Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 8-K
 
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) July 26, 2018
 
EXPEDIA GROUP, INC.
(Exact name of registrant as specified in its charter)
 

Delaware
 
001-37429
 
20-2705720
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
333 108th Avenue NE
Bellevue, Washington 98004
(Address of principal executive offices) (Zip code)
(425) 679-7200
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1934 (§240.12b-2 of this chapter).
 
 
 
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. ☐
 






Item 2.02.    Results of Operations and Financial Condition.
On July 26, 2018, Expedia Group, Inc. ("Expedia Group") issued an earnings release and will hold a conference call regarding its financial results for the quarter ended June 30, 2018. A copy of the earnings release is furnished as Exhibit 99.1 hereto.
Expedia Group is making reference to non-GAAP financial measures in both the earnings release and the conference call. A reconciliation of these non-GAAP financial measures to the nearest comparable GAAP financial measures is contained in the attached Exhibit 99.1 earnings release.
Pursuant to General Instruction B.2. to Form 8-K, the information set forth in this Item 2.02 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, or incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 8.01.    Other Events.
On July 26, 2018, Expedia Group announced that its Executive Committee, acting on behalf of its Board of Directors, has declared a quarterly cash dividend of $0.32 per share of outstanding common stock payable on September 13, 2018 to stockholders of record as of the close of business on August 23, 2018.
Item 9.01.    Financial Statements and Exhibits.
(d) Exhibits
Exhibit
Number
  
Description
99.1
  





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
EXPEDIA GROUP, INC.
 
 
 
 
By:
/s/ ALAN PICKERILL
 
 
Alan Pickerill
 
 
Chief Financial Officer
Dated: July 26, 2018





EXHIBIT INDEX
 
Exhibit
Number
  
Description
99.1
  


Exhibit
Exhibit 99.1


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12371742&doc=3

Expedia Group Reports Second Quarter 2018 Results
BELLEVUE, WA – July 26, 2018 – Expedia Group, Inc. (NASDAQ: EXPE) announced financial results today for the second quarter ended June 30, 2018.
Key Highlights 
Gross bookings increased $3.1 billion or 13% year-over-year to $25.9 billion. Revenue increased 11% year-over-year to $2.9 billion.
Operating income and Adjusted EBITDA for Core OTA grew 19% and 16% year-over-year, respectively. Operating income and Adjusted EBITDA for HomeAway increased 106% and 98% year-over-year, respectively.(1) 
Total stayed lodging room nights grew 12% year-over-year, while stayed property nights for HomeAway increased 33% year-over-year.
Expedia Group's global lodging portfolio increased to more than 750,000 properties available as of June 30, 2018, including over 195,000 integrated HomeAway listings. HomeAway now offers more than 1.7 million online bookable listings.
Year to date, Expedia Group repurchased 4.0 million shares for $451 million.
Financial Summary & Operating Metrics ($ millions except per share amounts)
 
Expedia Group (excluding trivago)(2)
Expedia Group, Inc.
Metric
Q2 2018
Q2 2017
Δ Y/Y
Q2 2018
Q2 2017
Δ Y/Y
Room night growth
12%
21%
(879) bps
12%
21%
(879) bps
Gross bookings
$25,898
$22,838
13%
$25,898
$22,838
13%
Revenue
2,706
2,368
14%
2,880
2,586
11%
Operating income
142
108
31%
111
103
8%
Net income attributable to Expedia Group
 
 
 
1
57
(98)%
Diluted EPS
 
 
 
$0.01
$0.36
(98)%
Adjusted EBITDA(1)
483
391
24%
463
393
18%
Adjusted net income(1)
224
143
57%
213
141
51%
Adjusted EPS(1)
$1.45
$0.90
61%
$1.38
$0.89
55%
Free cash flow(1)
 
 
 
596
511
17%

(1) "Adjusted EBITDA" (Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization), "Adjusted net income (loss)," "Adjusted EPS" and "Free cash flow" are non-GAAP measures as defined by the Securities and Exchange Commission (the "SEC"). See "Definitions of Non-GAAP Measures" and "Tabular Reconciliations for Non-GAAP Measures" on pages 14-19 herein for an explanation and reconciliations of non-GAAP measures used throughout this release. Expedia Group does not calculate or report net income by segment.
(2) Upon completion of its initial public offering on December 16, 2016, trivago became 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.
Please refer to the "Glossary of Business Terms," located in the Quarterly Results section on Expedia Group’s investor relations website, for business and financial statement definitions used throughout this release.


Page 1 of 21


Discussion of Results
The results for Expedia Group, Inc. ("Expedia Group" or "the Company") include Brand Expedia®, Hotels.com®, Expedia® Partner Solutions, Egencia®, trivago®, HomeAway®, VRBO®, Orbitz®, Travelocity®, Wotif®, lastminute.com.au®, ebookers®, CheapTickets®, Hotwire®, Classic Vacations®, Expedia Group™ Media Solutions, CarRentals.com™, Expedia Local Expert®, Expedia® CruiseShipCenters®, SilverRail Technologies, Inc. ("SilverRail"), ALICE and Traveldoo®, including the related international points of sale for all brands. All amounts shown are in U.S. dollars.

The results include the impacts of SilverRail and ALICE following the Company's acquisition of majority ownership stakes in June 2017 and August 2017, respectively. All comparisons, unless otherwise noted, are to the second quarter of 2017.


Gross Bookings & Revenue
Gross Bookings and Revenue by Segment ($ millions) 
 
Gross Bookings
 
 
Revenue
 
Second Quarter
 
 
Second Quarter
 
2018
 
2017
 
Δ%
 
 
2018
 
2017
 
Δ%
Core OTA
$
21,011

 
$
18,954

 
11%
 
 
$
2,253

 
$
2,009

 
12%
HomeAway
2,814

 
2,123

 
33%
 
 
297

 
224

 
32%
Egencia
2,073

 
1,761

 
18%
 
 
156

 
135

 
16%
Expedia Group (excluding trivago)
$
25,898

 
$
22,838

 
13%
 
 
$
2,706

 
$
2,368

 
14%
trivago

 

 
—%
 
 
280

 
328

 
(15)%
Intercompany eliminations

 

 
—%
 
 
(106
)
 
(110
)
 
(4)%
Total
$
25,898

 
$
22,838

 
13%
 
 
$
2,880

 
$
2,586

 
11%
Note: Some numbers may not add due to rounding.
For the second quarter of 2018, total gross bookings increased 13% (including 2 percentage points of positive foreign exchange impact), driven primarily by growth in Brand Expedia, HomeAway, Hotels.com and Expedia Partner Solutions. Domestic gross bookings increased 10% and international gross bookings increased 19% (including 5 percentage points of positive foreign exchange impact). International gross bookings totaled $9.7 billion and accounted for 37% of worldwide bookings, compared with 36% in the second quarter of 2017.
For the second quarter of 2018, revenue increased 11% (including 3 percentage points of positive foreign exchange impact), driven primarily by growth in Brand Expedia, Hotels.com, HomeAway and Expedia Partner Solutions. Domestic revenue increased 12% and international revenue increased 11% (including 6 percentage points of positive foreign exchange impact). International revenue equaled $1.2 billion, representing 43% of worldwide revenue, compared to 44% in the second quarter of 2017. Total revenue excluding trivago was $2.7 billion, an increase of 14% compared to the second quarter of 2017.
Product & Services Detail
As a percentage of total worldwide revenue in the second quarter of 2018, lodging accounted for 69%, advertising and media accounted for 10%, air accounted for 8% and other revenue accounted for the remaining 13%.
Lodging revenue, which includes hotel and HomeAway revenue, increased 14% in the second quarter of 2018 driven by growth in HomeAway, Hotels.com, Expedia Partner Solutions and Brand Expedia. Room nights stayed increased 12% while revenue per room night increased 2% in the second quarter of 2018.
Air revenue increased 10% in the second quarter of 2018 on a 6% increase in air tickets sold as well as a 4% increase in revenue per ticket. Air revenue growth was primarily driven by benefits from the reclassification of distribution fees from contra-revenue to cost of revenue and the reclassification of certain customer refunds from air revenue to insurance.

Page 2 of 21



Advertising and media revenue decreased 9% in the second quarter of 2018 due to a decline in local currency revenue at trivago, partly offset by a positive impact from foreign exchange and continued growth at Expedia Group Media Solutions. Other revenue increased 16% in the second quarter of 2018 primarily reflecting growth in the travel insurance product.
Generally Accepted Accounting Principles (GAAP) Expenses
 
 
Costs and Expenses
 
 
As a % of Revenue
 
Second Quarter
 
 
Second Quarter
 
2018
 
2017
 
Δ%
 
 
2018
 
2017
 
Δ in bps
 
($ millions)
 
 
 
 
 
 
 
 
 
GAAP cost of revenue
$
498

 
$
439

 
13
%
 
 
17.3
%
 
17.0
%
 
30

GAAP selling and marketing
1,541

 
1,443

 
7
%
 
 
53.5
%
 
55.8
%
 
(229
)
GAAP technology and content
400

 
343

 
17
%
 
 
13.9
%
 
13.2
%
 
63

GAAP general and administrative
196

 
179

 
10
%
 
 
6.8
%
 
6.9
%
 
(11
)
Total GAAP costs and expenses
$
2,635

 
$
2,404

 
10
%
 
 
91.5
%
 
93.0
%
 
(148
)
GAAP Cost of Revenue
For the second quarter of 2018, total GAAP cost of revenue increased 13%, compared to the second quarter of 2017, due to $29 million more in customer operations expenses, including higher headcount at Egencia and HomeAway, as well as $29 million more in data center, cloud and other costs. Cloud expense in GAAP cost of revenue was $22 million during the second quarter of 2018, compared to $12 million in the second quarter of 2017.
GAAP Selling and Marketing
For the second quarter of 2018, total GAAP selling and marketing expenses increased 7%, compared to the second quarter of 2017, due to a $57 million increase in direct costs, including online and offline marketing expenses. Hotels.com, Expedia Partner Solutions and HomeAway accounted for the majority of the direct cost increase. For the second quarter of 2018, indirect costs increased $41 million, primarily driven by growth in personnel in the lodging supply organization.

GAAP Technology and Content
For the second quarter of 2018, total GAAP technology and content expense increased 17%, compared to the second quarter of 2017, due to increased personnel and overhead of $30 million from investments in our ecommerce platform and growth at HomeAway, as well as inorganic impacts from acquisitions. In addition, depreciation and amortization of technology assets increased $15 million. Cloud expense in GAAP technology and content expense was $12 million during the second quarter of 2018, compared to $9 million in the second quarter of 2017.
GAAP General and Administrative
For the second quarter of 2018, total GAAP general and administrative expense increased 10%, compared to the second quarter of 2017, primarily due to higher personnel and overhead costs of $16 million, resulting from increased headcount at corporate as well as inorganic impacts from acquisitions.

Page 3 of 21



Adjusted Expenses - Expedia Group 
 
Costs and Expenses
 
 
As a % of Revenue
 
Second Quarter
 
 
Second Quarter
 
2018
 
2017
 
Δ%
 
 
2018
 
2017
 
Δ in bps
 
($ in millions)
 
 
 
 
 
 
 
 
 
Adjusted cost of revenue *
$
469

 
$
412

 
14
 %
 
 
16.3
%
 
15.9
%
 
36

Adjusted selling and marketing *
1,518

 
1,424

 
7
 %
 
 
52.7
%
 
55.1
%
 
(235
)
Adjusted technology and content *
260

 
219

 
19
 %
 
 
9.0
%
 
8.5
%
 
55

Adjusted general and administrative *
169

 
148

 
14
 %
 
 
5.9
%
 
5.7
%
 
15

Total adjusted costs and expenses
$
2,416

 
$
2,203

 
10
 %
 
 
83.9
%
 
85.2
%
 
(129
)
Total depreciation
169

 
152

 
12
 %
 
 
5.9
%
 
5.8
%
 
2

Total stock-based compensation
50

 
50

 
 %
 
 
1.7
%
 
1.9
%
 
(21
)
Total costs and expenses
$
2,635

 
$
2,404

 
10
 %
 
 
91.5
%
 
93.0
%
 
(148
)
*Adjusted expenses are non-GAAP measures. See pages 14-19 herein for a description and reconciliation to the corresponding GAAP measures.
Note: Some numbers may not add due to rounding.
Adjusted Expenses - Expedia Group (excluding trivago) 
 
Costs and Expenses
 
 
As a % of Revenue
 
Second Quarter
 
 
Second Quarter
 
2018
 
2017
 
Δ%
 
 
2018
 
2017
 
Δ in bps
 
($ in millions)
 
 
 
 
 
 
 
 
 
Adjusted cost of revenue *
$
468

 
$
410

 
14
 %
 
 
17.3
%
 
17.3
%
 
(2
)
Adjusted selling and marketing *
1,354

 
1,232

 
10
 %
 
 
50.0
%
 
52.0
%
 
(198
)
Adjusted technology and content *
244

 
205

 
19
 %
 
 
9.0
%
 
8.7
%
 
33

Adjusted general and administrative *
156

 
139

 
13
 %
 
 
5.8
%
 
5.9
%
 
(9
)
Total adjusted costs and expenses
$
2,222

 
$
1,986

 
12
 %
 
 
82.1
%
 
83.9
%
 
(176
)
Total depreciation
165

 
149

 
10
 %
 
 
6.1
%
 
6.3
%
 
(21
)
Total stock-based compensation
44

 
45

 
(4
)%
 
 
1.6
%
 
1.9
%
 
(31
)
Total costs and expenses
$
2,431

 
$
2,180

 
11
 %
 
 
89.8
%
 
92.1
%
 
(227
)
*Adjusted expenses are non-GAAP measures. See pages 14-19 herein for a description and reconciliation to the corresponding GAAP measures.
Note: Some numbers may not add due to rounding.
Adjusted Cost of Revenue
For the second quarter of 2018, total adjusted cost of revenue increased 14%, compared to the second quarter of 2017, primarily due to an increase in customer operations expenses, including higher headcount expenses at Egencia and HomeAway, as well as an increase in cloud expense.
Adjusted Selling and Marketing
For the second quarter of 2018, total adjusted selling and marketing expense increased 7%, compared to the second quarter of 2017, due to a $57 million increase in direct costs, including online and offline marketing expenses, and a $37 million increase in indirect costs. As a percentage of total adjusted selling and marketing, indirect costs represented 17% in the second quarter of 2018, up from 15% in the second quarter of 2017.
Adjusted selling and marketing expense excluding trivago increased 10% in the second quarter of 2018. Hotels.com, Expedia Partner Solutions and HomeAway accounted for the majority of the direct cost increase. The growth in indirect costs was primarily driven by growth in personnel due to increased headcount in the lodging supply organization.

Page 4 of 21



Adjusted Technology and Content
For the second quarter of 2018, total adjusted technology and content expense increased 19%, compared to the second quarter of 2017, primarily due to investments in our ecommerce platform and growth at HomeAway, as well as inorganic impacts from acquisitions.
Adjusted General and Administrative
For the second quarter of 2018, total adjusted general and administrative expense increased 14%, compared to the second quarter of 2017. Adjusted general and administrative expense excluding trivago increased 13%, compared to the second quarter of 2017, primarily due to increased headcount at corporate as well as inorganic impacts from acquisitions.
Depreciation Expense
Depreciation expense increased $17 million or 12% to $169 million in the second quarter of 2018, primarily due to increased expenses related to previously capitalized software development costs for completed technology projects that have been placed into service, partly offset by a decrease in expenses related to capitalized data center hardware.

Stock-Based Compensation Expense
Stock-based compensation expense was flat year-over-year at $50 million in the second quarter of 2018.

Net Income Attributable to Expedia Group and Adjusted EBITDA*
Adjusted EBITDA by Segment(1) ($ millions) 
 
Second Quarter
 
2018
 
2017
 
Δ%
Core OTA
$
561

 
$
486

 
16%
HomeAway
78

 
39

 
98%
Egencia
30

 
28

 
8%
Unallocated overhead costs
(186
)
 
(162
)
 
15%
Expedia Group (excluding trivago)
$
483

 
$
391

 
24%
trivago(2)
(20
)
 
2

 
NM
Total
$
463

 
$
393

 
18%
 
 
 
 
 
 
Net income attributable to Expedia Group(3)
$
1

 
$
57

 
(98)%
(1)During the first quarter of 2018, we updated our allocations methodology and recast the historical Adjusted EBITDA by segment information presented to be on a comparable basis.
(2) Upon completion of its initial public offering on December 16, 2016, trivago became 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.  
(3) Expedia Group does not calculate or report net income by segment.
* Adjusted EBITDA is a non-GAAP measure. See pages 14-19 herein for a description and reconciliation to the corresponding GAAP measure.
Note: Some numbers may not add due to rounding.
GAAP net income attributable to Expedia Group was $1 million in the second quarter of 2018, a decrease of 98% compared to the second quarter of 2017. Adjusted EBITDA was $463 million in the second quarter of 2018, an increase of 18% compared to the second quarter of 2017. Adjusted EBITDA excluding trivago was $483 million, an increase of 24% compared to the second quarter of 2017.
Amortization of Intangible Assets
Consolidated amortization of intangible assets increased $6 million to $72 million in the second quarter of 2018, compared to the second quarter of 2017, primarily related to recent business acquisitions.


Page 5 of 21



Impairment of Goodwill
Impairment of goodwill was $61 million in the second quarter of 2018, and we did not incur any impairment of goodwill in the second quarter of 2017.

Interest and Other
Consolidated interest income increased $6 million in the second quarter of 2018, compared to the second quarter of 2017, primarily due to higher invested balances and to a lesser extent higher rates of return. Consolidated interest expense increased $8 million in the second quarter of 2018, compared to the second quarter of 2017, due to the issuance of the $1 billion of senior unsecured notes in September 2017.
Consolidated other, net was a loss of $90 million in the second quarter of 2018, compared to a loss of $13 million in the second quarter of 2017. The loss in the second quarter of 2018 was primarily related to a loss on a minority equity investment, while the loss in the second quarter of 2017 was related to foreign exchange as well as a loss on a minority equity investment. Expedia Group’s revenue hedging program is designed primarily to offset the book-to-stay impact on merchant hotel revenue. Expedia Group includes that portion of any realized gains or losses from the revenue hedging program that are included in other, net that relate to revenue recognized in the period in the calculation of Adjusted EBITDA.
Income Taxes
The GAAP effective tax rate was 34% for the second quarter of 2018, compared to 5% for the second quarter of 2017. The change in the GAAP effective tax rate in the second quarter of 2018 compared to the second quarter of 2017 was primarily driven by the Tax Cuts and Jobs Act (the "Tax Act"), the 2018 goodwill impairment, a decrease in excess tax benefits for stock compensation as well as other discrete tax items. The effective tax rate on pretax adjusted net income ("ANI") was 16% for the second quarter of 2018, compared to 27% for the second quarter of 2017. The decrease in the ANI effective tax rate for the second quarter of 2018 compared to the second quarter of 2017 was primarily driven by the Tax Act.

Balance Sheet, Cash Flows and Capitalization
Cash, cash equivalents, restricted cash and short-term investments totaled $4.9 billion at June 30, 2018. For the six months ended June 30, 2018, consolidated net cash provided by operating activities was $2.5 billion and consolidated free cash flow totaled $2.1 billion. Both measures include $1.9 billion from net changes in operating assets and liabilities, primarily driven by an increase in deferred merchant bookings. For the six months ended June 30, 2018, consolidated free cash flow increased $48 million compared to the prior year period.
Long-term investments and other assets includes an investment in Despegar.com, Corp. ("Despegar"), which is recorded at a fair value of $201 million as of June 30, 2018, and $338 million of a $350 million investment made in Traveloka Holding Limited in July 2017, accounted for as a cost method investment, with a small portion allocated to intangible assets. As of January 1, 2018, we adopted the new guidance related to accounting for minority equity investments and financial liabilities under the fair value option, and minority equity investments with readily determinable fair values, such as our investment in Despegar, must be carried at fair value with changes in fair value recorded through net income. Previously, this investment was designated as available for sale and recorded at fair value with changes in fair value reflected through other comprehensive income (loss).
Current maturities of long-term debt includes $500 million in 7.456% senior notes due in August 2018. Long-term debt, net of applicable discounts and debt issuance costs, totaled $3.7 billion at June 30, 2018 consisting of $990 million in 3.8% senior notes due 2028; $742 million in 5.0% senior notes due 2026; $496 million in 4.5% senior notes due 2024; $755 million (€650 million) in 2.5% senior notes due 2022; and $748 million in 5.95% senior notes due 2020. In addition, as of June 30, 2018, Expedia Group had a $2 billion unsecured revolving credit facility which was essentially untapped.
At June 30, 2018, Expedia Group had stock-based awards outstanding representing approximately 22 million shares of Expedia Group common stock, consisting of options to purchase approximately 19 million common shares with a $99.09 weighted average exercise price and weighted average remaining life of 4.7 years, and approximately 3 million restricted stock units ("RSUs").

Page 6 of 21



During the first six months of 2018, Expedia Group repurchased 3.7 million shares of Expedia Group common stock for an aggregate purchase price of $409 million excluding transaction costs (an average of $110.61 per share). As of June 30, 2018, there were approximately 1.2 million shares and 15.0 million shares remaining under the February 2015 and April 2018 repurchase authorizations, respectively. Subsequent to the end of the second quarter of 2018, we repurchased an additional 0.3 million shares for a total cost of $42 million excluding transaction costs (an average of $124.95 per share).
On June 14, 2018, Expedia Group paid a quarterly dividend of $45 million ($0.30 per common share). In addition, on July 23, 2018, the Executive Committee of Expedia Group’s Board of Directors declared a cash dividend of $0.32 per share of outstanding common stock to be paid to stockholders of record as of the close of business on August 23, 2018, with a payment date of September 13, 2018. Based on current shares outstanding, the total payment for this quarterly dividend is estimated to be approximately $48 million. Future declaration of dividends and the establishment of future record and payment dates are subject to the final determination of Expedia Group’s Board of Directors.

Page 7 of 21



Recent Highlights
Expedia Group
As of June 30, 2018, Expedia Group’s global lodging portfolio consisted of more than 750,000 properties, including more than 195,000 integrated HomeAway listings. HomeAway offers more than 1.7 million online bookable listings.
Expedia Group signed supply marketing agreements with Aerolineas Argentinas and Viva Air.
Melia Hotels International entered into a strategic technology relationship whereby Expedia Group will power package bookings directly on the global chain’s U.S. point of sale.
Core OTA
Brand Expedia Group successfully moved 100% of its eligible hotel-only mobile web traffic to a new Progressive Web App (PWA) platform, allowing travelers to have an app-like experience while using the internet browser on their phone.
Expedia Group’s nearly 70 million loyalty members redeemed a total value of $1.5 billion in hotel rooms across the Brand Expedia, Hotels.com and Orbitz loyalty programs over the past three years, with Expedia Group funding its loyalty activity. Of the redemptions, over 60% originated from the U.S. and Canada, followed by EMEA at 20%.
Brand Expedia launched three new South American points of sale in Chile, Colombia and Peru, allowing travelers to shop for hotels and flights in their local language and currency.
Brand Expedia introduced the Add-On Advantage which unlocks guaranteed access to discounts from hundreds of thousands of participating hotels for travelers who book a flight, car or package with Expedia, up until their trip starts.
Hotels.com signed a four-year deal as the Official Accommodation Partner of the Tottenham Hotspur Football Club. The deal will feature Hotels.com branding in the stadium including on pitchside LED advertising boards and big screens.
Since announcing its new travel API EAN Rapid in March 2018, Expedia Affiliate Network has 6 partners live and more than 20 in the pipeline for integration.
ebookers rolled out a brand refresh and integrated brand marketing campaign, “Book Unique,” showing customers that ebookers understands that no two travelers are the same and can help them book their unique, perfect trip.
In late June, Hotwire launched the Hotwire Effect XL Sale featuring $49 4+ star hotels in 8 major U.S. cities for travel around the Fourth of July. Demand was so high that it ended up selling out within 48 hours -- more than a day early
SilverRail’s rail ticketing technology delivered the ability to board and travel without pre-purchasing a ticket, as part of a groundbreaking seamless rail travel trial for Chiltern Railways, while separately, Virgin Trains became the first rail operator globally to sell tickets through Amazon Alexa using SilverRail’s shop and booking technology.
trivago
trivago continued to invest in its alternative accommodation listings, increasing the supply available on its platform to over 800,000 units as of June 30, 2018. In total, trivago offers access to more than 2.5 million accommodations.
HomeAway
HomeAway now offers more than 800,000 instantly bookable listings.
The number of travelers who stayed in a HomeAway rental during the first half of 2018 grew over 40% year-over-year.
HomeAway continued to roll out its global platform, rebranding OwnersDirect in the UK and Homelidays in Spain and Italy to the global HomeAway brand. In addition, HomeAway also started the brand transitions for Stayz in Australia and Bookabach in New Zealand
Egencia
Egencia renewed a multi-year agreement with Norway's Telenor, one of the world’s largest mobile operators.
Egencia Advantage, the program for value-added services for business travelers, added pocket Wi-Fi to its portfolio of services, offering fast, reliable access to Wi-Fi services through trusted providers.
Putting customer service front and center, Egencia rolled out a new online Help Center globally, giving travelers a fast, easy way to self-serve on the most frequently asked questions.

Page 8 of 21



EXPEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share data)
(Unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Revenue
$
2,880

 
$
2,586

 
$
5,388

 
$
4,775

Costs and expenses:

 

 

 

Cost of revenue (1) (2)
498

 
439

 
985

 
861

Selling and marketing (1) (2)
1,541

 
1,443

 
3,057

 
2,713

Technology and content (1) (2)
400

 
343

 
796

 
665

General and administrative (1) (2)
196

 
179

 
395

 
337

Amortization of intangible assets
72

 
66

 
144

 
133

Impairment of goodwill
61

 

 
61

 

Legal reserves, occupancy tax and other
1

 
3

 
4

 
24

Restructuring and related reorganization charges

 
10

 

 
12

Operating income (loss)
111

 
103

 
(54
)
 
30

Other income (expense):
 
 
 
 
 
 
 
Interest income
16

 
10

 
27

 
16

Interest expense
(51
)
 
(43
)
 
(102
)
 
(86
)
Other, net
(90
)
 
(13
)
 
(54
)
 
(34
)
Total other expense, net
(125
)
 
(46
)
 
(129
)
 
(104
)
Income (loss) before income taxes
(14
)
 
57

 
(183
)
 
(74
)
Provision for income taxes
5

 
(3
)
 
25

 
44

Net income (loss)
(9
)
 
54

 
(158
)
 
(30
)
Net loss attributable to non-controlling interests
10

 
3

 
22

 
1

Net income (loss) attributable to Expedia Group, Inc.
$
1

 
$
57

 
$
(136
)
 
$
(29
)
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Expedia Group, Inc. available to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.01

 
$
0.37

 
$
(0.90
)
 
$
(0.19
)
Diluted
0.01

 
0.36

 
(0.90
)
 
(0.19
)
Shares used in computing earnings (loss) per share (000's):
 
 
 
 
 
 
 
Basic
150,076

 
151,582

 
150,942

 
151,060

Diluted
152,617

 
157,033

 
150,942

 
151,060

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.30

 
$
0.28

 
$
0.60

 
$
0.56

_________
(1) Includes stock-based compensation as follows:
 
 
 
 
 
 
 
Cost of revenue
$
3

 
$
3

 
$
5

 
$
6

Selling and marketing
12

 
10

 
23

 
21

Technology and content
16

 
15

 
31

 
28

General and administrative
19

 
22

 
41

 
42

 
 
 
 
 
 
 
 
(2) Includes depreciation as follows:
 
 
 
 
 
 
 
Cost of revenue
$
26

 
$
25

 
$
53

 
$
48

Selling and marketing
11

 
9

 
22

 
17

Technology and content
124

 
109

 
243

 
212

General and administrative
8

 
9

 
18

 
16


Page 9 of 21



EXPEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in thousands and par value)
 
June 30, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
3,072

 
$
2,847

Restricted cash and cash equivalents
336

 
69

Short-term investments
1,491

 
468

Accounts receivable, net of allowance of $32 and $31
2,359

 
1,866

Income taxes receivable
175

 
21

Prepaid expenses and other current assets
361

 
269

Total current assets
7,794

 
5,540

Property and equipment, net
1,689

 
1,575

Long-term investments and other assets
758

 
845

Deferred income taxes
17

 
18

Intangible assets, net
2,157

 
2,309

Goodwill
8,139

 
8,229

TOTAL ASSETS
$
20,554

 
$
18,516

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable, merchant
$
1,811

 
$
1,838

Accounts payable, other
909

 
698

Deferred merchant bookings
6,106

 
3,219

Deferred revenue
460

 
326

Income taxes payable
19

 
33

Accrued expenses and other current liabilities
692

 
1,265

Current maturities of long-term debt
500

 
500

Total current liabilities
10,497

 
7,879

Long-term debt, excluding current maturities
3,731

 
3,749

Deferred income taxes
314

 
329

Other long-term liabilities
440

 
408

Redeemable non-controlling interests
20

 
22

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Common stock $.0001 par value

 

Authorized shares: 1,600,000
 
 
 
Shares issued: 230,159 and 228,467
 
 
 
Shares outstanding: 136,779 and 138,939
 
 
 
Class B common stock $.0001 par value

 

Authorized shares: 400,000
 
 
 
Shares issued and outstanding: 12,800 and 12,800
 
 
 
Additional paid-in capital
9,331

 
9,163

Treasury stock - Common stock, at cost
(5,248
)
 
(4,822
)
Shares: 93,380 and 89,528
 
 
 
Retained earnings
74

 
331

Accumulated other comprehensive income (loss)
(190
)
 
(149
)
Total Expedia Group, Inc. stockholders’ equity
3,967

 
4,522

Non-redeemable non-controlling interests
1,585

 
1,606

Total stockholders’ equity
5,552

 
6,129

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
20,554

 
$
18,516


Page 10 of 21



EXPEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six months ended June 30,
 
2018
 
2017
Operating activities:
 
 
 
Net loss
$
(158
)
 
$
(30
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation of property and equipment, including internal-use software and website development
336

 
293

Amortization of stock-based compensation
100

 
97

Amortization of intangible assets
144

 
133

Impairment of goodwill
61

 

Deferred income taxes
(6
)
 
2

Foreign exchange (gain) loss on cash, restricted cash and short-term investments, net
85

 
(58
)
Realized gain on foreign currency forwards
(16
)
 
(7
)
Loss on minority equity investments, net
61

 
6

Other
21

 
(16
)
Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable
(476
)
 
(434
)
Prepaid expenses and other assets
(96
)
 
(46
)
Accounts payable, merchant
(25
)
 
197

Accounts payable, other, accrued expenses and other current liabilities
216

 
279

Tax payable/receivable, net
(159
)
 
(158
)
Deferred merchant bookings
2,268

 
2,030

Deferred revenue
135

 
101

Net cash provided by operating activities
2,491

 
2,389

Investing activities:
 
 
 
Capital expenditures, including internal-use software and website development
(411
)
 
(357
)
Purchases of investments
(1,669
)
 
(991
)
Sales and maturities of investments
624

 
175

Net settlement of foreign currency forwards
16

 
7

Acquisitions, net of cash and restricted cash acquired

 
(136
)
Other, net
6

 

Net cash used in investing activities
(1,434
)
 
(1,302
)
Financing activities:
 
 
 
Purchases of treasury stock
(426
)
 
(114
)
Payment of dividends to stockholders
(91
)
 
(85
)
Proceeds from exercise of equity awards and employee stock purchase plan
67

 
137

Other, net
(6
)
 
(19
)
Net cash used in financing activities
(456
)
 
(81
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents
(106
)
 
99

Net increase in cash, cash equivalents and restricted cash and cash equivalents
495

 
1,105

Cash, cash equivalents and restricted cash and cash equivalents at beginning of period
2,917

 
1,818

Cash, cash equivalents and restricted cash and cash equivalents at end of period
$
3,412

 
$
2,923

Supplemental cash flow information
 
 
 
Cash paid for interest
$
106

 
$
90

Income tax payments, net
136

 
107


Page 11 of 21



Expedia Group
Trended Metrics
(All figures in millions)

The supplemental metrics below are intended to supplement the financial statements in this release and in our filings with the SEC, and unless noted do not include adjustments for one-time items, acquisitions, foreign exchange or other adjustments. The definition, methodology and appropriateness of any of our supplemental metrics are subject to removal and/or change, and such changes could be material. In the event of any discrepancy between any supplemental metric and our historical financial statements, you should rely on the information filed with the SEC and the financial statements in our most recent earnings release.
 
 
 
2016
 
 
 
2017
 
 
 
2018
 
 
 
Y/Y
 
 
 
 
Q3
Q4
 
 
Q1
Q2
Q3
Q4
 
 
Q1
Q2
 
 
Growth
 
Gross bookings by segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core OTA
 
$
17,007

$
14,650

 
 
$
19,110

$
18,954

$
18,456

$
16,182

 
 
$
21,171

$
21,011

 
 
11%
 
HomeAway
 
1,403

1,299

 
 
2,697

2,123

2,013

1,913

 
 
3,947

2,814

 
 
33%
 
Egencia
 
1,579

1,454

 
 
1,804

1,761

1,728

1,670

 
 
2,078

2,073

 
 
18%
 
Total
 
$
19,988

$
17,403

 
 
$
23,610

$
22,838

$
22,197

$
19,766

 
 
$
27,196

$
25,898

 
 
13%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross bookings by geography
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
$
12,915

$
11,074

 
 
$
15,128

$
14,730

$
13,540

$
11,800

 
 
$
16,582

$
16,213

 
 
10%
 
International
 
7,073

6,329

 
 
8,483

8,108

8,657

7,966

 
 
10,614

9,685

 
 
19%
 
Total
 
$
19,988

$
17,403

 
 
$
23,610

$
22,838

$
22,197

$
19,766

 
 
$
27,196

$
25,898

 
 
13%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross bookings by business model
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
$
10,023

$
8,869

 
 
$
11,342

$
11,168

$
10,392

$
9,493

 
 
$
12,445

$
12,290

 
 
10%
 
Merchant
 
8,563

7,235

 
 
9,572

9,546

9,792

8,360

 
 
10,803

10,794

 
 
13%
 
HomeAway
 
1,403

1,299

 
 
2,697

2,123

2,013

1,913

 
 
3,947

2,814

 
 
33%
 
Total
 
$
19,988

$
17,403

 
 
$
23,610

$
22,838

$
22,197

$
19,766

 
 
$
27,196

$
25,898

 
 
13%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core OTA
 
$
2,083

$
1,695

 
 
$
1,700

$
2,009

$
2,314

$
1,857

 
 
$
1,926

$
2,253

 
 
12%
 
HomeAway
 
210

166

 
 
185

224

305

193

 
 
234

297

 
 
32%
 
Egencia
 
112

116

 
 
123

135

126

137

 
 
151

156

 
 
16%
 
Expedia Group (excluding trivago)
 
$
2,405

$
1,977

 
 
$
2,008

$
2,368

$
2,745

$
2,187

 
 
$
2,311

$
2,706

 
 
14%
 
trivago
 
276

183

 
 
286

328

338

215

 
 
319

280

 
 
(15)%
 
Intercompany eliminations
 
(101
)
(67
)
 
 
(104
)
(110
)
(117
)
(83
)
 
 
(122
)
(106
)
 
 
(4)%
 
Total
 
$
2,581

$
2,093

 
 
$
2,189

$
2,586

$
2,966

$
2,319

 
 
$
2,508

$
2,880

 
 
11%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by geography
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
$
1,452

$
1,201

 
 
$
1,251

$
1,459

$
1,578

$
1,255

 
 
$
1,351

$
1,632

 
 
12%
 
International
 
1,129

892

 
 
938

1,127

1,388

1,065

 
 
1,157

1,248

 
 
11%
 
Total
 
$
2,581

$
2,093

 
 
$
2,189

$
2,586

$
2,966

$
2,319

 
 
$
2,508

$
2,880

 
 
11%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by business model
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
$
723

$
567

 
 
$
571

$
684

$
803

$
629

 
 
$
658

$
777

 
 
14%
 
Merchant
 
1,407

1,170

 
 
1,176

1,376

1,559

1,283

 
 
1,334

1,532

 
 
11%
 
Advertising & media
 
241

190

 
 
257

302

299

214

 
 
282

274

 
 
(9)%
 
HomeAway
 
210

166

 
 
185

224

305

193

 
 
234

297

 
 
32%
 
Total
 
$
2,581

$
2,093

 
 
$
2,189

$
2,586

$
2,966

$
2,319

 
 
$
2,508

$
2,880

 
 
11%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA by segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core OTA
 
$
711

$
528

 
 
$
303

$
486

$
734

$
534

 
 
$
323

$
561

 
 
16%
 
HomeAway
 
77

42

 
 
6

39

126

31

 
 
(21
)
78

 
 
98%
 
Egencia
 
18

21

 
 
27

28

20

19

 
 
27

30

 
 
8%
 
Unallocated overhead costs
 
(145
)
(164
)
 
 
(149
)
(162
)
(163
)
(173
)
 
 
(177
)
(186
)
 
 
15%
 
Expedia Group (excluding trivago)
 
$
661

$
427

 
 
$
187

$
391

$
717

$
411

 
 
$
152

$
483

 
 
24%
 
trivago
 
6

14

 
 
21

2

(8
)
(9
)
 
 
(28
)
(20
)
 
 
NM
 
Total
 
$
667

$
442

 
 
$
208

$
393

$
709

$
402

 
 
$
124

$
463

 
 
18%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Expedia Group
 
$
279

$
79

 
 
$
(86
)
$
57

$
352

$
55

 
 
$
(137
)
$
1

 
 
(98)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Page 12 of 21



Expedia Group
Trended Metrics, continued
(All figures in millions)

 
 
 
2016
 
 
 
2017
 
 
 
2018
 
 
 
 
Q3
Q4
 
 
Q1
Q2
Q3
Q4
 
 
Q1
Q2
 
Worldwide lodging (merchant, agency & HomeAway)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Room nights
 
80.2

64.9

 
 
64.0

79.9

93.5

74.8

 
 
73.9

89.6

 
Room night growth
 
31
 %
23
 %
 
 
12
 %
21
 %
16
 %
15
 %
 
 
15
 %
12
%
 
Domestic room night growth
 
36
 %
22
 %
 
 
7
 %
17
 %
12
 %
10
 %
 
 
10
 %
8
%
 
International room night growth
 
25
 %
24
 %
 
 
17
 %
26
 %
22
 %
21
 %
 
 
21
 %
17
%
 
ADR growth
 
8
 %
5
 %
 
 
2
 %
2
 %
4
 %
4
 %
 
 
7
 %
6
%
 
Revenue per night growth
 
 %
4
 %
 
 
1
 %
(4
)%
(1
)%
(4
)%
 
 
 %
2
%
 
Lodging revenue
 
$
1,826

$
1,444

 
 
$
1,400

$
1,744

$
2,102

$
1,606

 
 
$
1,612

$
1,992

 
Lodging revenue growth
 
30
 %
27
 %
 
 
12
 %
16
 %
15
 %
11
 %
 
 
15
 %
14
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Worldwide air (merchant & agency)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tickets sold growth
 
32
 %
6
 %
 
 
8
 %
2
 %
4
 %
3
 %
 
 
1
 %
6
%
 
Airfare growth
 
(6
)%
(4
)%
 
 
(3
)%
1
 %
(2
)%
1
 %
 
 
3
 %
1
%
 
Revenue per ticket growth
 
15
 %
—%

 
 
(4
)%
4
 %
(10
)%
(3
)%
 
 
10
 %
4
%
 
Air revenue
 
$
203

$
176

 
 
$
217

$
202

$
189

$
176

 
 
$
242

$
223

 
Air revenue growth
 
52
 %
6
 %
 
 
4
 %
6
 %
(7
)%
—%

 
 
11
 %
10
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Notes:
The metrics above include Orbitz Worldwide following the acquisition on September 17, 2015 and HomeAway following the acquisition on December 15, 2015.
HomeAway gross bookings and room nights operating metrics include on-platform and reported transactions from all HomeAway brands, with the exception of BedandBreakfast.com and TopRural (which, if included, would collectively add less than an estimated 2% to each of gross bookings and room nights). Gross bookings and room nights for Stayz, Bookabach and Travelmob (which collectively represent less than 10% of total transactions) represent our best estimates, including gross bookings and room nights for Stayz and Bookabach that remain off-platform while we transition those brands to HomeAway platform brands, which started in the second quarter of 2018.
Advertising & Media Revenue includes 3rd party revenue from trivago. All trivago revenue is classified as international.
During the first quarter of 2018, we updated our allocations methodology and recast the historical domestic and international revenue and Adjusted EBITDA by segment information presented to be on a comparable basis.
Some numbers may not add due to rounding. All percentages above and throughout this release are calculated on precise, unrounded numbers.

Page 13 of 21



Notes & Definitions:
Gross Bookings: Gross bookings generally represent the total retail value of transactions booked, recorded at the time of booking reflecting the total price due for travel by travelers, including taxes, fees and other charges, adjusted for cancellations and refunds.
Core OTA: The Core Online Travel Agencies ("Core OTA") segment provides a full range of travel and advertising services to our worldwide customers through a variety of brands including: Brand Expedia, Hotels.com, Expedia Partner Solutions, Orbitz, Travelocity, Wotif, lastminute.com.au, ebookers, CheapTickets, Hotwire, Classic Vacations, Expedia Group Media Solutions, CarRentals.com, Expedia Local Expert, Expedia CruiseShipCenters, SilverRail and ALICE.
trivago: The trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its localized hotel metasearch websites.
HomeAway: The HomeAway segment provides a range of travel services for the vacation rental industry through a global portfolio of brands including: HomeAway, VRBO, VacationRentals.com and BedandBreakfast.com, among others.
Egencia: The Egencia segment, including Traveldoo, provides managed travel services to corporate customers worldwide.
Corporate: Includes unallocated corporate expenses.
Lodging metrics: Reported on a stayed basis and includes both merchant and agency model hotel stays, as well as alternative accommodations primarily made available through HomeAway.
Room Nights: Room nights represent stayed hotel room nights for our Core OTA and Egencia reportable segments and property nights for our HomeAway reportable segment. Hotel room nights are reported on a stayed basis and include both merchant and agency hotel stays. Property nights are reported upon the first day of stay and check-in to a property and represent the total number of nights for which a property is rented.
Worldwide Air metrics: Reported on a booked basis and includes both merchant and agency air bookings.
Definitions of Non-GAAP Measures
Expedia Group reports Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted EPS, Free Cash Flow and Adjusted Expenses (non-GAAP cost of revenue, non-GAAP selling and marketing, non-GAAP technology and content and non-GAAP general and administrative), all of which are supplemental measures to GAAP and are defined by the SEC as non-GAAP financial measures. These measures are 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. These non-GAAP measures 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, Adjusted Net Income (Loss) and Adjusted EPS have certain limitations in that they do 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 measures presented by also providing the most directly comparable GAAP measures and descriptions of the reconciling items and adjustments to derive the non-GAAP measures. Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted EPS also exclude certain items related to transactional tax matters, which may ultimately be settled in cash. We urge investors to review the detailed disclosure regarding these matters in the Management Discussion and Analysis, Legal Proceedings sections, as well as the notes to the financial statements, included in the Company’s annual and quarterly reports filed with the Securities and Exchange Commission. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The definition of Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization was revised in the fourth quarter of 2012 and in the first quarter of 2016 and the definition for Adjusted Net Income (Loss) was revised in the fourth quarters of 2010, 2011, 2012 and 2017. The definition of Adjusted Expenses was revised in the first quarter of 2014 and in the second quarter 2015.
Adjusted EBITDA is defined as net income (loss) attributable to Expedia Group adjusted for:
(1) net income (loss) attributable to non-controlling interests;
(2) provision for income taxes;
(3) total other expenses, net;
(4) stock-based compensation expense, including compensation expense related to certain subsidiary equity plans;

Page 14 of 21



(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; and
(iii) upfront consideration paid to settle employee compensation plans of the acquiree;
(6) certain other items, including restructuring;
(7) items included in legal reserves, occupancy tax and other, which includes reserves for potential settlement of issues related to transactional taxes (e.g. hotel and excise taxes), related to court decisions and final settlements, and charges incurred, if any, for monies that may be required to be paid in advance of litigation in certain transactional tax proceedings;
(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 non-cash 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.
Adjusted Net Income (Loss) generally captures all items on the statements of operations that occur in normal course operations and have been, or ultimately will be, settled in cash and is defined as net income (loss) attributable to Expedia Group plus the following items, net of tax (which excludes the impact of significant changes resulting from tax legislation such as the Tax Cuts and Jobs Act):
(1) stock-based compensation expense, including compensation expense related to equity plans of certain subsidiaries and equity-method investments;
(2) acquisition-related impacts, including
(i) amortization of intangible assets, including as part of equity-method investments, and goodwill and intangible asset impairment;
(ii) gains (losses) recognized on changes in the value of contingent consideration arrangements;
(iii) upfront consideration paid to settle employee compensation plans of the acquiree; and
(iv) gains (losses) recognized on non-controlling investment basis adjustments when we acquire or lose controlling interests;
(3) currency gains or losses on U.S. dollar denominated cash;
(4) Since adoption of new accounting guidance in the first quarter of 2018, the changes in fair value of equity investments (other than those accounted for under the equity method and those that are consolidated);
(5) certain other items, including restructuring charges;
(6) items included in Legal reserves, occupancy tax and other, which includes reserves for potential settlement of issues related to transactional taxes (e.g., hotel occupancy and excise taxes), related court decisions and final settlements, and charges incurred, if any, for monies that may be required to be paid in advance of litigation in certain transactional tax proceedings, including as part of equity method investments;
(7) discontinued operations;
(8) the non-controlling interest impact of the aforementioned adjustment items; and
(9) unrealized gains (losses) on revenue hedging activities that are included in other, net.
We believe Adjusted Net Income (Loss) is useful to investors because it represents Expedia Group’s combined results, taking into account depreciation, which management believes is an ongoing cost of doing business, but excluding the impact of certain expenses and items not directly tied to the core operations of our businesses.

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Adjusted EPS is defined as Adjusted Net Income (Loss) divided by adjusted weighted average shares outstanding, which include dilution from options per the treasury stock method and include all shares relating to RSUs in shares outstanding for Adjusted EPS. This differs from the GAAP method for including RSUs, which treats them on a treasury method basis. Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes. We believe Adjusted EPS is useful to investors because it represents, on a per share basis, Expedia Group’s consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other items which are not allocated to the operating businesses such as interest expense, taxes, foreign exchange gains or losses, and minority interest, but excluding the effects of certain expenses not directly tied to the core operations of our businesses. Adjusted Net Income (Loss) and Adjusted EPS have similar limitations as Adjusted EBITDA. In addition, Adjusted Net Income (Loss) does not include all items that affect our net income (loss) and net income (loss) per share for the period. Therefore, we think it is important to evaluate these measures along with our consolidated statements of operations.
Free Cash Flow is defined as net cash flow provided by operating activities less capital expenditures. Management believes Free Cash Flow is useful to investors because it represents the operating cash flow that our operating businesses generate, less capital expenditures but before taking into account other cash movements that are not directly tied to the core operations of our businesses, such as financing activities, foreign exchange or certain investing activities. We added additional detail for the capital expenditures associated with building our new headquarters facility in Seattle, Washington. We believe separating out capital expenditures for this discrete project is important to provide additional transparency to investors related to operating versus project-related capital expenditures. Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures. Therefore, it is important to evaluate Free Cash Flow along with the consolidated statements of cash flows.
Adjusted Expenses (cost of revenue, selling and marketing, technology and content and general and administrative expenses) exclude stock-based compensation related to expenses for stock options, restricted stock units and other equity compensation under applicable stock-based compensation accounting standards as well as depreciation expense. Expedia Group excludes stock-based compensation and depreciation expenses from these measures primarily because they are non-cash expenses that we do not believe are necessarily reflective of our ongoing cash operating expenses and cash operating income. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting applicable stock-based compensation accounting standards, management believes that providing non-GAAP financial measures that exclude stock-based compensation allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies, as well as providing management with an important tool for financial operational decision making and for evaluating our own recurring core business operating results over different periods of time. Exclusion of depreciation expense also allows the year-over-year comparison of expenses on a basis that is consistent with the year-over-year comparison of Adjusted EBITDA. There are certain limitations in using financial measures that do not take into account stock-based compensation and depreciation expense, including the fact that stock-based compensation is a recurring expense and a valued part of employees’ compensation and depreciation expense is also a recurring expense and is a direct result of previous capital investment decisions made by management. Therefore it is important to evaluate both our GAAP and non-GAAP measures. See the Notes to the Consolidated Statements of Operations for stock-based compensation and depreciation expense by line item.
Expedia Group, Inc. (excluding trivago) In order to provide increased transparency on the transaction-based component of the business, Expedia Group is reporting results both in total and excluding trivago.

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Tabular Reconciliations for Non-GAAP Measures
Adjusted EBITDA (Adjusted Earnings Before Interest, Taxes, Depreciation & Amortization) by Segment
 
Three months ended June 30, 2018
 
Core OTA
 
trivago
 
HomeAway
 
Egencia
 
Corporate &
Eliminations
 
Total
 
(In millions)
Operating income (loss)
$
477

 
$
(24
)
 
$
63

 
$
18

 
$
(423
)
 
$
111

Realized gain (loss) on revenue hedges
(1
)
 

 

 

 

 
(1
)
Legal reserves, occupancy tax and other

 

 

 

 
1

 
1

Stock-based compensation

 

 

 

 
50

 
50

Impairment of goodwill

 

 

 

 
61

 
61

Amortization of intangible assets

 

 

 

 
72

 
72

Depreciation
85

 
4

 
15

 
12

 
53

 
169

Adjusted EBITDA
$
561

 
$
(20
)
 
$
78

 
$
30

 
$
(186
)
 
$
463

 
Three months ended June 30, 2017
 
Core OTA
 
trivago
 
HomeAway
 
Egencia
 
Corporate &
Eliminations
 
Total
 
(In millions)
Operating income (loss)
$
401

 
$

 
$
30

 
$
18

 
$
(346
)
 
$
103

Realized gain (loss) on revenue hedges
9

 

 

 

 

 
9

Restructuring and related organization charges

 

 

 

 
10

 
10

Legal reserves, occupancy tax and other

 

 

 

 
3

 
3

Stock-based compensation

 

 

 

 
50

 
50

Amortization of intangible assets

 

 

 

 
66

 
66

Depreciation
76

 
2

 
9

 
10

 
55

 
152

Adjusted EBITDA
$
486

 
$
2

 
$
39

 
$
28

 
$
(162
)
 
$
393

Operating Income (Loss) excluding trivago
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(In millions)
Operating income (loss)
 
$
111

 
$
103

 
$
(54
)
 
$
30

Less: trivago operating income (loss)(1)
 
(31
)
 
(5
)
 
(67
)
 
8

Operating income excluding trivago
 
$
142

 
$
108

 
$
13

 
$
22

(1) Included within trivago's standalone operating income (loss) is trivago's stock-based compensation and intangible amortization, both of which are excluded from our segment performance measure, Adjusted EBITDA, and allocated to Corporate & Eliminations in the Adjusted EBITDA by Segment table above. For the three months ended June 30, 2018 and 2017, trivago's standalone stock-based compensation was $6 million and $5 million. For the three months ended June 30, 2018 and 2017, trivago's standalone intangible amortization was $1 million and $0 million.


Page 17 of 21



Adjusted EBITDA
 
 
 
Three months ended June 30,