
| | | 2017 | | 2016 | | $ Change | | | 2023 | | 2022 | | $ Change |
| | | (In millions) | | | (In millions) |
| Cash provided by (used in): | | | | | | | Cash provided by (used in): | |
| Operating activities | | $ | 1,922 |
| | $ | 1,544 |
| | $ | 378 |
| Operating activities | | $ | 4,303 | | | $ | 4,619 | | | $ | (316) | |
| Investing activities | | (1,480 | ) | | (589 | ) | | (891 | ) | Investing activities | | (388) | | | (248) | | | (140) | |
| Financing activities | | 861 |
| | (815 | ) | | 1,676 |
| Financing activities | | (1,018) | | | (1,687) | | | 669 | |
| Effect of foreign exchange rate changes on cash and cash equivalents | | 141 |
| | 29 |
| | 112 |
| |
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents | | Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents | | 10 | | | (165) | | | 175 | |
For the ninesix months ended SeptemberJune 30, 2017,2023, net cash provided by operating activities increaseddecreased by $378$316 million primarily due to increaseddecreased benefits from working capital changes driven mostlyprimarily from a changetiming in deferred merchant bookings.accounts payable and other accrued expenses, partially offset by lower interest expense paid and higher interest income received in the current year.
For the ninesix months ended SeptemberJune 30, 2017,2023, we had net cash used in investing activities increased by $891of $388 million primarily due to net purchase of investments of $792 million in the current period compared to cash provided by net sales of investments of $11$248 million in the prior year periodperiod. The change was primarily due to higher capital expenditures in the current year as well as an increasehigher net sales and maturities of cash used for acquisitions of $170 million, partially offset by lower capital expenditures of $41 million.
investments in the prior year.
For the ninesix months ended SeptemberJune 30, 2017,2023, net cash provided byused in financing activities primarily included $992 million$1.1 billion of net proceedscash paid to acquire shares, including the repurchased shares under the authorizations discussed below and for treasury stock activity related to the issuancevesting of 3.8% Notes in September 2017 as well as $180equity instruments, partially offset by $40 million of proceeds from the exercise of options and employee stock purchase plans, partially offset by cash paid to acquire shares of $154 million, including the repurchased shares under the authorizations discussed below, and a $130 million cash dividend payment.plans. For the ninesix months ended SeptemberJune 30, 2016,2022, net cash used in financing activities primarily included payments of $1.7 billion related to the repaymentextinguishment of $401our 2.5%, 3.6% and 4.5% senior notes as well as $69 million of HomeAway Convertible Notes, cash paid for treasury stock activity related to acquire sharesthe vesting of $367 million and a $111 millionequity instruments. These uses of cash dividend payment,were partially offset by $104$114 million of proceeds from the exercise of options and employee stock purchase plans.
In February 2015, the Executive Committee, acting on behalf of the Board of Directors, authorized a repurchase of up to 10 million shares of our common stock. During the ninesix months ended SeptemberJune 30, 2017 and 2016,2023, we repurchased, through open market transactions, 1.0 million and 3.210.2 million shares under thesea 2019 share authorization for a total cost of $139 million and $349 million,approximately $1 billion, excluding transaction costs. As of SeptemberJune 30, 2017, 6.22023, there were approximately 7.9 million shares remain authorized for repurchaseremaining under this authorization withthe authorization. There is no fixed termination date for the repurchases.
During the first nine monthsForeign exchange rate changes resulted in an increase of 2017our cash and 2016, the Executive Committee, acting on behalf of the Board of Directors, declared and we paid the following dividends:
|
| | | | | | | | | | | | |
| Declaration Date | | Dividend Per Share | | Record Date | | Total Amount (in thousands) | | Payment Date |
| Nine Months Ended September 30, 2017 | | | | | | | | |
| February 7, 2017 | | $ | 0.28 |
| | March 9, 2017 | | $ | 42,247 |
| | March 30, 2017 |
| April 26, 2017 | | 0.28 |
| | May 25, 2017 | | 42,438 |
| | June 15, 2017 |
| July 26, 2017 | | 0.30 |
| | August 24, 2017 | | 45,578 |
| | September 14, 2017 |
| Nine Months Ended September 30, 2016 | | | | | | | | |
| February 8, 2016 | | $ | 0.24 |
| | March 10, 2016 | | $ | 36,174 |
| | March 30, 2016 |
| April 26, 2016 | | 0.24 |
| | May 26, 2016 | | 35,773 |
| | June 16, 2016 |
| July 27, 2016 | | 0.26 |
| | August 25, 2016 | | 39,062 |
| | September 15, 2016 |
In addition, in October 2017, the Executive Committee, acting on behalf of the Board of Directors, declared a quarterly cash dividend of $0.30 per share of outstanding common stock payable on December 7, 2017 to stockholders of record as of the close of business on November 16, 2017. Future declarations of dividends are subject to final determination by our Board of Directors.
The effect of foreign exchange on ourrestricted cash balances denominated in foreign currency forduring the ninesix months ended SeptemberJune 30, 2017, compared to the same period in 2016, showed2023 of $10 million reflecting a net change of $112 million reflecting higher appreciationsappreciation in foreign currencies inrelative to the U.S. dollar during the current year period compared to $165 million decrease in the prior year period.period reflecting a net depreciation in foreign currencies relative to the U.S. dollar.
Other than discussed above, there have been no material changes outside the normal course of business to our contractual obligations and commercial commitments since December 31, 2022.
In our opinion, available cash, funds from operations and available borrowings will provideour liquidity position provides sufficient capital resources to meet our foreseeable liquiditycash 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.
Contractual Obligations, Commercial CommitmentsSummarized Financial Information for Guarantors and Off-balance Sheet Arrangementsthe Issuer of Guaranteed Securities
There 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 no material changes outside the normal courseeliminated and all information excludes subsidiaries that are not issuers or guarantors of business to our contractual obligationsdebt facility and commercial commitments sinceinstruments, including earnings from and investments in these entities.
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| | (In millions) |
| Combined Balance Sheets Information: | | | |
| Current Assets | $ | 10,327 | | | $ | 6,720 | |
| Non-Current Assets | 10,637 | | | 10,458 | |
Current Liabilities (1) | 15,434 | | | 10,407 | |
| Non-Current Liabilities | 6,783 | | | 6,777 | |
| | | |
| Six Months Ended
June 30, 2023 | | Year Ended December 31, 2022 |
| Combined Statements of Operations Information: | | | |
| Revenue | $ | 4,856 | | | $ | 9,431 | |
Operating income (2) | 129 | | | 747 | |
| Net income (loss) | (377) | | | 150 | |
| Net income (loss) attributable to Obligors | (385) | | | 146 | |
____________________________
(1)Current liabilities include intercompany payables with non-guarantors of $1.2 billion as of June 30, 2023 and $466 million as of December 31, 2016. Other than our contractual obligations2022.
(2)Operating income includes net intercompany income with non-guarantors of $35 million for the six months ended June 30, 2023 and commercial commitments, we did not have any off-balance sheet arrangements as of September 30, 2017 or$35 million for the year ended December 31, 2016.2022.
Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
There hashave been no material changes in our market risk during the three and six months ended SeptemberJune 30, 2017.2023. For additional information, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in Part II of our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
Part I. Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chairman and Senior Executive, Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chairman and Senior Executive, Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in internal control over financial reporting.
There were no changes to our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Item 1. Legal Proceedings
In the ordinary course of business, Expedia Group and its subsidiaries are parties to legal proceedings and claims involving property, tax, personal injury, contract, alleged infringement of third partythird-party intellectual property rights and other claims. A discussion of certain legal proceedings can be found in the section titled “Legal Proceedings,” of our Annual Report on Form 10-K for the year ended December 31, 20162022 and our Quarterly ReportsReport on Form 10-Q for the quartersquarter ended March 31, 2017 and June 30, 2017.2023. The following are developments regarding, as applicable, such legal proceedings and/or new legal proceedings:
Litigation Relating to Occupancy and Other Taxes
Actions Filed by Individual States, Cities and Counties
City of San Antonio, Texas Litigation. On September 26, 2017, the United States Fifth Circuit Court of Appeals heard argument on the parties’ cross appeals. The parties await a ruling from the court.
Pine Bluff, Arkansas Litigation. On October 10, 2017, plaintiffs filed a motion for partial judgment on the issue of liability. The defendants will oppose that motion.
Village of Bedford Park, Illinois Litigation. The United States Seventh Circuit Court of Appeals heard argument on the parties’ cross appeals on October 23, 2017.
State of New Hampshire Litigation. On October 18, 2017, the trial court issued its post-trial order finding that the defendant online travel companies are not subject to the New Hampshire meals and room tax and that their business practices do not violate the state consumer protection act.
Palm Beach, Florida HomeAway Litigation. The court has set the matter on the trial calendar that begins on May 28, 2018.
Portland, Oregon HomeAway Litigation. The court has set the case for trial on February 20, 2018.
State of Louisiana/City of New Orleans Litigation. On August 10, 2017, defendants filed an application for supervisory writ to theThe Louisiana Supreme Court seeking to reverse the trial court’s denial of their motion for judgment on the pleadings. Plaintiffs have opposed the motion, which remains pending.
Clackamas County, Oregon Litigation. On September 7, 2017, Clackamas County, Oregon filed a lawsuit in state circuit court against HomeAway, Expedia and other vacation rental listing companies. Clackamas County v. Homeaway.com, Inc., et al., Case No. 17-CV-38408 (Clackamas County Circuit Court). The complaint alleges the defendants failed to register with, and remit taxes to, the County as allegedly required by a new ordinance that became effective June 15, 2017. The complaint purports to seek enforcement of the ordinance and injunctive relief. On October 12, 2017, the defendants removed the case to federal court.
Actions filed by Expedia
Denver, Colorado Litigation. The parties have reached a settlement. On October 13, 2017, the Colorado Court of Appeals granted the parties' motion to dismiss their respective appeals, thereby ending the case.
Non-Tax Litigation and Other Legal Proceedings
Putative Class Action Litigation
Israeli Putative Class Action Lawsuit. On October 17, 2017, the District Court heard argument on Hotels.com’s appeal of the court registrar’s decision rejecting its challenge to service of process.
Cases Against HomeAway.com, Inc. On August 1, 2017, the magistrate issued his report and recommendation to the trial court in the Arnold and Brickman cases, recommending the court grant in part and deny in part HomeAway’s motion to dismiss the complaint. On August 25, 2017, the court adopted the magistrate’s report in Brickman. On September 25, 2017, the court adopted the magistrate’s report in Arnold. The United States FifthFirst Circuit Court of Appeals has scheduled oral argument on the appeals for August 9, 2023.
Other Legal Proceedings
Helms-Burton Litigation. On May 31, 2023, Expedia filed a Petition for Writ of Certiori with the week of December 4, 2017Supreme Court in the Arnold and Seim cases on the parties’ appeals from the trial court’s decisions on HomeAway’s motions to compel arbitration.Del Valle matter.
Part II. Item 1. Legal Proceedings
Competition Reviews, Litigation and Legislation Regarding Parity Clauses
Part II. Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016, 2022,which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-KThese are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchases
During 2015,In December 2019, the Board of Directors and the Executive Committee, acting on behalfpursuant to a delegation of authority from the Board, of Directors, authorized a repurchase of up to 1020 million shares of our common stock. A summary of the repurchase activity for the thirdsecond quarter of 20172023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of
Shares Purchased | | Average Price
Paid Per Share | | Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs | | Maximum
Number of
Shares that
May Yet Be
Purchased
Under Plans or
Programs |
| | (In thousands, expect per share data) |
| April 1-30, 2023 | | 1,634 | | | | $ | 93.04 | | | | 1,634 | | | | 12,139 | | |
| May 1-31, 2023 | | 2,234 | | | | $ | 93.97 | | | | 2,234 | | | | 9,905 | | |
| June 1-30, 2023 | | 1,978 | | | | $ | 104.59 | | | | 1,978 | | | | 7,927 | | |
| Total | | 5,846 | | | | | | 5,846 | | | | |
Part II. Item 5. Other Information
Rule 10b5-1 Plan Elections
Dara Khosrowshahi, Director, entered into a pre-arranged stock trading plan on May 22, 2023. Mr. Khosrowshahi’s plan provides for the sale of up to 100,000 shares of Expedia Group common stock between August 21, 2023 and August 31, 2025, with no more than 10,000 shares in any one calendar month. This trading plan was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended, and Expedia Group’s policies regarding transactions in Expedia Group securities.
|
| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs |
| | | (In thousands, expect per share data) |
| July 1-31, 2017 | | 218 |
| | $ | 150.37 |
| | 218 |
| | 6,267 |
|
| August 1-31, 2017 | | 30 |
| | 144.82 |
| | 30 |
| | 6,237 |
|
| September 1-30, 2017 | | — |
| | — |
| | — |
| | 6,237 |
|
| Total | | 248 |
| | | | 248 |
| | |
Part II. Item 6. Exhibits
The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.
| | | | | | | | | | | | | | | | | | | | |
Exhibit
No. | Exhibit Description | Filed
Herewith | | Incorporated by Reference | |
| Form | SEC File No. | Exhibit | Filing Date |
| | | | | | |
| 10.1 | | | 8-K | 001-37429 | 10.1 | 6/02/2023 |
| | | | | | |
| 10.2 | | | 8-K | 001-37429 | 10.2 | 6/02/2023 |
| | | | | | |
| 10.3 | | | 8-K | 001-37429 | 10.3 | 6/02/2023 |
| | | | | | |
| 22 | | X | | | | |
| | | | | | |
| 31.1 | | X | | | | |
| | | | | | |
| 31.2 | | X | | | | |
| | | | | | |
| 31.3 | | X | | | | |
| | | | | | |
| 32.1 | | X | | | | |
| | | | | | |
| 32.2 | | X | | | | |
| | | | | | |
| 32.3 | | X | | | | |
| | | | | | |
| 101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. | X | | | | |
|
| | | | | | |
Exhibit
| Exhibit Description | Filed
Herewith
| | Incorporated by Reference | |
| Form | SEC File No. | Exhibit | Filing Date |
31.1 | | X | | | | |
| | | | | | |
31.2 | | X | | | | |
| | | | | | |
31.3 | | X | | | | |
| | | | | | |
32.1 | | X | | | | |
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32.2 | | X | | | | |
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32.3 | | X | | | | |
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101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements. | X | | | | |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| August 3, 2023 | Expedia Group, Inc. |
| | |
October 26, 2017 | Expedia, Inc.By: | /s/ Julie Whalen |
| | Julie Whalen |
| By: | /s/ Alan Pickerill |
| | Alan Pickerill |
| | Chief Financial Officer |