Groupon(GRPN) - 2023 Q4 - Annual Report

PART I Forward-Looking Statements This section outlines forward-looking statements in the Annual Report, highlighting that actual results may differ materially due to various risks and uncertainties. - The report contains forward-looking statements regarding future results, financial position, business strategy, and liquidity, identified by words like 'may,' 'will,' 'should,' 'could,' 'expect,' 'anticipate,' 'believe,' 'estimate,' 'intend,' 'continue'[11] - These statements involve risks and uncertainties that could cause actual results to differ materially, including challenges in strategy execution, international operations, global economic uncertainty, competition, cybersecurity breaches, and compliance with laws and regulations[11] Item 1. Business Groupon operates a global two-sided marketplace connecting consumers to merchants across North America and International segments, offering Local, Goods, and Travel categories. Company Overview and Strategy Groupon operates a global two-sided marketplace, focusing on local services and experiences by strengthening merchant relationships and enhancing customer experience. - Groupon is a global two-sided marketplace connecting consumers to merchants via mobile apps and websites in thirteen countries, operating in North America and International segments across Local, Goods, and Travel categories[13] - The company's strategy is to be the trusted marketplace for local services and experiences, aiming to grow revenue by building long-term merchant relationships for inventory selection and enhancing customer experience to drive demand and purchase frequency[14] Business Categories Groupon's business is segmented into Local, Goods, and Travel categories, offering diverse services and products to consumers. - Local category includes experiences and services (things to do, beauty, wellness, dining) from local and national merchants[15] - Goods category generates revenue from third-party merchants selling products like electronics, sporting goods, jewelry, toys, household items, and apparel[15] - Travel category features discounted and market-rate travel experiences, including hotels, airfare, and package deals, with some hotel reservations made directly through Groupon's platforms[16] Traffic Channels and Marketing Groupon leverages mobile devices for transactions and employs diverse marketing channels to drive customer engagement and traffic. - Approximately 80% of global transactions for the year ended December 31, 2023, were completed on mobile devices[17] - Marketing channels include search engines (SEO/SEM), email and push notifications, affiliate programs, social and display advertising, and offline marketing[18][19] Human Capital Management Groupon's human capital strategy focuses on attracting, developing, and retaining talent through competitive compensation, DEI, and a strong culture. Total Employees by Geography and Role (as of December 31, 2023) | | Sales | Corporate, Operational and Customer Support | Total Employees | |:----------------|:------|:--------------------------------------------|:------------------| | North America | 218 | 175 | 393 | | International | 437 | 1,383 | 1,820 | | Total | 655 | 1,558 | 2,213 | - Human capital strategy focuses on attracting, developing, and retaining talent, overseen by senior leadership and the Board, including competitive compensation and benefits[20] - Core pillars include People & Culture (fostering innovation, collaboration, ethical standards), Diversity, Equity & Inclusion (DEI) (cultural competency, diverse merchant base, DEI newsletter), and Compensation & Benefits (competitive packages, wellness programs)[22][24][26][27] Technology Groupon completed migration to a multi-cloud infrastructure and a third-party payment provider, enhancing security and operational efficiency. - In early 2023, Groupon completed migration of public-facing websites, internal applications, services, and back-end business intelligence systems to a multi-cloud infrastructure[29] - In Q3 2023, Payment Card Information data was migrated to a third-party provider, removing it from Groupon's cloud environment[29] - The company employs security practices, data encryption, and engages independent third-party firms for regular security testing[29] Competition Groupon faces intense competition from various marketplaces and larger companies, leveraging its customer base and merchant tools to compete effectively. - Groupon faces competition from other marketplaces, companies specializing in local experiences, and larger companies in Goods and Travel categories, many with greater resources and longer operating histories[30][31] - The company competes by offering access to a large customer base, a trusted brand, and investments in self-service tools for merchants[32] Regulation Groupon is subject to diverse foreign and domestic laws, including those for taxation, IP, consumer protection, and data privacy, with non-compliance carrying significant penalties. - Groupon is subject to various foreign and domestic laws, including those related to taxation, intellectual property, consumer protection, and data privacy (e.g., CARD Act, GDPR, CPRA, CDPA, CPA)[33][34][36] - Non-compliance with GDPR could result in fines up to €20 million or 4% of annual global revenue, and CPRA up to $7,500 per violation[36][37] - The company does not believe it is a financial institution subject to anti-money laundering laws like the Bank Secrecy Act, but acknowledges potential reinterpretation of laws[35] Intellectual Property Groupon protects its intellectual property through various legal means but faces risks from potential threats, costly protection efforts, and infringement allegations. - Groupon protects its intellectual property through federal, state, common law rights, contractual restrictions (confidentiality, invention assignment), and a combination of trade secrets, copyrights, trademarks, service marks, trade dress, domain names, and patents[38] - The company faces risks from potential threats to IP rights, costly protection efforts, and allegations of infringement from third parties, which could harm business and operating results[39][40][41] Executive Officers This section lists Groupon's key executive officers, including the Interim CEO and CFO, with their respective ages and positions. Executive Officers (as of filing date) | Name | Age | Position | |:------------|:----|:--------------------------| | Dusan Senkypl | 48 | Interim Chief Executive Officer | | Jiri Ponrt | 50 | Chief Financial Officer | - Dusan Senkypl was appointed Interim CEO in March 2023, having co-founded Pale Fire Capital SE (PFC) and previously served as CEO of NetBrokers Holding and ePojisteni.cz[42] - Jiri Ponrt was appointed CFO in April 2023, previously serving as a partner and Group CFO at PFC and CFO of Alza.cz[43] Available Information Groupon provides public access to its SEC filings and corporate governance documents on its website, including investor relations and press information. - Groupon electronically files reports with the SEC (www.sec.gov) and makes its Annual Reports, Quarterly Reports, Current Reports, Code of Conduct, Corporate Governance Guidelines, and committee charters available free of charge on its website (www.groupon.com)[44](index=44&type=chunk) - The Investor Relations website (investor.groupon.com) and press site (www.groupon.com/press) are used for disclosing material non-public information and complying with Regulation FD[44] Item 1A. Risk Factors This section details various risks that could materially adversely affect Groupon's business, financial condition, operating results, and stock price, spanning operational, technological, transactional, brand, legal, regulatory, tax, capital structure, and common stock ownership aspects. - Key risks include the potential unsuccessfulness of the company's strategy, disruptions from restructuring plans, volatility in operating results, and challenges from international operations[47][54][56][58][60] - Technological and cybersecurity risks involve breaches of IT systems, reliance on email/search engines/mobile app marketplaces, and the need to maintain and improve technology infrastructure[47][87][93][101][103] - Financial and legal risks include the ability to attract/retain merchants and customers, increased refund rates, loss of key personnel, fraudulent transactions, payment-related risks, material weakness in internal controls, litigation, regulatory compliance (e.g., CARD Act, GDPR, CPRA), tax liabilities, and capital structure concerns[47][50][51][63][66][74][75][78][82][84][124][128][131][135][137][138][145][152][153][155][158][160] Summary Risk Factors This section provides a high-level categorization of Groupon's principal risks, covering business, technology, transactions, brand, legal, capital, and common stock ownership. - The summary categorizes risks into: Business, Operations and Strategy; Technology and Cybersecurity; Transactions and Investments; Brand and Intellectual Property; Legal, Regulatory, Privacy and Tax Matters; Capital Structure; and Ownership of Common Stock[47][48][49][50][51][52] Risks Related to Our Business, Operations and Strategy Groupon faces risks from its strategy execution, restructuring, operational volatility, international challenges, merchant/customer acquisition, competition, mobile experience, refunds, personnel, fraud, payments, and internal controls. - The company's strategy to become a trusted marketplace for local services and experiences may not be successful, potentially impacting business, financial condition, and results of operations[54][55] - A multi-phase cost savings and restructuring plan initiated in August 2022, involving workforce reductions, could disrupt operations and may not yield anticipated benefits[56][57] - Operating results may vary significantly quarter-to-quarter due to macroeconomic challenges, customer acquisition/retention, merchant quality, competition, and technology changes[58][59] - International operations face risks from sociopolitical conditions, regulatory challenges (e.g., GDPR), currency fluctuations, and strong local competitors[60][61][62] - Failure to attract and retain high-quality merchants and third-party business partners, or to retain existing and acquire new customers, would harm business and operating results[63][64][65][66] - The industry is highly competitive with low barriers to entry, requiring successful competition based on customer/merchant bases, inventory quality, user experience, and cost management[67][68][70][71] - Success depends on providing a superior mobile experience, as approximately 80% of global transactions in 2023 were on mobile devices[72][73] - Increased refund rates or inaccurate estimates for unredeemed vouchers could adversely affect financial results and liquidity[74][75] - Loss of key executives and employees, or failure to attract qualified personnel, could harm business operations and strategy execution[75][76][77] - Fraudulent transactions and customer disputes, including counterfeit vouchers or credit card fraud, could increase losses and harm the business[78][79][80][81] - Payments-related risks include increasing interchange fees, potential receivable holdbacks by processors, and compliance with PCI Data Security Standards and anti-money laundering regulations[82][83][84] - A material weakness in internal control over financial reporting, identified as inadequate controls over complex manual calculations, remains unremediated as of December 31, 2023, potentially impairing accurate financial reporting[84][85][86] Risks Related to Technology and Cybersecurity Groupon faces cybersecurity risks from global operations and data handling, alongside reliance on digital channels and cloud infrastructure, necessitating robust security measures. - Reliance on email, Internet search engines, and mobile application marketplaces to drive traffic poses risks if policies change or algorithms are altered, potentially reducing customer access and marketing effectiveness[87][88][89][90][91][92] - Significant cybersecurity risks exist due to global operations, high brand profile, and large amounts of personal data, with potential for cyber-attacks leading to data loss, reputational harm, litigation, and regulatory investigations[93][94][95][96][97][98][99][100] - Business depends on maintaining and improving technology infrastructure for email, websites, mobile applications, and transaction processing; disruptions could lead to loss of customers or merchants[101][102] - Increased reliance on cloud-based applications and platforms, following migration in early 2023, introduces risks of disruption or interference affecting financial condition and operations[103][104][105] Risks Related to Transactions and Investments Transactions and investments, including acquisitions and minority stakes, carry risks of operational difficulties, dilution, management distraction, and unforeseen liabilities. - Acquisitions, dispositions, joint ventures, and strategic investments carry risks such as operating difficulties, dilution, management distraction, and exposure to unforeseen liabilities[106][107] - Lack of control over minority investments (e.g., SumUp, Monster Holdings LP, Nearby Pte Ltd) means dependence on others to realize benefits, with potential for misaligned interests, dilution, and fluctuations in earnings[108][109][110][111] Risks Related to Our Brand and Intellectual Property Groupon's brand and intellectual property face risks from third-party sales, liability claims for harm, IP infringement, and negative publicity, all potentially impacting reputation and results. - Allowing third parties to sell products on the site (Goods category) increases litigation risk related to intellectual property, product authenticity, and potential direct liability for merchant actions[112][113] - Exposure to substantial liability claims and brand damage if people or property are harmed by products/services offered through the marketplace, especially if merchants lack sufficient protection[114][115][116] - Inability to adequately protect intellectual property rights or accusations of infringing third-party IP could lead to significant financial and managerial resource expenditure, injunctions, or damages[118][119][120] - Maintaining and enhancing the 'Groupon' brand is critical, but unfavorable publicity or consumer perception could adversely affect reputation, customer base, and operating results[121][122][123] Risks Related to Legal, Regulatory, Privacy and Tax Matters Groupon faces legal, regulatory, privacy, and tax risks from litigation, uncertain law application, evolving e-commerce regulations, anti-money laundering laws, data privacy compliance, worker classification, content liability, and complex tax structures. - Involvement in pending litigation (patent, consumer, contract, employment, securities) and other claims, with adverse resolutions potentially affecting business, financial condition, and cash flows[124][125] - Uncertain application of laws and regulations (e.g., CARD Act, state gift card laws, unclaimed property laws) to vouchers could increase liabilities and lead to fines/penalties[128][129][130][131][132] - Evolving government regulation of the Internet and e-commerce, including potential new taxes (sales, income, digital service taxes) or censorship, could harm business and growth[133][134][150][151] - Potential expansion of anti-money laundering laws (Bank Secrecy Act, USA PATRIOT Act) or money transmission laws to include Groupon vouchers could increase compliance costs[135][136][137] - Failure to comply with existing or new U.S. federal, state, and international privacy laws (GDPR, CPRA, CDPA, CPA) could result in substantial operational costs, fines (e.g., up to €20 million or 4% of global revenue for GDPR), and reputational damage[138][139][140] - Misclassification or reclassification of independent contractors, agency workers, or employees could increase costs related to wages, benefits, taxes, and potential punitive damages[141][142] - Liability risks from information or content disseminated through websites/mobile applications (defamation, infringement, negligence) and claims related to service offerings[143][144] - Exposure to greater than anticipated tax liabilities due to complex tax laws, challenges to methodologies, and uncertain tax determinations, potentially impacting financial position and results[145][146][148][149] - Ability to use tax attributes (NOLs, tax credits) to reduce future U.S. income taxes could be limited by ownership changes under Sections 382 and 383 of the Code[152] Risks Related to Our Capital Structure Groupon faces capital structure risks including limited access to funding, potential default on 2026 Convertible Senior Notes, and takeover deterrence from note features. - Limited access to capital and potential failure to raise future capital could prevent growth and adversely impact liquidity, especially with outstanding $230.0 million in 2026 Convertible Senior Notes[153][154] - Inability to raise funds to settle cash conversions, repurchase, or repay the 2026 Notes at maturity could lead to default under the Indenture and other debt agreements[155][156][157] - Terms of the 2026 Notes, particularly the fundamental change repurchase feature, could delay or prevent a company takeover[158] - The conditional conversion feature of the 2026 Notes, if triggered, could adversely affect liquidity by requiring cash payments or reclassification of debt to current liability[158][159] Risks Related to Ownership of Our Common Stock Common Stock ownership risks include high price volatility, potential impact from capped call hedging activities, counterparty default, lack of dividends, and takeover-discouraging charter provisions. - The trading price of Common Stock is highly volatile due to operating results, macroeconomic conditions, market speculation, future stock sales, and changes in capital structure or accounting principles[160] - Capped call transactions related to the 2026 Notes may affect the value of the Common Stock due to hedging activities by option counterparties[165][166][167] - Counterparty risk exists with capped call transactions; default by an option counterparty could lead to failure to deliver shares, adverse tax consequences, or increased dilution[168][169] - The company does not intend to pay dividends for the foreseeable future, meaning stockholders' return depends solely on stock price appreciation[164] - Provisions in charter documents and Delaware law could discourage takeovers beneficial to stockholders, such as the Board's right to fill vacancies or restrictions on stockholder actions[164] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC. - No unresolved staff comments were reported[170] Item 1C. Cybersecurity Groupon faces significant cybersecurity risks, managed by a robust program overseen by the Audit Committee, employing various controls, with no material incidents reported to date. - Groupon faces significant cybersecurity risks due to widespread use of its platforms, attractiveness to threat actors, global operations across thirteen countries, and the substantial potential harm from a material incident[170] - The Audit Committee oversees cybersecurity risks, with regular reports from IT and Information Security teams, and an annual review with the Board[172][175] - The cybersecurity program employs security practices, intrusion/anomaly detection tools, third-party security testing, and monitors email, workstation, server, and cloud security, along with password management and ransomware protection[173] - As of the filing date, Groupon has not experienced a material cybersecurity threat or incident resulting in a material adverse impact to its business or operations[171] Item 2. Properties As of December 31, 2023, Groupon owned no property and leased 16 facilities globally, including its Chicago headquarters, deemed adequate for business needs. - As of December 31, 2023, Groupon owned no property and leased 16 facilities worldwide[176] - The corporate headquarters is located in Chicago, Illinois[176] Item 3. Legal Proceedings Information regarding material pending legal proceedings is incorporated by reference from Note 9, Commitments and Contingencies, to the Consolidated Financial Statements. - Material pending legal proceedings are detailed in Item 8, Note 9, Commitments and Contingencies[177] Item 4. Mine Safety Disclosures This item is not applicable to Groupon. - Mine Safety Disclosures are not applicable[177] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section provides information on Groupon's common stock, including its NASDAQ listing, number of holders, dividend policy, and share repurchase program details. Common Stock Information Groupon's Common Stock is listed on NASDAQ, with 93 holders of record as of March 2024, and no anticipated cash dividends. - Groupon's Common Stock is listed on the NASDAQ Global Select Market under the symbol 'GRPN' since November 4, 2011[179] - As of March 12, 2024, there were 93 holders of record of Common Stock, with each holder entitled to one vote per share[180] - The company does not anticipate paying cash dividends in the foreseeable future[179] - No unregistered equity securities were issued during the year ended December 31, 2023[181] Issuer Purchases of Equity Securities Groupon has an authorized share repurchase program with $245.0 million remaining, though no shares were purchased in 2023 under the public program. - The Board authorized a $300.0 million share repurchase program in May 2018; $245.0 million remained available as of December 31, 2023[182] - No shares were purchased under the public repurchase program during the year ended December 31, 2023[182] Shares Withheld for Tax Obligations (Q4 2023) | Date | Purchased Shares (1) | Average Paid Price Per Share | |:-----------------|:---------------------|:-----------------------------| | October 1-31, 2023 | 9,280 | $12.61 | | November 1-30, 2023| 1,472 | $9.51 | | December 1-31, 2023| 381 | $10.50 | | Total | 11,133 | $12.13 | - Since inception (August 2013) through December 31, 2023, Groupon repurchased 10,294,117 shares for an aggregate of $922.7 million[183] Stock Performance Graph This section presents a graph comparing Groupon's Common Stock cumulative total return against the Nasdaq Composite and Nasdaq 100 indices for 2019-2023. - The section includes a graph comparing the cumulative total return of Groupon's Common Stock with the Nasdaq Composite Index and Nasdaq 100 Index for 2019-2023[186][187] Item 6. [Reserved] This item is reserved and contains no information. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Groupon's financial condition and operating results for 2023 vs. 2022, covering strategy, cost savings, key metrics, segment performance, non-GAAP measures, liquidity, and critical accounting estimates. Overview and Strategy Groupon operates a global two-sided marketplace across Local, Goods, and Travel, with a strategy to be the trusted platform for local services and experiences. - Groupon operates a global two-sided marketplace in North America and International segments, across Local, Goods, and Travel categories[191] - Revenue is primarily net commissions from selling goods/services for third-party merchants and commissions from digital coupons[191] - The strategy is to be the trusted marketplace for local services and experiences, growing revenue by strengthening merchant relationships and enhancing customer experience[192] 2022 Cost Savings Plan Initiated in August 2022, this multi-phase plan aims to reduce expenses and workforce by approximately 1,150 positions globally, with most reductions completed by March 2023. - Initiated in August 2022, the multi-phase plan aims to reduce expense structure and align with business objectives, including a restructuring plan with an overall reduction of approximately 1,150 positions globally[193] - The majority of workforce reductions were completed by March 31, 2023, with the remainder expected by end of 2024[193] - Total pre-tax charges of $22.0 million to $24.1 million are expected, with $21.4 million incurred since inception, primarily for employee severance and benefits[193] How We Measure Our Business Groupon measures its business using key operating metrics like gross billings, units, and active customers, alongside financial metrics such as revenue, gross profit, Adjusted EBITDA, and free cash flow. - Key operating metrics include Gross billings (total dollar value of customer purchases), Units (number of purchases), and Active customers (unique user accounts making a purchase in the trailing twelve months)[195] Operating Metrics (in thousands) | Metric | Year Ended December 31, 2023 | Year Ended December 31, 2022 | |:--------------------|:-----------------------------|:-----------------------------| | Gross billings | $1,645,058 | $1,822,902 | | Units | 41,368 | 50,614 | | TTM Active customers| 16,501 | 18,780 | - Key financial metrics include Revenue (net commissions), Gross profit (net margin after cost of revenue), Adjusted EBITDA (non-GAAP, excluding taxes, interest, D&A, stock-based comp, special charges), and Free cash flow (non-GAAP, operating cash flow less capex and capitalized software)[198][199] Financial Metrics (in thousands) | Metric | Year Ended December 31, 2023 | Year Ended December 31, 2022 | |:------------------|:-----------------------------|:-----------------------------| | Revenue | $514,910 | $599,085 | | Gross profit | $450,664 | $522,824 | | Adjusted EBITDA | $55,453 | $(15,113) | | Free cash flow | $(97,270) | $(172,155) | - Operating expenses include Marketing (online/offline, payroll, net cost of certain offerings) and Selling, general and administrative (sales commissions, customer service, operations, technology, product development, corporate functions, D&A, rent, professional fees)[202][203] - Restructuring and related charges cover severance, benefits, impairments, and other exit costs from workforce reductions and facility changes[204] Factors Affecting Our Performance Groupon's performance is influenced by its ability to attract and retain merchants and customers, and by broader macroeconomic conditions impacting consumer and merchant behavior. - Performance is affected by the ability to attract and retain local merchants, offering flexible deal structures to balance needs of partners, customers, and Groupon[205] - Acquiring and retaining customers requires strengthening product offerings, improving attractiveness, and rebuilding performance marketing campaigns[205] - Macroeconomic conditions, including inflationary pressures, higher labor costs, labor shortages, and supply chain challenges, continue to impact consumer and merchant behavior[206] Results of Operations This section analyzes Groupon's consolidated and segment-specific operating results, including revenue, gross profit, and expenses, for the years ended December 31, 2023 and 2022. North America Segment Performance North America segment experienced declines in gross billings, units, and active customers in 2023, primarily due to reduced demand in Goods and Local categories. North America Operating Metrics (in thousands, except percentages) | Metric | 2023 | 2022 | % Change 2023 vs 2022 | |:--------------------|:------------|:------------|:----------------------| | Gross billings | | | | | Local | $971,313 | $1,019,960 | (4.8)% | | Goods | $88,987 | $133,262 | (33.2)% | | Travel | $80,946 | $84,988 | (4.8)% | | Total gross billings| $1,141,246 | $1,238,210 | (7.8)% | | Units | | | | | Local | 21,483 | 24,986 | (14.0)% | | Goods | 3,412 | 5,289 | (35.5)% | | Travel | 334 | 387 | (13.6)% | | Total units | 25,229 | 30,662 | (17.7)% | | TTM Active customers| 10,291 | 11,277 | (8.7)% | - North America gross billings, units, and TTM active customers decreased by $97.0 million, 5.4 million, and 1.0 million, respectively, in 2023 compared to 2022, primarily due to declining demand in Goods and Local categories and overall lower platform engagement[207] North America Financial Metrics (dollars in thousands, except percentages) | Metric | 2023 | 2022 | % Change 2023 vs 2022 | |:------------------|:------------|:------------|:----------------------| | Revenue | | | | | Local | $346,962 | $390,449 | (11.1)% | | Goods | $18,436 | $28,785 | (36.0)% | | Travel | $14,554 | $17,035 | (14.6)% | | Total revenue | $379,952 | $436,269 | (12.9)% | | Cost of revenue | | | | | Local | $44,199 | $52,693 | (16.1)% | | Goods | $3,276 | $5,249 | (37.6)% | | Travel | $3,484 | $4,173 | (16.5)% | | Total cost of revenue| $50,959 | $62,115 | (18.0)% | | Gross profit | | | | | Local | $302,763 | $337,756 | (10.4)% | | Goods | $15,160 | $23,536 | (35.6)% | | Travel | $11,070 | $12,862 | (13.9)% | | Total gross profit| $328,993 | $374,154 | (12.1)% | | Gross margin (1) | 33.3% | 35.2% | | - North America revenue, cost of revenue, and gross profit decreased by $56.3 million, $11.2 million, and $45.2 million, respectively, in 2023 compared to 2022, driven by reduced demand in Goods and Local categories[210] North America Marketing and Contribution Profit (dollars in thousands, except percentages) | Metric | 2023 | 2022 | % Change 2023 vs 2022 | |:------------------------|:------------|:------------|:----------------------| | Marketing | $73,178 | $103,862 | (29.5)% | | % of Gross Profit | 22.2% | 27.8% | | | Contribution Profit | $255,815 | $270,292 | (5.4)% | - North America marketing expense decreased by 29.5% in 2023, primarily due to lower marketing-related payroll, traffic declines, and reduced online marketing spend[213] - North America contribution profit decreased by 5.4% in 2023, mainly due to the decrease in gross profit[214] International Segment Performance International segment saw declines in gross billings, units, and active customers in 2023, mainly from the Goods category, despite favorable foreign currency impacts. International Operating Metrics (in thousands, except percentages) | Metric | 2023 | 2022 | % Change 2023 vs 2022 | |:--------------------|:------------|:------------|:----------------------| | Gross billings | | | | | Local | $380,797 | $402,192 | (5.3)% | | Goods | $80,062 | $123,863 | (35.4)% | | Travel | $42,953 | $58,637 | (26.7)% | | Total gross billings| $503,812 | $584,692 | (13.8)% | | Units | | | | | Local | 13,032 | 14,381 | (9.4)% | | Goods | 2,866 | 5,210 | (45.0)% | | Travel | 241 | 361 | (33.2)% | | Total units | 16,139 | 19,952 | (19.1)% | | TTM Active customers| 6,210 | 7,503 | (17.2)% | - International gross billings, units, and TTM active customers decreased by $80.9 million, 3.8 million, and 1.3 million, respectively, in 2023 compared to 2022, primarily due to declines in the Goods category and overall demand, despite an $8.0 million favorable impact from foreign currency exchange rates on gross billings[216] International Financial Metrics (dollars in thousands, except percentages) | Metric | 2023 | 2022 | % Change 2023 vs 2022 | |:------------------|:------------|:------------|:----------------------| | Revenue | | | | | Local | $111,543 | $128,295 | (13.1)% | | Goods | $14,961 | $23,742 | (37.0)% | | Travel | $8,454 | $10,779 | (21.6)% | | Total revenue | $134,958 | $162,816 | (17.1)% | | Cost of revenue | | | | | Local | $9,903 | $10,647 | (7.0)% | | Goods | $2,305 | $2,080 | 10.8% | | Travel | $1,079 | $1,419 | (24.0)% | | Total cost of revenue| $13,287 | $14,146 | (6.1)% | | Gross profit | | | | | Local | $101,640 | $117,648 | (13.6)% | | Goods | $12,656 | $21,662 | (41.6)% | | Travel | $7,375 | $9,360 | (21.2)% | | Total gross profit| $121,671 | $148,670 | (18.2)% | | Gross margin (1) | 26.8% | 27.8% | | - International revenue, cost of revenue, and gross profit decreased by $27.9 million, $0.9 million, and $27.0 million, respectively, in 2023 compared to 2022, mainly due to Goods category decline and overall demand decrease, partially offset by favorable foreign currency impacts[219] International Marketing and Contribution Profit (dollars in thousands, except percentages) | Metric | 2023 | 2022 | % Change 2023 vs 2022 | |:------------------------|:------------|:------------|:----------------------| | Marketing | $37,327 | $45,369 | (17.7)% | | % of Gross Profit | 30.7% | 30.5% | | | Contribution Profit | $84,344 | $103,301 | (18.4)% | - International marketing expense decreased by 17.7% in 2023 due to traffic declines and lower online marketing investment, while marketing expense as a percentage of gross profit remained relatively flat[221] - International contribution profit decreased by 18.4% in 2023, primarily due to the decrease in gross profit[222] Consolidated Operating Expenses Consolidated operating expenses, including marketing and SG&A, significantly decreased in 2023 due to lower payroll, reduced marketing spend, and absence of prior year impairment charges. Consolidated Operating Expenses (dollars in thousands, except percentages) | Expense Category | 2023 | 2022 | % Change 2023 vs 2022 | |:----------------------------------|:------------|:------------|:----------------------| | Marketing | $110,505 | $149,231 | (26.0)% | | Selling, general and administrative| $350,405 | $481,375 | (27.2)% | | Goodwill impairment | — | $35,424 | (100.0)% | | Long-lived asset impairment | — | $12,259 | (100.0)% | | Restructuring and related charges | $8,006 | $12,350 | (35.2)% | | Total Operating expenses | $468,916 | $690,639 | (32.1)% | | % of Gross profit: | | | | | Marketing | 24.5% | 28.5% | | | Selling, general and administrative| 77.8% | 92.1% | | - Consolidated marketing expense decreased by 26.0% in 2023, driven by lower payroll, traffic declines, and reduced online marketing spend[223] - Selling, general and administrative (SG&A) expenses decreased by 27.2% in 2023, primarily due to lower payroll-related expenses[224] - Goodwill and long-lived asset impairments, totaling $35.4 million and $12.3 million respectively in 2022, had no similar activity in 2023[224] - Restructuring and related charges decreased by 35.2% in 2023, mainly due to impairment recognized in 2022 related to right-of-use assets for the 2020 Restructuring Plan[224] Consolidated Other Income (Expense), Net Other income (expense), net in 2023 was primarily impacted by a $25.8 million remeasurement loss on the SumUp investment, largely offset by favorable foreign currency changes. Consolidated Other Income (Expense), Net (dollars in thousands) | Metric | 2023 | 2022 | |:----------------------------|:------------|:------------| | Other income (expense), net | $(25,174) | $(24,155) | - The change in Other income (expense), net in 2023 was primarily due to a $25.8 million remeasurement loss on the investment in SumUp, largely offset by a $25.4 million favorable change in foreign currency gains and losses[228] Consolidated Provision (Benefit) for Income Taxes The provision for income taxes decreased significantly in 2023 due to pretax losses in jurisdictions with valuation allowances, maintaining a similar effective tax rate to 2022. Consolidated Provision (Benefit) for Income Taxes (dollars in thousands, except percentages) | Metric | 2023 | 2022 | % Change 2023 vs 2022 | |:----------------------------------|:----------|:----------|:----------------------| | Provision (benefit) for income taxes| $9,508 | $42,410 | (77.6)% | | Effective tax rate | (21.9)% | (22.1)% | | - The provision for income taxes decreased by 77.6% in 2023, primarily due to pretax losses in jurisdictions with valuation allowances against deferred tax assets[231] - The effective tax rate for 2023 was (21.9)%, similar to (22.1)% in 2022, influenced by valuation allowances and non-deductible goodwill impairment in 2022[229][231] - A full valuation allowance is maintained against all U.S. federal and state deferred tax assets for 2023[231] Non-GAAP Financial Measures Groupon provides non-GAAP measures like Adjusted EBITDA and free cash flow to offer investors a clearer understanding of financial performance and facilitate comparisons. - Non-GAAP financial measures (Adjusted EBITDA, free cash flow, foreign currency exchange rate neutral operating results) are provided to aid investors in understanding financial performance and facilitate comparisons[232] - Adjusted EBITDA excludes income taxes, interest, D&A, stock-based compensation, and other special charges/credits, used by management to evaluate operating performance and make strategic decisions[233][234][235] Adjusted EBITDA Reconciliation (in thousands) | Metric | 2023 | 2022 | |:-----------------------------------------|:------------|:------------| | Net income (loss) | $(52,934) | $(234,380) | | Adjustments: | | | | Stock-based compensation | 14,481 | 30,006 | | Depreciation and amortization | 51,218 | 62,663 | | Restructuring and related charges | 8,006 | 12,350 | | Goodwill impairment | — | 35,424 | | Long-lived asset impairment | — | 12,259 | | Other (income) expense, net | 25,174 | 24,155 | | Provision (benefit) for income taxes | 9,508 | 42,410 | | Total adjustments | 108,387 | 219,267 | | Adjusted EBITDA | $55,453 | $(15,113) | - Free cash flow is net cash from operating activities less purchases of property/equipment and capitalized software, representing a measure of cash flows for ongoing operations[237] - Foreign currency exchange rate neutral operating results present current period results as if exchange rates remained constant from the prior year, aiding historical performance comparisons[238] Liquidity and Capital Resources Groupon's liquidity is primarily from cash and borrowings, with improved operating cash flow in 2023, and a recent Rights Offering alleviating going concern doubt. - Principal liquidity source is cash balance, including $141.6 million in outstanding borrowings under the Credit Agreement as of December 31, 2023[241] Cash Flow Summary (in thousands) | Activity | 2023 | 2022 | |:----------------------|:------------|:------------| | Operating activities | $(77,985) | $(135,987) | | Investing activities | $(1,397) | $(38,845) | | Financing activities | $(35,690) | $(34,407) | Free Cash Flow Reconciliation (in thousands) | Metric | 2023 | 2022 | |:------------------------------------------------------|:------------|:------------| | Net cash provided by (used in) operating activities | $(77,985) | $(135,987) | | Purchases of property and equipment and capitalized software| $(19,285) | $(36,168) | | Free cash flow | $(97,270) | $(172,155) | - Net cash used in operating activities improved to $78.0 million in 2023 from $136.0 million in 2022, driven by cost-cutting measures from the 2022 Restructuring Plan[246] - Net cash used in investing activities decreased significantly to $1.4 million in 2023 from $38.8 million in 2022, due to $18.9 million from SumUp sale and fewer capex purchases[246] - Net cash used in financing activities was $35.7 million in 2023, compared to $34.4 million in 2022, primarily due to $32.2 million in debt payments under the revolving credit facility[247] - In March 2023, borrowing capacity under the revolving credit facility was reduced from $150.0 million to $75.0 million, with $27.3 million repaid[247] - A fully backstopped Rights Offering of $80.0 million closed in January 2024, with proceeds used to prepay $43.1 million of the credit facility in February 2024, alleviating substantial doubt about going concern[248][249][251] - As of December 31, 2023, $40.4 million in cash was held by international subsidiaries, intended for reinvestment or tax-efficient remittance[252] Contractual Obligations and Commitments Additional information on Groupon's commitments for financing arrangements, future lease payments, and purchase obligations is referenced in Item 8, Notes 7, 8, and 9. - Additional information on commitments for financing arrangements, future lease payments, and purchase obligations can be found in Item 8, Note 7, Note 8, and Note 9[254] Off-Balance Sheet Arrangements Groupon did not have any off-balance sheet arrangements as of December 31, 2023. - Groupon did not have any off-balance sheet arrangements as of December 31, 2023[255] Critical Accounting Estimates Critical accounting estimates include going concern, revenue recognition, impairment assessments for various assets, and income taxes, all requiring significant judgment. - Critical accounting estimates include going concern, revenue recognition, impairment assessments (goodwill, long-lived assets, right-of-use assets, investments), and income taxes[256] - Going concern assessment involves significant judgment in identifying business factors for forecasted financial results and liquidity[257][258] - Revenue recognition estimates include refund reserves, variable consideration from unredeemed vouchers, and breakage income from customer credits, relying on historical data and future customer behavior[259] - Impairment assessments for goodwill and long-lived assets use the income approach (discounted cash flows) with significant estimates for discount rates, growth rates, and operating expenses[260][261] - Income tax accounting requires significant judgment in determining worldwide provision and recording assets/liabilities, assessing deferred tax asset realization, and managing uncertain tax positions[263][264] Recently Issued Accounting Standards For a description of recently issued accounting standards, refer to Item 8, Note 2, Summary of Significant Accounting Policies. - For a description of recently issued accounting standards, refer to Item 8, Note 2, Summary of Significant Accounting Policies[265] Item 7A. Quantitative and Qualitative Disclosure About Market Risk This section discusses Groupon's exposure to market risks, including foreign currency exchange risk, interest rate risk, and inflation risk, and their potential impact on financial results. Foreign Currency Exchange Risk Groupon's international operations expose it to foreign currency fluctuations, with a hypothetical 10% adverse change impacting net working capital. - Groupon transacts in various foreign currencies (Euro, British pound sterling, Canadian dollar, Indian Rupee, Polish Zloty, Swiss Franc, Australian dollar), with 26.2% of 2023 revenue from the International segment, exposing it to foreign currency fluctuations[268] - A hypothetical 10% adverse change in foreign currency exchange rates would increase the net working capital deficit from $21.7 million (as of Dec 31, 2023) by $2.2 million, a significant improvement from $11.2 million in 2022[270] Interest Rate Risk Groupon's interest rate risk is limited for fixed-rate convertible notes and cash, but variable rates on its credit agreement expose it to risk if borrowings occur. - Exposure to interest rate changes is limited for cash balances (bank deposits) and the fixed-rate 1.125% Convertible Senior Notes due 2026 ($230.0 million principal)[271] - The Credit Agreement, with $42.8 million outstanding borrowings as of December 31, 2023, bears variable interest rates, exposing the company to interest rate risk if it borrows[271] Inflation Risk Inflationary pressures can impact consumer spending and increase operating costs, potentially harming Groupon's business and financial results if not mitigated. - Inflationary pressures affect merchants' and customers' discretionary spending, potentially impacting overall demand for discounted goods and services[272] - Increased operating costs due to inflation, if not offset by price increases or efficiency measures, could harm business, financial condition, and results of operations[272] Item 8. Financial Statements and Supplementary Data This section presents Groupon's audited consolidated financial statements for 2023, 2022, and 2021, including the independent auditor's report, balance sheets, statements of operations, cash flows, and comprehensive notes. Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on Groupon's financial statements but an adverse opinion on internal control over financial reporting due to a material weakness. - Deloitte & Touche LLP issued an unqualified opinion on Groupon's consolidated financial statements for the period ended December 31, 2023[277] - An adverse opinion was expressed on the effectiveness of the company's internal control over financial reporting as of December 31, 2023, due to a material weakness[278] - Critical audit matters included variable consideration revenue recognition (estimation model and assumptions), income taxes (foreign tax position and assessment), and goodwill impairment (valuation of North America reporting unit)[281][282][285][289][290] Consolidated Financial Statements This section includes Groupon's Consolidated Balance Sheets, Statements of Operations, and Statements of Cash Flows for the specified fiscal years. Consolidated Balance Sheets (in thousands) | Metric | December 31, 2023 | December 31, 2022 | |:----------------------------------------|:------------------|:------------------| | Cash and cash equivalents | $141,563 | $281,279 | | Total current assets | $255,583 | $367,351 | | Total assets | $570,956 | $793,117 | | Total current liabilities | $369,154 | $531,440 | | Convertible senior notes, net | $226,470 | $224,923 | | Total liabilities | $611,268 | $784,259 | | Total Groupon, Inc. stockholders' equity (deficit)| $(40,631) | $8,475 | Consolidated Statements of Operations (in thousands) | Metric | 2023 | 2022 | 2021 | |:----------------------------------------|:------------|:------------|:------------| | Total revenue | $514,910 | $599,085 | $967,108 | | Total cost of revenue | $64,246 | $76,261 | $229,992 | | Gross profit | $450,664 | $522,824 | $737,116 | | Total operating expenses | $468,916 | $690,639 | $741,771 | | Income (loss) from operations | $(18,252) | $(167,815) | $(4,655) | | Other income (expense), net | $(25,174) | $(24,155) | $92,680 | | Income (loss) before provision (benefit) for income taxes| $(43,426) | $(191,970) | $88,025 | | Provision (benefit) for income taxes | $9,508 | $42,410 | $(32,323) | | Net income (loss) | $(52,934) | $(234,380) | $120,348 | | Net income (loss) attributable to Groupon, Inc.| $(55,410) | $(237,609) | $118,668 | | Basic net income (loss) per share | $(1.77) | $(7.88) | $4.04 | | Diluted net income (loss) per share | $(1.77) | $(7.88) | $3.68 | Consolidated Statements of Cash Flows (in thousands) | Activity | 2023 | 2022 | 2021 | |:------------------------------------------|:------------|:------------|:------------| | Net cash provided by (used in) operating activities| $(77,985) | $(135,987) | $(123,958) | | Net cash provided by (used in) investing activities| $(1,397) | $(38,845) | $(45,811) | | Net cash provided by (used in) financing activities| $(35,690) | $(34,407) | $(183,850) | | Net increase (decrease) in cash, cash equivalents and restricted cash| $(114,058) | $(217,787) | $(351,602) | | Cash, cash equivalents and restricted cash, end of period| $167,638 | $281,696 | $499,483 | Notes to Consolidated Financial Statements These notes provide detailed explanations of Groupon's accounting policies, financial instrument information, segment data, and other disclosures supporting the consolidated financial statements. Description of Business and Basis of Presentation Groupon operates as a global two-sided marketplace, with financial statements prepared under U.S. GAAP, and no longer has substantial doubt about its going concern ability. - Groupon, Inc. is a global two-sided marketplace connecting consumers to merchants, operating in North America and International segments[313] - Consolidated Financial Statements are prepared in accordance with U.S. GAAP, including wholly-owned and majority-owned subsidiaries[314] - Management concluded that there is no longer substantial doubt about the company's ability to continue as a going concern, following a fully backstopped Rights Offering and repayment of the credit facility in early 2024[316] Summary of Significant Accounting Policies This section outlines Groupon's key accounting policies, including consolidation, estimates, cash, receivables, property, software, goodwill, investments, income taxes, leases, and revenue recognition. - Significant accounting policies include principles of consolidation, use of estimates (e.g., unredeemed vouchers, income taxes, impairment), cash and cash equivalents, accounts receivable, property and equipment, internal-use software, cloud computing costs, goodwill, investments, income taxes, lease obligations, and revenue recognition[314][319][320][321][322][323][324][325][326][327][328][329][330][331][332][334][335][336][337][338][340][341][342][343][344][345][346][347][348][349][350][351] - Revenue is recognized when performance obligations are satisfied, primarily as net commissions from third-party merchant sales, with estimates for variable consideration from unredeemed vouchers[337][338][342] - No new accounting standards were adopted in 2023, but the company is assessing the effects of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures) effective in future periods[317][352][353] Property, Equipment and Software, Net This section details Groupon's net property, equipment, and software, including depreciation and amortization expenses, and notes the absence of impairment in 2023. Property, Equipment and Software, Net (in thousands) | Category | December 31, 2023 | December 31, 2022 | |:----------------------------------------|:------------------|:------------------| | Total property, equipment and software, gross| $321,339 | $466,229 | | Less: accumulated depreciation and amortization| $(290,809) | $(409,498) | | Property, equipment and software, net | $30,530 | $56,731 | - No triggering events for impairment testing were identified in 2023. In 2022, long-lived asset impairment of $4.5 million was recognized due to downward forecast revisions, primarily in the International segment and for internally developed software[357][358][361] Depreciation and Amortization Expense on Property, Equipment and Software (in thousands) | Category | 2023 | 2022 | 2021 | |:----------------------------------------|:------------|:------------|:------------| | Service cost of revenue | $25,024 | $32,554 | $32,354 | | Product cost of revenue | — | — | $378 | | Selling, general and administrative | $18,377 | $21,616 | $31,193 | | Total | $43,401 | $54,170 | $63,925 | Goodwill and Other Intangible Assets This section details goodwill activity, including a $35.4 million impairment in 2022 for the International segment, and presents net intangible assets with estimated future amortization. Goodwill Activity by Segment (in thousands) | Segment | Balance as of Dec 31, 2021 | Goodwill Impairment | Foreign Currency Translation | Balance as of Dec 31, 2022 | |:----------------|:---------------------------|:--------------------|:-----------------------------|:---------------------------| | North America | $178,685 | — | — | $178,685 | | International | $37,708 | $(35,424) | $(2,284) | $— | | Consolidated | $216,393 | $(35,424) | $(2,284) | $178,685 | - No goodwill impairment was identified in 2023. In 2022, a full impairment of goodwill ($35.4 million) was recognized in the International reporting unit due to a downward revision of forecasts[367][368] Intangible Assets, Net (in thousands) | Category | Gross Carrying Value (2023) | Accumulated Amortization (2023) | Net Carrying Value (2023) | Gross Carrying Value (2022) | Accumulated Amortization (2022) | Net Carrying Value (2022) | |:----------------------|:----------------------------|:--------------------------------|:--------------------------|:----------------------------|:--------------------------------|:--------------------------| | Merchant relationships| $18,842 | $17,944 | $898 | $17,912 | $14,327 | $3,585 | | Trade names | $9,459 | $8,753 | $706 | $9,340 | $8,382 | $958 | | Patents | $13,235 | $7,237 | $5,998 | $13,341 | $6,701 | $6,640 | | Other intangible assets| $9,318 | $5,516 | $3,802 | $17,517 | $11,059 | $6,458 | | Total | $50,854 | $39,450 | $11,404 | $58,110 | $40,469 | $17,641 | - Amortization expense for intangible assets was $7.8 million in 2023, $8.5 million in 2022, and $8.9 million in 2021[370] Estimated Future Amortization Expense for Intangible Assets (in thousands) | Year | Amount | |:-----------|:--------| | 2024 | $4,419 | | 2025 | $2,900 | | 2026 | $2,028 | | 2027 | $1,350 | | 2028 |