Groupon(GRPN) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Forward-Looking Statements 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] - The company does not intend to update any forward-looking statements after the report date[4] Item 1. Financial Statements and Supplementary Data This section presents Groupon's unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows Condensed Consolidated Balance Sheets 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) 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] - 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][48] Condensed Consolidated Statements of Stockholders' Equity 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] Condensed Consolidated Statements of Cash Flows 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] Notes to Condensed Consolidated Financial Statements (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 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] - 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] - 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][35] NOTE 2. GOODWILL AND LONG-LIVED ASSETS 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] - 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] | 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 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] - Groupon's non-controlling equity interest in SumUp Holdings S.a.r.l. decreased from 2.40% to 2.29% in July 2022[46] NOTE 4. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION 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 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] | 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][69][72] NOTE 6. COMMITMENTS AND CONTINGENCIES 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][77] - Four shareholder derivative lawsuits related to the same events as the securities litigation are currently stayed pending the outcome of the securities litigation[78] - 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][80][81] NOTE 7. STOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS 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] | 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] NOTE 8. REVENUE RECOGNITION 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] - 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] NOTE 9. RESTRUCTURING AND RELATED CHARGES 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] | 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] NOTE 10. INCOME TAXES 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] - 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] NOTE 11. FAIR VALUE MEASUREMENTS 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] - 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] NOTE 12. INCOME (LOSS) PER SHARE 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][125] NOTE 13. SEGMENT INFORMATION 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] | 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Groupon's financial condition and results, covering strategy, performance metrics, expenses, liquidity, and accounting policies 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] - 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][146] - 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][143] How We Measure Our Business 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] - 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] Operating Metrics 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 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 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][192] - 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][193] Factors Affecting Our Performance 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] - Attracting and retaining local merchants is crucial, as their willingness to offer experiences on the platform depends on the marketplace's effectiveness[159] - 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] Results of Operations 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 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][165][168][169] 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][184][186] Consolidated Operating Expenses 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][193] Consolidated Other Income (Expense), Net 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][196] Consolidated Provision (Benefit) for Income Taxes 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][200] Non-GAAP Financial Measures 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] | 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] Liquidity and Capital Resources 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] | 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][222] Contractual Obligations and Commitments 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] Off-Balance Sheet Arrangements 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] Significant Accounting Policies and Critical Accounting Estimates 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] Recently Issued Accounting Standards 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] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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 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] - 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] Interest Rate Risk 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] - 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] Inflation Risk 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] - 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] Item 4. Controls and Procedures 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 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] Changes in Internal Control over Financial Reporting 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] Limitations on Effectiveness of Controls and Procedures 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] PART II. Other Information Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] | 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] Item 5. Other Information 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] Item 6. Exhibits 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]