Groupon(GRPN) - 2023 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements and Supplementary Data The company's financials show declining revenue and profits, a net loss, and an equity deficit, raising substantial doubt about its ability to continue as a going concern Condensed Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $250,720 | $306,536 | -18.2% | | Gross Profit | $217,676 | $267,973 | -18.8% | | Loss from Operations | $(35,441) | $(98,659) | +64.1% | | Net Loss | $(40,617) | $(124,602) | +67.4% | Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $118,145 | $281,279 | | Total Assets | $587,234 | $793,117 | | Total Liabilities | $612,061 | $784,259 | | Total Equity (Deficit) | $(24,827) | $8,858 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(118,630) | $(108,356) | | Net cash used in investing activities | $(11,496) | $(23,695) | | Net cash used in financing activities | $(32,136) | $(46,304) | | Net decrease in cash | $(160,295) | $(183,063) | - The company has concluded that recurring cash outflows, operating losses, and a maturing credit facility raise substantial doubt about its ability to continue as a going concern[31][32][34] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses performance declines due to lower demand, cost-saving efforts, and the substantial doubt about the company's ability to continue as a going concern - The company's strategy is to be a trusted marketplace for local services and experiences, aiming to grow revenue by strengthening merchant relationships and enhancing the customer experience to drive purchase frequency[142] - A multi-phase 2022 Cost Savings Plan is underway, involving a reduction of approximately 1,000 positions globally with expected pre-tax charges of $20.0 to $27.0 million[144] - The company's maturing credit facility, along with continued cash outflows and operating losses, has raised substantial doubt about its ability to continue as a going concern[213][214] Key Operating Metrics (TTM Ended June 30) | Metric | 2023 | 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Active Customers (thousands) | 17,488 | 21,068 | -17.0% | Key Financial Metrics (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Gross Billings | $789,883 | $920,849 | | Gross Profit | $217,676 | $267,973 | | Adjusted EBITDA | $10,294 | $(1,232) | | Free Cash Flow | $(130,427) | $(130,505) | Results of Operations Both North America and International segments saw declines in key metrics, while operating expenses decreased due to lower payroll costs despite new restructuring charges - Consolidated Selling, General and Administrative (SG&A) expenses decreased by 21.0% for the six months ended June 30, 2023, compared to the prior year, primarily due to a decrease in payroll costs[182][184] - Restructuring charges increased significantly in the first six months of 2023 to $8.1 million from $3.3 million in 2022, mainly due to severance costs from the 2022 Restructuring Plan[182][185] North America Segment Performance (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Gross Billings | $541,990 | $627,180 | -13.6% | | Gross Profit | $159,035 | $190,150 | -16.4% | | Contribution Profit | $129,285 | $142,530 | -9.3% | International Segment Performance (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Gross Billings | $247,893 | $293,669 | -15.6% | | Gross Profit | $58,641 | $77,823 | -24.6% | | Contribution Profit | $41,276 | $56,655 | -27.1% | Liquidity and Capital Resources The company's liquidity is strained by negative operating cash flow and a maturing, reduced credit facility, raising substantial doubt about its going concern status - In March 2023, the company amended its revolving credit agreement, reducing total borrowing capacity to $75.0 million from $150.0 million and repaying $27.3 million of outstanding borrowings[209][211] - The maturing credit facility (May 2024), combined with ongoing cash outflows and operating losses, has led management to conclude there is substantial doubt about the company's ability to continue as a going concern[213] Cash Flow Summary (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Operating Activities | $(118,630) | $(108,356) | | Investing Activities | $(11,496) | $(23,695) | | Financing Activities | $(32,136) | $(46,304) | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from foreign currency fluctuations, interest rate changes on its credit facility, and the potential impacts of inflation - The company's International segment generated approximately 26.2% of revenue for the six months ended June 30, 2023, exposing it to foreign currency risk, primarily from the Euro and British Pound[222] - As of June 30, 2023, a hypothetical 10% adverse change in foreign currency exchange rates would result in a potential $9.4 million increase to the working capital deficit[224] - Interest rate risk exists due to the variable rate on the $75.0 million revolving credit facility, under which $46.7 million was borrowed as of June 30, 2023[225] - Inflation poses a risk by potentially reducing discretionary spending from both customers and merchants, and by driving up the company's operating costs[227] Item 4. Controls and Procedures Management concluded that disclosure controls were ineffective as of June 30, 2023, due to a previously reported and not yet fully remediated material weakness - The Interim CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2023, due to a previously-reported material weakness in internal control over financial reporting[229] - Management has implemented control activities to remediate the material weakness related to complex manual calculations, but the weakness is not yet considered fully remediated as of the end of the quarter[231] Part II. Other Information Item 1. Legal Proceedings The company settled shareholder derivative lawsuits, with its insurance carriers covering the awarded attorneys' fees - Four shareholder derivative lawsuits were resolved through a settlement approved on June 13, 2023, with $950,000 in attorneys' fees paid by the company's insurance carriers[67] Item 1A. Risk Factors The company highlights significant risk from the substantial doubt about its going concern status and potential negative impacts from its cost-reduction efforts - A key risk factor is the substantial doubt about the company's ability to continue as a going concern, stemming from operating losses, negative cash flow, and a maturing credit facility[237][238][239] - The 'going concern' disclosure may adversely affect the stock price, relationships with customers, vendors, and lenders, and the ability to raise additional capital[241] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company acquired shares from employees to satisfy tax obligations related to vested stock units, with no unregistered sales of equity securities - The company acquired 268,367 shares during the quarter, which were delivered by employees to satisfy mandatory tax withholding requirements upon the vesting of stock-based awards[245] Item 5. Other Information No company officers or directors adopted or terminated Rule 10b5-1 trading arrangements during the second quarter of 2023 - No officers or directors adopted or terminated a Rule 10b5-1 trading arrangement during the second quarter of 2023[246] Item 6. Exhibits This section lists exhibits filed with the report, including officer certifications and interactive data files