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.
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.
Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value
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.
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):
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 |
|
| |
(1) | North America includes revenue from the United States of $410.5 million and $476.3 million for the three months ended September 30, 2017 and 2016, respectively, and $1,317.9 million and $1,477.7 million for the nine months ended September 30, 2017 and 2016, respectively. International includes revenue from the United Kingdom of $82.2 million and $73.5 million for the three months ended September 30, 2017 and 2016, respectively, and $222.1 million and $225.9 million for the nine months ended September 30, 2017 and 2016, respectively. There were no other individual countries that represented more than 10% of consolidated total revenue for the three and nine months ended September 30, 2017 and 2016. In prior periods, revenue was attributed to individual countries based on the domicile of the legal entities within the Company's consolidated group that undertook those transactions. Beginning in the second quarter of 2017, the Company updated its attribution of revenue by country in the current period to be based on the location of the customer. Prior period revenue amounts by country have been retrospectively adjusted to reflect that change in attribution. |
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes grosscontribution profit by reportable segment for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | 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 | ) |
| |
(1) | Includes stock-based compensation of $16.9 million and $24.8 million for North America and $1.4 million and $0.7 million for International for the three months ended September 30, 2017 and 2016, respectively, and $55.2 million and $81.2 million for North America and $4.1 million and $5.8 million for International for the nine months ended September 30, 2017 and 2016, respectively. |
| |
(2) | Includes acquisition-related (benefit) expense, net of $4.3 million for North America for the nine months ended September 30, 2016. |
| |
(3) | Includes restructuring charges of $7.0 million (which includes $0.8 million of stock-based compensation) and $1.0 million for North America and $4.5 million and $0.2 million for International for the three months ended September 30, 2017 and 2016, respectively, and $11.9 million (which includes $0.8 million of stock-based compensation) and $9.4 million (which includes $2.6 million of stock-based compensation) for North America and $6.9 million and $19.0 million (which includes $2.1 million of stock-based compensation) for International for the nine months ended September 30, 2017 and 2016, respectively. |
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes the Company's total assets by reportable segment as of SeptemberJune 30, 20172023 and December 31, 20162022 (in thousands):
| | | | | | | | | | | |
| 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.
|
| | | | | | | |
| 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 |
|
| |
(1) | North America contains assets from the United States of $854.1 million and $1,057.6 million as of September 30, 2017 and December 31, 2016, respectively. International contains assets from Ireland of $152.6 million and $203.2 million as of September 30, 2017 and December 31, 2016, respectively. There were no other individual countries that represented more than 10% of consolidated total assets as of September 30, 2017 and December 31, 2016. |
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.
We offer goods and services through our online local commerce marketplacesoperate in three primary categories:categories, Local, Goods and Travel. During 2017, we began shifting moreSee Item 1, Note 13, Segment Information, for additional information.
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.
Our revenue from transactions in which we act as a third-party marketing agent is the purchase price paid by the customer, generally for a Groupon voucher (a "Groupon"), less the purchase price paid to the merchant. Our direct revenue from transactions in which we sell merchandise inventory in our Goods category as the merchant of record is the purchase price paid by the customer. We generated revenue of $634.5 million during the three months ended September 30, 2017, as compared to $686.6 million during the three months ended September 30, 2016, and $1,970.7 million during the nine months ended September 30, 2017, as compared to $2,108.8 million during the nine months ended September 30, 2016.
In October 2016, we completed a strategic review of our remaining international markets in connectionalign with our efforts to optimize our global footprint and focus on the markets that we believe to have the greatest potential to benefit our long-term financial performance. Based on that review, we decided to focus ourgo-forward business on 15 core countries, which are primarily based in North America and EMEA, and to pursue strategic alternatives for our operations in the remaining 11 countries, which were primarily based in Asia and Latin America. The dispositions of our operations in those 11 countries were completed between November 2016 and March 2017. A business disposition that represents a strategic shift and has (or will have) a major effect on
an entity's operations and financial results is reported as a discontinued operation. We determined that the decision reached by our management and Board of Directors to exit those 11 non-core countries, which comprised a substantial majority of our operations outside of North America and EMEA, represented a strategic shift in our business. Based on our review of quantitative and qualitative factors, we also determined that the disposition of the businesses in those 11 countries would have a major effect on our operations and financial results. As such, the financial results of our operations in those countries, including gains and losses on the dispositions, are presented as discontinued operations in our condensed consolidated statements of operations. Unless otherwise stated, all financial information discussed herein represents results from continuing operations.
We previously organized our operations into three operating segments: North America, EMEA and Rest of World. As a result of the dispositions discussed above, which represented a substantial majority of our international operations outside of EMEA and resulted in changes to our internal reporting and leadership structure, we updated our segment disclosures in the first quarter of 2017 to report two operating segments: North America and International. See Note 13, Segment Information, for further information. For the three months ended September 30, 2017, we derived 65.3% of our revenue from our North America segment and 34.7% of our revenue from our International segment. For the nine months ended September 30, 2017, we derived 68.0% of our revenue from our North America segment and 32.0% of our revenue from our International segment.
In September 2015, we commencedobjectives (the “2022 Cost Savings Plan”). The 2022 Cost Savings Plan included a restructuring plan, relating primarilyapproved by our Board on August 5, 2022 (the “2022 Restructuring Plan”). The first phase and second phase of the 2022 Restructuring Plan are expected to workforceinclude an overall reduction of approximately 1,000 positions globally, with the majority of these reductions completed as of March 31, 2023 and the remainder 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 pre-tax charges are expected to be paid in cash and relate to employee severance and compensation benefits, with an immaterial amount of charges related to other exit costs. We have incurred total pretax charges of $19.1 million since the inception of the 2022 Restructuring Plan.
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
We measure our business with several financial and operating metrics. We use theseseveral operating and financial metrics to assess the progress of our business and make decisions on where to allocate capital, time and technology investments and assess the long-term performance of our marketplaces.investments. Certain of the financial metrics are reported in accordance with U.S. GAAPgenerally accepted accounting principles ("GAAP") and certain of thesethose metrics are considered non-GAAP financial measures. As our business evolves, we may make changes to ourthe key financial and operating metrics usedthat we use to measure our business in future periods.business. For further information and a reconciliationreconciliations to the most applicable financial measuremeasures under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.
FinancialOperating Metrics
•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.
Revenue. Third-party revenue, which is earned from transactions in which However, we act as a marketing agent, is reportedare focused on a net basis as the purchase price received from the customer less the purchase price paid to the featured merchant. Direct revenue, which is earned from sales of merchandise inventory directly to customers through our online marketplaces, is reported on a gross basis as the purchase price received from the customer.
Gross profit. Gross profit reflects the net margin earned after deducting our cost of revenue from our revenue. Due to the lack of comparability between third-party revenue, which is presented net of the merchant's share of the transaction price, and direct revenue, which is reported on a gross basis, we believe thatachieving long-term gross profit is an important measure for evaluating our performance.
and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") growth.
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) from continuing operations excluding income taxes, interest•Units are the number of purchases during the reporting period, before refunds 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. For further information and a reconciliation to the most applicable financial measure under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.
Free cash flow. Free cash flow is a non-GAAP financial measure that comprises net cash provided by (used in) operating activities from continuing operations less purchases of property and equipment and capitalized software from continuing operations. For further information and a reconciliation to the most applicable financial measure under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.
The following table presents the above financial metrics 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 |
| | (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 | ) |
The most comparable U.S. GAAP performance measure for Adjusted EBITDA is "Income (loss) from continuing operations" and the most comparable U.S. GAAP liquidity measure for Free cash flow is "Net cash provided by (used in) operating activities from continuing operations." For further information and a reconciliation to the most applicable measure under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section. The following table provides income (loss) from continuing operations and net cash provided by (used in) operating activities from continuing operations 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 |
| | (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 | ) |
Operating Metrics
Active customers. We have historically defined active customers as unique user accounts that havecancellations, made a purchaseeither through one of our online marketplaces, duringa third-party marketplace, or directly with a merchant for which we earn a commission. We do not include purchases with retailers using digital coupons accessed through our websites or mobile applications in our units metric. We consider units to be an important indicator of the trailing twelve months ("TTM"). Astotal volume of business conducted through our marketplaces. We report units on a resultgross basis prior to the consideration of our ongoing developmentcustomer refunds and testing of voucherless offerings thattherefore units are linked to customer credit cards, we have updated our definition of activenot always a good proxy for gross billings.
•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.Gross billings and gross profit per average active customer. These metrics represent the trailing twelve monthsOur gross billings and gross profit generated per average active customer. We use these metrics to evaluate average customer spend and resulting gross profit generation.
Units. This metric has historically represented the number of purchases made through our online marketplaces, before refunds and cancellations. As a result of our ongoing development and testing of voucherless offerings that are linked to customer credit cards, we have updated our definition of units as follows: purchases during the reporting period, before refunds and cancellations, made 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 unit count for the three and ninesix months ended SeptemberJune 30, 2017. We consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces.
2023 and 2022 were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
|
| | | | | | | | |
| | 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 |
|
| |
(1) | TTM Active customers for the trailing twelve months ended September 30, 2017 includes approximately 0.7 million incremental active customers from the acquisition of LivingSocial, Inc. |
| |
(2) | TTM Active customers for the trailing twelve months ended September 30, 2016 has decreased from 50.8 million active customers previously reported to 45.7 million active customers due to the exclusion of the customers from our operations in 11 countries that have been presented as discontinued operations. The exclusion of those countries' gross billings and active customers increased the TTM gross billings per average active customer for the twelve months ended September 30, 2016 from $122.82 previously reported to $127.25. |
Financial Metrics
Our units for the three and nine months ended September 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | |
| | 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 |
|
| |
(1) | Units have been reduced from 49.3 million to 44.4 million for the three months ended September 30, 2016 and from 152.3 million to 137.8 million for the nine months ended September 30, 2016 due to the exclusion of the units from our operations in 11 countries that have been presented as discontinued operations. |
Factors Affecting Our Performance
Deal sourcing and quality. We consider our merchant relationships to be a vital part of our business model. We depend•Revenue is earned through transactions on our ability to attract and retain merchants that are prepared to offer productswhich we generate commissions by selling goods or services on compelling terms, particularly as we attempt to expand our product and service offerings in order to create more complete online marketplaces for local commerce. Our online marketplaces, which we sometimes refer to as "pull" marketplaces, enable customers to search and browse for deal offerings on our websites and mobile applications. We primarily source the deal offerings available on our marketplaces through our sales personnel and buyers of merchandise inventory. In addition, we have entered into commercial agreements with several third-party marketplace operators that enable us to feature many of their offerings through our own marketplaces.
In North America and many of our international markets, merchants often have a continuous presence on our websites and mobile applications by offering vouchers on an ongoing basis for an extended period of time. Currently, a substantial majority of our merchants in North America elect to offer deals in this manner, and we expect that trend to continue. However, merchants have the ability to withdraw their deal offerings, and we generally do not have noncancelable long-term arrangements to guarantee availability of deals. In order to attract merchants that may not have run deals on our platform or would have run deals on a competing platform, we have been willing to accept lower deal margins across both of our segments and we expect that trend to continue. Additionally, we have been developing product enhancements to reduce friction related to the voucher redemption process, which we believe could make our services more attractive to merchants, as well as customers, once broadly implemented. If new merchants do not find our marketing and promotional services effective, or if our existing merchants do not believe that utilizing our services provides them with a long-term increase in customers, revenue or profit, they may stop making offers through our marketplaces or they may only continue offering deals if we accept lower margins.
We continue to focus more of our efforts on sourcing local deal offerings in subcategories that provide the best opportunities for high frequency customer purchase behavior. Those "high frequency use cases" include food and drink, health, beauty and
wellness, and events and activities. In connection with those efforts, we may be willing to offer more attractive terms to local merchants that could reduce our deal margins in future periods.
International operations. Operating a global business requires management attention and resources and requires us to localize our services to conform to a wide variety of local cultures, business practices, laws and policies. We have reduced our global footprint from 47 countries as of December 31, 2014 to 15 countries as of September 30, 2017. Notwithstanding our reduced global footprint, different commercial and regulatory environments in other countries can make it difficult for us to successfully operate our business. In addition, many of the automation tools and technology enhancements that we have implemented in North America are not yet fully implemented in our international markets.
Our international operations have increased as a percentage of our total revenue compared to the prior year period, primarily due to a higher proportion of direct revenue transactions in the Goods category of our International segment. For the three months ended September 30, 2017 and 2016, 34.7% and 29.6% of our revenue was generated from our International segment, respectively. For the nine months ended September 30, 2017 and 2016, 32.0% and 28.8% of our revenue was generated from our International segment, respectively.
Marketing activities. We must continue to acquire and retain customers in order to increase revenue and achieve profitability. If consumers do not perceive the offerings on our marketplaces to be attractive, or if we fail to introduce new or more relevant deals, we may not be able to acquire or retain customers. In addition, as we continue to build out more complete marketplaces, our success will depend on our ability to increase consumer awareness of offerings available through those marketplaces. We significantly increased our marketing spending throughout 2016 and 2017 in order to drive customer growth. Our increased levels of marketing spending in recent periods have included significant offline campaigns intended to increase customer awareness of the Groupon brand and our product and service offerings. We expect to continue our use of such offline campaigns for the foreseeable future.
We consider order discounts, free shipping on qualifying merchandise sales and reducing margins on our deals to be marketing-related activities, even though these activities are not presented as marketing expenses in our consolidated statements of operations. We have continued to use order discounts as a marketing tool in recent periods because we believe that this is an effective method of driving transaction activity through our marketplaces and acquiring new customers. Additionally, we have, and expect to continue to, reduce our deal margins when we believe that by doing so we can offer our customers a product or service from a merchant who might not have otherwise been willing to conduct business through our marketplaces. We consider such margin reductions to be a marketing-related activity because we believe that offering compelling deals from top merchants on our marketplaces is an effective method of retaining, activating and acquiring customers.
Investment in growth. We intend to continue to invest in product enhancements and infrastructure to support our growth. We also have invested in business acquisitions to grow our merchant and customer base, expand and advance our product and service offerings and enhance our technology capabilities. We anticipate that we will make substantial investments in the foreseeable future as we continue to increase our offerings and improve the quality of active deals available through our marketplaces, broaden our customer base and develop our technology. 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 and functionality enabling appointment booking at the time an offering is purchased. Deals that offer cash back on a customer's credit card 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 to the merchant. We report the sale of vouchers to customers as gross billings, so while we believe that voucherless offerings have the potential to increase customer purchase frequency and generate gross profit growth, our gross billings could be adversely impacted when those offerings begin to scale.
Additionally, we believe that our restructuring actions and efforts to automate internal processes, which have allowed us to centralize many of our back office activities in lower cost shared service centers, will enable us to run our business more efficiently with an improved cost structure. We intend to use some of that cost savings to continue to invest in marketing and product enhancements to drive the growth of our online marketplaces.
Competitive pressure. We face competition from a variety of sources. Some of our competitors offer deals as an add-on to their core businesses, and others have adopted a business model similar to ours. In addition to such competitors, we expect to increasingly compete against other large internet and technology-based businesses that have launched initiatives which are directly competitive to our core business. We also expect to compete against other internet sites that are focused on specific communities or interests and offer coupons or discount arrangements related to such communities or interests. Further, as our business continues to evolve, we anticipate facing new competition. Increased competition in the future may adversely impact our gross billings, revenue and profit margins.
Results of Operations
Gross Billings
Gross billings represents 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.
Three Months Ended September 30, 2017 and 2016:
Gross billings for the three months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | |
| 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 |
|
The effect on our gross billings for the three months ended September 30, 2017 from changes in exchange rates versus the U.S. dollar was as follows:
|
| | | | | | | | | | | |
| 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 |
|
| |
(1) | Represents the financial statement balance 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. |
The increase in gross billings for the three months ended September 30, 2017 primarily resulted from a $7.9 million increase in our North America segment and a $10.7 million increase in our International segment. See below for information about gross billings by segment.
Gross Billings by Segment
Gross billings by category and segment for the three months ended September 30, 2017and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 |
|
| |
(1) | Includes gross billings from deals with local and national merchants and from local events. |
The percentages of gross billings by segment for the three months ended September 30, 2017and 2016 were as follows:
|
| | | | | |
| North America | | | International | |
North America
The increase in North America segment gross billings for the three months ended September 30, 2017 reflects increases from third-party revenue transactions in our Local and Goods categories. Those increases were primarily attributable to the following:
an increase in active customers, primarily attributable to our continued investments in customer acquisition marketing initiatives;
an increase from our acquisition of LivingSocial, which contributed $26.0 million of Local gross billings, $4.4 million of Goods gross billings and $1.7 million of Travel gross billings;
we shifted more of the focus on our websites and mobile applications toward offerings in our Local category, as discussed above; and
in our Goods category, there was a shift to more third-party revenue transactions in which merchants offer their products through our online marketplaces.
The increases in gross billings from third-party revenue transactions in our Local and Goods categories were partially offset by the following:
an $86.4 million decrease from direct revenue transactions in our Goods category. We continued our efforts to de-emphasize lower margin product offerings, which resulted in a shift in focus toward offerings in our Local category and adversely impacted Goods gross billings in the current period. Gross billings from direct revenue transactions in our Goods category were also adversely impacted by the increased proportionbehalf of third-party revenue transactions in that category;
gross billings per average active customer decreased to $28.82 for the three months ended September 30, 2017 from $32.26 in the prior year period; and
the adverse impacts of hurricanes Harvey and Irma.
Order discounts, which are presented as a reduction of gross billings and revenue, decreased by $10.5 million to $32.4 million for the three months ended September 30, 2017, as compared to $42.9 million in the prior year period.
International
The increase in International segment gross billings for the three months ended September 30, 2017 reflects increases in our Local category and direct revenue transactions in our Goods category. The increase was primarily attributable to the following:
an increase in active customers, primarily attributable to our continued investment in customer acquisition marketing initiatives;
an increase in direct revenue transactions in our Goods category. During the three months ended September 30, 2017, we continued to shift an increasing proportion of our Goods category to direct revenue transactions, as we believe that such transactions frequently result in a better customer experience; and
an increase in gross billings per average active customer, which increased to $24.99 for the three months ended September 30, 2017 from $24.02 in the prior year period.
The increases in gross billings in our Local category and from direct revenue transactions in our Goods category were partially offset by a $14.7 million decrease in gross billings from third-party revenue transactions in our Goods category, as discussed above, and a $9.1 million decrease in our Travel category.
There was a $15.5 million favorable impact from year-over-year changes in foreign currency rates.
Order discounts, which are presented as a reduction of gross billings and revenue, increased by $0.5 million to $11.0 million for three months ended September 30, 2017, as compared to $10.5 million for the prior year period.
Nine Months Ended September 30, 2017 and 2016:
Gross billings for the nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | |
| 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 | ) |
The effect on our gross billings for the nine months ended September 30, 2017 from changes in exchange rates versus the U.S. dollar was as follows:
|
| | | | | | | | | | | |
| 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 |
|
| |
(1) | Represents the financial statement balance 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. |
The decrease in gross billings for the nine months ended September 30, 2017 primarily resulted from a $62.0 million decrease in our International segment, partially offset by a $43.5 million increase in our North America segment. See below for information about gross billings by segment.
Gross Billings by Segment
Gross billings by category and segment for the nine months ended September 30, 2017and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
| |
(1) | Includes gross billings from deals with local and national merchants and from local events. |
The percentages of gross billings by segment for the nine months ended September 30, 2017and 2016 were as follows:
|
| | | | | |
| North America | | | International | |
North America
The increase in North America segment gross billings for the nine months ended September 30, 2017 reflects increases from third-party and other revenue transactions across all three of our categories. Those increases were primarily attributable to the following:
an increase in active customers, primarily attributable to our continued investments in customer acquisition marketing initiatives;
an increase from our acquisition of LivingSocial, which contributed $64.5 million of Local gross billings, $6.5 million of Goods gross billings, and $10.6 million of Travel gross billings;
we shifted more of the focus on our websites and mobile applications toward offerings in our Local category; and
in our Goods category, there was a shift to more third-party revenue transactions in which merchants offer their products through our online marketplaces.
The increases in gross billings from third-party and other revenue transactions were partially offset by the following:
a $212.5 million decrease from direct revenue transactions in our Goods category. We continued our efforts to de-emphasize lower margin product offerings, which resulted in a shift in focus toward offerings in our Local category and adversely impacted Goods gross billings in the current period. Gross billings from direct revenue transactions in our Goods category were also adversely impacted by the increased proportion of third-party revenue transactions in that category, as discussed above; and
gross billings per average active customer decreased to $90.21 for the nine months ended September 30, 2017 from $103.03 in the prior year period.
Order discounts, which are presented as a reduction of gross billings and revenue, increased by $8.4 million to $129.3 million for the nine months ended September 30, 2017, as compared to $120.9 million in the prior year period.
International
The decrease in International segment gross billings for the nine months ended September 30, 2017 reflects decreases in third-party revenue in our Goods and Travel categories. Those decreases were primarily attributable to the following:
a decrease in third-party revenue transactions in our Goods category. During the nine months ended September 30, 2017, we continued to shift an increasing proportion of our Goods category to direct revenue transactions, as we believe that such transactions frequently result in a better customer experience;
a decrease in gross billings per average active customer, which declined to $72.05 for the nine months ended September 30, 2017 from $73.40 in the prior year period; and
a $30.1 million decrease in our Travel category.
The decreases in third-party revenue in our Goods and Travel categories were partially offset by the following:
a $42.6 million increase in direct revenue transactions in our Goods category, as discussed above; and
an increase in active customers within our Local category, primarily attributable to our continued investment in customer acquisition marketing initiatives.
There was a $9.5 million unfavorable impact from year-over-year changes in foreign currency rates.
Order discounts, which are presented as a reduction of gross billings and revenue, decreased by $1.1 million to $29.4 million for nine months ended September 30, 2017, as compared to $30.5 million for the prior year period.
Revenue
Third-party revenue arises from transactions in which we are acting as a marketing agent primarily by selling vouchers through our online local commerce marketplaces that can be redeemed for goods or services with third-party merchants. Our third-party revenueRevenue from those transactions is reported on a net basis as the purchase price receivedcollected from the customer for the offering less thean agreed upon portion of the purchase price paid to the third-party merchant.
Direct revenue arises from transactions in our Goods category in which Revenue also includes commissions we sell merchandise inventory directly to customers through our online marketplaces. The direct revenue that we earn from those transactions is reported on a gross basis as the purchase price we receive from the customer.
Other revenue primarily consists of commission revenue earned when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications and advertising revenue. Indigital properties.
•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 and 2016:
Revenue for the three months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | |
| 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 | ) |
The effect on revenue for the three months ended September 30, 2017 from changes in exchange rates versus the U.S. dollar was as follows:
|
| | | | | | | | | | | |
| 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 |
|
| |
(1) | Represents the financial statement balance 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. |
The decrease in total revenue for the three months ended September 30, 2017 primarily resulted from a $69.1 million decrease in our North America segment, partially offset by a $17.0 million increase in our International segment. See below for information about revenue by segment.
Revenue by Segment
Revenue by category and segment for the three months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
| |
(1) | Includes revenue from deals with local and national merchants and through local events. |
The percentages of revenue by segment for the three months ended September 30, 2017and 2016 were as follows:
|
| | | | |
| North America | | | International |
The percentages of third-party and other gross billings thatnet margin we retainedearn after deducting the merchant's share for the three months ended September 30, 2017 and 2016 were as follows:
|
| | |
North America | | International |
North America
The decrease in North America segment revenue for the three months ended September 30, 2017 reflects an $86.4 million decrease from direct revenue transactions in our Goods category, resulting from the decrease in Goods gross billings as discussed above. We have begun to increasingly focus the business on initiatives that are intended to optimize for gross profit to a greater extent than revenue, particularly in our North America segment, including shifting more of the focus on our websites and mobile applications toward offerings in our Local category. The resulting shift in North America gross billings away from our Goods category adversely impacted revenue in the current period, as direct revenue transactions in our Goods category are presented on a gross basis.
The decrease in direct revenue in our Goods category was partially offset by an increase in third-party and other revenue in our Local category. The increase in Local revenue was attributable to the increases in Local gross billings as discussed above.
The percentage of gross billings that we retained after deducting the merchant’s share on third-party and other revenue transactions across our three categories decreased to 29.6% for the three months ended September 30, 2017, as compared to 31.3% in the prior year period. This decrease in the percentage of gross billings that we retained after deducting the merchant's share reflects the overall results of individual deal-by-deal negotiations with merchants and can vary significantly from period-to-period.
International
The increase in International segment revenue for the three months ended September 30, 2017 reflects an increase in our Local category and direct revenue transactions in our Goods category, partially offset by decreases in third-party revenue in our Goods and Travel categories. The increases were primarily attributable to the following:
a $15.6 million increase in direct revenue transactions in our Goods category, resulting from the continued shift toward a greater proportion of Goods gross billings arising from direct revenue transactions, as discussed above. The resulting shift in Goods gross billings to direct revenue transactions favorably impacted revenue in the current period, as direct revenue transactions in our Goods category are presented on a gross basis; and
a $7.3 million increase in third party and other revenue in our Local category. The increase in Local revenue was primarily attributable to the increases in Local gross billings, as discussed above.
The $3.7 million decrease in our Travel category was primarily attributable to the decreases in Travel gross billings, as discussed above.
The percentage of gross billings that we retained after deducting the merchant’s share on third party and other revenue transactions across our three categories increased to 30.8% for the three months ended September 30, 2017 from 29.8% for the prior year period. This increase in the percentage of gross billings that we retained after deducting the merchant's share reflects the overall results of individual deal-by-deal negotiations with merchants and can vary significantly from period-to-period.
There was a $9.5 million favorable impact on International segment revenue from year-over-year changes in foreign exchange rates for the three months ended September 30, 2017.
Nine Months Ended September 30, 2017 and 2016:
Revenue for the nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | |
| 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 | ) |
The effect on revenue for the nine months ended September 30, 2017 from changes in exchange rates versus the U.S. dollar was as follows:
|
| | | | | | | | | | | |
| 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 |
|
| |
(1) | Represents the financial statement balance 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. |
The decrease in total revenue for the nine months ended September 30, 2017 resulted from a $161.5 million decrease in our North America segment, partially offset by a $23.5 million increase in our International segment. See below for information about revenue by segment.
Revenue by Segment
Revenue by category and segment for the nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
| |
(1) | Includes revenue from deals with local and national merchants and through local events. |
The percentages of revenue by segment for the nine months ended September 30, 2017and 2016 were as follows:
|
| | | | |
| North America | | | International |
The percentages of third-party and other gross billings that we retained after deducting the merchant's share for the nine months ended September 30, 2017 and 2016 were as follows:
|
| | |
North America | | International |
North America
The decrease in North America segment revenue for the nine months ended September 30, 2017 reflects a $212.5 million decrease from direct revenue transactions in our Goods category, resulting from the decrease in Goods gross billings as discussed above. We have begun to increasingly focus the business on initiatives that are intended to optimize for gross profit to a greater extent than revenue, particularly in our North America segment, including shifting more of the focus on our websites and mobile applications toward offerings in our Local category. The resulting shift in North America gross billings away from our Goods category adversely impacted revenue in the current period, as direct revenue transactions in our Goods category are presented on a gross basis.
The decrease in direct revenue in our Goods category was partially offset by an increase in third-party and other revenue in our Local category. The increase in Local revenue was attributable to the increases in Local gross billings as discussed above.
The percentage of gross billings that we retained after deducting the merchant’s share in third-party and other revenue transactions across our three categories decreased to 30.6% for the nine months ended September 30, 2017, as compared to 32.0% in the prior year period. The percentage of gross billings that we retained after deducting the merchant's share reflects the overall results of individual deal-by-deal negotiations with merchants and can vary significantly from period-to-period.
International
The increase in International segment revenue for the nine months ended September 30, 2017 reflects a $42.6 million increase in direct revenue transactions in our Goods category, resulting from the continued shift toward a greater proportion of Goods gross billings arising from direct revenue transactions, as discussed above. The resulting shift in Goods gross billings to direct revenue transactions favorably impacted revenue in the current period, as direct revenue transactions in our Goods category are presented on a gross basis.
The $6.0 million decrease in our Travel category was primarily attributable to the decreases in Travel gross billings, as discussed above.
The percentage of gross billings that we retained after deducting the merchant’s share on third party and other revenue transactions across our three categories increased to 30.4% for the nine months ended September 30, 2017, as compared to 29.0% in the prior year period. The percentage of gross billings that we retained after deducting the merchant's share reflects the overall results of individual deal-by-deal negotiations with merchants and can vary significantly from period-to-period.
There was a $4.3 million unfavorable impact on International segment revenue from year-over-year changes in foreign exchange rates for the nine months ended September 30, 2017.
Cost of Revenue
For direct revenue transactions, cost of revenue includes the cost of inventory, shipping and fulfillment costs and inventory markdowns. Fulfillment costs are comprised of third-party logistics provider costs, as well as rent, depreciation, personnel costs and other costs of operating our fulfillment center. For third-party revenue transactions, cost of revenue includes estimated refunds for which the merchant's share is not recoverable. Other costs incurred to generate revenue, which include credit card processing fees, editorial costs, compensation expense for technology support personnel who are responsible for maintaining the infrastructure of the Company's websites, amortization of internal-use software relating to customer-facing applications, web hosting and other processing fees, are attributed to cost of third-party revenue, direct revenue and other revenue in proportion to gross billings during the period.
Three Months Ended September 30, 2017 and 2016:
Cost of revenue on third-party, direct revenue and other revenue for the three months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
The effect on cost of revenue for the three months ended September 30, 2017 from changes in exchange rates versus the U.S. dollar was as follows:
|
| | | | | | | | | | | |
| 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 |
|
| |
(1) | Represents the financial statement balance 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. |
The decrease in total cost of revenue for the three months ended September 30, 2017 resulted from a $75.3 million decrease in our North America segment, partially offset by a $7.1 million increase in our International segment. See below for information about cost of revenue by segment.
Cost of Revenue by Segment
Cost of revenue by category and segment for the three months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
| |
(1) | Includes cost of revenue from deals with local and national merchants and through local events.
|
The percentages of cost of revenue by segment for the three months ended September 30, 2017and 2016 were as follows:
|
| | | | |
| North America | | | International |
North America
The decrease in North America segment cost of revenue for the three months ended September 30, 2017 reflects an $84.1 million decrease from direct revenue transactions in our Goods category. That decrease was attributable to the following:
the decrease in direct revenue from our Goods category as discussed above; and
our efforts to de-emphasize lower margin product offerings.
The decrease in cost of revenue was partially offset by a $7.8 million increase in cost of revenue in our Local category primarily attributable to the increases in Local gross billings, as discussed above.
International
The increase in International segment cost of revenue for the three months ended September 30, 2017 reflects an $8.8 million increase from direct revenue transactions in our Goods category. That increase was attributable to the increase in direct revenue transactions from our Goods category, as discussed above.
There was a $5.9 million unfavorable impact on International segment cost of revenue from year-over-year changesour revenue.
•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 and 2016:Operating Expenses
Cost of revenue on third-party, direct revenue and other revenue for the nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
The effect on cost of revenue for the nine months ended September 30, 2017 from changes in exchange rates versus the U.S. dollar was as follows:
|
| | | | | | | | | | | |
| 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 |
|
| |
(1) | Represents the financial statement balance 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. |
The decrease in total cost of revenue for the nine months ended September 30, 2017 resulted from a $189.5 million decrease in our North America segment, partially offset by a $33.2 million increase in our International segment. See below for information about cost of revenue by segment.
Cost of Revenue by Segment
Cost of revenue by category and segment for the nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
| |
(1) | Includes cost of revenue from deals with local and national merchants and through local events.
|
The percentages of cost of revenue by segment for the nine months ended September 30, 2017and 2016 were as follows:
|
| | | | |
| North America | | | International |
North America
The decrease in North America segment cost of revenue for the nine months ended September 30, 2017 reflects a $204.1 million decrease from direct revenue transactions in our Goods category. That decrease was attributable to the following:
the decrease in direct revenue from our Goods category as discussed above; and
our efforts to de-emphasize lower margin product offerings.
International
The increase in International segment cost of revenue for the nine months ended September 30, 2017 reflects a $38.7 million increase from direct revenue transactions in our Goods category. That increase was attributable to the increase in direct revenue transactions from our Goods category, as discussed above.
There was a $1.0 million favorable impact on International segment cost of revenue from year-over-year changes in foreign exchange rates for the nine months ended September 30, 2017.
Gross Profit
Three Months Ended September 30, 2017 and 2016:
Gross profit for the three months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 |
|
The effect on gross profit for the three months ended September 30, 2017 from changes in exchange rates versus the U.S. dollar was as follows:
|
| | | | | | | | | | | |
| 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 |
|
| |
(1) | Represents the financial statement balance 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. |
The increase in total gross profit for the three months ended September 30, 2017 resulted from a $6.2 million increase in our North America segment and a $9.9 million increase in our International segment. See below for information about gross profit by segment.
Gross Profit by Segment
Gross profit by category and segment for the three months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | % | | | | |
| |
(1) | Includes gross profit from deals with local and national merchants and through local events. |
The percentages of gross profit by segment for the three months ended September 30, 2017and 2016 were as follows:
|
| | | | |
| North America | | | International |
North America
The increase in North America segment gross profit for the three months ended September 30, 2017 reflects a $10.0 million increase in gross profit from our Local category, which was attributable to the increase in third-party and other revenue from our Local category, as discussed above.
International
The increase in International segment gross profit for the three months ended September 30, 2017 reflects increases in third-party and other revenue from our Local category and in direct revenue transactions in our Goods category, as discussed above.
There was a $3.6 million favorable impact on International segment gross profit from year-over-year changes in foreign exchange rates for the three months ended September 30, 2017.
Nine Months Ended September 30, 2017 and 2016:
Gross profit for the nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 |
|
The effect on gross profit for the nine months ended September 30, 2017 from changes in exchange rates versus the U.S. dollar was as follows:
|
| | | | | | | | | | | |
| 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 |
|
| |
(1) | Represents the financial statement balance 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. |
The increase in total gross profit for the nine months ended September 30, 2017 resulted from a $27.9 million increase in our North America segment, partially offset by a $9.7 million decrease in our International segment. See below for information about gross profit by segment.
Gross Profit by Segment
Gross profit by category and segment for the nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | % | | | | |
| |
(1) | Includes gross profit from deals with local and national merchants and through local events. |
The percentages of gross profit by segment for the nine months ended September 30, 2017and 2016 were as follows:
|
| | | | |
| North America | | | International |
North America
The increase in North America segment gross profit for the nine months ended September 30, 2017 reflects a $36.2 million increase in gross profit from our Local category, which was attributable to the increase in third-party and other revenue from our Local category as discussed above.
International
The decrease in International segment gross profit for the nine months ended September 30, 2017 reflects decreases in third-party revenue transactions from our Goods and Travel categories, as discussed above.
There was a $3.3 million unfavorable impact on International segment gross profit from year-over-year changes in foreign exchange rates for the nine months ended September 30, 2017.
•Marketing
Marketing expense consists primarily of online marketing costs, such as search engine marketing and advertising on social networking sites and affiliate programs, and offline marketing costs, such as television and radio advertising.programs. Additionally, compensation expense for marketing employees is classified within marketing expense. We record these costs within "Marketing"Marketing on the consolidated statementsCondensed Consolidated Statements of operationsOperations when incurred. From time to time, we offer deals withhave offerings from well-known national merchants for customer acquisition and activation purposes, for which the amount we owe the merchant for each voucher sold exceeds the transaction price paid by the customer. Our gross billings from those transactions generate no third-party revenue and our net cost (i.e., the excess of the amount owed to the merchant over the amount paid by the customer) is classified as marketing expense. We establish targeted return on investment thresholds for marketing spending, which generally range from 12–18 months. We also evaluate marketing expense as a percentage of gross profit because it gives us an indication of how well our marketing spend is driving gross profit growth.performance.
Three Months Ended September 30, 2017 and 2016:
Marketing expense by segment as a percentage of gross profit for the three months ended September 30, 2017and 2016 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
In November 2015, we launched a strategic initiative to significantly increase our marketing activities to drive customer growth and we expect to continue to invest heavily in marketing during the remainder of 2017. The increase in total marketing for the three months ended September 30, 2017 resulted from a $12.2 million increase in our North America segment and a $4.5 million increase in our International segment. See below for information about marketing by segment.
The percentages of marketing expense by segment for the three months ended September 30, 2017and 2016 were as follows:
|
| | | | |
| North America | | | International |
North America
The increases in North America segment marketing expense and marketing expense as a percentage of gross profit for the three months ended September 30, 2017 were attributable to an increase in investments in offline marketing to drive customer growth and awareness of the Groupon brand and our product and service offerings. For the full year 2017, we expect marketing expense as a percentage of North America profit to increase as compared to the full year 2016.
International
The increases in International segment marketing expense and marketing expense as a percentage of gross profit for the three months ended September 30, 2017 resulted from the expansion of our strategic initiative to increase our marketing activities to drive customer growth. For the full year 2017, we expect marketing expense as a percentage of International gross profit to increase as compared to the full year 2016.
There was a $0.9 million unfavorable impact on International segment marketing expense from year-over-year changes in foreign exchange rates for the three months ended September 30, 2017.
Nine Months Ended September 30, 2017 and 2016:
Marketing expense by segment as a percentage of gross profit for the nine months ended September 30, 2017and 2016 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
The increase in total marketing for the nine months ended September 30, 2017 resulted from an $18.7 million increase in our North America segment and a $8.6 million increase in our International segment. See below for information about marketing by segment.
The percentages of marketing expense by segment for the nine months ended September 30, 2017and 2016 were as follows:
|
| | | | |
| North America | | | International |
North America
The increases in North America segment marketing expense and marketing expense as a percentage of gross profit for the nine months ended September 30, 2017 were attributable to an increase in investments in offline marketing to drive customer growth and awareness of the Groupon brand and our product and service offerings.
International
The increases in International segment marketing expense and marketing expense as a percentage of gross profit for the nine months ended September 30, 2017 resulted from the expansion of our strategic initiative to increase our marketing activities to drive customer growth.
There was a $0.3 million favorable impact on International segment marketing expense from year-over-year changes in foreign exchange rates for the nine months ended September 30, 2017.
•Selling, General and Administrative
Selling expenses reported within "Selling, general and administrative" on the consolidated statements of operations consist ofadministrative ("SG&A") expenses include selling expenses such as sales commissions and other compensation expenses for sales representatives, as well as costs associated with supporting the sales function such as technology, telecommunications and travel. General and administrative expenses include compensation expense for employees involved in customer service, operations, and technology and product development, as well as general corporate functions, such as finance, legal and human resources. Additional costs included in general and administrative include depreciation and amortization, rent, professional fees, litigation costs, travel and entertainment, recruiting, maintenance, certain technology costs and other general corporate costs.
Three Months Ended September 30, 2017 and 2016:
Selling, general and administrative expense ("SG&A") for the three months ended September 30, 2017and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | % | | | | |
The decrease in We evaluate SG&A was primarily attributable to a $14.5 million decrease in compensation-related costs due to headcount reductions as part of our restructuring plan.
SG&Aexpense as a percentage of gross billings and revenue decreased for the three months ended September 30, 2017 as compared to the prior year period, primarily as a result of the cost savings we have achieved through restructuring actions and other initiatives substantially completed as of September 30, 2017. We currently expect SG&A costs to decrease in the fourth quarter of 2017 on a year-over-year basis.
There was a $2.7 million unfavorable impact from year-over-year changes in foreign currency exchange rates for the three months ended September 30, 2017.
Nine Months Ended September 30, 2017 and 2016:
SG&A for the nine months ended September 30, 2017and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | 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 | % | | | | |
The decrease in SG&A was primarily attributable to a $59.2 million decrease in compensation-related costs due to headcount reductions as partprofit because it gives us an indication of our restructuring plan.operating efficiency.
There was a $5.8 million favorable impact from year-over-year changes in foreign currency exchange rates for the nine months ended September 30, 2017.
SG&A as a percentage of gross billings•Restructuring and revenue decreased for the nine months ended September 30, 2017 as compared to the prior year period, primarily as a result of the cost savings from our restructuring program and other initiatives.
Restructuring Charges
Restructuringrelated charges represent severance and benefit costs for workforce reductions, impairments of long-lived assets and other exitfacilities-related costs resulting from our restructuring activities.and professional advisory fees. See Item 1, Note 9, Restructuring and Related Charges, for additional information about our restructuring plan.
Gain on Sale of Intangible Assets
During the third quarter of 2017, we sold customer lists and other intangible assets in certain food delivery markets to Grubhub Inc., resulting in a pretax gain of $17.1 million. See Note 3, Goodwill and Other Intangible Assets, for additional information.
Gains on Business Dispositions
During the second quarter of 2016, we sold our subsidiary in Russia and our point of sale business in the U.S., resulting in gains of $8.9 million and $0.4 million, respectively. During the third quarter of 2016, we sold our subsidiary in Indonesia resulting in a gain of $2.1 million. See Note 2, Discontinued Operations and Other Business Dispositions, for additional information. The financial results of those entities are presented within income from continuing operations in the accompanying condensed consolidated financial statements through their respective disposition dates.
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