# Expedia Group, Inc. (EXPE) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Expedia Group, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1324424/000132442423000007/expe-20221231.htm
Accession: 0001324424-23-000007
Filing date: 2023-02-10
Report date: 2022-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/EXPE/
All MD&A years: /company/EXPE/mda/
Previous year: /company/EXPE/mda/fy2021/ (FY 2021)
Next year: /company/EXPE/mda/fy2023/ (FY 2023)

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. For additional information about our portfolio of brands, see the disclosure set forth in Part I, Item 1, Business, under the caption “Market Opportunity and Business Strategy.”

This section of this Form 10-K generally discusses the years ended December 31, 2022 and 2021 items and year over year comparisons between 2022 and 2021. Discussions of the year ended December 31, 2020 items and the year over year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021. 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. With the evolution of milder COVID-19 variants, availability of multiple vaccine booster doses and increasing familiarity with the virus, many COVID-19 related travel restrictions have been lifted, and countries around the world reopened their borders for foreign travel.

However, we note that the recovery has been uneven, with different regions experiencing different rates of recovery. Despite positive developments, the full duration and total impact of COVID-19 remains uncertain, and therefore it is difficult to predict any future impact 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, appreciation of the dollar, energy price volatility and inflationary pressures, 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.

We have also executed cost savings initiatives aimed at simplifying the organization and increasing efficiency, achieving by 2021 forward annualized run-rate fixed cost savings of $700 to $750 million compared to the fourth quarter of 2019 exit rate, as well as greater than $200 million in variable costs savings, at 2019 volume levels. We also believe we have improved our marketing efficiency and continue to evaluate additional opportunities to increase efficiency and improve operational effectiveness across the Company. As a result of these initiatives, and a near full recovery in travel bookings, we have experienced increases in Adjusted EBITDA margins, profitability and operating cash flows in excess of historic levels.

For additional information about our business strategy for Expedia Group, see the disclosure set forth in Part I. Item 1. Business, under the caption “Market Opportunity and Business Strategy.”

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 market online penetration rates increased through the COVID-19 pandemic, and are expected to continue growing, which presents an attractive growth opportunity for our business, while also attracting many competitors to online travel. This competition

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intensified in recent years, and the industry is expected to remain highly competitive for the foreseeable future. In addition to the growth of online travel agencies, we have seen increased 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 accommodation 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.

The online travel industry also saw the development of alternative business models and variations in the timing of payment by travelers and to suppliers, which in some cases place pressure on historical business models. In particular, the agency hotel model saw rapid adoption in Europe. Expedia Group facilitates both merchant (Expedia Collect) and agency (Hotel Collect) hotel offerings with our hotel supply partners through both agency-only contracts as well as our hybrid ETP program, which offers travelers the choice of whether to pay Expedia Group at the time of booking or pay the hotel at the time of stay.

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.

For more detail, see Part I, Item 1A, Risk Factors - "We rely on the value of our brands, and the costs of maintaining and enhancing our brand awareness are increasing” and “Our international operations involve additional risks and our exposure to these risks will increase as our business expands globally.”

Lodging

Lodging includes both hotel and alternative accommodations. As a percentage of our total worldwide revenue in 2022, lodging accounted for 76%. As a result of the impact on travel demand from the COVID-19 outbreak, room nights stayed grew 29% in 2022, as compared to a growth of 35% in 2021 and a decline of 55% in 2020. ADRs for rooms stayed for Expedia Group increased 3% in 2020, increased 20% in 2021 and increased 7% in 2022. 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. Vrbo carries a higher ADR than hotels and has accounted for a higher percentage of room nights due to the faster recovery and shift to alternative accommodations during these periods.

As of December 31, 2022, our global lodging marketplace had approximately 3 million lodging properties available, including over 2 million online bookable alternative accommodations listings through Vrbo and approximately 900,000 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.

Since our hotel supplier agreements are generally negotiated on a percentage basis, any increase or decrease in ADRs has an impact on the revenue we earn per room night. Strong pent-up demand and high operating costs during 2022 drove a 14% increase in the U.S. hotel industry ADRs versus 2019, according to Smith Travel Research (STR). In the future, we could see macroeconomic factors influence hotel ADR trends, including as the 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. 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

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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. With our acquisition of Vrbo (previously HomeAway) and all of its brands in December 2015, we expanded into the fast-growing alternative accommodations market. Vrbo is a leader in this market, 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.

Air

Similar to the rest of travel, the airlines experienced a surge in pent-up demand, however they have been operating at reduced capacity due to staffing shortages, supply chain disruptions, and elevated fuel costs. In 2022, the reduced airline capacity and high operating costs drove average U.S. domestic airfares up approximately 10% compared to pre-pandemic levels, according to Airlines Reporting Corporation (ARC) data. While air bookings improved in 2022 relative to 2021, our air business continues to lag lodging bookings and remains below 2019 levels.

In addition, 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 8% in 2022 and increased 43% during 2021, compared to a decline of 63% in 2020. As a percentage of our total worldwide revenue in 2022, 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 2022, we generated $777 million of advertising and media revenue, a 29% increase from 2021, representing 7% of our total worldwide revenue.

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.

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. Significantly higher cancellations and reduced booking volumes from COVID-19 disrupted our typical seasonal pattern for bookings, revenue, profit and cash flows from 2020 through early 2022, but have generally returned to historic seasonality.

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.

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We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:

•It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and

•Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

For more information on each of these policies, see NOTE 2 — Significant Accounting Policies, in the notes to consolidated financial statements. We discuss information about the nature and rationale for our critical accounting estimates below.

Accounting for Certain Merchant Revenue

We accrue the cost of certain merchant revenue based on the amount we expect to be billed by suppliers. In certain instances when a supplier invoices us for less than the cost we accrued, we generally reduce our merchant accounts payable and the supplier costs within net revenue six months in arrears, net of an allowance, when we determine it is not probable that we will be required to pay the supplier, based on historical experience. Actual revenue could be greater or less than the amounts estimated due to changes in hotel billing practices or changes in traveler behavior.

Deferred Loyalty Rewards

We currently offer certain internally administered traveler loyalty programs to our travelers, such as our Hotels.com Rewards program, our Expedia Rewards program and our Orbitz Rewards program. Hotels.com Rewards offers travelers one free night at any Hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions. Expedia Rewards enables participating travelers to earn points on all hotel, flight, package and activities made on various Brand Expedia websites. Orbitz Rewards allows travelers to earn Orbucks, the currency of Orbitz Rewards, on flights, hotels and vacation packages and instantly redeem those Orbucks on future bookings at various hotels worldwide. In 2021, we announced plans to unify and expand our existing loyalty programs into one global rewards platform called "One Key" spanning all our main brands, which we expect to launch in 2023. As travelers accumulate points towards free travel products, we defer the relative standalone selling price of earned points, net of expected breakage, as deferred loyalty rewards within deferred merchant bookings on the consolidated balance sheet. In order to estimate the standalone selling price of the underlying services on which points can be redeemed for all loyalty programs, we use an adjusted market assessment approach and consider the redemption values expected from the traveler. We then estimate the number of rewards that will not be redeemed based on historical activity in our members' accounts as well as statistical modeling techniques. Revenue is recognized when we have satisfied our performance obligation relating to the points, that is when the travel service purchased with the loyalty award is satisfied. Both the actual standalone selling price of the underlying services and ultimate redemption rates could differ materially from our estimates due to a number of factors, including fluctuations in reward value, product utilization and divergence from historical member behavior.

Recoverability of Goodwill and Indefinite and Definite-Lived Intangible Assets

Goodwill. We assess goodwill for impairment annually as of October 1, or more frequently, if events and circumstances indicate impairment may have occurred. During 2020, as a result of the significant turmoil related to COVID-19, we concluded that sufficient indicators existed to require us to perform multiple interim impairment assessments. In the evaluation of goodwill for impairment, we typically perform a quantitative assessment and compare the fair value of the reporting unit to the carrying value and, if applicable, record an impairment charge based on the excess of the reporting unit's carrying amount over its fair value. Periodically, we may choose to perform a qualitative assessment, prior to performing the quantitative analysis, to determine whether the fair value of the goodwill is more likely than not impaired.

We generally base our measurement of fair value of reporting units, except for trivago, which is a separately listed company on the Nasdaq Global Select Market, on a blended analysis of the present value of future discounted cash flows and market valuation approach with the exception of our standalone publicly traded subsidiary, which is based on market valuation. The discounted cash flows model indicates the fair value of the reporting units based on the present value of the cash flows that we expect the reporting units to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company to comparable publicly traded firms in similar lines of business. Our significant estimates in the market approach model include identifying

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similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting units. The fair value estimate for the trivago reporting unit was based on trivago's stock price, a Level 1 input, adjusted for an estimated control premium.

We believe the weighted use of discounted cash flows and market approach is the best method for determining the fair value of our reporting units because these are the most common valuation methodologies used within the travel and internet industries; and the blended use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis.

In addition to measuring the fair value of our reporting units as described above, we consider the combined carrying and fair values of our reporting units in relation to the Company’s total fair value of equity plus debt as of the assessment date. Our equity value assumes our fully diluted market capitalization, using either the stock price on the valuation date or the average stock price over a range of dates around the valuation date, plus an estimated acquisition premium which is based on observable transactions of comparable companies. The debt value is based on the highest value expected to be paid to repurchase the debt, which can be fair value, principal or principal plus a premium depending on the terms of each debt instrument.

Indefinite-Lived Intangible Assets. We base our measurement of fair value of indefinite-lived intangible assets, which primarily consist of trade name and trademarks, using the relief-from-royalty method. This method assumes that the trade name and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital.

Definite-Lived Intangible Assets. We review the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value.

The use of different estimates or assumptions in determining the fair value of our goodwill, indefinite-lived and definite-lived intangible assets may result in different values for these assets, which could result in an impairment or, in the period in which an impairment is recognized, could result in a materially different impairment charge.

For additional information on our goodwill and intangible asset impairments recorded in 2022, 2021 and 2020, see NOTE 3 — Fair Value Measurements in the notes to the consolidated financial statements.

Income Taxes

We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation of the future tax consequences of temporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We determine deferred income taxes based on the differences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income and expense.

We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses, future changes in income tax law, tax sharing agreements or variances between our actual and anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates. All deferred income taxes are classified as long-term on our consolidated balance sheets.

We account for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first step assesses whether the tax position is more likely than not to be sustained upon examination by the tax authority, including resolution of any appeals or litigation, based on the technical merits of the position. If the tax position meets the more

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likely than not criteria, the portion of the tax benefit greater than 50% likely to be realized upon settlement with the tax authority is recognized in the financial statements. The ultimate resolution of these tax positions may be greater or less than the liabilities recorded.

Other Long-Term Liabilities

Various Legal and Tax Contingencies. We record liabilities to address potential exposures related to business and tax positions we have taken that have been or could be challenged by taxing authorities. In addition, we record liabilities associated with legal proceedings and lawsuits. These liabilities are recorded when the likelihood of payment is probable and the amounts can be reasonably estimated. The determination for required liabilities is based upon analysis of each individual tax issue, or legal proceeding, taking into consideration the likelihood of adverse judgments and the range of possible loss. In addition, our analysis may be based on discussions with outside legal counsel. The ultimate resolution of these potential tax exposures and legal proceedings may be greater or less than the liabilities recorded.

Occupancy and Other Taxes. Some states and localities impose taxes (e.g. transient occupancy, accommodation tax, sales tax and/or business privilege tax) on the use or occupancy of hotel accommodations or other traveler services. Generally, hotels collect taxes based on the rate paid to the hotel and remit these taxes to the various tax authorities. When a customer books a room through one of our travel services, we collect a tax recovery charge from the customer which we pay to the hotel. We calculate the tax recovery charge by applying the applicable tax rate supplied to us by the hotels to the amount that the hotel has agreed to receive for the rental of the room by the consumer. In most jurisdictions, we do not collect or remit taxes, nor do we pay taxes to the hotel operator, on the portion of the customer payment we retain. Some jurisdictions have questioned our practice in this regard. While the applicable tax provisions vary among the jurisdictions, we generally believe that we are not required to pay such taxes. A limited number of taxing jurisdictions have made similar claims against certain of our companies for tax amounts due on the rental amounts charged by owners of alternative accommodations properties or for taxes on our services. We are an intermediary between a traveler and a party renting an alternative accommodations property and we believe are similarly not liable for such taxes. We are engaged in discussions with tax authorities in various jurisdictions to resolve these issues. Some tax authorities have brought lawsuits or have levied assessments asserting that we are required to collect and remit tax. The ultimate resolution in all jurisdictions cannot be determined at this time. Certain jurisdictions may require us to pay tax assessments, including occupancy and other transactional tax assessments, prior to contesting any such assessments.

We have established a reserve for the potential settlement of issues related to hotel occupancy and other tax litigation for prior and current periods, consistent with applicable accounting principles and in light of all current facts and circumstances. A variety of factors could affect the amount of the liability (both past and future), which factors include, but are not limited to, the number of, and amount of revenue represented by, jurisdictions that ultimately assert a claim and prevail in assessing such additional tax or negotiate a settlement and changes in relevant statutes.

We note that there are more than 10,000 taxing jurisdictions in the United States, and it is not feasible to analyze the statutes, regulations and judicial and administrative rulings in every jurisdiction. Rather, we have obtained the advice of state and local tax experts with respect to tax laws of certain states and local jurisdictions that represent a large portion of our hotel revenue. Many of the statutes and regulations that impose these taxes were established before the emergence of the internet and ecommerce. Certain jurisdictions have enacted, and others may enact, legislation regarding the imposition of taxes on businesses that facilitate the booking of hotel or alternative accommodations. We continue to work with the relevant tax authorities and legislators to clarify our obligations under new and emerging laws and regulations. We will continue to monitor the issue closely and provide additional disclosure, as well as adjust the level of reserves, as developments warrant. Additionally, certain of our businesses are involved in tax related litigation, which is discussed in Part I, Item 3, Legal Proceedings.

New Accounting Pronouncements

For a discussion of new accounting pronouncements, see NOTE 2 — Significant Accounting Policies in the notes to consolidated financial statements.

Occupancy and Other Taxes

We are currently involved in eight lawsuits brought by or against states, cities and counties over issues involving the payment of hotel occupancy and other taxes. We continue to defend these lawsuits vigorously. With respect to the principal claims in these matters, we believe that the statutes and/or ordinances at issue do not apply to us or the services we provide, namely the facilitation of travel planning and reservations, and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the statutes and ordinances at issue generally impose occupancy and other taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations.

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For additional information and other recent developments on these and other legal proceedings, see Part I, Item 3, Legal Proceedings.

We have established a reserve for the potential settlement of issues related to hotel occupancy and other tax litigation, consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount of $44 million as of December 31, 2022 and $50 million as of December 31, 2021.

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: Retail, B2B, and trivago. Our Retail segment provides a full range of travel and advertising services to our worldwide customers through a variety of consumer brands including: Expedia.com and Hotels.com in the United States and localized Expedia and Hotels.com websites throughout the world, Vrbo, Orbitz, Travelocity, Wotif Group, ebookers, CheapTickets, Hotwire.com, and CarRentals.com. Our B2B segment is 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, and, through its sale in November 2021, Egencia, a full-service travel management company that provided travel services to businesses and their corporate customers. Our trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites.

Operating Metrics

Our operating results are affected by certain metrics, such as gross bookings and revenue margin, which we believe are necessary for understanding and evaluating us. Gross bookings generally represent the total retail value of transactions booked for agency and merchant transactions, recorded at the time of booking reflecting the total price due for travel by travelers, including taxes, fees and other charges, and are reduced for cancellations and refunds. Revenue margin is defined as revenue as a percentage of gross bookings.

Gross Bookings and Revenue Margin

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(1)trivago, which is comprised of a hotel metasearch business that differs from our transaction-based websites, does not have associated gross bookings or revenue margin. However, third-party revenue from trivago is included in revenue used to calculate total revenue margin.

Gross bookings increased 31% in 2022 compared to 2021 as gross bookings for lodging, air and other travel products grew as travel demand continued to recover.

Revenue margin in 2022 was higher than 2021 as a result of improved margins at our lodging business.

Results of Operations

Revenue

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Similar to the gross bookings increase, revenue increased 36% in 2022 compared to 2021, with all segment's growth reflecting the continued improvement in travel demand.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Revenue by Service Type"],["Lodging","$","8,905","","","$","6,449","","","$","4,051","","","38","%","","59","%"],["Air","362","","","254","","","105","","","43","%","","141","%"],["Advertising and media(1)","777","","","603","","","405","","","29","%","","49","%"],["Other","1,623","","","1,292","","","638","","","25","%","","103","%"],["Total revenue","$","11,667","","","$","8,598","","","$","5,199","","","36","%","","65","%"]]
[[/GREPCENT_TABLE]]

___________________________________

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

Lodging revenue increased 38% in 2022 on a 29% increase in room nights stayed and as well as stayed ADR growth of 7%.

Air revenue increased 43% in 2022 driven by an increase in air tickets sold of 8% and revenue per ticket of 32% due primarily to higher average ticket prices of 30% and an increased mix of international tickets.

Advertising and media revenue increased 29% in 2022 due to increases at both Expedia Group Media Solutions and trivago. All other revenue, which includes car rental, insurance, destination services, fee revenue related to our corporate travel business (through Egencia's sale in November 2021), increased 25% in 2022 from growth in travel insurance products as well as car.

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In addition to the above segment and product revenue discussion, our revenue by business model is as follows:

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Revenue by Business Model"],["Merchant","$","7,762","","","$","5,537","","","$","3,261","","","40","%","","70","%"],["Agency","2,994","","","2,307","","","1,267","","","30","%","","82","%"],["Advertising, media and other","911","","","754","","","671","","","21","%","","12","%"],["Total revenue","$","11,667","","","$","8,598","","","$","5,199","","","36","%","","65","%"]]
[[/GREPCENT_TABLE]]

The increase in merchant revenue in 2022 was primarily due to an increase in merchant hotel revenue driven by an increase in room nights stayed as well as increases in merchant alternative accommodations revenue and travel insurance revenue.

The increase in agency revenue in 2022 was primarily due to an increase in agency hotel, air and alternative accommodations.

Advertising, media and other increased 21% in 2022 compared to 2021 primarily due to an increase in advertising revenue.

Cost of Revenue

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Direct costs","$","1,353","","","$","1,118","","","$","1,148","","","21","%","","(3)","%"],["Personnel and overhead","304","","","404","","","501","","","(25)","%","","(19)","%"],["Total cost of revenue","$","1,657","","","$","1,522","","","$","1,649","","","9","%","","(8)","%"],["% of revenue","14.2","%","","17.7","%","","31.7","%"]]
[[/GREPCENT_TABLE]]

Cost of revenue primarily consists of direct costs to support our customer operations, including our customer support and telesales as well as fees to air ticket fulfillment vendors; credit card processing, including merchant fees, fraud and chargebacks; and other costs, primarily including data center and cloud costs to support our websites, supplier operations, destination supply, certain transactional level taxes, costs related to Bodybuilding.com during our period of ownership as well as related personnel and overhead costs, including stock-based compensation.

Cost of revenue increased $135 million during 2022 compared to 2021, primarily due to higher merchant fees, cloud costs and customer service costs as a result of increased transaction volumes, which offset lower personnel costs related to the sale of Egencia in November 2021.

Selling and Marketing

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Direct costs","$","5,428","","","$","3,499","","","$","1,728","","","55","%","","103","%"],["Indirect costs","672","","","722","","","799","","","(7)","%","","(10)","%"],["Total selling and marketing","$","6,100","","","$","4,221","","","$","2,527","","","45","%","","67","%"],["% of revenue","52.3","%","","49.1","%","","48.6","%"]]
[[/GREPCENT_TABLE]]

Selling and marketing expense primarily relates to direct costs, including traffic generation costs from search engines and internet portals, television, radio and print spending, private label and affiliate program commissions, public relations and other costs. The remainder of the expense relates to indirect costs, including personnel and related overhead in our various brands and global supply organization as well as stock-based compensation costs.

Selling and marketing expenses increased $1.9 billion during 2022 compared to 2021 primarily driven by an increase in B2B partner commissions as well as increased spend in Retail marketing channels. In addition, the decrease in indirect costs in

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the current year was primarily driven by lower personnel costs related to the sale of Egencia in November 2021 as well as lower stock-based compensation.

Technology and Content

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Personnel and overhead","$","874","","","$","785","","","$","744","","","11","%","","6","%"],["Other","307","","","289","","","324","","","6","%","","(11)","%"],["Total technology and content","$","1,181","","","$","1,074","","","$","1,068","","","10","%","","1","%"],["% of revenue","10.1","%","","12.5","%","","20.5","%"]]
[[/GREPCENT_TABLE]]

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 $107 million for 2022 compared to 2021 primarily due to higher personnel costs due to increased headcount as well as an increase in average salaries, including the prior year's compensation change, which shifted discretionary bonuses to salary beginning in the second quarter of 2021.

General and Administrative

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Personnel and overhead","$","591","","","$","562","","","$","434","","","5","%","","30","%"],["Professional fees and other","157","","","143","","","155","","","9","%","","(8)","%"],["Total general and administrative","$","748","","","$","705","","","$","589","","","6","%","","20","%"],["% of revenue","6.4","%","","8.2","%","","11.3","%"]]
[[/GREPCENT_TABLE]]

General and administrative expense consists primarily of personnel-related costs, including our executive leadership, finance, legal and human resource functions and related stock-based compensation, as well as fees for external professional services.

General and administrative expense increased $43 million in 2022 compared to 2021 primarily due to higher personnel costs due to increased headcount as well as an increase in average salaries, including the prior year's compensation change, which shifted discretionary bonuses to salary beginning in the second quarter of 2021.

Depreciation and Amortization

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Depreciation","$","704","","","$","715","","","$","739","","","(2)","%","","(3)","%"],["Amortization of intangible assets","88","","","99","","","154","","","(11)","%","","(36)","%"],["Total depreciation and amortization","$","792","","","$","814","","","$","893","","","(3)","%","","(9)","%"]]
[[/GREPCENT_TABLE]]

Depreciation decreased $11 million in 2022 compared to 2021. Amortization of intangible assets decreased $11 million in 2022 compared to 2021 primarily due to the completion of amortization related to certain intangible assets.

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Impairment of Goodwill, Intangible and Other Long-term Assets

During 2022, we recognized intangible impairment charges of $81 million related to an indefinite-lived trade name within our trivago segment. During 2021, we recognized a goodwill impairment charge of $14 million and intangible and other long-term asset impairment charges of $6 million related to our B2B segment. See NOTE 3 — Fair Value Measurements in the notes to the consolidated financial statements for further information.

Legal Reserves, Occupancy Tax and Other

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Legal reserves, occupancy tax and other","$","23","","","$","1","","","$","(13)","","","N/A","","N/A"]]
[[/GREPCENT_TABLE]]

Legal reserves, occupancy tax and other primarily consists of increases in our reserves for court decisions and the potential and final settlement of issues related to hotel occupancy and other taxes, expenses recognized related to monies paid in advance of occupancy and other tax proceedings (“pay-to-play”) as well as certain other legal reserves.

Legal reserves, occupancy tax and other for year ended December 31, 2022 primarily included charges related to certain other legal reserves for trivago as described in NOTE 15 — Commitments and Contingencies in the notes to the consolidated financial statements. Legal reserves, occupancy tax and other for year ended December 31, 2021 included a charge for certain other legal reserves, mostly offset by net reductions to our reserve related to hotel occupancy and other taxes.

Restructuring and Related Reorganization Charges

In 2020, we committed to restructuring actions intended to simplify our businesses and improve operational efficiencies, which resulted in headcount reductions and office consolidations. As a result, we recognized $55 million in restructuring and related reorganization charges during 2021. We did not recognize any such costs in 2022, but we continue to actively evaluate additional cost reduction efforts and should we make decisions in future periods to take further actions we may incur additional reorganization charges.

Operating Income (Loss)

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Operating income (loss)","$","1,085","","","$","186","","","$","(2,719)","","","484","%","","N/A"],["% of revenue","9.3","%","","2.2","%","","(52.3)","%"]]
[[/GREPCENT_TABLE]]

In 2022, the improvement in operating income was primarily due to growth in revenue in excess of operating costs.

Adjusted EBITDA by Segment

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Retail","$","2,124","","","$","1,782","","","$","298","","","19","%","","498","%"],["B2B(1)","599","","","110","","","(190)","","","445","%","","N/A"],["trivago","113","","","39","","","(14)","","","191","%","","N/A"],["Unallocated overhead costs (Corporate)(2)","(487)","","","(454)","","","(462)","","","7","%","","(2)","%"],["Total Adjusted EBITDA(3)","$","2,349","","","$","1,477","","","$","(368)","","","59","%","","N/A"]]
[[/GREPCENT_TABLE]]

______________________________________

(1) Includes operating results of Egencia through its sale in November 2021.

(2) Includes immaterial operating results of Bodybuilding.com through its sale in May 2020.

(3) Adjusted EBITDA is a non-GAAP measure. See "Definition and Reconciliation of Adjusted EBITDA" below for more    information.

Adjusted EBITDA is our primary segment operating metric. See NOTE 18 — Segment Information in the notes to the consolidated financial statements for additional information on intersegment transactions, unallocated overhead costs and for a

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reconciliation of Adjusted EBITDA by segment to net income (loss) attributable to Expedia Group, Inc. for the periods presented above.

Our Retail, B2B and trivago segments all experienced improvements in Adjusted EBITDA in 2022 as a result of the recovering travel demand. In addition, the B2B segment improved in part due to the absence of the prior year Adjusted EBITDA loss related to Egencia. Unallocated overhead costs increased $33 million during 2022 primarily due to an increase in general and administrative expenses.

Interest Income and Expense

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Interest income","60","","","$","9","","","$","18","","","543","%","","(48)","%"],["Interest expense","(277)","","","(351)","","","(360)","","","(21)","%","","(2)","%"],["Gain (loss) on debt extinguishment, net","49","","","(280)","","","\u2014","","","N/A","","N/A"]]
[[/GREPCENT_TABLE]]

Interest income increased in 2022 compared to 2021 as a result of higher rates of return. Interest expense decreased in 2022 compared to 2021, as a result of lower average senior notes outstanding in the current year.

During 2022, we settled a tender offer to purchase $500 million in aggregate principal of our 2.95% senior unsecured notes, which resulted in the recognition of a net gain on debt extinguishment of $73 million. In addition, as a result of the early redemption of the 3.6% and 4.5% senior unsecured notes in 2022, we recognized a loss on debt extinguishment of $24 million. See NOTE 7 — Debt in the notes to the consolidated financial statements for further information.

As a result of debt refinancing transactions during 2021, we recognized a loss on debt extinguishment of $280 million, which included the payment of early payment premiums and fees as well as the write-off of unamortized debt issuance costs.

Gain (Loss) on Sale of Business, Net

In 2022, we recognized an immaterial gain of $6 million primarily related to the sale of Egencia in the prior year. In 2021, we had a net gain on sale of businesses of $456 million. In November 2021, we completed the sale of Egencia to GBT and, as a result, we recognized a $401 million gain on the sale. Additionally, in 2021, we completed the sale of certain of our smaller businesses within our Retail segment, which resulted in net gains of $57 million. For additional information on these and other transactions, see NOTE 16 – Divestitures in the notes to the consolidated financial statements.

Other, Net

Other, net is comprised of the following:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2022","","2021","","2020"],["","(In millions)"],["Foreign exchange rate gains (losses), net","$","(40)","","","$","(48)","","","$","71"],["Gains (losses) on minority equity investments, net","(345)","","","(29)","","","(142)"],["Other","\u2014","","","19","","","(6)"],["Total other, net","$","(385)","","","$","(58)","","","$","(77)"]]
[[/GREPCENT_TABLE]]

During 2022, losses on minority equity investments, net included $300 million of losses related to mark-to-market adjustments in the fair value for our GBT investment as well as $45 million related to changes in our publicly traded marketable equity investment, Despegar. During 2021, losses on minority equity investments, net related to changes in our Despegar investment. See NOTE 3 — Fair Value Measurements in the notes to the consolidated financial statements for further information.

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Provision for Income Taxes

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","($ in millions)"],["Provision for income taxes","$","195","","","$","(53)","","","$","(423)","","","N/A","","(88)","%"],["Effective tax rate","36.2","%","","139.9","%","","13.4","%"]]
[[/GREPCENT_TABLE]]

Our effective tax rate for 2022 was higher than the 21% federal statutory income tax rate due to a valuation allowance on minority investments and nondeductible compensation, partially offset by research and experimentation credits. Our effective tax rate for 2021 was higher than the 21% federal statutory income tax rate due to excess tax benefits related to stock-based compensation, release of valuation allowance and research and experimentation credits, partially offset by nondeductible compensation, measured against a pre-tax loss. For additional information, see NOTE 10 — Income Taxes in the notes to the consolidated financial statements.

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 has been transferred to 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 $1.413 billion, which would result in federal tax of approximately $494 million, subject to interest. The proposed adjustments provided by the IRS exclude any offsetting adjustments that may reduce the amount of federal tax. We do not agree with the position of the IRS and intend to formally protest. We are also under examination by the IRS for our 2017-2020 years. We believe it is reasonably possible that the audit of the 2011 and 2013 tax years will conclude within the next 12 months. For more detail on our tax risk factors, see Part I, Item 1A, Risk Factors - "A failure to comply with current laws, rules and regulations or changes to such laws, rules and regulations and other legal uncertainties may adversely affect our business, financial performance, results of operations or business growth” and “Application of existing tax laws, rules or regulations are subject to interpretation by taxing authorities.”

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

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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:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2022","","2021","","2020"],["","(In millions)"],["Net income (loss) attributable to Expedia Group, Inc.","$","352","","","$","12","","","$","(2,612)"],["Net income (loss) attributable to non-controlling interests","(9)","","","3","","","(116)"],["Provision for income taxes","195","","","(53)","","","(423)"],["Total other expense, net","547","","","224","","","432"],["Operating income (loss)","1,085","","","186","","","(2,719)"],["Gain (loss) on revenue hedges related to revenue recognized","(6)","","","(17)","","","61"],["Restructuring and related reorganization charges","\u2014","","","55","","","231"],["Legal reserves, occupancy tax and other","23","","","1","","","(13)"],["Stock-based compensation","374","","","418","","","205"],["Depreciation and amortization","792","","","814","","","893"],["Impairment of goodwill","\u2014","","","14","","","799"],["Intangible and other long-term asset impairment","81","","","6","","","175"],["Adjusted EBITDA","$","2,349","","","$","1,477","","","$","(368)"]]
[[/GREPCENT_TABLE]]

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 $4.1 billion and $4.3 billion at December 31, 2022 and 2021. Our revolving credit facility with aggregate commitments of $2.5 billion was essentially untapped at December 31, 2022.

As of December 31, 2022, the total cash and cash equivalents and short-term investments held outside the United States was $770 million ($456 million in wholly-owned foreign subsidiaries and $314 million in majority-owned subsidiaries). The amount of undistributed earnings in foreign subsidiaries where the foreign subsidiary has or will invest undistributed earnings indefinitely outside of the Unites States, and for which future distributions could be taxable, was $65 million as of December 31, 2022. The unrecognized deferred tax liability related to the U.S. federal income tax consequences of these earnings was $17 million as of December 31, 2022.

In 2022, we took the following action to reduce our debt outstanding:

•Redemption of 2.5% Senior Notes. In March 2022, we early redeemed all of the €650 million of outstanding aggregate principal amount of our 2.5% senior notes due in June 2022. The redemption price for the 2.5% senior notes equaled 100% of the aggregate principal amount thereof plus accrued and unpaid interest thereon through the redemption date.

•Redemption of 3.6% and 4.5% Senior Notes. In May 2022, we early redeemed all of our $500 million 3.6% senior notes due 2023, and in June 2022, we early redeemed all of our $500 million 4.5% senior notes due 2024, which resulted in the recognition of a loss on debt extinguishment of $24 million primarily comprised of “make-whole” premiums as well as the write-off of unamortized discount and debt issuance costs.

•Redemption of 2.95% Senior Notes. In September 2022, we settled the tender offer to purchase $500 million in aggregate principal of our 2.95% senior notes due 2031 for an aggregate cash repurchase price of approximately $418 million, which resulted in the recognition of a net gain on debt extinguishment of $73 million. The net gain included the write-off of unamortized discount and debt issuance costs as well as related fees.

Our credit ratings are periodically reviewed by rating agencies. As of December 31, 2022, Moody’s rating was Baa3 with an outlook of “stable,” S&P’s rating was BBB- with an outlook of “stable” and Fitch’s rating was BBB- with an outlook of “stable.” 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.

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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 December 31, 2022, we were in compliance with the covenants and conditions in our revolving credit facilities and outstanding debt as detailed in NOTE 7 — Debt in the notes to the consolidated financial statements.

Under the merchant model, we receive cash from travelers at the time of booking and we record these amounts on our consolidated balance sheets as deferred merchant bookings. We pay our airline suppliers related to these merchant model bookings generally within a few weeks after completing the transaction. For most other merchant bookings, which is primarily our merchant lodging business, we generally pay after the travelers’ use and, in some cases, subsequent billing from the hotel suppliers. Therefore, generally we receive cash from the traveler prior to paying our supplier, and this operating cycle represents a working capital source of cash to us. Typically, the seasonal fluctuations in our merchant hotel bookings have affected the timing of our annual cash flows. Generally, during the first half of the year, hotel bookings have traditionally exceeded stays, resulting in much higher cash flow related to working capital. During the second half of the year, this pattern typically reverses and cash flows are typically negative. During 2020, impacts of COVID-19 disrupted our typical working capital trends. Significantly higher cancellations and reduced booking volumes, particularly in the first half of 2020, resulted in material operating losses and negative cash flow. During 2022, booking and travel trends have nearly normalized resulting in working capital benefits and positive cash flow in the current period akin to typical historical trends. However, it remains difficult to forecast the working capital trends for the upcoming quarters, given the uncertainty related to the full duration and total impact of COVID-19.

Prior to COVID-19, we embarked on an ambitious cost reduction initiative to simplify the organization and increase efficiency. In response to COVID-19, we took several additional actions to further reduce costs to help mitigate the financial impact from COVID-19 and continue to improve our long-term cost structure. 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:

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","$ Change"],["","2022","","2021","","2020","","2022 vs 2021","","2021 vs 2020"],["","(In millions)"],["Cash provided by (used in) operations:"],["Operating activities","$","3,440","","","$","3,748","","","$","(3,834)","","","$","(308)","","","$","7,582"],["Investing activities","(580)","","","(931)","","","(263)","","","351","","","(668)"],["Financing activities","(2,624)","","","(973)","","","4,077","","","(1,651)","","","(5,050)"],["Effect of foreign exchange rate changes on cash and cash equivalents","(190)","","","(177)","","","61","","","(13)","","","(238)"]]
[[/GREPCENT_TABLE]]

In 2022, net cash provided by operating activities decreased by $308 million primarily due to a decrease in benefits from working capital changes driven mostly from a change in deferred merchant booking, which was largely offset by higher operating income after adjusting for impacts of depreciation and amortization.

In 2022, $351 million less cash was used in investing activities primarily due to net sales and maturities of investments of $145 million in 2022 compared to net purchases of investments of $178 million in 2021.

Cash used in financing activities in 2022 primarily included payments of $2.2 billion related to the extinguishment of our 2.5% senior notes, 3.6% senior notes, 4.5% senior notes and the tender offer for a portion of our 2.95% senior notes discussed above as well as $607 million 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. These uses of cash were partially offset by $131 million of proceeds from the exercise of options and employee stock purchase plans. Cash used in financing activities in 2021 primarily included payments of approximately $2 billion related to the extinguishment of debt and $1.2 billion for the redemption of preferred stock as well as $165 million of cash paid for treasury stock activity related to the vesting of equity instruments and $67 million in preferred stock dividends. These uses of cash were largely offset by approximately $2 billion of net proceeds from the issuance of convertible notes and 2.95% senior notes issued in February and March 2021, respectively, as well as $503 million of proceeds from the exercise of options and employee stock purchase plans.

Our Board of Directors and the Executive Committee, pursuant to a delegation of authority from the Board, have authorized share repurchases under authorized programs. These programs were temporarily halted in early 2020 with the onset of the COVID-19 pandemic but resumed in the second half of 2022. Shares repurchased under the authorized programs were as

43

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follows:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2022","","2021","","2020"],["Number of shares repurchased","5.2 million","","\u2014","","","3.4 million"],["Average price per share","$","96.09","","","$","\u2014","","","$","109.88"],["Total cost of repurchases (in millions)(1)","$","500","","","$","\u2014","","","$","370"]]
[[/GREPCENT_TABLE]]

 ______________________________________

(1)Amount excludes transaction costs.

As of December 31, 2022, 18.1 million shares remain authorized for repurchase with no fixed termination date for the repurchases.

During 2022, we didn't pay any common stock dividends. During 2021, while we also didn't pay common stock dividends, we did pay $67 million (or $74.96 per share of Series A Preferred Stock) of dividends on the Series A Preferred Stock. At this time, we do not expect to make quarterly dividend payments on our common stock. Future declarations of dividends are subject to final determination by our Board of Directors.

Foreign exchange rate changes resulted in a decrease of our cash and restricted cash balances denominated in foreign currency in both 2022 and 2021 of $190 million and $177 million, respectively, reflecting a net depreciation in foreign currencies relative to the U.S. dollar during each year.

Contractual Obligations and Commercial Commitments. Our material cash requirements as of December 31, 2022 include the following contractual obligations and commercial commitments arising in the normal course of business:

•Principal payments related to our debt that is included in our consolidated balance sheet and the related periodic interest payments. The Company had Senior Notes and Convertible Notes, as described in NOTE 7 — Debt in the notes to our consolidated financial statements, with varying maturities and an aggregate principal amount of $6.3 billion, none of which is payable within 12 months. Based on current stated fixed rates, future interest payments associated with the Senior Notes total approximately $1.1 billion, with approximately $231 million payable within 12 months;

•Our operating leases had fixed lease payment obligations, including imputed interest, of $443 million, with $88 million payable within 12 months; and

•Purchase obligations representing the minimum obligations we have under agreements with certain of our vendors and marketing partners. These minimum obligations are less than our projected use for those periods, and payments may be more than the minimum obligations based on actual use. The Company had purchase obligations of $466 million, with $292 million payable within 12 months.

In addition, we had $284 million of net unrecognized tax benefits recorded on our balance sheet as of December 31, 2022, for which we cannot make a reasonably reliable estimate of the amount and period of payment.

See NOTE 15 — Commitments and Contingencies in the notes to the consolidated financial statements for further information related to our purchase obligations as well as amounts outstanding as of December 31, 2022 related to letters of credit and guarantees. Other than the items described above, we do not have any off-balance sheet arrangements as of 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.

Certain Relationships and Related Party Transactions

For a discussion of certain relationships and related party transactions, see NOTE 17 — Related Party Transactions in the notes to the consolidated financial statements.

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

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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.

[[GREPCENT_TABLE]]
[["","December 31, 2022"],["","(In millions)"],["Combined Balance Sheets Information:"],["Current Assets","$","6,720"],["Non-Current Assets","10,458"],["Current Liabilities(1)","10,407"],["Non-Current Liabilities","6,777"],["","Year Ended December 31, 2022"],["Combined Statements of Operations Information:"],["Revenue","$","9,431"],["Operating income (2)","747"],["Net income","150"],["Net income attributable to Obligors","146"]]
[[/GREPCENT_TABLE]]

(1)Current liabilities include intercompany payables with non-guarantors of $466 million as of December 31, 2022.

(2)Operating income includes intercompany income with non-guarantors of $35 million for the year ended December 31, 2022.