QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-37429
EXPEDIA GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
20-2705720
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1111 Expedia Group Way W.
Seattle, WA98119
(Address of principal executive office) (Zip Code)
(206)481-7200
(Registrant’s telephone number, including area code)
__________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common stock, $0.0001 par value
EXPE
The Nasdaq Global Select Market
The number of shares outstanding of each of the registrant’s classes of common stock as of July 21, 2023 was:
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
Three months ended June 30,
Six months ended June 30,
2023
2022
2023
2022
Net income (loss)
$
387
$
(185)
$
247
$
(308)
Currency translation adjustments, net of tax(1)
3
(99)
31
(116)
Comprehensive income (loss)
390
(284)
278
(424)
Less: Comprehensive income (loss) attributable to non-controlling interests
1
(20)
11
(26)
Comprehensive income (loss) attributable to Expedia Group, Inc.
$
389
$
(264)
$
267
$
(398)
(1)Currency translation adjustments include tax benefit of $1 million and $2 million for the three and six months ended June 30, 2023 and tax expense of $6 million and $9 million for the three and six months ended June 30, 2022 associated with net investment hedges.
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: Brand Expedia®, Hotels.com®, Expedia® Partner Solutions, Vrbo®, trivago®, Orbitz®, Travelocity®, Hotwire®, Wotif®, ebookers®, CheapTickets®, Expedia Group™ Media Solutions, CarRentals.com™ and Expedia CruisesTM. In addition, many of these brands have related international points of 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, 2022 (“2022 Form 10-K”), previously filed with the Securities and Exchange Commission (“SEC”). trivago is 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 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 rewards; stock-based compensation; accounting for derivative instruments and provisions for credit losses, customer refunds and chargebacks.
Reclassifications
We have reclassified prior period financial statements to conform to the current period presentation.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel services. For example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and winter holiday travel. The number of bookings typically decreases in the fourth quarter. Since revenue for most of our travel services, including merchant and agency hotel, is recognized as the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks for our hotel business and can be several months or more for our alternative accommodations business. Historically, Vrbo has seen seasonally stronger bookings in the first quarter of the year, with the relevant stays occurring during the peak summer travel months. The seasonal revenue impact is exacerbated with respect to income by the nature of our variable cost of revenue and direct sales and marketing costs, which we typically realize in closer alignment to
Notes to Consolidated Financial Statements – (Continued)
booking volumes, and the more stable nature of our fixed costs. As a result on a consolidated basis, revenue and income are typically the lowest in the first quarter and highest in the third quarter.
Note 2 – Summary of Significant Accounting Policies
Recent Adopted Accounting Policies
As of January 1, 2023, we adopted the new guidance related to recognizing and measuring contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance requires acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination as compared to current GAAP where an acquirer generally recognizes such items 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 interim 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 advance 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 provided to the traveler and their breakage patterns. Using this portfolio approach is not expected to differ materially from applying the guidance to individual contracts. However, we will continue to assess and refine, if necessary, how a portfolio 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 total amount presented in our consolidated statements of cash flows:
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
Notes to Consolidated Financial Statements – (Continued)
Accounts Receivable and Allowances
Accounts receivable are generally due within thirty days and are recorded net of an allowance 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 receivable (for example, credit card vs hotel collect), collection terms and historical or expected credit loss patterns. For each pool, we make estimates of expected credit losses for our 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 supportable forecasts of future economic conditions and other factors that may affect our ability to collect from customers. The provision for estimated credit losses is recorded as cost of revenue in our consolidated statements of operations. During the six months ended June 30, 2023, we recorded approximately $24 million of incremental allowance for expected uncollectible accounts, offset by $13 million of write-offs.
Note 3 – Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 are classified using the fair value hierarchy in the table below:
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, 2022 are classified using the fair value hierarchy in the table below:
Total
Level 1
Level 2
(In millions)
Assets
Cash equivalents:
Money market funds
$
3
$
3
$
—
Term deposits
188
—
188
Derivatives:
Foreign currency forward contracts
15
—
15
Cross-currency interest rate swaps
21
—
21
Investments:
Term deposits
48
—
48
Equity investments
564
49
515
Total assets
$
839
$
52
$
787
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 the current interest rate curve, Level 2 inputs.
We hold term deposit investments with financial institutions. Term deposits with original maturities of less than three months are classified as cash equivalents. Those with remaining maturities of less than one year are classified within short-term investments 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 and money market funds with maturities of three months or less and bank account balances.
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. As of June 30, 2023, we were party to outstanding forward contracts hedging our liability exposures with a total net notional value of $5.0 billion. We had a net forward liability of $26 million ($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 December 31, 2022 recorded in prepaid expenses and other current assets. We recorded $35 million and $49 million in net losses from foreign currency forward contracts during the three months ended June 30, 2023 and 2022, as well as $15 million and $84 million during the six months ended June 30, 2023 and 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 method investments for which we have not elected the fair value option, are adjusted to fair value 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.
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 both June 30, 2023 and December 31, 2022, the carrying values of our minority investments without readily determinable fair values totaled $330 million. During the 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)
Note 4 – 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
_______________
(1)Net of applicable discounts and debt issuance costs.
Long-term Debt
Additional information about our $1 billion aggregate principal amount of unsecured 0% convertible senior notes due 2026 (the “Convertible Notes”) and our other outstanding senior notes (collectively the “Senior Notes”), see Note 7 – Debt of the Notes to Consolidated Financial Statements in our 2022 Form 10-K.
All of our outstanding Senior 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. 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. The 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 total estimated fair value of our Senior 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 and is categorized according as Level 2 in the fair value hierarchy.
Credit Facility
As of June 30, 2023, Expedia Group maintained a $2.5 billion revolving credit facility that matures in April 2027. As of June 30, 2023 and December 31, 2022, we had no revolving credit facility borrowings outstanding. Loans under the revolving credit facility bear interest at 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 Expedia Group’s credit ratings, and (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 a rate ranging from 0.10% to 0.25% per annum, depending on Expedia Group’s credit ratings. The terms of the revolving credit facility require Expedia Group to not exceed a specified maximum consolidated leverage ratio as of the end of each fiscal quarter.
The revolving credit facility has a $120 million letter of credit (“LOC”) sublimit, and the amount of LOCs issued under the facility reduced the credit amount available. Outstanding stand-by LOCs issued under the facility were $40 million and $38 million as of June 30, 2023 and December 31, 2022, respectively.
Note 5 – Stockholders’ Equity
Treasury Stock
As of June 30, 2023, the Company’s treasury stock was comprised of approximately 141.1 million common stock and 7.3 million Class B shares. As of December 31, 2022, the Company’s treasury stock was comprised of approximately 130.5 million shares of common stock and 7.3 million Class B shares.
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.
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.
Note 6 – Earnings (Loss) Per Share
The following table presents our basic and diluted earnings (loss) per share:
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 six months ended June 30, 2023, approximately 7 million shares 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. For the three and six months ended June 30, 2022, approximately 11 million shares from outstanding stock awards and approximately 4 million shares related to the potential share settlement impact related to our Convertible Notes were excluded.
Note 7 – 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 items.
Notes to Consolidated Financial Statements – (Continued)
For the three months ended June 30, 2023, the effective tax rate was 16.7% measured against pre-tax income, compared to (46.2)% measured against a pre-tax loss in the prior year period. The change in the effective tax rate was primarily due to nondeductible mark-to-market adjustments to our minority equity investments recorded in the 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 nondeductible mark-to-market adjustments recorded in the prior year period.
We are subject to taxation in the United States and foreign jurisdictions. Our income tax filings are regularly examined by federal, state and foreign tax authorities. During the fourth quarter of 2019, the Internal Revenue Service (“IRS”) issued final adjustments related to transfer pricing with our foreign subsidiaries for our 2011 to 2013 tax years. The adjustments would increase our U.S. taxable income by $696 million, which would result in federal tax of approximately $244 million, subject to interest. We do not agree with the position of the IRS. We have formally filed a protest for our 2011 to 2013 tax years and the case is currently in Appeals. During the fourth quarter of 2022, the IRS issued similar proposed adjustments related to transfer pricing with our foreign subsidiaries for our 2014 to 2016 tax years. The adjustments would increase our U.S. taxable income by $1.232 billion, which would result in federal tax of approximately $431 million, subject to interest. We do not agree with the position of the IRS and intend to formally file a protest. We are also under examination by the IRS 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 8 – 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 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. One hundred three lawsuits have been filed by or against cities, counties and states involving hotel occupancy and other taxes. Eight 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-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. Thirty-four dismissals were based on a finding that we and the other defendants were not subject to the local tax ordinance or that the local government lacked standing to pursue its 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 $46 million and $44 million as of June 30, 2023 and December 31, 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.
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.
We are in various stages of inquiry or audit with various tax authorities, some of which, including in the City of Los Angeles regarding hotel occupancy taxes, may impose a pay-to-play requirement to challenge an adverse inquiry or audit result in court.
Matters Relating to International VAT.We are in various stages of inquiry or audit in multiple European Union jurisdictions 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 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.
Note 9 – Segment Information
We have the following reportable segments: B2C (formerly referred to as Retail), B2B, and trivago. Our B2C segment provides a full range of travel and advertising services to our worldwide customers through a variety of consumer brands including: Expedia.com, Hotels.com, Vrbo, Orbitz, Travelocity, Wotif Group, ebookers, CheapTickets, Hotwire.com and 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.
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 Adjusted EBITDA. Adjusted EBITDA for our B2C and B2B segments includes allocations of certain expenses, primarily related to our global travel supply organization 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 lodging 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 B2C 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.
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 six months ended June 30, 2023 and 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.
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
____________________________
(1)Other includes car rental, insurance, activities and cruise revenue, among other revenue streams, none of which are individually material.
Our B2C and B2B segments generate revenue from the merchant, agency and advertising, media and other business models as well as all service types. trivago segment revenue is generated through advertising and media.
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, 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,” “likely,” “may,” “plans,” “potential,” “predicts,” “projected,” “seeks,” “should” and “will,” or the negative of these terms or other similar expressions, among others, generally identify forward-looking statements; however, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Please carefully review and consider the various disclosures made in this report and in our other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
The information included in this management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2022.
Overview
Expedia Group's mission is to power global travel for everyone, everywhere. We believe travel is a force for good. Travel is an essential human experience that strengthens connections, broadens horizons and bridges divides. We help reduce the barriers to travel, making it easier, more enjoyable, more attainable and more accessible. We bring the world within reach for customers and partners around the globe. We leverage our supply portfolio, platform and technology capabilities across an extensive portfolio of consumer brands, and provide solutions to our business partners, to empower travelers to efficiently research, plan, book and experience travel. We make available, on a stand-alone and package basis, travel services provided by numerous lodging properties, airlines, car rental companies, activities and experiences providers, cruise lines, alternative accommodations property owners and managers, and other travel product and service companies. We also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our various media and advertising offerings on our websites.
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 any 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 credit losses and 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, are examples of other events that 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 continued to drive rapid growth in online penetration of travel expenditures. Online penetration is higher in the U.S. and Western European markets with online penetration rates in some emerging markets, such as Latin America and Eastern European regions, lagging behind those regions. Emerging markets continue to present an attractive growth opportunity for our business, while also attracting many competitors to online travel. The industry is expected to remain highly competitive for the foreseeable future. In addition to the growth of online travel agencies, we have seen continued interest in the online travel industry from search engine companies such as Google, evidenced by continued product enhancements, and prioritizing its own AdWords and metasearch products such as Google Hotel Ads and Google Flights, in search results. Competitive entrants such as “metasearch” companies, including Kayak.com (owned by Booking Holdings), trivago (in which Expedia Group owns a majority interest) as well as TripAdvisor, introduced differentiated features, pricing and content compared with the legacy online travel agency companies, as well as various forms of direct or assisted booking tools. Further, airlines and lodging companies are aggressively pursuing direct online distribution of their products and services. In addition, the increasing popularity of the “sharing economy,” accelerated by online penetration, has had a direct impact on the travel and lodging industry. Businesses such as Airbnb, Vrbo and Booking.com have emerged as the leaders, bringing incremental alternative accommodation and vacation rental inventory to the market. Other competitors have arisen, including vacation rental property managers such as Vacasa, who operate their own booking sites in addition to listing on Airbnb, Vrbo, and Booking.com, and are expected to continue to grow as a percentage of the global accommodations market. Additionally, traditional consumer ecommerce players have expanded their local offerings by adding hotel offers to their 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 Group facilitates both merchant (Expedia Collect) and agency (Hotel Collect) hotel offerings with our hotel supply partners through both agency-only contracts as well as our hybrid Expedia Traveler Preference (“ETP”) program, which offers travelers the choice of whether to pay Expedia Group at the time of booking or pay the hotel at the time of stay.
In 2022, we began evolving our strategy from being largely transactionally focused, where we were primarily focused on acquiring customers through performance channels, to building 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 towards our three core consumer brands: Expedia, Hotels.com and Vrbo.
Lodging
Lodging includes both hotel and alternative accommodations. As a percentage of our total worldwide revenue in the second quarter of 2023, lodging accounted for 80%. Room nights booked grew 15% in the first half of 2023, as compared to growth of 26% in 2022 and 71% in 2021. Average Daily Rates (“ADRs”) booked for Expedia Group declined 2% in first half of 2023 and increased 3% in 2022 and 28% in 2021.Over the last couple of 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). Our relationships and overall economics with hotel supply partners have been broadly stable in recent years. As we continue to expand the breadth and depth of our global hotel offering, in some cases we have reduced our economics in various geographies based on local market conditions. These impacts are due to specific initiatives intended to drive greater global size and scale through faster overall room night growth. Additionally, increased promotional activities such as growing loyalty programs, discounting, and couponing have contributed to declines in revenue per room night and profitability in certain cases.
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 programs, increased or exclusive product availability and complimentary benefits.
Alternative Accommodations. Over the past decade, we expanded into the fast-growing alternative accommodations market. Vrbo is a leader, specializing in unique whole home inventory, primarily in North American leisure markets, and represents an attractive growth opportunity for Expedia Group.
Vrbo has transitioned from a listings-based classified advertising model to an online transactional model that optimizes for both travelers and homeowner and property manager partners, with a goal of increasing monetization and driving growth through investments in marketing as well as in product and technology. Vrbo offers hosts subscription-based listing or pay-per-booking service models. It also generates revenue from a traveler service fee for bookings.
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 revenue we earn per room night. In the 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
Similar 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 future, we could encounter pressure on air remuneration as air carriers combine, certain supply agreements renew, and as we continue to add airlines to ensure local coverage in new markets.
Air ticket volumes increased 4% in the first half of 2023, and increased 8% in 2022 and 43% in 2021. As a percentage of our total worldwide revenue in the second quarter of 2023, air accounted for 3%.
Advertising & Media
Our advertising and media business is principally driven by revenue generated by trivago, a leading hotel metasearch website, and Expedia Group Media Solutions, which is responsible for generating advertising revenue on our global online travel brands. In the first half of 2023, we generated $376 million of advertising and media revenue, a 1% decrease from the same period in 2022. As a percentage of our total worldwide revenue in the second quarter of 2023, advertising and media accounted for 6%.
Since the onset of COVID-19, online travel agencies, including ourselves, have reduced marketing spend on trivago. In response, trivago has reduced its own marketing spend and lowered 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 products, 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 reaching consumers in markets beyond their reach. Our deep product and supply footprint allows us to tailor offerings to target different types of consumers and travel needs, employ geographic segmentation in markets around the world, and leverage brand differentiation, among other benefits. We also market to consumers 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 our main brands, which launched in July 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 social 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 build 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 our 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 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 more 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 beyond the scope of our internal brands and business travel partners.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel services. For example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and winter holiday travel. The number of bookings typically decreases in the fourth quarter. Since revenue for most of our travel services, including merchant and agency hotel, is recognized as the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks for our hotel business and can be several months or more for our alternative accommodations business. Historically, Vrbo has seen seasonally stronger bookings in the first quarter of the year, with the relevant stays occurring during the peak summer travel months. The seasonal revenue impact is exacerbated with respect to income by the nature of our variable cost of revenue and direct sales and marketing costs, which we typically realize in closer alignment to booking volumes, and the more stable nature of our fixed costs. As a result on a consolidated basis, revenue and income are typically the lowest in the first quarter and highest in the third quarter.
The growth in our B2B segment, international operations, advertising business or a change in our product mix, among others, may also influence the typical trend of seasonality in the 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, 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 eight lawsuits brought by or against states, cities and counties over issues involving the payment of hotel occupancy and other taxes. We continue to defend these lawsuits vigorously. With respect to the principal claims in these matters, we believe that the statutes and/or ordinances at issue do not apply to us or the services we provide, namely the facilitation of travel planning and reservations, and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the statutes and ordinances at issue generally impose occupancy and other taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations.
For additional information and other recent developments on these and other legal proceedings, see Part 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 $46 million and $44 million as of June 30, 2023 and December 31, 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. However, any significant pay-to-play payment or litigation loss could negatively impact our liquidity.
Other Jurisdictions. We are also in various stages of inquiry or audit with various tax authorities, some of which, including the City of Los Angeles regarding hotel occupancy taxes, may impose a pay-to-play requirement to challenge an adverse inquiry or audit result in court.
Segments
We have the following reportable segments: B2C (formerly referred to as Retail), B2B, and trivago. Our B2C segment provides a full range of travel and advertising services to our worldwide customers through a variety of consumer brands including: Expedia.com, Hotels.com, Vrbo, Orbitz, Travelocity, Wotif Group, ebookers, CheapTickets, Hotwire.com and 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.
Operating Metrics
Our operating results are affected by certain metrics, such as gross bookings and revenue margin, which we believe are necessary for understanding and evaluating us. Gross bookings generally represent the total retail value of transactions booked for agency and merchant transactions, recorded at the time of booking reflecting the total price due for travel by travelers, including taxes, fees and other charges, and are reduced for cancellations and refunds. Revenue margin is defined as revenue as a percentage of gross bookings.
Gross Bookings and Revenue Margin
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)trivago, which is comprised of a hotel metasearch business that differs from our transaction-based websites, does not have associated gross bookings or revenue margin. However, third-party revenue from trivago is included in revenue used to calculate total revenue margin.
During the three and six months ended June 30, 2023, gross bookings increased 5% and 12%, compared to the same periods in 2022, as gross bookings for lodging improved due to increasing travel demand. Booked room nights for our lodging business increased 9% and 15% for the three and six months ended June 30, 2023.
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 2022.
Revenue increased 6% and 11% for the three and six months ended June 30, 2023, compared to the same periods in 2022, on strong growth in our B2B segment 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 our transaction-based websites.
Lodging revenue increased 12% and 18% for the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily driven by an increase in room nights stayed, partially offset by a slight decline in stayed ADRs.
Air revenue increased 17% and 33% for the three and six months ended June 30, 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 2022, due to a decline in trivago revenue, partially offset by an increase at Expedia Group Media Solutions. All other revenue, which includes car rental, insurance, cruise and activities, decreased 26% and 20% for the three and six months ended June 30, 2023, compared to the same periods in 2022, from a decrease in travel insurance and car rental 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
%
Merchant revenue increased for the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to an increase in merchant hotel revenue driven by an increase in room nights stayed.
Agency revenue increased for the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to an increase in agency hotel and air revenue.
Advertising, media and other decreased for the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to a decrease in trivago advertising revenue.
Cost of Revenue
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 direct costs to support our customer operations, including our customer support and telesales as well as fees to air ticket fulfillment vendors; credit card processing, including merchant fees, fraud and chargebacks; and other costs, primarily including data center and cloud costs to support our websites, supplier operations, destination supply, certain transactional level taxes as well as related personnel and overhead costs, including stock-based compensation.
Cost of revenue decreased $12 million during the three months ended June 30, 2023, compared to the same period in 2022, primarily due to lower costs associated with our direct customer service costs and other operations, partially offset by higher cloud costs and customer service personnel costs as a result of increased transaction volumes. Cost of revenue increased $31 million during the six months ended June 30, 2023, compared to the same period in 2022, primarily due to higher cloud costs and customer service personnel costs as a result of increased transaction volumes, partially offset by lower costs associated with our direct customer service and other operations. As a percentage of revenue, cost of revenue decreased for both periods on leverage driven by ongoing efficiencies across our customer support and other operations.
Selling and Marketing
Three months ended June 30,
Six months ended June 30,
2023
2022
% Change
2023
2022
% Change
($ in millions)
($ in millions)
Direct costs
$
1,579
$
1,549
2
%
$
3,066
$
2,725
13
%
Indirect costs
191
167
14
%
378
330
14
%
Total selling and marketing
$
1,770
$
1,716
3
%
$
3,444
$
3,055
13
%
% 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 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 $54 million and $389 million during the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily driven by an increase in B2B partner commissions to support strong growth. Indirect costs increased compared to the prior year period due to higher headcount.
Technology and content expense includes product development and content expense, as well as information technology costs to support our infrastructure, back-office applications and overall monitoring and security of our networks, and is principally comprised of personnel and overhead, including stock-based compensation, as well as other costs including cloud expense and licensing and maintenance expense.
Technology and content expense increased $60 million and $107 million during the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to higher personnel costs from increased headcount to support our strategic initiatives, as well as higher stock-based compensation of $9 million and $17 million period over period.
General and Administrative
Three months ended June 30,
Six months ended June 30,
2023
2022
% Change
2023
2022
% Change
($ in millions)
($ in millions)
Personnel and overhead
$
159
$
149
7
%
$
311
$
292
7
%
Professional fees and other
35
40
(13)
%
67
83
(20)
%
Total general and administrative
$
194
$
189
2
%
$
378
$
375
1
%
% 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.
General and administrative expense during the three and six months ended June 30, 2023 increased slightly compared to the same periods in 2022 as headcount increases were partially offset by lower professional fees and miscellaneous business taxes.
Depreciation and Amortization
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)
%
Depreciation increased $8 million and $10 million during the three and six months ended June 30, 2023, compared to the same periods in 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 completion of amortization in the fourth quarter of 2022 related to certain intangible assets.
During the three and six months ended June 30, 2022, we recognized intangible impairment charges of $29 million related to an indefinite-lived trade name within our trivago segment. See Note 3 – Fair Value Measurements in the notes to the consolidated financial statements for further information.
Legal Reserves, Occupancy Tax and Other
Three months ended June 30,
Six months ended June 30,
2023
2022
% Change
2023
2022
% Change
($ in millions)
($ in millions)
Legal reserves, occupancy tax and other
$
1
$
2
(58)
%
$
6
23
(76)
%
% of revenue
—
%
—
%
0.1
%
0.4
%
Legal reserves, occupancy tax and other primarily consists of increases in our reserves for court decisions and the potential and final settlement of issues related to hotel occupancy and other taxes, expenses recognized related to monies paid in advance of occupancy and other tax proceedings (“pay-to-play”) as well as certain other legal reserves.
Legal reserves, occupancy tax and other for the six months ended June 30, 2023 primarily included changes to our reserve related to other taxes. During the six months ended June 30, 2022, the charges primarily related to certain 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 six months ended June 30, 2023, the increase in operating income in the current year periods was primarily due to growth in revenue in excess of operating costs.
Adjusted EBITDA by Segment
Three months ended June 30,
Six months ended June 30,
2023
2022
% Change
2023
2022
% Change
($ in millions)
($ in millions)
B2C
$
653
$
582
12
%
$
801
$
770
4
%
B2B
206
156
32
%
339
236
43
%
trivago
13
33
(60)
%
33
58
(42)
%
Unallocated overhead costs (Corporate)
(125)
(123)
2
%
(241)
(243)
(1)
%
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.
Adjusted EBITDA is our primary segment operating metric. See Note 9 – Segment Information in the notes to the consolidated financial statements for additional information on intersegment transactions, unallocated overhead costs and for a reconciliation of Adjusted EBITDA by segment to net income (loss) attributable to Expedia Group, Inc. for the periods presented above.
Our B2C segment Adjusted EBITDA increased during the three and six months ended June 30, 2023, compared to the same periods in 2022, as a result of marketing efficiencies and deferral of marketing spend. Our B2B segment experienced an
improvement in Adjusted EBITDA during the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily as a result of strong revenue growth. Our trivago segment Adjusted EBITDA decreased during the three and six months ended June 30, 2023, compared to the same periods in 2022, as a result of revenue declines.
Interest Income and Expense
Three months ended June 30,
Six months ended June 30,
2023
2022
% Change
2023
2022
% Change
($ in millions)
($ in millions)
Interest income
$
63
$
10
N/A
$
106
$
13
N/A
Interest expense
(61)
(73)
(16)
%
(122)
(154)
(20)
%
Loss on debt extinguishment
—
(24)
N/A
—
(24)
N/A
Interest income increased for the three and six months ended June 30, 2023, compared to the same periods in 2022, as a result of higher rates of return. Interest expense 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)
During the six months ended June 30, 2023, we recognized a $67 million gain, which together with amounts recorded in a prior period, represented the estimate of an indemnification reimbursement due to Expedia Group from TripAdvisor. See “Provision for Income Taxes” below for more information and discussion of a corresponding charge to income tax expense in the current period.
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.
We determine our provision for income taxes for interim periods using an estimate of our annual effective tax rate. We record any changes affecting the estimated annual tax rate in the interim period in which the change occurs, including discrete items.
For the three months ended June 30, 2023, the effective tax rate was 16.7% measured against pre-tax income, compared to (46.2)% measured against a pre-tax loss in the prior year period. The change in the effective tax rate was primarily due to nondeductible mark-to-market adjustments to our minority equity investments recorded in the 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 nondeductible mark-to-market adjustments recorded in the prior year period.
We are subject to taxation in the United States and foreign jurisdictions. Our income tax filings are regularly examined by federal, state and foreign tax authorities. During the fourth quarter of 2019, the Internal Revenue Service (“IRS”) issued final adjustments related to transfer pricing with our foreign subsidiaries for our 2011 to 2013 tax years. The adjustments would increase our U.S. taxable income by $696 million, which would result in federal tax of approximately $244 million, subject to interest. We do not agree with the position of the IRS. We have formally filed a protest for our 2011 to 2013 tax years and the case is currently in Appeals. During the fourth quarter of 2022, the IRS issued similar proposed adjustments related to transfer pricing with our foreign subsidiaries for our 2014 to 2016 tax years. The adjustments would increase our U.S. taxable income by $1.232 billion, which would result in federal tax of approximately $431 million, subject to interest. We do not agree with the position of the IRS and intend to formally file a protest. We are also under examination by the IRS 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”). 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
Financial Position, Liquidity and Capital Resources
Our principal sources of liquidity are typically cash flows generated from operations, cash available under our credit facility as well as our cash and cash equivalents and short-term investment balances, which were $6.3 billion and $4.1 billion at June 30, 2023 and December 31, 2022. As of June 30, 2023, the total cash and cash equivalents and short-term investments held outside the United States was $791 million ($468 million in wholly-owned foreign subsidiaries and $323 million in majority-owned subsidiaries). Our revolving credit facility with aggregate commitments of $2.5 billion was essentially untapped at June 30, 2023.
Our credit ratings are periodically reviewed by rating agencies. As of June 30, 2023, Moody’s rating was Baa3 with an outlook of “positive,” S&P’s rating was BBB with an outlook of “stable” and Fitch’s rating was BBB- with an outlook of “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 June 30, 2023, we were in compliance with the covenants and conditions in our revolving credit facility and outstanding debt as detailed in Note 4 – Debt in the notes to the consolidated financial statements.
Under the merchant model, we receive cash from travelers at the time of booking and we record these amounts on our consolidated balance sheets as deferred merchant bookings. We pay our airline suppliers related to these merchant model bookings generally within a few weeks after completing the transaction. For most other merchant bookings, which is primarily our merchant lodging business, we generally pay after the travelers’ use and, in some cases, subsequent billing from the hotel suppliers. Therefore, generally we receive cash from the traveler prior to paying our supplier, and this operating cycle represents a working capital source of cash to us. Typically, the seasonal fluctuations in our merchant hotel bookings have affected the timing of our annual cash flows. Generally, during the first half of the year, hotel bookings have traditionally
exceeded stays, resulting in much higher cash flow related to working capital. During the second half of the year, this pattern typically reverses and cash flows are typically negative.
For 2023, we expect total capital expenditures for the full year to increase relative to our 2022 spending levels as we look to continue to improve our technology platforms, infrastructure, operational capabilities, and in the development of service offerings and expansion of our operations.
Our cash flows are as follows:
Six months ended June 30,
2023
2022
$ Change
(In millions)
Cash provided by (used in):
Operating activities
$
4,303
$
4,619
$
(316)
Investing activities
(388)
(248)
(140)
Financing activities
(1,018)
(1,687)
669
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents
10
(165)
175
For the six months ended June 30, 2023, net cash provided by operating activities decreased by $316 million primarily due to decreased benefits from working capital changes driven primarily from timing in accounts payable and other accrued expenses, partially offset by lower interest expense paid and higher interest income received in the current year.
For the six months ended June 30, 2023, we had net cash used in investing activities of $388 million compared to $248 million in the prior year period. The change was primarily due to higher capital expenditures in the current year as well as higher net sales and maturities of investments in the prior year.
For the six months ended June 30, 2023, net cash used in financing activities primarily included $1.1 billion of cash paid to acquire shares, including the repurchased shares under the authorizations discussed below and for treasury stock activity related to the vesting of equity instruments, partially offset by $40 million of proceeds from the exercise of options and employee stock purchase plans. For the six months ended June 30, 2022, net cash used in financing activities primarily included payments of $1.7 billion related to the extinguishment of our 2.5%, 3.6% and 4.5% senior notes as well as $69 million of cash paid for treasury stock activity related to the vesting of equity instruments. These uses of cash were partially offset by $114 million of proceeds from the exercise of options and employee stock purchase plans.
During the six months ended June 30, 2023, we repurchased, through open market transactions, 10.2 million shares under a 2019 share authorization for a total cost of approximately $1 billion, excluding transaction costs. As of June 30, 2023, there were approximately 7.9 million shares remaining under the authorization. There is no fixed termination date for the repurchases.
Foreign exchange rate changes resulted in an increase of our cash and restricted cash balances denominated in foreign currency during the six months ended June 30, 2023 of $10 million reflecting a net appreciation in foreign currencies relative to the U.S. dollar during the current period compared to $165 million decrease in the prior year 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, our liquidity position provides sufficient capital resources to meet our foreseeable cash needs. There can be no assurance, however, that the cost or availability of future borrowings, including refinancings, if any, will be available on terms acceptable to us.
Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities
Summarized financial information of Expedia Group, Inc. (the “Parent”) and our subsidiaries that are guarantors of our debt facility and instruments (the “Guarantor Subsidiaries”) is shown below on a combined basis as the “Obligor Group.” The debt facility and instruments are guaranteed by certain of our wholly-owned domestic subsidiaries and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. The guarantees are full, unconditional, joint and several with the exception of certain customary automatic subsidiary release provisions. In this summarized financial information of the Obligor Group, all intercompany balances and transactions between the Parent and Guarantor Subsidiaries
have been eliminated and all information excludes subsidiaries that are not issuers or guarantors of our debt facility and instruments, including earnings from and investments in these entities.
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, 2022.
(2)Operating income includes net intercompany income with non-guarantors of $35 million for the six months ended June 30, 2023 and $35 million for the year ended December 31, 2022.
Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
There have been no material changes in our market risk during the three and six months ended June 30, 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, 2022.
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 June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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-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, 2022 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. The following are developments regarding, as applicable, such legal proceedings and/or new legal proceedings:
Litigation Relating to Occupancy and Other Taxes
State of Louisiana/City of New Orleans Litigation. The Louisiana First Circuit Court of Appeals has scheduled 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 Supreme Court in the Del Valle matter.
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, 2022,which could materially affect our business, financial condition or future results. These 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
In December 2019, the Board of Directors and the Executive Committee, pursuant to a delegation of authority from the Board, authorized a repurchase of up to 20 million shares of our common stock. A summary of the repurchase activity for the second quarter of 2023 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.
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.
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.
