6
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)thousands, except share amounts)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Income (loss) from continuing operations | $ | 3,802 | $ | (34,447 | ) | $ | (22,470 | ) | $ | (126,754 | ) | |||||
| Other comprehensive income (loss) from continuing operations: | ||||||||||||||||
| Foreign currency translation adjustments: | ||||||||||||||||
| Net unrealized gain (loss) during the period | (5,034 | ) | 11,358 | (10,561 | ) | 7,290 | ||||||||||
| Reclassification adjustments included in income (loss) from continuing operations | — | 221 | (187 | ) | (7,776 | ) | ||||||||||
| Net change in unrealized gain (loss) | (5,034 | ) | 11,579 | (10,748 | ) | (486 | ) | |||||||||
| Defined benefit pension plan adjustments: | ||||||||||||||||
| Curtailment gain | — | — | 583 | — | ||||||||||||
| Amortization of pension net actuarial gain (loss) to earnings | — | 23 | 2 | 69 | ||||||||||||
| Net change in unrealized gain (loss) (net of tax effect of $0 and $4 for the three months ended September 30, 2017 and 2016, respectively, and $0 and $13 for the nine months ended September 30, 2017 and 2016, respectively) | — | 23 | 585 | 69 | ||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| Net unrealized gain (loss) during the period | (225 | ) | (16 | ) | (938 | ) | (184 | ) | ||||||||
| Reclassification adjustment for realized gain on investment included in income (loss) from continuing operations | — | — | (1,341 | ) | — | |||||||||||
| Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of $0 and $10 for the three months ended September 30, 2017 and 2016, respectively, and $0 and $113 for the nine months ended September 30, 2017 and 2016, respectively) | (225 | ) | (16 | ) | (2,279 | ) | (184 | ) | ||||||||
| Other comprehensive income (loss) from continuing operations | (5,259 | ) | 11,586 | (12,442 | ) | (601 | ) | |||||||||
| Comprehensive income (loss) from continuing operations | (1,457 | ) | (22,861 | ) | (34,912 | ) | (127,355 | ) | ||||||||
| Income (loss) from discontinued operations | (862 | ) | (1,345 | ) | (1,751 | ) | (6,365 | ) | ||||||||
| Other comprehensive income (loss) from discontinued operations - Foreign currency translation adjustments: | ||||||||||||||||
| Net unrealized gain (loss) during the period | — | (10,746 | ) | (1,793 | ) | (10,473 | ) | |||||||||
| Reclassification adjustment included in net income (loss) from discontinued operations | — | — | (14,718 | ) | — | |||||||||||
| Net change in unrealized gain (loss) | — | (10,746 | ) | (16,511 | ) | (10,473 | ) | |||||||||
| Comprehensive income (loss) from discontinued operations | (862 | ) | (12,091 | ) | (18,262 | ) | (16,838 | ) | ||||||||
| Comprehensive income (loss) | (2,319 | ) | (34,952 | ) | (53,174 | ) | (144,193 | ) | ||||||||
| Comprehensive income (loss) attributable to noncontrolling interests | (2,881 | ) | (2,184 | ) | (9,460 | ) | (8,880 | ) | ||||||||
| Comprehensive income (loss) attributable to Groupon, Inc. | $ | (5,200 | ) | $ | (37,136 | ) | $ | (62,634 | ) | $ | (153,073 | ) | ||||
| Groupon, Inc. Stockholders' Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Groupon, Inc. Stockholders' Equity (Deficit) | Non-controlling Interests | Total Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 40,007,255 | $ | 4 | $ | 2,294,215 | (10,294,117) | $ | (922,666) | $ | (1,156,868) | $ | (4,813) | $ | 209,872 | $ | 424 | $ | 210,296 | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | — | (34,852) | 3,369 | (31,483) | 500 | (30,983) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and performance share units | 308,152 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under employee stock purchase plan | 30,022 | — | 591 | — | — | — | — | 591 | — | 591 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlements of stock-based compensation awards | (118,589) | — | (2,597) | — | — | — | — | (2,597) | — | (2,597) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation on equity-classified awards | — | — | 8,349 | — | — | — | — | 8,349 | — | 8,349 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest holders | — | — | — | — | — | — | — | — | (814) | (814) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 40,226,840 | $ | 4 | $ | 2,300,558 | (10,294,117) | $ | (922,666) | $ | (1,191,720) | $ | (1,444) | $ | 184,732 | $ | 110 | $ | 184,842 | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | — | (91,227) | 20,818 | (70,409) | 977 | (69,432) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and performance share units | 407,426 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlements of stock-based compensation awards | (151,368) | — | (2,166) | — | — | — | — | (2,166) | — | (2,166) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation on equity-classified awards | — | — | 9,784 | — | — | — | — | 9,784 | — | 9,784 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest holders | — | — | — | — | — | — | — | — | (943) | (943) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 40,482,898 | $ | 4 | $ | 2,308,176 | (10,294,117) | $ | (922,666) | $ | (1,282,947) | $ | 19,374 | $ | 121,941 | $ | 144 | $ | 122,085 | |||||||||||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
7
| Groupon, Inc. Stockholders' Equity | |||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Groupon, Inc. Stockholders' Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2016 | 736,531,771 | $ | 74 | $ | 2,112,728 | (171,695,908 | ) | $ | (807,424 | ) | $ | (1,099,010 | ) | $ | 58,052 | $ | 264,420 | $ | 642 | $ | 265,062 | ||||||||||||||||
| Cumulative effect of change in accounting principle | — | — | — | — | — | (3,234 | ) | — | (3,234 | ) | — | (3,234 | ) | ||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | (33,681 | ) | — | (33,681 | ) | 9,460 | (24,221 | ) | ||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | (27,259 | ) | (27,259 | ) | — | (27,259 | ) | ||||||||||||||||||||||||
| Pension liability adjustments, net of tax | — | — | — | — | — | — | 585 | 585 | — | 585 | |||||||||||||||||||||||||||
| Unrealized gain (loss) on available-for-sale securities, net of tax | — | — | — | — | — | — | (2,279 | ) | (2,279 | ) | — | (2,279 | ) | ||||||||||||||||||||||||
| Exercise of stock options | 84,427 | — | 203 | — | — | — | — | 203 | — | 203 | |||||||||||||||||||||||||||
| Vesting of restricted stock units and performance share units | 13,293,810 | 1 | (1 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Shares issued under employee stock purchase plan | 1,879,656 | — | 5,283 | — | — | — | — | 5,283 | — | 5,283 | |||||||||||||||||||||||||||
| Tax withholdings related to net share settlements of stock-based compensation awards | (5,367,465 | ) | — | (20,770 | ) | — | — | — | — | (20,770 | ) | — | (20,770 | ) | |||||||||||||||||||||||
| Stock-based compensation on equity-classified awards | — | — | 63,696 | — | — | — | — | 63,696 | — | 63,696 | |||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | (16,906,334 | ) | (60,026 | ) | — | — | (60,026 | ) | — | (60,026 | ) | |||||||||||||||||||||||
| Distributions to noncontrolling interest holders | — | — | — | — | — | — | — | — | (8,974 | ) | (8,974 | ) | |||||||||||||||||||||||||
| Balance at September 30, 2017 | 746,422,199 | $ | 75 | $ | 2,161,139 | (188,602,242 | ) | $ | (867,450 | ) | $ | (1,135,925 | ) | $ | 29,099 | $ | 186,938 | $ | 1,128 | $ | 188,066 | ||||||||||||||||
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Operating activities | |||||||
| Net income (loss) | $ | (24,221 | ) | $ | (133,119 | ) | |
| Less: Income (loss) from discontinued operations, net of tax | (1,751 | ) | (6,365 | ) | |||
| Income (loss) from continuing operations | (22,470 | ) | (126,754 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
| Depreciation and amortization of property, equipment and software | 86,355 | 87,585 | |||||
| Amortization of acquired intangible assets | 17,622 | 13,643 | |||||
| Stock-based compensation | 60,318 | 92,360 | |||||
| Restructuring-related long-lived asset impairments | — | 45 | |||||
| Gains on business dispositions | — | (11,399 | ) | ||||
| Gain on sale of intangible assets | (17,149 | ) | — | ||||
| Gain on sale of investment | (7,624 | ) | — | ||||
| Deferred income taxes | 845 | (6,468 | ) | ||||
| (Gain) loss, net from changes in fair value of contingent consideration | 48 | 4,130 | |||||
| (Gain) loss from changes in fair value of investments | 5,100 | 7,301 | |||||
| Amortization of debt discount on convertible senior notes | 7,964 | 4,854 | |||||
| Change in assets and liabilities, net of acquisitions and dispositions: | |||||||
| Restricted cash | 2,637 | (332 | ) | ||||
| Accounts receivable | 787 | (2,460 | ) | ||||
| Prepaid expenses and other current assets | (3,114 | ) | 8,295 | ||||
| Accounts payable | (5,616 | ) | (2,610 | ) | |||
| Accrued merchant and supplier payables | (197,836 | ) | (168,944 | ) | |||
| Accrued expenses and other current liabilities | (39,396 | ) | (48,323 | ) | |||
| Other, net | (21,538 | ) | (16,588 | ) | |||
| Net cash provided by (used in) operating activities from continuing operations | (133,067 | ) | (165,665 | ) | |||
| Net cash provided by (used in) operating activities from discontinued operations | (2,195 | ) | (5,892 | ) | |||
| Net cash provided by (used in) operating activities | (135,262 | ) | (171,557 | ) | |||
| Investing activities | |||||||
| Purchases of property and equipment and capitalized software | (43,716 | ) | (49,033 | ) | |||
| Cash derecognized upon dispositions of subsidiaries | — | (1,128 | ) | ||||
| Proceeds from sale of intangible assets | 18,333 | — | |||||
| Proceeds from sales and maturities of investments | 16,561 | 1,685 | |||||
| Acquisitions of businesses, net of acquired cash | — | (940 | ) | ||||
| Acquisitions of intangible assets and other investing activities | (750 | ) | (2,121 | ) | |||
| Net cash provided by (used in) investing activities from continuing operations | (9,572 | ) | (51,537 | ) | |||
| Net cash provided by (used in) investing activities from discontinued operations | (9,548 | ) | (182 | ) | |||
| Net cash provided by (used in) investing activities | (19,120 | ) | (51,719 | ) | |||
| Financing activities | |||||||
| Proceeds from issuance of convertible senior notes | — | 250,000 | |||||
| Issuance costs for convertible senior notes and revolving credit agreement | — | (8,097 | ) | ||||
| Purchase of convertible note hedges | — | (59,163 | ) | ||||
| Proceeds from issuance of warrants | — | 35,495 | |||||
| Payments for purchases of treasury stock | (61,233 | ) | (115,619 | ) | |||
| Taxes paid related to net share settlements of stock-based compensation awards | (23,340 | ) | (23,327 | ) | |||
| Proceeds from stock option exercises and employee stock purchase plan | 5,486 | 4,976 | |||||
| Distributions to noncontrolling interest holders | (8,974 | ) | (9,151 | ) | |||
| Payment of contingent consideration related to acquisitions | (7,790 | ) | (285 | ) | |||
| Payments of capital lease obligations | (25,298 | ) | (21,961 | ) | |||
| Other financing activities | (473 | ) | — | ||||
| Net cash provided by (used in) financing activities | (121,622 | ) | 52,868 | ||||
| Effect of exchange rate changes on cash and cash equivalents, including cash classified within current assets of discontinued operations | 22,818 | 6,793 | |||||
| Net increase (decrease) in cash and cash equivalents, including cash classified within current assets of discontinued operations | (253,186 | ) | (163,615 | ) | |||
| Less: Net increase (decrease) in cash classified within current assets of discontinued operations | (28,866 | ) | (1,388 | ) | |||
| Net increase (decrease) in cash and cash equivalents | (224,320 | ) | (162,227 | ) | |||
| Cash and cash equivalents, beginning of period | 862,977 | 824,307 | |||||
| Cash and cash equivalents, end of period | $ | 638,657 | $ | 662,080 | |||
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating activities | |||||||||||
| Net income (loss) | $ | (40,617) | $ | (124,602) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization of property, equipment and software | 23,560 | 29,558 | |||||||||
| Amortization of acquired intangible assets | 4,188 | 4,305 | |||||||||
| Impairment of Goodwill | — | 35,424 | |||||||||
| Impairment of long-lived assets | — | 8,811 | |||||||||
| Restructuring-related impairment | — | 1,180 | |||||||||
| Stock-based compensation | 9,882 | 16,078 | |||||||||
| Foreign currency (gains) losses, net | (159) | 21,509 | |||||||||
| Change in assets and liabilities: | |||||||||||
| Accounts receivable | 10,463 | (10,233) | |||||||||
| Prepaid expenses and other current assets | 5,384 | 590 | |||||||||
| Right-of-use assets - operating leases | 6,189 | 9,258 | |||||||||
| Accounts payable | (39,427) | 6,073 | |||||||||
| Accrued merchant and supplier payables | (48,447) | (54,905) | |||||||||
| Accrued expenses and other current liabilities | (30,557) | (36,067) | |||||||||
| Operating lease obligations | (15,743) | (13,831) | |||||||||
| Payment for early lease termination | (9,724) | — | |||||||||
| Other, net | 6,378 | (1,504) | |||||||||
| Net cash provided by (used in) operating activities | (118,630) | (108,356) | |||||||||
| Investing activities | |||||||||||
| Purchases of property and equipment and capitalized software | (11,797) | (22,149) | |||||||||
| Proceeds from sale of assets | 1,475 | — | |||||||||
| Acquisitions of intangible assets and other investing activities | (1,174) | (1,546) | |||||||||
| Net cash provided by (used in) investing activities | (11,496) | (23,695) | |||||||||
| Financing activities | |||||||||||
| Payments of borrowings under revolving credit agreement | (28,300) | (40,000) | |||||||||
| Taxes paid related to net share settlements of stock-based compensation awards | (2,194) | (4,703) | |||||||||
| Other financing activities | (1,642) | (1,601) | |||||||||
| Net cash provided by (used in) financing activities | (32,136) | (46,304) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 1,967 | (4,708) | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (160,295) | (183,063) | |||||||||
Cash, cash equivalents and restricted cash, beginning of period (1) | 281,696 | 499,483 | |||||||||
Cash, cash equivalents and restricted cash, end of period (1) | $ | 121,401 | $ | 316,420 | |||||||
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | 3,493 | $ | 2,428 | |||||||
| Income tax payments | 2,676 | 3,611 | |||||||||
| Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software | (1,568) | (53) | |||||||||
| Supplemental cash flow information on our leasing obligations | |||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 15,330 | $ | 15,860 | |||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | — | $ | 1,706 | |||||||
8
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Non-cash investing and financing activities | |||||||
| Continuing operations: | |||||||
| Equipment acquired under capital lease obligations | $ | 17,892 | $ | 17,556 | |||
| Leasehold improvements funded by lessor | 402 | 4,990 | |||||
| Liability for purchases of treasury stock | — | 1,041 | |||||
| Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software | 396 | 2,250 | |||||
| Cost method and available-for-sale investments acquired in connection with business dispositions | 2,022 | 11,050 | |||||
| June 30, 2023 | December 31, 2022 | June 30, 2022 | December 31, 2021 | ||||||||||||||||||||
| Cash and cash equivalents | $ | 118,145 | $ | 281,279 | $ | 315,595 | $ | 498,726 | |||||||||||||||
| Restricted cash included in prepaid expenses and other current assets | 3,256 | 417 | 825 | 757 | |||||||||||||||||||
| Cash, cash equivalents and restricted cash | $ | 121,401 | $ | 281,696 | $ | 316,420 | $ | 499,483 | |||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
9
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Company Information
Groupon, Inc. and its subsidiaries, (the "Company"), which commenced operations in October 2008, operates online local commerce marketplaces throughout the worldis a global scaled two-sided marketplace that connectconnects consumers to merchants to consumers by offering goods and services, generally at a discount. Consumers access those marketplaces through the Company's websites, primarily localized groupon.com sites in many countries,our mobile applications and its mobile applications.our websites.
Unaudited Interim Financial Information
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of Groupon, Inc. and disclosures normally includedits wholly-owned subsidiaries, majority-owned subsidiaries over which we exercise control and variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation. Outside stockholders' interests in subsidiaries are shown on the Condensed Consolidated Financial Statements as Noncontrolling interests. Investments in entities in which we do not have a controlling financial statementsinterest are accounted for at fair value as available-for-sale securities or at cost adjusted for observable price changes and impairments, as appropriate.
Going Concern
The accompanying Condensed Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omittedapplicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In accordance with the rulesAccounting Standards Update ("ASU") No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and regulations of the SEC. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes includedevents, considered in the Company’s Annual Report on Form 10-K,aggregate, that raise substantial doubt about our ability to continue as amended,a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued.
Our net cash used in operating activities was $136.0 million and $124.0 million for the yearyears ended December 31, 2016,2022 and its Current Report on Form 8-K, dated May 17, 2017.
We are currently evaluating several different options to enhance our liquidity position. These options include, but are not limited to, pursuing additional financing from both the public and private markets and potential monetization of a business. The adoption of ASU 2017-01 did not otherwise impact the accompanying condensed consolidated financial statements.
certain non-core assets. In addition, we expect to pursue additional cost savings initiatives under
10
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilitiesreported in the condensed consolidated financial statementsCondensed Consolidated Financial Statements and accompanying notes. Estimates in our financial statements include, but are used for, but not limited to, stock-based compensation,the following: variable consideration from unredeemed vouchers; income taxes,taxes; leases; initial valuation and subsequent impairment testing of acquired goodwill, andother intangible assets investments,and long-lived assets; investments; receivables; customer refunds and other reserves; contingent liabilitiesliabilities; and the useful lives of property, equipment and software and intangible assets. Actual results could differ materially from those estimates.
Certain reclassifications have been made to the Condensed Consolidated Financial Statements of prior periods to conform to the current period presentation.
Adoption of New Accounting Standards
There were no new accounting standards adopted during the three and six months ended June 30, 2023.
NOTE 2. DISCONTINUED OPERATIONSGOODWILL AND OTHER BUSINESS DISPOSITIONSLONG-LIVED ASSETS
We determined the impact to our business from the new variant of COVID-19 during the Company's operations in those 11 countries were completed between November 2016first quarter of 2022 and March 2017.
2022.
11
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Goodwill
The Company recognized a pretax loss on the disposition of $0.5 million, which represents the excess of (a) the sum of (i) the $0.5 million net book value upon closing of the transaction and (ii) a $1.1 million cumulative translation loss, which was reclassified to earnings, over (b) $1.1 million in net consideration received, consisting of the $1.6 million fair value of the investment acquired, less $0.5 million in transaction costs. The Company did not receive any cash proceeds in connection with the transaction. See Note 4, Investments, for additional information about this transaction.
| Three and Six Months Ended June 30, 2022 | |||||
| Property, equipment and software, net | |||||
| Leasehold improvements | $ | 1,632 | |||
| Computer hardware | 1,323 | ||||
| Other property, equipment and software, net | 416 | ||||
| Total Property, equipment and software, net | 3,371 | ||||
Right-of-use assets - operating leases, net (1) | 6,620 | ||||
| Total long-lived asset impairment | $ | 9,991 | |||
six months ended June 30, 2022.
The following table summarizes the major classesintangible assets as of line items included in income (loss) from discontinued operations, net of tax, for the threeJune 30, 2023 and nine months ended September 30, 2017 and 2016December 31, 2022 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 (1) (2) | 2016 | 2017 (1) (2) | 2016 | |||||||||||||
| Third-party and other revenue | $ | — | $ | 26,027 | $ | 12,602 | $ | 74,519 | ||||||||
| Direct revenue | — | 7,886 | 2,962 | 25,200 | ||||||||||||
| Third-party and other cost of revenue | — | (5,582 | ) | (2,557 | ) | (16,994 | ) | |||||||||
| Direct cost of revenue | — | (7,482 | ) | (3,098 | ) | (24,439 | ) | |||||||||
| Marketing expense | — | (3,110 | ) | (1,239 | ) | (8,393 | ) | |||||||||
| Selling, general and administrative expense | (500 | ) | (19,288 | ) | (11,784 | ) | (55,729 | ) | ||||||||
| Restructuring | — | (296 | ) | (778 | ) | (1,610 | ) | |||||||||
| Other income, net | — | 889 | 3,852 | 2,249 | ||||||||||||
| Income (loss) from discontinued operations before loss on dispositions and provision for income taxes | (500 | ) | (956 | ) | (40 | ) | (5,197 | ) | ||||||||
| Loss on dispositions | (362 | ) | — | (1,630 | ) | — | ||||||||||
| Provision for income taxes | — | (389 | ) | (81 | ) | (1,168 | ) | |||||||||
| Income (loss) from discontinued operations, net of tax | $ | (862 | ) | $ | (1,345 | ) | $ | (1,751 | ) | $ | (6,365 | ) | ||||
| December 31, 2016 | ||||
| Cash | $ | 28,866 | ||
| Accounts receivable, net | 15,386 | |||
| Prepaid expenses and other current assets | 18,994 | |||
| Property, equipment and software, net | 1,554 | |||
| Goodwill | 9,411 | |||
| Other non-current assets | 1,041 | |||
| Assets of discontinued operations | $ | 75,252 | ||
| Accounts payable | $ | 722 | ||
| Accrued merchant and supplier payables | 29,705 | |||
| Accrued expenses and other current liabilities | 16,625 | |||
| Deferred income taxes | 2,501 | |||
| Other non-current liabilities | 426 | |||
| Liabilities of discontinued operations | $ | 49,979 | ||
| North America | EMEA | Rest of World | International | Consolidated | ||||||||||||||||
| Balance as of December 31, 2016 | $ | 178,685 | $ | 89,747 | $ | 6,119 | $ | — | $ | 274,551 | ||||||||||
| Foreign currency translation | — | — | — | 10,885 | 10,885 | |||||||||||||||
| Reallocation to new segment | — | (89,747 | ) | (6,119 | ) | 95,866 | — | |||||||||||||
| Balance as of September 30, 2017 | $ | 178,685 | $ | — | $ | — | $ | 106,751 | $ | 285,436 | ||||||||||
| September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
| Asset Category | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||
| Customer relationships | $ | 56,276 | $ | 44,528 | $ | 11,748 | $ | 59,340 | $ | 40,002 | $ | 19,338 | ||||||||||||
| Merchant relationships | 11,511 | 9,474 | 2,037 | 12,015 | 8,475 | 3,540 | ||||||||||||||||||
| Trade names | 11,999 | 9,779 | 2,220 | 11,534 | 8,004 | 3,530 | ||||||||||||||||||
| Developed technology | 36,759 | 34,499 | 2,260 | 38,388 | 30,197 | 8,191 | ||||||||||||||||||
| Patents | 18,522 | 14,877 | 3,645 | 17,259 | 14,020 | 3,239 | ||||||||||||||||||
| Other intangible assets | 10,812 | 8,694 | 2,118 | 14,044 | 8,967 | 5,077 | ||||||||||||||||||
| Total | $ | 145,879 | $ | 121,851 | $ | 24,028 | $ | 152,580 | $ | 109,665 | $ | 42,915 | ||||||||||||
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||||||||||||||
| Merchant relationships | $ | 18,699 | $ | 16,470 | $ | 2,229 | $ | 17,912 | $ | 14,327 | $ | 3,585 | |||||||||||||||||||||||
| Trade names | 9,441 | 8,590 | 851 | 9,340 | 8,382 | 958 | |||||||||||||||||||||||||||||
| Patents | 14,024 | 7,107 | 6,917 | 13,341 | 6,701 | 6,640 | |||||||||||||||||||||||||||||
| Other intangible assets | 16,709 | 12,138 | 4,571 | 17,517 | 11,059 | 6,458 | |||||||||||||||||||||||||||||
| Total | $ | 58,873 | $ | 44,305 | $ | 14,568 | $ | 58,110 | $ | 40,469 | $ | 17,641 | |||||||||||||||||||||||
Amortization of intangible assets is computed using the straight-line method over their estimated useful lives, which range from 1 to 510 years. Amortization expense related to intangible assets from continuing operations was $6.0$2.1 million and $4.4$2.1 million for the three months ended SeptemberJune 30, 20172023 and 2016, respectively,2022 and $17.6$4.2 million and $13.6$4.3 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016, respectively. There was no amortization expense related to intangible assets from discontinued operations for the three and nine months ended September 30, 2017 and 2016.2022. As of SeptemberJune 30, 2017, the Company's2023, estimated future amortization expense related to intangible assets is as follows (in thousands):
| Remaining amounts in 2023 | $ | 3,608 | |||
| 2024 | 4,316 | ||||
| 2025 | 2,805 | ||||
| 2026 | 1,934 | ||||
| 2027 | 1,257 | ||||
| Thereafter | 648 | ||||
| Total | $ | 14,568 | |||
NOTE 3. INVESTMENTS
| Remaining amounts in 2017 | $ | 5,338 | ||
| 2018 | 10,585 | |||
| 2019 | 6,555 | |||
| 2020 | 1,045 | |||
| 2021 | 406 | |||
| Thereafter | 99 | |||
| Total | $ | 24,028 | ||
12
| September 30, 2017 | Percent Ownership of Voting Stock | December 31, 2016 | Percent Ownership of Voting Stock | ||||||||||||
| Available-for-sale securities: | |||||||||||||||
| Convertible debt securities | $ | 11,232 | $ | 10,038 | |||||||||||
| Redeemable preferred shares | 15,552 | 19% | to | 25% | 17,444 | 19% | to | 25% | |||||||
| Total available-for-sale securities | 26,784 | 27,482 | |||||||||||||
| Cost method investments | 25,236 | 1% | to | 19% | 31,816 | 1% | to | 19% | |||||||
| Fair value option investments | 77,484 | 10% | to | 24% | 82,584 | 41% | |||||||||
| Total investments | $ | 129,504 | $ | 141,882 | |||||||||||
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
payments company. Our available-for-sale securities and fair value option investments had a carrying value of zero. There were no changes in fair value of our investments for the three and six months ended June 30, 2023.
The following table summarizes the amortized cost, gross unrealized gain, gross unrealized loss and fair valueour percentage ownership in our investments as of the Company's available-for-sale securitiesdates noted below:
| June 30, 2023 and December 31, 2022 | |||||||||||
| Other equity investments | 1% | to | 19% | ||||||||
| Available-for-sale securities | 1% | to | 19% | ||||||||
| Fair value option investments | 10% | to | 19% | ||||||||
NOTE 4. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION
The following table summarizes Prepaid expenses and other current assets as of SeptemberJune 30, 20172023 and December 31, 2016, respectively2022 (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Prepaid expenses | $ | 11,766 | $ | 16,048 | |||||||
| Income taxes receivable | 6,990 | 6,691 | |||||||||
| Deferred cloud implementation cost, net | 10,751 | 9,362 | |||||||||
| Other | 9,482 | 9,000 | |||||||||
| Total prepaid expenses and other current assets | $ | 38,989 | $ | 41,101 | |||||||
| September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss (1) | Fair Value | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss (1) | Fair Value | ||||||||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||||||||||
| Convertible debt securities | $ | 10,009 | $ | 1,333 | $ | (110 | ) | $ | 11,232 | $ | 8,453 | $ | 1,691 | $ | (106 | ) | $ | 10,038 | |||||||||||||
| Redeemable preferred shares | 18,375 | — | (2,823 | ) | 15,552 | 18,375 | — | (931 | ) | 17,444 | |||||||||||||||||||||
| Total available-for-sale securities | $ | 28,384 | $ | 1,333 | $ | (2,933 | ) | $ | 26,784 | $ | 26,828 | $ | 1,691 | $ | (1,037 | ) | $ | 27,482 | |||||||||||||
| June 30, 2023 | December 31, 2022 | ||||||||||
| Deferred contract acquisition costs, net | $ | 3,591 | $ | 4,815 | |||||||
| Deferred cloud implementation costs, net | 11,287 | 17,684 | |||||||||
| Other | 3,894 | 4,992 | |||||||||
| Total other non-current assets | $ | 18,772 | $ | 27,491 | |||||||
The Company also used a market approach valuation technique, which is based on market multiples of guideline companies, to determine the fair value of Monster LPfollowing table summarizes Accrued expenses and other current liabilities as of SeptemberJune 30, 20172023 and December 31, 2016. The discounted cash flow2022 (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Refund reserve | $ | 8,706 | $ | 11,072 | |||||||
| Compensation and benefits | 14,151 | 15,005 | |||||||||
| Accrued marketing | 6,025 | 19,596 | |||||||||
| Restructuring-related liabilities | 2,196 | 4,782 | |||||||||
| Customer credits | 30,316 | 36,220 | |||||||||
| Operating lease obligations | 16,289 | 37,525 | |||||||||
Other (1) | 41,541 | 47,252 | |||||||||
| Total accrued expenses and other current liabilities | $ | 119,224 | $ | 171,452 | |||||||
(1)Includes certain payroll taxes deferred under the Coronavirus Aid, Relief and market multiple valuations were then evaluated and weighted to determine the amount that is most representativeEconomic Security ("CARES") Act of the fair value$2.7 million as of the investee. Once the Company determined the fair value of Monster LP, it then determined the
December 31, 2022. This balance was paid in January 2023.
13
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes the Company's otherOther non-current liabilities as of June 30, 2023 and December 31, 2022 (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Contingent income tax liabilities | $ | 11,451 | $ | 11,213 | |||||||
| Deferred income taxes | 3,154 | 3,100 | |||||||||
| Other | 2,392 | 4,273 | |||||||||
| Total other non-current liabilities | $ | 16,997 | $ | 18,586 | |||||||
The following table summarizes Other income (expense), net for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Interest income | $ | 894 | $ | 549 | $ | 2,155 | $ | 1,258 | ||||||||
| Interest expense | (5,156 | ) | (5,882 | ) | (15,423 | ) | (11,956 | ) | ||||||||
| Gains (losses), net on changes in fair value of investments | (3,955 | ) | (1,594 | ) | (5,100 | ) | (7,301 | ) | ||||||||
| Gain on sale of investment | 7,624 | — | 7,624 | — | ||||||||||||
Foreign currency gains (losses), net (1) | 8,186 | (504 | ) | 19,063 | 3,503 | |||||||||||
| Other | (47 | ) | (486 | ) | 503 | (2,056 | ) | |||||||||
| Other income (expense), net | $ | 7,546 | $ | (7,917 | ) | $ | 8,822 | $ | (16,552 | ) | ||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Interest income | $ | 4,276 | $ | 1,458 | $ | 8,747 | $ | 2,773 | |||||||||||||||
| Interest expense | (5,494) | (3,206) | (11,115) | (6,089) | |||||||||||||||||||
| Foreign currency gains (losses), net and other | (3,587) | (19,592) | 633 | (22,904) | |||||||||||||||||||
| Other income (expense), net | $ | (4,805) | $ | (21,340) | $ | (1,735) | $ | (26,220) | |||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Finished goods inventories | $ | 25,205 | $ | 31,042 | |||
| Prepaid expenses | 44,936 | 34,132 | |||||
| Income taxes receivable | 12,933 | 11,495 | |||||
| Value-added tax receivable | 8,037 | 5,965 | |||||
| Other | 8,744 | 11,807 | |||||
| Total prepaid expenses and other current assets | $ | 99,855 | $ | 94,441 | |||
| September 30, 2017 | December 31, 2016 | ||||||
| Accrued merchant payables | $ | 421,334 | $ | 428,187 | |||
Accrued supplier payables (1) | 176,917 | 342,805 | |||||
| Total accrued merchant and supplier payables | $ | 598,251 | $ | 770,992 | |||
| September 30, 2017 | December 31, 2016 | ||||||
| Refunds reserve | $ | 25,469 | $ | 33,104 | |||
| Compensation and benefits | 58,803 | 55,590 | |||||
| Customer credits | 39,540 | 42,003 | |||||
| Restructuring-related liabilities | 9,844 | 16,395 | |||||
| Income taxes payable | 13,050 | 10,847 | |||||
| Deferred revenue | 30,685 | 35,890 | |||||
| Current portion of capital lease obligations | 25,294 | 28,889 | |||||
| Other | 121,868 | 143,738 | |||||
| Total accrued expenses and other current liabilities | $ | 324,553 | $ | 366,456 | |||
| September 30, 2017 | December 31, 2016 | ||||||
| Long-term tax liabilities | $ | 47,995 | $ | 41,611 | |||
| Capital lease obligations | 17,062 | 19,719 | |||||
| Other | 37,329 | 38,298 | |||||
| Total other non-current liabilities | $ | 102,386 | $ | 99,628 | |||
| Foreign currency translation adjustments | Unrealized gain (loss) on available-for-sale securities | Pension adjustments | Total | ||||||||||||
| Balance as of December 31, 2016 | $ | 58,249 | $ | 388 | $ | (585 | ) | $ | 58,052 | ||||||
| Other comprehensive income (loss) before reclassification adjustments | (12,354 | ) | (938 | ) | — | (13,292 | ) | ||||||||
| Reclassification adjustments included in net income (loss) | (14,905 | ) | (1,341 | ) | 585 | (15,661 | ) | ||||||||
| Other comprehensive income (loss) | (27,259 | ) | (2,279 | ) | 585 | (28,953 | ) | ||||||||
| Balance as of September 30, 2017 | $ | 30,990 | $ | (1,891 | ) | $ | — | $ | 29,099 | ||||||
Convertible Senior Notes due 2026
The carrying amount of the 2026 Notes consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Principal amount | $ | 230,000 | $ | 230,000 | |||||||
| Less: debt discount | (4,307) | (5,077) | |||||||||
| Net carrying amount of liability | $ | 225,693 | $ | 224,923 | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Liability component: | |||||||
| Principal amount | $ | 250,000 | $ | 250,000 | |||
| Less: debt discount | (63,041 | ) | (71,005 | ) | |||
| Net carrying amount of liability component | $ | 186,959 | $ | 178,995 | |||
| Net carrying amount of equity component | $ | 67,014 | $ | 67,014 | |||
During the three and ninesix months ended SeptemberJune 30, 20172023 and 2016, the Company2022, we recognized interest costcosts on the 2026 Notes as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Contractual interest | $ | 647 | $ | 647 | $ | 1,294 | $ | 1,294 | |||||||||||||||
| Amortization of debt discount | 386 | 379 | 770 | 757 | |||||||||||||||||||
| Total | $ | 1,033 | $ | 1,026 | $ | 2,064 | $ | 2,051 | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Contractual interest cost based on 3.25% of the principal amount per annum | $ | 2,032 | $ | 2,032 | $ | 6,096 | $ | 4,063 | |||||||
| Amortization of debt discount | 2,722 | 2,458 | 7,964 | 4,854 | |||||||||||
| Total interest cost | $ | 4,754 | $ | 4,490 | $ | 14,060 | $ | 8,917 | |||||||
In May 2016,connection with the Company purchased convertible note hedges with respect2026 Notes, we entered into privately-negotiated capped call transactions. The capped call transactions cover, subject to itscustomary adjustments, the number of shares of common stock for a cost of $59.1 million from certain bank counterparties.initially underlying the 2026 Notes. The convertible note hedges provide the Company with the rightcapped call transactions are expected generally to purchase upreduce potential dilution to 46.3 million shares of the Company'sour common stock at an initial strike price of $5.40 per share, which corresponds to the initial conversion price of the Notes, and are exercisable by the Company upon any conversion of the Notes. The convertible note hedges2026 Notes and/or offset any cash payments we are intendedrequired to reduce the potential economic dilution upon conversionmake in excess of the Notes.principal amount of converted notes, with such reduction and/or offset subject to a cap initially equal to $104.80 (which represents a premium of 100% over the last reported sale price of our common stock on The convertible note hedges are separate transactions and are not part ofNasdaq Global Select Market on March 22, 2021), subject to certain adjustments under the terms of the Notes. Holders of the Notes do not have any rights with respect to the convertible note hedges.capped call transactions.
Revolving Credit Agreement
In May 2016, the Company also sold warrants for total cash proceeds of $35.5 million to certain bank counterparties. The warrants provide the counterparties with the right to purchase up to 46.3 million shares of the Company's common stock at2019, we entered into a strike price of $8.50 per share. The warrants expire on various dates between July 1, 2022 and August 26, 2022 and are exercisable on their expiration dates. The warrants are separate transactions and are not part of the terms of the Notes or convertible note hedges. Holders of the Notes and convertible note hedges do not have any rights with respect to the warrants.
As of 100% ofJune 30, 2023, we were in compliance with the outstanding capital stock of substantially all of its direct and indirect domestic subsidiaries and 65% ofcovenants under our Existing Credit Agreement. Non-compliance with the shares or equity interests of first-tier foreign subsidiaries and each U.S. entity whose assets substantially consist of capital stock and/or intercompany debt of one or more foreign subsidiaries, subject to certain exceptions. Certain of the Company's domestic subsidiaries are guarantorscovenants under the Amended and RestatedExisting Credit Agreement.
Amounts committed to outstanding borrowings and letters of credit under our Existing Credit Agreement as of June 30, 2023 and our Amended Credit Agreement as of December 31, 2022 were as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Borrowings | $ | 46,700 | $ | 75,000 | |||||||
| Letters of credit | 24,545 | 24,900 | |||||||||
14
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
We sublease a portion of 600 West Chicago to Uptake, Inc. "Uptake." In the first quarter of 2023, we initiated a lawsuit against Uptake in the Circuit Court of Cook County for breach of the lease agreement and that lawsuit remains pending.
Legal Matters and Other Contingencies
From time to time, the Company iswe are party to various legal proceedings incident to the operation of itsour business. For example, the Companywe currently isare involved in proceedings brought by former employeesmerchants, employment and merchants,related matters, intellectual property infringement suits, customer lawsuits, andstockholder claims relating to U.S. securities law, consumer class actions and suits alleging, among other things, violations of state consumer protection or privacy laws. The following is
Four shareholders have filed separate shareholder derivative lawsuits (collectively, the "Derivative Lawsuits") in relation to a brief descriptionpreviously settled lawsuit that alleged that Groupon and certain of significant legal proceedings.
2023.
In addition, other third parties have from time to time claimed, and others may claim in the future, that the Company haswe have infringed their intellectual property rights. The Company isWe are subject to intellectual property disputes, including patent infringement claims, and expectsexpect that itwe will increasinglycontinue to be subject to intellectual property infringement claims as itsour services expand in scope and complexity. The Company has inIn the past, we have litigated such claims, and the Company iswe are presently involved in several patent infringement and other intellectual property-related claims, including pending litigation or trademark disputes relating to, for example, the Company'sour Goods category, some of which could involve potentially substantial claims for damages or injunctive relief. The CompanyWe may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act are interpreted by the courts, and as the Company becomeswe become subject to laws in jurisdictions where the underlying laws with respect to the potential liability of online intermediaries are either unclear or less favorable. The Company believesWe believe that additional lawsuits alleging that it haswe have violated patent, copyright or trademark laws willmay be filed against it.us. Intellectual property claims, whether meritorious or not, are time consuming and often costly to resolve, could require expensive changes in the Company'sour methods of doing business or the goods it sells,we sell, or could require itus to enter into costly royalty or licensing agreements.
15
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
costs of doing business through adverse judgment or settlement, or require us to change our business practices, sometimes in expensive ways.
Indemnifications
In connection with the dispositionsdisposition of the Company'sour operations in Latin America (see Note 2, Discontinued Operations and Other Business Dispositions), the Company agreed to indemnify the buyerin 2017, we recorded $5.4 million in indemnification liabilities for certain tax and other matters. The indemnification liabilities were recorded at their fair value, estimated to be $5.4 million using a probability-weighted expected cash flow approach,matters upon the closing of the transactions as an adjustment to the net loss on the dispositions within discontinued operations. The Company estimatesoperations at their fair value. We estimated the indemnification liabilities using a probability-weighted expected cash flow approach. Our remaining indemnification liabilities were $2.8 million as of June 30, 2023. We estimate that the total amount of obligations that are reasonably possible of arisingto arise under the indemnifications in excess of amounts accrued as of June 30, 2023 is $25.0approximately $11.7 million.
In the normal course of business to facilitate transactions related to itsour operations, the Company indemnifieswe indemnify certain parties, including employees, lessors, service providers, merchants, and counterparties to investment agreements and asset and stock purchase agreements with respect to various matters. The Company hasWe have agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or other claims made against those parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. The Company isWe are also subject to increased exposure to various claims as a result of itsour divestitures and acquisitions, particularly in cases where the Company iswe are entering into new businesses in connection with such acquisitions. The CompanyWe may also become more vulnerable to claims as it expandswe expand the range and scope of itsour services and isare subject to laws in jurisdictions where the underlying laws with respect to potential liability are either unclear or less favorable. In addition, the Company haswe have entered into indemnification agreements with itsour officers, directors and underwriters, and the Company'sour bylaws contain similar indemnification obligations that cover officers, directors, employees and other agents.
Except as noted above, it is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, any payments that the Company haswe have made under these agreements have not had a material impact on theour operating results, financial position or cash flows of the Company.flows.
16
GROUPON, INC.
(unaudited)
NOTE 7. STOCKHOLDERS' EQUITY (DEFICIT) AND COMPENSATION ARRANGEMENTS
Groupon, Inc. Incentive Plan
In August 2011, we established the Groupon, Inc. 2011 Incentive Plan, as amended and restated (the "2011 Plan"), under which options, restricted stock units and performance stock units for up to 13,775,000 shares of common stock are authorized for future issuance to employees, consultants and directors. The Company's Board of Directors (the "Board") has the authority, without approval2011 Plan is administered by the stockholders, to issue up to a totalCompensation Committee of 50,000,000the Board. As of June 30, 2023, 2,631,382 shares of preferredcommon stock in one or more series. were available for future issuance under the 2011 Plan.
Restricted Stock Units
The Board may establishrestricted stock units granted under the number2011 Plan ("Restricted Stock Units") generally have vesting periods between one and four years and are amortized on a straight-line basis over their requisite service period.
The table below summarizes Restricted Stock Unit activity for employees and non-employees under the 2011 Plan for the six months ended June 30, 2023:
| Restricted Stock Units | Weighted-Average Grant Date Fair Value (per unit) | ||||||||||
| Unvested at December 31, 2022 | 2,876,089 | $ | 19.33 | ||||||||
| Granted | 563,429 | 5.20 | |||||||||
| Vested | (1,092,252) | 21.88 | |||||||||
| Forfeited | (1,119,327) | 16.03 | |||||||||
| Unvested at June 30, 2023 | 1,227,939 | $ | 10.55 | ||||||||
As of sharesJune 30, 2023, $9.0 million of unrecognized compensation costs related to unvested Restricted Stock Units are expected to be included in each such seriesrecognized over a remaining weighted-average period of 1.03 years.
Stock Options
On March 30, 2023, we issued 3,500,000 units of stock options with a per share value of $0.95, a strike price of $6.00 and may fixvesting over two years. The exercise price of stock options granted is equal to the designations, preferences, powers and other rightsfair market value of the sharesunderlying stock on the date of grant. The contractual term for these stock options expires three years from the grant date. The fair value of stock options on the grant date is amortized on a seriesstraight-line basis over the requisite service period.
The fair value of preferred stock. The Board could authorizestock options granted is estimated on the issuancedate of preferred stock with voting or conversion rights that could dilutegrant using the voting power or rightsBlack-Scholes-Merton option-pricing model. Expected volatility is based on Groupon's historical volatility over the estimated expected life of the holdersstock options. The expected term represents the period of its common stock. Astime the stock options are expected to be outstanding. The risk-free interest rate is based on yields on U.S. Treasury STRIPS with maturity similar to the estimated expected life of September 30, 2017 and December 31, 2016, there were no shares of preferredthe stock outstanding.options. The weighted-average assumptions for stock options granted are outlined in the following table:
| Dividend yield | 0.0 | % | |||
| Risk-free interest rate | 4.1 | % | |||
| Expected term (in years) | 2 | ||||
| Expected volatility | 78.2 | % | |||
17
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The table below summarizes stock option activity for the six months ended June 30, 2023:
| Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding at December 31, 2022 | — | $ | — | — | $ | — | |||||||||||||||||
| Granted | 3,500,000 | 6.00 | 3.00 | — | |||||||||||||||||||
| Outstanding at June 30, 2023 | 3,062,500 | 6.00 | 2.75 | — | |||||||||||||||||||
| Vested and exercisable at June 30, 2023 | 437,500 | $ | 6.00 | 2.75 | $ | — | |||||||||||||||||
Performance Shares Units
We have previously granted performance share units under the 2011 Plan that vest in shares of our common stock Class B common stockupon the achievement of financial and common stock. On October 31, 2016, each share ofoperational targets specified in the Company's Class A common stockrespective award agreement ("Performance Share Units"). Our existing Performance Share Units are subject to continued employment through the performance period dictated by the award and Class B common stock automatically converted into a single class of common stock pursuant to the terms of the Company's sixth amended and restated certificate of incorporation. Upon conversion, all shares of Class A common stock and Class B common stock were retired.
The table below summarizes Performance Share Unit activity under the 2011 Plan for the six months ended June 30, 2023:
| Performance Share Units | Weighted-Average Grant Date Fair Value (per unit) | ||||||||||
| Unvested at December 31, 2022 | 17,269 | $ | 24.13 | ||||||||
| Granted | — | — | |||||||||
| Vested | (17,269) | 24.13 | |||||||||
| Forfeited | — | — | |||||||||
| Unvested at June 30, 2023 | — | $ | — | ||||||||
18
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 8. REVENUE RECOGNITION
Refer to Note 13, Segment Information, for revenue summarized by reportable segment and category for the three and six months ended June 30, 2023 and 2022.
Customer Credits
We issue credits to customers that can be applied to future purchases through our online marketplaces. Credits are primarily issued as consideration for refunds. To a lesser extent, credits are issued for customer relationship purposes. The following table summarizes the activity in the liability for customer credits for the six months ended June 30, 2023 (in thousands):
| Customer Credits | |||||
| Balance as of December 31, 2022 | $ | 36,220 | |||
| Credits issued | 48,101 | ||||
Credits redeemed (1) | (47,908) | ||||
| Breakage revenue recognized | (6,174) | ||||
| Foreign currency translation | 77 | ||||
| Balance as of June 30, 2023 | $ | 30,316 | |||
(1)Customer credits can be redeemed through our online marketplaces for goods or services provided by a third-party merchant and service revenue is recognized on a net basis as the difference between the carrying amount of awards to be issued, the corresponding vesting schedulecustomer credit liability derecognized and the exercise priceamount due to the merchant for options.the related transaction. Customer credits are typically used within one year of issuance.
Costs of Obtaining Contracts
Incremental costs to obtain contracts with third-party merchants, such as sales commissions, are deferred and recognized over the expected period of the merchant arrangement, generally from 12 to 18 months. Deferred contract acquisition costs are presented in Prepaid expenses and other current assets and Other non-current assets on the Condensed Consolidated Balance Sheets. As of SeptemberJune 30, 2017, 70,056,534 shares2023 and December 31, 2022, deferred contract acquisition costs were $4.5 million and $5.9 million.
The amortization of common stock were available for future issuance underdeferred contract acquisition costs is classified within Selling, general and administrative expense in the Plans.
Allowance for Expected Credit Losses on Accounts Receivable
Accounts receivable primarily represents the Plansnet cash due from credit card and acquisition-related awards. The Company recognized stock-based compensation expenseother payment processors and from discontinued operationsmerchants and performance marketing networks for commissions earned on consumer purchases. We establish an allowance for expected credit losses on accounts receivable based on identifying the following customer risk characteristics: size, type of $0.7 million forcustomer, and payment terms offered in the three months ended September 30, 2016normal course of business. Receivables with similar risk characteristics are grouped into pools. For each pool, we consider the historical credit loss experience, current economic conditions, bankruptcy filings, published or estimated credit default rates, age of the receivable and $0.2 million and $2.4 million forany recoveries in assessing the nine months ended September 30, 2017 and 2016, respectively. The Company also capitalized $1.4 million and $2.3 million of stock-based compensation for the three months ended September 30, 2017 and 2016, respectively, and $4.7 million and $7.3 million of stock-based compensation for the nine months ended September 30, 2017 and 2016, respectively, in connection with internally-developed software.
credit losses.
19
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table below summarizes the activity regarding unvested restricted stock units granted underin the Plansallowance for expected credit losses on accounts receivable for the ninesix months ended SeptemberJune 30, 2017:2023 (in thousands):
| Allowance for Expected Credit Losses | |||||
| Balance as of December 31, 2022 | $ | 4,538 | |||
| Change in provision | (787) | ||||
| Write-offs | (420) | ||||
| Foreign currency translation | 49 | ||||
| Balance as of June 30, 2023 | $ | 3,380 | |||
Variable Consideration for Unredeemed Vouchers
| Restricted Stock Units | Weighted- Average Grant Date Fair Value (per share) | ||||||
| Unvested at December 31, 2016 | 25,407,846 | $ | 5.18 | ||||
| Granted | 19,259,454 | $ | 3.75 | ||||
| Vested | (12,790,075 | ) | $ | 5.19 | |||
| Forfeited | (6,243,880 | ) | $ | 4.75 | |||
| Unvested at September 30, 2017 | 25,633,345 | $ | 4.21 | ||||
NOTE 9. RESTRUCTURING AND RELATED CHARGES
In August 2022 and April 2020, we initiated Board-approved restructuring plans. Costs incurred related to the restructuring plans are classified as Restructuring and related charges on the Condensed Consolidated Statements of Operations. The restructuring activities are summarized by plan in the sections below.
2022 Restructuring Plan
In August 2022, we initiated a multi-phase cost savings plan designed to reduce our expense structure to align with our go-forward business and financial objectives (the “2022 Cost Savings Plan”). The 2022 Cost Savings Plan included a restructuring plan, approved by our Board on August 5, 2022 (the “2022 Restructuring Plan”). The first phase and second phase of the Company's common stock were issued upon vesting2022 Restructuring Plan are expected to include an overall reduction of performance share units granted inapproximately 1,000 positions globally, with the previous year uponmajority of these reductions completed as of March 31, 2023 and the Board's certificationremainder expected to occur by the end of 2023. In connection with first and second phase actions, we expect to record total pre-tax charges of $20.0 million to $27.0 million. A majority of the Company's financial and operational metrics for the year ended December 31, 2016. The weighted average grant date fair value of those shares was $3.78 per share.
The exercise price of stock options granted is equalfollowing table summarizes costs incurred by segment related to the fair value of the underlying stock on the date of grant. The contractual term for stock options expires ten years from the grant date. Stock options generally vested over a three or four-year period, with 25% of the awards vesting after one year and the remainder of the awards vesting on a monthly or quarterly basis thereafter.
| Three Months Ended June 30, 2023 | ||||||||||||||||||||
Employee Severance and Benefit Costs (Credits) (1) | Other Exit Costs | Total Restructuring Charges (Credits) | ||||||||||||||||||
| North America | $ | 126 | $ | 229 | $ | 355 | ||||||||||||||
| International | 158 | — | 158 | |||||||||||||||||
| Consolidated | $ | 284 | $ | 229 | $ | 513 | ||||||||||||||
(1)The employee severance and benefits costs for the three months ended June 30, 2023 are related to the termination of approximately 39 employees.
20
| Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) (1) | ||||||||||
| Outstanding and exercisable at December 31, 2016 | 991,172 | $ | 0.77 | 2.83 | $ | 2,527 | |||||||
| Exercised | (84,427 | ) | 2.40 | ||||||||||
| Forfeited | (2,789 | ) | 1.99 | ||||||||||
| Outstanding and exercisable at September 30, 2017 | 903,956 | $ | 0.63 | 2.02 | $ | 4,131 | |||||||
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
| Six Months Ended June 30, 2023 | ||||||||||||||||||||
Employee Severance and Benefit Costs (Credits) (1) | Other Exit Costs | Total Restructuring Charges (Credits) | ||||||||||||||||||
| North America | $ | 4,566 | $ | 1,037 | $ | 5,603 | ||||||||||||||
| International | 3,891 | — | 3,891 | |||||||||||||||||
| Consolidated | $ | 8,457 | $ | 1,037 | $ | 9,494 | ||||||||||||||
approximately 371 employees.
The following table summarizes the costs incurred by segment related to the Company’s restructuring planliability activity for the three months ended September 30, 20172022 Restructuring Plan (in thousands):
| Employee Severance and Benefit Costs | Other Exit Costs | Total | |||||||||||||||
| Balance as of December 31, 2022 | $ | 175 | $ | — | $ | 175 | |||||||||||
| Charges payable in cash | 8,457 | 1,037 | 9,494 | ||||||||||||||
| Cash payments | (8,108) | (730) | (8,838) | ||||||||||||||
| Foreign currency translation | 73 | — | 73 | ||||||||||||||
Balance as of June 30, 2023 (1) | $ | 597 | $ | 307 | $ | 904 | |||||||||||
| Three Months Ended September 30, 2017 | ||||||||||||||||
Employee Severance and Benefit Costs (1) | Asset Impairments | Other Exit Costs | Total Restructuring Charges | |||||||||||||
| North America | $ | 3,662 | $ | — | $ | 3,309 | $ | 6,971 | ||||||||
| International | 4,296 | — | 236 | 4,532 | ||||||||||||
| Consolidated | $ | 7,958 | $ | — | $ | 3,545 | $ | 11,503 | ||||||||
In July 2023, the Board approved the third phase of the 2022 Restructuring Plan, which is expected to include reductions in positions globally. In connection with the third phase, we expect to record total pre-tax charges of approximately $3.6 million. A majority of the pre-tax charges for the third phase are expected to be paid in cash and primarily related to employee severance and compensation benefits, with an immaterial amount of charges related to other exit costs.
2020 Restructuring Plan
In April 2020, the Company’sBoard approved a multi-phase restructuring plan forrelated to our previously-announced strategic shift and as part of the nine months ended September 30, 2017 (in thousands):cost cutting measures implemented in response to the impact of COVID-19 on our business (the "2020 Restructuring Plan"). We have incurred total pretax charges of $108.0 million since the inception of the 2020 Restructuring Plan. Our actions under this plan were substantially completed by December 31, 2021, and our current and future charges or credits will be from changes in estimates. Our 2020 Restructuring Plan included workforce reductions of approximately 1,600 positions globally, the exit or discontinuation of the use of certain leases and other assets, impairments of our right-of-use and other long-lived assets, and the exit of our operations in New Zealand and Japan.
21
| Nine Months Ended September 30, 2017 | ||||||||||||||||
Employee Severance and Benefit Costs (1) | Asset Impairments | Other Exit Costs | Total Restructuring Charges | |||||||||||||
| North America | $ | 8,127 | $ | — | $ | 3,774 | $ | 11,901 | ||||||||
| International | 4,905 | — | 2,012 | 6,917 | ||||||||||||
| Consolidated | $ | 13,032 | $ | — | $ | 5,786 | $ | 18,818 | ||||||||
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes thetables summarize costs incurred by segment related to the Company’s restructuring plan2020 Restructuring Plan for the three and six months ended SeptemberJune 30, 20162023 and 2022 (in thousands):
| Three Months Ended June 30, 2023 | ||||||||||||||||||||||||||
| Employee Severance and Benefit Costs (Credits) | Legal and Advisory Costs | Lease-related Charges (Credits) | Total Restructuring Charges (Credits) | |||||||||||||||||||||||
| North America | $ | — | $ | 1 | $ | (63) | $ | (62) | ||||||||||||||||||
| International | (1,436) | 8 | 288 | (1,140) | ||||||||||||||||||||||
| Consolidated | $ | (1,436) | $ | 9 | $ | 225 | $ | (1,202) | ||||||||||||||||||
| Three Months Ended September 30, 2016 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
Employee Severance and Benefit Costs (1) | Asset Impairments | Other Exit Costs | Total Restructuring Charges | Employee Severance and Benefit Costs (Credits) | Legal and Advisory Costs | Lease-related Charges (Credits) | Total Restructuring Charges (Credits) | |||||||||||||||||||||||||||||||||||
| North America | $ | 274 | $ | — | $ | 695 | $ | 969 | North America | $ | — | $ | 86 | $ | 818 | $ | 904 | |||||||||||||||||||||||||
| International | (96 | ) | — | 290 | 194 | International | 473 | 24 | 1,538 | 2,035 | ||||||||||||||||||||||||||||||||
| Consolidated | $ | 178 | $ | — | $ | 985 | $ | 1,163 | Consolidated | $ | 473 | $ | 110 | $ | 2,356 | $ | 2,939 | |||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||
| Employee Severance and Benefit Costs (Credits) | Legal and Advisory Costs | Lease-related Charges (Credits) | Total Restructuring Charges (Credits) | |||||||||||||||||||||||
| North America | $ | — | $ | 2 | $ | 544 | $ | 546 | ||||||||||||||||||
| International | (2,482) | (48) | 595 | (1,935) | ||||||||||||||||||||||
| Consolidated | $ | (2,482) | $ | (46) | $ | 1,139 | $ | (1,389) | ||||||||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||
| Employee Severance and Benefit Costs (Credits) | Legal and Advisory Costs | Lease-related Charges (Credits) | Total Restructuring Charges (Credits) | |||||||||||||||||||||||
| North America | $ | 1 | $ | 130 | $ | 1,174 | $ | 1,305 | ||||||||||||||||||
| International | 184 | 61 | 1,701 | 1,946 | ||||||||||||||||||||||
| Consolidated | $ | 185 | $ | 191 | $ | 2,875 | $ | 3,251 | ||||||||||||||||||
As a part of our 2020 Restructuring Plan, we terminated or modified several of our leases. In other cases we vacated our leased facilities, and some of those facilities are being actively marketed for sublease or we are in negotiations with the landlord to potentially terminate or modify those leases. We recognized $1.2 million in impairment related to those leases during the three and six months ended June 30, 2022. See Note 2, Goodwill and Long-Lived Assets, for additional information. In January 2023, we exercised our option to early terminate our lease at 600 West Chicago, now expiring on January 31, 2024, which required us to pay a penalty of $9.6 million with our early termination notice. Prior to exercising our option to early terminate, the expiration of 600 West Chicago was January 31, 2026. Rent expense, including amortization of the right-of-use asset and accretion of the operating lease liability, sublease income, termination and modification gains and losses, and other variable lease costs incurred by segment related to the Company’sleased facilities vacated as part of our restructuring plan forare presented within Restructuring and related charges in the nine months ended September 30, 2016 (in thousands):Condensed Consolidated Statements of Operations. The current and
22
| Nine Months Ended September 30, 2016 | ||||||||||||||||
Employee Severance and Benefit Costs (1) | Asset Impairments | Other Exit Costs | Total Restructuring Charges | |||||||||||||
| North America | $ | 6,487 | $ | 45 | $ | 2,862 | $ | 9,394 | ||||||||
| International | 18,069 | — | 915 | 18,984 | ||||||||||||
| Consolidated | $ | 24,556 | $ | 45 | $ | 3,777 | $ | 28,378 | ||||||||
| Employee Severance and Benefit Costs | Other Exit Costs | Total | ||||||||||
| Balance as of June 30, 2015 | $ | — | $ | — | $ | — | ||||||
| Charges payable in cash | 18,310 | 2,940 | 21,250 | |||||||||
| Cash payments | (8,862 | ) | (746 | ) | (9,608 | ) | ||||||
| Foreign currency translation | (576 | ) | 3 | (573 | ) | |||||||
| Balance as of December 31, 2015 | $ | 8,872 | $ | 2,197 | $ | 11,069 | ||||||
Charges payable in cash (1) | 29,416 | 6,063 | 35,479 | |||||||||
| Cash payments | (23,729 | ) | (5,988 | ) | (29,717 | ) | ||||||
| Foreign currency translation | (424 | ) | (12 | ) | (436 | ) | ||||||
| Balance as of December 31, 2016 | $ | 14,135 | $ | 2,260 | $ | 16,395 | ||||||
Charges payable in cash (1) | 12,241 | 5,786 | 18,027 | |||||||||
| Cash payments | (20,463 | ) | (4,759 | ) | (25,222 | ) | ||||||
| Foreign currency translation | 616 | 28 | 644 | |||||||||
| Balance as of September 30, 2017 | $ | 6,529 | $ | 3,315 | $ | 9,844 | ||||||
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
non-current liabilities associated with these leases continue to be presented within Accrued expenses and other current liabilities and Operating lease obligations in the Condensed Consolidated Balance Sheets.
| Employee Severance and Benefit Costs | Other Exit Costs | Total | |||||||||||||||
| Balance as of December 31, 2022 | $ | 4,306 | $ | 301 | $ | 4,607 | |||||||||||
Charges payable in cash and changes in estimate (1) | (2,482) | (46) | (2,528) | ||||||||||||||
| Cash payments | (709) | (113) | (822) | ||||||||||||||
| Foreign currency translation | 33 | 2 | 35 | ||||||||||||||
Balance as of June 30, 2023 (2) | $ | 1,148 | $ | 144 | $ | 1,292 | |||||||||||
(1)The credit recorded during the three and six months ended SeptemberJune 30, 2017,2023 primarily relates to the Company recordedrelease of our estimated accrual for certain severance benefits upon expiration of the eligible payout period.
(2)Substantially all of the remaining cash payments for the 2020 Restructuring Plan costs are expected to be disbursed by the end of 2023.
NOTE 10. INCOME TAXES
Our income tax expenseprovision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items.
Provision (benefit) for income taxes and Income (loss) from continuing operations of $2.5 million on pretaxbefore provision (benefit) for income from continuing operations of $6.3 million. Fortaxes for the three and six months ended SeptemberJune 30, 2016, the Company recorded2023 and 2022 were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Provision (benefit) for income taxes | $ | 2,323 | $ | 2,398 | $ | 3,441 | $ | (277) | |||||||||||||||
| Income (loss) before provision (benefit) for income taxes | (9,681) | (87,852) | (37,176) | (124,879) | |||||||||||||||||||
Our U.S. Federal income tax expense from continuing operations of $1.7 million on a pretax loss from continuing operations of $32.8 million. For the nine months ended September 30, 2017, the Company recorded income tax expense from continuing operations of $11.0 million on a pretax loss from continuing operations of $11.5 million. For the nine months ended September 30, 2016, the Company recorded income tax expense from continuing operations of $0.5 million on a pretax loss from continuing operations of $126.3 million.
In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations or remit such earnings in a tax-efficient manner. An actual repatriation from our non-U.S. subsidiaries
could be subject to foreign and U.S. state income taxes. Aside from limited exceptions for which the related deferred tax liabilities recognized as of June 30, 2023 and December 31, 2022 are immaterial, we do not intend to distribute earnings of foreign subsidiaries for which we have an excess of the financial reporting basis over the tax basis of our investments and therefore have not recorded any deferred taxes related to such amounts. The actual tax cost resulting from a distribution would depend on income tax laws and circumstances at the time of distribution. Determination of the amount of unrecognized deferred tax liability related to the excess of the financial reporting basis over the tax basis of our foreign subsidiaries is not practical due to the complexities associated with the calculation.
NOTE 11. FAIR VALUE MEASUREMENTS
Fair value is defined under U.S. GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability.
In determining fair value, the Company uses variouswe use valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company's assets and liabilities measured atWe have fair value and their classification in the valuation hierarchy are summarized below:
There was no material activity in projected cash flows and decreases in discount rates contribute to increases in the estimated fair values of the fair value option investments and available-for-sale securities, whereas decreases in projected cash flows and increases in discount rates contribute to decreases in their fair values.
| Fair Value Measurement at Reporting Date Using | |||||||||||||||
| Description | September 30, 2017 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Assets: | |||||||||||||||
| Cash equivalents | $ | 152,631 | $ | 152,631 | $ | — | $ | — | |||||||
| Fair value option investments | 77,484 | — | — | 77,484 | |||||||||||
| Available-for-sale securities: | |||||||||||||||
| Convertible debt securities | 11,232 | — | — | 11,232 | |||||||||||
| Redeemable preferred shares | 15,552 | — | — | 15,552 | |||||||||||
| Fair Value Measurement at Reporting Date Using | |||||||||||||||
| Description | December 31, 2016 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Assets: | |||||||||||||||
| Cash equivalents | $ | 202,241 | $ | 202,241 | $ | — | $ | — | |||||||
| Fair value option investments | 82,584 | — | — | 82,584 | |||||||||||
| Available-for-sale securities: | |||||||||||||||
| Convertible debt securities | 10,038 | — | — | 10,038 | |||||||||||
| Redeemable preferred shares | 17,444 | — | — | 17,444 | |||||||||||
| Liabilities: | |||||||||||||||
| Contingent consideration | 14,588 | — | — | 14,588 | |||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Assets | ||||||||||||||||
| Fair value option investments: | ||||||||||||||||
| Beginning Balance | $ | 81,439 | $ | 125,018 | $ | 82,584 | $ | 130,725 | ||||||||
| Total gains (losses) included in earnings | (3,955 | ) | (1,594 | ) | (5,100 | ) | (7,301 | ) | ||||||||
| Ending Balance | $ | 77,484 | $ | 123,424 | $ | 77,484 | $ | 123,424 | ||||||||
Unrealized gains (losses) still held (1) | $ | (3,955 | ) | $ | (1,594 | ) | $ | (5,100 | ) | $ | (7,301 | ) | ||||
| Available-for-sale securities | ||||||||||||||||
| Convertible debt securities: | ||||||||||||||||
| Beginning Balance | $ | 10,868 | $ | 10,573 | $ | 10,038 | $ | 10,116 | ||||||||
| Acquisition of convertible debt security | — | — | 1,612 | — | ||||||||||||
| Proceeds at sale or maturity of convertible debt security | — | (1,685 | ) | (1,843 | ) | (1,685 | ) | |||||||||
| Total gains (losses) included in other comprehensive income (loss) | 146 | 566 | (387 | ) | 786 | |||||||||||
Total gains (losses) included in earnings (2) | 218 | 477 | 1,812 | 714 | ||||||||||||
| Ending Balance | $ | 11,232 | $ | 9,931 | $ | 11,232 | $ | 9,931 | ||||||||
Unrealized gains (losses) still held (1) | $ | 364 | $ | 1,043 | $ | 1,180 | $ | 1,500 | ||||||||
| Redeemable preferred shares: | ||||||||||||||||
| Beginning Balance | $ | 15,923 | $ | 22,343 | $ | 17,444 | $ | 22,834 | ||||||||
| Total gains (losses) included in other comprehensive income (loss) | (371 | ) | (592 | ) | (1,892 | ) | (1,083 | ) | ||||||||
| Transfer to cost method investment classification upon elimination of redemption feature | — | (4,574 | ) | — | (4,574 | ) | ||||||||||
| Ending Balance | $ | 15,552 | $ | 17,177 | $ | 15,552 | $ | 17,177 | ||||||||
Unrealized (losses) gains still held (1) | $ | (371 | ) | $ | (592 | ) | $ | (1,892 | ) | $ | (1,083 | ) | ||||
| Liabilities | ||||||||||||||||
| Contingent Consideration: | ||||||||||||||||
| Beginning Balance | $ | — | $ | 14,788 | $ | 14,588 | $ | 10,781 | ||||||||
| Settlements of contingent consideration liabilities | — | — | (7,858 | ) | — | |||||||||||
| Reclassification to non-fair value liabilities when no longer contingent | — | — | (6,778 | ) | (285 | ) | ||||||||||
Total losses (gains) included in earnings (3) | — | (162 | ) | 48 | 4,130 | |||||||||||
| Ending Balance | $ | — | $ | 14,626 | $ | — | $ | 14,626 | ||||||||
Unrealized losses (gains) still held (1) | $ | — | $ | (162 | ) | $ | — | $ | 4,004 | |||||||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets that are written down to fair value as a result of an impairment. The Companyimpairment or modified due to an observable price change in an orderly transaction.
We did not record any significant nonrecurring fair value measurements after initial recognition for the three and ninesix months ended SeptemberJune 30, 20172023. We recognized $35.4 million in non-cash impairment charges related to goodwill and 2016.
$10.0 million in non-cash impairment charges related to long-lived assets, of which $1.2 million was included in Restructuring and related charges on our Condensed Consolidated Statements of Operations for the three and six months ended June 30,
2022.
Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value
| September 30, 2017 | December 31, 2016 | |||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
| Cost method investments | $ | 25,236 | $ | 32,044 | $ | 31,816 | $ | 35,369 | ||||||||
NOTE 12. INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities include stock options, restricted stock units, performance share units, unvested restricted stock awards, ESPP shares, warrantscapped call transactions and convertible senior notes. If dilutive, those potentially dilutive securities are reflected in diluted net income (loss) per share by application ofusing the treasury stock method, except for the convertible senior notes, which are subject to the if-converted method.
23
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the three and ninesix months ended SeptemberJune 30, 20172023 and 2022 (in thousands, except share amounts and per share amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Basic and diluted net income (loss) per share: | |||||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net income (loss) | $ | (12,004) | $ | (90,250) | $ | (40,617) | $ | (124,602) | |||||||||||||||
| Less: Net income (loss) attributable to noncontrolling interests | 603 | 977 | 1,137 | 1,477 | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | (12,607) | (91,227) | (41,754) | (126,079) | |||||||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted-average common shares outstanding | 31,020,493 | 30,039,233 | 30,796,943 | 29,952,018 | |||||||||||||||||||
| Basic and diluted net income (loss) per share: | $ | (0.41) | $ | (3.04) | $ | (1.36) | $ | (4.21) | |||||||||||||||
| Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | |||||||
| Basic and diluted net income (loss) per share: | ||||||||
| Numerator | ||||||||
| Net income (loss) - continuing operations | $ | 3,802 | $ | (22,470 | ) | |||
| Less: Net income (loss) attributable to noncontrolling interests | 2,881 | 9,460 | ||||||
| Net income (loss) attributable to common stockholders - continuing operations | $ | 921 | $ | (31,930 | ) | |||
| Net income (loss) attributable to common stockholders - discontinued operations | (862 | ) | (1,751 | ) | ||||
| Net income (loss) attributable to common stockholders | $ | 59 | $ | (33,681 | ) | |||
| Denominator | ||||||||
| Shares used in computation of basic net income (loss) per share | 557,221,040 | 559,726,154 | ||||||
| Weighted-average effect of dilutive securities | 9,448,009 | — | ||||||
| Shares used in computation of diluted net income (loss) per share | 566,669,049 | 559,726,154 | ||||||
Basic and diluted net income (loss) per share (1): | ||||||||
| Continuing operations | $ | 0.00 | $ | (0.06 | ) | |||
| Discontinued operations | (0.00 | ) | (0.00 | ) | ||||
| Basic and diluted net income (loss) per share | $ | 0.00 | $ | (0.06 | ) | |||
| Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net income (loss) per share: | ||||||||||||||||
| Numerator | ||||||||||||||||
| Allocation of net income (loss) - continuing operations | $ | (34,303 | ) | $ | (144 | ) | $ | (126,228 | ) | $ | (526 | ) | ||||
| Less: Allocation of net income (loss) attributable to noncontrolling interests | 2,175 | 9 | 8,843 | 37 | ||||||||||||
| Allocation of net income (loss) attributable to common stockholders - continuing operations | $ | (36,478 | ) | $ | (153 | ) | $ | (135,071 | ) | $ | (563 | ) | ||||
| Allocation of net income (loss) attributable to common stockholders - discontinued operations | (1,340 | ) | (5 | ) | (6,339 | ) | (26 | ) | ||||||||
| Allocation of net income (loss) attributable to common stockholders | $ | (37,818 | ) | $ | (158 | ) | $ | (141,410 | ) | $ | (589 | ) | ||||
| Denominator | — | — | ||||||||||||||
| Shares used in computation of basic and diluted net income (loss) per share | 572,816,215 | 2,399,976 | 575,890,315 | 2,399,976 | ||||||||||||
Basic and diluted net income (loss) per share (1): | ||||||||||||||||
| Continuing operations | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.23 | ) | $ | (0.23 | ) | ||||
| Discontinued operations | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.02 | ) | ||||||||
| Basic and diluted net income (loss) per share | $ | (0.07 | ) | $ | (0.07 | ) | $ | (0.25 | ) | $ | (0.25 | ) | ||||
The following weighted-average outstanding potentially-dilutive securitiespotentially dilutive instruments are not included in the diluted net income (loss) per share calculations above because they would have had an antidilutive effect on the net income (loss) per share from continuing operations:share:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Restricted stock units | 1,624,378 | 3,073,435 | 1,988,886 | 2,560,609 | |||||||||||||||||||
| Stock options | 3,500,000 | — | 1,769,444 | — | |||||||||||||||||||
Other stock-based compensation awards(1) | 33,165 | 158,344 | 48,176 | 106,263 | |||||||||||||||||||
Convertible Senior notes due 2026 (2) | 3,376,400 | 3,376,400 | 3,376,400 | 3,376,400 | |||||||||||||||||||
| Capped call transactions | 3,376,400 | 3,376,400 | 3,376,400 | 3,376,400 | |||||||||||||||||||
| Total | 11,910,343 | 9,984,579 | 10,559,306 | 9,419,672 | |||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||
| Stock options | 16,000 | 1,085,188 | 1,038,123 | 1,263,796 | ||||||||
| Restricted stock units | 7,220,418 | 31,375,699 | 27,801,509 | 35,119,921 | ||||||||
| Restricted stock | — | 1,219,018 | 1,042,862 | 1,377,116 | ||||||||
| ESPP shares | — | 1,079,839 | 1,141,401 | 1,237,057 | ||||||||
| Performance share units | — | — | 183,174 | — | ||||||||
| Convertible senior notes | 46,296,300 | 46,296,300 | 46,296,300 | 30,185,866 | ||||||||
| Warrants | 46,296,300 | 46,296,300 | 46,296,300 | 24,250,443 | ||||||||
| Total | 99,829,018 | 127,352,344 | 123,799,669 | 93,434,199 | ||||||||
(2)We apply the if-converted method in computing the effect of our convertible senior notes on diluted net income (loss) per share, whereby the numerator of our diluted net income (loss) per share computations is adjusted for interest expense, net of tax, and the denominator is adjusted for the number of shares into which the convertible senior notes could be converted. The effect is only included in the calculation of income (loss) per share for those instruments for which it would reduce income (loss) per share. See Note 5, Financing Arrangements, for additional information.
24
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 13. SEGMENT INFORMATION
The segment information reported in the tables below reflects the operating results that are regularly reviewed by the Company'sour chief operating decision maker to assess performance and make resource allocation decisions. The Company previouslyOur operations are organized its operations into three operating segments: North America, EMEA and Rest of World. As a result of the dispositions discussed in Note 2, Discontinued Operations and Other Business Dispositions, which represented a substantial majority of the Company's international operations outside of EMEA and resulted in changes to the Company's internal reporting and leadership structure, the Company updated its segments in the first quarter of 2017 to report two operating segments: North America and International. The Company's operating segments continue to be the same as its reportable segments. In addition, the Company has changed itsOur measure of segment profitability inis contribution profit, defined as gross profit less marketing expense, which is consistent with how management reviews the first quarter of 2017. Historically, segment operating results reflectedof the segments. Contribution profit measures the amount of marketing investment needed to generate gross profit. Other operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), net. In connection with the internal reporting changes in the first quarter of 2017, the measure of segment profitability has been changed to operating income (loss), unadjusted. Prior period segment information has been retrospectively adjusted to reflectexpenses are excluded from contribution profit as management does not review those changes.expenses by segment.
The Company offers goodsfollowing table summarizes revenue by reportable segment and services through its online local commerce marketplaces incategory for the three primary categories: Local, Goods and Travel. six months ended June 30, 2023 and 2022 (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| North America revenue: | |||||||||||||||||||||||
| Local | $ | 85,475 | $ | 101,469 | $ | 166,854 | $ | 198,390 | |||||||||||||||
| Goods | 4,780 | 6,204 | 9,845 | 14,498 | |||||||||||||||||||
| Travel | 5,579 | 4,451 | 8,394 | 9,400 | |||||||||||||||||||
Total North America revenue (1) | 95,834 | 112,124 | 185,093 | 222,288 | |||||||||||||||||||
| International revenue: | |||||||||||||||||||||||
| Local | 27,374 | 32,111 | 52,639 | 65,261 | |||||||||||||||||||
| Goods | 3,729 | 5,748 | 7,975 | 12,527 | |||||||||||||||||||
| Travel | 2,172 | 3,233 | 5,013 | 6,460 | |||||||||||||||||||
Total International revenue (1) | $ | 33,275 | $ | 41,092 | $ | 65,627 | $ | 84,248 | |||||||||||||||
(1)North America includes revenue from the United States of $94.4 million and $110.1 million for the three months ended June 30, 2023 and 2022 and $182.1 million and $218.9 million for the six months ended June 30, 2023 and 2022. There were no other individual countries that represented more than 10% of consolidated total revenue for the three and six months ended June 30, 2023 and 2022. Revenue is attributed to individual countries based on the location of the customer.
The Company also earns advertisingfollowing table summarizes cost of revenue by reportable segment and commission revenue generated when customers make purchases with retailers using digital coupons accessed throughcategory for the Company's websitesthree and mobile applications. Revenuesix months ended June 30, 2023 and gross profit from those other sources, which are primarily generated through the Company's relationships with local and national merchants, are included within the Local category in the tables below.2022 (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| North America cost of revenue: | |||||||||||||||||||||||
| Local | $ | 11,012 | $ | 13,877 | $ | 22,399 | $ | 27,040 | |||||||||||||||
| Goods | 797 | 1,248 | 1,742 | 2,707 | |||||||||||||||||||
| Travel | 932 | 1,096 | 1,917 | 2,391 | |||||||||||||||||||
| Total North America cost of revenue | 12,741 | 16,221 | 26,058 | 32,138 | |||||||||||||||||||
| International cost of revenue: | |||||||||||||||||||||||
| Local | 2,415 | 2,676 | 5,038 | 5,272 | |||||||||||||||||||
| Goods | 732 | — | 1,320 | 396 | |||||||||||||||||||
| Travel | 256 | 347 | 628 | 757 | |||||||||||||||||||
| Total International cost of revenue | $ | 3,403 | $ | 3,023 | $ | 6,986 | $ | 6,425 | |||||||||||||||
25
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes revenue by reportable segment for the three and nine months ended September 30, 2017 and 2016 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| North America | ||||||||||||||||
| Local - Third-party and other | $ | 194,090 | $ | 176,223 | $ | 602,169 | $ | 552,515 | ||||||||
| Goods: | ||||||||||||||||
| Third-party | 4,323 | 1,964 | 10,139 | 6,318 | ||||||||||||
| Direct | 197,501 | 283,855 | 666,093 | 878,629 | ||||||||||||
| Travel - Third-party | 18,300 | 21,239 | 61,082 | 63,554 | ||||||||||||
Total North America revenue (1) | $ | 414,214 | $ | 483,281 | $ | 1,339,483 | $ | 1,501,016 | ||||||||
| International | ||||||||||||||||
| Local - Third-party and other | $ | 71,574 | $ | 64,282 | $ | 201,257 | $ | 201,145 | ||||||||
| Goods: | ||||||||||||||||
| Third-party | 4,370 | 6,577 | 13,638 | 26,867 | ||||||||||||
| Direct | 134,507 | 118,891 | 384,734 | 342,107 | ||||||||||||
| Travel - Third-party | 9,801 | 13,524 | 31,599 | 37,615 | ||||||||||||
Total International revenue (1) | $ | 220,252 | $ | 203,274 | $ | 631,228 | $ | 607,734 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| North America | ||||||||||||||||
| Local - Third-party and other | $ | 162,914 | $ | 152,873 | $ | 511,865 | $ | 475,703 | ||||||||
| Goods: | ||||||||||||||||
| Third-party | 3,205 | 1,509 | 7,719 | 5,201 | ||||||||||||
| Direct | 27,729 | 30,022 | 96,141 | 104,571 | ||||||||||||
| Travel - Third-party | 14,060 | 17,257 | 46,980 | 49,303 | ||||||||||||
| Total North America gross profit | $ | 207,908 | $ | 201,661 | $ | 662,705 | $ | 634,778 | ||||||||
| International | ||||||||||||||||
| Local - Third-party and other | $ | 67,860 | $ | 59,257 | $ | 189,357 | $ | 186,448 | ||||||||
| Goods: | ||||||||||||||||
| Third-party | 3,639 | 5,698 | 11,800 | 23,249 | ||||||||||||
| Direct | 21,096 | 14,274 | 54,127 | 50,168 | ||||||||||||
| Travel - Third-party | 8,922 | 12,378 | 28,954 | 34,104 | ||||||||||||
| Total International gross profit | $ | 101,517 | $ | 91,607 | $ | 284,238 | $ | 293,969 | ||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| North America | |||||||||||||||||||||||
| Revenue | $ | 95,834 | $ | 112,124 | $ | 185,093 | $ | 222,288 | |||||||||||||||
| Cost of revenue | 12,741 | 16,221 | 26,058 | 32,138 | |||||||||||||||||||
| Marketing | 14,447 | 19,629 | 29,750 | 47,620 | |||||||||||||||||||
| Contribution profit | 68,646 | 76,274 | 129,285 | 142,530 | |||||||||||||||||||
| International | |||||||||||||||||||||||
| Revenue | 33,275 | 41,092 | 65,627 | 84,248 | |||||||||||||||||||
| Cost of revenue | 3,403 | 3,023 | 6,986 | 6,425 | |||||||||||||||||||
| Marketing | 7,820 | 9,743 | 17,365 | 21,168 | |||||||||||||||||||
| Contribution profit | 22,052 | 28,326 | 41,276 | 56,655 | |||||||||||||||||||
| Consolidated | |||||||||||||||||||||||
| Revenue | 129,109 | 153,216 | 250,720 | 306,536 | |||||||||||||||||||
| Cost of revenue | 16,144 | 19,244 | 33,044 | 38,563 | |||||||||||||||||||
| Marketing | 22,267 | 29,372 | 47,115 | 68,788 | |||||||||||||||||||
| Contribution profit | 90,698 | 104,600 | 170,561 | 199,185 | |||||||||||||||||||
| Selling, general and administrative | 96,263 | 123,938 | 197,897 | 250,358 | |||||||||||||||||||
| Goodwill impairment | — | 35,424 | — | 35,424 | |||||||||||||||||||
| Long-lived asset impairment | — | 8,811 | — | 8,811 | |||||||||||||||||||
| Restructuring and related charges | (689) | 2,939 | 8,105 | 3,251 | |||||||||||||||||||
| Income (loss) from operations | $ | (4,876) | $ | (66,512) | $ | (35,441) | $ | (98,659) | |||||||||||||||
The following table summarizes operating income by reportable segment for the three and nine months ended September 30, 2017 and 2016 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
Operating income (loss) (1) (2) (3): | ||||||||||||||||
| North America | $ | (6,995 | ) | $ | (24,470 | ) | $ | (33,811 | ) | $ | (97,688 | ) | ||||
| International | 5,782 | (370 | ) | 13,520 | (12,053 | ) | ||||||||||
| Total operating income (loss) | $ | (1,213 | ) | $ | (24,840 | ) | $ | (20,291 | ) | $ | (109,741 | ) | ||||
| June 30, 2023 | December 31, 2022 | ||||||||||
| Total assets: | |||||||||||
North America (1) | $ | 490,761 | $ | 669,336 | |||||||
International (1) | 96,473 | 123,781 | |||||||||
| Consolidated total assets | $ | 587,234 | $ | 793,117 | |||||||
(1)North America contains assets from the United States of $483.8 million and $661.3 million as of June 30, 2023 and December 31, 2022. International contains assets from the Netherlands of $65.5 million as of June 30, 2023. There were no other individual countries that represented more than 10% of consolidated total assets as of June 30, 2023 and December 31, 2022.
26
| September 30, 2017 | December 31, 2016 | ||||||
North America (1) | $ | 877,353 | $ | 1,122,261 | |||
International (1) | 550,743 | 563,864 | |||||
| Assets of discontinued operations | — | 75,252 | |||||
| Consolidated total assets | $ | 1,428,096 | $ | 1,761,377 | |||
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statementsCondensed Consolidated Financial Statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under "Risk Factors"Part II, Item 1A, Risk Factors, and elsewhere in this Quarterly Report. See Part I, Forward-Looking Statements, for additional information.
Overview
Groupon operates online local commerce marketplaces throughout the worldis a global scaled two-sided marketplace that connect merchantsconnects consumers to consumers by offering goods and services, generally at a discount.merchants. Consumers access those marketplacesour marketplace through our websites, primarily localized groupon.com sites in many countries,mobile applications and our mobile applications. Traditionally, local merchants have tried to reach consumerswebsites. We operate in two segments, North America and generate sales through a variety of methods, including online advertising, paid telephone directories, direct mail, newspaper, radio, televisionInternational, and other promotions. By bringing the brick and mortar world of local commerce onto the Internet, Groupon is helping local merchants to attract customers and sell goods and services. We provide consumers with savings and help them discover what to do, eat, see and buy and where to travel.
Our strategy is to be the trusted marketplace where customers go to buy local services and experiences. We plan to grow our revenue by building long-term relationships with local merchants to strengthen our inventory selection and by enhancing the customer experience through inventory curation and improved convenience in order to drive customer demand and purchase frequency.
We generate service revenue from Local, Goods, and Travel categories.Revenue primarily represents the net commissions earned from selling goods or services on behalf of third-party merchants. Revenue is reported on a net basis as the purchase price collected from the customer less the portion of the focus onpurchase price that is payable to the third-party merchant. We also earn commissions when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications in North Americaapplications.
2022 Cost Savings Plan
In August 2022, we initiated a multi-phase cost savings plan designed to offerings inreduce our Local category, which we believe provides us with the greatest opportunity for long-term gross profit growth. As part of our growth strategy, we have also been developing and testing a number of product enhancements during the current year that are intendedexpense structure to make our offerings easier to use for both customers and merchants, including voucherless offerings that are linked to customer credit cards.
In July 2023, the Board approved the third phase of the 2022 Restructuring Plan, which is expected to include some reductions in our international operations. We have also undertaken workforce reductions in our North America segment.positions globally. In addition to workforce reductions in our ongoing markets, we ceased operations in 17 countries within our International segment from September 2015 through March 2016 in connection with our restructuring actions. Those country exits, which generally comprised our smallest international markets, resulted from a seriesthe third phase, we expect to record total pre-tax charges of separate decisions made at different times during that period that were not part of an overall strategic shift. See Note 9, Restructuring, for additional information about our restructuring plan. As a resultapproximately $3.6 million. A majority of the restructuring actions that we have taken, our operating expenses have decreased significantlypre-tax charges for the third phase are expected to be paid in recent periods on a year-over-year basiscash and we expect that trendprimarily related to continue through 2017. The actions under our restructuring plan are substantially complete asemployee severance and compensation benefits, with an immaterial amount of September 2017.charges related to other exit costs.
How We Measure Our Business
•Gross billings. This metric representsbillings is the total dollar value of customer purchases of goods and services. Gross billings is presented net of customer refunds, order discounts and sales and related taxes. The substantial majority of our revenue transactions are comprised of sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of the transaction price to the third-party merchant who will provide the related goods or services. For third- party revenuethese transactions, gross billings differs from third-party revenueRevenue reported in our consolidated statementsCondensed Consolidated Statements of operations,Operations, which is presented net of the merchant's share of the transaction price. For direct revenue transactions, grossGross billings is equivalent to direct revenue reported in our consolidated statements of operations. We consider this metric to be an important indicator of our growth and business performance as it measures the dollar volume of transactions generated through our marketplaces. Tracking gross billings on third-party revenue transactions also allows us to monitor the percentage of gross billings that we are able to retain after payments to merchants.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Gross billings | $ | 1,341,497 | $ | 1,322,959 | $ | 4,063,706 | $ | 4,082,184 | ||||||||
| Revenue | 634,466 | 686,555 | 1,970,711 | 2,108,750 | ||||||||||||
| Gross profit | 309,425 | 293,268 | 946,943 | 928,747 | ||||||||||||
| Adjusted EBITDA | 46,607 | 32,608 | 144,680 | 99,731 | ||||||||||||
| Free cash flow | 9,606 | (52,561 | ) | (176,783 | ) | (214,698 | ) | |||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Income (loss) from continuing operations | $ | 3,802 | $ | (34,447 | ) | $ | (22,470 | ) | $ | (126,754 | ) | |||||
| Net cash provided by (used in) operating activities from continuing operations | $ | 23,861 | $ | (39,879 | ) | $ | (133,067 | ) | $ | (165,665 | ) | |||||
•Active customers as follows: are unique user accounts that have made a purchase during the TTMtrailing twelve months ("TTM") either through one of our online marketplaces or directly with a merchant for which we earned a commission. This change in definition did not have a significant impact on our active customer count for the TTM ended September 30, 2017. We consider this metric to be an important indicator of our business performance as it helps us to understand how the number of customers actively purchasing our offerings is trending. Some customers could establish and make purchases from more than one account, so it is possible that our active customer metric may count certain customers more than once in a given period. For entities thatWe do not include consumers who solely make purchases with retailers using digital coupons accessed through our websites or mobile applications in our active customer metric, nor do we have acquired in a business combination, active customers include unique user accounts that have made a purchaseconsumers who solely make purchases of our inventory through the acquired entity's website during the trailing twelve months,third-party marketplaces with which includes customers who have made purchases prior to our acquisition of the entity.
we partner.| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Gross billings | $ | 393,458 | $ | 460,165 | $ | 789,883 | $ | 920,849 | |||||||||||||||
| Units | 9,635 | 12,052 | 20,094 | 24,718 | |||||||||||||||||||
Our active customers gross billings per average active customer and gross profit per average active customer for the trailing twelve months ended SeptemberJune 30, 20172023 and 20162022 were as follows:follows (in thousands):
| Trailing Twelve Months Ended June 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| TTM Active Customers | 17,488 | 21,068 | ||||||||||||
28
| Trailing Twelve Months Ended September 30, | ||||||||
2017 (1) | 2016 (2) | |||||||
| TTM Active customers (in thousands) | 49,140 | 45,689 | ||||||
| TTM Gross billings per average active customer | $ | 119.57 | $ | 127.25 | ||||
| TTM Gross profit per average active customer | $ | 27.35 | $ | 28.72 | ||||
Financial Metrics
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2017 | 2016 (1) | 2017 | 2016 (1) | |||||||||
| Units (in thousands) | 44,142 | 44,372 | 134,334 | 137,781 | ||||||||
| Three Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Gross billings: | ||||||||||||||
| Third-party | $ | 991,475 | $ | 900,736 | $ | 90,739 | 10.1 | % | ||||||
| Direct | 332,008 | 402,809 | (70,801 | ) | (17.6 | ) | ||||||||
| Other | 18,014 | 19,414 | (1,400 | ) | (7.2 | ) | ||||||||
| Total gross billings | $ | 1,341,497 | $ | 1,322,959 | $ | 18,538 | 1.4 | |||||||
| Three Months Ended September 30, 2017 | |||||||||||
At Avg. Q3 2016 Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||
| (in thousands) | |||||||||||
| Gross billings | $ | 1,325,952 | $ | 15,545 | $ | 1,341,497 | |||||
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America: | |||||||||||||||
Local - Third-party and other (1) | $ | 606,184 | $ | 530,768 | $ | 75,416 | 14.2 | % | |||||||
| Goods: | |||||||||||||||
| Third-party | 31,978 | 12,775 | 19,203 | 150.3 | |||||||||||
| Direct | 197,501 | 283,855 | (86,354 | ) | (30.4 | ) | |||||||||
| Travel - Third-party | 93,186 | 93,564 | (378 | ) | (0.4 | ) | |||||||||
| Total North America gross billings | 928,849 | 920,962 | 7,887 | 0.9 | |||||||||||
| International: | |||||||||||||||
Local - Third-party and other (1) | 202,991 | 184,068 | 18,923 | 10.3 | |||||||||||
| Goods: | |||||||||||||||
| Third-party | 25,313 | 40,011 | (14,698 | ) | (36.7 | ) | |||||||||
| Direct | 134,507 | 118,954 | 15,553 | 13.1 | |||||||||||
| Travel - Third-party | 49,837 | 58,964 | (9,127 | ) | (15.5 | ) | |||||||||
| Total International gross billings | 412,648 | 401,997 | 10,651 | 2.6 | |||||||||||
| Total gross billings | $ | 1,341,497 | $ | 1,322,959 | $ | 18,538 | 1.4 | ||||||||
| Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Gross billings: | ||||||||||||||
| Third-party | $ | 2,959,103 | $ | 2,803,758 | $ | 155,345 | 5.5 | % | ||||||
| Direct | 1,050,827 | 1,220,736 | (169,909 | ) | (13.9 | ) | ||||||||
| Other | 53,776 | 57,690 | (3,914 | ) | (6.8 | ) | ||||||||
| Total gross billings | $ | 4,063,706 | $ | 4,082,184 | $ | (18,478 | ) | (0.5 | ) | |||||
| Nine Months Ended September 30, | |||||||||||
At Avg. Q3 2016 YTD Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||
| (in thousands) | |||||||||||
| Gross billings | $ | 4,073,248 | $ | (9,542 | ) | $ | 4,063,706 | ||||
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America: | |||||||||||||||
Local - Third-party and other (1) | $ | 1,809,783 | $ | 1,612,830 | $ | 196,953 | 12.2 | % | |||||||
| Goods: | |||||||||||||||
| Third-party | 71,898 | 30,489 | 41,409 | 135.8 | |||||||||||
| Direct | 666,093 | 878,629 | (212,536 | ) | (24.2 | ) | |||||||||
| Travel - Third-party | 320,019 | 302,342 | 17,677 | 5.8 | |||||||||||
| Total North America gross billings | 2,867,793 | 2,824,290 | 43,503 | 1.5 | |||||||||||
| International: | |||||||||||||||
Local - Third-party and other (1) | 583,618 | 581,066 | 2,552 | 0.4 | |||||||||||
| Goods: | |||||||||||||||
| Third-party | 78,582 | 155,625 | (77,043 | ) | (49.5 | ) | |||||||||
| Direct | 384,734 | 342,107 | 42,627 | 12.5 | |||||||||||
| Travel - Third-party | 148,979 | 179,096 | (30,117 | ) | (16.8 | ) | |||||||||
| Total International gross billings | 1,195,913 | 1,257,894 | (61,981 | ) | (4.9 | ) | |||||||||
| Total gross billings | $ | 4,063,706 | $ | 4,082,184 | $ | (18,478 | ) | (0.5 | ) | ||||||
•Gross profit reflects the current year, other revenue includes commissions from merchants from voucherless offerings that are linked to customer credit cards. In the prior year, other revenue also included payment processing revenue.
| Three Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Revenue: | ||||||||||||||
| Third-party | $ | 284,444 | $ | 262,468 | $ | 21,976 | 8.4 | % | ||||||
| Direct | 332,008 | 402,746 | (70,738 | ) | (17.6 | ) | ||||||||
| Other | 18,014 | 21,341 | (3,327 | ) | (15.6 | ) | ||||||||
| Total revenue | $ | 634,466 | $ | 686,555 | $ | (52,089 | ) | (7.6 | ) | |||||
| Three Months Ended September 30, 2017 | |||||||||||
At Avg. Q3 2016 Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||
| (in thousands) | |||||||||||
| Revenue | $ | 625,166 | $ | 9,300 | $ | 634,466 | |||||
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America: | |||||||||||||||
Local - Third-party and other (1) | $ | 194,090 | $ | 176,223 | $ | 17,867 | 10.1 | % | |||||||
| Goods: | |||||||||||||||
| Third-party | 4,323 | 1,964 | 2,359 | 120.1 | |||||||||||
| Direct | 197,501 | 283,855 | (86,354 | ) | (30.4 | ) | |||||||||
| Travel - Third-party | 18,300 | 21,239 | (2,939 | ) | (13.8 | ) | |||||||||
| Total North America revenue | 414,214 | 483,281 | (69,067 | ) | (14.3 | ) | |||||||||
| International: | |||||||||||||||
Local - Third-party and other (1) | 71,574 | 64,282 | 7,292 | 11.3 | |||||||||||
| Goods: | |||||||||||||||
| Third-party | 4,370 | 6,577 | (2,207 | ) | (33.6 | ) | |||||||||
| Direct | 134,507 | 118,891 | 15,616 | 13.1 | |||||||||||
| Travel - Third-party | 9,801 | 13,524 | (3,723 | ) | (27.5 | ) | |||||||||
| Total International revenue | 220,252 | 203,274 | 16,978 | 8.4 | |||||||||||
| Total revenue | $ | 634,466 | $ | 686,555 | $ | (52,089 | ) | (7.6 | ) | ||||||
| Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Revenue: | ||||||||||||||
| Third-party | $ | 866,108 | $ | 830,324 | $ | 35,784 | 4.3 | % | ||||||
| Direct | 1,050,827 | 1,220,736 | (169,909 | ) | (13.9 | ) | ||||||||
| Other | 53,776 | 57,690 | (3,914 | ) | (6.8 | ) | ||||||||
| Total revenue | $ | 1,970,711 | $ | 2,108,750 | $ | (138,039 | ) | (6.5 | ) | |||||
| Nine Months Ended September 30, 2017 | |||||||||||
At Avg. Q3 2016 YTD Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||
| (in thousands) | |||||||||||
| Revenue | $ | 1,975,201 | $ | (4,490 | ) | $ | 1,970,711 | ||||
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America: | |||||||||||||||
Local - Third-party and other (1) | $ | 602,169 | $ | 552,515 | $ | 49,654 | 9.0 | % | |||||||
| Goods: | |||||||||||||||
| Third-party | 10,139 | 6,318 | 3,821 | 60.5 | |||||||||||
| Direct | 666,093 | 878,629 | (212,536 | ) | (24.2 | ) | |||||||||
| Travel - Third-party | 61,082 | 63,554 | (2,472 | ) | (3.9 | ) | |||||||||
| Total North America revenue | 1,339,483 | 1,501,016 | (161,533 | ) | (10.8 | ) | |||||||||
| International: | |||||||||||||||
Local - Third-party and other (1) | 201,257 | 201,145 | 112 | 0.1 | |||||||||||
| Goods: | |||||||||||||||
| Third-party | 13,638 | 26,867 | (13,229 | ) | (49.2 | ) | |||||||||
| Direct | 384,734 | 342,107 | 42,627 | 12.5 | |||||||||||
| Travel - Third-party | 31,599 | 37,615 | (6,016 | ) | (16.0 | ) | |||||||||
| Total International revenue | 631,228 | 607,734 | 23,494 | 3.9 | |||||||||||
| Total revenue | $ | 1,970,711 | $ | 2,108,750 | $ | (138,039 | ) | (6.5 | ) | ||||||
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Cost of revenue: | |||||||||||||||
| Third-party | $ | 41,612 | $ | 34,456 | $ | 7,156 | 20.8 | % | |||||||
| Direct | 283,183 | 358,450 | (75,267 | ) | (21.0 | ) | |||||||||
| Other | 246 | 381 | (135 | ) | (35.4 | ) | |||||||||
| Total cost of revenue | $ | 325,041 | $ | 393,287 | $ | (68,246 | ) | (17.4 | ) | ||||||
| Three Months Ended September 30, 2017 | |||||||||||
At Avg. Q3 2016 Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||
| (in thousands) | |||||||||||
| Cost of revenue | $ | 319,181 | $ | 5,860 | $ | 325,041 | |||||
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America: | |||||||||||||||
Local - Third-party and other (1) | $ | 31,176 | $ | 23,350 | $ | 7,826 | 33.5 | % | |||||||
| Goods: | |||||||||||||||
| Third-party | 1,118 | 455 | 663 | 145.7 | |||||||||||
| Direct | 169,772 | 253,833 | (84,061 | ) | (33.1 | ) | |||||||||
| Travel - Third-party | 4,240 | 3,982 | 258 | 6.5 | |||||||||||
| Total North America cost of revenue | 206,306 | 281,620 | (75,314 | ) | (26.7 | ) | |||||||||
| International: | |||||||||||||||
Local - Third-party and other (1) | 3,714 | 5,025 | (1,311 | ) | (26.1 | ) | |||||||||
| Goods: | |||||||||||||||
| Third-party | 731 | 879 | (148 | ) | (16.8 | ) | |||||||||
| Direct | 113,411 | 104,617 | 8,794 | 8.4 | |||||||||||
| Travel - Third-party | 879 | 1,146 | (267 | ) | (23.3 | ) | |||||||||
| Total International cost of revenue | 118,735 | 111,667 | 7,068 | 6.3 | |||||||||||
| Total cost of revenue | $ | 325,041 | $ | 393,287 | $ | (68,246 | ) | (17.4 | ) | ||||||
•Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) from operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation and other special charges and credits, including items that are unusual in foreign exchange ratesnature or infrequently occurring. For further information and a reconciliation to net income (loss), refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.
•Free cash flow is a non-GAAP financial measure that comprises net cash provided by (used in) operating activities from operations less purchases of property and equipment and capitalized software. For further information and a reconciliation to net cash provided by (used in) operating activities, refer to our discussion in the LiquidityandCapital Resources section.
The following table presents the above financial metrics for the three and six months ended SeptemberJune 30, 2017.2023 and 2022 (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | $ | 129,109 | $ | 153,216 | $ | 250,720 | $ | 306,536 | |||||||||||||||
| Gross profit | 112,965 | 133,972 | 217,676 | 267,973 | |||||||||||||||||||
| Adjusted EBITDA | 15,197 | 5,728 | 10,294 | (1,232) | |||||||||||||||||||
| Free cash flow | (44,563) | (39,340) | (130,427) | (130,505) | |||||||||||||||||||
| Nine Months Ended September 30, 2017 | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Cost of revenue: | |||||||||||||||
| Third-party | $ | 122,382 | $ | 107,240 | $ | 15,142 | 14.1 | % | |||||||
| Direct | 900,559 | 1,065,997 | (165,438 | ) | (15.5 | ) | |||||||||
| Other | 827 | 6,766 | (5,939 | ) | (87.8 | ) | |||||||||
| Total cost of revenue | $ | 1,023,768 | $ | 1,180,003 | $ | (156,235 | ) | (13.2 | ) | ||||||
| Nine Months Ended September 30, 2017 | |||||||||||
At Avg. Q3 2016 YTD Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||
| (in thousands) | |||||||||||
| Cost of revenue | $ | 1,024,807 | $ | (1,039 | ) | $ | 1,023,768 | ||||
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America: | |||||||||||||||
Local - Third-party and other (1) | $ | 90,304 | $ | 76,812 | $ | 13,492 | 17.6 | % | |||||||
| Goods: | |||||||||||||||
| Third-party | 2,420 | 1,117 | 1,303 | 116.7 | |||||||||||
| Direct | 569,952 | 774,058 | (204,106 | ) | (26.4 | ) | |||||||||
| Travel - Third-party | 14,102 | 14,251 | (149 | ) | (1.0 | ) | |||||||||
| Total North America cost of revenue | 676,778 | 866,238 | (189,460 | ) | (21.9 | ) | |||||||||
| International: | |||||||||||||||
Local - Third-party and other (1) | 11,900 | 14,697 | (2,797 | ) | (19.0 | ) | |||||||||
| Goods: | |||||||||||||||
| Third-party | 1,838 | 3,618 | (1,780 | ) | (49.2 | ) | |||||||||
| Direct | 330,607 | 291,939 | 38,668 | 13.2 | |||||||||||
| Travel - Third-party | 2,645 | 3,511 | (866 | ) | (24.7 | ) | |||||||||
| Total International cost of revenue | 346,990 | 313,765 | 33,225 | 10.6 | |||||||||||
| Total cost of revenue | $ | 1,023,768 | $ | 1,180,003 | $ | (156,235 | ) | (13.2 | ) | ||||||
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Gross profit: | |||||||||||||||
| Third-party | $ | 242,832 | $ | 228,012 | $ | 14,820 | 6.5 | % | |||||||
| Direct | 48,825 | 44,296 | 4,529 | 10.2 | |||||||||||
| Other | 17,768 | 20,960 | (3,192 | ) | (15.2 | ) | |||||||||
| Total gross profit | $ | 309,425 | $ | 293,268 | $ | 16,157 | 5.5 | ||||||||
| Three Months Ended September 30, 2017 | |||||||||||
At Avg. Q3 2016 Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||
| (in thousands) | |||||||||||
| Gross profit | $ | 305,985 | $ | 3,440 | $ | 309,425 | |||||
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America: | |||||||||||||||
Local - Third-party and other (1) | $ | 162,914 | $ | 152,873 | $ | 10,041 | 6.6 | % | |||||||
| Goods: | |||||||||||||||
| Third-party | 3,205 | 1,509 | 1,696 | 112.4 | |||||||||||
| Direct | 27,729 | 30,022 | (2,293 | ) | (7.6 | ) | |||||||||
| Travel - Third-party | 14,060 | 17,257 | (3,197 | ) | (18.5 | ) | |||||||||
| Total North America gross profit | $ | 207,908 | $ | 201,661 | $ | 6,247 | 3.1 | ||||||||
| % of gross billings | 22.4 | % | 21.9 | % | |||||||||||
| % of revenue | 50.2 | % | 41.7 | % | |||||||||||
| International: | |||||||||||||||
Local - Third-party and other (1) | $ | 67,860 | $ | 59,257 | $ | 8,603 | 14.5 | ||||||||
| Goods: | |||||||||||||||
| Third-party | 3,639 | 5,698 | (2,059 | ) | (36.1 | ) | |||||||||
| Direct | 21,096 | 14,274 | 6,822 | 47.8 | |||||||||||
| Travel - Third-party | 8,922 | 12,378 | (3,456 | ) | (27.9 | ) | |||||||||
| Total International gross profit | $ | 101,517 | $ | 91,607 | $ | 9,910 | 10.8 | ||||||||
| % of gross billings | 24.6 | % | 22.8 | % | |||||||||||
| % of revenue | 46.1 | % | 45.1 | % | |||||||||||
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Gross profit: | |||||||||||||||
| Third-party | $ | 743,726 | $ | 723,084 | $ | 20,642 | 2.9 | % | |||||||
| Direct | 150,268 | 154,739 | (4,471 | ) | (2.9 | ) | |||||||||
| Other | 52,949 | 50,924 | 2,025 | 4.0 | |||||||||||
| Total gross profit | $ | 946,943 | $ | 928,747 | $ | 18,196 | 2.0 | ||||||||
| Nine Months Ended September 30, 2017 | |||||||||||
At Avg. Q3 2016 YTD Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||
| (in thousands) | |||||||||||
| Gross profit | $ | 950,394 | $ | (3,451 | ) | $ | 946,943 | ||||
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America: | |||||||||||||||
Local - Third-party and other (1) | $ | 511,865 | $ | 475,703 | $ | 36,162 | 7.6 | % | |||||||
| Goods: | |||||||||||||||
| Third-party | 7,719 | 5,201 | 2,518 | 48.4 | |||||||||||
| Direct | 96,141 | 104,571 | (8,430 | ) | (8.1 | ) | |||||||||
| Travel - Third-party | 46,980 | 49,303 | (2,323 | ) | (4.7 | ) | |||||||||
| Total North America gross profit | $ | 662,705 | $ | 634,778 | $ | 27,927 | 4.4 | ||||||||
| % of gross billings | 23.1 | % | 22.5 | % | |||||||||||
| % of revenue | 49.5 | % | 42.3 | % | |||||||||||
| International: | |||||||||||||||
Local - Third-party and other (1) | $ | 189,357 | $ | 186,448 | $ | 2,909 | 1.6 | ||||||||
| Goods: | |||||||||||||||
| Third-party | 11,800 | 23,249 | (11,449 | ) | (49.2 | ) | |||||||||
| Direct | 54,127 | 50,168 | 3,959 | 7.9 | |||||||||||
| Travel - Third-party | 28,954 | 34,104 | (5,150 | ) | (15.1 | ) | |||||||||
| Total International gross profit | $ | 284,238 | $ | 293,969 | $ | (9,731 | ) | (3.3 | ) | ||||||
| % of gross billings | 23.8 | % | 23.4 | % | |||||||||||
| % of revenue | 45.0 | % | 48.4 | % | |||||||||||
•Marketing
| Three Months Ended September 30, | |||||||||||||||||||||
| 2017 | % of Gross Profit | 2016 | % of Gross Profit | $ Change | % Change | ||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||
| North America | $ | 75,088 | 36.1 | % | $ | 62,861 | 31.2 | % | $ | 12,227 | 19.5 | % | |||||||||
| International | 26,368 | 26.0 | 21,887 | 23.9 | 4,481 | 20.5 | |||||||||||||||
| Total marketing | $ | 101,456 | 32.8 | $ | 84,748 | 28.9 | $ | 16,708 | 19.7 | ||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||
| 2017 | % of Gross Profit | 2016 | % of Gross Profit | $ Change | % Change | ||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||
| North America | $ | 217,092 | 32.8 | % | $ | 198,423 | 31.3 | % | $ | 18,669 | 9.4 | % | |||||||||
| International | 71,364 | 25.1 | 62,800 | 21.4 | 8,564 | 13.6 | |||||||||||||||
| Total marketing | $ | 288,456 | 30.5 | $ | 261,223 | 28.1 | $ | 27,233 | 10.4 | ||||||||||||
•Selling, General and Administrative
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Selling, general and administrative | $ | 214,828 | $ | 234,266 | $ | (19,438 | ) | (8.3 | )% | ||||||
| % of gross billings | 16.0 | % | 17.7 | % | |||||||||||
| % of revenue | 33.9 | % | 34.1 | % | |||||||||||
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Selling, general and administrative | $ | 677,061 | $ | 755,981 | $ | (78,920 | ) | (10.4 | )% | ||||||
| % of gross billings | 16.7 | % | 18.5 | % | |||||||||||
| % of revenue | 34.4 | % | 35.8 | % | |||||||||||
29
Attracting and retaining local merchants. As we focus on our local experiences marketplace, we depend on our ability to attract and retain merchants who are willing to offer their experiences on our platform. Merchants can withdraw their offerings from our marketplace at any time, and their willingness to continue offering services through our marketplace depends on the effectiveness of our marketplace offering. We are focused on improving our marketplace offering and merchant value proposition by exploring opportunities to better balance the needs of merchant partners, customers, and Groupon, for example by offering flexible deal structures.
Re-engaging and retaining customers to drive purchase frequency. To re-engage and retain customers to drive purchase frequency, we are focused on strengthening our core marketplace by improving inventory density, the customer experience and trust. In addition to our efforts to improve our inventory density, we are exploring opportunities to differentiate our inventory.
Impact of macroeconomic conditions.We have been, and may continue to be, impacted by adverse consequences of the macroeconomic environment, including but not limited to, inflationary pressures, higher labor costs, labor shortages, supply chain challenges and resulting changes in consumer and merchant behavior. We will continue to monitor the impact of macroeconomic conditions on our business.
30
Results of Operations
North America
Operating Metrics
North America segment gross billings and units for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| Gross billings | |||||||||||||||||||||||||||||||||||
| Local | $ | 231,950 | $ | 265,114 | (12.5) | % | $ | 453,696 | $ | 514,404 | (11.8) | % | |||||||||||||||||||||||
| Goods | 22,256 | 30,462 | (26.9) | 46,015 | 67,070 | (31.4) | |||||||||||||||||||||||||||||
| Travel | 21,630 | 21,692 | (0.3) | 42,279 | 45,706 | (7.5) | |||||||||||||||||||||||||||||
| Total gross billings | $ | 275,836 | $ | 317,268 | (13.1) | $ | 541,990 | $ | 627,180 | (13.6) | |||||||||||||||||||||||||
| Units | |||||||||||||||||||||||||||||||||||
| Local | 5,083 | 6,355 | (20.0) | % | 10,225 | 12,536 | (18.4) | % | |||||||||||||||||||||||||||
| Goods | 807 | 1,141 | (29.3) | 1,740 | 2,591 | (32.8) | |||||||||||||||||||||||||||||
| Travel | 84 | 91 | (7.7) | 170 | 214 | (20.6) | |||||||||||||||||||||||||||||
| Total units | 5,974 | 7,587 | (21.3) | 12,135 | 15,341 | (20.9) | |||||||||||||||||||||||||||||
North America TTM active customers for the trailing twelve months ended June 30, 2023 and 2022 were as follows (in thousands):
| Trailing Twelve Months Ended June 30, | ||||||||||||||||||||
| 2023 | 2022 | % Change | ||||||||||||||||||
| TTM Active customers | 10,604 | 13,089 | (19.0) | % | ||||||||||||||||
Comparison of the Three Months Ended SeptemberJune 30, 20172023 and 2016:2022:
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America | $ | (6,995 | ) | $ | (24,470 | ) | $ | 17,475 | 71.4 | % | |||||
| International | 5,782 | (370 | ) | 6,152 | 1,662.7 | ||||||||||
| Total income (loss) from operations | $ | (1,213 | ) | $ | (24,840 | ) | $ | 23,627 | 95.1 | ||||||
Comparison of the following:Six Months Ended June 30, 2023 and 2022:
31
Financial Metrics
North America segment revenue, cost of revenue and gross profit for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||
| Local | $ | 85,475 | $ | 101,469 | (15.8) | % | $ | 166,854 | $ | 198,390 | (15.9) | % | |||||||||||||||||||||||
| Goods | 4,780 | 6,204 | (23.0) | 9,845 | 14,498 | (32.1) | |||||||||||||||||||||||||||||
| Travel | 5,579 | 4,451 | 25.3 | 8,394 | 9,400 | (10.7) | |||||||||||||||||||||||||||||
| Total revenue | $ | 95,834 | $ | 112,124 | (14.5) | $ | 185,093 | $ | 222,288 | (16.7) | |||||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||||||||
| Local | $ | 11,012 | $ | 13,877 | (20.6) | % | $ | 22,399 | $ | 27,040 | (17.2) | % | |||||||||||||||||||||||
| Goods | 797 | 1,248 | (36.1) | 1,742 | 2,707 | (35.6) | |||||||||||||||||||||||||||||
| Travel | 932 | 1,096 | (15.0) | 1,917 | 2,391 | (19.8) | |||||||||||||||||||||||||||||
| Total cost of revenue | $ | 12,741 | $ | 16,221 | (21.5) | $ | 26,058 | $ | 32,138 | (18.9) | |||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||
| Local | $ | 74,463 | $ | 87,592 | (15.0) | % | $ | 144,455 | $ | 171,350 | (15.7) | % | |||||||||||||||||||||||
| Goods | 3,983 | 4,956 | (19.6) | 8,103 | 11,791 | (31.3) | |||||||||||||||||||||||||||||
| Travel | 4,647 | 3,355 | 38.5 | 6,477 | 7,009 | (7.6) | |||||||||||||||||||||||||||||
| Total gross profit | $ | 83,093 | $ | 95,903 | (13.4) | $ | 159,035 | $ | 190,150 | (16.4) | |||||||||||||||||||||||||
Gross margin (1) | 34.7 | % | 35.3 | % | 34.2 | % | 35.4 | % | |||||||||||||||||||||||||||
| % of Consolidated revenue | 74.2 | % | 73.2 | % | 73.8 | % | 72.5 | % | |||||||||||||||||||||||||||
| % of Consolidated cost of revenue | 78.9 | 84.3 | 78.9 | 83.3 | |||||||||||||||||||||||||||||||
| % of Consolidated gross profit | 73.6 | 71.6 | 73.1 | 71.0 | |||||||||||||||||||||||||||||||
(1)Represents the percentage of gross billings that we retained after deducting the merchant's share from revenue.
Comparison of the Three Months Ended June 30, 2023 and 2022:
North America revenue, cost of revenue and gross profit decreased by $16.3 million, pretax gain from the sale of customer lists and other intangible assets in certain food delivery markets. See Note 3, Goodwill and Other Intangible Assets, for additional information.
Comparison of the following:Six Months Ended June 30, 2023 and 2022:
32
Marketing and Contribution Profit
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| Marketing | $ | 14,447 | $ | 19,629 | (26.4) | % | $ | 29,750 | $ | 47,620 | (37.5) | % | |||||||||||||||||||||||
| % of Gross profit | 17.4 | % | 20.5 | % | 18.7 | % | 25.0 | % | |||||||||||||||||||||||||||
| Contribution profit | $ | 68,646 | $ | 76,274 | (10.0) | % | $ | 129,285 | $ | 142,530 | (9.3) | % | |||||||||||||||||||||||
North America marketing expense and marketing expense as a $4.3 million increase in restructuring charges.
North America contribution profit decreased for the three months ended June 30, 2023 compared with the prior year period primarily due to a decrease in gross profit.
North America contribution profit decreased for the six months ended June 30, 2023 compared with the prior year period primarily due to a decrease in gross profit.
International
Operating Metrics
International segment gross billings and units for the three and six months ended June 30, 2023 and 2022 were as follows:follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| Gross billings | |||||||||||||||||||||||||||||||||||
| Local | $ | 87,688 | $ | 96,784 | (9.4) | % | $ | 181,488 | $ | 196,444 | (7.6) | % | |||||||||||||||||||||||
| Goods | 20,000 | 30,861 | (35.2) | 42,256 | 66,211 | (36.2) | |||||||||||||||||||||||||||||
| Travel | 9,934 | 15,252 | (34.9) | 24,149 | 31,014 | (22.1) | |||||||||||||||||||||||||||||
| Total gross billings | $ | 117,622 | $ | 142,897 | (17.7) | $ | 247,893 | $ | 293,669 | (15.6) | |||||||||||||||||||||||||
| Units | |||||||||||||||||||||||||||||||||||
| Local | 2,862 | 3,181 | (10.0) | % | 6,190 | 6,510 | (4.9) | % | |||||||||||||||||||||||||||
| Goods | 746 | 1,205 | (38.1) | 1,632 | 2,676 | (39.0) | |||||||||||||||||||||||||||||
| Travel | 53 | 79 | (32.9) | 137 | 191 | (28.3) | |||||||||||||||||||||||||||||
| Total units | 3,661 | 4,465 | (18.0) | 7,959 | 9,377 | (15.1) | |||||||||||||||||||||||||||||
International TTM active customers for the trailing twelve months ended June 30, 2023 and 2022 were as follows (in thousands):
| Trailing Twelve Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | % Change | |||||||||||||||
| TTM Active customers | 6,884 | 7,979 | (13.7) | % | |||||||||||||
33
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| North America | $ | (33,811 | ) | $ | (97,688 | ) | $ | 63,877 | 65.4 | % | |||||
| International | 13,520 | (12,053 | ) | 25,573 | 212.2 | ||||||||||
| Total income (loss) from operations | $ | (20,291 | ) | $ | (109,741 | ) | $ | 89,450 | 81.5 | ||||||
Comparison of the Six Months Ended June 30, 2023 and 2022:
International gross billings and units decreased by $45.8 million and 1.4 million for the six months ended June 30, 2023 compared with the prior year period. These declines were primarily attributable to a decrease in demand. In addition, there was a $6.4 million unfavorable impact on gross billings from year-over-year changes in foreign currency exchange rates.
Financial Metrics
International segment revenue, cost of revenue and gross profit for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||
| Local | $ | 27,374 | $ | 32,111 | (14.8) | % | $ | 52,639 | $ | 65,261 | (19.3) | % | |||||||||||||||||||||||
| Goods | 3,729 | 5,748 | (35.1) | 7,975 | 12,527 | (36.3) | |||||||||||||||||||||||||||||
| Travel | 2,172 | 3,233 | (32.8) | 5,013 | 6,460 | (22.4) | |||||||||||||||||||||||||||||
| Total revenue | $ | 33,275 | $ | 41,092 | (19.0) | $ | 65,627 | $ | 84,248 | (22.1) | |||||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||||||||
| Local | $ | 2,415 | $ | 2,676 | (9.8) | % | $ | 5,038 | $ | 5,272 | (4.4) | % | |||||||||||||||||||||||
| Goods | 732 | — | NM | 1,320 | 396 | NM | |||||||||||||||||||||||||||||
| Travel | 256 | 347 | (26.2) | 628 | 757 | (17.0) | |||||||||||||||||||||||||||||
| Total cost of revenue | $ | 3,403 | $ | 3,023 | 12.6 | $ | 6,986 | $ | 6,425 | 8.7 | |||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||
| Local | $ | 24,959 | $ | 29,435 | (15.2) | % | $ | 47,601 | $ | 59,989 | (20.7) | % | |||||||||||||||||||||||
| Goods | 2,997 | 5,748 | (47.9) | 6,655 | 12,131 | (45.1) | |||||||||||||||||||||||||||||
| Travel | 1,916 | 2,886 | (33.6) | 4,385 | 5,703 | (23.1) | |||||||||||||||||||||||||||||
| Total gross profit | $ | 29,872 | $ | 38,069 | (21.5) | $ | 58,641 | $ | 77,823 | (24.6) | |||||||||||||||||||||||||
Gross margin (1) | 28.3 | % | 28.8 | % | 26.5 | % | 28.7 | % | |||||||||||||||||||||||||||
| % of Consolidated revenue | 25.8 | % | 26.8 | % | 26.2 | % | 27.5 | % | |||||||||||||||||||||||||||
| % of Consolidated cost of revenue | 21.1 | 15.7 | 21.1 | 16.7 | |||||||||||||||||||||||||||||||
| % of Consolidated gross profit | 26.4 | 28.4 | 26.9 | 29.0 | |||||||||||||||||||||||||||||||
(1)Represents the percentage of gross billings that we retained after deducting the merchant's share from revenue.
Comparison of the Three Months Ended June 30, 2023 and 2022
International revenue and gross profit decreased by $7.8 million and $8.2 million for the three months ended June 30, 2023 compared with the prior year period. Those declines were primarily due to a shift in mix to lower margin offerings, as well as the de-emphasis on our Goods category.
Comparison of the Six Months Ended June 30, 2023 and 2022
International revenue and gross profit decreased by $18.6 million and $19.2 million for the six months ended June 30, 2023 compared with the prior year period. Those declines were primarily due to a shift in mix to lower margin offerings, as well as the de-emphasis on our Goods category. Revenue and gross profit also had an unfavorable impact of $1.6 million and $1.4 million from year-over-year changes in foreign currency exchange rates.
34
Marketing and Contribution Profit
International marketing and contribution profit for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| Marketing | $ | 7,820 | $ | 9,743 | (19.7) | % | $ | 17,365 | $ | 21,168 | (18.0) | % | |||||||||||||||||||||||
| % of Gross profit | 26.2 | % | 25.6 | % | 29.6 | % | 27.2 | % | |||||||||||||||||||||||||||
| Contribution profit | $ | 22,052 | $ | 28,326 | (22.1) | % | $ | 41,276 | $ | 56,655 | (27.1) | % | |||||||||||||||||||||||
Comparison of the Three Months Ended June 30, 2023 and 2022:
International marketing expense decreased for the three months ended June 30, 2023 compared with the prior year period primarily due to traffic declines and a lower investment in our online marketing spend. Marketing expense as a percentage of gross profit increased for the three months ended June 30, 2023 compared with the prior year period primarily due to a decrease in gross profit.
The reduction in our loss from operations was attributable to the following:
a $43.4 million decrease in SG&A; and
Comparison of the Six Months Ended June 30, 2023 and 2022:
International marketing expense decreased for the six months ended June 30, 2023 compared with the prior year period primarily due to traffic declines and a $11.4 millionlower investment in our online marketing spend. Marketing expense as a percentage of gross profit increased for the six months ended June 30, 2023 compared with the prior year period primarily due to a decrease in gains on business dispositions;gross profit.
The decrease in International contribution profit for the six months ended June 30, 2023 compared with the prior year period was primarily attributable to a decrease in gross profit.
Consolidated Operating Expenses
Operating expenses for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| Marketing | $ | 22,267 | $ | 29,372 | (24.2) | % | $ | 47,115 | $ | 68,788 | (31.5) | % | |||||||||||||||||||||||
| Selling, general and administrative | 96,263 | 123,938 | (22.3) | 197,897 | 250,358 | (21.0) | |||||||||||||||||||||||||||||
| Goodwill impairment | — | 35,424 | (100.0) | — | 35,424 | (100.0) | |||||||||||||||||||||||||||||
| Long-lived asset impairment | — | 8,811 | (100.0) | — | 8,811 | (100.0) | |||||||||||||||||||||||||||||
| Restructuring and related charges | (689) | 2,939 | (123.4) | 8,105 | 3,251 | 149.3 | |||||||||||||||||||||||||||||
| Total operating expenses | $ | 117,841 | $ | 200,484 | (41.2) | $ | 253,117 | $ | 366,632 | (31.0) | |||||||||||||||||||||||||
| % of Gross profit: | |||||||||||||||||||||||||||||||||||
| Marketing | 19.7 | % | 21.9 | % | 21.6 | % | 25.7 | % | |||||||||||||||||||||||||||
| Selling, general and administrative | 85.2 | % | 92.5 | % | 90.9 | % | 93.4 | % | |||||||||||||||||||||||||||
Comparison of the Three Months Ended June 30, 2023 and 2022:
Marketing expense and marketing expense as a percentage of gross profit decreased for the three months ended June 30, 2023 compared with the prior year period due to a decrease in marketing-related payroll, traffic declines, and a lower investment in our online marketing expense.spend.
SG&A and SG&A as a percentage of gross profit decreased for the three months ended June 30, 2023 compared with the prior year period primarily due to a decrease in payroll costs.
35
Restructuring and related charges decreased for the ninethree months ended SeptemberJune 30, 20172023 compared with the prior year period primarily due to changes in estimates related to our 2020 Restructuring Plan, which resulted in credits recognized during the three months ended June 30, 2023. See Item 1, Note 9, Restructuring and 2016, respectively.Related Charges, for additional information.
Comparison of the Six Months Ended June 30, 2023 and 2022:
Marketing expense and marketing expense as a percentage of gross profit decreased for the six months ended June 30, 2023 compared with the prior year period due to traffic declines and a lower investment in our online marketing spend.
SG&A and SG&A as a percentage of gross profit decreased for the six months ended June 30, 2023 compared with the prior year period primarily due to a decrease in payroll costs.
We recognized goodwill impairment of $35.4 million and long-lived asset impairment of $8.8 million during the second quarter 2022. We had no similar activity in the current year period.
Restructuring and related charges increased for the six months ended June 30, 2023 compared with the prior year period primarily due to severance and benefit costs incurred for the 2022 Restructuring Plan, which was approved by our Board in August 2022. See Item 1, Note 9, Restructuring and Related Charges, for additional information.
Consolidated Other Income (Expense), Net
Other income (expense), net includes interest income,expense, interest expense, gains and losses on fair value option investments, gains and losses on sales of other minority investments,income, and foreign currency gains and losses, primarily resulting from intercompany balances with our subsidiaries that are denominated in foreign currencies.
Other income (expense), net for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Other income (expense), net | $ | (4,805) | $ | (21,340) | $ | (1,735) | $ | (26,220) | |||||||||||||||
Comparison of the Three Months Ended SeptemberJune 30, 20172023 and 2016: 2022:
The change in Other income (expense), net for the three months ended SeptemberJune 30, 20172023 as compared with the prior year period is primarily related to a $15.6 million change in foreign currency gains and 2016 was as follows:losses.
Comparison of the Six Months Ended June 30, 2023 and 2022:
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Other income (expense), net | $ | 7,546 | $ | (7,917 | ) | $ | 15,463 | 195.3 | % | ||||||
The change in Other income (expense), net for the threesix months ended September 30, 2017 primarily consisted of a $7.6 million gain on the sale of an investment and $8.2 million in net foreign currency gains, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies. Those items were partially offset by $5.2 million of interest expense and $4.0 million of losses on our fair value option investments. The foreign currency gains on intercompany balances were primarily driven by the appreciation of the Euro against the U.S. dollar from an exchange rate of 1.1409 on June 30, 2017 to 1.1812 on September 30, 2017. Interest expense was consistent2023 as compared with the prior year period andis primarily related to interest on our convertible notes (See Note 6, Financing Arrangements).
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Other income (expense), net | $ | 8,822 | $ | (16,552 | ) | $ | 25,374 | 153.3 | % | ||||||
Consolidated Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes for the three and six months ended SeptemberJune 30, 20172023 and 2016 was2022 were as follows:follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | $ | 2,323 | $ | 2,398 | (3.1) | % | $ | 3,441 | $ | (277) | NM | ||||||||||||||||||||||||
| Effective tax rate | (24.0) | % | (2.7) | % | (9.3) | % | 0.2 | % | |||||||||||||||||||||||||||
| Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Provision (benefit) for income taxes | $ | 2,531 | $ | 1,690 | $ | 841 | 49.8 | % | |||||||
| Effective tax rate | 40.0 | % | (5.2 | )% | |||||||||||
The effective tax rates for the three and six months ended June 30, 2023 and 2022 were impacted by pretax losses incurred by our operations in jurisdictions that have valuation allowances against their net deferred tax assets, includingassets. The three and six months ended June 30, 2022 were also impacted by the United States, was the primary factor impactingreduction to our effectiveestimated annual tax rate fordue to an increase in expected annual losses. For the three months ended SeptemberJune 30, 20172022, we had a valuation
36
allowance in the U.S. against capital losses, deferred tax assets that will convert into capital losses upon reversal, and 2016.state credits that we were not expecting to be able to realize. We recorded a valuation allowance against the remaining U.S. federal and state deferred tax assets in Q4 2022. For the three and six months ended June 30, 2023, we continue to maintain a full valuation allowance against all U.S. federal and state deferred tax assets. We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses.
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Provision (benefit) for income taxes | $ | 11,001 | $ | 461 | $ | 10,540 | (2,286.3 | )% | |||||||
| Effective tax rate | (95.9 | )% | (0.4 | )% | |||||||||||
See Item 1, Note 10, Income (Loss) from Discontinued Operations
future.
37
Non-GAAP Financial Measures
In addition to financial results reported in accordance with U.S. GAAP, we have provided the following non-GAAP financial measures: Adjusted EBITDA, free cash flow and foreign currency exchange rate neutral operating results. TheseThose non-GAAP financial measures which are presented on a continuing operations basis, are intended to aid investors in better understanding our current financial performance and prospects for the future as seen through the eyes of management. We believe that these non- GAAPthose non-GAAP financial measures facilitate comparisons with our historical results and with the results of peer companies who present similar measures (although other companies may define non-GAAP measures differently than we define them, even when similar terms are used to identify such measures). However, thesethose non-GAAP financial measures are not intended to be a substitute for those reported in accordance with U.S. GAAP.
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP performance measure that we define as netNet income (loss) from continuing 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, including items that are unusual in nature or infrequently occurring. Our definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key measure used by our management and Board of Directors to evaluate operating performance, generate future operating plans and make strategic decisions for the allocation of capital. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors. However, Adjusted EBITDA is not intended to be a substitute for Net income (loss) from continuing operations..
We exclude stock-based compensation expense and depreciation and amortization because they are primarily non-cash in nature and we believe that non-GAAP financial measures excluding those items provide meaningful supplemental information about our operating performance and liquidity. Acquisition-related expense (benefit), net is comprised of the change in the fair value of contingent consideration arrangements and external transaction costs related to business combinations, primarily consisting of legal and advisory fees. The composition of our contingent consideration arrangements and the impact of those arrangements on our operating results vary over time based on a number of factors, including the terms of our business combinations and the timing of those transactions. For the three and ninesix months ended SeptemberJune 30, 2017,2023 and 2022, special charges and credits included charges related to our 2022 and 2020 restructuring planplans and a gain from the saleimpairment of intangiblegoodwill and long-lived assets. For the three and nine months ended September 30, 2016, special charges and credits included gains from business dispositions and charges related to our restructuring plan. We exclude special charges and credits from Adjusted EBITDA because we believe that excluding those items provides meaningful supplemental information about our core operating performance and facilitates comparisons with our historical results.
The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, "IncomeNet income (loss) from continuing operations", for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income (loss) | $ | (12,004) | $ | (90,250) | $ | (40,617) | $ | (124,602) | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Stock-based compensation | 7,519 | 8,572 | 9,882 | 16,078 | |||||||||||||||||||
| Depreciation and amortization | 13,243 | 16,494 | 27,748 | 33,863 | |||||||||||||||||||
| Goodwill impairment | — | 35,424 | — | 35,424 | |||||||||||||||||||
| Long-lived asset impairment | — | 8,811 | — | 8,811 | |||||||||||||||||||
Restructuring and related charges (1) | (689) | 2,939 | 8,105 | 3,251 | |||||||||||||||||||
| Other (income) expense, net | 4,805 | 21,340 | 1,735 | 26,220 | |||||||||||||||||||
| Provision (benefit) for income taxes | 2,323 | 2,398 | 3,441 | (277) | |||||||||||||||||||
| Total adjustments | 27,201 | 95,978 | 50,911 | 123,370 | |||||||||||||||||||
| Adjusted EBITDA | $ | 15,197 | $ | 5,728 | $ | 10,294 | $ | (1,232) | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Income (loss) from continuing operations | $ | 3,802 | $ | (34,447 | ) | $ | (22,470 | ) | $ | (126,754 | ) | |||||
| Adjustments: | ||||||||||||||||
Stock-based compensation (1) | 18,235 | 25,457 | 59,277 | 86,960 | ||||||||||||
| Depreciation and amortization | 35,231 | 32,897 | 103,977 | 101,228 | ||||||||||||
| Acquisition-related expense (benefit), net | — | (9 | ) | 48 | 4,305 | |||||||||||
Restructuring charges (1) | 11,503 | 1,163 | 18,818 | 28,378 | ||||||||||||
| Gain on sale of intangible assets | (17,149 | ) | — | (17,149 | ) | — | ||||||||||
| Gains on business dispositions | — | (2,060 | ) | — | (11,399 | ) | ||||||||||
Other (income) expense, net (1) | (7,546 | ) | 7,917 | (8,822 | ) | 16,552 | ||||||||||
| Provision (benefit) for income taxes | 2,531 | 1,690 | 11,001 | 461 | ||||||||||||
| Total adjustments | 42,805 | 67,055 | 167,150 | 226,485 | ||||||||||||
| Adjusted EBITDA | $ | 46,607 | $ | 32,608 | $ | 144,680 | $ | 99,731 | ||||||||
Free cash flow. flow. Free cash flow is a non-GAAP liquidity measure that comprises net cash provided by operating activities from continuing operations less purchases of property and equipment and capitalized software from continuing operations.software. We use free cash flow to conduct and evaluate our business because although it is similar to cash flow from continuing operations, we believe that it typically represents a more useful measure of cash flows because purchases of fixed assets, software developed for internal use and website development costs are necessary components of our ongoing operations. Free cash flow is not intended to represent the total increase or decrease in our cash balance for the applicable period.
38
Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not include cash payments for business acquisitions. In addition, free cash flow reflects the impact of the timing difference between when we are paid by customers and when we pay merchants and suppliers. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statementsCondensed Consolidated Statements of cash flows.
| Three Months Ended September 30, | Nine Months Ended September 30, | Trailing Twelve Months Ended September 30, | ||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Net cash provided by (used in) operating activities from continuing operations | $ | 23,861 | $ | (39,879 | ) | $ | (133,067 | ) | $ | (165,665 | ) | $ | 161,526 | $ | 91,956 | |||||||||
| Purchases of property and equipment and capitalized software from continuing operations | (14,255 | ) | (12,682 | ) | (43,716 | ) | (49,033 | ) | (62,970 | ) | (64,352 | ) | ||||||||||||
| Free cash flow | $ | 9,606 | $ | (52,561 | ) | $ | (176,783 | ) | $ | (214,698 | ) | $ | 98,556 | $ | 27,604 | |||||||||
| Net cash provided by (used in) investing activities from continuing operations | $ | 18,230 | $ | (11,902 | ) | $ | (9,572 | ) | $ | (51,537 | ) | $ | (13,621 | ) | $ | (82,587 | ) | |||||||
| Net cash provided by (used in) financing activities | $ | (27,972 | ) | $ | (38,342 | ) | $ | (121,622 | ) | $ | 52,868 | $ | (189,155 | ) | $ | (270,729 | ) | |||||||
Foreign currency exchange rate neutral operating results. results. Foreign currency exchange rate neutral operating results show current period operating results as if foreign currency exchange rates had remained the same as those in effect in the prior year period. TheseThose measures are intended to facilitate comparisons to our historical performance. For
The following tables represent the effect on our Condensed Consolidated Statements of Operations from changes in exchange rates versus the U.S. dollar for the three and six months ended June 30, 2023 (in thousands):
| Three Months Ended June 30, 2023 | |||||||||||||||||
At Avg. Q2 2022 Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||||||||
| Gross billings | $ | 392,232 | $ | 1,226 | $ | 393,458 | |||||||||||
| Revenue | 128,751 | 358 | 129,109 | ||||||||||||||
| Cost of revenue | 16,104 | 40 | 16,144 | ||||||||||||||
| Gross profit | 112,647 | 318 | 112,965 | ||||||||||||||
| Marketing | 22,135 | 132 | 22,267 | ||||||||||||||
| Selling, general and administrative | 95,928 | 335 | 96,263 | ||||||||||||||
| Restructuring and related charges | (657) | (32) | (689) | ||||||||||||||
| Income (loss) from operations | (4,759) | (117) | (4,876) | ||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||
At Avg. Q2 2022 Rates (1) | Exchange Rate Effect (2) | As Reported | |||||||||||||||
| Gross billings | $ | 796,311 | $ | (6,428) | $ | 789,883 | |||||||||||
| Revenue | 252,311 | (1,591) | 250,720 | ||||||||||||||
| Cost of revenue | 33,190 | (146) | 33,044 | ||||||||||||||
| Gross profit | 219,121 | (1,445) | 217,676 | ||||||||||||||
| Marketing | 47,501 | (386) | 47,115 | ||||||||||||||
| Selling, general and administrative | 199,077 | (1,180) | 197,897 | ||||||||||||||
| Restructuring and related charges | 8,394 | (289) | 8,105 | ||||||||||||||
| Income (loss) from operations | (35,851) | 410 | (35,441) | ||||||||||||||
(1) Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2) Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
39
Liquidity and Capital Resources
Our principal source of liquidity is our cash balance, which includes outstanding borrowings under the Existing Credit Agreement, totaling $118.1 million as of June 30, 2023.
Our net cash flows from operating, investing and financing activities for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cash provided by (used in): | |||||||||||||||||||||||
| Operating activities | $ | (42,310) | $ | (30,192) | $ | (118,630) | $ | (108,356) | |||||||||||||||
| Investing activities | (2,483) | (9,779) | (11,496) | (23,695) | |||||||||||||||||||
| Financing activities | (2,939) | (43,340) | (32,136) | (46,304) | |||||||||||||||||||
Our free cash flow for the three and six months ended June 30, 2023 and 2022 and a reconciliation of foreign currency exchange rate neutral operating results to the most comparable U.S. GAAP financial measures, see "Results of Operations" above.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | (42,310) | $ | (30,192) | $ | (118,630) | $ | (108,356) | |||||||||||||||
| Purchases of property and equipment and capitalized software | (2,253) | (9,148) | (11,797) | (22,149) | |||||||||||||||||||
| Free cash flow | $ | (44,563) | $ | (39,340) | $ | (130,427) | $ | (130,505) | |||||||||||||||
Our revenue-generating transactions are primarily structured such that we collect cash up-front from credit card payment processors shortly after a sale occurscustomers and remit payment topay third-party merchants and inventory suppliers at a later date, in accordance witheither based upon the customer's redemption of the related contractual payment terms. We expect this favorable working capital cycle to continue for the foreseeable future for voucher-based third-party revenue transactions and direct revenue sales of merchandise inventory. We are currently developing and testing a number of product enhancements intended to make our offerings easier to use for both customers and merchants, including voucherless offerings that are linked to customer credit cards. Those voucherless offerings may involve Groupon collecting a net fee from the merchant, rather than selling a voucher to the customer and then remitting a portion of the proceeds
Net cash provided by (used in) operating activities
For the six months ended June 30, 2023, our operating income or loss would indicate. Additionally, the impact of the transactions in our Goods category on our operatingnet cash flows varies from period to period. For example, the cash flows from transactions in our Goods category are impacted by seasonality, with strong cash inflows typically generated during the fourth quarter holiday season followed by subsequent cash outflows in the following period when payments are made to suppliers of the merchandise.
Net cash provided by (used in) investing activities
For the six months ended June 30, 2023, our net cash used in investing activities was $135.3$11.5 million as compared with the prior year period of $23.7 million. The year-over-year change was primarily driven by fewer purchases of property and equipment and capitalized software during the six months ended June 30, 2023.
Net cash provided by (used in) financing activities
For the six months ended June 30, 2023, our net cash used in financing activities was $32.1 million as compared with the prior year period of $46.3 million. The year-over-year change was primarily driven by $40.0 million in payments of borrowings under our revolving credit facility during the six months ended June 30, 2022, compared with $28.3 million in payments during the current year period.
In March 2023, we entered into the Fourth Amendment to the Amended Credit Agreement which reduced borrowing capacity under our senior secured revolving credit facility from $150.0 million to $75.0 million. In
40
connection with the Fourth Amendment, we repaid $27.3 million of outstanding borrowings. Prior to entering into the Fourth Amendment, our access to the full capacity of our Amended Credit Agreement was partially restricted and our liquidity impacted accordingly. There are no assurances that we will be able to continue to have access to the full capacity of our Existing Credit Agreement and our liquidity could be impacted accordingly. See Item 1, Note 5, Financing Arrangements for additional information. Any material increase in receivable holdbacks or reserve requirements could have a material impact on our cash flow and available liquidity.
The accompanying Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued.
Our net cash used in operating activities was $136.0 million and $171.6$124.0 million for the nineyears ended December 31, 2022 and December 31, 2021. Net cash used in operating activities was $118.6 million and $108.4 million for the six months ended SeptemberJune 30, 20172023 and 2016, respectively.
We are currently evaluating several different options to enhance our liquidity position. These options include, but are not limited to, pursuing additional financing from both the public and private markets and potential monetization of certain non-core assets. In addition, we expect to pursue additional cost savings initiatives under our 2022 Cost Savings Plan (as defined in Item 1, Note 9, Restructuring), such as, but not limited to, additional restructuring actions, renegotiating contractual arrangements with certain service providers and continuing to make elective decisions to eliminate vacant positions rather than rehire. Management will also take steps designed to minimize the risk certain payment processors will require reserves or holdback receivables. While management intends to improve our liquidity and our ability to meet our obligations through the plans described above, those plans are not final and are subject to market and other conditions not within our control. Accordingly, we have been provided thereon.concluded that these plans do not alleviate substantial doubt about our ability to continue as a going concern. As of September 30, 2017, the amount ofJuly 31, 2023, cash and cash equivalents were $100.1 million
As of June 30, 2023, we had $32.7 million in cash held by our international subsidiaries, which is primarily denominated in foreign jurisdictions was approximately $240.5 million.Euros, British Pounds Sterling, Canadian dollars, Indian Rupees, Polish Zloty, Swiss Franc, and, to a lesser extent, Australian dollars. In general, it is our practice and intention to re-invest the earnings of our non-U.S. subsidiaries in those operations or remit such earnings in a tax-efficient manner. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business.
41
| Nine Months Ended September 30, | ||||||||||||
| 2017 | 2016 | $ Change | ||||||||||
| (in thousands) | ||||||||||||
| Cash provided by (used in): | ||||||||||||
| Operating activities from continuing operations | $ | (133,067 | ) | $ | (165,665 | ) | $ | 32,598 | ||||
| Operating activities from discontinued operations | (2,195 | ) | (5,892 | ) | 3,697 | |||||||
| Operating activities | (135,262 | ) | (171,557 | ) | 36,295 | |||||||
| Investing activities from continuing operations | (9,572 | ) | (51,537 | ) | 41,965 | |||||||
| Investing activities from discontinued operations | (9,548 | ) | (182 | ) | (9,366 | ) | ||||||
| Investing activities | (19,120 | ) | (51,719 | ) | 32,599 | |||||||
| Financing activities | (121,622 | ) | 52,868 | (174,490 | ) | |||||||
| Effect of exchange rate changes on cash and cash equivalents, including cash classified within current assets of discontinued operations | 22,818 | 6,793 | 16,025 | |||||||||
| Net increase (decrease) in cash and cash equivalents, including cash classified within current assets of discontinued operations | (253,186 | ) | (163,615 | ) | (89,571 | ) | ||||||
| Less: Net increase (decrease) in cash classified within current assets of discontinued operations | (28,866 | ) | (1,388 | ) | (27,478 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | (224,320 | ) | $ | (162,227 | ) | $ | (62,093 | ) | |||
| Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | |||||||||||||||
| Free cash flow | $ | (176,783 | ) | $ | (214,698 | ) | $ | 37,915 | 17.7 | % | |||||
| Free cash flow TTM | $ | 98,556 | $ | 27,604 | $ | 70,952 | 257.0 | % | |||||||
Contractual Obligations and Commitments
Our contractual obligations and commitments as of SeptemberJune 30, 20172023 did not materially change from the amounts set forth in our 2022 Annual Report on Form 10-K for the year ended December 31, 2016.10-K.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of SeptemberJune 30, 2017.2023.
The preparation of condensed consolidated financial statementsCondensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and related disclosuresdisclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.estimates.
Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements,Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting policies are discussed in Part II, Item 8, Note 2, Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016, and the Current Report on Form 8-K, dated May 17, 2017. In addition, refer to the critical accounting policies and estimates under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes2022. In addition, refer to ourthe critical accounting policiesestimates under Part II, Item 7, Management's Discussion and estimates during the nine months ended September 30, 2017.
2022.
42
Standards
There are no other accounting standards that have been issued but not yet adopted that we believe couldare expected to have a material impact on our condensed consolidated financial position or results of operations.
Condensed Consolidated Financial Statements.
43
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effect of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about these market risks is set forth below.
Foreign Currency Exchange Risk
We transact business in various foreign currencies other than the U.S. dollar, principally the euro,Euro, British pound sterling,Pound Sterling, Canadian dollar, Indian Rupee, Polish Zloty, Swiss Franc, and, to a lessor extent, Australian dollar, which exposes us to foreign currency risk. For the three and ninesix months ended SeptemberJune 30, 2017,2023, we derived approximately 34.7%25.8% and 32.0%, respectively,26.2% of our revenue from our International segment. Revenue and related expenses generated from our international operations are generally denominated in the local currencies of the corresponding countries. The functional currencies of our subsidiaries that either operate or support these markets are generally the same as the corresponding local currencies. TheHowever, the results of operations of, and certain of our intercompany balances associated with, our international operations are exposed to foreign currency exchange rate fluctuations. Upon consolidation, as exchange rates vary, our revenue and other operating results may differ materially from expectations, and we may record significant gains or losses on the re-measurement of intercompany balances. The British pound sterling has declined significantly against the U.S. dollar following the U.K.’s non-binding "Brexit" referendum on June 23, 2016, whereby a majority of voters supported its withdrawal from the European Union. As a result of the decline in the British pound sterling, the gross billings and revenue from our U.K. operations have been adversely impacted and the expenses from our U.K. operations have been favorably impacted in future periods because our financial statements are reported in U.S. dollars.
We assess our foreign currency exchange risk based on hypothetical changes in rates utilizing a sensitivity analysis that measures the potential impact on working capital based on a 10% change (increase and decrease) in currency rates. We use a current market pricing model to assess the changes in the value of the U.S. dollar on foreign currency denominated monetary assets and liabilities. The primary assumption used in this model is a hypothetical 10% weakening or strengthening of the U.S. dollar against those currency exposures as of SeptemberJune 30, 20172023 and December 31, 2016. 2022.
As of SeptemberJune 30, 2017,2023, our net working capital deficit (defined as current assets less current liabilities) from subsidiaries that are subject to foreign currency translation risk was $44.9$93.9 million. The potential increase in this working capital deficit from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be $4.5$9.4 million. This compares towith a $61.6$111.9 million working capital deficit subject to foreign currency exposure as of December 31, 2016,2022, for which a 10% adverse change would have resulted in a potential increase in this working capital deficit of $6.2$11.2 million.
Interest Rate Risk
Our cash and cash equivalents primarily consistbalance as of cash and government money market funds. OurJune 30, 2023 consists of bank deposits so exposure to market risk for changes in interest rates is limited because our cash and cash equivalentslimited. The 2026 Notes have a short-term maturity and are used primarily for working capital purposes. In April 2016, we issued convertible notes with an aggregate principal amount of $250.0$230.0 million (see Note 6, Financing Arrangements). The convertible notesand bear interest at a fixed rate, so we have no financial statement impact from changes in interest rates. However, changes in market interest rates impact the fair value of the convertible notes2026 Notes along with other variables such as our credit spreads and the market price and volatility of our common stock. In June 2016, we entered into the Amended and RestatedOur Existing Credit Agreement that provides for aggregate principal borrowings of up to $250.0$75.0 million. As of SeptemberJune 30, 2017, there were no2023, we had $46.7 million of borrowings outstanding and $24.5 million of outstanding letters of credit under the Amended and RestatedExisting Credit Agreement. See Item 2, Liquidity and Capital Resources, for additional information. Because borrowings under the Amended and RestatedExisting Credit Agreement bearsbear interest at a variable rate, we are exposed to market risk relating to changes in interest rates if we borrow under the Amended and RestatedExisting Credit Agreement. We also have $42.4$21.5 million of capital lease obligations as of June 30, 2023. Interest rates on existing leases typically do not change unless there is a modification to a lease agreement and $11.2 million of investments in convertible debt securities issued by nonpublic entities that are classified as available-for-sale. Wesuch, we do not believe that the interest rate risk on the long-term capital lease obligations and investments is significant.
44
In light of Inflation
the current inflationary environment, our business is being affected by changes to our merchants' and customers' discretionary spend. We believe that our results of operations areexpect such discretionary spend limitations to continue, and if we do not materially impacted by moderate changes in the inflation rate. Inflationsee increased overall demand for discounted goods and changing prices did not have a material effectservices to help offset these limitations on individual merchants and customers, our business, financial condition orand results of operations for the threecould be adversely impacted. Additionally, increased inflation could negatively impact our business by driving up our operating costs. Our costs are subject to inflationary pressures, and nine months ended September 30, 2017.
if those pressures become significant, we may not be able to offset such higher costs through price increases or other cost efficiency measures. Our inability or failure to do so could harm our business, financial condition and results of operations.
45
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Interim Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Ruleas defined in Rules 13a-15(e) orand 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation and because of the previously-reported material weaknesses in internal control over financial reporting, our managementInterim Chief Executive Officer and our Chief Financial Officer concluded that as of September 30, 2017, our disclosure controls and procedures arewere not effective to provide reasonable assurance that information we are required to discloseas of June 30, 2023.
Notwithstanding the material weakness in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, includinginternal control over financial reporting, our Interim Chief Executive Officer and our Chief Financial Officer as appropriate,have concluded that the Condensed Consolidated Financial Statements present fairly, in all material respects, our financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP).
Remediation Plan and Status
As of June 30, 2023, the material weakness previously disclosed has not yet been fully remediated. In response to allow timely decisions regarding required disclosure.the material weakness in our internal control over financial reporting, management has designed and implemented control activities related to complex manual calculations used to record certain month-end balances. We will continue to work towards full remediation of this material weakness to improve our internal control over financial reporting.
The material weakness cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Accordingly, we will continue to monitor and evaluate the effectiveness of our internal control over financial reporting in the areas affected by the material weakness described above.
Changes in Internal Control over Financial Reporting
There waswere no changechanges in our internal control over financial reporting identified in connection with themanagement’s evaluation required by Rulepursuant to Rules 13a-15(d) andor 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Qquarter ended June 30, 2023 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
46
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please see Item 1, Note 7, 6, Commitments and Contingencies, to our condensed consolidated financial statementsCondensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, "Risk Factors" inRisk Factors of our Annual Report on Form 10-K for the year ended December 31, 2016, except to supplement2022, and amend those risk factors as follows:
Our financial statements contain a statement regarding a substantial doubt about the Company’s ability to continue as a going concern.
Our Consolidated Financial Statements as of and for the year ended December 31, 2022 are prepared in accordance with generally accepted accounting principles applicable to a going concern, which could harm our relationships with our customerscontemplates the realization of assets and merchants, subject us to negative publicitythe satisfaction of liabilities in the normal course of business. We have evaluated whether there are conditions and litigation, and causeevents, considered in the aggregate, that raise substantial harm to our business.
Our net cash used in operating activities was $136.0 million and $124.0 million for the years ended December 31, 2022 and December 31, 2021. Net cash used in operating activities was $118.6 million and $108.4 million for the six months ended June 30, 2023 and 2022. Cash and cash equivalents were $118.1 million as of June 30, 2023. We entered into a fourth amendment to the revolving credit agreement in March 2023, which reduced our brandborrowing capacity and modified certain financial covenants as described in Note 5, Financing Arrangements. The fourth amendment to the amountrevolving credit agreement matures on May 14, 2024. The maturing credit facility together with cash outflows and type of information we maintain relating to our customers and merchants. Any such incident could lead to interruptions, delays or website outages, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or other confidential information.
We are currently evaluating several different options to enhance our security measures or zero day vulnerabilities.liquidity position. These options include, but are not limited to, pursuing additional financing from both the public and private markets and potential monetization of certain non-core assets. In addition, outside parties may attemptwe expect to fraudulently induce employees, merchantspursue additional cost savings initiatives under our 2022 Cost Savings Plan, such as, but not limited to, additional restructuring actions, renegotiating contractual arrangements with certain service providers and continuing to make elective decisions to eliminate vacant positions rather than rehire. Management will also take steps designed to minimize the risk certain payment processors will require reserves or customersholdback receivables. While management intends to disclose access credentials or other sensitive information in orderimprove our liquidity and our ability to gain access tomeet our secure systemsobligations through the plans described above, those plans are not final and networks. We also may beare subject to additional vulnerabilitiesmarket and other conditions not within our control. Accordingly, we have concluded that these plans do not alleviate substantial doubt about our ability to continue as we integratea going concern.
The substantial doubt about our ability to continue as a going concern may affect the systems, computers, software and data of acquired businesses into our networks and separate the systems, computers, software and data of disposed businesses from our networks.
The actions we have taken and investmentsplan to improve the maturity of our systems, processes and risk management framework or remediate vulnerabilities will be sufficient or completed quickly enough to prevent or limit the impact of any cyber intrusion. In addition,take in the future we may be required to expend significant additional resources to modify or enhance our protective measures, controls and systems or to improve the maturityreduce operating costs, including as part of our systems, processes and risk management framework, or investigate or remediate any information security vulnerabilities. These improvements, modifications and enhancements2022 Restructuring Plan, may take significant time to implement. Further, the sophistication of potential attacks or the capabilities of our systems and processes may not permit us to detect the occurrence of cyber incidents
result.
48
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the three months ended SeptemberJune 30, 2017,2023, we did not issue any unregistered equity securities.
Issuer Purchases of Equity Securities
| Date | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program | ||||||||||
| July 1-31, 2017 | 2,114,200 | $ | 3.81 | 2,114,200 | $ | 136,247,253 | ||||||||
| August 1-31, 2017 | 270,000 | 4.08 | 270,000 | 135,150,211 | ||||||||||
| September 1-30, 2017 | — | — | — | 135,150,211 | ||||||||||
| Total | 2,384,200 | $ | 3.84 | 2,384,200 | $ | 135,150,211 | ||||||||
The following table provides information about purchases of shares of our common stock during the three months ended SeptemberJune 30, 20172023 related to shares withheld upon vesting of restricted stock units for minimum tax withholding obligations:
| Date | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program | ||||||||||||||||||||||
| April 1-30, 2023 | 50,088 | $ | 3.73 | — | — | |||||||||||||||||||||
| May 1-31, 2023 | 214,771 | 4.68 | — | — | ||||||||||||||||||||||
| June 1-30, 2023 | 3,508 | 4.28 | — | — | ||||||||||||||||||||||
| Total | 268,367 | $ | 4.50 | — | — | |||||||||||||||||||||
(1)Total number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-based compensation awards.
| Date | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program | ||||||||||
| July 1-31, 2017 | 374,003 | $ | 3.82 | — | $ | — | ||||||||
| August 1-31, 2017 | 716,084 | 4.00 | — | $ | — | |||||||||
| September 1-30, 2017 | 856,610 | 4.35 | — | $ | — | |||||||||
| Total | 1,946,697 | $ | 4.12 | — | $ | — | ||||||||
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit Number | Description | |||||||||||
| 31.1 | ||||||||||||
| 31.2 | ||||||||||||
| 32.1 | ||||||||||||
| XBRL Instance Document | ||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||
| 104 ** | Cover Page Interactive Data File | |||||||||||
* Management contract of compensatory plan or arrangement.
** The XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 1st9th day of November 2017.
August 2023.
| GROUPON, INC. | ||||||||||||
| By: | /s/ | |||||||||||
| Name: | ||||||||||||
| Title: | Chief Financial Officer | |||||||||||