Groupon(GRPN) - 2022 Q3 - Quarterly Report

Part I. Financial Information Forward-Looking Statements 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] - Key risks include the COVID-19 pandemic, global economic uncertainty, competition, and cybersecurity breaches[4] Item 1. Financial Statements and Supplementary Data This section presents unaudited condensed consolidated financial statements for the period ended September 30, 2022 Condensed Consolidated Balance Sheets 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) 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 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] - The accumulated deficit increased to $(1,339.2) million by the end of Q3 2022, reflecting net losses incurred[16] Condensed Consolidated Statements of Cash Flows 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) 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] - The company recognized a $35.4 million goodwill impairment and an $8.8 million long-lived asset impairment in its International segment[41][43][45] - A new restructuring plan initiated in August 2022 targets a reduction of approximately 500 positions[115] - The 2020 Restructuring Plan was substantially completed by year-end 2021, incurring total pretax charges of $108.7 million[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses declining operating metrics, segment performance, a new cost savings plan, and negative Adjusted EBITDA Overview and Key Metrics 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] 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 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][182][191] - International Q3 gross billings decreased 19.1% YoY to $135.5 million, with contribution profit falling 45.1%[195][199][205] Non-GAAP Financial Measures 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 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][250] 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] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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] - Interest rate risk exists due to $110.0 million in variable-rate borrowings under its Amended Credit Agreement[250] - The current inflationary environment is affecting discretionary spending and could increase operating costs[252] Item 4. Controls and Procedures 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] - There were no material changes in internal control over financial reporting during the quarter[256] Part II. Other Information Item 1. Legal Proceedings 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] - A securities fraud class action lawsuit was settled for $13.5 million, which is fully covered by insurance[88] Item 1A. Risk Factors 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][263] - Failure to comply with covenants could result in an event of default and acceleration of outstanding debt[263] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - A total of 73,013 shares were repurchased to cover tax obligations on vested restricted stock units[267] Item 5. Other Information 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] - Effective November 7, 2022, Damien Schmitz was appointed as the company's Chief Financial Officer[270] Item 6. Exhibits 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]