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Groupon(GRPN) - 2023 Q1 - Earnings Call Transcript
2023-05-11 00:33
Financial Data and Key Metrics Changes - In Q1 2023, Groupon reported global billings of $396 million, a decrease of 14% year-over-year, and revenues of $122 million, down 21% year-over-year [17][24] - Adjusted EBITDA was negative $5 million, with a free cash outflow of $86 million [17][24] - The company ended the quarter with $164 million in cash, including $48 million drawn on its revolving credit facility [26] Business Line Data and Key Metrics Changes - Local category consolidated billings were $316 million, down 8% year-over-year, with North America local billings at $222 million, down 11% year-over-year [24][25] - Goods billings were $46 million, down 35%, and travel billings were $35 million, down 11% [25] Market Data and Key Metrics Changes - North America had 9 million active local customers, down 2% sequentially and 19% year-over-year [24] - International local billings were $94 million, flat compared to the prior year, with 5 million active local customers, flat sequentially and up 2% year-over-year [24] Company Strategy and Development Direction - The company is focusing on a transformation strategy built on eight strategic pillars, including fixing the supply side of the marketplace and improving product experience [9][10] - Groupon aims to enhance its marketing engine towards lower funnel performance channels and create a high-performance team focused on operational excellence [13][14] - The company plans to leverage its other categories to support local experiences and improve financial flexibility through restructuring and cost-saving measures [16][17] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced in turning the business around and emphasized the need for a focused transformation [8][18] - The outlook for 2023 indicates expected revenue declines in Q2 similar to Q1, with slight improvements anticipated in the rate of declines in subsequent quarters [18][29] - Management expects to see an increase in year-over-year local billings by early 2024 as the transformation strategy takes hold [19][29] Other Important Information - The company incurred $9 million in one-time pretax charges related to its restructuring plan during Q1 2023 [26] - Groupon is on track to reduce its non-GAAP SG&A run rate to approximately $290 million beyond 2023 [28] Q&A Session Summary Question: Insights on North America and international local billings in March and Q2 - Management reported Q1 local billings in North America at $222 million, down 14% quarter-over-quarter and 11% year-over-year [32] Question: Potential monetization of the SumUp stake - Management indicated that monetization of noncore assets, including the SumUp stake, is possible if a sufficient bid arises [32] Question: Details on improving product experience and marketing engine - Management highlighted initiatives like the Hackathon Project to enhance user experience and the use of generative AI for better deal quality [34][35] - The marketing engine is being adjusted to focus more on geo-targeted performance marketing [36]
Groupon(GRPN) - 2023 Q1 - Quarterly Report
2023-05-09 16:00
PART I. FINANCIAL INFORMATION [FORWARD-LOOKING STATEMENTS](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section cautions readers about forward-looking statements and the inherent risks that could cause actual results to differ from projections - The report contains forward-looking statements based on current expectations and projections, which involve risks and uncertainties that could cause actual results to differ materially[5](index=5&type=chunk) - Key risks include the ability to execute the go-forward strategy, volatility in operating results, challenges from international operations, global economic uncertainty, and the ability to retain merchants, customers, and key personnel[5](index=5&type=chunk) - The company operates in a highly competitive and rapidly changing environment, with new risks emerging over time, and does not undertake to update forward-looking statements[5](index=5&type=chunk) [ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents Groupon's unaudited condensed consolidated financial statements and detailed notes for the quarter ended March 31, 2023 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Metric (in thousands) | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Total Assets | $650,643 | $793,117 | | Total Liabilities | $675,121 | $784,259 | | Total Equity (Deficit)| $(24,478) | $8,858 | - Total assets decreased from **$793.1 million** at December 31, 2022, to **$650.6 million** at March 31, 2023[7](index=7&type=chunk) - Total equity shifted from a positive **$8.9 million** at December 31, 2022, to a deficit of **$(24.5) million** at March 31, 2023[8](index=8&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) Metric (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $121,611 | $153,320 | | Gross Profit | $104,711 | $134,001 | | Income (loss) from operations | $(30,565) | $(32,147) | | Net income (loss) | $(28,613) | $(34,352) | | Net income (loss) attributable to Groupon, Inc. | $(29,147) | $(34,852) | | Basic and diluted income (loss) per share | $(0.95) | $(1.17) | - Revenue decreased by **20.7%** from **$153.3 million** in Q1 2022 to **$121.6 million** in Q1 2023[12](index=12&type=chunk) - Net loss attributable to Groupon, Inc. improved from **$(34.9) million** in Q1 2022 to **$(29.1) million** in Q1 2023[12](index=12&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) Metric (in thousands) | Metric (in thousands) | Balance at Dec 31, 2022 | Balance at Mar 31, 2023 | | :-------------------- | :---------------------- | :---------------------- | | Total Groupon, Inc. Stockholders' Equity (Deficit) | $8,475 | $(24,758) | | Total Equity (Deficit)| $8,858 | $(24,478) | - Total Groupon, Inc. stockholders' equity (deficit) decreased from **$8.5 million** at December 31, 2022, to **$(24.8) million** at March 31, 2023, primarily due to comprehensive loss of **$(35.0) million**[16](index=16&type=chunk) - The company issued 33,803 shares under its employee stock purchase plan and recognized **$2.5 million** in stock-based compensation on equity-classified awards during Q1 2023[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(76,320) | $(78,164) | | Net cash used in investing activities | $(9,013) | $(13,916) | | Net cash used in financing activities | $(29,197) | $(2,964) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(114,678) | $(95,815) | | Cash, cash equivalents and restricted cash, end of period | $167,018 | $403,668 | - Net cash used in operating activities slightly decreased from **$(78.2) million** in Q1 2022 to **$(76.3) million** in Q1 2023[21](index=21&type=chunk) - Net cash used in financing activities significantly increased from **$(3.0) million** in Q1 2022 to **$(29.2) million** in Q1 2023, primarily due to payments of borrowings under the revolving credit agreement[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements (unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) [NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201.%20DESCRIPTION%20OF%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) Groupon operates a global marketplace and faces substantial doubt about its ability to continue as a going concern despite restructuring plans - Groupon operates a global two-sided marketplace connecting consumers to merchants, with operations organized into North America and International segments[25](index=25&type=chunk) - The company's continued cash outflows (**$76.3 million** in Q1 2023) and operating losses raise substantial doubt about its ability to continue as a going concern within the next twelve months[29](index=29&type=chunk)[183](index=183&type=chunk) - Management's plans to alleviate going concern doubt include the second phase of the 2022 Restructuring Plan, aiming for **$100.0 million** in annualized cost savings and approximately 1,000 global position reductions[30](index=30&type=chunk)[32](index=32&type=chunk)[184](index=184&type=chunk)[186](index=186&type=chunk) - Additional strategies to enhance liquidity include further cost savings, seeking additional financing (equity or debt), and monetizing certain assets[32](index=32&type=chunk)[186](index=186&type=chunk) [NOTE 2. GOODWILL AND LONG-LIVED ASSETS](index=10&type=section&id=NOTE%202.%20GOODWILL%20AND%20LONG-LIVED%20ASSETS) Goodwill remains at $178.7 million, while net intangible assets decreased to $16.2 million with $5.6 million in future amortization for 2023 - Goodwill balance was **$178.7 million** as of March 31, 2023, with no activity during Q1 2023, and is entirely within the North America segment[38](index=38&type=chunk) Intangible Asset (in thousands) | Intangible Asset (in thousands) | Net Carrying Value (March 31, 2023) | Net Carrying Value (December 31, 2022) | | :------------------------------ | :---------------------------------- | :------------------------------------- | | Merchant relationships | $2,879 | $3,585 | | Trade names | $906 | $958 | | Patents | $6,567 | $6,640 | | Other intangible assets | $5,885 | $6,458 | | Total | $16,237 | $17,641 | Estimated Future Amortization Expense (in thousands) | Estimated Future Amortization Expense (in thousands) | | :----------------------------------- | | Remaining amounts in 2023: $5,587 | | 2024: $4,226 | | 2025: $2,733 | | 2026: $1,867 | | 2027: $1,191 | | Thereafter: $633 | | Total: $16,237 | [NOTE 3. INVESTMENTS](index=11&type=section&id=NOTE%203.%20INVESTMENTS) The carrying value of other equity investments remained unchanged at $119.5 million as of March 31, 2023 - The carrying value of other equity investments was **$119.5 million** as of March 31, 2023, with no changes in fair value during the quarter[42](index=42&type=chunk) - Groupon's percentage ownership in other equity investments, available-for-sale securities, and fair value option investments ranges from **1% to 19%**[43](index=43&type=chunk) [NOTE 4. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION](index=12&type=section&id=NOTE%204.%20SUPPLEMENTAL%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS%20AND%20STATEMENTS%20OF%20OPERATIONS%20INFORMATION) This note details supplemental balance sheet and income statement items, highlighting changes in interest income and accrued expenses Metric (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Interest income | $4,471 | $1,315 | | Interest expense | $(5,621) | $(2,883) | | Foreign currency gains (losses), net and other | $4,220 | $(3,312) | | Other income (expense), net | $3,070 | $(4,880) | Balance Sheet Item (in thousands) | Balance Sheet Item (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Prepaid expenses and other current assets | $40,717 | $41,101 | | Other non-current assets | $23,157 | $27,491 | | Accrued expenses and other current liabilities | $153,678 | $171,452 | | Other non-current liabilities | $17,482 | $18,586 | - Accrued marketing decreased from **$19.6 million** at December 31, 2022, to **$11.4 million** at March 31, 2023[50](index=50&type=chunk) - Operating lease obligations within current liabilities decreased from **$37.5 million** to **$22.5 million**[50](index=50&type=chunk) [NOTE 5. FINANCING ARRANGEMENTS](index=13&type=section&id=NOTE%205.%20FINANCING%20ARRANGEMENTS) The company has $230.0 million in convertible notes and amended its credit agreement, reducing borrowing capacity to $75.0 million - The 2026 Convertible Senior Notes have a principal amount of **$230.0 million**, bearing interest at **1.125%** per annum, maturing on March 15, 2026[54](index=54&type=chunk)[55](index=55&type=chunk) - The estimated fair value of the 2026 Notes was **$94.0 million** as of March 31, 2023, determined using a Level 3 lattice model[55](index=55&type=chunk) - In March 2023, the revolving credit agreement was amended, reducing borrowing capacity from **$150.0 million** to **$75.0 million** and modifying financial covenants[58](index=58&type=chunk) Metric (in thousands) | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Borrowings | $47,700 | $75,000 | | Letters of credit | $24,809 | $24,900 | [NOTE 6. COMMITMENTS AND CONTINGENCIES](index=15&type=section&id=NOTE%206.%20COMMITMENTS%20AND%20CONTINGENCIES) Groupon is involved in various legal proceedings and settled derivative lawsuits in February 2023, with remaining indemnification liabilities of $2.8 million - Groupon is party to various legal proceedings, including shareholder derivative lawsuits, intellectual property infringement claims, and consumer class actions[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) - A Stipulation of Settlement for four derivative lawsuits was executed in February 2023, requiring Groupon to undertake certain corporate reforms, with attorneys' fees covered by D&O insurance[63](index=63&type=chunk) - Remaining indemnification liabilities were **$2.8 million** as of March 31, 2023, with reasonably possible losses in excess of accrued amounts estimated at approximately **$11.7 million**[70](index=70&type=chunk) [NOTE 7. STOCKHOLDERS' EQUITY (DEFICIT) AND COMPENSATION ARRANGEMENTS](index=17&type=section&id=NOTE%207.%20STOCKHOLDERS'%20EQUITY%20(DEFICIT)%20AND%20COMPENSATION%20ARRANGEMENTS) The company has 464,968 shares available for issuance, $22.6 million in unrecognized RSU costs, and granted 3.5 million stock options in March 2023 - As of March 31, 2023, **464,968 shares** of common stock were available for future issuance under the 2011 Incentive Plan[74](index=74&type=chunk) - Unrecognized compensation costs related to unvested restricted stock units totaled **$22.6 million**, expected to be recognized over a weighted-average period of 0.91 years[76](index=76&type=chunk) - On March 30, 2023, Groupon issued **3.5 million stock options** with a per share value of $0.95, a strike price of $6.00, and a two-year vesting period[77](index=77&type=chunk) [NOTE 8. REVENUE RECOGNITION](index=18&type=section&id=NOTE%208.%20REVENUE%20RECOGNITION) This note details revenue recognition policies, customer credit activity, deferred costs, and the allowance for expected credit losses Customer Credits Activity (in thousands) | Customer Credits Activity (in thousands) | Amount | | :------------------------------------- | :----- | | Balance as of December 31, 2022 | $36,220| | Credits issued | $26,921| | Credits redeemed | $(25,856)| | Breakage revenue recognized | $(2,995)| | Foreign currency translation | $80 | | Balance as of March 31, 2023 | $34,370| - Deferred contract acquisition costs were **$5.3 million** as of March 31, 2023, with **$2.3 million** amortized in Q1 2023[86](index=86&type=chunk) - The allowance for expected credit losses on accounts receivable was **$3.8 million** as of March 31, 2023, a decrease from **$4.5 million** at December 31, 2022[89](index=89&type=chunk) [NOTE 9. RESTRUCTURING AND RELATED CHARGES](index=19&type=section&id=NOTE%209.%20RESTRUCTURING%20AND%20RELATED%20CHARGES) The 2022 Restructuring Plan targets $100.0 million in annualized savings through workforce reductions, incurring $18.6 million in charges to date - The 2022 Restructuring Plan, including its second phase initiated in January 2023, is expected to result in approximately **$100.0 million** in annualized cost savings and an overall reduction of about 1,000 global positions[30](index=30&type=chunk)[92](index=92&type=chunk)[124](index=124&type=chunk)[184](index=184&type=chunk) - Total pre-tax charges of **$18.6 million** have been incurred since the inception of the 2022 Restructuring Plan, with **$8.9 million** incurred in Q1 2023[92](index=92&type=chunk)[94](index=94&type=chunk)[124](index=124&type=chunk) - The 2020 Restructuring Plan has incurred total pre-tax charges of **$109.2 million** since its inception, with actions substantially completed by December 31, 2021[94](index=94&type=chunk) - In January 2023, Groupon exercised an option to early terminate its lease at 600 West Chicago, incurring a **$9.6 million** penalty[99](index=99&type=chunk) [NOTE 10. INCOME TAXES](index=21&type=section&id=NOTE%2010.%20INCOME%20TAXES) The effective tax rate was impacted by pretax losses in jurisdictions with valuation allowances, and the company faces a proposed $115.3 million tax assessment Metric (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Provision (benefit) for income taxes | $1,118 | $(2,675) | | Income (loss) before provision (benefit) for income taxes | $(27,495) | $(37,027) | - The effective tax rate for Q1 2023 was impacted by pretax losses in jurisdictions with valuation allowances against net deferred tax assets; a full valuation allowance is maintained against all U.S. federal and state deferred tax assets[102](index=102&type=chunk)[164](index=164&type=chunk) - Groupon is subject to a proposed tax assessment of **$115.3 million**, including estimated interest, primarily related to transfer pricing in 2011, which it intends to vigorously defend[103](index=103&type=chunk)[104](index=104&type=chunk) [NOTE 11. FAIR VALUE MEASUREMENTS](index=22&type=section&id=NOTE%2011.%20FAIR%20VALUE%20MEASUREMENTS) Fair value measurements for certain investments are classified as Level 3, with no material activity or significant nonrecurring measurements in Q1 2023 - Fair value option investments and available-for-sale securities are measured using the income approach and classified as **Level 3** due to the lack of observable market data[106](index=106&type=chunk) - There was no material activity in recurring Level 3 fair value measurements or significant nonrecurring fair value measurements for the three months ended March 31, 2023[106](index=106&type=chunk)[108](index=108&type=chunk) - The carrying values of financial instruments not carried at fair value (e.g., accounts receivable, short-term borrowings) approximate their fair values due to their short-term nature[108](index=108&type=chunk) [NOTE 12. INCOME (LOSS) PER SHARE](index=23&type=section&id=NOTE%2012.%20INCOME%20(LOSS)%20PER%20SHARE) Groupon reported a net loss per share of $(0.95) for Q1 2023, an improvement from $(1.17) in Q1 2022 Metric (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income (loss) attributable to common stockholders | $(29,147) | $(34,852) | | Weighted-average common shares outstanding | 30,676,145 | 29,862,879 | | Basic and diluted net income (loss) per share | $(0.95) | $(1.17) | - Potentially dilutive securities, including restricted stock units, other stock-based compensation awards, convertible senior notes, and capped call transactions, totaled **9.2 million** for Q1 2023[112](index=112&type=chunk) [NOTE 13. SEGMENT INFORMATION](index=25&type=section&id=NOTE%2013.%20SEGMENT%20INFORMATION) Both North America and International segments experienced declines in revenue and contribution profit in Q1 2023 compared to the prior year - Groupon operates in two segments: North America and International, with segment profitability assessed by contribution profit (gross profit less marketing expense)[114](index=114&type=chunk) Segment Revenue (in thousands) | Segment Revenue (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | North America | $89,259 | $110,164 | | International | $32,352 | $43,156 | | Total Consolidated Revenue | $121,611 | $153,320 | Segment Contribution Profit (in thousands) | Segment Contribution Profit (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | North America | $60,639 | $66,256 | | International | $19,224 | $28,329 | | Total Consolidated Contribution Profit | $79,863 | $94,585 | - North America's total assets were **$527.0 million** and International's were **$123.7 million** as of March 31, 2023[119](index=119&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=27&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management provides its perspective on financial condition, results of operations, key performance metrics, and segment performance [Overview](index=27&type=section&id=Overview) - Groupon's strategy is to be the trusted marketplace for local services and experiences, focusing on building merchant relationships, enhancing inventory selection, and improving customer experience to drive demand[122](index=122&type=chunk) - Revenue is primarily generated from net commissions earned by selling goods or services on behalf of third-party merchants[123](index=123&type=chunk) - The 2022 Cost Savings Plan aims to reduce the expense structure by **$250.0 million** through restructuring and other actions, including a reduction of approximately 1,000 global positions[124](index=124&type=chunk) [How We Measure Our Business](index=28&type=section&id=How%20We%20Measure%20Our%20Business) Operating Metric (in thousands) | Operating Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Gross billings | $396,425 | $460,684 | | Units | 10,459 | 12,666 | | TTM Active Customers | 18,225 | 22,159 | Financial Metric (in thousands) | Financial Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $121,611 | $153,320 | | Gross profit | $104,711 | $134,001 | | Adjusted EBITDA | $(4,903) | $(6,960) | | Free cash flow | $(85,864) | $(91,165) | - Key operating metrics include Gross billings (total dollar value of customer purchases), Units (number of purchases), and Active customers (unique users making a purchase in the trailing twelve months)[127](index=127&type=chunk) - Key financial metrics include Revenue, Gross profit, Adjusted EBITDA (non-GAAP), and Free cash flow (non-GAAP)[130](index=130&type=chunk) [Factors Affecting Our Performance](index=30&type=section&id=Factors%20Affecting%20Our%20Performance) - Performance is affected by the ability to attract and retain local merchants, re-engage and retain customers to drive purchase frequency, and the impact of macroeconomic conditions such as inflation and labor shortages[136](index=136&type=chunk)[137](index=137&type=chunk) - The company is focused on improving its marketplace offering and merchant value proposition, and differentiating inventory to strengthen the core marketplace[136](index=136&type=chunk)[137](index=137&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) [North America](index=31&type=section&id=North%20America) The North America segment saw declines in key metrics due to decreased demand, with revenue falling 19.0% and contribution profit down 8.5% North America Operating Metrics (in thousands) | North America Operating Metrics (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Total gross billings | $266,154 | $309,912 | (14.1)% | | Total units | 6,161 | 7,754 | (20.5)% | | TTM Active customers | 10,928 | 13,991 | (21.9)% | North America Financial Metrics (in thousands) | North America Financial Metrics (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Total revenue | $89,259 | $110,164 | (19.0)% | | Total cost of revenue | $13,317 | $15,917 | (16.3)% | | Total gross profit | $75,942 | $94,247 | (19.4)% | | Marketing | $15,303 | $27,991 | (45.3)% | | Contribution profit | $60,639 | $66,256 | (8.5)% | - The declines in North America were primarily due to decreased demand in Goods and Local categories and an overall decline in platform engagement[141](index=141&type=chunk)[144](index=144&type=chunk) [International](index=33&type=section&id=International) The International segment experienced declines due to lower demand and unfavorable currency rates, with revenue down 25.0% and contribution profit down 32.1% International Operating Metrics (in thousands) | International Operating Metrics (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Total gross billings | $130,271 | $150,772 | (13.6)% | | Total units | 4,298 | 4,912 | (12.5)% | | TTM Active customers | 7,297 | 8,168 | (10.7)% | International Financial Metrics (in thousands) | International Financial Metrics (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Total revenue | $32,352 | $43,156 | (25.0)% | | Total cost of revenue | $3,583 | $3,402 | 5.3% | | Total gross profit | $28,769 | $39,754 | (27.6)% | | Marketing | $9,545 | $11,425 | (16.5)% | | Contribution profit | $19,224 | $28,329 | (32.1)% | - International gross billings were unfavorably impacted by **$7.6 million** from foreign currency exchange rates[150](index=150&type=chunk) - International revenue and gross profit were unfavorably impacted by **$1.9 million** and **$1.8 million**, respectively, from foreign currency exchange rates[153](index=153&type=chunk) [Consolidated Operating Expenses](index=35&type=section&id=Consolidated%20Operating%20Expenses) Consolidated operating expenses decreased 18.6%, driven by lower marketing and SG&A costs, while restructuring charges increased significantly Consolidated Operating Expenses (in thousands) | Consolidated Operating Expenses (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Marketing | $24,848 | $39,416 | (37.0)% | | Selling, general and administrative | $101,634 | $126,420 | (19.6)% | | Restructuring and related charges | $8,794 | $312 | NM | | Total operating expenses | $135,276 | $166,148 | (18.6)% | - Marketing expense decreased due to traffic declines and lower investment in online marketing spend[158](index=158&type=chunk) - SG&A decreased primarily due to lower payroll costs, but increased as a percentage of gross profit (**97.1%** in Q1 2023 vs. **94.3%** in Q1 2022) due to a decrease in gross profit[158](index=158&type=chunk)[159](index=159&type=chunk) - Restructuring and related charges increased significantly due to severance and benefit costs from the 2022 Restructuring Plan[159](index=159&type=chunk) [Consolidated Other Income (Expense), Net](index=35&type=section&id=Consolidated%20Other%20Income%20(Expense),%20Net) Other income improved to $3.1 million from a loss of $(4.9) million, primarily due to favorable foreign currency changes Metric (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Other income (expense), net | $3,070 | $(4,880) | - The change in other income (expense), net, was primarily related to a **$7.5 million** change in foreign currency gains and losses[160](index=160&type=chunk) [Consolidated Provision (Benefit) for Income Taxes](index=35&type=section&id=Consolidated%20Provision%20(Benefit)%20for%20Income%20Taxes) The company reported a $1.1 million tax provision in Q1 2023, a shift from a $(2.7) million benefit in Q1 2022, due to valuation allowances Metric (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :------- | | Provision (benefit) for income taxes | $1,118 | $(2,675) | (141.8)% | | Effective tax rate | (4.1)% | 7.2% | | - The effective tax rates were impacted by pretax losses in jurisdictions with valuation allowances against net deferred tax assets, with a full valuation allowance maintained against all U.S. federal and state deferred tax assets[164](index=164&type=chunk) [Non-GAAP Financial Measures](index=37&type=section&id=Non-GAAP%20Financial%20Measures) - Non-GAAP financial measures, including Adjusted EBITDA, free cash flow, and foreign currency exchange rate neutral operating results, are provided to help investors understand current financial performance and prospects[166](index=166&type=chunk) - Adjusted EBITDA is defined as Net income (loss) from operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, and other special charges and credits[167](index=167&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Adjusted EBITDA Reconciliation (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(28,613) | $(34,352) | | Total adjustments | $23,710 | $27,392 | | Adjusted EBITDA | $(4,903) | $(6,960) | - Foreign currency exchange rate neutral operating results show current period results as if exchange rates remained constant from the prior year, indicating a **$7.7 million** unfavorable impact on gross billings and **$1.9 million** on revenue in Q1 2023[172](index=172&type=chunk)[173](index=173&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) - Groupon's principal source of liquidity is its cash balance, which was **$163.8 million** as of March 31, 2023[174](index=174&type=chunk) Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $(76,320) | $(78,164) | | Investing activities | $(9,013) | $(13,916) | | Financing activities | $(29,197) | $(2,964) | Free Cash Flow Reconciliation (in thousands) | Free Cash Flow Reconciliation (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $(76,320) | $(78,164) | | Purchases of property and equipment and capitalized software | $(9,544) | $(13,001) | | Free cash flow | $(85,864) | $(91,165) | - Continued cash outflows and operating losses raise substantial doubt about the company's ability to continue as a going concern, despite management's plans for cost savings and liquidity enhancement[183](index=183&type=chunk)[186](index=186&type=chunk) - As of March 31, 2023, **$51.5 million** in cash was held by international subsidiaries, primarily in Euros, British Pounds Sterling, Canadian dollars, and Australian dollars, with no anticipated need to repatriate funds for domestic liquidity[187](index=187&type=chunk) [Contractual Obligations and Commitments](index=41&type=section&id=Contractual%20Obligations%20and%20Commitments) - Contractual obligations and commitments as of March 31, 2023, did not materially change from the amounts reported in the 2022 Annual Report on Form 10-K[189](index=189&type=chunk) [Off-Balance Sheet Arrangements](index=41&type=section&id=Off-Balance%20Sheet%20Arrangements) - Groupon did not have any off-balance sheet arrangements as of March 31, 2023[189](index=189&type=chunk) [Significant Accounting Policies and Critical Accounting Estimates](index=41&type=section&id=Significant%20Accounting%20Policies%20and%20Critical%20Accounting%20Estimates) - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, with actual results potentially differing materially from these estimates[189](index=189&type=chunk) - Significant accounting policies and critical accounting estimates are discussed in the Annual Report on Form 10-K for the year ended December 31, 2022[190](index=190&type=chunk) [Recently Issued Accounting Standards](index=42&type=section&id=Recently%20Issued%20Accounting%20Standards) - There are no recently issued accounting standards that are expected to have a material impact on Groupon's Condensed Consolidated Financial Statements[192](index=192&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=43&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Groupon is exposed to market risks from foreign currency fluctuations, interest rate changes, and inflation [Foreign Currency Exchange Risk](index=43&type=section&id=Foreign%20Currency%20Exchange%20Risk) - Groupon is exposed to foreign currency risk from transacting in various foreign currencies, with **26.6%** of Q1 2023 revenue derived from its International segment[195](index=195&type=chunk) - A hypothetical **10%** adverse change in foreign currency exchange rates would increase the net working capital deficit by **$9.2 million** as of March 31, 2023[197](index=197&type=chunk) [Interest Rate Risk](index=43&type=section&id=Interest%20Rate%20Risk) - The 2026 Notes bear a fixed interest rate, limiting direct financial statement impact from interest rate changes, though fair value is affected by market rates[198](index=198&type=chunk) - Borrowings under the Existing Credit Agreement bear a variable interest rate, exposing the company to market risk from interest rate changes[198](index=198&type=chunk) [Inflation Risk](index=43&type=section&id=Inflation%20Risk) - Inflationary pressures affect merchant and customer discretionary spending, and could negatively impact operating costs if not offset by price increases or efficiency measures[199](index=199&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=44&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls were not effective as of March 31, 2023, due to material weaknesses, with remediation efforts ongoing [Evaluation of Disclosure Controls and Procedures](index=44&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management concluded that disclosure controls and procedures were **not effective** as of March 31, 2023, due to previously reported material weaknesses in internal control over financial reporting[201](index=201&type=chunk) - Despite the material weakness, the Condensed Consolidated Financial Statements fairly present the financial position, results of operations, and cash flows in accordance with U.S. GAAP[202](index=202&type=chunk) [Remediation Plan and Status](index=44&type=section&id=Remediation%20Plan%20and%20Status) - The material weakness in internal control over financial reporting has **not yet been fully remediated** as of March 31, 2023[203](index=203&type=chunk) - Management has designed and implemented control activities related to complex manual calculations and will continue efforts towards full remediation[203](index=203&type=chunk) [Changes in Internal Control over Financial Reporting](index=44&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There were no changes in internal control over financial reporting during Q1 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[204](index=204&type=chunk) [Limitations on Effectiveness of Controls and Procedures](index=44&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) - Management acknowledges that any controls and procedures can only provide reasonable assurance of achieving desired control objectives, subject to resource constraints and judgment[205](index=205&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=45&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section refers to Note 6 for a description of material pending legal proceedings, including shareholder and consumer claims - For a description of material pending legal proceedings, refer to Item 1, Note 6, Commitments and Contingencies, in Part I of this report[207](index=207&type=chunk) [ITEM 1A. RISK FACTORS](index=46&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section highlights the significant risk posed by the loss of key executives and challenges in retaining qualified personnel - There have been no material changes to risk factors previously disclosed in the 2022 Annual Report on Form 10-K, except as supplemented and updated regarding the loss of key executives and employees[209](index=209&type=chunk) - The company faces **significant risk** from the loss of key executives and employees, and challenges in attracting and retaining qualified personnel, exacerbated by recent leadership changes and workforce reductions[210](index=210&type=chunk)[211](index=211&type=chunk) - Executive leadership transitions, workforce reductions, and significant employee turnover can cause instability, disrupt operations, impede strategy implementation, and lead to loss of institutional knowledge[210](index=210&type=chunk)[211](index=211&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=47&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Groupon repurchased 140,819 shares in Q1 2023 to satisfy tax withholding obligations and issued no unregistered equity securities - No unregistered equity securities were issued during the three months ended March 31, 2023[213](index=213&type=chunk) Date | Date | Shares Purchased | Per Share | | :---------------- | :--------------- | :-------- | | January 1-31, 2023| 48,767 | $8.24 | | February 1-28, 2023| 49,387 | $7.51 | | March 1-31, 2023 | 42,665 | $6.05 | | Total | 140,819 | $7.32 | - Shares were purchased to satisfy mandatory tax withholding requirements upon vesting of stock-based compensation awards[215](index=215&type=chunk) [ITEM 5. OTHER INFORMATION](index=47&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section states that there is no other information to report for the period - No other information is reported in this section[216](index=216&type=chunk) [ITEM 6. EXHIBITS](index=48&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the report, including employment agreements, certifications, and XBRL-related documents - The exhibits include various employment agreements, severance benefit agreements, and certifications, such as those for the Interim Chief Executive Officer and Chief Financial Officer[217](index=217&type=chunk) - XBRL Instance Document and Taxonomy Extension documents are also listed as exhibits[217](index=217&type=chunk)
Groupon(GRPN) - 2022 Q4 - Earnings Call Transcript
2023-03-16 23:55
Groupon, Inc. (NASDAQ:GRPN) Q4 2022 Results Conference Call March 16, 2023 5:00 PM ET Company Participants Jennifer Beugelmans - Chief Communications Officer Kedar Deshpande - Chief Executive Officer Damien Schmitz - Chief Financial Officer Conference Call Participants Eric Sheridan - Goldman Sachs Alex Hughes - Barclays Operator Good day, everyone, and welcome to Groupon's Fourth Quarter 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer se ...
Groupon(GRPN) - 2022 Q4 - Annual Report
2023-03-15 16:00
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number: 1-35335 Groupon, Inc. (Exact name of registrant as specified in its charter) | --- | --- | |--------------------------------------- ...
Groupon(GRPN) - 2022 Q3 - Earnings Call Transcript
2022-11-08 01:41
Groupon, Inc. (NASDAQ:GRPN) Q3 2022 Results Conference Call November 7, 2022 5:00 PM ET Company Participants Jennifer Beugelmans - Chief Communications Officer Kedar Deshpande - CEO & Director Damien Schmitz - Interim CFO Conference Call Participants Trevor Young - Barclays Eric Sheridan - Goldman Sachs Operator Good day, everyone, and welcome to Groupon's Third Quarter 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow t ...
Groupon(GRPN) - 2022 Q3 - Quarterly Report
2022-11-06 16:00
Part I. Financial Information [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) The report contains forward-looking statements based on current expectations, cautioning that actual results may differ due to various risks - The report contains forward-looking statements regarding future results, business strategy, and operations subject to numerous risks[4](index=4&type=chunk) - Key risks include the **COVID-19 pandemic**, global economic uncertainty, competition, and cybersecurity breaches[4](index=4&type=chunk) [Item 1. Financial Statements and Supplementary Data](index=4&type=section&id=Item%201.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents unaudited condensed consolidated financial statements for the period ended September 30, 2022 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and equity declined as of September 30, 2022, driven by a reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Data (in thousands) | Account | Sep 30, 2022 (unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $307,998 | $498,726 | | Total current assets | $403,250 | $588,051 | | Goodwill | $178,685 | $216,393 | | **Total assets** | **$888,971** | **$1,157,881** | | **Liabilities & Equity** | | | | Total current liabilities | $522,130 | $630,987 | | **Total liabilities** | **$791,857** | **$947,585** | | **Total equity** | **$97,114** | **$210,296** | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) The company reported a significant net loss in Q3 2022 compared to a net income in Q3 2021 due to lower revenue Q3 2022 vs Q3 2021 Performance (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Total Revenue | $144,390 | $214,171 | | Gross Profit | $125,722 | $181,439 | | Income (loss) from operations | $(36,330) | $(3,697) | | Net income (loss) attributable to Groupon, Inc. | $(56,223) | $78,107 | | Diluted EPS | $(1.86) | $2.36 | Nine Months Ended Sep 30, 2022 vs 2021 Performance (in thousands, except per share data) | Metric | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | | Total Revenue | $450,926 | $743,946 | | Gross Profit | $393,695 | $542,365 | | Income (loss) from operations | $(134,989) | $(6,936) | | Net income (loss) attributable to Groupon, Inc. | $(182,302) | $89,283 | | Diluted EPS | $(6.06) | $2.80 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity decreased significantly by September 30, 2022, primarily due to the net loss for the period - Total Groupon, Inc. stockholders' equity **decreased from $209.9 million to $96.8 million** between year-end 2021 and Q3 2022[16](index=16&type=chunk) - The accumulated deficit **increased to $(1,339.2) million** by the end of Q3 2022, reflecting net losses incurred[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities remained high, contributing to a $190.7 million decrease in cash and cash equivalents Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(151,850) | $(154,946) | | Net cash used in investing activities | $(32,572) | $(33,497) | | Net cash provided by (used in) financing activities | $2,508 | $(180,468) | | **Net decrease in cash** | **$(191,154)** | **$(373,805)** | [Notes to Condensed Consolidated Financial Statements (unaudited)](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Key disclosures include a goodwill impairment in the International segment, restructuring plans, and financing details - The company operates a two-sided marketplace organized into **North America and International segments**[29](index=29&type=chunk) - The company recognized a **$35.4 million goodwill impairment** and an **$8.8 million long-lived asset impairment** in its International segment[41](index=41&type=chunk)[43](index=43&type=chunk)[45](index=45&type=chunk) - A new restructuring plan initiated in August 2022 targets a reduction of approximately **500 positions**[115](index=115&type=chunk) - The 2020 Restructuring Plan was substantially completed by year-end 2021, incurring total pretax charges of **$108.7 million**[121](index=121&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses declining operating metrics, segment performance, a new cost savings plan, and negative Adjusted EBITDA [Overview and Key Metrics](index=34&type=section&id=Overview%20and%20Key%20Metrics) Key metrics like gross billings and active customers declined, prompting a cost savings plan targeting $150 million in savings - A multi-phase cost savings plan initiated in August 2022 is estimated to result in approximately **$150 million in run-rate cost savings**[163](index=163&type=chunk) Key Operating Metrics | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Gross Billings (in thousands) | $433,856 | $552,990 | | Units (in thousands) | 12,278 | 15,746 | | Active Customers (TTM, in thousands) | 20,184 | 24,006 | Key Financial Metrics (in thousands) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Revenue | $144,390 | $214,171 | | Gross Profit | $125,722 | $181,439 | | Adjusted EBITDA | $(8,596) | $34,607 | | Free Cash Flow | $(51,840) | $(87,581) | [Results of Operations by Segment](index=39&type=section&id=Results%20of%20Operations%20by%20Segment) Both North America and International segments experienced significant declines in gross billings and contribution profit - North America Q3 gross billings **decreased 22.6% YoY** to $298.4 million, and contribution profit **fell 25.5%**[181](index=181&type=chunk)[182](index=182&type=chunk)[191](index=191&type=chunk) - International Q3 gross billings **decreased 19.1% YoY** to $135.5 million, with contribution profit **falling 45.1%**[195](index=195&type=chunk)[199](index=199&type=chunk)[205](index=205&type=chunk) [Non-GAAP Financial Measures](index=47&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA, a key non-GAAP measure, turned negative to -$8.6 million in Q3 2022 from $34.6 million in Q3 2021 Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Net income (loss) | $(55,543) | $78,701 | | Stock-based compensation | $8,116 | $8,204 | | Depreciation and amortization | $14,706 | $17,617 | | Restructuring and related charges | $4,912 | $12,483 | | Other (income) expense, net | $23,541 | $(82,533) | | Provision (benefit) for income taxes | $(4,328) | $135 | | **Adjusted EBITDA** | **$(8,596)** | **$34,607** | [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity relies on its $308.0 million cash balance, with negative free cash flow for the period - As of September 30, 2022, the company had **$308.0 million in cash** and **$110.0 million of outstanding borrowings**[229](index=229&type=chunk)[250](index=250&type=chunk) Free Cash Flow Reconciliation (Nine Months Ended Sep 30, in thousands) | Line Item | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(151,850) | $(154,946) | | Purchases of property and equipment | $(30,495) | $(37,865) | | **Free cash flow** | **$(182,345)** | **$(192,811)** | - In September 2022, the company amended its credit agreement, **reducing borrowing capacity to $150.0 million**[237](index=237&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risks from foreign currency fluctuations, interest rate changes, and inflation - The company is exposed to foreign currency risk, as **25.3% of Q3 2022 revenue** was from the International segment[247](index=247&type=chunk) - Interest rate risk exists due to **$110.0 million in variable-rate borrowings** under its Amended Credit Agreement[250](index=250&type=chunk) - The current inflationary environment is **affecting discretionary spending** and could increase operating costs[252](index=252&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were **effective**[255](index=255&type=chunk) - There were **no material changes** in internal control over financial reporting during the quarter[256](index=256&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings) This section details material pending legal proceedings, including a settled securities fraud class action lawsuit - For details on legal proceedings, the report refers to **Note 6** in Part I, Item 1[259](index=259&type=chunk) - A securities fraud class action lawsuit was **settled for $13.5 million**, which is fully covered by insurance[88](index=88&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) This section highlights risks related to the company's access to capital and restrictive credit agreement covenants - A key supplemented risk factor relates to **limited access to capital** and restrictive covenants in the Amended Credit Agreement[261](index=261&type=chunk)[263](index=263&type=chunk) - **Failure to comply with covenants** could result in an event of default and acceleration of outstanding debt[263](index=263&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity securities were issued, and shares were repurchased to satisfy employee tax withholding obligations - **No unregistered equity securities were issued** during the three months ended September 30, 2022[265](index=265&type=chunk) - A total of **73,013 shares were repurchased** to cover tax obligations on vested restricted stock units[267](index=267&type=chunk) [Item 5. Other Information](index=58&type=section&id=Item%205.%20Other%20Information) This section discloses key management changes, including a new board member and the official appointment of the CFO - Effective November 7, 2022, **Jan Barta was appointed to the Board of Directors**[268](index=268&type=chunk) - Effective November 7, 2022, **Damien Schmitz was appointed as the company's Chief Financial Officer**[270](index=270&type=chunk) [Item 6. Exhibits](index=59&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including credit agreement amendments and officer certifications - Key exhibits filed include the **Third Amendment to the Credit Agreement** and certifications from the CEO and CFO[273](index=273&type=chunk)
Groupon(GRPN) - 2022 Q2 - Earnings Call Transcript
2022-08-09 17:26
Groupon, Inc. (NASDAQ:GRPN) Q2 2022 Earnings Conference Call August 9, 2022 10:00 AM ET Company Participants Jennifer Beugelmans - Chief Communications Officer Kedar Deshpande - CEO & Director Damien Schmitz - Interim CFO Conference Call Participants Trevor Young - Barclays Bank Eric Sheridan - Goldman Sachs Group Operator Good day, everyone, and welcome to Groupon's Second Quarter 2022 Financial Results Conference Call. [Operator Instructions]. Today's conference call is being recorded. For opening remarks ...
Groupon(GRPN) - 2022 Q2 - Quarterly Report
2022-08-07 16:00
PART I. FINANCIAL INFORMATION [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) Forward-looking statements are outlined, noting actual results may differ due to risks like macroeconomic conditions, strategy, and legal matters - Forward-looking statements are based on current expectations and projections, but actual results may differ materially due to risks like the COVID-19 pandemic, macroeconomic uncertainty (inflation, labor costs), execution of go-forward strategy, international operations (currency, geopolitical instability), competition, and legal/regulatory compliance[4](index=4&type=chunk) - The company does not intend to update any forward-looking statements after the report date[4](index=4&type=chunk) [Item 1. Financial Statements and Supplementary Data](index=4&type=section&id=Item%201.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Groupon's unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased from **$1,157.881 million** to **$916.450 million**, primarily due to reduced cash, goodwill, and current liabilities | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :----- | :--------------------------- | :------------------------------- | :-------------------- | | Total Assets | $916,450 | $1,157,881 | $(241,431) | | Cash and cash equivalents | $315,595 | $498,726 | $(183,131) | | Goodwill | $178,685 | $216,393 | $(37,708) | | Total Current Liabilities | $493,936 | $630,987 | $(137,051) | | Total Liabilities | $794,365 | $947,585 | $(153,220) | | Total Equity | $122,085 | $210,296 | $(88,211) | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) The company reported significant net losses in Q2 and H1 2022, driven by substantial revenue declines and asset impairments | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total Revenue | $153,216 | $265,958 | $306,536 | $529,775 | | Gross Profit | $133,972 | $193,943 | $267,973 | $360,926 | | Income (loss) from operations | $(66,512) | $(1,991) | $(98,659) | $(3,239) | | Net income (loss) attributable to Groupon, Inc. | $(91,227) | $(3,382) | $(126,079) | $11,176 | | Basic EPS | $(3.04) | $(0.12) | $(4.21) | $0.38 | | Diluted EPS | $(3.04) | $(0.12) | $(4.21) | $0.37 | - Goodwill impairment of **$35.4 million** and long-lived asset impairment of **$8.8 million** were recognized for both the three and six months ended June 30, 2022, contributing significantly to the operating loss[11](index=11&type=chunk) - Other income (expense), net, shifted from a gain of **$15.196 million** in the six months ended June 30, 2021, to an expense of **$26.220 million** in the same period of 2022, primarily due to foreign currency losses[11](index=11&type=chunk)[48](index=48&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total equity decreased from **$210.296 million** to **$122.085 million**, primarily due to accumulated deficit and comprehensive loss | Metric | Balance at December 31, 2021 (in thousands) | Balance at June 30, 2022 (in thousands) | Change (in thousands) | | :----- | :---------------------------------------- | :-------------------------------------- | :-------------------- | | Total Groupon, Inc. Stockholders' Equity | $209,872 | $121,941 | $(87,931) | | Noncontrolling Interests | $424 | $144 | $(280) | | Total Equity | $210,296 | $122,085 | $(88,211) | | Accumulated Deficit | $(1,156,868) | $(1,282,947) | $(126,079) | | Accumulated Other Comprehensive Income (Loss) | $(4,813) | $19,374 | $24,187 | - Comprehensive income (loss) for the six months ended June 30, 2022, was a loss of **$(101.9) million**, compared to a loss of **$(9.7) million** in the prior year, largely due to net loss and foreign currency translation adjustments[11](index=11&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating and investing activities increased, while financing activities saw a significant decrease due to fewer debt repurchases | Activity | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | Change (in thousands) | | :------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Net cash provided by (used in) operating activities | $(108,356) | $(80,770) | $(27,586) | | Net cash provided by (used in) investing activities | $(23,695) | $(21,967) | $(1,728) | | Net cash provided by (used in) financing activities | $(46,304) | $(178,421) | $132,117 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(183,063) | $(285,174) | $102,111 | | Cash, cash equivalents and restricted cash, end of period | $316,420 | $565,911 | $(249,491) | - The increase in net cash used in operating activities for the six months ended June 30, 2022, was primarily due to a **$79.1 million** net decrease from changes in working capital, related to lower cash inflows from bookings and timing of payments to merchants[217](index=217&type=chunk) [Notes to Condensed Consolidated Financial Statements (unaudited)](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) These notes provide detailed explanations of financial statements, covering business operations, accounting policies, and segment performance [NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION](index=10&type=section&id=NOTE%201.%20DESCRIPTION%20OF%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) Groupon operates a global two-sided marketplace, impacted by the COVID-19 pandemic and macroeconomic conditions like inflation - Groupon operates a global two-sided marketplace connecting consumers to merchants through mobile applications and websites, with operations in North America and International segments[26](index=26&type=chunk) - The business continues to be affected by the COVID-19 pandemic and macroeconomic trends such as inflationary pressures, higher labor costs, labor shortages, and supply chain challenges[27](index=27&type=chunk) - The company early adopted ASU 2020-06 on January 1, 2021, which removed separation models for convertible debt, resulting in a **$67.0 million** net reduction to additional paid-in capital and a **$48.0 million** reduction to accumulated deficit as of January 1, 2021[34](index=34&type=chunk)[35](index=35&type=chunk) [NOTE 2. GOODWILL AND LONG-LIVED ASSETS](index=11&type=section&id=NOTE%202.%20GOODWILL%20AND%20LONG-LIVED%20ASSETS) Significant goodwill and long-lived asset impairments were recognized in Q2 2022, primarily in the International unit due to forecast revisions - For the three and six months ended June 30, 2022, Groupon recognized **$35.4 million** of goodwill impairment within its International reporting unit, representing a full impairment for that unit[36](index=36&type=chunk) - An additional **$8.8 million** of long-lived asset impairment was recognized related to certain asset groups within the International segment for the same periods[36](index=36&type=chunk) | Segment | Balance as of Dec 31, 2021 (in thousands) | Impairment (in thousands) | Foreign currency translation (in thousands) | Balance as of June 30, 2022 (in thousands) | | :------ | :---------------------------------------- | :------------------------ | :------------------------------------------ | :----------------------------------------- | | North America | $178,685 | — | — | $178,685 | | International | $37,708 | $(35,424) | $(2,284) | $0 | | Consolidated | $216,393 | $(35,424) | $(2,284) | $178,685 | [NOTE 3. INVESTMENTS](index=14&type=section&id=NOTE%203.%20INVESTMENTS) Equity investments remained stable at **$119.5 million**, with no fair value changes, though interest in SumUp Holdings decreased to **2.29%** - Carrying value of other equity investments was **$119.5 million** as of June 30, 2022, and December 31, 2021, with no changes in fair value for the three and six months ended June 30, 2022[44](index=44&type=chunk) - Groupon's non-controlling equity interest in SumUp Holdings S.a.r.l. decreased from **2.40%** to **2.29%** in July 2022[46](index=46&type=chunk) [NOTE 4. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION](index=14&type=section&id=NOTE%204.%20SUPPLEMENTAL%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS%20AND%20STATEMENTS%20OF%20OPERATIONS%20INFORMATION) This note details breakdowns of balance sheet and operations items, highlighting increased foreign currency losses and decreased accrued marketing | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Interest income | $1,458 | $1,327 | $2,773 | $2,482 | | Interest expense | $(3,206) | $(5,473) | $(6,089) | $(10,589) | | Foreign currency gains (losses), net and other | $(19,592) | $2,064 | $(22,904) | $24,148 | | Total Other income (expense), net | $(21,340) | $(2,927) | $(26,220) | $15,196 | | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :----- | :--------------------------- | :------------------------------- | :-------------------- | | Refund reserve | $11,604 | $19,601 | $(7,997) | | Compensation and benefits | $18,471 | $30,367 | $(11,896) | | Accrued marketing | $12,954 | $37,900 | $(24,946) | | Restructuring-related liabilities | $6,396 | $11,349 | $(4,953) | | Customer credits | $49,850 | $56,558 | $(6,708) | | Total accrued expenses and other current liabilities | $197,572 | $239,313 | $(41,741) | [NOTE 5. FINANCING ARRANGEMENTS](index=16&type=section&id=NOTE%205.%20FINANCING%20ARRANGEMENTS) Financing includes 1.125% Convertible Senior Notes due 2026 and a revolving credit agreement, with **$40.0 million** repaid in Q2 2022 - The 2026 Notes have a principal amount of **$230.0 million**, bear interest at **1.125%** per annum, and mature on March 15, 2026[59](index=59&type=chunk) | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :--------------------------- | :------------------------------- | | Principal amount | $230,000 | $230,000 | | Less: debt discount | $(5,840) | $(6,597) | | Net carrying amount of liability | $224,160 | $223,403 | - The revolving credit agreement provides for borrowings up to **$225.0 million**. As of June 30, 2022, **$60.0 million** was outstanding, and the company repaid **$40.0 million** during Q2 2022. The company was in compliance with covenants under the Amended Credit Agreement as of June 30, 2022, but access to full borrowing capacity is partially restricted[67](index=67&type=chunk)[69](index=69&type=chunk)[72](index=72&type=chunk) [NOTE 6. COMMITMENTS AND CONTINGENCIES](index=18&type=section&id=NOTE%206.%20COMMITMENTS%20AND%20CONTINGENCIES) Groupon faces legal proceedings, including a **$13.5 million** securities fraud settlement covered by insurance, and other IP and regulatory claims - A securities fraud class action lawsuit was settled for **$13.5 million** in May 2022, with preliminary court approval granted in June 2022. The full settlement amount is covered by Groupon's insurance policies[75](index=75&type=chunk)[77](index=77&type=chunk) - Four shareholder derivative lawsuits related to the same events as the securities litigation are currently stayed pending the outcome of the securities litigation[78](index=78&type=chunk) - The company is subject to various other legal proceedings, including intellectual property infringement, consumer protection, privacy claims, and regulatory inquiries, which could result in significant costs or changes to business practices[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) [NOTE 7. STOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS](index=20&type=section&id=NOTE%207.%20STOCKHOLDERS'%20EQUITY%20AND%20COMPENSATION%20ARRANGEMENTS) The 2011 Incentive Plan has **3,175,925** shares available, with **$63.3 million** in unrecognized compensation costs for restricted stock units - As of June 30, 2022, **3,175,925** shares of common stock were available for future issuance under the 2011 Incentive Plan[87](index=87&type=chunk) | Metric | Restricted Stock Units (in units) | Weighted-Average Grant Fair Value (per unit) | | :----- | :-------------------------------- | :------------------------------------------- | | Unvested at December 31, 2021 | 2,205,235 | $31.06 | | Granted | 1,949,064 | $20.17 | | Vested | (695,084) | $35.85 | | Forfeited | (275,517) | $30.70 | | Unvested at June 30, 2022 | 3,183,698 | $23.33 | - Unrecognized compensation costs related to unvested restricted stock units amounted to **$63.3 million** as of June 30, 2022, with a remaining weighted-average recognition period of **1.35 years**[91](index=91&type=chunk) [NOTE 8. REVENUE RECOGNITION](index=21&type=section&id=NOTE%208.%20REVENUE%20RECOGNITION) This note details customer credit activity and deferred contract acquisition costs, with **$4.3 million** revenue from unredeemed vouchers in Q2 2022 | Metric | Customer Credits (in thousands) | | :----- | :------------------------------ | | Balance as of December 31, 2021 | $56,558 | | Credits issued | $75,502 | | Credits redeemed | $(69,616) | | Breakage revenue recognized | $(11,821) | | Foreign currency translation | $(773) | | Balance as of June 30, 2022 | $49,850 | - Variable consideration from unredeemed vouchers, recognized as revenue, was **$4.3 million** for the three months ended June 30, 2022, and **$3.0 million** for the six months ended June 30, 2022[102](index=102&type=chunk) - Deferred contract acquisition costs were **$6.9 million** as of June 30, 2022, with amortization expense of **$2.7 million** for the three months ended June 30, 2022[99](index=99&type=chunk) [NOTE 9. RESTRUCTURING AND RELATED CHARGES](index=22&type=section&id=NOTE%209.%20RESTRUCTURING%20AND%20RELATED%20CHARGES) The 2020 restructuring plan incurred **$110.0 million** in charges; a new 2022 plan targets **500** position reductions and **$10.0 million to $20.0 million** in charges - The 2020 restructuring plan, substantially completed by December 31, 2021, resulted in total pretax charges of **$110.0 million**, including workforce reductions and asset impairments[103](index=103&type=chunk) | Segment | Employee Benefit Costs (in thousands) | Legal and Advisory Costs (in thousands) | Asset and Lease-related Charges (Credits) (in thousands) | Total Restructuring Charges (Credits) (in thousands) | | :------ | :------------------------------------ | :-------------------------------------- | :------------------------------------------------------- | :--------------------------------------------------- | | North America | — | $86 | $818 | $904 | | International | $473 | $24 | $1,538 | $2,035 | | Consolidated | $473 | $110 | $2,356 | $2,939 | - A new 2022 Cost Savings Plan, approved in August 2022, includes a restructuring plan to reduce approximately **500** global positions and is expected to incur **$10.0 million to $20.0 million** in pre-tax charges, primarily for severance[109](index=109&type=chunk) [NOTE 10. INCOME TAXES](index=24&type=section&id=NOTE%2010.%20INCOME%20TAXES) Q2 2022 income tax provision was a **$2.398 million** charge, impacted by pretax losses and a proposed **$112.0 million** tax assessment | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Provision (benefit) for income taxes | $2,398 | $(1,789) | $(277) | $638 | | Effective tax rate | (2.7)% | 36.4% | 0.2% | 5.3% | - The effective tax rate is significantly impacted by pretax losses in jurisdictions with valuation allowances against net deferred tax assets and a reduction in the estimated annual tax rate due to increased expected annual losses in 2022[111](index=111&type=chunk) - The company is undergoing income tax audits in multiple jurisdictions, including a proposed assessment for **$112.0 million** primarily related to transfer pricing in 2011, which Groupon intends to vigorously defend[112](index=112&type=chunk) [NOTE 11. FAIR VALUE MEASUREMENTS](index=25&type=section&id=NOTE%2011.%20FAIR%20VALUE%20MEASUREMENTS) Level 3 inputs are used for fair value measurements, with **$35.4 million** goodwill and **$10.0 million** long-lived asset impairments recognized in Q2 2022 - Fair value option investments and available-for-sale securities are measured using the income approach with Level 3 inputs due to a lack of observable market data[114](index=114&type=chunk) - Nonrecurring fair value measurements for the three and six months ended June 30, 2022, included **$35.4 million** in goodwill impairment and **$10.0 million** in long-lived asset impairment[116](index=116&type=chunk) [NOTE 12. INCOME (LOSS) PER SHARE](index=26&type=section&id=NOTE%2012.%20INCOME%20(LOSS)%20PER%20SHARE) Basic and diluted net loss per share for Q2 and H1 2022 were **$(3.04)** and **$(4.21)**, with dilutive instruments excluded due to antidilutive effect | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Basic net income (loss) attributable to common stockholders | $(91,227) | $(3,382) | $(126,079) | $11,176 | | Basic EPS | $(3.04) | $(0.12) | $(4.21) | $0.38 | | Diluted EPS | $(3.04) | $(0.12) | $(4.21) | $0.37 | - Potentially dilutive instruments, including restricted stock units, performance share units, convertible senior notes, warrants, and capped call transactions, were excluded from diluted EPS calculations for the periods ended June 30, 2022, due to their antidilutive effect[124](index=124&type=chunk)[125](index=125&type=chunk) [NOTE 13. SEGMENT INFORMATION](index=28&type=section&id=NOTE%2013.%20SEGMENT%20INFORMATION) Groupon operates North America and International segments, both experiencing Q2 2022 revenue declines, with International impacted by the Goods category transition - Groupon's operations are organized into North America and International segments, with profitability measured by contribution profit (gross profit less marketing expense)[129](index=129&type=chunk) | Segment | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | % Change | | :------ | :---------------------------------------------- | :---------------------------------------------- | :------- | | North America | $112,124 | $160,788 | (30.3)% | | International | $41,092 | $105,170 | (60.9)% | | Total Revenue | $153,216 | $265,958 | (42.4)% | - International segment's product revenue from Goods transitioned to a third-party marketplace model in 2021, resulting in zero product revenue for the three and six months ended June 30, 2022, compared to **$59.797 million** and **$150.364 million**, respectively, in the prior year[131](index=131&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Groupon's financial condition and results, covering strategy, performance metrics, expenses, liquidity, and accounting policies [Overview](index=31&type=section&id=Overview) Groupon's strategy focuses on local services, aiming for **$150 million** in cost savings by end of 2023 through a new restructuring plan - Groupon's strategy is to be the trusted marketplace for local services and experiences, aiming to unlock value by improving its expense structure and offering more differentiated inventory[141](index=141&type=chunk) - The 2022 Cost Savings Plan, initiated in August 2022, is expected to result in approximately **$150 million** in run-rate cost savings by the end of 2023, including a restructuring plan with about **500** global position reductions[145](index=145&type=chunk)[146](index=146&type=chunk) - The company primarily generates service revenue from net commissions in Local, Travel, and Goods categories, having completed the transition to a third-party marketplace model for Goods in North America (2020) and International (2021)[142](index=142&type=chunk)[143](index=143&type=chunk) [How We Measure Our Business](index=33&type=section&id=How%20We%20Measure%20Our%20Business) Groupon measures business performance using operating metrics like gross billings and active customers, and financial metrics such as revenue and Adjusted EBITDA - Key operating metrics include Gross billings (total dollar value of customer purchases), Units (number of purchases), and Active customers (unique users making a purchase in the trailing twelve months)[150](index=150&type=chunk) - Key financial metrics include Revenue (primarily net commissions), Gross profit (net margin after cost of revenue), Adjusted EBITDA (non-GAAP measure excluding taxes, interest, D&A, stock-based comp, and special charges), and Free cash flow (non-GAAP measure of operating cash flow less CapEx)[154](index=154&type=chunk) [Operating Metrics](index=33&type=section&id=Operating%20Metrics) Consolidated gross billings decreased by **26.7%** (Q2) and **23.1%** (H1), with units and active customers also declining across segments | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Gross billings | $460,165 | $607,589 | $920,849 | $1,161,561 | | Units | 12,052 | 16,678 | 24,718 | 34,481 | | Segment | TTM Active Customers June 30, 2022 (in thousands) | TTM Active Customers June 30, 2021 (in thousands) | % Change | | :------ | :---------------------------------- | :---------------------------------- | :------- | | North America | 13,089 | 15,202 | (13.9)% | | International | 7,979 | 9,744 | (18.1)% | [Financial Metrics](index=34&type=section&id=Financial%20Metrics) Consolidated revenue decreased by **42.4%** (Q2) and **42.2%** (H1), with gross profit declining, Adjusted EBITDA turning negative, and free cash flow worsening | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenue | $153,216 | $265,958 | $306,536 | $529,775 | | Gross profit | $133,972 | $193,943 | $267,973 | $360,926 | | Adjusted EBITDA | $5,728 | $40,963 | $(1,232) | $71,335 | | Free cash flow | $(39,340) | $(46,785) | $(130,505) | $(105,230) | [Operating Expenses](index=34&type=section&id=Operating%20Expenses) Marketing and SG&A expenses decreased, but significant goodwill and long-lived asset impairments were recognized, while restructuring charges declined | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Marketing | $29,372 | $43,720 | $68,788 | $77,386 | | Selling, general and administrative | $123,938 | $137,969 | $250,358 | $265,112 | | Goodwill impairment | $35,424 | — | $35,424 | — | | Long-lived asset impairment | $8,811 | — | $8,811 | — | | Restructuring and related charges | $2,939 | $14,245 | $3,251 | $21,667 | | Total operating expenses | $200,484 | $195,934 | $366,632 | $364,165 | - Marketing expense decreased by **32.8%** for the three months and **11.1%** for the six months ended June 30, 2022, primarily due to accelerated traffic declines and reduced online marketing spend[190](index=190&type=chunk)[192](index=192&type=chunk) - SG&A decreased by **10.2%** for the three months and **5.6%** for the six months ended June 30, 2022, mainly due to lower payroll and consulting fees, but increased as a percentage of gross profit due to declining gross profit[191](index=191&type=chunk)[193](index=193&type=chunk) [Factors Affecting Our Performance](index=35&type=section&id=Factors%20Affecting%20Our%20Performance) Performance is affected by macroeconomic conditions, merchant and customer retention, and the ability to drive purchase frequency through improved inventory and experience - Performance is affected by macroeconomic conditions, including the COVID-19 pandemic, inflationary pressures, higher labor costs, labor shortages, and supply chain challenges[159](index=159&type=chunk) - Attracting and retaining local merchants is crucial, as their willingness to offer experiences on the platform depends on the marketplace's effectiveness[159](index=159&type=chunk) - Re-engaging and retaining customers to drive purchase frequency is a focus, achieved by strengthening the core marketplace through improved inventory density, customer experience, and trust, including testing curated collections and a new Beauty & Wellness marketplace[160](index=160&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) This section analyzes Groupon's operating and financial performance across North America and International segments, including expenses, income taxes, and non-GAAP measures [North America](index=36&type=section&id=North%20America) North America saw significant declines in gross billings, units, and active customers in Q2 and H1 2022, leading to substantial drops in revenue and gross profit | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | % Change | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | % Change | | :----- | :---------------------------------------------- | :---------------------------------------------- | :------- | :-------------------------------------------- | :-------------------------------------------- | :------- | | Total gross billings | $317,268 | $433,067 | (26.7)% | $627,180 | $815,591 | (23.1)% | | Total units | 7,587 | 11,394 | (33.4)% | 15,341 | 22,934 | (33.1)% | | TTM Active customers (June 30) | 13,089 | 15,202 | (13.9)% | N/A | N/A | N/A | | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | % Change | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | % Change | | :----- | :---------------------------------------------- | :---------------------------------------------- | :------- | :-------------------------------------------- | :-------------------------------------------- | :------- | | Total revenue | $112,124 | $160,788 | (30.3)% | $222,288 | $308,032 | (27.8)% | | Total gross profit | $95,903 | $142,202 | (32.6)% | $190,150 | $272,570 | (30.2)% | | Contribution profit | $76,274 | $109,025 | (30.0)% | $142,530 | $216,625 | (34.2)% | - The declines in North America were primarily due to a decrease in platform engagement, resulting in fewer unit sales and lower gross billings[164](index=164&type=chunk)[165](index=165&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) [International](index=38&type=section&id=International) International gross billings and units decreased due to Goods category de-emphasis and unfavorable foreign currency, despite higher Local category demand | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | % Change | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | % Change | | :----- | :---------------------------------------------- | :---------------------------------------------- | :------- | :-------------------------------------------- | :-------------------------------------------- | :------- | | Total gross billings | $142,897 | $174,522 | (18.1)% | $293,669 | $345,970 | (15.1)% | | Total units | 4,465 | 5,284 | (15.5)% | 9,377 | 11,547 | (18.8)% | | TTM Active customers (June 30) | 7,979 | 9,744 | (18.1)% | N/A | N/A | N/A | | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | % Change | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | % Change | | :----- | :---------------------------------------------- | :---------------------------------------------- | :------- | :-------------------------------------------- | :-------------------------------------------- | :------- | | Total revenue | $41,092 | $105,170 | (60.9)% | $84,248 | $221,743 | (62.0)% | | Total gross profit | $38,069 | $51,741 | (26.4)% | $77,823 | $88,356 | (11.9)% | | Contribution profit | $28,326 | $41,198 | (31.2)% | $56,655 | $66,915 | (15.3)% | - The declines were primarily due to the transition of Goods to a third-party marketplace model, reduced engagement in the Goods category, and unfavorable foreign currency exchange rates (e.g., **$16.9 million** unfavorable impact on gross billings for Q2 2022)[179](index=179&type=chunk)[184](index=184&type=chunk)[186](index=186&type=chunk) [Consolidated Operating Expenses](index=41&type=section&id=Consolidated%20Operating%20Expenses) Consolidated operating expenses slightly increased due to significant goodwill and long-lived asset impairments, despite lower marketing and restructuring charges | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | % Change | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | % Change | | :----- | :---------------------------------------------- | :---------------------------------------------- | :------- | :-------------------------------------------- | :-------------------------------------------- | :------- | | Marketing | $29,372 | $43,720 | (32.8)% | $68,788 | $77,386 | (11.1)% | | Selling, general and administrative | $123,938 | $137,969 | (10.2)% | $250,358 | $265,112 | (5.6)% | | Goodwill impairment | $35,424 | — | NM | $35,424 | — | NM | | Long-lived asset impairment | $8,811 | — | NM | $8,811 | — | NM | | Restructuring and related charges | $2,939 | $14,245 | (79.4)% | $3,251 | $21,667 | (85.0)% | | Total operating expenses | $200,484 | $195,934 | 2.3% | $366,632 | $364,165 | 0.7% | - The increase in total operating expenses was primarily driven by the recognition of **$35.4 million** in goodwill impairment and **$8.8 million** in long-lived asset impairment in 2022, which had no comparable activity in the prior year[192](index=192&type=chunk)[193](index=193&type=chunk) [Consolidated Other Income (Expense), Net](index=42&type=section&id=Consolidated%20Other%20Income%20(Expense),%20Net) Other income (expense), net, shifted from a net expense of **$2.927 million** (Q2 2021) to **$21.340 million** (Q2 2022) due to foreign currency changes | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Other income (expense), net | $(21,340) | $(2,927) | $(26,220) | $15,196 | - The primary driver for the change was a **$21.7 million** change in foreign currency gains and losses for the three months and a **$47.1 million** change for the six months ended June 30, 2022, compared to the prior year periods[195](index=195&type=chunk)[196](index=196&type=chunk) [Consolidated Provision (Benefit) for Income Taxes](index=43&type=section&id=Consolidated%20Provision%20(Benefit)%20for%20Income%20Taxes) Q2 2022 income tax provision was a **$2.398 million** charge, with a negative **(2.7)%** effective tax rate due to pretax losses and valuation allowances | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Provision (benefit) for income taxes | $2,398 | $(1,789) | $(277) | $638 | | Effective tax rate | (2.7)% | 36.4% | 0.2% | 5.3% | - The effective tax rate was impacted by pretax losses in jurisdictions with valuation allowances against net deferred tax assets and a reduction in the estimated annual tax rate due to an increase in expected annual losses in 2022[199](index=199&type=chunk)[200](index=200&type=chunk) [Non-GAAP Financial Measures](index=44&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles non-GAAP measures, with Adjusted EBITDA for H1 2022 showing a loss of **$(1.232) million**, a significant decline from prior year - Adjusted EBITDA is defined as net income (loss) from operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net, and other special charges and credits[203](index=203&type=chunk) | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income (loss) | $(90,250) | $(3,129) | $(124,602) | $11,319 | | Total adjustments | $95,978 | $44,092 | $123,370 | $60,016 | | Adjusted EBITDA | $5,728 | $40,963 | $(1,232) | $71,335 | - Free cash flow is defined as net cash provided by (used in) operating activities less purchases of property and equipment and capitalized software[207](index=207&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity sources include **$315.6 million** cash, with **$108.4 million** used in operations; covenant relief for credit agreement will be sought in H2 2022 - Principal liquidity sources are cash flows from operations and cash balances, which were **$315.6 million** as of June 30, 2022[213](index=213&type=chunk) | Activity | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :------- | :-------------------------------------------- | :-------------------------------------------- | | Operating activities | $(108,356) | $(80,770) | | Investing activities | $(23,695) | $(21,967) | | Financing activities | $(46,304) | $(178,421) | - The company plans to seek covenant relief for its Amended Credit Agreement in the second half of 2022 and believes its cash balances and cash generated from operations will be sufficient for working capital and capital expenditures for at least the next 12 months[221](index=221&type=chunk)[222](index=222&type=chunk) [Contractual Obligations and Commitments](index=48&type=section&id=Contractual%20Obligations%20and%20Commitments) Contractual obligations and commitments as of June 30, 2022, remained materially unchanged from the 2021 Annual Report on Form 10-K - Contractual obligations and commitments as of June 30, 2022, remained materially unchanged from the 2021 Annual Report on Form 10-K[225](index=225&type=chunk) [Off-Balance Sheet Arrangements](index=48&type=section&id=Off-Balance%20Sheet%20Arrangements) No off-balance sheet arrangements were in place as of June 30, 2022 - No off-balance sheet arrangements were in place as of June 30, 2022[225](index=225&type=chunk) [Significant Accounting Policies and Critical Accounting Estimates](index=48&type=section&id=Significant%20Accounting%20Policies%20and%20Critical%20Accounting%20Estimates) This section refers to the 2021 Annual Report on Form 10-K for detailed accounting policies and critical accounting estimates - Significant accounting policies and critical accounting estimates are discussed in Part II, Item 8, Note 2, and Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2021[226](index=226&type=chunk) [Recently Issued Accounting Standards](index=49&type=section&id=Recently%20Issued%20Accounting%20Standards) No recently issued accounting standards are expected to materially impact the condensed consolidated financial statements - No recently issued accounting standards are expected to materially impact the Condensed Consolidated Financial Statements[228](index=228&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details Groupon's exposure to market risks, including foreign currency, interest rate changes, and inflation, and their potential financial impact [Foreign Currency Exchange Risk](index=50&type=section&id=Foreign%20Currency%20Exchange%20Risk) Groupon faces foreign currency risk, with **26.8%** of Q2 2022 revenue from International; a **10%** adverse change would increase working capital deficit by **$4.1 million** - The company is exposed to foreign currency risk, primarily from the Euro, British pound sterling, Canadian dollar, and Australian dollar, with **26.8%** of Q2 2022 revenue derived from the International segment[231](index=231&type=chunk) - A hypothetical **10%** adverse change in foreign currency exchange rates would increase the net working capital deficit by **$4.1 million** as of June 30, 2022, compared to **$6.9 million** at December 31, 2021[233](index=233&type=chunk) [Interest Rate Risk](index=50&type=section&id=Interest%20Rate%20Risk) Interest rate risk is limited for cash and fixed-rate notes, but variable-rate borrowings under the Amended Credit Agreement create exposure - Exposure to interest rate risk for cash balances is limited, and the 2026 Convertible Senior Notes bear a fixed interest rate, mitigating impact from rate changes[234](index=234&type=chunk) - Borrowings under the Amended Credit Agreement, totaling **$60.0 million** outstanding as of June 30, 2022, bear variable interest rates, exposing the company to market risk from interest rate changes[234](index=234&type=chunk) [Inflation Risk](index=51&type=section&id=Inflation%20Risk) Inflation impacts discretionary spending and operating costs; inability to offset these could harm financial condition and results of operations - Inflationary pressures are impacting merchants' and customers' discretionary spend, and if increased demand for discounted goods/services does not offset these limitations, the business could be adversely affected[236](index=236&type=chunk) - Increased inflation could raise operating costs, and the company's inability to offset these through price increases or cost efficiency measures could harm its financial condition and results of operations[236](index=236&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=52&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of June 30, 2022, ensuring timely and accurate reporting of required information - Management concluded that disclosure controls and procedures were effective as of June 30, 2022, providing reasonable assurance for timely and accurate reporting of information required under the Exchange Act[239](index=239&type=chunk) [Changes in Internal Control over Financial Reporting](index=52&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022 - No material changes in internal control over financial reporting were identified during the quarter ended June 30, 2022[240](index=240&type=chunk) [Limitations on Effectiveness of Controls and Procedures](index=52&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) Management acknowledges that controls and procedures provide only reasonable assurance due to inherent limitations and resource constraints - Management recognizes that controls and procedures provide only reasonable assurance due to inherent limitations and the need to apply judgment in balancing benefits against costs[241](index=241&type=chunk) PART II. Other Information [Item 1. Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) Material pending legal proceedings are detailed in Item 1, Note 6, "Commitments and Contingencies," in Part I of this report - Material pending legal proceedings are detailed in Item 1, Note 6, "Commitments and Contingencies"[243](index=243&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) This section highlights new risks, including limitations on tax attribute use due to ownership changes and the disruptive impact of the 2022 restructuring plan - The ability to use tax attributes (e.g., NOLs) to reduce future U.S. income taxes could be limited by Sections 382 and 383 of the Code if an "ownership change" occurs[246](index=246&type=chunk) - The 2022 restructuring plan, including workforce reductions, could be disruptive to operations, affect employee retention, result in higher-than-anticipated charges, and may not achieve anticipated benefits within the expected timeframe or at all[248](index=248&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity securities were issued in Q2 2022; **151,368** shares were repurchased at **$14.31** average per share for tax withholding - No unregistered equity securities were issued during the three months ended June 30, 2022[250](index=250&type=chunk) | Date | Total Number of Shares Purchased (1) (in units) | Average Price Paid Per Share | | :--- | :---------------------------------------------- | :--------------------------- | | April 1-30, 2022 | 22,332 | $19.57 | | May 1-31, 2022 | 78,504 | $12.11 | | June 1-30, 2022 | 50,532 | $15.40 | | Total | 151,368 | $14.31 | - The share repurchases were for shares delivered by employees to satisfy mandatory tax withholding upon vesting of stock-based compensation awards[252](index=252&type=chunk) [Item 5. Other Information](index=55&type=section&id=Item%205.%20Other%20Information) Peter Barris and Valerie Mosley resigned as directors, effective August 26, 2022, with no disagreements cited - Peter Barris and Valerie Mosley resigned as directors, effective August 26, 2022, with no disagreements cited regarding company operations, policies, or practices[253](index=253&type=chunk) [Item 6. Exhibits](index=55&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including agreements, incentive plans, certifications, and XBRL documents - The exhibits include a Cooperation Agreement, the 2011 Incentive Plan, certifications from the CEO and CFO, and various XBRL documents[254](index=254&type=chunk)