UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE~~

~~SECURITIES EXCHANGE ACT OF 1934~~

~~For the quarterly period ended June 30, 2018~~

~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE~~

~~SECURITIES EXCHANGE ACT OF 1934~~

~~For the transition period from ________________ to ________________~~

For the quarterly period ended June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission ~~file number:~~ File Number: 1-35335

~~Groupon, Inc.~~

~~(Exact name of registrant as specified in its charter)~~



Groupon, Inc.
(Exact name of registrant as specified in its charter)

Delaware		27-0903295
(State or other jurisdiction of		~~(I.R.S. Employer~~
incorporation or organization)	(I.R.S. Employer Identification No.)

600 ~~West~~W Chicago Avenue ~~Suite 400~~ ~~Chicago, Illinois~~		60654
Suite 400		(Zip Code)
Chicago
Illinois		(312)	334-1579
(Address of principal executive offices)		(~~Zip Code)~~Registrant's telephone number, including area code)

~~312-334-1579~~Securities registered pursuant to Section 12(b) of the Act:

~~(Registrant's telephone number, including area code)~~



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	GRPN	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yesx☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filerx☒ Accelerated filer ☐

Non-accelerated filer ~~(Do not check if a smaller reporting company)~~ ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x☒

As of ~~August 1, 2018,~~July 26, 2019, there were ~~568,395,979~~567,619,924 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS



PART I. Financial Information	Page
Forward-Looking Statements	3
Item 1. Financial Statements and Supplementary Data	4
Condensed Consolidated Balance Sheets as of June 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018	4
Condensed Consolidated Statements of Operations ~~for the three~~ and ~~six months ended June 30, 2018 and 2017 (unaudited)~~	5
~~Condensed Consolidated Statements of~~ Comprehensive Income (Loss) for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	65
Condensed Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2019 and 2018 (unaudited)	76
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	8
Notes to Condensed Consolidated Financial Statements (unaudited)	910
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2927
Item 3. Quantitative and Qualitative ~~Disclosure~~Disclosures about Market Risk	6351
Item 4. Controls and Procedures	6452
PART II. Other Information
Item 1. Legal Proceedings	6553
Item 1A. Risk Factors	6553
Item 2. Unregistered ~~sales~~Sales of ~~equity securities~~Equity Securities and ~~use~~Use of ~~proceeds~~Proceeds	6553
Item 5. Other Information	6554
Item 6. Exhibits	6654
Signatures	6755

PART I. FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations. The words "may," "will," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "continue" and other similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, but are not limited to, ~~risk~~risks related to volatility in our operating results; execution of our business and marketing strategies; retaining existing customers and adding new customers; challenges arising from our international operations, including fluctuations in currency exchange rates, legal and regulatory developments and any potential adverse impact from the United Kingdom's likely exit from the European Union; retaining and adding high quality merchants; our voucherless offerings; cybersecurity breaches; reliance on cloud-based computing platforms; competing successfully in our industry; changes to merchant payment terms; providing a strong mobile experience for our customers; maintaining and improving our information technology infrastructure; delivery and routing of our emails; claims related to product and service offerings; managing inventory and order fulfillment risks; litigation; managing refund risks; retaining and attracting members of our executive team; completing and realizing the anticipated benefits from acquisitions, dispositions, joint ventures and strategic investments; lack of control over minority investments; ~~tax liabilities; tax legislation;~~ compliance with domestic and foreign laws and regulations, including the CARD Act, GDPR and regulation of the Internet and e-commerce; classification of our independent ~~contractors;~~contractors or employees; tax liabilities; tax legislation; protecting our intellectual property; maintaining a strong brand; customer and merchant fraud; payment-related risks; our ability to raise capital if necessary and our outstanding indebtedness; global economic uncertainty; our common stock, including volatility in our stock price; our convertible senior notes; our ability to realize the anticipated benefits from the hedge and warrant transactions; and those risks and other factors discussed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018, and Part II, Item 1A , Risk Factors of our Quarterly ~~Report~~report on Form 10-Q for the quarter ended March 31, ~~2018,~~2019, as well as in our condensed consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission ~~or the SEC.~~("SEC"). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

As used herein, "Groupon," the "Company," "we," "our," "us" and similar terms include Groupon, Inc. and its subsidiaries, unless the context indicates otherwise.

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GROUPON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	662,893		$	880,129		$	596,837		$	841,021
Accounts receivable, net	76,302			98,294			74,706			69,493
Prepaid expenses and other current assets (including $8,517 and $0 at June 30, 2018 and December 31, 2017, respectively, at fair value)	104,524			94,025
Prepaid expenses and other current assets							91,056			88,115
Total current assets	843,719			1,072,448			762,599			998,629
Property, equipment and software, net	148,450			151,145			134,672			143,117
Right-of-use assets - operating leases, net							114,500			—
Goodwill	328,799			286,989			324,705			325,491
Intangible assets, net	37,075			19,196			38,996			45,401
Investments (including $86,578 and $109,751 at June 30, 2018 and December 31, 2017, respectively, at fair value)	109,606			135,189
Investments							39,301			108,515
Other non-current assets	21,051			12,538			24,435			20,989
Total Assets	$	1,488,700		$	1,677,505		$	1,439,208		$	1,642,142
Liabilities and Equity
Current liabilities:
Accounts payable	$	23,026		$	31,968		$	26,968		$	38,359
Accrued merchant and supplier payables	528,224			770,335			464,125			651,781
Accrued expenses and other current liabilities	367,519			331,196			258,610			267,034
Total current liabilities	918,769			1,133,499			749,703			957,174
Convertible senior notes, net	195,559			189,753			208,100			201,669
Operating lease obligations							121,526			—
Other non-current liabilities	103,235			102,408			53,740			100,688
Total Liabilities	1,217,563			1,425,660			1,133,069			1,259,531
Commitments and contingencies (see Note 8)
Commitments and contingencies (see Note 7)
Stockholders' Equity
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized; 755,806,627 shares issued and 567,204,385 shares outstanding at June 30, 2018; 748,541,862 shares issued and 559,939,620 shares outstanding at December 31, 2017	76			75
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized; 767,155,735 shares issued and 566,664,464 shares outstanding at June 30, 2019; 760,939,440 shares issued and 569,084,312 shares outstanding at December 31, 2018							76			76
Additional paid-in capital	2,206,741			2,174,708			2,271,600			2,234,560
Treasury stock, at cost, 188,602,242 shares at June 30, 2018 and December 31, 2017	(867,450		)	(867,450		)
Treasury stock, at cost, 200,491,271 and 191,855,128 shares at June 30, 2019 and December 31, 2018							(907,599		)	(877,491		)
Accumulated deficit	(1,101,342		)	(1,088,204		)	(1,093,232		)	(1,010,499		)
Accumulated other comprehensive income (loss)	32,307			31,844			34,485			34,602
Total Groupon, Inc. Stockholders' Equity	270,332			250,973			305,330			381,248
Noncontrolling interests	805			872			809			1,363
Total Equity	271,137			251,845			306,139			382,611
Total Liabilities and Equity	$	1,488,700		$	1,677,505		$	1,439,208		$	1,642,142

See Notes to Condensed Consolidated Financial Statements.

GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenue:
Service	$	295,652		$	315,854		$	597,449		$	617,426		$	277,603		$	295,652		$	563,430		$	597,449
Product	321,744			346,765			646,487			718,819			254,974			321,744			547,557			646,487
Total revenue	617,396			662,619			1,243,936			1,336,245			532,577			617,396			1,110,987			1,243,936
Cost of revenue:
Service	30,230			38,478			61,375			81,351			28,595			30,230			57,222			61,375
Product	263,508			296,074			534,018			617,376			211,850			263,508			455,617			534,018
Total cost of revenue	293,738			334,552			595,393			698,727			240,445			293,738			512,839			595,393
Gross profit	323,658			328,067			648,543			637,518			292,132			323,658			598,148			648,543
Operating expenses:
Marketing	94,178			100,658			193,334			187,000			88,923			94,178			182,320			193,334
Selling, general and administrative	294,124			230,223			516,185			462,281			210,348			293,725			420,772			516,069
Restructuring charges	(399		)	4,584			(116		)	7,315
Total operating expenses	387,903			335,465			709,403			656,596			299,271			387,903			603,092			709,403
Income (loss) from operations	(64,245		)	(7,398		)	(60,860		)	(19,078		)	(7,139		)	(64,245		)	(4,944		)	(60,860		)
Other income (expense), net	(26,457		)	5,878			(34,972		)	1,276			(28,494		)	(26,457		)	(75,349		)	(34,972		)
Income (loss) from continuing operations before provision (benefit) for income taxes	(90,702		)	(1,520		)	(95,832		)	(17,802		)	(35,633		)	(90,702		)	(80,293		)	(95,832		)
Provision (benefit) for income taxes	1,552			3,883			(783		)	8,470			2,012			1,552			(1,478		)	(783		)
Income (loss) from continuing operations	(92,254		)	(5,403		)	(95,049		)	(26,272		)	(37,645		)	(92,254		)	(78,815		)	(95,049		)
Income (loss) from discontinued operations, net of tax	—			(1,376		)	—			(889		)	—			—			2,162			—
Net income (loss)	(92,254		)	(6,779		)	(95,049		)	(27,161		)	(37,645		)	(92,254		)	(76,653		)	(95,049		)
Net income attributable to noncontrolling interests	(2,780		)	(2,547		)	(6,873		)	(6,579		)	(2,601		)	(2,780		)	(6,080		)	(6,873		)
Net income (loss) attributable to Groupon, Inc.	$	(95,034	)	$	(9,326	)	$	(101,922	)	$	(33,740	)	$	(40,246	)	$	(95,034	)	$	(82,733	)	$	(101,922	)

Basic and diluted net income (loss) per share:
Continuing operations	$	(0.17	)	$	(0.01	)	$	(0.18	)	$	(0.06	)	$	(0.07	)	$	(0.17	)	$	(0.15	)	$	(0.18	)
Discontinued operations	0.00			(0.01		)	0.00			0.00			0.00			0.00			0.01			0.00
Basic and diluted net income (loss) per share	$	(0.17	)	$	(0.02	)	$	(0.18	)	$	(0.06	)	$	(0.07	)	$	(0.17	)	$	(0.14	)	$	(0.18	)

Weighted average number of shares outstanding
Basic	565,284,705			559,762,180			563,502,954			560,978,712			567,962,461			565,284,705			569,014,065			563,502,954
Diluted	565,284,705			559,762,180			563,502,954			560,978,712			567,962,461			565,284,705			569,014,065			563,502,954

Comprehensive income (loss):
Net income (loss)													$	(37,645	)	$	(92,254	)	$	(76,653	)	$	(95,049	)
Other comprehensive income (loss):
Other comprehensive income (loss) from continuing operations:
Net change in unrealized gain (loss) on foreign currency translation adjustments													(3,285		)	2,806			(13		)	1,238
Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of ($48) and $0 for the three months ended June 30, 2019 and 2018, and ($35) and $0 for the six months ended June 30, 2019 and 2018)													(145		)	(435		)	(104		)	(936		)
Other comprehensive income (loss) from continuing operations													(3,430		)	2,371			(117		)	302
Other comprehensive income (loss) from discontinued operations													—			—			—			—
Other comprehensive income (loss)													(3,430		)	2,371			(117		)	302

Comprehensive income (loss)													(41,075		)	(89,883		)	(76,770		)	(94,747		)
Comprehensive income (loss) attributable to noncontrolling interest													(2,601		)	(2,780		)	(6,080		)	(6,873		)
Comprehensive income (loss) attributable to Groupon, Inc.													$	(43,676	)	$	(92,663	)	$	(82,850	)	$	(101,620	)

See Notes to Condensed Consolidated Financial Statements.

~~GROUPON, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~

~~(in thousands)~~

~~(unaudited)~~

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Income (loss) from continuing operations $ (92,254 ) $ (5,403 ) $ (95,049 ) $ (26,272 )
Other comprehensive income (loss) from continuing operations:
Net change in unrealized gain (loss) on foreign currency translation adjustments 2,806
(6,144 ) 1,238
(5,714 )
Net change in unrealized gain (loss) on defined benefit pension plan —
—
—
585
Available for sale securities:
Net unrealized gain (loss) during the period (541 ) (952 ) (1,042 ) (713 )
Reclassification adjustment for realized (gain) loss on investment included in income (loss) from continuing operations 106
(1,341 ) 106
(1,341 )
Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of $0 and $147 for the three months ended June 30, 2018 and 2017, respectively, and $0 and $0 for the six months ended June 30, 2018 and 2017, respectively) (435 ) (2,293 ) (936 ) (2,054 )
Other comprehensive income (loss) from continuing operations 2,371
(8,437 ) 302
(7,183 )
Comprehensive income (loss) from continuing operations (89,883 ) (13,840 ) (94,747 ) (33,455 )

Income (loss) from discontinued operations —
(1,376 ) —
(889 )
Other comprehensive income (loss) from discontinued operations - Foreign currency translation adjustments:
Net unrealized gain (loss) during the period —
—
—
(1,793 )
Reclassification adjustment included in net income (loss) from discontinued operations —
—
—
(14,718 )
Net change in unrealized gain (loss) —
—
—
(16,511 )
Comprehensive income (loss) from discontinued operations —
(1,376 ) —
(17,400 )

Comprehensive income (loss) (89,883 ) (15,216 ) (94,747 ) (50,855 )
Comprehensive income (loss) attributable to noncontrolling interests (2,780 ) (2,547 ) (6,873 ) (6,579 )
Comprehensive income (loss) attributable to Groupon, Inc. $ (92,663 ) $ (17,763 ) $ (101,620 ) $ (57,434 )

~~See Notes to Condensed Consolidated Financial Statements.~~

GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

(unaudited)


	Groupon, Inc. Stockholders' Equity																											Groupon, Inc. Stockholders' Equity
	Common Stock				Additional Paid-In Capital			Treasury Stock					Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Groupon, Inc. Stockholders' Equity			Non-controlling Interests			Total Equity			Common Stock				Additional Paid-In Capital			Treasury Stock					Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Groupon, Inc. Stockholders' Equity			Non-controlling Interests			Total Equity
	Shares		Amount		Additional Paid-In Capital			Shares		Amount			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Groupon, Inc. Stockholders' Equity			Non-controlling Interests			Total Equity			Shares		Amount		Additional Paid-In Capital			Shares		Amount			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Groupon, Inc. Stockholders' Equity			Non-controlling Interests			Total Equity
Balance at December 31, 2017	748,541,862		$	75	$	2,174,708		(188,602,242	)	$	(867,450	)	$	(1,088,204	)	$	31,844		$	250,973		$	872		$	251,845
Cumulative effect of change in accounting principle, net of tax	—		—		—			—		—			88,945			—			88,945			—			88,945
Reclassification for impact of U.S. tax rate change	—		—		—			—		—			(161		)	161			—			—			—
Balance at December 31, 2018																												760,939,440		$	76	$	2,234,560		(191,855,128	)	$	(877,491	)	$	(1,010,499	)	$	34,602		$	381,248		$	1,363		$	382,611
Net income (loss)	—		—		—			—		—			(101,922		)	—			(101,922		)	6,873			(95,049		)	—		—		—			—		—			(42,487		)	—			(42,487		)	3,479			(39,008		)
Foreign currency translation	—		—		—			—		—			—			1,238			1,238			—			1,238			—		—		—			—		—			—			3,272			3,272			—			3,272
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—			—		—			—			(936		)	(936		)	—			(936		)	—		—		—			—		—			—			41			41			—			41
Exercise of stock options	667,743		—		70			—		—			—			—			70			—			70			12,500		—		8			—		—			—			—			8			—			8
Vesting of restricted stock units and performance share units	7,785,719		1		(1		)	—		—			—			—			—			—			—			4,160,415		—		—			—		—			—			—			—			—			—
Shares issued under employee stock purchase plan	746,773		—		2,434			—		—			—			—			2,434			—			2,434			719,297		—		1,998			—		—			—			—			1,998			—			1,998
Shares issued to settle liability-classified awards	1,240,379		—		6,436			—		—			—			—			6,436			—			6,436
Tax withholdings related to net share settlements of stock-based compensation awards	(3,175,849	)	—		(14,499		)	—		—			—			—			(14,499		)	—			(14,499		)	(1,585,728	)	—		(5,681		)	—		—			—			—			(5,681		)	—			(5,681		)
Purchases of treasury stock																												—		—		—			(4,407,995	)	(15,055		)	—			—			(15,055		)	—			(15,055		)
Stock-based compensation on equity-classified awards	—		—		37,593			—		—			—			—			37,593			—			37,593			—		—		17,731			—		—			—			—			17,731			—			17,731
Distributions to noncontrolling interest holders	—		—		—			—		—			—			—			—			(6,940		)	(6,940		)	—		—		—			—		—			—			—			—			(3,521		)	(3,521		)
Balance at June 30, 2018	755,806,627		$	76	$	2,206,741		(188,602,242	)	$	(867,450	)	$	(1,101,342	)	$	32,307		$	270,332		$	805		$	271,137
Balance at March 31, 2019																												764,245,924		76		2,248,616			(196,263,123	)	(892,546		)	(1,052,986		)	37,915			341,075			1,321			342,396
Net income (loss)																												—		—		—			—		—			(40,246		)	—			(40,246		)	2,601			(37,645		)
Foreign currency translation																												—		—		—			—		—			—			(3,285		)	(3,285		)	—			(3,285		)
Unrealized gain (loss) on available-for-sale securities, net of tax																												—		—		—			—		—			—			(145		)	(145		)	—			(145		)
Exercise of stock options																												30,000		—		32			—		—			—			—			32			—			32
Vesting of restricted stock units and performance share units																												4,404,213		—		—			—		—			—			—			—			—			—
Tax withholdings related to net share settlements of stock-based compensation awards																												(1,524,402	)	—		(5,387		)	—		—			—			—			(5,387		)	—			(5,387		)
Purchases of treasury stock																												—		—		—			(4,228,148	)	(15,053		)	—			—			(15,053		)	—			(15,053		)
Stock-based compensation on equity-classified awards																												—		—		28,339					—			—			—			28,339			—			28,339
Distributions to noncontrolling interest holders																												—		—		—			—		—			—			—			—			(3,113		)	(3,113		)
Balance at June 30, 2019																												767,155,735		$	76	$	2,271,600		(200,491,271	)	$	(907,599	)	$	(1,093,232	)	$	34,485		$	305,330		$	809		$	306,139

See Notes to Condensed Consolidated Financial Statements.

GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

(unaudited)



	Groupon, Inc. Stockholders' Equity
	Common Stock				Additional Paid-In Capital			Treasury Stock					Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Groupon, Inc. Stockholders' Equity			Non-controlling Interests			Total Equity
	Shares		Amount		Additional Paid-In Capital			Shares		Amount			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Groupon, Inc. Stockholders' Equity			Non-controlling Interests			Total Equity
Balance at December 31, 2017	748,541,862		$	75	$	2,174,708		(188,602,242	)	$	(867,450	)	$	(1,088,204	)	$	31,844		$	250,973		$	872		$	251,845
Cumulative effect of change in accounting principle, net of tax	—		—		—			—		—			88,945			—			88,945			—			88,945
Reclassification for impact of U.S. tax rate change	—		—		—			—		—			(161		)	161			—			—			—
Net income (loss)	—		—		—			—		—			(6,888		)	—			(6,888		)	4,093			(2,795		)
Foreign currency translation	—		—		—			—		—			—			(1,568		)	(1,568		)	—			(1,568		)
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—			—		—			—			(501		)	(501		)	—			(501		)
Exercise of stock options	2,400		—		6			—		—			—			—			6			—			6
Vesting of restricted stock units and performance share units	4,157,462		—		—			—		—			—			—			—			—			—
Shares issued under employee stock purchase plan	746,773		—		2,434			—		—			—			—			2,434			—			2,434
Shares issues to settle liability-classified awards	1,240,379		—		6,436			—		—			—			—			6,436			—			6,436
Tax withholdings related to net share settlements of stock-based compensation awards	(2,024,590	)	—		(9,355		)	—		—			—			—			(9,355		)	—			(9,355		)
Stock-based compensation on equity-classified awards	—		—		18,240			—		—			—			—			18,240			—			18,240
Distributions to noncontrolling interest holders	—		—		—			—		—			—			—			—			(3,315		)	(3,315		)
Balance on March 31, 2018	752,664,286		75		2,192,469			(188,602,242	)	(867,450		)	(1,006,308		)	29,936			348,722			1,650			350,372
Net income (loss)	—		—		—			—		—			(95,034		)	—			(95,034		)	2,780			(92,254		)
Foreign currency translation	—		—		—			—		—			—			2,806			2,806			—			2,806
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—			—		—			—			(435		)	(435		)	—			(435		)
Exercise of stock options	665,343		—		64			—		—			—			—			64			—			64
Vesting of restricted stock units and performance share units	3,628,257		1		(1		)	—		—			—			—			—			—			—
Tax withholdings related to net share settlements of stock-based compensation awards	(1,151,259	)	—		(5,144		)	—		—			—			—			(5,144		)	—			(5,144		)
Stock-based compensation on equity-classified awards	—		—		19,353			—		—			—			—			19,353			—			19,353
Distributions to noncontrolling interest holders	—		—		—			—		—			—			—			—			(3,625		)	(3,625		)
Balance at June 30, 2018	755,806,627		$	76	$	2,206,741		(188,602,242	)	$	(867,450	)	$	(1,101,342	)	$	32,307		$	270,332		$	805		$	271,137

See Notes to Condensed Consolidated Financial Statements.

~~GROUPON,~~GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Six Months Ended June 30,
2018 2017
Operating activities
Net income (loss) $ (95,049 ) $ (27,161 )
Less: Income (loss) from discontinued operations, net of tax —
(889 )
Income (loss) from continuing operations (95,049 ) (26,272 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property, equipment and software 52,149
57,163
Amortization of acquired intangible assets 6,466
11,583
Stock-based compensation 35,644
41,141
Impairments of Investments 10,044
—
Deferred income taxes (6,575 ) 759
(Gain) loss from changes in fair value of investments 8,068
1,145
Amortization of debt discount on convertible senior notes 5,806
5,242
Change in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable 27,296
16,229
Prepaid expenses and other current assets 1,489
(11,139 )
Accounts payable (9,340 ) (10,723 )
Accrued merchant and supplier payables (172,982 ) (182,954 )
Accrued expenses and other current liabilities 51,140
(41,491 )
Other, net 10,272
(18,159 )
Net cash provided by (used in) operating activities from continuing operations (75,572 ) (157,476 )
Net cash provided by (used in) operating activities from discontinued operations —
(2,195 )
Net cash provided by (used in) operating activities (75,572 ) (159,671 )
Investing activities
Purchases of property and equipment and capitalized software (37,517 ) (29,461 )
Proceeds from maturity of investment —
1,843
Acquisition of business, net of acquired cash (57,821 ) —
Acquisitions of intangible assets and other investing activities (758 ) (184 )
Net cash provided by (used in) investing activities from continuing operations (96,096 ) (27,802 )
Net cash provided by (used in) investing activities from discontinued operations —
(9,548 )
Net cash provided by (used in) investing activities (96,096 ) (37,350 )
Financing activities
Payments for purchases of treasury stock —
(51,513 )
Taxes paid related to net share settlements of stock-based compensation awards (16,138 ) (15,356 )
Proceeds from stock option exercises and employee stock purchase plan 2,504
2,477
Distributions to noncontrolling interest holders (6,940 ) (6,426 )
Payments of capital lease obligations (17,239 ) (16,670 )
Payments of contingent consideration related to acquisitions (1,815 ) (5,689 )
Other financing activities —
(473 )
Net cash provided by (used in) financing activities (39,628 ) (93,650 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations (6,644 ) 17,297
Net increase (decrease) in cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations (217,940 ) (273,374 )
Less: Net increase (decrease) in cash classified within current assets of discontinued operations —
(28,866 )
Net increase (decrease) in cash, cash equivalents and restricted cash (217,940 ) (244,508 )
Cash, cash equivalents and restricted cash, beginning of period 885,481
874,906
Cash, cash equivalents and restricted cash, end of period $ 667,541
$ 630,398

Non-cash investing and financing activities
Continuing operations:
Equipment acquired under capital lease obligations $ 9,581
$ 16,509
Leasehold improvements funded by lessor 557
402
Liability for purchases of treasury stock —
561
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software (789 ) 539
Investments acquired in connection with business dispositions —
2,022
Contingent consideration liability incurred in connection with acquisition of business 1,589
—
Financing obligation incurred in connection with acquisition of business 8,604
—



	Six Months Ended June 30,
	2019			2018
Operating activities
Net income (loss)	$	(76,653	)	$	(95,049	)
Less: Income (loss) from discontinued operations, net of tax	2,162			—
Income (loss) from continuing operations	(78,815		)	(95,049		)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property, equipment and software	47,861			52,149
Amortization of acquired intangible assets	7,671			6,466
Stock-based compensation	42,974			35,644
Impairments of investments	—			10,044
Deferred income taxes	360			(6,575		)
(Gain) loss from changes in fair value of investments	68,985			8,068
Amortization of debt discount on convertible senior notes	6,431			5,806
Change in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable	(5,311		)	27,296
Prepaid expenses and other current assets	(4,021		)	1,489
Accounts payable	(10,890		)	(9,340		)
Accrued merchant and supplier payables	(186,519		)	(172,982		)
Accrued expenses and other current liabilities	(44,696		)	51,140
Other, net	7,268			10,272
Net cash provided by (used in) operating activities from continuing operations	(148,702		)	(75,572		)
Net cash provided by (used in) operating activities from discontinued operations	—			—
Net cash provided by (used in) operating activities	(148,702		)	(75,572		)
Investing activities
Purchases of property and equipment and capitalized software	(34,161		)	(37,517		)
Acquisition of business, net of acquired cash	—			(57,821		)
Acquisitions of intangible assets and other investing activities	(1,189		)	(758		)
Net cash provided by (used in) investing activities from continuing operations	(35,350		)	(96,096		)
Net cash provided by (used in) investing activities from discontinued operations	—			—
Net cash provided by (used in) investing activities	(35,350		)	(96,096		)
Financing activities
Issuance costs for revolving credit agreement	(2,334		)	—
Payments for purchases of treasury stock	(29,569		)	—
Taxes paid related to net share settlements of stock-based compensation awards	(10,231		)	(16,138		)
Proceeds from stock option exercises and employee stock purchase plan	2,038			2,504
Distributions to noncontrolling interest holders	(6,634		)	(6,940		)
Payments of finance lease obligations	(12,628		)	(17,239		)
Payments of contingent consideration related to acquisitions	—			(1,815		)
Net cash provided by (used in) financing activities	(59,358		)	(39,628		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash, including cash classified within current assets	(1,755		)	(6,644		)
Net increase (decrease) in cash, cash equivalents and restricted cash, including cash classified within current assets	(245,165		)	(217,940		)
Less: Net increase (decrease) in cash classified within current assets of discontinued operations	—			—
Net increase (decrease) in cash, cash equivalents and restricted cash	(245,165		)	(217,940		)
Cash, cash equivalents and restricted cash, beginning of period	844,728			885,481
Cash, cash equivalents and restricted cash, end of period ⁽¹⁾	$	599,563		$	667,541



Non-cash investing and financing activities
Continuing operations:
Equipment acquired under capital lease arrangements ⁽²⁾	$	—		$	9,581
Leasehold improvements funded by lessor	—			557
Liability for purchases of treasury stock	(995		)	—
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software	(767		)	(789		)
Contingent consideration liabilities incurred in connection with acquisition of business	—			1,589
Financing obligation incurred in connection with acquisition of business	—			8,604

GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


(1)	The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to amounts reported within the condensed consolidated balance sheet as of June 30, 2019 and December 31, 2018 and amounts previously reported within the condensed consolidated balance sheet in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018 (in thousands):



	June 30, 2019		June 30, 2018		December 31, 2018
Cash and cash equivalents	$	596,837	$	662,893	$	841,021
Restricted cash included in prepaid expenses and other current assets	2,340		4,250		3,320
Restricted cash included in other non-current assets	386		398		387
Cash, cash equivalents and restricted cash	$	599,563	$	667,541	$	844,728


(2)	Please refer to Note 6, Leases, for supplemental cash flow information on our leasing obligations, as required by our adoption of ASU 2016-02, Leases ("Topic 842"), on January 1, 2019.

See Notes to Condensed Consolidated Financial Statements.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Company Information

Groupon, Inc. and its subsidiaries, ~~(the "Company"),~~ which commenced operations in October 2008, ~~operates~~operate online local commerce marketplaces throughout the world that connect merchants to consumers by offering goods and services, generally at a discount. Customers access those marketplaces through ~~the Company's~~our websites, primarily localized groupon.com sites in many countries, and ~~its~~our mobile applications.

~~The Company's~~Our operations are organized into two segments: North America and International. See Note ~~16,~~ 13, Segment Information.

Unaudited Interim Financial Information

~~The Company has~~We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. These condensed consolidated financial statements are unaudited and, in ~~the Company's~~our opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the ~~Company's~~ condensed consolidated balance sheets, statements of operations and comprehensive income (loss), cash flows and stockholders' equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2018.~~2019. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in ~~the Company's~~our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, filed with the SEC on February ~~14, 2018, as amended by the Form 10-K/A for the year ended December 31, 2017, filed with the SEC on March 23, 2018.~~12, 2019.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of ~~the Company~~Groupon, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The ~~Company's~~ condensed consolidated financial statements were prepared in accordance with U.S. GAAP and include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which ~~the Company exercises~~we exercise control and a variable interest ~~entities~~entity for which ~~the Company has~~we have determined that ~~it is~~we are the primary beneficiary. In the first quarter of 2019, we extended our arrangement through July 2022 with the strategic partner in the variable interest entity that we consolidate. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as Noncontrolling interests. ~~Equity investments~~Investments in entities in which ~~the Company does~~we do not have a controlling financial interest are accounted for under the equity method, the fair value option, as available-for-sale securities or at cost adjusted for observable price changes and impairments, as appropriate.

Adoption of New Accounting Standards

We adopted the guidance in ASU 2016-02, Leases (Topic 842) on January 1, 2019. This ASU requires the recognition of lease assets and liabilities for operating leases, in addition to the finance lease assets and liabilities historically recorded on our condensed consolidated balance sheets. See Note 6, Leases, for information on the impact of adopting Topic 842 on our accounting policies.

We adopted the guidance in ASU 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, on January 1, 2019. This ASU expands the scope to make the guidance for share-based payment awards to nonemployees consistent with the guidance for share-based payment awards to employees. The adoption of ASU 2018-07 did not have a material impact on the condensed consolidated financial statements.

We adopted the guidance in ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, on January 1, 2019. This ASU requires entities in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40, Internal Use Software, to determine which costs to implement the service contract would be capitalized as an asset related to the service contract and which costs would be expensed. The requirements of ASU 2018-15 have been applied on a prospective basis to implementation costs incurred on or after January 1, 2019. As a result of the adoption of ASU 2018-15, we capitalized $1.9 million and $2.8 million of implementation costs for the three and six months ended June 30, 2019. Those capitalized costs are included within Other non-current assets on the condensed consolidated balance sheet as of June 30, 2019. We have not recognized any amortization related to these implementation costs. We will amortize the implementation costs on a straight-line basis over the term of the associated hosting arrangement for each module or component of the related hosting arrangement when it is ready for its intended use. Amortization costs will be recorded in Selling, general and administrative expense on the condensed consolidated statements of operations.

Reclassifications and Terminology Changes

Certain reclassifications have been made to the condensed consolidated financial statements of prior periods and the accompanying notes to conform to the current period ~~presentation, including the change in presentation of restricted cash in the condensed consolidated statements of cash flows upon adoption of ASU 2016-18. Refer to Note 2,~~ ~~Adoption of New Accounting Standards~~, for additional information. Additionally, in prior years, the Company referred to its product revenue and service revenue as "direct revenue" and "third-party and other revenue," respectively. This terminology change did not impact the amounts presented in the condensed consolidated financial statements.presentation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, variable consideration from unredeemed vouchers, income taxes, initial valuation and subsequent impairment testing of goodwill and intangible assets, investments, customer refunds, contingent liabilities and the useful lives of property, equipment and software and intangible assets. Actual results could differ materially from those estimates.

2. ~~ADOPTION OF NEW ACCOUNTING STANDARDS~~GOODWILL AND OTHER INTANGIBLE ASSETS

The ~~Company adopted the guidance in ASC Topic 606,~~ ~~Revenue from Contracts with Customers~~, on January 1, 2018. Topic 606 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. See ~~Changes to Accounting Policies from Adoption of New Accounting Standards~~ ~~below and Note 11,~~ ~~Revenue Recognition, for information on the impact of adopting Topic 606 on the Company's accounting policies.~~

~~The Company adopted the guidance in ASU 2016-01,~~ ~~Financial Instruments (Topic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities~~, as amended, on January 1, 2018. This ASU generally requires equity investments to be measured at fair value with changes in fair value recognized through net income and eliminates the cost method for equity securities. However, for equity investments without readily determinable fair values the ASU permits entities to elect to measure the investments at cost adjusted for observable price changes and impairments, with changes in the measurement recognized through net income. The Company applied that measurement alternative to our equity investments that were previously accounted for under the cost method. The adoption of ASU 2016-01 did not have a material impact on the condensed consolidated financial statements. See ~~Changes to Accounting Policies from Adoption of New Accounting Standards~~ ~~below for additional information on the impact of adopting the ASU on the Company's accounting policies.~~

~~The Company adopted the guidance in ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230) - Restricted Cash~~, on January 1, 2018. This ASU requires companies to include amounts generally described as restricted cash and restricted cash equivalents, along with cash and cash equivalents, when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. Previously, changes in restricted cash were reported within cash flows from operating activities. The Company applied that change in cash flow classification on a retrospective basis, which resulted in an increase of $0.5 million to net cash used in operating activitiesfollowing table summarizes goodwill activity by segment for the six months ended June 30, ~~2017.~~

Restricted cash primarily represents amounts that the Company is unable to access for operational purposes pursuant to letters of credit with financial institutions. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to amounts shown in the condensed consolidated statements of cash flows, as of June 30, 2018 and 2017 and December 31, 20172019 (in thousands):



	North America		International			Consolidated
Balance as of December 31, 2018	$	178,685	$	146,806		$	325,491
Foreign currency translation	—		(786		)	(786		)
Balance as of June 30, 2019	$	178,685	$	146,020		$	324,705

June 30, 2018 June 30, 2017 December 31, 2017
Cash and cash equivalents $ 662,893
$ 618,550
$ 880,129
Restricted cash included in prepaid expenses and other current assets 4,250
6,569
4,932
Restricted cash included in other non-current assets 398
5,279
420
Cash, cash equivalents and restricted cash $ 667,541
$ 630,398
$ 885,481

~~The Company adopted the guidance in ASU 2017-05,~~ Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~, on January 1, 2018. This ASU is meant to clarify the scope of ASC Subtopic 610-20,~~ ~~Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. The adoption of ASU 2017-05 did not have a material impact on the condensed consolidated financial statements.~~

~~The Company adopted the guidance in ASU 2017-07,~~ ~~Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, on January 1, 2018. This ASU requires employers to include only the service cost component of net periodic pension cost in operating expenses, together with other employee compensation costs. The other components of net periodic pension cost, including interest cost, expected return on plan assets, amortization of prior service cost and settlement and curtailment effects, are to be included in non-operating expenses. The adoption of ASU 2017-07 did not have a material impact on the condensed consolidated financial statements.

~~The Company adopted the guidance in ASU 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting~~, on January 1, 2018. This ASU clarifies the changes to terms or conditions of a share-based payment award that require an entity to apply modification accounting. The adoption of ASU 2017-09 did not have a material impact on the condensed consolidated financial statements.

~~The Company adopted the guidance in ASU 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,~~ as of January 1, 2018. This ASU permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Jobs Act"). As a result of the adoption of ASU 2018-02, the Company reclassified $0.2 million from accumulated other comprehensive income (loss) to accumulated deficit.

~~Changes to Accounting Policies from Adoption of New Accounting Standards~~

~~Revenue Recognition~~

Prior to its adoption of Topic 606, the Company recognized revenue when the following criteria were met: persuasive evidence of an arrangement existed; delivery had occurred; the selling price was fixed or determinable and collection was reasonably assured. Following its adoption of Topic 606, the Company recognizes revenue when it satisfies a performance obligation by transferring a promised good or service to a customer. Substantially all of the Company's performance obligations are satisfied at a point in time rather than over time.

~~Product Revenue~~

The Company generates product revenue from direct sales of merchandise inventory through its Goods category. For product revenue transactions, the Company is the primary party responsible for providing the good to the customer, it has inventory risk and it has discretion in establishing prices. As such, product revenue is reported on a gross basis as the purchase price received from the customer. Product revenue, including associated shipping revenue, is recognized when title passes to the customer upon delivery of the product.

~~Service Revenue~~

Service revenue is primarily earned from transactions in which the Company earns commissions by selling goods or services on behalf of third-party merchants. Those transactions generally involve a customer's purchase of a voucher through one of the Company's online marketplaces that can be redeemed with a third-party merchant for specified goods or services (or for discounts on specified goods or services). Service revenue from those transactions is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant. The Company recognizes revenue from those transactions when its commission has been earned, which occurs when a sale through one of the Company's online marketplaces is completed and the related voucher has been made available to the customer. The Company believes that its remaining obligations to remit payment to the merchant and to provide information about vouchers sold are administrative activities that are immaterial in the context of the contract with the merchant. Prior to its adoption of Topic 606, the Company deferred the revenue from hotel reservation offerings until the customer's stay commenced. Following its adoption of Topic 606, revenue from hotel reservation offerings is recognized at the time the reservation is made, net of an allowance for estimated cancellations.

The Company also earns commissions when customers make purchases with retailers using digital coupons accessed through its websites and mobile applications and from voucherless merchant offerings in which customers earn cash back on their credit card statements when they transact with third-party merchants. The Company recognizes those commissions as revenue in the period in which the underlying transactions between the customer and the third-party merchant are completed.

~~Variable Consideration for Unredeemed Vouchers~~

For merchant agreements with redemption payment terms, the merchant is not paid its share of the sale price for a voucher sold through one of the Company's online marketplaces until the customer redeems the related voucher. If the customer does not redeem a voucher with such merchant payment terms, the Company retains all of the gross billings for that voucher, rather than retaining only its net commission. Prior to its adoption of Topic 606, the Company recognized that variable consideration from unredeemed vouchers and derecognized the related accrued merchant payables when its legal obligation to the merchant expired, which the Company believes is shortly after the voucher expiration date in most jurisdictions. Following its adoption of Topic 606, the Company estimates the variable consideration from vouchers that will not ultimately be redeemed and recognizes that amount as revenue at the time of sale, rather than when the Company's legal obligation expires. The Company estimates variable consideration from unredeemed vouchers using its historical voucher redemption experience. If actual redemptions differ from the Company's estimates, the effects could be material to the condensed consolidated financial statements.

~~Refunds~~

Prior to the adoption of Topic 606, refunds were recorded as a reduction of revenue, except for refunds on service revenue transactions for which the merchant's share was not recoverable, which were presented as a cost of revenue. Following the adoption of Topic 606, all refunds are recorded as a reduction of revenue. The liability for estimated refunds is included within Accrued expenses and other current liabilities on the condensed consolidated balance sheets.

The Company estimates its refund reserve using historical refund experience by deal category. The Company assesses the trends that could affect its estimates on an ongoing basis and makes adjustments to the refund reserve calculations if it appears that changes in circumstances, including changes to the Company's refund policies or general economic conditions, may cause future refunds to differ from its initial estimates. If actual refunds differ from the Company's estimates, the effects could be material to the condensed consolidated financial statements.

~~Discounts, Customer Credits and Other Consideration Payable to Customers~~

~~The Company provides discount offers to encourage purchases of goods and services through its online marketplaces. The Company records discounts as a reduction of revenue.~~

Additionally, the Company issues credits to customers that can be applied to future purchases through its online marketplaces. Credits are primarily issued as consideration for refunds. To a lesser extent, credits are issued for customer relationship purposes. Credits issued to satisfy refund requests are applied as a reduction to the refunds reserve. Prior to the adoption of Topic 606, customer credits issued for relationship purposes were classified in the condensed consolidated statement of operations as a marketing expense. Following the adoption of Topic 606, customer credits issued for relationship purposes are classified as a reduction of revenue.

Prior to its adoption of Topic 606, the Company recognized breakage income for unused customer credits when they expired or were forfeited. Following its adoption of Topic 606, breakage income from customer credits that are not expected to be used is estimated and recognized as revenue in proportion to the pattern of redemption for customer credits that are used.

~~Sales and Related Taxes~~

~~Sales, use, value-added and related taxes that are imposed on specific revenue-generating transactions are presented on a net basis and excluded from revenue.~~

~~Costs of Obtaining Contracts~~

Prior to its adoption of Topic 606, the Company expensed the incremental costs to obtain contracts with third-party merchants, such as sales commissions, as incurred. Following its adoption of Topic 606, those costs are deferred and recognized over the expected period of the merchant arrangement, generally from 12 to 18 months. As of June 30, 2018, the Company had $3.4 million and $11.5 million of deferred contract acquisition costs recorded within Prepaid expenses and other current assets and Other non-current assets, respectively. For the three and six months ended June 30, 2018, the Company amortized $6.5 million and $13.3 million, respectively, of deferred contract acquisition costs and did not recognize any impairment losses in relation to the deferred costs. Those costs are classified within Selling, general and administrative expenses in the condensed consolidated statements of operations.

~~Cost of Revenue~~

Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue. 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 the cost of service and product revenue in proportion to gross billings during the period. For product revenue transactions, cost of revenue also 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 the Company's fulfillment center. Prior to adoption of Topic 606, cost of revenue on service revenue transactions also included refunds for which the merchant's share was not recoverable.

~~Investments~~

Prior to the adoption of the guidance in ASU 2016-01, investments in nonmarketable equity shares with no redemption provisions that are not common stock or in-substance common stock or for which the Company does not have the ability to exercise significant influence were accounted for using the cost method of accounting. Those investments are classified within Investments on the condensed consolidated balance sheets. Under the cost method of accounting, investments were carried at cost and adjusted only for other-than-temporary declines in fair value, certain distributions and additional investments. Subsequent to the adoption of the guidance in ASU 2016-01, the Company applies a measurement alternative for equity investments without readily determinable fair values that permits entities to elect to measure the investments at cost adjusted for observable price changes and impairments, with changes in the measurement recognized through net income.

Investments in common stock or in-substance common stock for which the Company has the ability to exercise significant influence are accounted for under the equity method, except where the Company has made an irrevocable election to account for the investments at fair value. Those investments are classified within Investments on the condensed consolidated balance sheets. The Company's proportionate share of income or loss on equity method investments and changes in the fair values of investments for which the fair value option has been elected are presented within Other income (expense), net on the condensed consolidated statements of operations.

Investments in convertible debt securities and convertible redeemable preferred shares are accounted for as available-for-sale securities, which are classified within Prepaid expenses and other current assets and Investments on the condensed consolidated balance sheets. Available-for-sale securities are recorded at fair value each reporting period. Unrealized gains and losses, net of the related tax effects, are excluded from earnings and recorded as a separate component within Accumulated other comprehensive income (loss) on the condensed consolidated balance sheets until realized. Interest income from available-for-sale securities is reported within Other income (expense), net on the condensed consolidated statements of operations.

~~3. DISCONTINUED OPERATIONS AND OTHER BUSINESS DISPOSITIONS~~

In October 2016, the Company completed a strategic review of its international markets in connection with its efforts to optimize its global footprint and focus on the markets that it believes have the greatest potential to benefit the Company's long-term financial performance. Based on that review, the Company decided to focus its business on 15 core countries and to pursue strategic alternatives for its operations in the remaining 11 countries, which were primarily based in Asia and Latin America. The dispositions of the Company's 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. The Company determined that the decision reached by its management and Board of Directors to exit those 11 non-core countries, which comprised a substantial majority of its operations outside of North America and EMEA, represented a strategic shift in its business. Additionally, based on its review of quantitative and qualitative factors relevant to the dispositions, the Company determined that the disposition of the businesses in those countries would have a major effect on its operations and financial results. As such, the results of operations and cash flows for its operations in those countries, including the gains and losses on the dispositions and related income tax effects, are presented as discontinued operations in the accompanying condensed consolidated financial statements for the three and six months ended June 30, 2018 and 2017.

~~Dispositions Completed in 2017~~

In connection with its strategic initiative to exit non-core countries as discussed above, the Company sold an 83% controlling stake in its subsidiary in Israel and sold its subsidiaries in Argentina, Chile, Colombia, Peru, Mexico, Brazil, Singapore and Hong Kong during the first quarter 2017. The Company recognized a net pretax loss on those dispositions of $1.3 million, which consisted of the following (in thousands):

Net consideration received:
Fair value of minority investments retained or acquired $ 2,021
Cash proceeds received 3,462
Cash proceeds receivable 2,000
Less: transaction costs 1,394
Total net consideration received 6,089
Cumulative translation gain reclassified to earnings 14,718
Less: Net book value upon closing of the transactions 14,596
Less: Indemnification liabilities ⁽¹⁾
5,365
Less: Unfavorable contract liability for transition services 2,114
Loss on dispositions $ (1,268 )


~~(1)~~	~~See Note 9,~~ ~~Commitments and Contingencies, for additional information about the indemnification liabilities.~~

~~Results of Discontinued Operations~~

The following table summarizes ~~the major classes~~intangible assets as of ~~line items included in income (loss) from discontinued operations, net of tax, for the three and six months ended~~ June 30, ~~2017~~2019 and December 31, 2018 (in thousands):



	June 30, 2019						December 31, 2018
Asset Category	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Customer relationships	$	16,200	$	14,400	$	1,800	$	16,200	$	11,700	$	4,500
Merchant relationships	21,486		6,157		15,329		21,554		4,105		17,449
Trade names	9,467		7,074		2,393		9,476		6,799		2,677
Developed technology	13,813		13,601		212		13,825		13,485		340
Patents	21,744		17,254		4,490		20,508		16,451		4,057
Other intangible assets	26,091		11,319		14,772		26,007		9,629		16,378
Total	$	108,801	$	69,805	$	38,996	$	107,570	$	62,169	$	45,401

Three Months Ended June 30, 2017 ⁽¹⁾

Six Months Ended June 30, 2017 ⁽²⁾
Service revenue $ —
$ 12,602
Product revenue —
2,962
Service cost of revenue —
(2,557 )
Product cost of revenue —
(3,098 )
Marketing expense —
(1,239 )
Selling, general and administrative expense (1,376 ) (11,284 )
Restructuring —
(778 )
Other income, net —
3,852
Income (loss) from discontinued operations before loss on dispositions and provision for income taxes (1,376 ) 460
Loss on dispositions —
(1,268 )
Provision for income taxes —
(81 )
Income (loss) from discontinued operations, net of tax $ (1,376 ) $ (889 )


~~(1)~~	~~Selling, general and administrative expenses from discontinued operations for the~~ ~~three months ended June 30, 2017~~ ~~primarily related to increases to contingent liabilities under indemnification agreements. See Note 9,~~ ~~Commitments and Contingencies, for information about indemnification obligations related to discontinued operations.~~


~~(2)~~	The income (loss) from discontinued operations before loss on dispositions and provision for income taxes for the six months ended June 30, 2017 includes the results of each business through its respective disposition date.

910

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

~~4. BUSINESS COMBINATIONS~~

On April 30, 2018, the Company acquired 80% of the outstanding shares of Cloud Savings Company, Ltd. ("Cloud Savings"), a UK-based business that operates online discount code and digital gift card platforms. The primary purpose of this acquisition was to expand digital coupon offerings in the Company's international segment. Concurrent with the acquisition, the Company entered into an agreement with the noncontrolling shareholder giving the Company the right to acquire the remaining outstanding shares of Cloud Savings for $8.9 million in December 2018. Additionally, the noncontrolling shareholder has the right to require the Company to purchase its shares in December 2018 for that same amount. The rights and obligations to acquire the remaining outstanding shares were recorded as a financing obligation at its acquisition-date fair value of $8.6 million and is classified within Accrued expenses and other current liabilities on the condensed consolidated balance sheets. The transaction also included a contingent consideration arrangement with an acquisition-date fair value of $1.6 million. The aggregate acquisition-date fair value of the consideration transferred for the Cloud Savings acquisition totaled $74.3 million, which consisted of the following (in thousands):

Cash $ 64,065
Financing obligation
8,604
Contingent consideration 1,589
Total $ 74,258

The results of the Cloud Savings acquisition are included in the condensed consolidated financial statements from the date of acquisition through June 30, 2018. The fair value of consideration transferred in the business combination is allocated to the tangible and intangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. Acquired goodwill represents the premium the Company paid over the fair value of the net tangible and intangible assets acquired. The Company paid a premium for a number of reasons, including growing the Company's merchant base and acquiring an assembled workforce. The goodwill from this business combination is not deductible for tax purposes. The allocation of the acquisition price has been prepared on a preliminary basis, and changes to that allocation may occur as a result of final working capital adjustments and tax return filings.

~~The following table summarizes the allocation of the aggregate acquisition price of the Cloud Savings acquisition (in thousands):~~

Cash and cash equivalents $ 6,244
Accounts receivable 5,885
Prepaid expenses and other current assets 804
Property, equipment and software 226
Goodwill 46,217
Intangible assets⁽¹⁾:

Merchant relationships 20,322
Trade names 2,609
Developed technology 549
Other intangible assets 687
Total assets acquired $ 83,543
Accounts payable $ 693
Accrued merchant and supplier payables 386
Accrued expenses and other current liabilities 6,130
Other non-current liabilities 2,076
Total liabilities assumed $ 9,285
Total acquisition price $ 74,258


~~(1)~~	~~The estimated useful lives of the acquired intangible assets are 6 years for merchant relationships, 8 years for trade names, 2 years for developed technology, and 1 year for other intangible assets.~~

For the three and six months ended June 30, 2018, $0.7 million of external transaction costs related to that business combination, primarily consisting of legal and advisory fees, are classified within Selling, general and administrative on the condensed consolidated statements of operations.

The revenue and net loss of Cloud Savings included in the Company's condensed consolidated statements of operations were $3.0 million and $0.1 million, respectively, for the period from April 30, 2018 through June 30, 2018. Pro forma results of operations for the Cloud Savings acquisition are not presented as the pro forma effects of that acquisition were not material to the Company's condensed consolidated results of operations.

~~5. GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~The following table summarizes the Company's goodwill activity by segment for the six months ended June 30, 2018 (in thousands):~~

North America International Consolidated
Balance as of December 31, 2017 $ 178,685
$ 108,304
$ 286,989
Goodwill related to acquisition —
46,217
46,217
Foreign currency translation —
(4,407 ) (4,407 )
Balance as of June 30, 2018 $ 178,685
$ 150,114
$ 328,799

~~The following table summarizes the Company's intangible assets as of June 30, 2018 and December 31, 2017 (in thousands):~~

June 30, 2018 December 31, 2017
Asset Category Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value
Customer relationships $ 55,952
$ 48,695
$ 7,257
$ 56,749
$ 46,513
$ 10,236
Merchant relationships 30,969
10,778
20,191
11,598
9,853
1,745
Trade names 14,456
10,965
3,491
12,077
10,469
1,608
Developed technology 37,151
36,667
484
36,864
36,864
—
Patents 20,132
15,895
4,237
19,031
15,204
3,827
Other intangible assets 11,342
9,927
1,415
10,875
9,095
1,780
Total $ 170,002
$ 132,927
$ 37,075
$ 147,194
$ 127,998
$ 19,196

Amortization of intangible assets is computed using the straight-line method over their estimated useful lives, which range from 1 to 810 years. Amortization expense related to intangible assets was ~~$3.5~~$3.8 million and ~~$6.2~~$3.5 million for the three months ended June 30, 2019 and 2018, and ~~2017, respectively,~~$7.7 million and $6.4 ~~million and $11.6~~ million for the six months ended June 30, ~~2018~~2019 and ~~2017, respectively.~~2018. As of June 30, ~~2018, the Company's~~2019, estimated future amortization expense related to intangible assets is as follows (in thousands):



Remaining amounts in 2019	$	6,384
2020	7,780
2021	7,046
2022	6,730
2023	5,582
Thereafter	5,474
Total	$	38,996

Remaining amounts in 2018 $ 7,446
2019 11,025
2020 5,120
2021 4,393
2022 4,077
Thereafter 5,014
Total $ 37,075

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

6.3. INVESTMENTS

The following table summarizes ~~the Company's~~ investments as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands):



	June 30, 2019		Percent Ownership of Voting Stock			December 31, 2018		Percent Ownership of Voting Stock
Available-for-sale securities - redeemable preferred shares	$	10,201	19%	to	25%	$	10,340	19%	to	25%
Fair value option investments	4,917		10%	to	19%	73,902		10%	to	19%
Other equity investments	24,183		1%	to	19%	24,273		1%	to	19%
Total investments	$	39,301				$	108,515

June 30, 2018 Percent Ownership of Voting Stock December 31, 2017 Percent Ownership of Voting Stock
Current ⁽¹⁾:

Available-for-sale securities:
Convertible debt securities $ 8,517
$ —

Non-current ⁽¹⁾:

Available-for-sale securities:
Convertible debt securities $ 1,719
$ 11,354

Redeemable preferred shares 9,961
19% to 25% 15,431
19% to 25%
Total available-for-sale securities 11,680
26,785

Fair value option investments 74,898
10% to 19% 82,966
10% to 19%
Other equity investments ⁽²⁾
23,028
1% to 19% 25,438
1% to 19%
Total non-current investments $ 109,606
$ 135,189

Total investments $ 118,123
$ 135,189

Available-for-Sale Securities - Redeemable Preferred Shares


~~(1)~~	~~Current and non-current investments are classified within Prepaid expenses and other current assets and Investments, respectively, on the condensed consolidated balance sheets.~~

~~(2)~~

Represents equity investments without readily determinable fair values. Those investments were previously accounted for using the cost method of accounting. Under the cost method, investments were carried at cost and adjusted only for other-than-temporary declines in fair value, certain distributions and additional investments. The Company adopted the guidance in ASU 2016-01 on January 1, 2018. Under that guidance, the Company has elected to record equity investments without readily determinable fair values at cost adjusted for observable price changes and impairments. There were no adjustments for observable price changes related to these investments for the three and six months ended June 30, 2018. See further discussion under ~~Impairments of Investments~~ ~~below.~~

The following table summarizes ~~the~~ amortized cost, gross unrealized gain, gross unrealized loss and fair value of ~~the Company's available-for-sale securities~~redeemable preferred shares as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	June 30, 2019		December 31, 2018
Amortized cost	$	9,961	$	9,961
Gross unrealized gain (loss)	240		379
Fair value	$	10,201	$	10,340

June 30, 2018 December 31, 2017
Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Amortized Cost Gross Unrealized Gain
Gross Unrealized Loss ⁽¹⁾
Fair Value
Available-for-sale securities:
Convertible debt securities $ 10,129
$ 107
$ —
$ 10,236
$ 10,205
$ 1,653
$ (504 ) $ 11,354
Redeemable preferred shares 9,961
—
—
9,961
15,431
—
—
15,431
Total available-for-sale securities $ 20,090
$ 107
$ —
$ 20,197
$ 25,636
$ 1,653
$ (504 ) $ 26,785


~~(1)~~	~~Gross unrealized loss is related to one security that was in a loss position for greater than 12 months as of December 31, 2017.~~

~~Fair Value Option Investments~~

In connection with the dispositions of controlling stakes in Ticket Monster, an entity based in the Republic of Korea, in May 2015 and Groupon India in August 2015, the Company obtained minority investments in Monster Holdings LP ("Monster LP") and in Nearbuy Pte Ltd. ("Nearbuy"), respectively. The Company has made an irrevocable election to account for both of those investments at fair value with changes in fair value reported in earnings. The Company elected to apply fair value accounting to those investments because it believes that fair value is the most relevant measurement attribute for those investments, as well as to reduce operational and accounting complexity. The Company determined that the fair value of its investments in Monster LP and Nearbuy were $70.6 million and $4.3 million, respectively, as of June 30, 2018 and $78.9 million and $4.0 million, respectively, as of December 31, 2017.

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

~~The following table summarizes the Company’s gains and losses due to changes in fair value of those investments for the three and six months ended June 30, 2018 and 2017 (in thousands):~~

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Monster LP $ (3,054 ) $ (77 ) $ (8,285 ) $ 2,276
Nearbuy 19
(1,371 ) 217
(3,421 )
Total $ (3,035 ) $ (1,448 ) $ (8,068 ) $ (1,145 )

~~Impairments of Investments~~

~~The Company~~We recorded other-than-temporary impairments of available-for-sale securities of $4.6 million and $5.4 million ~~for the three and six months ended June 30, 2018, respectively. The Company also recorded a $4.6 million impairment of an other equity investment~~ for the three and six months ended June 30, 2018. Those impairments are classified within Other income (expense), net on the condensed consolidated statements of operations. There were no impairments of available-for-sale securities for the three and six months ended June 30, 2019.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Fair Value Option Investments

In connection with the dispositions of controlling stakes in TMON Inc. ("TMON"), an entity based in the Republic of Korea, in May 2015 and Groupon India in August 2015, we obtained minority investments in Monster Holdings LP ("Monster LP") and in Nearbuy Pte Ltd. ("Nearbuy"), respectively. We have made an irrevocable election to account for both of those investments at fair value with changes in fair value reported in earnings. We elected to apply fair value accounting to those investments because we believe that fair value is the most relevant measurement attribute for those investments, and to reduce operational and accounting complexity. Our election to apply fair value accounting to those investments has and may continue to cause fluctuations in our earnings from period to period.

We determined that the fair value of our investments in Monster LP and Nearbuy were $0.0 million and $4.9 million, respectively, as of June 30, 2019 and $69.4 million and $4.5 million, respectively, as of December 31, 2018.The following table summarizes gains and losses due to changes in fair value of those investments for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Monster LP	$	(27,949	)	$	(3,054	)	$	(69,408	)	$	(8,285	)
Nearbuy	372			19			423			217
Total	$	(27,577	)	$	(3,035	)	$	(68,985	)	$	(8,068	)

During the first quarter 2019, we recognized a $41.5 million loss from changes in the fair value of our investment in Monster LP due to the revised cash flow projections provided by TMON in March 2019 and an increase in the discount rate applied to those forecasts, which increased to 26.0% as of March 31, 2019, as compared with 21.0% as of December 31, 2018. The increase in the discount rate applied as of March 31, 2019 was due to the deterioration in the financial condition of TMON and the competitive environment in the Korean e-commerce industry, which resulted in an increase to financial projection risk. During the second quarter 2019, we recognized an additional loss of $27.9 million from changes in the fair value of our investment in Monster LP due to revised financial projections provided by TMON in June 2019. The revisions to the financial projections were made as a result of TMON’s continued underperformance as compared with prior projections along with adjustments to their business model.

The following table summarizes the condensed financial information for Monster LP for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue	$	131,816		$	84,525		$	252,016		$	171,384
Gross profit	9,542			6,574			17,407			13,811
Loss before income taxes	(31,253		)	(35,447		)	(60,324		)	(68,867		)
Net loss	(31,253		)	(35,447		)	(60,324		)	(68,867		)

Other Equity Investments

Other equity investments represents equity investments without readily determinable fair values. We have elected to record equity investments without readily determinable fair values at cost adjusted for observable price changes and impairments. We recorded a $4.6 million impairment of an other equity investment for the three and six months ended June 30, 2018. That impairment is classified within Other income (expense), net on the condensed consolidated statements of operations. There were no other adjustments for observable price changes related to these investments since our adoption of ASU 2016-01, Financial Instruments (Topic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, on January 1, 2018.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

4. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION

The following table summarizes ~~the Company's~~ other income (expense), net for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Interest income	$	1,915		$	1,836		$	3,851		$	3,345
Interest expense	(5,442		)	(5,228		)	(11,133		)	(10,721		)
Changes in fair value of investments	(27,577		)	(3,035		)	(68,985		)	(8,068		)
Foreign currency gains (losses), net	2,609			(12,533		)	930			(11,135		)
Impairments of investments	—			(9,189		)	—			(10,044		)
Other	1			1,692			(12		)	1,651
Other income (expense), net	$	(28,494	)	$	(26,457	)	$	(75,349	)	$	(34,972	)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Interest income $ 1,836
$ 659
$ 3,345
$ 1,261
Interest expense (5,228 ) (4,948 ) (10,721 ) (10,267 )
Gains (losses), net on changes in fair value of investments (3,035 ) (1,448 ) (8,068 ) (1,145 )
Foreign currency gains (losses), net (12,533 ) 10,826
(11,135 ) 10,877
Impairments of investments (9,189 ) —
(10,044 ) —
Other 1,692
789
1,651
550
Other income (expense), net $ (26,457 ) $ 5,878
$ (34,972 ) $ 1,276

The following table summarizes ~~the Company's~~ prepaid expenses and other current assets as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	June 30, 2019		December 31, 2018
Merchandise inventories	$	29,235	$	33,739
Prepaid expenses	32,414		28,209
Income taxes receivable	6,693		6,717
Other	22,714		19,450
Total prepaid expenses and other current assets	$	91,056	$	88,115

June 30, 2018 December 31, 2017
Merchandise inventories $ 28,307
$ 25,528
Prepaid expenses 38,519
40,399
Income taxes receivable 9,565
10,299
Investments 8,517
—
Other 19,616
17,799
Total prepaid expenses and other current assets $ 104,524
$ 94,025

The following table summarizes ~~the Company's~~ accrued merchant and supplier payables as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):


	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Accrued merchant payables	$	377,097	$	459,662	$	333,441	$	371,279
Accrued supplier payables ⁽¹⁾	151,127		310,673		130,684		280,502
Total accrued merchant and supplier payables	$	528,224	$	770,335	$	464,125	$	651,781


(1)	Amounts include payables to suppliers of inventories and providers of shipping and fulfillment services.

1213

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes ~~the Company's~~ accrued expenses and other current liabilities as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	June 30, 2019		December 31, 2018
Refunds reserve	$	19,812	$	27,957
Compensation and benefits	56,600		56,173
Accrued marketing	29,227		39,094
Customer credits	17,516		15,118
Income taxes payable	5,320		8,987
Deferred revenue	19,949		25,452
Current portion of lease obligations ⁽¹⁾	43,033		17,207
Other	67,153		77,046
Total accrued expenses and other current liabilities	$	258,610	$	267,034

June 30, 2018 December 31, 2017
Refunds reserve $ 30,355
$ 31,275
Compensation and benefits 55,827
73,096
Accrued marketing 29,297
32,912
Customer credits 18,316
28,487
Income taxes payable 12,448
9,645
Deferred revenue 21,802
29,539
Current portion of capital lease obligations 23,808
25,958
Accrued litigation and other ⁽¹⁾
175,666
100,284
Total accrued expenses and other current liabilities $ 367,519
$ 331,196


(1)	~~Includes an $82.5 million accrual~~Current portion of lease obligations as of June 30, ~~2018 related~~2019 includes $25.0 million of additional lease obligations that were recognized on January 1, 2019 as a result of the adoption of Topic 842. Refer to ~~IBM patent litigation. See~~ Note 9, ~~Commitments and Contingencies,~~6, Leases, for additional information.

The following table summarizes ~~the Company's~~ other non-current liabilities as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	June 30, 2019		December 31, 2018
Contingent income tax liabilities	$	32,756	$	39,858
Deferred rent ⁽¹⁾	—		32,186
Deferred income taxes	4,164		6,619
Other	16,820		22,025
Total other non-current liabilities	$	53,740	$	100,688

June 30, 2018 December 31, 2017
Contingent income tax liabilities $ 45,326
$ 43,699
Deferred rent 31,434
29,032
Capital lease obligations 12,990
18,500
Deferred income taxes 2,841
811
Other 10,644
10,366
Total other non-current liabilities $ 103,235
$ 102,408

~~The following table summarizes the components of accumulated other comprehensive income (loss) as of June 30, 2018 and December 31, 2017 (in thousands):~~

Foreign currency translation adjustments Unrealized gain (loss) on available-for-sale securities Total
Balance as of December 31, 2017 $ 30,962
$ 882
$ 31,844
Reclassification for impact of U.S. tax rate change —
161
161
Other comprehensive income (loss) 1,238
(936 ) 302
Balance as of June 30, 2018 $ 32,200
$ 107
$ 32,307


(1)	Non-current operating lease liabilities as of June 30, 2019 are included within Operating lease obligations on the condensed consolidated balance sheet as a result of the adoption of Topic 842 on January 1, 2019. Refer to Note 6, Leases, for additional information.

8.5. FINANCING ARRANGEMENTS

Convertible Senior Notes

On April 4, 2016, ~~the Company~~we issued $250.0 million in aggregate principal amount of convertible senior notes (the "Notes") in a private placement to A-G Holdings, L.P. ("AGH"). Michael Angelakis, the chairman and chief executive officer of Atairos Group, Inc. ("Atairos"), joined ~~the Company's~~our Board of Directors (the "Board") in connection with the issuance of the Notes. Atairos controls the voting power of AGH. The net proceeds from this offering were $243.2 million after deducting issuance costs. The Notes bear interest at a rate of 3.25% per annum, payable annually in arrears on April 1 of each year, beginning on April 1, 2017. The Notes will mature on April 1, 2022, subject to earlier conversion or redemption.

Each $1,000 of principal amount of the Notes initially is convertible into 185.1852 shares of common stock, which is equivalent to an initial conversion price of $5.40 per share, subject to adjustment upon the occurrence of specified events. Upon conversion, ~~the Company~~we can elect to settle the conversion value in cash, shares of ~~its~~our common stock, or any combination of cash and shares of ~~its~~our common stock. Holders of the Notes may convert their Notes at their option at any time until the close of business on the scheduled trading day immediately preceding the maturity date. In addition, if specified corporate events occur prior to the maturity date, ~~the Company~~we may be required to increase the conversion rate for holders who elect to convert based on the effective date of such event and the applicable stock price attributable to the event, as set forth in a table contained in the indenture governing the Notes (the "Indenture"). Based on the closing price of the ~~Company's~~ common stock of ~~$4.30~~$3.58 as of June 30, ~~2018,~~2019, the if-converted value of the Notes was less than the principal amount.

With certain exceptions, upon a fundamental change (as defined in the Indenture), the holders of the Notes may require ~~the Company~~us to repurchase all or a portion of their Notes for cash at a purchase price equal to the principal amount plus accrued and unpaid interest. In addition, ~~the Company~~we may redeem the Notes, at ~~its~~our option, at a purchase price equal to the principal amount plus accrued and unpaid interest on or after April 1, 2020, if the closing sale price of the common stock exceeds 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive ~~trading day~~trading-day period preceding the ~~Company’s~~ exercise of this redemption right.

The Notes are senior unsecured obligations ~~of the Company~~ that rank equal in right of payment to all senior unsecured indebtedness ~~of the Company~~ and rank senior in right of payment to any indebtedness that is contractually subordinated to the Notes.

The Indenture includes customary events of default. If an event of default, as defined in the Indenture, occurs and is continuing, the principal amount of the Notes and any accrued and unpaid interest may be declared immediately due and payable. In the case of bankruptcy or insolvency, the principal amount of the Notes and any accrued and unpaid interest would automatically become immediately due and payable.

~~The Company has~~We have separated the Notes into their liability and equity components in the accompanying condensed consolidated balance ~~sheet.~~sheets. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the principal amount of the Notes. The difference between the principal amount of the Notes and the liability component (the "debt discount") is amortized to interest expense at an effective interest rate of 9.75% over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance ~~sheet~~sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

~~The Company~~We incurred transaction costs of approximately $6.8 million related to the issuance of the Notes. Those transaction costs were allocated to the liability and equity components in the same manner as the allocation of the proceeds from the Notes. Transaction costs attributable to the liability component of $4.8 million were recorded as a debt discount in the condensed consolidated balance sheet and are being amortized to interest expense over the term of the Notes. Transaction costs attributable to the equity component of $2.0 million were recorded in stockholders' equity as a reduction of the equity component.

The carrying amount of the Notes consisted of the following as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	June 30, 2019			December 31, 2018
Liability component:
Principal amount	$	250,000		$	250,000
Less: debt discount	(41,900		)	(48,331		)
Net carrying amount of liability component	$	208,100		$	201,669

Net carrying amount of equity component	$	67,014		$	67,014

June 30, 2018 December 31, 2017
Liability component:
Principal amount $ 250,000
$ 250,000
Less: debt discount (54,441 ) (60,247 )
Net carrying amount of liability component $ 195,559
$ 189,753

Net carrying amount of equity component $ 67,014
$ 67,014

The estimated fair value of the Notes as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$273.8~~$267.1 million and ~~$285.6~~$257.1 million, ~~respectively,~~ and was determined using a lattice model. ~~The Company~~We classified the fair value of the Notes as a Level 3 measurement due to the lack of observable market data over fair value inputs such as ~~its~~our stock price volatility over the term of the Notes and ~~its~~our cost of debt.

As of June 30, ~~2018,~~2019, the remaining term of the Notes is approximately ~~3.75 years.~~2 years and 9 months. During the three and six months ended June 30, 2019 and 2018, ~~and 2017, the Company~~we recognized interest costs on the Notes as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Contractual interest (3.25% of the principal amount per annum)	$	2,032	$	2,032	$	4,064	$	4,064
Amortization of debt discount	3,256		2,940		6,431		5,806
Total	$	5,288	$	4,972	$	10,495	$	9,870

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Contractual interest (3.25% of the principal amount per annum) $ 2,032
$ 2,032
$ 4,064
$ 4,064
Amortization of debt discount 2,940
2,655
5,806
5,242
Total $ 4,972
$ 4,687
$ 9,870
$ 9,306

Note Hedges and Warrants

In May 2016, ~~the Company~~we purchased convertible note hedges with respect to ~~its~~our common stock for a cost of $59.1 million from certain bank counterparties. The convertible note hedges provide ~~the Company~~us with the right to purchase up to 46.3 million shares of ~~the Company's~~our common stock at an initial strike price of $5.40 per share, which corresponds to the initial conversion price of the Notes, and are exercisable ~~by the Company~~ upon conversion of the Notes. The convertible note hedges are intended to reduce the potential economic dilution upon conversion of the Notes. The convertible note hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes do not have any rights with respect to the convertible note hedges.

In May 2016, ~~the Company~~we also sold warrants for total cash proceeds of $35.5 million to certain bank counterparties. The warrants provide the counterparties with the right to purchase up to 46.3 million shares of ~~the Company's~~our common stock at a strike price of $8.50 per share. The warrants expire on various dates between July 1, 2022 and August 26, 2022 and are exercisable on their expiration dates. The warrants are separate transactions and are not part of the terms of the Notes or convertible note hedges. Holders of the Notes and convertible note hedges do not have any rights with respect to the warrants.

The amounts paid and received for the convertible note hedges and warrants were recorded in additional paid-in capital in the condensed consolidated balance sheets as of June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The convertible note hedges and warrants are not remeasured as long as they continue to meet the conditions for equity classification. The amounts paid for the convertible note hedges are tax deductible over the term of the Notes, while the proceeds received from the warrants are not taxable.

Under the if-converted method, the shares of common stock underlying the conversion option in the Notes are included in the diluted earnings per share denominator and the interest expense on the Notes, net of tax, is added to the numerator. However, upon conversion, there will be no economic dilution from the Notes, as exercise of the convertible note hedges eliminates any dilution from the Notes that would have otherwise occurred when the price of ~~the Company’s~~our common stock exceeds the conversion price. Taken together, the purchase of the convertible note hedges and sale of warrants are intended to offset any actual dilution from the conversion of the Notes and to effectively increase the overall conversion price from $5.40 to $8.50 per share.

Revolving Credit Agreement

~~The Company's~~In May 2019, we entered into a second amended and restated senior secured revolving credit agreement (the ~~"Amended and Restated~~"2019 Credit Agreement") which provides for aggregate principal borrowings of up to ~~$250.0~~$400.0 million and matures in May 2024. The 2019 Credit Agreement replaced our previous $250.0 million amended and restated credit agreement that was scheduled to mature in June ~~2019.~~ 2019 (the "2016 Credit Agreement"). We recorded a liability for debt issuance costs of $2.3 million related to the 2019 Credit Agreement. Those costs will be amortized to interest expense over the term of the agreement.

Borrowings under the ~~Amended and Restated~~2019 Credit Agreement bear interest, at ~~the Company's~~our option, at a rate per annum equal to ~~the Alternate Base Rate~~(a) an adjusted LIBO rate or ~~Adjusted LIBO Rate (each as defined~~(b) a customary base rate (with loans denominated in ~~the Amended and Restated Credit Agreement)~~certain currencies bearing interest at rates specific to such currencies) plus an additional margin ranging between 0.50% and ~~2.25%~~2.00%. ~~The Company is~~We are required to pay quarterly commitment fees ranging from 0.25% to ~~0.40%~~0.35% per annum of the average daily amount of unused commitments available under the ~~Amended and Restated~~2019 Credit Agreement. The ~~Amended and Restated~~2019 Credit Agreement also provides for the issuance of up to ~~$45.0~~$75.0 million in letters of credit, provided that the sum of outstanding borrowings and letters of credit do not exceed the maximum funding commitment of ~~$250.0~~$400.0 million.

The ~~Amended and Restated~~2019 Credit Agreement is secured by substantially all of ~~the Company's and its subsidiaries'~~our tangible and intangible assets, including a pledge of 100% of the outstanding capital stock of substantially all of ~~its~~our direct and indirect domestic subsidiaries and 65% of the shares or equity interests of first-tier foreign subsidiaries and each U.S. entity whose assets substantially consist of capital stock and/or intercompany debt of one or more foreign subsidiaries, subject to certain exceptions. Certain of ~~the Company's~~our domestic subsidiaries are guarantors under the ~~Amended and Restated~~2019 Credit Agreement.

The ~~Amended and Restated~~2019 Credit Agreement contains various customary restrictive covenants that limit ~~the Company's~~our ability to, among other things: incur additional indebtedness; make dividend and other restricted payments, including share repurchases; enter into sale and leaseback transactions; make investments, loans or advances; grant or incur liens on assets; sell assets; engage in mergers, consolidations, liquidations or dissolutions; and engage in transactions with affiliates. The ~~Amended and Restated~~2019 Credit Agreement requires ~~the Company~~us to maintain compliance with specified financial covenants, comprised of a minimum fixed charge coverage ratio, a maximum leverage ratio, a maximum senior secured ~~indebtedness~~leverage ratio and a minimum liquidity ratio, each as set forth in the ~~Amended and Restated~~2019 Credit Agreement. ~~The Company is~~We are also required to maintain, as of the last day of each fiscal quarter, unrestricted cash of at least ~~$400.0~~$250.0 million, including ~~$200.0~~$125.0 million in accounts held with lenders under the ~~Amended and Restated~~2019 Credit Agreement or their affiliates. Non-compliance with these covenants may result in termination of the commitments under the ~~Amended and Restated~~2019 Credit Agreement and any then outstanding borrowings may be declared due and payable immediately. ~~The Company has~~We have the right to terminate the ~~Amended and Restated~~2019 Credit Agreement or reduce the available commitments at any time.

As of June 30, ~~2018 and December 31, 2017, the Company~~2019, we had no borrowings outstanding under the 2019 Credit Agreement and as of December 31, 2018, we had no borrowings outstanding under the 2016 Credit Agreement. As of June 30, 2019, we had outstanding letters of credit of ~~$18.6~~$18.2 million ~~and $22.7 million, respectively,~~ under the ~~Amended~~2019 Credit Agreement and ~~Restated~~as of December 31, 2018, we had outstanding letters of credit of $19.2 million under the 2016 Credit Agreement.

~~9. COMMITMENTS AND CONTINGENCIES~~6. LEASES

~~Except~~Adoption of ASC Topic 842, Leases

On January 1, 2019, we adopted ASC Topic 842 using the modified retrospective transition method. Topic 842 requires the recognition of lease assets and liabilities for operating leases, in addition to the ~~changes set forth below,~~finance lease assets and liabilities previously recorded on our condensed consolidated balance sheets. Beginning on January 1, 2019, our condensed consolidated financial statements are presented in accordance with the ~~Company's commitments~~revised policies, while prior period amounts are not adjusted and continue to be reported in accordance with our historical policies. The modified retrospective transition method required the cumulative effect, if any, of initially applying the guidance to be recognized as an adjustment to our accumulated deficit as of our adoption date. As a result of adopting Topic 842, we recognized additional lease assets and liabilities of $109.6 million as of January 1, 2019. The discount rate used to calculate that adjustment was the rate implicit in the lease, unless that rate was not readily determinable. For leases for which the rate was not readily determinable, the discount rate used was our incremental borrowing rate as of the adoption date, January 1, 2019. There was no cumulative effect adjustment to our accumulated deficit as a result of initially applying the guidance.

We elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed us to carry forward prior conclusions about lease identification, classification and initial direct costs for leases entered into prior to adoption of Topic 842. Additionally, we elected to not separate lease and non-lease components for all of our leases. For leases with a term of 12 months or less, we elected the short-term lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition and new leases we may enter into in the future.

General Description of Leases

We have entered into various non-cancelable operating lease agreements for our offices and data centers and non-cancelable finance lease agreements for property and equipment. We classify leases at their commencement as either operating or finance leases and may receive renewal or expansion options, rent holidays and leasehold improvement or other incentives on certain lease agreements.

Our operating leases primarily consist of leases for real estate throughout the world with lease expirations between 2019 and 2026. These arrangements typically do not transfer ownership of the underlying asset as we do not assume, nor do we intend to assume, the risks and rewards of ownership. Our finance leases are related to purchases of property and equipment, primarily computer hardware, with expirations between 2019 and 2023.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

We recognize a right-of-use asset and lease liability for all of our leases at the commencement of the lease. Lease liabilities are measured based on the present value of the minimum lease payments discounted by a rate determined as of the date of commencement. Right-of-use assets are measured based on the lease liability adjusted for any initial direct costs, prepaid rent, or lease incentives. Minimum lease payments made under operating and finance leases are apportioned between interest expense and a reduction of the related operating and finance lease obligations. The interest expense on operating leases is presented within Selling, general and administrative expense on the condensed consolidated statements of operations and the related operating lease obligation is presented within Accrued expenses and other current liabilities and Operating lease obligations on the condensed consolidated balance sheets. The interest expense on finance leases is presented within Other income (expense), net on the condensed consolidated statements of operations and the related finance lease obligation is presented within Accrued expenses and other current liabilities and Other non-current liabilities on the condensed consolidated balance sheets.

We have also subleased certain office facilities under operating lease agreements, with expirations between 2019 and 2026. We recognize sublease rentals on a straight-line basis over their respective lease terms.

The following summarizes right-of-use assets as of June 30, ~~2018 and through the date these condensed consolidated financial statements were issued did not materially change from the amounts set forth in the Company's 2017 Annual Report on Form 10-K.~~2019 (in thousands):

~~Leases~~



	June 30, 2019
Right-of-use assets - operating leases	$	127,305
Right-of-use assets - finance leases⁽¹⁾	35,201
Total right-of-use assets, gross	162,506
Less: accumulated depreciation and amortization	(25,572		)
Right-of-use assets, net	$	136,934


(1)	Right-of-use assets for finance leases are included in Property, equipment and software, net on the condensed consolidated balance sheet.

Related Party Sublease Agreement

~~In May 2018, the Company~~On December 28, 2016, we entered into a ~~new~~sublease for portions of our office space at 600 West Chicago to Uptake, Inc. ("Uptake"), a Lightbank LLC ("Lightbank") portfolio company. Eric Lefkofsky, our co-founder and Chairman of the Board, is a co-founder and owns a significant equity interest in Lightbank. The sublease was a market rate transaction on terms that we believe are no less favorable than would have been reached with an unrelated third party. The sublease extends through January 31, 2026 and the sublease rentals over the entire term total approximately $18.2 million. Pursuant to our related party transaction policy, our Audit Committee approved the sublease. We recognized income from the sublease of $0.5 million and $0.5 million for the three months ended June 30, 2019 and 2018, and $1.2 million and $1.0 million for the six months ended June 30, 2019 and 2018.

Significant Assumptions and Judgments

Significant judgment is required when determining whether a contract is or contains a lease. We review contracts to determine whether the language conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

As discussed above, the present value of minimum lease payments is used in determining the value of our operating and finance leases. The discount rate used to calculate the present value for ~~one~~lease payments is the rate implicit in the lease, unless that rate cannot be readily determined. For leases in which the rate implicit in the lease is not readily determinable, the discount rate is our incremental borrowing rate, which is determined based on information available at lease commencement and is equal to the rate of ~~its foreign locations.~~interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. The discount rate used for our lease obligations as of June 30, 2019 and January 1, 2019 ranged from 1.5% to 6.9%. As of June 30, ~~2018,~~2019, the weighted-average remaining lease term for our finance leases and operating leases was 2 years and 5 years. As of June 30, 2019, the weighted-average discount rate for our finance leases and operating leases was 5.1% and 5.6%.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes our lease cost and sublease income for the three and six months ended June 30, 2019 (in thousands):



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Financing lease cost:
Amortization of right-of-use assets	$	5,999		$	12,755
Interest on lease liabilities	266			573
Total finance lease cost	6,265			13,328
Operating lease cost	8,737			17,211
Variable lease cost	1,825			3,909
Short-term lease cost	169			210
Sublease income, gross	(1,312		)	(2,624		)
Total lease cost	$	15,684		$	32,034

As of June 30, 2019, the future payments under ~~that~~finance leases and operating ~~lease~~leases for each of the next five years and thereafter are as follows (in thousands):



	Finance Leases			Operating Leases
Remaining in 2019	$	6,972		$	19,787
2020	8,971			35,994
2021	5,052			32,720
2022	715			31,962
2023	12			24,516
Thereafter	—			33,175
Total minimum lease payments	21,722			178,154
Less: Amount representing interest	(1,080		)	(24,761		)
Present value of net minimum lease payments	20,642			153,393
Less: Current portion of lease obligations	(11,166		)	(31,867		)
Total long-term lease obligations	$	9,476		$	121,526

As of June 30, 2019, the future amounts due under subleases for each of the next five years and thereafter are as follows (in thousands):



	Subleases
Remaining in 2019	$	2,603
2020	5,027
2021	5,065
2022	5,103
2023	4,385
Thereafter	4,891
Total future sublease income	$	27,074

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Remaining amounts in 2018 $ 1,296
2019 2,592
2020 2,592
2021 2,592
2022 2,592
Thereafter 5,832
Total minimum lease payments $ 17,496

~~Other Contractual Commitments~~The following table summarizes supplemental cash flow information on our leasing obligations for the six months ended June 30, 2019 (in thousands):

~~In the first quarter 2018, the Company entered into a non-cancelable arrangement for cloud computing services. As~~



	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	573
Operating cash flows from operating leases	(13,145		)
Financing cash flows from finance leases	(12,628		)
Right-of-use assets obtained in exchange for lease liabilities:
Finance leases	2,872
Operating leases	17,853

7. COMMITMENTS AND CONTINGENCIES

Our purchase obligations as of June 30, 2019 did not materially change from the amounts set forth in our 2018 ~~future payments under that contractual obligation are as follows (in thousands):~~

Remaining amounts in 2018 $ —
2019 3,400
2020 3,400
2021 3,400
2022 3,400
Total $ 13,600
Annual Report on Form 10-K.

Legal Matters and Other Contingencies

From time to time, ~~the Company is~~we are party to various legal proceedings incident to the operation of ~~its~~our business. For example, ~~the Company~~we currently isare involved in proceedings brought by former employees and merchants, intellectual property infringement suits, customer lawsuits, consumer class actions and suits alleging, among other things, violations of state consumer protection or privacy laws. ~~The following is a brief description of significant legal proceedings.~~

On March 2, 2016, International Business Machines Corporation ("IBM") filed a complaint in the United States District Court for the District of Delaware against the Company (the "Delaware Action"). In the Delaware Action, IBM alleges that the Company has infringed and continues to willfully infringe certain IBM patents that IBM claims relate to the presentation of applications and advertising in an interactive service, preserving state information in online transactions and single sign-on processes in a computing environment and seeks damages (including a request that the amount of compensatory damages be trebled), injunctive relief and costs and reasonable attorneys’ fees. Trial commenced in the Delaware Action on July 16, 2018. On July 27, 2018, a jury in this matter returned a verdict finding the Company willfully infringed each of these patents and awarded damages of $82.5 million to IBM. The court has the discretion to enhance this award for willfulness, impose interest, impose a continuing royalty for the two unexpired patents or award injunctive relief. The court also has the discretion to reduce or vacate the damages award or enter judgment for the Company on some or all of the claims notwithstanding the jury verdict. The Company intends to seek to overturn the verdict and reduce the damages award through post-trial motions and appeal. For the three months ended June 30, 2018, the Company recorded a $75.0 million charge to increase its contingent liability for this matter. That charge is classified within Selling, general and administrative in the accompanying condensed consolidated statement of operations.

On May 9, 2016, the Company filed a complaint in the United States District Court for the Northern District of Illinois against IBM (the "Illinois Action"). The Company alleges that IBM has infringed and continues to willfully infringe one of the Company’s patents relating to location-based services. The Company intends to seek damages and injunctive relief for IBM’s infringement of this patent. On December 20, 2016, IBM filed a motion to dismiss this case, and the court denied that motion. The court held a Markman hearing on April 3, 2017, but has not yet construed the claims. On May 18, 2017, IBM filed two petitions for inter partes review with the United States Patent and Trademark Office seeking to invalidate the Company’s patent relating to location-based services. The Company filed its preliminary responses on September 6, 2017. The Patent Office denied one petition and instituted a review of the Company’s patent in response to the other petition, but such review did not include all claims requested by IBM. On May 1, 2018, the Patent Office stated that it would institute a review of the claims that were not previously under review based on a recent Supreme Court decision (SAS Institute, Inc. v. Iancu) finding that the Patent Office must institute a review of either all or none of claims petitioners seek to review. A trial date is not yet set in the Illinois Action. The Company plans to vigorously defend against the challenges to the Company’s patent in the Illinois Action.

In addition, ~~other~~ third parties have from time to time claimed, and others may claim in the future, that ~~the Company has~~we have infringed their intellectual property rights. ~~The Company is~~We are subject to intellectual property disputes, including patent infringement claims, and ~~expects~~expect that itwe will ~~increasingly~~continue to be subject to intellectual property infringement claims as ~~its~~our services expand in scope and complexity. ~~The Company has in~~In the past, we have litigated such claims, and ~~the Company is~~we are presently involved in several patent infringement and other intellectual property-related claims, ~~(including the IBM matter described above),~~ including pending litigation or trademark disputes relating to, for example, ~~the Company's~~our Goods category, some of which could involve potentially substantial claims for damages or injunctive relief. ~~The Company~~We may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act are interpreted by the courts, and ~~as the Company becomes~~we become subject to laws in jurisdictions where the underlying laws with respect to the potential liability of online intermediaries are either unclear or less favorable. ~~The Company believes~~We believe that additional lawsuits alleging that ~~it has~~we have violated patent, copyright or trademark laws will be filed against ~~it.~~us. Intellectual property claims, whether meritorious or not, are time consuming and often costly to resolve, could require expensive changes in ~~the Company's~~our methods of doing business or the goods ~~it sells,~~we sell, or could require itus to enter into costly royalty or licensing agreements.

~~The Company~~We also isare subject to consumer claims or lawsuits relating to alleged violations of consumer protection or privacy rights and statutes, some of which could involve potentially substantial claims for damages, including statutory or punitive damages. Consumer and privacy related claims or lawsuits, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, or require ~~the Company~~us to change ~~its~~our business practices, sometimes in expensive ways.

~~The Company~~We are also is subject to, or in the future may become subject to, a variety of regulatory inquiries, audits, and investigations across the jurisdictions where ~~the Company conducts its~~we conduct our business, including, for example, inquiries related to consumer protection, employment matters and/or hiring practices, marketing practices, tax, unclaimed property and privacy rules and regulations. Any regulatory actions against ~~the Company,~~us, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, require ~~the Company~~us to change ~~its~~our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm ~~the Company's~~our business.

~~The Company establishes~~We establish an accrued liability for loss contingencies related to legal and regulatory matters when the loss is both probable and reasonably estimable. Those accruals represent management's best estimate of probable losses and, in such cases, there may be an exposure to loss in excess of the amounts accrued. For certain of the matters described above, there are inherent and significant uncertainties based on, among other factors, the stage of the proceedings, developments in the applicable facts of law, or the lack of a specific damage claim. However, ~~the Company believes~~we believe that the amount of reasonably possible losses in excess of the amounts accrued for those matters would not have a material adverse effect on ~~its~~our business, condensed consolidated financial position, results of operations or cash flows. ~~The Company's~~Our accrued liabilities for loss contingencies related to legal and regulatory matters may change in the future as a result of new developments, including, but not limited to, the occurrence of new legal matters, changes in the law or regulatory environment, adverse or favorable rulings, newly discovered facts relevant to the matter, or changes in the strategy for the matter. Regardless of the outcome, litigation and other regulatory matters can have an adverse impact on ~~the Company~~us because of defense and settlement costs, diversion of management resources and other factors.

Indemnifications

In connection with the ~~dispositions~~disposition of ~~the Company's~~our operations in Latin America ~~(see Note 3,~~ ~~Discontinued Operations and Other Business Dispositions~~),in the ~~Company agreed to indemnify the buyer~~first quarter of 2017, we recorded $5.4 million in indemnification liabilities for certain tax and other ~~matters. The indemnification liabilities were initially recorded at their fair value, estimated to be $5.4 million using a probability-weighted expected cash flow approach,~~matters upon the closing of the transactions as an adjustment to the net loss on the dispositions within discontinued ~~operations.~~operations at their fair value. We estimated the indemnification liabilities using a probability-weighted expected cash flow approach. During the first quarter of 2019, we decreased our indemnification liabilities due to the expiration of certain indemnification obligations. The ~~Company estimates~~resulting benefit of $2.2 million is recorded within Income (loss) from discontinued operations on the condensed consolidated statement of operations for the six months ended June 30, 2019. Our remaining indemnification liabilities were $3.2 million as of June 30, 2019. We estimate that the total amount of obligations that are reasonably possible to arise under the indemnifications in excess of amounts accrued as of June 30, ~~2018~~2019 is approximately ~~$18.0~~$13.3 million.

In the normal course of business to facilitate transactions related to ~~its~~our operations, ~~the Company indemnifies~~we indemnify certain parties, including employees, lessors, service providers, merchants, and counterparties to investment agreements and asset and stock purchase agreements with respect to various matters. ~~The Company has~~We have agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or other claims made against those parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. ~~The Company is~~We are also subject to increased exposure to various claims as a result of ~~its~~our divestitures and acquisitions, particularly in cases where ~~the Company is~~we are entering into new businesses in connection with such acquisitions. ~~The Company~~We may also become more vulnerable to claims as ~~it expands~~we expand the range and scope of ~~its~~our services and isare subject to laws in jurisdictions where the underlying laws with respect to potential liability are either unclear or less favorable. In addition, ~~the Company has~~we have entered into indemnification agreements with ~~its~~our officers, directors and underwriters, and ~~the Company's~~our bylaws contain similar indemnification obligations that cover officers, directors, employees and other agents.

Except as noted above, it is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, any payments that ~~the Company has~~we have made under these agreements have not had a material impact on the operating results, financial position or cash ~~flows of the Company.~~flows.

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

~~10.~~8. STOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS

The Company's Board of Directors (the "Board") has the authority, without approval by the stockholders, to issue up to a total of 50,000,000 shares of preferred stock in one or more series. The Board may establish the number of shares to be included in each such series and may fix the designations, preferences, powers and other rights of the shares of a series of preferred stock. The Board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of its common stock. As of June 30, 2018 and December 31, 2017, there were no shares of preferred stock outstanding.

Common Stock

Pursuant to ~~the Company's~~our restated certificate of incorporation, the Board has the authority to issue up to a total of 2,010,000,000 shares of common stock. Each holder of common stock ~~shall be~~is entitled to one vote ~~for each such~~per share on any matter that is submitted to a vote of stockholders. In addition, holders of ~~the~~our common stock will vote as a single class of stock on any matter that is submitted to a vote of stockholders.

Share Repurchase Program

In May 2018, the Board authorized ~~the Company~~us to repurchase up to $300.0 million of ~~its~~our common stock under ~~a new~~our share repurchase program. ~~The Company's prior share repurchase program expired in April 2018.~~ During the three and six months ended June 30, ~~2018, the Company did not~~2019, we repurchased 4,228,148 and 8,636,143 shares for an aggregate purchase ~~any shares~~price of $15.1 million and $30.1 million (including fees and commissions) under ~~those share~~ our

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

repurchase ~~programs.~~program. As of June 30, 2019, up to $260.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the ~~Amended and Restated~~2019 Credit Agreement, share price and other factors, and the share repurchase program may be terminated at any time.

Groupon, Inc. Stock Plans

In January 2008, we adopted the 2008 Stock Option Plan, as amended (the "2008 Plan"), under which options for up to 64,618,500 shares of common stock were authorized to be issued to employees, consultants and directors. The 2008 Plan was frozen in December 2010. In April 2010, we established the Groupon, Inc. 2010 Stock Plan, as amended in April 2011 (the "2010 Plan"), under which options and restricted stock units ("RSUs") for up to 20,000,000 shares of common stock were authorized for future issuance to employees, consultants and directors. No new awards may be granted under the 2010 Plan following our initial public offering in November 2011. In August 2011, we established the Groupon, Inc. 2011 Incentive Plan (the "2011 Plan"), as amended in November 2013, May 2014, June 2016 and June 2019, under which options, RSUs and performance stock units for up to 187,500,000 shares of common stock were authorized for future issuance to employees, consultants and directors.

The Groupon, Inc. Stock Plans (the "Plans") are administered by the Compensation Committee of the Board (the "Compensation Committee")~~, which determines the number of awards to be issued, the corresponding vesting schedule and the exercise price for options.~~. As of June 30, ~~2018, 52,436,687~~2019, 64,223,134 shares of common stock were available for future issuance under the Plans.

The stock-based compensation expense related to stock awards issued under the Plans and acquisition-related awards are presented within the following line items of the condensed consolidated statements of operations for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Cost of revenue	$	288	$	794	$	684	$	1,457	$	380	$	288	$	758	$	684
Marketing	1,763		2,230		3,557		4,032		1,490		1,763		2,915		3,557
Selling, general and administrative	14,215		18,368		31,303		35,553		24,693		14,215		39,301		31,303
Other income (expense)	52		48		100		99
Other income (expense), net									—		52		—		100
Total stock-based compensation expense	$	16,318	$	21,440	$	35,644	$	41,141	$	26,563	$	16,318	$	42,974	$	35,644

~~The Company also~~We capitalized ~~$2.0~~$2.2 million and ~~$1.8~~$2.0 million of stock-based compensation for the three months ended June 30, 2019 and 2018, and ~~2017, respectively,~~$3.5 million and $3.7 ~~million and $3.3~~ million for the six months ended June 30, ~~2018~~2019 and ~~2017, respectively,~~2018 in connection with internally-developed software. As of June 30, 2018, $138.1 million of unrecognized compensation costs related to unvested employee stock awards are expected to be recognized over a remaining weighted-average period of 1.44 years.software and cloud computing arrangements.

Employee Stock Purchase Plan

The ~~Company is authorized~~Groupon, Inc. 2012 Employee Stock Purchase Plan ("ESPP"), as amended in June 2019, authorizes us to grant up to ~~10,000,000~~20,000,000 shares of common stock under ~~its employee stock purchase plan ("ESPP").~~that plan. For the six months ended June 30, 2019 and 2018, 719,297 and ~~2017,~~ 746,773 ~~and 877,845~~ shares of common stock ~~respectively,~~ were issued under the ESPP.

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

Restricted Stock Units

The restricted stock units granted under the Plans generally have vesting periods between one and four ~~years. Restricted stock units~~years and are amortized on a straight-line basis over ~~the~~their requisite service period. Additionally, we are required to issue restricted stock units to settle amounts that exceed targeted bonus amounts under our primary bonus plans. We account for those obligations, if any, as liability-classified awards with performance conditions.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The table below summarizes ~~activity regarding unvested~~ restricted stock ~~units granted~~unit activity under the Plans for the six months ended June 30, ~~2018:~~2019:



	Restricted Stock Units		Weighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 2018	26,623,432		$	4.47
Granted	22,723,241		3.25
Vested	(7,787,055	)	4.45
Forfeited	(6,264,854	)	4.27
Unvested at June 30, 2019	35,294,764		3.92

Restricted Stock Units Weighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 2017 28,939,110
$ 4.32
Granted 14,631,563
4.76
Vested (7,507,084 ) 4.41
Forfeited (3,202,754 ) 4.26
Unvested at June 30, 2018 32,860,835
4.51
As of June 30, 2019, $118.4 million of unrecognized compensation costs related to unvested restricted stock units are expected to be recognized over a remaining weighted-average period of 1.65 years.

Performance Share Units

~~The~~We grant performance share units ~~granted~~ under the Plans that vest in shares of ~~the Company's~~our common stock upon the achievement of financial and operational targets specified in the respective ~~award.~~award agreement ("Performance Share Units"). During the six months ended June 30, 2019, we also granted performance share units that will vest if our average daily closing stock price is equal to or greater than $6.00 per share over a period of 30 consecutive trading days prior to December 31, 2022 or if a change in control occurs during the performance period at the specified stock price (and on a proportional basis for a change in control price between the grant date price and the specified stock price) ("Market-based Performance Share Units"). We determined these awards are subject to a market condition, and therefore we used a Monte Carlo simulation to calculate the grant date fair value of the awards and the related derived service period over which we will recognize the expense. The key inputs used in the Monte Carlo simulation were the risk-free rate, our volatility of 49.8% and our cost of equity of 12.8%.

All of our performance share awards are subject to both continued employment through the performance period dictated by the award and certification by the Compensation Committee that the specified ~~financial and operational targets~~performance conditions have been achieved.

~~During~~The table below summarizes Performance Share Unit activity under the Plans for the six months ended June 30, ~~2018, the Company granted~~2019:



	Performance Share Units		Weighted-Average Grant Date Fair Value (per unit)		Market-based Performance Share Units	Weighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 2018	3,431,918		$	4.90	—	$	—
Granted	4,622,995		3.44		8,486,708	3.03
Vested	(777,573	)	4.88		—	—
Forfeited	(2,613,788	)	4.71		—	—
Unvested at June 30, 2019	4,663,552		3.56		8,486,708	3.03

Maximum shares issuable upon vesting at June 30, 2019	8,903,280				8,486,708

As of June 30, 2019, $15.8 million of unrecognized compensation costs related to unvested performance share units for which the maximum number of common shares issuable upon vesting of those performance share units is 7,706,474 shares, the weighted-average grant date fair value was $4.89 per unit and the total grant date fair value of the shares for which the performance conditions are expected to be ~~met was $16.6 million. During the six months ended June 30, 2018, 278,635 shares~~recognized over a remaining weighted-average period of ~~the Company's common stock were issued~~1.94 years and $16.7 million of unrecognized compensation costs related to unvested market-based performance share units granted in the previous year following the Compensation Committee's certification of the Company's financial and operational metrics for the year ended December 31, 2017. The weighted-average grant date fair value of those units was $3.78 per share.

~~Performance Bonus Awards~~

If bonus amounts earned under the Company's primary employee bonus plans exceed targeted bonus amounts because specified financial metrics of the Company exceed the performance conditions set forth in those plans, such excess is requiredare expected to be ~~settled in the Company's common stock. The Company's obligation to issue shares for employee bonus amounts exceeding the specified bonus targets is accounted for separately as~~recognized over a ~~liability-classified stock-based compensation arrangement with performance conditions.~~remaining weighted-average period of 0.66 years.

During the six months ended June 30, 2018, 1,240,379 shares of the Company's common stock were issued related to performance bonus awards granted in the previous year following the Compensation Committee's certification of the Company's financial and operational metrics for the year ended December 31, 2017. The fair value of the Company's common stock on the date of the Compensation Committee's certification was $5.20 per share.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Stock Options

The exercise price of stock options granted is equal to the fair value of the underlying stock on the date of grant. The contractual term for stock options expires ten years from the grant date. Stock options generally ~~vested~~vest over a ~~three~~three- or four-year period, with 25% of the awards vesting after one year and the remainder of the awards vesting on a monthly or quarterly basis thereafter.

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

We did not grant any stock options during the six months ended June 30, 2019.

The table below summarizes ~~the~~ stock option activity for the six months ended June 30, ~~2018:~~2019:

Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years)
Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Outstanding and exercisable at December 31, 2017 885,580
$ 0.62
1.76 $ 3,967
Exercised (667,743 ) 0.10

Forfeited —
—

Outstanding and exercisable at June 30, 2018 217,837
1.81
1.88 $ 542



	Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Outstanding and exercisable at December 31, 2018	212,787		$	1.80	1.37	$	298
Exercised	(42,500	)	0.96
Outstanding and exercisable at June 30, 2019	170,287		$	1.95	0.92	$	278

(1)

The aggregate intrinsic value of options outstanding and exercisable represents the total pretax intrinsic value (the difference between the fair value of ~~the Company's~~our stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of June 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

~~11.~~9. REVENUE RECOGNITION

~~Product and service revenue are generated from sales transactions through the Company's online marketplaces in three primary categories: Local, Goods and Travel.~~

~~Product revenue is earned from direct sales of merchandise inventory~~Refer to customers and includes any related shipping fees. Service revenue primarily represents the net commissions earned by the Company from selling goods and services provided by third-party merchants. Those marketplace transactions generally involve the online delivery of a voucher that can be redeemed by the purchaser with the third-party merchant for goods or services (or for discounts on goods or services). To a lesser extent, service revenue also includes commissions earned when customers make purchases with retailers using digital coupons accessed through the Company's websites and mobile applications. Additionally, in the United States the Company has recently been developing and testing voucherless offerings that are linked to customer credit cards. Customers claim those voucherless merchant offerings through the Company's online marketplaces and earn cash back on their credit card statements when they transact with the related merchants, who pay the Company commissions for such transactions.

In connection with most of our product and service revenue transactions, the Company collects cash from credit card payment processors shortly after a sale occurs. For transactions in which the Company earns commissions when customers make purchases with retailers using digital coupons accessed through its websites and mobile applications, the Company generally collects payment from affiliate networks on terms ranging from 30 to 150 days.

~~As discussed in~~ Note 1~~, Description of Business and Basis of Presentation, the Company previously referred to its product revenue and service revenue as "direct revenue" and "third-party and other revenue," respectively.~~

~~Adoption of ASC Topic 606, Revenue from Contracts with Customers~~

~~On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606,~~ ~~Revenue from Contracts with Customers~~ ("Topic 606") using the modified retrospective method. Beginning on January 1, 2018, results are presented in accordance with the Company's revised policies, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historical policies. The adoption of Topic 606 did not significantly impact the Company's presentation of revenue on a gross or net basis. The following changes resulted from the adoption of Topic 606:

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

The Company estimates variable consideration from unredeemed vouchers using its historical voucher redemption experience. Most vouchers sold through the Company's marketplace in the United States do not have expiration dates and redemption payment terms were not widely used in that jurisdiction before 2017, so the Company's North America segment did not have variable consideration from unredeemed vouchers in prior periods.

Prior to its adoption of Topic 606, the Company deferred the revenue from hotel reservation offerings until the customer's stay commenced. Following its adoption of Topic 606, revenue from hotel reservation offerings is recognized at the time the reservation is made, net of an allowance for estimated cancellations.

Prior to its adoption of Topic 606, the Company classified refunds on service revenue transactions for which the merchant's share of the refund amount is not recoverable as a cost of revenue. Following its adoption of Topic 606, those refunds are classified as a reduction of revenue.

Prior to its adoption of Topic 606, the Company classified credits issued to consumers for relationship purposes as a marketing expense. Following its adoption of Topic 606, those credits are classified as a reduction of revenue.

The Company recorded a net reduction to its opening accumulated deficit of $88.9 million, which is net of a $6.7 million income tax effect, as of January 1, 2018 due to the cumulative impact of adopting Topic 606. The following table summarizes balance sheet accounts impacted by the cumulative effect of adopting Topic 606 (in thousands):

Account Increase (decrease) to beginning accumulated deficit
Prepaid expenses and other current assets $ (4,007 )
Other non-current assets (10,223 )
Accrued merchant and supplier payables (64,970 )
Accrued expenses and other current liabilities (13,188 )
Other non-current liabilities 3,443
Effect on beginning accumulated deficit $ (88,945 )

~~See Note 2,~~ ~~Adoption of New Accounting Standards~~13, Segment Information, for ~~additional information about the Company's~~ revenue ~~recognition policies before~~summarized by reportable segment and ~~after the adoption of Topic 606.~~

~~Impacts on Condensed Consolidated Financial Statements~~

~~The following tables summarize the impacts of adopting Topic 606 on the Company's condensed consolidated financial statements as of and~~category for the three and six months ended June 30, ~~2018 (in thousands):~~

~~Condensed Consolidated Balance Sheet~~

June 30, 2018
As reported Adjustments Balances without adoption of Topic 606
Total assets $ 1,488,700
$ (11,638 ) $ 1,477,062
Total liabilities 1,217,563
86,124
1,303,687
Total equity 271,137
(97,762 ) 173,375

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

C~~ondensed Consolidated Statements of Operations~~

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
As reported Adjustments Balances without adoption of Topic 606 As reported Adjustments Balances without adoption of Topic 606
Revenue:
Service revenue ⁽¹⁾⁽²⁾
$ 295,652
$ 6,001
$ 301,653
$ 597,449
$ 4,222
$ 601,671
Product revenue 321,744
—
321,744
646,487
—
646,487
Total revenue 617,396
6,001
623,397
1,243,936
4,222
1,248,158
Cost of revenue:
Service cost of revenue ⁽³⁾
30,230
7,043
37,273
61,375
13,318
74,693
Product cost of revenue 263,508
—
263,508
534,018
—
534,018
Cost of revenue ⁽³⁾
293,738
7,043
300,781
595,393
13,318
608,711
Gross profit 323,658
(1,042 ) 322,616
648,543
(9,096 ) 639,447
Operating expenses:
Marketing ⁽⁴⁾
94,178
2,134
96,312
193,334
3,707
197,041
Selling, general and administrative ⁽⁵⁾
294,124
(1,227 ) 292,897
516,185
(2,491 ) 513,694
Restructuring charges (399 ) —
(399 ) (116 ) —
(116 )
Total operating expenses 387,903
907
388,810
709,403
1,216
710,619
Income (loss) from operations (64,245 ) (1,949 ) (66,194 ) (60,860 ) (10,312 ) (71,172 )
Other income (expense), net (26,457 ) —
(26,457 ) (34,972 ) —
(34,972 )
Income (loss) before provision (benefit) for income taxes (90,702 ) (1,949 ) (92,651 ) (95,832 ) (10,312 ) (106,144 )
Provision (benefit) for income taxes ⁽⁶⁾
1,552
886
2,438
(783 ) (133 ) (916 )
Net income (loss) $ (92,254 ) $ (2,835 ) $ (95,089 ) $ (95,049 ) $ (10,179 ) $ (105,228 )

~~(1)~~

For the three months ended June 30, 2018, reflects a $9.2 million increase for refunds on service revenue transactions for which the merchant's share is not recoverable and customer credits issued for relationship purposes, which are classified as reductions of revenue under Topic 606, and an increase of $0.5 million related to the timing of recognition of revenue from hotel reservation offerings, partially offset by decreases of $2.9 million related to the timing of recognition of variable consideration from unredeemed vouchers and $0.8 million related to the timing of recognition of breakage revenue from customer credits that are not expected to be used.

~~(2)~~

~~For the~~ ~~six months ended June 30, 2018~~, reflects a $17.0 million increase for refunds on service revenue transactions for which the merchant's share is not recoverable and customer credits issued for relationship purposes, which are classified as reductions of revenue under Topic 606, partially offset by decreases of $8.5 million related to the timing of recognition of variable consideration from unredeemed vouchers, $2.8 million related to the timing of recognition of revenue from hotel reservation offerings and $1.5 million related to the timing of recognition of breakage revenue from customer credits that are not expected to be used.


~~(3)~~	~~Reflects an increase for refunds on service revenue transactions for which the merchant's share is not recoverable, which are classified as a reduction of revenue under Topic 606.~~


~~(4)~~	~~Reflects an increase for customer credits issued for relationship purposes, which are classified as a reduction of revenue under Topic 606.~~


~~(5)~~	~~Reflects the amortization of deferred contract acquisition costs in excess of amounts capitalized in the current period.~~


~~(6)~~	~~As discussed in Note 13,~~ ~~Income Taxes,~~ for the six months ended June 30, 2018, the Company recognized an income tax benefit of $6.4 million resulting from the impact of adopting Topic 606 on intercompany activity in certain foreign jurisdictions. That income tax benefit is not reflected in this table, which presents the direct impacts of adopting Topic 606.

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

~~Segment~~2019 and ~~Category Information~~

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
As reported Adjustments Balances without adoption of Topic 606 As reported Adjustments Balances without adoption of Topic 606
North America
Service revenue:
Local $ 185,870
$ 913
$ 186,783
$ 373,281
$ 4,526
$ 377,807
Goods 3,796
95
3,891
8,670
95
8,765
Travel 19,888
678
20,566
39,972
(2,401 ) 37,571
Product revenue - Goods 170,710
—
170,710
351,597
—
351,597
Total North America revenue 380,264
1,686
381,950
773,520
2,220
775,740

International
Service revenue:
Local 71,425
3,946
75,371
146,003
2,500
148,503
Goods 4,967
(557 ) 4,410
8,381
(796 ) 7,585
Travel 9,706
926
10,632
21,142
298
21,440
Product revenue - Goods 151,034
—
151,034
294,890
—
294,890
Total International revenue 237,132
4,315
241,447
470,416
2,002
472,418

Consolidated
Service revenue:
Local 257,295
4,859
262,154
519,284
7,026
526,310
Goods 8,763
(462 ) 8,301
17,051
(701 ) 16,350
Travel 29,594
1,604
31,198
61,114
(2,103 ) 59,011
Product revenue - Goods 321,744
—
321,744
646,487
—
646,487
Total Consolidated Revenue $ 617,396
$ 6,001
$ 623,397
$ 1,243,936
$ 4,222
$ 1,248,158
2018.

Contract Balances

~~The following table summarizes the activity in revenue deferred from contracts with customers for the six months ended June 30, 2018 (in thousands):~~

Deferred Revenue
Balance as of January 1, 2018 $ 25,763
Revenue deferred 21,802
Revenue recognized (25,364 )
Foreign currency translation (399 )
Balance as of June 30, 2018 $ 21,802

A substantial majority of our deferred revenue relates to product sales for which revenue will be recognized as the products are delivered to customers, generally within one week following the balance sheet date.

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

Our deferred revenue was $19.9 million and $25.5 million as of June 30, 2019 and December 31, 2018. The amount of revenue recognized for the six months ended June 30, 2019 that was included in the deferred revenue balance at the beginning of the period was $25.4 million.

The following table summarizes the activity in the liability for customer credits for the six months ended June 30, ~~2018~~2019 (in thousands):


	Customer Credits			Customer Credits
Balance as of January 1, 2018	$	19,414
Balance as of December 31, 2018				$	15,118
Credits issued	67,025			56,477
Credits redeemed ⁽¹⁾	(57,074		)	(49,928		)
Breakage revenue recognized	(10,961		)	(4,177		)
Foreign currency translation	(88		)	26
Balance as of June 30, 2018	$	18,316
Balance as of June 30, 2019				$	17,516

(1)

Customer credits can be redeemed through ~~the Company's~~our online marketplaces for goods or services provided by a third-party merchant or for merchandise inventory sold by ~~the Company.~~us. When customer credits are redeemed for goods or services provided by a third-party merchant, service revenue is recognized on a net basis as the difference between the carrying amount of the customer credit liability derecognized and the amount due to the merchant for the related transaction. When customer credits are redeemed for merchandise inventory sold by ~~the Company,~~us, product revenue is recognized on a gross basis equal to the amount of the customer credit liability derecognized. Customer credits are ~~primarily~~typically used within one year of issuance.

Costs of Obtaining Contracts

~~12. RESTRUCTURING~~

~~In September 2015,~~Incremental costs to obtain contracts with third-party merchants, such as sales commissions, are deferred and recognized over the Company commenced a restructuring plan relating primarily to workforce reductions in its international operations. The Company has also undertaken workforce reductions in its North America segment. In addition to workforce reductions in its ongoing markets, the Company ceased operations in 17 countries within its International segment as partexpected period of the ~~restructuring plan between September 2015 and March 2016.~~merchant arrangement, generally from 12 to 18 months. Those country exits, which generally comprised the Company's smallest international markets, resulted from a series of separate decisions made at different times during that period that were not part of an overall strategic shift. Costs related to the restructuring plancosts are classified as Restructuring charges on the condensed consolidated statements of operations. The actions under the Company's restructuring plan were completed as of September 30, 2017 and substantially all of the remaining cash payments for actions under that plan are expected to be disbursed through December 31, 2018.

The Company incurred cumulative costs for employee severance and benefits and other exit costs of $80.1 million under the plan since its inception in September 2015. In addition to those costs, the Company incurred cumulative long-lived asset impairment charges of $7.5 million resulting from its restructuring activities.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

~~The following tables summarize~~classified within Selling, general and administrative expense in the condensed consolidated statements of operations. As of June 30, 2019 and December 31, 2018, we had deferred contract acquisition costs ~~incurred by segment related to the Company’s restructuring plan for~~of $2.6 million and $2.9 million, respectively, recorded within Prepaid expenses and other current assets, and $10.2 million and $11.3 million, respectively, recorded within Other non-current assets. We amortized $5.1 million and $6.5 million of deferred contract acquisition costs during the three ~~and six~~ months ended June 30, 2019 and 2018, and ~~2017 (in thousands):~~

Three Months Ended June 30, 2018

Employee Severance and Benefit Costs ⁽¹⁾

Other Exit Costs ⁽¹⁾
Total Restructuring Charges (Credits)
North America $ —
$ 177
$ 177
International (576 ) —
(576 )
Consolidated $ (576 ) $ 177
$ (399 )

Six Months Ended June 30, 2018

Employee Severance and Benefit Costs⁽¹⁾

Other Exit Costs ⁽¹⁾
Total Restructuring Charges (Credits)
North America $ —
$ 177
$ 177
International (346 ) 53
(293 )
Consolidated $ (346 ) $ 230
$ (116 )

Three Months Ended June 30, 2017

Employee Severance and Benefit Costs ⁽²⁾
Other Exit Costs Total Restructuring Charges
North America $ 2,687
$ 288
$ 2,975
International 86
1,523
1,609
Consolidated $ 2,773
$ 1,811
$ 4,584

Six Months Ended June 30, 2017

Employee Severance and Benefit Costs ⁽²⁾
Other Exit Costs Total Restructuring Charges
North America $ 4,465
$ 465
$ 4,930
International 609
1,776
2,385
Consolidated $ 5,074
$ 2,241
$ 7,315


~~(1)~~	~~The $0.4~~$10.5 million and $13.3 million ~~and $0.1 million of restructuring credits for the three and six months ended June 30, 2018, respectively, reflect changes in estimates related to prior actions.~~


~~(2)~~	~~The employee severance and benefit costs for the three and six months ended June 30, 2017 related to the termination of approximately 150 and 350 employees, respectively.~~

~~The following table summarizes the restructuring liability activity~~ for the six months ended June 30, 2019 and 2018. We did not recognize any impairment losses in relation to the deferred costs.

Variable Consideration for Unredeemed Vouchers

In our International segment and, to a lesser extent, in our North America segment, our merchant agreements have redemption payment terms, under which the merchant is not paid its share of the sale price for a voucher sold through one of our online marketplaces until the customer redeems the related voucher. If the customer does not redeem a voucher with such merchant payment terms, we retain all of the gross billings for that voucher, rather than retaining only our net commission. We estimate the variable consideration from vouchers that will not ultimately be redeemed using our historical voucher redemption experience and recognize that amount as revenue at the time of sale. We only recognize amounts in variable consideration when we believe it is probable that a significant reversal of revenue will not occur in future periods, which requires us to make significant estimates of future redemptions. If actual redemptions differ from our estimates, the effects could be material to the condensed consolidated financial statements. As of June 30, 2019 and December 31, 2018, ~~(in thousands):~~

Employee Severance and Benefit Costs Other Exit Costs Total
Balance as of December 31, 2017 $ 3,817
$ 304
$ 4,121
Charges payable in cash (346 ) 230
(116 )
Cash payments (1,428 ) (53 ) (1,481 )
Foreign currency translation (67 ) —
(67 )
Balance as of June 30, 2018 $ 1,976
$ 481
$ 2,457
we constrained $15.3 million and $13.7 million in revenue from unredeemed vouchers that we may recognize in future periods when we determine it is probable that a significant amount of that revenue will not be subsequently reversed.

~~13.~~10. INCOME TAXES

~~The Company's~~Our income tax provision for interim periods is determined using an estimate of ~~its~~our annual effective tax rate, adjusted for discrete items.

For the three months ended June 30, 2019, we recorded an income tax expense from continuing operations of $2.0 million on a pretax loss from continuing operations of $35.6 million. For the three months ended June 30, 2018, ~~the Company~~we recorded an income tax expense from continuing operations of $1.6 million on a pretax loss from continuing operations of $90.7 million. For the ~~three~~six months ended June 30, ~~2017, the Company~~2019, we recorded an income tax ~~expense~~benefit from continuing operations of ~~$3.9~~$1.5 million on a pretax loss from continuing operations of ~~$1.5~~$80.3 million. For the six months ended June 30, 2018, ~~the Company~~we recorded an income tax benefit from continuing operations of $0.8 million on a pretax loss from continuing operations of $95.8 million. ~~For the six months ended June 30, 2017, the Company recorded an income tax expense from continuing operations of $8.5 million on a pretax loss from continuing operations of $17.8 million.~~

~~The Company's~~Our U.S. Federal income tax rate is 21% ~~for the three and six months ended June 30, 2018 and was 35% for the three and six months ended June 30, 2017.~~. The primary factor impacting the effective tax rate for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. The effective tax rate for the six months ended June 30, 2019 also reflected the reversal of reserves for uncertain tax positions due to the closure of a tax audit. The effective tax rate for the six months ended June 30, 2018 also reflected a $6.4 million income tax benefit resulting from the impact of ~~adopting~~Accounting Standards Codification Topic 606,Revenue from Contracts with Customers ("Topic 606") on intercompany activity in certain foreign jurisdictions.

~~The Company is~~We are currently undergoing income tax audits in multiple jurisdictions. It is likely that the examination phase of some of those audits will conclude in the next 12 months. There are many factors, including factors outside of ~~the Company's~~our control, which influence the progress and completion of those audits. ~~During the fourth quarter 2017, the Company received an income~~We are subject to claims for tax ~~assessment and~~assessments by foreign jurisdictions, including a ~~notification of~~ proposed assessment ~~from the tax authorities in two foreign jurisdictions, totaling $134.5 million in the aggregate. The Company believes~~for $109.9 million. We believe that the ~~assessments,~~assessment, which primarily ~~relate~~relates to transfer pricing on transactions occurring ~~from~~in 2011, ~~to 2014, are~~is without merit and ~~it intends~~we intend to vigorously defend ~~itself~~ourselves in ~~those matters.~~that matter. In addition to any potential increases in ~~its~~our liabilities for uncertain tax positions from the ultimate resolution of ~~those assessments, the Company believes~~that assessment, we believe that it is reasonably possible that reductions of up to ~~$40.6~~$21.0 million in unrecognized tax benefits may occur within the 12 months following June 30, ~~2018~~2019 upon closing of income tax audits or the expiration of applicable statutes of limitations.

The Jobs Act was signed into law on December 22, 2017. The Company has made provisional estimates for the impact of the Jobs Act related to the re-measurement of deferred income taxes, valuation allowances, uncertain tax positions, and its assessment of permanently reinvested earnings. Those estimates may be impacted by the need for further analysis and future clarification and guidance regarding available tax accounting methods and elections, earnings and profits computations and state tax conformity to federal tax changes. Additionally, while the Company does not expect to incur the deemed repatriation tax, it has not yet finalized the related calculations. The Jobs Act also establishes global intangible low-taxed income ("GILTI") provisions that impose a tax on foreign income in excess of a deemed return on intangible assets of foreign corporations. The Company is in the process of evaluating the impact of taxes on GILTI and has not yet determined whether its accounting policy will be to recognize deferred taxes for basis differences that are expected to affect the amount of GILTI inclusion upon reversal or to recognize taxes on GILTI as an expense in the period incurred.

In general, it is ~~the~~our practice and intention ~~of the Company~~ to reinvest the earnings of ~~its~~our non-U.S. subsidiaries in those operations. Additionally, while ~~the Company does~~we did not ~~expect to~~ incur the deemed repatriation tax, ~~established by the Jobs Act,~~ an actual repatriation from ~~its~~our non-U.S. subsidiaries could be subject to foreign and U.S. state income taxes. Aside from limited exceptions for which the related deferred tax liabilities recognized as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 are immaterial, ~~the Company does~~we do not intend to distribute earnings of foreign subsidiaries for which ~~it has~~we have an excess of the financial reporting basis over the tax basis of ~~its~~our investments and therefore ~~has~~have not recorded any deferred taxes related to such amounts. The actual tax cost resulting from a distribution would depend on income tax laws and circumstances at the time of distribution. Determination of the amount of unrecognized deferred tax liability related to the excess of the financial reporting basis over the tax basis of ~~the Company's~~our foreign subsidiaries is not practical due to the complexities associated with the calculation.

Groupon uses a cost-sharing arrangement under which controlled members agree to share the costs and risks of developing intangible properties in accordance with their reasonably anticipated share of benefits from the intangibles. On July 24, 2018, the Ninth Circuit Court of Appeals issued an opinion in Altera Corp. v. Commissioner requiring related parties in an intercompany cost-sharing arrangement to share expenses related to stock-based compensation. This opinion reversed an earlier decision of the United States Tax Court. On August 7, 2018, the Ninth Circuit Court of Appeals withdrew its July 24, 2018 opinion. On June 7, 2019, the United States Court of Appeals for the Ninth Circuit reversed the Tax Court decision and ruled that stock-based compensation must be included in the shared pool of expenses. We do not expect that the ruling will have a material net impact on our provision for income taxes for the year ending December 31, 2019 due to the valuation allowances against our net deferred tax assets in the related jurisdictions.

~~14.~~11. FAIR VALUE MEASUREMENTS

Fair value is defined under U.S. GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability.

To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs in valuation methodologies used to measure fair value:

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

Level 1 - Measurements that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Measurements that include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. These fair value measurements require significant judgment.

In determining fair value, ~~the Company uses~~we use various valuation approaches within the fair value measurement framework. The valuation methodologies used for ~~the Company's~~our assets and liabilities measured at fair value and their classification in the valuation hierarchy are summarized below:

~~Cash equivalents.~~ Cash equivalents primarily consisted of AAA-rated money market funds. The Company classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.

Fair value option investments and available-for-sale securities. To determine the fair value of ~~its~~our fair value option investments each period, ~~the Company~~we first ~~estimates~~estimate the fair value of each entity in its entirety. ~~The Company~~We primarily ~~uses~~use the discounted cash flow method, which is an income approach, to estimate the fair value of the ~~investees.~~entities. The key inputs to determining fair values under that approach are cash flow forecasts and discount rates. ~~As of June 30, 2018 and December 31, 2017, the Company applied discount rates of 21% and 22%, respectively, in its discounted cash flow valuations for Monster LP. The Company~~We also ~~uses~~use a market approach valuation technique, which is based on market multiples of guideline companies, to determine the fair value of each entity. The discounted cash flow and market multiple valuations are then evaluated and weighted to determine the amount that is most representative of the fair value of each entity. Once ~~the Company determines~~we determine the fair value of each entity, itwe then ~~determines~~determine the fair value of ~~its~~our specific investments in those entities. The entities have complex capital structures, so ~~the Company applies~~we apply an option-pricing model that considers the liquidation preferences of each ~~investee’s~~entity's respective classes of ownership interests to determine the fair value of ~~the Company’s~~our investment in each entity.

~~The Company~~We also ~~has~~have investments in redeemable preferred shares and had investments in convertible debt securities issued by nonpublic entities. ~~The Company measures~~We measure the fair value of those available-for-sale securities using the

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

discounted cash flow method.

~~The Company has~~We have classified ~~its~~our fair value option investments and ~~its~~our investments in available-for-sale securities as Level 3 due to the lack of observable market data over fair value inputs such as cash flow projections and discount rates. Increases in projected cash flows and decreases in discount rates contribute to increases in the estimated fair values of the fair value option investments and available-for-sale securities, whereas decreases in projected cash flows and increases in discount rates contribute to decreases in their fair values.

Contingent consideration. ~~The Company is~~We are subject to a contingent consideration arrangement to transfer a maximum payout in cash of ~~$2.6~~$2.5 million to the former owners of a business acquired on April 30, 2018. ~~See Note 4, Business Combinations~~, for further discussion of that acquisition. Additionally, the Company had contingent obligations in prior periods to transfer cash to the former owners of a previous business acquisition if specified financial results were met (i.e. an earnout).

Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred in the related business combination and subsequent changes in fair value recorded in earnings within Selling, general and administrative expense on the condensed consolidated statements of operations.

~~The Company uses~~We use an income approach to value contingent consideration obligations based on the present value of probability-weighted future cash flows. ~~The Company classifies~~We classify the contingent consideration liabilities as Level 3 due to the lack of relevant observable market data over fair value inputs such as probability-weighting of payment outcomes.

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

The following tables summarize ~~the Company's~~ assets that are measured at fair value on a recurring basis as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):

Fair Value Measurement at Reporting Date Using
June 30, 2018 Quoted Prices in Active Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Assets:
Fair value option investments $ 74,898
$ —
$ —
$ 74,898
Available-for-sale securities:
Convertible debt securities 10,236
—
—
10,236
Redeemable preferred shares 9,961
—
—
9,961

Liabilities:
Contingent Consideration 1,542
—
—
1,542



			Fair Value Measurement at Reporting Date Using
	June 30, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Fair value option investments	$	4,917	$	—	$	—	$	4,917
Available-for-sale securities - redeemable preferred shares	10,201		—		—		10,201

Liabilities:
Contingent consideration	1,239		—		—		1,239



			Fair Value Measurement at Reporting Date Using
	December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Fair value option investments	$	73,902	$	—	$	—	$	73,902
Available-for-sale securities - redeemable preferred shares	10,340		—		—		10,340

Liabilities:
Contingent consideration	1,529		—		—		1,529

Fair Value Measurement at Reporting Date Using
December 31, 2017 Quoted Prices in Active Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Cash equivalents $ 137,975
$ 137,975
$ —
$ —
Fair value option investments 82,966
—
—
82,966
Available-for-sale securities:
Convertible debt securities 11,354
—
—
11,354
Redeemable preferred shares 15,431
—
—
15,431

2322

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table provides a ~~roll-forward~~rollforward of the fair value of recurring Level 3 fair value measurements for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Assets
Fair value option investments:
Beginning Balance	$	32,494		$	77,933		$	73,902		$	82,966
Total gains (losses) included in earnings	(27,577		)	(3,035		)	(68,985		)	(8,068		)
Ending Balance	$	4,917		$	74,898		$	4,917		$	74,898
Unrealized gains (losses) still held ⁽¹⁾	$	(27,577	)	$	(3,035	)	$	(68,985	)	$	(8,068	)
Available-for-sale securities
Convertible debt securities:
Beginning Balance	$	—		$	11,070		$	—		$	11,354
Transfer to other equity investment upon conversion of convertible debt security	—			(2,508		)	—			(2,508		)
Total gains (losses) included in other comprehensive income (loss)	—			(541		)	—			(1,042		)
Total gains (losses) included in earnings ⁽²⁾	—			2,215			—			2,432
Ending Balance	$	—		$	10,236		$	—		$	10,236
Unrealized gains (losses) still held ⁽¹⁾	$	—		$	2,599		$	—		$	2,405
Redeemable preferred shares:
Beginning Balance	$	10,394		$	14,576		$	10,340		$	15,431
Total gains (losses) included in other comprehensive income (loss)	(193		)	—			(139		)	—
Impairments included in earnings	—			(4,615		)	—			(5,470		)
Ending Balance	$	10,201		$	9,961		$	10,201		$	9,961
Unrealized gains (losses) still held ⁽¹⁾	$	(193	)	$	(4,615	)	$	(139	)	$	(5,470	)
Liabilities
Contingent Consideration:
Beginning Balance	$	1,586		$	—		$	1,529		$	—
Issuance of contingent consideration in connection with acquisition	—			1,589			—			1,589
Settlements of contingent consideration liabilities	(312		)	—			(312		)	—
Total losses (gains) included in earnings	5			14			27			14
Foreign currency translation	(40		)	(61		)	(5		)	(61		)
Ending Balance	$	1,239		$	1,542		$	1,239		$	1,542
Unrealized gains (losses) still held ⁽¹⁾	$	5		$	(47	)	$	27		$	(47	)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Assets
Fair value option investments:
Beginning Balance $ 77,933
$ 82,887
$ 82,966
$ 82,584
Total gains (losses) included in earnings (3,035 ) (1,448 ) (8,068 ) (1,145 )
Ending Balance $ 74,898
$ 81,439
$ 74,898
$ 81,439
Unrealized gains (losses) still held ⁽¹⁾
$ (3,035 ) $ (1,448 ) $ (8,068 ) $ (1,145 )
Available-for-sale securities
Convertible debt securities:
Beginning Balance $ 11,070
$ 11,931
$ 11,354
$ 10,038
Purchase of convertible debt security —
—
—
1,612
Proceeds at maturity of convertible debt security —
(1,843 ) —
(1,843 )
Transfer to other equity investment upon conversion of convertible debt security (2,508 ) —
(2,508 ) —
Total gains (losses) included in other comprehensive income (loss) (541 ) (575 ) (1,042 ) (533 )
Total gains (losses) included in earnings ⁽²⁾
2,215
1,355
2,432
1,594
Ending Balance $ 10,236
$ 10,868
$ 10,236
$ 10,868
Unrealized gains (losses) still held ⁽¹⁾
$ 2,599
$ 512
$ 2,405
$ 816
Redeemable preferred shares:
Beginning Balance $ 14,576
$ 17,788
$ 15,431
$ 17,444
Total gains (losses) included in other comprehensive income (loss) —
(1,865 ) —
(1,521 )
Impairments included in earnings (4,615 ) —
(5,470 ) —
Ending Balance $ 9,961
$ 15,923
$ 9,961
$ 15,923
Unrealized (losses) gains still held ⁽¹⁾
$ (4,615 ) $ (1,865 ) $ (5,470 ) $ (1,521 )

Liabilities
Contingent Consideration:
Beginning Balance $ —
$ 14,600
$ —
$ 14,588
Issuance of contingent consideration in connection with acquisition 1,589
—
1,589
—
Settlements of contingent consideration liabilities —
(7,858 ) —
(7,858 )
Reclass to non-fair value liabilities when no longer contingent —
(6,778 ) —
(6,778 )
Total losses (gains) included in earnings 14
36
14
48
Foreign currency translation (61 ) —
(61 ) —
Ending Balance $ 1,542
$ —
$ 1,542
$ —
Unrealized losses (gains) still held⁽¹⁾
$ (47 ) $ —
$ (47 ) $ —


(1)	Represents the unrealized gains or losses recorded in earnings and/or other comprehensive income (loss) during the period for assets and liabilities classified as Level 3 that are still held (or outstanding) at the end of the period.


(2)	Represents a gain at maturity of a previously impaired convertible debt security, accretion of interest income and changes in the fair value of an embedded derivative.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets that are written down to fair value as a result of an impairment. ~~The Company~~We did not record any significant nonrecurring fair value measurements after initial recognition for the three and six months ended June 30, 2019. During the three months ended June 30, 2018, we recorded a $4.6 million impairment of an other

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

equity ~~investment for the three months ended June 30, 2018.~~investment. To determine the fair value of the investment, ~~the Company~~we considered the financial condition of the investee and applied a market approach. ~~The Company has~~We classified the fair value measurement of that other equity investment as Level 3 because it involves significant unobservable inputs. ~~The Company~~We did not record any other nonrecurring fair value measurements after initial recognition for the three and six

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

months ended June 30, ~~2018 and 2017.~~2018.

Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value

~~The following table presents the carrying amount and fair value of equity securities that were classified as cost method investments as of December 31, 2017 (in thousands):~~

December 31, 2017
Carrying Amount Fair Value
Cost method investments ⁽¹⁾
$ 25,438
$ 32,792


~~(1)~~	~~See Note 2,~~ ~~Adoption of New Accounting Standards, and Note 6,~~ ~~Investments~~, for information about the Company's adoption of ASU 2016-01 on January 1, 2018 and its impact on accounting for equity investments without readily determinable fair values that were previously subject to the cost method of accounting.

The fair values of the Company's cost method investments were determined using the market approach or the income approach, depending on the availability of fair value inputs such as financial projections for the investees and market multiples for comparable companies. The Company classified the fair value measurements of its cost method investments as Level 3 measurements within the fair value hierarchy as of December 31, 2017 because they involve significant unobservable inputs such as cash flow projections and discount rates.

~~The Company's other~~Our financial instruments not carried at fair value consist primarily of accounts receivable, restricted cash, accounts payable, accrued merchant and supplier payables and accrued expenses. The carrying values of those assets and liabilities approximate their respective fair values as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 due to their short-term nature.

~~15.~~12. INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities include stock options, restricted stock units, performance share units, ~~performance bonus awards,~~ ESPP shares, warrants and convertible senior notes. If dilutive, those potentially dilutive securities are reflected in diluted net income (loss) per share by application of the treasury stock method, except for the convertible senior notes, which are subject to the if-converted method.

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands, except share ~~amounts~~ and per share amounts):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Basic and diluted net income (loss) per share:
Numerator
Net income (loss) - continuing operations	$	(37,645	)	$	(92,254	)	$	(78,815	)	$	(95,049	)
Less: Net income (loss) attributable to noncontrolling interests	2,601			2,780			6,080			6,873
Net income (loss) attributable to common stockholders - continuing operations	(40,246		)	(95,034		)	(84,895		)	(101,922		)
Net income (loss) attributable to common stockholders - discontinued operations	—			—			2,162			—
Net income (loss) attributable to common stockholders	$	(40,246	)	$	(95,034	)	$	(82,733	)	$	(101,922	)
Denominator
Weighted-average common shares outstanding	567,962,461			565,284,705			569,014,065			563,502,954

Basic and diluted net income (loss) per share:
Continuing operations	$	(0.07	)	$	(0.17	)	$	(0.15	)	$	(0.18	)
Discontinued operations	0.00			0.00			0.01			0.00
Basic and diluted net income (loss) per share	$	(0.07	)	$	(0.17	)	$	(0.14	)	$	(0.18	)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Basic and diluted net income (loss) per share:
Numerator
Net income (loss) - continuing operations $ (92,254 ) $ (5,403 ) $ (95,049 ) $ (26,272 )
Less: Net income (loss) attributable to noncontrolling interests 2,780
2,547
6,873
6,579
Net income (loss) attributable to common stockholders - continuing operations (95,034 ) (7,950 ) (101,922 ) (32,851 )
Net income (loss) attributable to common stockholders - discontinued operations —
(1,376 ) —
(889 )
Net income (loss) attributable to common stockholders $ (95,034 ) $ (9,326 ) $ (101,922 ) $ (33,740 )
Denominator
Weighted-average common shares outstanding 565,284,705
559,762,180
563,502,954
560,978,712

Basic and diluted net income (loss) per share⁽¹⁾:

Continuing operations $ (0.17 ) $ (0.01 ) $ (0.18 ) $ (0.06 )
Discontinued operations 0.00
(0.01 ) 0.00
0.00
Basic and diluted net income (loss) per share $ (0.17 ) $ (0.02 ) $ (0.18 ) $ (0.06 )


~~(1)~~	The potentially dilutive impacts of outstanding equity awards, warrants and convertible senior notes have been excluded from the calculation of dilutive net income (loss) per share for the three and six months ended June 30, 2018 and 2017 as their effect on net income (loss) per share from continuing operations was antidilutive.

The following weighted-average potentially dilutive instruments are not included in the diluted net income (loss) per share calculations above because they would have had an antidilutive effect on the net income (loss) per share from continuing operations:



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Restricted stock units	37,031,941	32,602,563	32,060,396	30,378,335
Other stock-based compensation awards	1,581,255	1,615,249	1,667,000	2,413,637
Convertible senior notes	46,296,300	46,296,300	46,296,300	46,296,300
Warrants	46,296,300	46,296,300	46,296,300	46,296,300
Total	131,205,796	126,810,412	126,319,996	125,384,572

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Restricted stock units 32,602,563
30,134,808
30,378,335
27,247,728
Other stock-based compensation awards 1,615,249
3,437,075
2,413,637
3,667,440
Convertible senior notes 46,296,300
46,296,300
46,296,300
46,296,300
Warrants 46,296,300
46,296,300
46,296,300
46,296,300
Total 126,810,412
126,164,483
125,384,572
123,507,768

~~The Company~~We had outstanding performance share units as of June 30, ~~2018~~2019 and ~~2017~~2018 that were eligible to vest into shares of common stock subject to the achievement of specified performance conditions. Contingently issuable shares are excluded from the computation of diluted earnings per share if, based on current period results, the shares would not be issuable if the end of the reporting period were the end of the contingency period. There were up to ~~7,706,474~~16,966,170 and ~~2,505,346~~7,706,474 shares of common stock issuable upon vesting of outstanding performance share units as of June 30, ~~2018~~2019 and ~~2017, respectively,~~2018 that were excluded from the table above as the performance conditions were not satisfied as of the end of the respective periods.

~~16.~~13. SEGMENT INFORMATION

The segment information reported in the tables below reflects the operating results that are regularly reviewed by ~~the Company's~~our chief operating decision maker to assess performance and make resource allocation decisions. ~~The Company's~~Our operations are organized into two segments: North America and International.

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

The following table summarizes revenue by reportable segment and category for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
North America
Service revenue:
Local	$	185,870	$	207,534	$	373,281	$	408,079	$	177,082	$	185,870	$	357,459	$	373,281
Goods	3,796		4,112		8,670		5,816		3,714		3,796		6,841		8,670
Travel	19,888		22,320		39,972		42,782		16,125		19,888		35,066		39,972
Product revenue - Goods	170,710		217,946		351,597		468,592		127,739		170,710		282,459		351,597
Total North America revenue ⁽¹⁾	380,264		451,912		773,520		925,269		324,660		380,264		681,825		773,520

International
Service revenue:
Local	71,425		66,108		146,003		129,683		69,995		71,425		143,185		146,003
Goods	4,967		4,984		8,381		9,268		2,610		4,967		4,065		8,381
Travel	9,706		10,796		21,142		21,798		8,077		9,706		16,814		21,142
Product revenue - Goods	151,034		128,819		294,890		250,227		127,235		151,034		265,098		294,890
Total International revenue ⁽¹⁾	$	237,132	$	210,707	$	470,416	$	410,976	$	207,917	$	237,132	$	429,162	$	470,416

(1)

North America includes revenue from the United States of ~~$371.1~~$319.2 million and ~~$442.7~~$371.1 million for the three months ended June 30, 2019 and 2018 and ~~2017, respectively,~~$668.0 million and $756.5 ~~million and $907.4~~ million for the six months ended June 30, ~~2018~~2019 and ~~2017, respectively.~~2018. International includes revenue from the United Kingdom of ~~$91.5~~$71.3 million and ~~$74.4~~$91.5 million for the three months ended June 30, 2019 and 2018 and ~~2017, respectively,~~$152.4 million and $174.5 ~~million and $139.9~~ million for the six months ended June 30, ~~2018~~2019 and ~~2017, respectively.~~2018. There were no other individual countries that represented more than 10% of consolidated total revenue for the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018. Revenue is attributed to individual countries based on the location of the customer.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes gross profit by reportable segment and category for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
North America
Service gross profit:
Local	$	157,673	$	165,285	$	318,755	$	332,041
Goods	2,995		2,990		5,558		6,931
Travel	12,806		16,303		28,074		32,305
Product gross profit - Goods	25,110		34,793		55,999		67,774
Total North America gross profit	198,584		219,371		408,386		439,051

International
Service gross profit:
Local	65,780		67,360		134,758		137,575
Goods	2,384		4,565		3,652		7,652
Travel	7,370		8,919		15,411		19,570
Product gross profit - Goods	18,014		23,443		35,941		44,695
Total International gross profit	$	93,548	$	104,287	$	189,762	$	209,492

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
North America
Service gross profit:
Local $ 165,285
$ 179,609
$ 332,041
$ 348,951
Goods 2,990
3,207
6,931
4,514
Travel 16,303
17,755
32,305
32,920
Product gross profit - Goods 34,793
33,289
67,774
68,412
Total North America gross profit 219,371
233,860
439,051
454,797

International
Service gross profit:
Local 67,360
62,303
137,575
121,497
Goods 4,565
4,506
7,652
8,161
Travel 8,919
9,996
19,570
20,032
Product gross profit - Goods 23,443
17,402
44,695
33,031
Total International gross profit $ 104,287
$ 94,207
$ 209,492
$ 182,721

~~GROUPON, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(unaudited)~~

The following table summarizes operating income (loss) by reportable segment for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Operating income (loss) ^{(1) (2) (3) (4)}:
Operating income (loss) ^{(1) (2) (3)}:
North America	$	(68,524	)	$	(12,033	)	$	(70,384	)	$	(26,816	)	$	(372	)	$	(68,524	)	$	4,964		$	(70,384	)
International	4,279			4,635			9,524			7,738			(6,767		)	4,279			(9,908		)	9,524
Total operating income (loss)	$	(64,245	)	$	(7,398	)	$	(60,860	)	$	(19,078	)	$	(7,139	)	$	(64,245	)	$	(4,944	)	$	(60,860	)

(1)

Includes stock-based compensation of ~~$15.0~~$24.1 million and ~~$20.0~~$15.0 million for North America and ~~$1.3~~$2.5 million and $1.3 million for International for the three months ended June 30, 2019 and 2018 and ~~2017, respectively,~~$38.9 million and $32.9 ~~million and $38.3~~ million for North America and ~~$2.7~~$4.1 million and $2.7 million for International for the six months ended June 30, ~~2018~~2019 and ~~2017, respectively.~~2018.


(2)	Includes acquisition-related (benefit) expense, net of $0.7 million for International for the three and six months ended June 30, 2018.


(3)	Includes ~~restructuring charges (credits) of $0.2~~a $75.0 million and $3.0 million for North America and $(0.6) million and $1.6 million for International for the three months ended June 30, 2018 and 2017, respectively, and $0.2 million and $4.9 million for North America and $(0.3) million and $2.4 million for International for the six months ended June 30, 2018 and 2017, respectively.


~~(4)~~	~~Includes a~~ ~~$75.0 million~~ charge recognized in the second quarter of 2018 to increase the accrual for the IBM patent litigation matter for North America for the three and six months ended June 30, 2018. ~~See Note 9,~~ ~~Commitments and Contingencies, for additional information.~~

The following table summarizes ~~the Company's~~ total assets by reportable segment as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):


	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Total assets:
North America ⁽¹⁾	$	871,222	$	1,045,072	$	895,928	$	958,412
International⁽¹⁾	617,478		632,433		543,280		683,730
Consolidated total assets	$	1,488,700	$	1,677,505	$	1,439,208	$	1,642,142

(1)

North America contains assets from the United States of ~~$846.3~~$870.6 million and ~~$1,006.2~~$940.5 million as of June 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018. International contains assets from Ireland of ~~$162.7~~$204.6 million ~~and $219.7 million~~as of December 31, 2018. Assets from Ireland were less than 10% of consolidated total assets as of June 30, ~~2018 and December 31, 2017, respectively.~~2019. There were no other individual countries that represented more than 10% of consolidated total assets as of June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

2826

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 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 and elsewhere in this Quarterly Report. See Part I, Financial Information, Forward-Looking Statements, for additional information.

Overview

Groupon operates online local commerce marketplaces ~~throughout the world~~in 15 countries that connect merchants to consumers by offering goods and services, generally at a discount. Consumers access those marketplaces through our websites, primarily localized groupon.com sites in many countries, and our mobile applications. Traditionally, local merchants have tried to reach consumers and generate sales through a variety of methods, including online advertising, paid telephone directories, direct mail, newspaper, radio, television 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, buy and where to travel.

Our operations are organized into two segments: North America and International. For the six months ended June 30, 2019, we derived 61.4% of our revenue from our North America segment and 38.6% of our revenue from our International segment. See Item 1, Note 13, Segment Information, for additional information. We offer goods and services through our online marketplaces in three primary categories: Local, Goods and Travel. During 2017 and continuing in 2018, we are shifting more of the focus on our websites and mobile applications in North America to offerings in 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 that are intended to make our offerings easier to use for both customers and merchants, including voucherless offerings that are linked to customer credit cards.

We generate both product and service revenue from our business operations. In prior years, we referred to product revenue and service revenue as "direct revenue" and "third-party and other revenue," respectively. This terminology change did not impact amounts presented in the accompanying condensed consolidated financial statements.

~~We earn~~Our product revenue from ~~direct sales of~~transactions in which we sell merchandise inventory ~~through~~in our Goods ~~category. Product revenue~~category is ~~reported on a gross basis as~~ the purchase price received from the customer. ~~Product revenue, including associated shipping revenue, is recognized when title passes to the customer upon delivery of the product.~~

~~We primarily earn~~Our service revenue from transactions in which we earn commissions by selling goods or services on behalf of third-party merchants. Those transactions generally involve a customer's purchase of a voucher through one of our online marketplaces that can be redeemed with a third-party merchant for specified goods or services (or for discounts on specified goods or services). Service revenue from those transactionsmerchants is ~~reported on a net basis as~~ the purchase price collected from the customer less the portion of the purchase price paid to the merchant.

Our focus is on driving long-term gross profit growth by enhancing the customer experience, establishing Groupon as an open platform, continuing to realize our international potential and maintaining a culture of operational efficiency. We have developed and are testing a number of product enhancements intended to make our offerings easier to use for both customers and merchants and to improve purchase frequency, including cash back offers linked to customer credit cards, booking capabilities and a paid membership program in North America, Groupon Select, which offers greater discounts on our offerings and other benefits. We have also entered into commercial agreements with third parties that enable us to feature additional merchant offerings through our marketplaces and for our inventory to be distributed through other marketplaces. We maintain a long-term focus on driving International to achieve gross profit that is ~~payable~~more comparable to ~~the third-party merchant. We recognize revenue from those transactions when~~that of North America. Our initiatives to grow International include increasing our ~~commission has been earned, which occurs when a sale through one~~marketing spend and leveraging enhanced marketing analytics, investing more technology resources toward expanding product and service offerings, and growing our inventory of deal offerings. While we expect to invest in our ~~online marketplaces is completed and the related voucher has been made available to the customer. Service revenue also includes commissions that~~key initiatives, we earn when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications and from voucherless merchant offerings in which customers earn cash back on their credit card statements when they transact with third-party merchants. We recognize those commissions as revenue when earned, which occurs when the underlying transactions between the customer and the third-party merchant are completed.

On April 30, 2018, we acquired 80% of the outstanding shares of Cloud Savings Company, Ltd. ("Cloud Savings"), for total consideration of $74.3 million, consisting of $64.1 million in cash, an $8.6 million financing obligation, and contingent consideration of $1.6 million. Cloud Savings is a UK-based business that operates online discount code and digital gift card platforms, and its results of operations are reported within our International segment.

On March 2, 2016, International Business Machines Corporation ("IBM") filed a complaint in the United States District Court for the District of Delaware against us (the "Delaware Action"), alleging that we have infringed andwill continue to ~~willfully infringe certain IBM patents. Trial commenced in the Delaware Action on July 16, 2018~~do so as disciplined operators and ~~on July 27, 2018 a jury returned a verdict finding the Company willfully infringed those patents and awarded damages of $82.5 million~~seek opportunities to IBM. The court has the discretion to enhance this award for willfulness, impose interest, impose a continuing royalty for two unexpired patents or award injunctive relief. The court also has the discretion to reduce or vacate the damages award or enter judgment for us on some or all of the claims notwithstanding the jury verdict. We intend to seek to overturn the verdict and reduce the damages award through post-trial motions and appeal. For the three months ended June 30, 2018, we recorded a $75.0 million charge to increaseimprove our ~~contingent liability for this matter. That charge is classified within Selling, general and administrative in the accompanying condensed consolidated statement of operations.~~efficiency.

How We Measure Our Business

We ~~measure our business with~~use several financial and operating ~~metrics. We use those~~ metrics to assess the progress of our business and make decisions on where to allocate capital, time and technology investments. Certain of the financial metrics are reported in accordance with U.S. GAAP and certain of those metrics are considered non-GAAP financial measures. As our business evolves, we may make changes ~~in future periods~~ to the key financial and operating metrics that we use to measure our business. For further information and reconciliations to the most applicable financial measures under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.

Financial Metrics

~~Revenue~~. Product revenue is earned from direct sales of merchandise inventory through our Goods category and is reported on a gross basis as the purchase price received from the customer. Service revenue is earned from transactions in which we earn commissions by selling goods or services on behalf of third-party merchants, primarily through sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of that transaction price to the third-party merchant who will provide the related goods or services. Service revenue from those transactions is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant. Service revenue also includes commissions we earn when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications and from voucherless merchant offerings in which customers earn cash back on their credit card statements when they transact with third-party merchants.

~~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 product revenue, which is reported on a gross basis, and service revenue, which primarily consists of transactions reported on a net basis, we believe that gross profit is an important measure for evaluating our performance.

~~Adjusted EBITDA~~. Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) from continuing operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net and other special charges and credits, including items that are unusual in nature or infrequently occurring. For further information and a reconciliation to Income (loss) from continuing operations, 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 Net cash provided by (used in) operating activities from continuing operations, refer to our discussion in the ~~Liquidity and Capital Resources~~ ~~section.~~

•

Revenue is earned through product and service revenue transactions. We earn product revenue from direct sales of merchandise inventory in our Goods category and report product revenue on a gross basis as the purchase price received from the customer. We earn service revenue from transactions in which we generate commissions by selling goods or services on behalf of third-party merchants, primarily through sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of that transaction price to the third-party merchant who will provide the related goods or services. We report service revenue from those transactions on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant. Service revenue also includes commissions we earn when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications and from voucherless merchant offerings in which customers earn cash back on their credit card statements when they transact with third-party merchants.


•	Gross profit reflects the net margin we earn after deducting our cost of revenue from our revenue. Due to the lack of comparability between product revenue, which is reported on a gross basis, and service revenue, which primarily consists of transactions reported on a net basis, we believe that gross profit is an important measure for evaluating our performance.

•

Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) from continuing operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net and other special charges and credits, including items that are unusual in nature or infrequently occurring. For further information and a reconciliation to Income (loss) from continuing operations, 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 continuing 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 from continuing operations, refer to our discussion in the Liquidity and Capital Resources section.

The following table presents the above financial metrics for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017			2019			2018		2019			2018
Revenue	$	617,396	$	662,619		$	1,243,936		$	1,336,245		$	532,577		$	617,396	$	1,110,987		$	1,243,936
Gross profit	323,658		328,067			648,543			637,518			292,132			323,658		598,148			648,543
Adjusted EBITDA	56,231		53,293			108,838			98,073			46,521			56,231		93,476			108,838
Free cash flow ⁽¹⁾	26,802		(34,775		)	(113,089		)	(186,937		)	(17,903		)	26,802		(182,863		)	(113,089		)

Operating Metrics

~~(1)~~•

~~Prior period free cash flow information has been updated~~Gross billings 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 service revenue transactions are comprised of sales of vouchers and similar transactions in which we collect the transaction price from ~~negative $36.1 million~~the customer and ~~$186.4 million previously~~remit a portion of the transaction price to the third-party merchant who will provide the related goods or services. For these transactions, gross billings differs from revenue reported in our condensed consolidated statements of operations, which is presented net of the merchant's share of the transaction price. For product revenue transactions, gross billings are equivalent to product revenue reported in our condensed consolidated statements of operations. Gross billings is an indicator of our growth and business performance as it measures the dollar volume of transactions generated through our marketplaces. Tracking gross billings on service revenue transactions also allows us to monitor the percentage of gross billings that we are able to retain after payments to merchants. However, management is primarily focused on optimizing the business for long-term gross profit and Adjusted EBITDA growth.

•

Active customers areunique user accounts that have made a purchase during the ~~three and six~~trailing twelve months ~~ended June 30, 2017, respectively,~~("TTM") either through one of our online marketplaces or directly with a merchant for which we earned a commission. We consider this metric to ~~reflect the adoption~~be an important indicator of ~~ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230) - Restricted Cash, on January 1, 2018. See Note 2,~~ ~~Adoption of New Accounting Standards, for additional information on the adoption of ASU 2016-18.~~our business performance as it helps us

~~Operating Metrics~~

~~Gross Billings~~. This metric represents the total dollar value of customer purchases of goods and services. For 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, which comprise a substantial majority of our service revenue transactions, gross billings differs from revenue reported in our condensed consolidated statements of operations, which is presented net of the merchant's share of the transaction price. For product revenue transactions, gross billings are equivalent to product revenue reported in our condensed 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 service revenue transactions also allows us to monitor the percentage of gross billings that we are able to retain after payments to merchants.

~~Active customers~~. We define active customers as unique user accounts that have made a purchase during the trailing twelve months ("TTM") either through one of our online marketplaces or directly with a merchant for which we earned a commission. 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 that we have acquired in a business combination, this metric includes active customers of the acquired entity, including customers who made purchases prior to the acquisition. We do not include consumers who solely make purchases with retailers using digital coupons accessed through our websites and mobile applications in our active ~~customers~~customer metric, ~~so the acquisition~~nor do we include consumers who solely make purchases of ~~Cloud Savings on April 30, 2018 did not impact that metric.~~

our inventory through third-party marketplaces with which we partner.

~~While our~~Our active customer metric ~~increased on a year-over-year basis, that metric declined to 49.3 million~~ for the trailing twelve months ended June 30, ~~2018, as compared to 49.7 million for~~2019 has declined both on a year-over-year basis and sequentially from the trailing twelve months ended March 31, ~~2018. That sequential~~2019. The decline is primarily attributable to a decline in ~~part, to~~traffic, including traffic from email and search engine optimization ("SEO"), as well as our efforts to improve the efficiency of our marketing ~~segmentation~~spend by focusing that spend on customers ~~that~~who we believe towill have higher long-term value. That strategy has resulted in lower marketing spend on less ~~engaged~~valuable customers, ~~which contributed~~particularly in North America, and led to ~~the sequential~~a decrease in ~~our active customer metric. We expect that trend to continue for the remainder of 2018.~~

~~Gross billings and gross profit per active customer~~. These metrics represent the TTM gross billings and gross profit generated per active customer. We use these metrics to evaluate trends in customer spend and in the average contribution to gross billings and gross profit on a per-customer basis. We updated the calculation of these metrics in the current year to reflect active customers as of the end of the period, rather than the average of active customers as of the beginning and end of the period, in the denominator of the calculations. Because our active customer metrics are based on purchases over a TTM period, we believe that this change improves the usefulness of these metrics. The prior period metrics presented below have been updated to reflect this change.

~~Units. This metric represents~~ the number of ~~purchases during~~active customers. We expect the ~~reporting period, before refunds~~trend of declining active customers in North America to continue in 2019 and, ~~cancellations, made either through one of~~to some extent, into 2020 due to ongoing traffic declines and our ~~online marketplaces or directly with a merchant for which we earned~~continued focus on attracting and retaining high-quality customers.


•	Gross billings and gross profit per active customer are the TTM gross billings and gross profit generated per active customer. We use these metrics to evaluate trends in customer spend and in the average contribution to gross billings and gross profit on a per-customer basis.

•

Units is the number of purchases during the reporting period, before refunds and cancellations, made either through one of our online marketplaces, a 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 and mobile applications in our units metric. We consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces.

Our total ~~volume of business conducted through our marketplaces.~~

~~Our gross billings~~units sold declined by 12.0% for the three and six months ended June 30, ~~2018~~2019 as compared with the prior year, primarily reflecting unit declines in our North America segment. The decline in total units sold in the current year was primarily attributable to fewer customers, lower customer traffic, including traffic from email and ~~2017~~SEO, and shifting impressions to support our strategic initiatives. We expect that trend to continue in 2019.

Our gross billings and units for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Gross billings $ 1,264,263
$ 1,364,233
2,557,527
2,722,209



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Gross billings	$	1,120,945	$	1,264,263	$	2,296,953	$	2,557,527
Units	35,324		39,950		72,516		82,374
Gross billings per unit	$	31.73	$	31.65	$	31.68	$	31.05

Our active customers, gross billings per active customer and gross profit per active customer for the TTM ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows:

Trailing Twelve Months Ended June 30,
2018 2017
TTM Active customers (in thousands) 49,309
48,346
TTM Gross billings per active customer ⁽¹⁾
$ 111.16
$ 116.88
TTM Gross profit per active customer ⁽¹⁾
$ 27.27
$ 26.53


~~(1)~~	TTM Gross billings per active customer have been updated from $121.24 previously reported and TTM Gross profit per active customer has been updated from $27.52 previously reported for the trailing twelve months ended June 30, 2017 due to the change in the calculation discussed above.

~~Our units for the three and six months ended June 30, 2018 and 2017 were as follows (in thousands):~~

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Units 39,950
44,461
82,374
90,192



	Trailing Twelve Months Ended June 30,
	2019		2018
TTM Active customers (in thousands)	46,175		49,309
TTM Gross billings per active customer	$	107.03	$	111.16
TTM Gross profit per active customer	$	27.51	$	27.27

Factors Affecting Our Performance

Attracting and Retaining Local Merchants. As we seek to build a more complete online local commerce marketplace platform, we depend on our ability to attract and retain merchants who are willing to offer discounted products and services through our marketplaces. Additionally, merchants can generally withdraw their offerings from

our marketplaces at any time and their willingness to continue offering products and services through our platform depends on the effectiveness of our marketing and promotional services. We primarily source the deal offerings available on our marketplaces through our sales teams, which comprise a significant portion of our global employee base. We have also entered into commercial agreements with third parties that enable us to feature additional merchant offerings through our marketplaces. We continue to focus much of our sales efforts on sourcing local deal offerings in subcategories that we believe provide us with the best opportunities for high frequency customer purchase behavior. In connection with our efforts to grow our offerings in those high frequency subcategories, which include ~~food and drink,~~ health, beauty and wellness, ~~and~~ events and activities, and food and drink, we may be willing to offer more attractive terms to local merchants that could reduce our deal margins in future periods.

Growing our Active Customer Base and Customer Value. We must acquire and retain customers that we expect to have long-term value, and ~~improve~~increase gross profit per customer in order to grow our business. Our marketing spending is intended to attract and retain active customers and to promote increased purchase frequency. We have ~~significantly increased~~made enhancements to our customer segmentation in recent periods that are intended to better focus our marketing ~~spending in recent years in order~~efforts on customers that we believe have a greater potential for long-term gross profit generation. In addition to ~~drive customer growth. Our~~online marketing, such as search engine marketing ("SEM"), our marketing spending includes investments in offline campaigns intended to increase customer awareness and understanding of the Groupon brand and our product and service offerings. Additionally, we consider order discounts and certain other initiatives to drive customer acquisition and activation to be marketing-related activities, even though such activities may not be presented as marketing expense in our condensed consolidated statements of operations. The organic traffic to our websites and mobile applications ~~including organic traffic~~ from consumers responding to our emails has declined in recent years, such that an increasing proportion of our traffic is generated from SEM and other paid marketing ~~channels,~~channels. We have also experienced declines from other sources of organic traffic, such as ~~search engine marketing.~~email and SEO. As such, we are focused on developing sources of organic traffic other than email and optimizing the efficiency of our marketing spending, which is primarily guided by return on investment thresholds that are currently based on expected months-to-payback targets ranging from 12 to 18 months. Additionally, ~~we consider order discounts~~our product and ~~certain other~~supply initiatives are intended to ~~drive customer acquisition~~increase the rates at which visitors to our websites and ~~activation to be marketing-related activities, even though such activities may not be presented as marketing expenses in our consolidated statements of operations.~~mobile applications complete a purchase.

Investing in Growth. We have invested significantly in product and technology enhancements intended to support the growth of our online marketplaces and we intend to continue to do so in the future. We have also invested in business acquisitions to grow our merchant and customer base and advance our product and technology capabilities. We are currently developing and testing a number of product enhancements intended to make our offerings easier to

use for both customers and merchants and to improve purchase frequency, including ~~voucherless offerings that are~~cash back offers linked to customer credit cards, booking capabilities and a paid membership program in North America, Groupon Select, which ~~we refer to as Groupon+,~~offers greater discounts on our offerings and ~~functionality enabling appointment booking at the time an offering is purchased.~~other benefits. We believe that those initiatives may be important drivers for increasing customer purchase frequency and growing our business over time. We are currently focusing our efforts on growing customer awareness of ~~the~~those products and scaling the related merchant base. As such, our gross profit and operating income may be adversely impacted in the near term as we focus more on driving our strategic initiatives. Additionally, many of our ~~marketing initiatives and related efforts on early stage voucherless offerings. Additionally, Groupon+ offerings provide~~ cash back ~~on the customer's~~offers linked to customer credit ~~card and~~cards 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. As we report sales of vouchers to customers as gross billings, the growth of ~~Groupon+~~voucherless cash back transactions ~~in future periods~~with this merchant payment structure could adversely impact our gross billings ~~trends.~~trends in future periods. Mobile consumers, particularly those accessing our marketplaces through the mobile web, generally complete purchases at a lower rate and at lower average transaction prices than consumers accessing our marketplaces through desktop computers. As a substantial majority of our traffic comes from consumers on mobile devices, we are focused on improving the mobile experience in order to increase purchase rates. Our initiatives to improve the mobile experience include improving page speeds, enhancing our relevance algorithms, streamlining the checkout process and bringing our mobile web experience to parity with that of our mobile applications.

Managing Operating Efficiency. We are focused on effectively managing our cost structure as we seek to ~~generate and~~ grow our profitability in future periods. As a result of numerous divestitures and other exits from countries in which we previously operated, which were completed from 2015 through 2017, we reduced the global footprint of our operations from 47 countries to 15 countries. Additionally, we significantly reduced our global workforce over that period as a result of our restructuring actions. ThoseOur prior restructuring actions and our continuing efforts to automate internal processes have allowed us to centralize many of our back office activities in lower cost shared service centers resulting in significant reductions in our selling, general and administrative ~~expenses~~expense in recent periods. We have primarily used those savings to invest in marketing, people and product enhancements intended to drive the long-term growth of our business. We intend to continue to focus on ~~maintaining~~driving operating efficiency.

Results of Operations

Gross Billings

Gross billings is an operating metric that represents the total dollar value of customer purchases of products and services. Gross billings is presented net of customer refunds, order discounts and sales and related taxes. In our Goods category, we generate gross billings from product revenue transactions in which we sell merchandise inventory directly to customers, as well as service revenue transactions in which we sell products on behalf of third-party merchants.

Three Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Gross billings by category and segment for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows (dollars in thousands):

Three Months Ended June 30,
2018 2017 $ Change % Change
Gross billings:
Service $ 942,519
$ 1,017,468
$ (74,949 ) (7.4 )%
Product 321,744
346,765
(25,021 ) (7.2 )
Total gross billings $ 1,264,263
$ 1,364,233
$ (99,970 ) (7.3 )



	Three Months Ended June 30,
	2019		2018		$ Change			% Change
North America
Service gross billings:
Local	$	503,830	$	548,056	$	(44,226	)	(8.1	)%
Goods	19,615		25,791		(6,176		)	(23.9	)
Travel	84,029		93,809		(9,780		)	(10.4	)
Total service gross billings	607,474		667,656		(60,182		)	(9.0	)
Product gross billings - Goods	127,739		170,710		(42,971		)	(25.2	)
Total North America gross billings	735,213		838,366		(103,153		)	(12.3	)

International
Service gross billings:
Local	203,450		203,248		202			0.1
Goods	11,699		22,849		(11,150		)	(48.8	)
Travel	43,348		48,766		(5,418		)	(11.1	)
Total service gross billings	258,497		274,863		(16,366		)	(6.0	)
Product gross billings - Goods	127,235		151,034		(23,799		)	(15.8	)
Total International gross billings	385,732		425,897		(40,165		)	(9.4	)
Total gross billings	$	1,120,945	$	1,264,263	$	(143,318	)	(11.3	)

The effect on our gross billings for the three months ended June 30, ~~2018~~2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):

Three Months Ended June 30, 2018

At Avg. Q2 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Gross billings $ 1,236,153
$ 28,110
$ 1,264,263



	Three Months Ended June 30, 2019
	At Avg. Q2 2018 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Gross billings	$	1,144,245	$	(23,300	)	$	1,120,945


(1)	Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.


(2)	Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.

North America

North America gross billings were 65.6% and 66.3% of total gross billings for the three months ended June 30, 2019 and 2018. North America gross billings decreased for the three months ended June 30, 2019 compared with the prior year period due to fewer customers, lower customer traffic, including traffic from email and SEO, and shifting impressions to support our strategic initiatives. Those decreases were partially offset by higher gross billings per unit due to a shift in mix of offerings sold.

The above factors also resulted in lower gross billings per active customer, which was $113.02 for the TTM ended June 30, 2019, as compared with $114.52 in the corresponding prior year period and total units sold, which decreased to 21.9 million units for the three months ended June 30, 2019, as compared with 26.6 million units in the prior year period.

3231

~~Gross Billings by Segment~~International

International gross billings were 34.4% and 33.7% of total gross billings for the three months ended June 30, 2019 and 2018. International gross billings decreased $40.2 million for the three months ended June 30, 2019 compared with the prior year period, primarily due to a $23.2 million unfavorable impact from year-over-year changes in foreign currency rates, weak consumer sentiment in Europe, particularly in the United Kingdom, and intensifying competition in home and garden offerings.

Six Months Ended June 30, 2019 and 2018:

Gross billings by category and segment for the ~~three~~six months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows (dollars in thousands):

Three Months Ended June 30,
2018 2017 $ Change % Change
North America
Service gross billings:
Local $ 548,056
$ 615,833
$ (67,777 ) (11.0 )%
Goods 25,791
27,978
(2,187 ) (7.8 )
Travel 93,809
112,670
(18,861 ) (16.7 )
Product gross billings - Goods 170,710
217,946
(47,236 ) (21.7 )
Total North America gross billings 838,366
974,427
(136,061 ) (14.0 )

International
Service gross billings:
Local 203,248
189,408
13,840
7.3
Goods 22,849
25,598
(2,749 ) (10.7 )
Travel 48,766
45,981
2,785
6.1
Product gross billings - Goods 151,034
128,819
22,215
17.2
Total International gross billings 425,897
389,806
36,091
9.3
Total gross billings $ 1,264,263
$ 1,364,233
$ (99,970 ) (7.3 )

~~The percentages of gross billings by segment for the three months ended June 30, 2018 and 2017 were as follows:~~



~~Q2 2018~~		~~Q2 2017~~



	~~North America~~			~~International~~

~~North America~~

North America gross billings for the three months ended June 30, 2018 decreased from the prior year, reflecting decreases of $67.8 million in our Local category and $49.4 million in our Goods category. Factors impacting North America gross billings included the following:

We continued to shift customer impressions from traditional voucher offerings with food and drink merchants toward Groupon+ voucherless offerings as we seek to scale that product. While we believe that voucherless offerings have the potential to ultimately drive long-term gross profit growth, the shift away from traditional food and drink vouchers is adversely impacting our gross billings in the near term;

~~We ceased most of our food delivery operations in the third quarter of 2017, which resulted in a $16.0 million decrease in Local gross billings as compared to the prior year period; and~~

A decrease in gross billings from our Goods category, which reflected our ongoing efforts to de-emphasize lower margin product offerings in connection with our strategic initiative to optimize for gross profit generation.

The above drivers adversely impacted gross billings per active customer, which was $114.52 for the trailing twelve months ended June 30, 2018, as compared to $124.37 in the corresponding prior year period. Additionally, the total number of units sold decreased to 26.6 million units for the three months ended June 30, 2018, as compared to 31.0 million units in the prior year period.

Order discounts, which are presented as a reduction of gross billings and revenue, decreased by $14.6 million to $32.1 million for the three months ended June 30, 2018, as compared to $46.7 million in the prior year period.

~~For the three months ended June 30, 2018, there was an $8.2 million unfavorable impact on gross billings as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting the ASU and its related amendments on the Company's accounting policies.~~

~~International~~

International gross billings increased during the three months ended June 30, 2018, reflecting increases of $13.8 million and $19.5 million in our Local and Goods categories. That increase was primarily driven by a $27.9 million favorable impact from year-over-year changes in foreign currency rates for the three months ended June 30, 2018.

Order discounts, which are presented as a reduction of gross billings and revenue, increased by $4.6 million to $13.7 million for the three months ended June 30, 2018, as compared to $9.1 million in the prior year period.

~~For the three months ended June 30, 2018, there was a $0.9 million unfavorable impact on gross billings as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting the ASU and its related amendments on the Company's accounting policies.~~

~~Six Months Ended June 30, 2018 and 2017:~~

~~Gross billings for the six months ended June 30, 2018 and 2017 were as follows (dollars in thousands):~~

Six Months Ended June 30,
2018 2017 $ Change % Change
Gross billings:
Service $ 1,911,040
$ 2,003,390
$ (92,350 ) (4.6 )%
Product 646,487
718,819
(72,332 ) (10.1 )
Total gross billings $ 2,557,527
$ 2,722,209
$ (164,682 ) (6.0 )



	Six Months Ended June 30,
	2019		2018		$ Change			% Change
North America
Service gross billings:
Local	$	1,006,139	$	1,091,077	$	(84,938	)	(7.8	)%
Goods	39,533		54,380		(14,847		)	(27.3	)
Travel	176,112		196,308		(20,196		)	(10.3	)
Total service gross billings	1,221,784		1,341,765		(119,981		)	(8.9	)
Product gross billings - Goods	282,459		351,597		(69,138		)	(19.7	)
Total North America gross billings	1,504,243		1,693,362		(189,119		)	(11.2	)

International
Service gross billings:
Local	410,846		420,555		(9,709		)	(2.3	)
Goods	21,479		42,432		(20,953		)	(49.4	)
Travel	95,287		106,288		(11,001		)	(10.4	)
Total service gross billings	527,612		569,275		(41,663		)	(7.3	)
Product gross billings - Goods	265,098		294,890		(29,792		)	(10.1	)
Total International gross billings	792,710		864,165		(71,455		)	(8.3	)
Total gross billings	$	2,296,953	$	2,557,527	$	(260,574	)	(10.2	)

The effect on our gross billings for the six months ended June 30, ~~2018~~2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):

Six Months Ended June 30, 2018

At Avg. Q2 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Gross billings $ 2,477,373
$ 80,154
$ 2,557,527



	Six Months Ended June 30, 2019
	At Avg. Q2 2018 YTD Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Gross billings	$	2,352,521	$	(55,568	)	$	2,296,953


(1)	Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.


(2)	Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.

North America

~~Gross Billings by Segment~~

~~Gross billings by category and segment for the six months ended June 30, 2018 and 2017 were as follows (dollars in thousands):~~

Six Months Ended June 30,
2018 2017 $ Change % Change
North America
Service gross billings:
Local $ 1,091,077
$ 1,203,599
$ (112,522 ) (9.3 )%
Goods 54,380
39,920
14,460
36.2
Travel 196,308
226,833
(30,525 ) (13.5 )
Product gross billings - Goods 351,597
468,592
(116,995 ) (25.0 )
Total North America gross billings 1,693,362
1,938,944
(245,582 ) (12.7 )

International
Service gross billings:
Local 420,555
380,627
39,928
10.5
Goods 42,432
53,269
(10,837 ) (20.3 )
Travel 106,288
99,142
7,146
7.2
Product gross billings - Goods 294,890
250,227
44,663
17.8
Total International gross billings 864,165
783,265
80,900
10.3
Total gross billings $ 2,557,527
$ 2,722,209
$ (164,682 ) (6.0 )

~~The percentages of~~North America gross billings ~~by segment for the six months ended June 30, 2018~~were 65.5% and ~~2017 were as follows:~~



~~Q2 2018 YTD~~		~~Q2 2017 YTD~~



	~~North America~~			~~International~~

~~North America~~

~~North America~~66.2% of total gross billings for the six months ended June 30, ~~2018 decreased from the prior year, reflecting decreases of $112.5 million in our Local category~~2019 and ~~$102.5 million in our Goods category. Factors impacting~~2018. North America gross billings ~~included~~decreased for the ~~following:~~

~~We continued to shift customer impressions from traditional voucher offerings~~six months ended June 30, 2019 compared with food and drink merchants toward Groupon+ voucherless offerings as we seek to scale that product. While we believe that voucherless offerings have the potential to ultimately drive long-term gross profit growth, the shift away from traditional food and drink vouchers is adversely impacting our gross billings in the near term;

~~We ceased most of our food delivery operations in the third quarter of 2017, which resulted in a $33.4 million decrease in Local gross billings as compared to~~ the prior year ~~period;~~period due to fewer customers, lower customer traffic, including traffic from email and

~~A decrease in~~ SEO, and shifting impressions to support our strategic initiatives. Those decreases were partially offset by higher gross billings ~~from our Goods category, which reflected our ongoing efforts~~per unit due to ~~de-emphasize lower margin product~~a shift in mix of offerings ~~in connection with our strategic initiative to optimize for gross profit generation.~~sold.

The above ~~drivers adversely impacted~~factors also resulted in lower gross billings per active customer, which was ~~$114.52~~$113.02 for the ~~trailing twelve months~~TTM ended June 30, ~~2018,~~2019, as compared ~~to $124.37~~with $114.52 in the corresponding prior year ~~period. Additionally, the~~period and total ~~number of~~ units sold, which

decreased to 45.0 million units for the six months ended June 30, 2019, as compared with 54.7 million units in the prior year period.

International

International gross billings were 34.5% and 33.8% of total gross billings for the six months ended June 30, 2019 and 2018. International gross billings decreased $71.5 million for the six months ended June 30, ~~2018 as~~2019 compared ~~to 62.7 million units in~~with the prior year ~~period.~~

~~Order discounts, which are presented as~~period, primarily due to a ~~reduction of gross billings and revenue, decreased by $25.7~~$55.3 million ~~to $71.3 million for the six months ended June 30, 2018, as compared to $97.0 million in the prior year period.~~

~~For the six months ended June 30, 2018, there was a $6.3 million~~ unfavorable ~~impact on gross billings as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting the ASU and its related amendments on the Company's accounting policies.~~

~~International~~

International gross billings increased during the six months ended June 30, 2018, reflecting increases of $39.9 million, $33.8 million and $7.1 million in our Local, Goods and Travel categories, respectively. That increase was primarily driven by a $79.7 million favorable impact from year-over-year changes in foreign currency rates, weak consumer sentiment in Europe, particularly in the United Kingdom, and intensifying competition in home and garden offerings.

Revenue

Three Months Ended June 30, 2019 and 2018:

Revenue by category and segment for the three months ended June 30, ~~2018.~~

~~Order discounts, which are presented as a reduction of gross billings~~2019 and ~~revenue, increased by $9.1 million to $27.5 million for the six months ended June 30,~~ 2018 ~~as compared to $18.4 million in the prior year period.~~

~~For the six months ended June 30, 2018, there was a $0.4 million unfavorable impact on gross billings as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting the ASU and its related amendments on the Company's accounting policies.~~

~~Revenue~~

We earn product revenue from direct sales of merchandise inventory through our Goods category. Product revenue is reported on a gross basis as the purchase price received from the customer. Service revenue is earned from transactions in which we earn commissions by selling goods or services on behalf of third-party merchants, primarily through sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of that transaction price to the third-party merchant who will provide the related goods or services. Service revenue from those transactions is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant. Service revenue also includes commissions we earn when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications and from voucherless merchant offerings in which customers earn cash back on their credit card statements when they transact with third-party merchants.

~~Three Months Ended June 30, 2018 and 2017:~~

~~Revenue for the three months ended June 30, 2018 and 2017~~ was as follows (dollars in thousands):

Three Months Ended June 30,
2018 2017 $ Change % Change
Revenue:
Service $ 295,652
$ 315,854
$ (20,202 ) (6.4 )%
Product 321,744
346,765
(25,021 ) (7.2 )
Total revenue $ 617,396
$ 662,619
$ (45,223 ) (6.8 )



	Three Months Ended June 30,
	2019		2018		$ Change			% Change
North America
Service revenue:
Local	$	177,082	$	185,870	$	(8,788	)	(4.7	)%
Goods	3,714		3,796		(82		)	(2.2	)
Travel	16,125		19,888		(3,763		)	(18.9	)
Total service revenue	196,921		209,554		(12,633		)	(6.0	)
Product revenue - Goods	127,739		170,710		(42,971		)	(25.2	)
Total North America revenue	324,660		380,264		(55,604		)	(14.6	)

International
Service revenue:
Local	69,995		71,425		(1,430		)	(2.0	)
Goods	2,610		4,967		(2,357		)	(47.5	)
Travel	8,077		9,706		(1,629		)	(16.8	)
Total service revenue	80,682		86,098		(5,416		)	(6.3	)
Product revenue - Goods	127,235		151,034		(23,799		)	(15.8	)
Total International revenue	207,917		237,132		(29,215		)	(12.3	)
Total revenue	$	532,577	$	617,396	$	(84,819	)	(13.7	)

The effect on revenue for the three months ended June 30, ~~2018~~2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):

Three Months Ended June 30, 2018

At Avg. Q2 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Revenue $ 600,314
$ 17,082
$ 617,396



	Three Months Ended June 30, 2019
	At Avg. Q2 2018 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Revenue	$	545,329	$	(12,752	)	$	532,577


(1)	Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.


(2)	Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.

~~Revenue by Segment~~

~~Revenue by category and segment for the three months ended June 30, 2018 and 2017 was as follows (dollars in thousands):~~

Three Months Ended June 30,
2018 2017 $ Change % Change
North America
Service revenue:
Local $ 185,870
$ 207,534
$ (21,664 ) (10.4 )%
Goods 3,796
4,112
(316 ) (7.7 )
Travel 19,888
22,320
(2,432 ) (10.9 )
Product revenue - Goods 170,710
217,946
(47,236 ) (21.7 )
Total North America revenue 380,264
451,912
(71,648 ) (15.9 )

International
Service revenue:
Local 71,425
66,108
5,317
8.0
Goods 4,967
4,984
(17 ) (0.3 )
Travel 9,706
10,796
(1,090 ) (10.1 )
Product revenue - Goods 151,034
128,819
22,215
17.2
Total International revenue 237,132
210,707
26,425
12.5
Total revenue $ 617,396
$ 662,619
(45,223 ) (6.8 )

3733

~~The percentages of revenue by segment for the three months ended June 30, 2018 and 2017 were as follows:~~



~~Q2 2018~~		~~Q2 2017~~



	~~North America~~			~~International~~

The percentages of service gross billings that we retained after deducting the merchant's share for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows:



North America		International

North America

~~The decrease in~~ North America revenue was 61.0% and 61.6% of total revenue for the three months ended June 30, ~~2018 reflects decreases of $21.7~~2019 and 2018. North America revenue decreased $55.6 million ~~and $47.6 million~~for the three months ended June 30, 2019 compared with the prior year period, primarily driven by the decline in ~~our Local~~transaction volume and ~~Goods categories, respectively. The decreases were attributable to the following:~~

~~decreases in Goods and Local~~ gross billings, as discussed ~~above;~~above, partially offset by a shift in mix of offerings sold.

International

International revenue was 39.0% and

~~an increase~~ 38.4% of total revenue for the three months ended June 30, 2019 and 2018. International revenue decreased $29.2 million for the three months ended June 30, 2019 compared with the prior year period, primarily driven by lower gross billings as discussed above and a $12.7 million unfavorable impact from year-over-year changes in ~~the proportion of service revenue transactions~~foreign exchange rates. These declines were partially offset by a shift in our Goods category mix from service revenue transactions, which are reported on a net basis, ~~with a corresponding decrease in the proportion of~~toward product revenue transactions, which are reported on a gross basis.

The above decreases were partially offset by an increase in the percentage of gross billings that we retained after deducting the merchant’s share in service revenue transactions to 31.4% for the three months ended June 30, 2018, as compared to 30.9% in the prior year period. The percentage of gross billings that we retain 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.

~~For the three months ended June 30, 2018, there was a $1.7 million unfavorable impact on revenue as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting the ASU and its related amendments on the Company's accounting policies.~~

3834

~~International~~

The increase in International revenue for the three months ended June 30, 2018 reflects increases of $5.3 million and $22.2 million in our Local and Goods categories, respectively. The increases were primarily attributable to the following:

~~a $17.0 million favorable impact on international revenue from year-over-year changes in foreign exchange rates for the three months ended June 30, 2018; and~~

a decrease in the proportion of service revenue transactions in our Goods category, which are reported on a net basis, with a corresponding increase in the proportion of product revenue transactions, which are reported on a gross basis.

~~The percentage of gross billings related to service revenue transactions that we retained after deducting the merchant’s share was substantially consistent with the prior year.~~

~~For the three months ended June 30, 2018, there was a $4.3 million unfavorable impact on revenue as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting the ASU and its related amendments on the Company's accounting policies.~~

Six Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Revenue by category and segment for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Six Months Ended June 30,
2018 2017 $ Change % Change
Revenue:
Service $ 597,449
$ 617,426
$ (19,977 ) (3.2 )%
Product 646,487
718,819
(72,332 ) (10.1 )
Total revenue $ 1,243,936
$ 1,336,245
$ (92,309 ) (6.9 )



	Six Months Ended June 30,
	2019		2018		$ Change			% Change
North America
Service revenue:
Local	$	357,459	$	373,281	$	(15,822	)	(4.2	)%
Goods	6,841		8,670		(1,829		)	(21.1	)
Travel	35,066		39,972		(4,906		)	(12.3	)
Total service revenue	399,366		421,923		(22,557		)	(5.3	)
Product revenue - Goods	282,459		351,597		(69,138		)	(19.7	)
Total North America revenue	681,825		773,520		(91,695		)	(11.9	)

International
Service revenue:
Local	143,185		146,003		(2,818		)	(1.9	)
Goods	4,065		8,381		(4,316		)	(51.5	)
Travel	16,814		21,142		(4,328		)	(20.5	)
Total service revenue	164,064		175,526		(11,462		)	(6.5	)
Product revenue - Goods	265,098		294,890		(29,792		)	(10.1	)
Total International revenue	429,162		470,416		(41,254		)	(8.8	)
Total revenue	$	1,110,987	$	1,243,936	$	(132,949	)	(10.7	)

The effect on revenue for the six months ended June 30, ~~2018~~2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):

Six Months Ended June 30, 2018

At Avg. Q2 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Revenue $ 1,197,565
$ 46,371
$ 1,243,936



	Six Months Ended June 30, 2019
	At Avg. Q2 2018 YTD Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Revenue	$	1,141,453	$	(30,466	)	$	1,110,987


(1)	Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.


(2)	Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.

3935

~~Revenue by Segment~~

~~Revenue by category and segment for the six months ended June 30, 2018 and 2017 was as follows (dollars in thousands):~~

Six Months Ended June 30,
2018 2017 $ Change % Change
North America
Service revenue:
Local $ 373,281
$ 408,079
$ (34,798 ) (8.5 )%
Goods 8,670
5,816
2,854
49.1
Travel 39,972
42,782
(2,810 ) (6.6 )
Product revenue - Goods 351,597
468,592
(116,995 ) (25.0 )
Total North America revenue 773,520
925,269
(151,749 ) (16.4 )

International
Service revenue:
Local 146,003
129,683
16,320
12.6
Goods 8,381
9,268
(887 ) (9.6 )
Travel 21,142
21,798
(656 ) (3.0 )
Product revenue - Goods 294,890
250,227
44,663
17.8
Total International revenue 470,416
410,976
59,440
14.5
Total revenue $ 1,243,936
$ 1,336,245
(92,309 ) (6.9 )

~~The percentages of revenue by segment for the six months ended June 30, 2018 and 2017 were as follows:~~



~~Q2 2018 YTD~~		~~Q2 2017 YTD~~



	~~North America~~			~~International~~

The percentages of service gross billings that we retained after deducting the merchant's share for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows:



North America		International

North America

~~The decrease in~~ North America revenue was 61.4% and 62.2% of total revenue for the six months ended June 30, ~~2018 reflects decreases of $34.8~~2019 and 2018. North America revenue decreased $91.7 million ~~and $114.1 million~~for the six months ended June 30, 2019 compared with the prior year period, primarily driven by the decline in ~~our Local~~transaction volume and ~~Goods categories, respectively. The decreases were attributable to the following:~~

~~decreases in Goods and Local~~ gross billings, as discussed ~~above;~~above, partially offset by a shift in mix of offerings sold.

International

International revenue was 38.6% and

~~an increase~~ 37.8% of total revenue for the six months ended June 30, 2019 and 2018. International revenue decreased $41.3 million for the six months ended June 30, 2019 compared with the prior year period, primarily driven by a $30.4 million unfavorable impact from year-over-year changes in foreign exchange rates and lower gross billings as discussed above. These declines were partially offset by the ~~proportion~~expansion of ~~service revenue transactions~~our digital coupons offerings through our acquisition of Cloud Savings in April 2018 and a shift in our Goods category mix from service revenue transactions, which are reported on a net basis, ~~with a corresponding decrease in the proportion of~~toward product revenue transactions, which are reported on a gross basis.

The above decreases were partially offset by an increase in the percentage of gross billings that we retained after deducting the merchant’s share in service revenue transactions to 31.4% for the six months ended June 30, 2018, as compared to 31.1% in the prior year period. The percentage of gross billings that we retain 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.

~~For the six months ended June 30, 2018, there was a $2.2 million unfavorable impact on revenue as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting the ASU and its related amendments on the Company's accounting policies.~~

~~International~~

The increase in International revenue for the six months ended June 30, 2018 reflects increases of $16.3 million and $43.8 million in our Local and Goods categories, respectively. The increases were primarily attributable to the following:

~~a $46.3 million favorable impact on international revenue from year-over-year changes in foreign exchange rates for the six months ended June 30, 2018;~~

an increase in the percentage of gross billings that we retained after deducting the merchant’s share in service revenue transactions to 30.8% for the six months ended June 30, 2018, as compared to 30.2% in the prior year period. The percentage of gross billings that we retain 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.

~~For the six months ended June 30, 2018, there was a $2.0 million unfavorable impact on revenue as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting the ASU and its related amendments on the Company's accounting policies.~~

Cost of Revenue

Cost of revenue is comprised of direct and certain indirect costs incurred to generate ~~revenue. Costs incurred to generate~~ revenue ~~which include~~including credit card processing fees, editorial costs, compensation expense for technology support personnel who are responsible for maintaining the infrastructure of our websites, amortization of internal-use software relating to customer-facing applications, web hosting and other processing ~~fees are attributed to the cost of product and service revenue in proportion to gross billings during the period.~~fees. For product revenue transactions, cost of revenue also 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.

Three Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Cost of revenue by category and segment for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Three Months Ended June 30,
2018 2017 $ Change % Change
Cost of revenue:
Service $ 30,230
$ 38,478
$ (8,248 ) (21.4 )%
Product 263,508
296,074
(32,566 ) (11.0 )
Total cost of revenue $ 293,738
$ 334,552
$ (40,814 ) (12.2 )



	Three Months Ended June 30,
	2019		2018		$ Change			% Change
North America
Service cost of revenue:
Local	$	19,409	$	20,585	$	(1,176	)	(5.7	)%
Goods	719		806		(87		)	(10.8	)
Travel	3,319		3,585		(266		)	(7.4	)
Total service cost of revenue	23,447		24,976		(1,529		)	(6.1	)
Product cost of revenue - Goods	102,629		135,917		(33,288		)	(24.5	)
Total North America cost of revenue	126,076		160,893		(34,817		)	(21.6	)

International
Service cost of revenue:
Local	4,215		4,065		150			3.7
Goods	226		402		(176		)	(43.8	)
Travel	707		787		(80		)	(10.2	)
Total service cost of revenue	5,148		5,254		(106		)	(2.0	)
Product cost of revenue - Goods	109,221		127,591		(18,370		)	(14.4	)
Total International cost of revenue	114,369		132,845		(18,476		)	(13.9	)
Total cost of revenue	$	240,445	$	293,738	$	(53,293	)	(18.1	)

The effect on cost of revenue for the three months ended June 30, ~~2018~~2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):

Three Months Ended June 30, 2018

At Avg. Q2 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Cost of revenue $ 283,397
$ 10,341
$ 293,738



	Three Months Ended June 30, 2019
	At Avg. Q2 2018 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Cost of revenue	$	247,526	$	(7,081	)	$	240,445


(1)	Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.


(2)	Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.

North America

North America cost of revenue was 52.4% and 54.8% of total cost of revenue for the three months ended June 30, 2019 and 2018. North America cost of revenue decreased $34.8 million for the three months ended June 30, 2019 compared with the prior year period, primarily due to the decrease in transaction volume and gross billings as described above.

International

International cost of revenue was 47.6% and 45.2% of total cost of revenue for the three months ended June 30, 2019 and 2018. International cost of revenue decreased $18.5 million for the three months ended June 30, 2019 compared with the prior year period, primarily due to a $7.1 million favorable impact from year-over-year changes in foreign exchange rates and lower product gross billings.

4237

~~Cost of Revenue by Segment~~Six Months Ended June 30, 2019 and 2018:

Cost of revenue by category and segment for the ~~three~~six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Three Months Ended June 30,
2018 2017 $ Change % Change
North America
Service cost of revenue:
Local $ 20,585
$ 27,925
$ (7,340 ) (26.3 )%
Goods 806
905
(99 ) (10.9 )
Travel 3,585
4,565
(980 ) (21.5 )
Product cost of revenue - Goods 135,917
184,657
(48,740 ) (26.4 )
Total North America cost of revenue 160,893
218,052
(57,159 ) (26.2 )

International
Service cost of revenue:
Local 4,065
3,805
260
6.8
Goods 402
478
(76 ) (15.9 )
Travel 787
800
(13 ) (1.6 )
Product cost of revenue - Goods 127,591
111,417
16,174
14.5
Total International cost of revenue 132,845
116,500
16,345
14.0
Total cost of revenue $ 293,738
$ 334,552
$ (40,814 ) (12.2 )

~~The percentages of cost of revenue by segment for the three months ended June 30, 2018 and 2017 were as follows:~~



~~Q2 2018~~		~~Q2 2017~~



	~~North America~~			~~International~~

~~North America~~

~~The decrease in North America cost of revenue for the three months ended June 30, 2018 was primarily attributable to the decrease in product revenue transactions as discussed above.~~

~~For the three months ended June 30, 2018, there was a $7.0 million favorable impact on cost of revenue as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting~~ ~~Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~

~~International~~

The increase in International cost of revenue for the three months ended June 30, 2018 was primarily attributable to a $10.3 million unfavorable impact from year-over-year changes in foreign exchange rates and the increase in product revenue transactions as discussed above.

~~Six Months Ended June 30, 2018 and 2017:~~

~~Cost of revenue for the six months ended June 30, 2018 and 2017 was as follows (dollars in thousands):~~

Six Months Ended June 30,
2018 2017 $ Change % Change
Cost of revenue:
Service $ 61,375
$ 81,351
$ (19,976 ) (24.6 )%
Product 534,018
617,376
(83,358 ) (13.5 )
Total cost of revenue $ 595,393
$ 698,727
$ (103,334 ) (14.8 )



	Six Months Ended June 30,
	2019		2018		$ Change			% Change
North America
Service cost of revenue:
Local	$	38,704	$	41,240	$	(2,536	)	(6.1	)%
Goods	1,283		1,739		(456		)	(26.2	)
Travel	6,992		7,667		(675		)	(8.8	)
Total service cost of revenue	46,979		50,646		(3,667		)	(7.2	)
Product cost of revenue - Goods	226,460		283,823		(57,363		)	(20.2	)
Total North America cost of revenue	273,439		334,469		(61,030		)	(18.2	)

International
Service cost of revenue:
Local	8,427		8,428		(1		)	—
Goods	413		729		(316		)	(43.3	)
Travel	1,403		1,572		(169		)	(10.8	)
Total service cost of revenue	10,243		10,729		(486		)	(4.5	)
Product cost of revenue - Goods	229,157		250,195		(21,038		)	(8.4	)
Total International cost of revenue	239,400		260,924		(21,524		)	(8.2	)
Total cost of revenue	$	512,839	$	595,393	$	(82,554	)	(13.9	)

The effect on cost of revenue for the six months ended June 30, ~~2018~~2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):

Six Months Ended June 30, 2018

At Avg. Q2 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Cost of revenue $ 568,181
$ 27,212
$ 595,393



	Six Months Ended June 30, 2019
	At Avg. Q2 2018 YTD Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Cost of revenue	$	530,060	$	(17,221	)	$	512,839


(1)	Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.


(2)	Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.

North America

~~Cost of Revenue by Segment~~

~~Cost of revenue by category and segment for the six months ended June 30, 2018 and 2017 was as follows (dollars in thousands):~~

Six Months Ended June 30,
2018 2017 $ Change % Change
North America
Service cost of revenue:
Local $ 41,240
$ 59,128
$ (17,888 ) (30.3 )%
Goods 1,739
1,302
437
33.6
Travel 7,667
9,862
(2,195 ) (22.3 )
Product cost of revenue - Goods 283,823
400,180
(116,357 ) (29.1 )
Total North America cost of revenue 334,469
470,472
(136,003 ) (28.9 )

International
Service cost of revenue:
Local 8,428
8,186
242
3.0
Goods 729
1,107
(378 ) (34.1 )
Travel 1,572
1,766
(194 ) (11.0 )
Product cost of revenue - Goods 250,195
217,196
32,999
15.2
Total International cost of revenue 260,924
228,255
32,669
14.3
Total cost of revenue $ 595,393
$ 698,727
$ (103,334 ) (14.8 )

~~The percentages of~~North America cost of revenue ~~by segment for the six months ended June 30, 2018~~was 53.3% and ~~2017 were as follows:~~



~~Q2 2018 YTD~~		~~Q2 2017 YTD~~



	~~North America~~			~~International~~

~~North America~~

~~The decrease in North America~~56.2% of total cost of revenue for the six months ended June 30, ~~2018 was primarily attributable to the decrease in product~~2019 and 2018. North America cost of revenue ~~transactions as discussed above.~~

~~For~~decreased $61.0 million for the six months ended June 30, ~~2018, there was a $13.3 million favorable impact on~~2019 compared with the prior year period, primarily due to the decrease in transaction volume and gross billings as described above.

International

International cost of revenue ~~as a result~~was 46.7% and 43.8% of ~~adopting Topic 606 as compared to previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~

~~International~~

~~The increase in International~~total cost of revenue for the six months ended June 30, ~~2018 was~~2019 and 2018. International cost of revenue decreased $21.5 million for the six months ended June 30, 2019 compared with the prior year period, primarily ~~attributable~~due to a ~~$27.2~~$17.2 million ~~unfavorable~~favorable impact from year-over-year changes in foreign exchange rates and ~~the increase in~~lower product ~~revenue transactions as discussed above.~~gross billings.

Gross Profit

Three Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Gross profit by category and segment for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Three Months Ended June 30,
2018 2017 $ Change % Change
Gross profit:
Service $ 265,422
$ 277,376
$ (11,954 ) (4.3 )%
Product 58,236
50,691
7,545
14.9
Total gross profit $ 323,658
$ 328,067
$ (4,409 ) (1.3 )



	Three Months Ended June 30,
	2019		2018		$ Change			% Change
North America
Service gross profit:
Local	$	157,673	$	165,285	$	(7,612	)	(4.6	)%
Goods	2,995		2,990		5			0.2
Travel	12,806		16,303		(3,497		)	(21.5	)
Total service gross profit	173,474		184,578		(11,104		)	(6.0	)
Product gross profit - Goods	25,110		34,793		(9,683		)	(27.8	)
Total North America gross profit	198,584		219,371		(20,787		)	(9.5	)

International
Service gross profit:
Local	65,780		67,360		(1,580		)	(2.3	)
Goods	2,384		4,565		(2,181		)	(47.8	)
Travel	7,370		8,919		(1,549		)	(17.4	)
Total service gross profit	75,534		80,844		(5,310		)	(6.6	)
Product gross profit - Goods	18,014		23,443		(5,429		)	(23.2	)
Total International gross profit	93,548		104,287		(10,739		)	(10.3	)
Total gross profit	$	292,132	$	323,658	$	(31,526	)	(9.7	)

The effect on gross profit for the three months ended June 30, ~~2018~~2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):

Three Months Ended June 30, 2018

At Avg. Q2 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Gross profit $ 316,917
$ 6,741
$ 323,658



	Three Months Ended June 30, 2019
	At Avg. Q2 2018 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Gross profit	$	297,803	$	(5,671	)	$	292,132


(1)	Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.


(2)	Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.

North America

~~Gross Profit by Segment~~

~~Gross~~North America gross profit ~~by category~~was 68.0% and ~~segment~~67.8% of total gross profit for the three months ended June 30, ~~2018~~2019 and ~~2017 was as follows (dollars in thousands):~~

Three Months Ended June 30,
2018 2017 $ Change % Change
North America
Service gross profit:
Local $ 165,285
$ 179,609
$ (14,324 ) (8.0 )%
Goods 2,990
3,207
(217 ) (6.8 )
Travel 16,303
17,755
(1,452 ) (8.2 )
Product gross profit - Goods 34,793
33,289
1,504
4.5
Total North America gross profit 219,371
233,860
(14,489 ) (6.2 )

International

Service gross profit:

Local 67,360
62,303
5,057
8.1
Goods 4,565
4,506
59
1.3
Travel 8,919
9,996
(1,077 ) (10.8 )
Product gross profit - Goods 23,443
17,402
6,041
34.7
Total International gross profit 104,287
94,207
10,080
10.7
Total gross profit $ 323,658
$ 328,067
$ (4,409 ) (1.3 )

~~The percentages of gross profit by segment for the three months ended June 30, 2018 and 2017 were as follows:~~



~~Q2 2018~~		~~Q2 2017~~



	~~North America~~			~~International~~

~~North America~~

2018. The decrease in North America gross profit for the three months ended June 30, ~~2018~~2019 compared with the prior year period reflects a ~~$14.3 million decrease~~decline in transaction volume and gross ~~profit from our Local category, which was attributable to the decrease in revenue,~~billings, as discussed above.

~~Gross~~International

International gross profit ~~from product revenue transactions in our Goods category increased by 4.5%, as compared to the 21.7% decrease in revenue from those transactions. That difference~~ was ~~attributable to higher~~32.0% and 32.2% of total gross ~~margins on product revenue transactions, which were 20.4%~~profit for the three months ended June 30, ~~2018 as compared to 15.3% in the prior~~

~~year period.~~2019 and 2018. The ~~margin improvement resulted from our ongoing efforts to de-emphasize lower margin product offerings and reduce our shipping and fulfillment costs.~~

For the three months ended June 30, 2018, there was a $5.4 million favorable impact on gross profit as a result of adopting Topic 606 as compared to previous accounting guidance. That favorable impact was primarily driven by the change in the timing of recognition of variable consideration from redeemed vouchers. As a result of the Company’s increased use of pay-on-redemption terms with merchants in North America beginning in the third quarter 2017, we expect that the change to recognizing estimated variable consideration at the time of sale under Topic 606 will drive continued favorability in North America gross profit during the remainder of 2018, as compared to the gross profit that would have been reported in the current year under the previous accounting guidance. See Note 2, ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~

~~International~~

~~The increase~~decrease in International gross profit for the three months ended June 30, ~~2018~~2019 compared with the prior year period was primarily attributable to ~~the following:~~

a ~~$6.7~~$5.6 million ~~favorable~~unfavorable impact ~~on International gross profit~~ from year-over-year changes in foreign exchange rates ~~for the three months ended June 30, 2018;~~ and lower gross billings as discussed above.

~~our ongoing efforts to de-emphasize lower margin product offerings in our Goods category and to reduce our shipping and fulfillment costs.~~

For the three months ended June 30, 2018, there was a $4.3 million unfavorable impact on gross profit as a result of adopting Topic 606 as compared to previous accounting guidance. That unfavorable impact primarily reflected $2.6 million related to the change in the timing of recognition of variable consideration from unredeemed vouchers and $1.8 million related to customer credits issued for relationship purposes, which are classified as a reduction of revenue under Topic 606. Our international segment continues to primarily use pay-on redemption terms with merchants and the impact of the change to recognizing variable consideration at the time of sale under Topic 606 could be favorable or unfavorable from period to period for that segment based on seasonal revenue levels, particularly in our Local category, and changes in redemption rates. See Note 2, ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~

Six Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Gross profit by category and segment for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Six Months Ended June 30,
2018 2017 $ Change % Change
Gross profit:
Service $ 536,074
$ 536,075
$ (1 ) — %
Product 112,469
101,443
11,026
10.9
Total gross profit $ 648,543
$ 637,518
$ 11,025
1.7



	Six Months Ended June 30,
	2019		2018		$ Change			% Change
North America
Service gross profit:
Local	$	318,755	$	332,041	$	(13,286	)	(4.0	)%
Goods	5,558		6,931		(1,373		)	(19.8	)
Travel	28,074		32,305		(4,231		)	(13.1	)
Total service gross profit	352,387		371,277		(18,890		)	(5.1	)
Product gross profit - Goods	55,999		67,774		(11,775		)	(17.4	)
Total North America gross profit	408,386		439,051		(30,665		)	(7.0	)

International
Service gross profit:
Local	134,758		137,575		(2,817		)	(2.0	)
Goods	3,652		7,652		(4,000		)	(52.3	)
Travel	15,411		19,570		(4,159		)	(21.3	)
Total service gross profit	153,821		164,797		(10,976		)	(6.7	)
Product gross profit - Goods	35,941		44,695		(8,754		)	(19.6	)
Total International gross profit	189,762		209,492		(19,730		)	(9.4	)
Total gross profit	$	598,148	$	648,543	$	(50,395	)	(7.8	)

The effect on gross profit for the six months ended June 30, ~~2018~~2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):

Six Months Ended June 30, 2018

At Avg. Q2 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Gross profit $ 629,384
$ 19,159
$ 648,543



	Six Months Ended June 30, 2019
	At Avg. Q2 2018 YTD Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Gross profit	$	611,393	$	(13,245	)	$	598,148


(1)	Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.


(2)	Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.

North America

~~Gross Profit by Segment~~

~~Gross~~North America gross profit ~~by category~~was 68.3% and ~~segment~~67.7% of total gross profit for the six months ended June 30, ~~2018~~2019 and ~~2017 was as follows (dollars in thousands):~~

Six Months Ended June 30,
2018 2017 $ Change % Change
North America
Service gross profit:
Local $ 332,041
$ 348,951
$ (16,910 ) (4.8 )%
Goods 6,931
4,514
2,417
53.5
Travel 32,305
32,920
(615 ) (1.9 )
Product gross profit - Goods 67,774
68,412
(638 ) (0.9 )
Total North America gross profit 439,051
454,797
(15,746 ) (3.5 )

International
Service gross profit:
Local 137,575
121,497
16,078
13.2
Goods 7,652
8,161
(509 ) (6.2 )
Travel 19,570
20,032
(462 ) (2.3 )
Product gross profit - Goods 44,695
33,031
11,664
35.3
Total International gross profit 209,492
182,721
26,771
14.7
Total gross profit $ 648,543
$ 637,518
$ 11,025
1.7

~~The percentages of gross profit by segment for the six months ended June 30, 2018 and 2017 were as follows:~~



~~Q2 2018 YTD~~		~~Q2 2017 YTD~~



	~~North America~~			~~International~~

~~North America~~

2018. The decrease in North America gross profit for the six months ended June 30, ~~2018~~2019 compared with the prior year period reflects a ~~$16.9 million decrease~~decline in transaction volume and gross billings, ~~from our Local category, which was attributable to the decrease in revenue,~~ as discussed above.

~~Gross~~International

International gross profit ~~from product revenue transactions in our Goods category decreased by 0.9%, as compared to the 25.0% decrease in revenue from those transactions. That difference~~ was ~~attributable to higher~~31.7% and 32.3% of total gross ~~margins on product revenue transactions, which were 19.3%~~profit for the six months ended June 30, ~~2018 as compared to 14.6% in~~

~~the prior year period.~~2019 and 2018. The ~~margin improvement resulted from our ongoing efforts to de-emphasize lower margin product offerings and reduce our shipping and fulfillment costs.~~

For the six months ended June 30, 2018, there was an $11.1 million favorable impact on gross profit as a result of adopting Topic 606 as compared to previous accounting guidance. That favorable impact included $8.4 million related to the change in the timing of recognition of variable consideration from unredeemed vouchers and $2.6 million related to the change in the timing of recognition of revenue from hotel reservation offerings. The favorable impact from recognizing revenue from hotel reservation offerings at the time of booking was primarily driven by seasonal travel patterns and we do not expect a significant impact from that change for the full year 2018. See Note 2, ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~

~~International~~

~~The increase~~decrease in International gross profit for the six months ended June 30, ~~2018~~2019 compared with the prior year period was primarily attributable to ~~the following:~~

a ~~$19.1~~$13.2 million ~~favorable~~unfavorable impact ~~on International gross profit~~ from year-over-year changes in foreign exchange rates ~~for~~and lower gross billings as discussed above. These declines were partially offset by the ~~six months ended June 30, 2018; and~~expansion of our digital coupons offerings through our acquisition of Cloud Savings in April 2018.

~~our ongoing efforts to de-emphasize lower margin product offerings in our Goods category and to reduce our shipping and fulfillment costs.~~

For the six months ended June 30, 2018, there was a $2.0 million unfavorable impact on gross profit as a result of adopting Topic 606 as compared to previous accounting guidance. That unfavorable impact primarily reflected $2.9 million related to customer credits issued for relationship purposes, which are classified as a reduction of revenue under Topic 606. See Note 2, ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~

Marketing

Marketing expense consists primarily of online marketing costs, such as search engine marketing, advertising on social networking sites and affiliate programs, and offline marketing costs, such as television and radio advertising. Additionally, compensation expense for marketing employees is classified within marketing expense. We record these costs within Marketing on the condensed consolidated statements of operations when incurred. From time to time, we offer deals with 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 service 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 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 June 30, ~~2018~~2019 and ~~2017:~~2018:

Marketing expense by segment as a percentage of gross profit for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Three Months Ended June 30,
2018 % of Gross Profit 2017 % of Gross Profit $ Change % Change
Marketing:
North America $ 66,402
30.3 % $ 78,461
33.6 % $ (12,059 ) (15.4 )%
International 27,776
26.6
22,197
23.6
5,579
25.1
Total marketing $ 94,178
29.1
$ 100,658
30.7
$ (6,480 ) (6.4 )

~~Marketing by Segment~~

~~The percentages of marketing expense by segment for the three months ended June 30, 2018 and 2017 were as follows:~~



~~Q2 2018~~		~~Q2 2017~~



	~~North America~~			~~International~~



	Three Months Ended June 30,
	2019		% of Gross Profit		2018		% of Gross Profit		$ Change			% Change
Marketing:
North America	$	57,110	28.8	%	$	66,402	30.3	%	$	(9,292	)	(14.0	)%
International	31,813		34.0		27,776		26.6		4,037			14.5
Total marketing	$	88,923	30.4		$	94,178	29.1		$	(5,255	)	(5.6	)

North America

North America segment marketing expense was 64.2% and 70.5% of total marketing expense for the three months ended June 30, ~~2018 decreased from the prior year period, which was primarily attributable to a decrease in offline~~2019 and ~~mobile marketing spend.~~ ~~Marketing expense as a percentage of gross profit for the~~ ~~three months ended June 30, 2018 decreased from the prior year period because we shifted a greater proportion of our global marketing spend to our International segment in the current year period.~~

~~International~~

~~International segment~~2018. North America marketing expense and marketing expense as a percentage of gross profit for the three months ended June 30, ~~2018~~2019 decreased from the prior year period as we leveraged improved marketing analytics to drive efficiency in our marketing spend and maximize the lifetime value of our customer base.

International

International segment marketing expense was 35.8% and 29.5% of total marketing expense for the three months ended June 30, 2019 and 2018. International marketing expense and marketing expense as a percentage of gross profit for the three months ended June 30, 2019 increased from the prior year period, ~~which~~as we continue to invest in the long-term potential of the International segment. The increase in marketing expense was ~~primarily attributable to~~partially offset by a ~~$2.0~~$1.8 million ~~unfavorable~~favorable impact from year-over-year changes in foreign exchange ~~rates and our ongoing strategic initiative to increase our marketing activities to drive customer growth.~~rates.

Six Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Marketing expense by segment as a percentage of gross profit for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):


	Six Months Ended June 30,													Six Months Ended June 30,
	2018		% of Gross Profit		2017		% of Gross Profit		$ Change			% Change		2019		% of Gross Profit		2018		% of Gross Profit		$ Change			% Change
Marketing:
North America	$	137,853	31.4	%	$	142,004	31.2	%	$	(4,151	)	(2.9	)%	$	116,909	28.6	%	$	137,853	31.4	%	$	(20,944	)	(15.2	)%
International	55,481		26.5		44,996		24.6		10,485			23.3		65,411		34.5		55,481		26.5		9,930			17.9
Total marketing	$	193,334	29.8		$	187,000	29.3		$	6,334		3.4		$	182,320	30.5		$	193,334	29.8		$	(11,014	)	(5.7	)

5141

~~Marketing by Segment~~

~~The percentages of marketing expense by segment for the six months ended June 30, 2018 and 2017 were as follows:~~



~~Q2 2018 YTD~~		~~Q2 2017 YTD~~



	~~North America~~			~~International~~

North America

North America segment marketing expense was 64.1% and 71.3% of total marketing expense for the six months ended June 30, 2018 decreased from the prior year period, which was primarily attributable to a decrease in offline marketing spend. Marketing expense as a percentage of gross profit for the six months ended June 30, 2018 was substantially consistent with the prior year period.

~~International~~

~~International segment~~2019 and 2018. North America marketing expense and marketing expense as a percentage of gross profit for the six months ended June 30, ~~2018~~2019 decreased from the prior year period as we leveraged improved marketing analytics to drive efficiency in our marketing spend and maximize the lifetime value of our customer base.

International

International segment marketing expense was 35.9% and 28.7% of total marketing expense for the six months ended June 30, 2019 and 2018. International marketing expense and marketing expense as a percentage of gross profit for the six months ended June 30, 2019 increased from the prior year period, ~~which~~as we continue to invest in the long-term potential of the International segment. The increase in marketing expense was ~~primarily attributable to~~partially offset by a ~~$5.5~~$4.4 million ~~unfavorable~~favorable impact from year-over-year changes in foreign exchange ~~rates and our ongoing strategic initiative to increase our marketing activities to drive customer growth.~~rates.

Selling, General, and Administrative

Selling expenses reported within Selling, general and administrative ("SG&A") on the condensed consolidated statements of operations consist of 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, 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, office supplies, maintenance, certain technology costs and other general corporate costs. We evaluate SG&A expense as a percentage of gross profit because it gives us an indication of our operating efficiency.

Three Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

SG&A as a percentage of gross profit for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Three Months Ended June 30,
2018 % of Gross Profit 2017 % of Gross Profit $ Change % Change
Selling, general and administrative $ 294,124
90.9 % $ 230,223
70.2 % $ 63,901
27.8 %



	Three Months Ended June 30,
	2019		% of Gross Profit		2018		% of Gross Profit		$ Change			% Change
Selling, general and administrative	$	210,348	72.0	%	$	293,725	90.8	%	$	(83,377	)	(28.4	)%

The ~~increase~~decrease in SG&A ~~and SG&A as a percentage of gross profit~~ for the three months ended June 30, ~~2018~~2019 as compared towith the prior year period was primarily attributable to to:

a $75.0 million charge recorded in the three months ended June 30, 2018 to increase our contingent liability related to a patent litigation case with IBM as a result of an adverse jury verdict in July 2018. Although Groupon cannot predict the ultimate outcome of this lawsuit, it currently intends to continue vigorously pursuing its position through post-trial motions and appeal. That increase was partially offset by our continued efforts to improve our cost structure, including the following:IBM;

a ~~$5.7~~$4.9 million ~~decrease in compensation-related costs; and~~

~~decreases in facilities costs and other general expenses.~~

~~There was a $5.2 million unfavorable~~favorable impact from year-over-year changes in foreign currency exchange ~~rates for the three months ended June 30, 2018.~~rates; and

decreases in facilities costs, system costs, litigation and other general expenses.

Six Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

SG&A as a percentage of gross profit for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Six Months Ended June 30,
2018 % of Gross Profit 2017 % of Gross Profit $ Change % Change
Selling, general and administrative $ 516,185
79.6 % $ 462,281
72.5 % $ 53,904
11.7 %



	Six Months Ended June 30,
	2019		% of Gross Profit		2018		% of Gross Profit		$ Change			% Change
Selling, general and administrative	$	420,772	70.3	%	$	516,069	79.6	%	$	(95,297	)	(18.5	)%

The ~~increase~~decrease in SG&A ~~and SG&A as a percentage of gross profit~~ for the six months ended June 30, ~~2018~~2019 as compared towith the prior year period was attributable to the following:

a $75.0 million charge recorded in the ~~second quarter~~six months ended June 30, 2018 to increase our contingent liability related to a patent litigation case with ~~IBM. That increase was partially offset by our continued efforts to improve our cost structure, including the following:~~IBM;

~~a $10.1~~an $11.2 million ~~decrease in compensation-related costs; and~~

~~decreases in facilities costs, systems costs, and other general expenses.~~

~~There was a $13.9 million unfavorable~~favorable impact from year-over-year changes in foreign currency exchange ~~rates for the six months ended June 30, 2018.~~rates; and

~~Restructuring Charges~~

~~Restructuring charges represent severance and benefit~~decreases in compensation-related costs, ~~for workforce reductions~~including variable compensation, facilities costs, system costs, litigation and other ~~exit costs resulting from our restructuring activities. See Note 12,~~ ~~Restructuring, for information about our restructuring plan.~~general expenses.

Income (Loss) from Operations

Three Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Income (loss) from operations by segment for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):


	Three Months Ended June 30,											Three Months Ended June 30,
	2018			2017			$ Change			% Change		2019			2018			$ Change			% Change
Income (loss) from operations
North America	$	(68,524	)	$	(12,033	)	$	(56,491	)	(469.5	)%	$	(372	)	$	(68,524	)	$	68,152		99.5	%
International	4,279			4,635			(356		)	(7.7	)	(6,767		)	4,279			(11,046		)	(258.1	)
Total income (loss) from operations	$	(64,245	)	$	(7,398	)	$	(56,847	)	(768.4	)	$	(7,139	)	$	(64,245	)	$	57,106		88.9

North America

The increase in our ~~loss~~income from operations was primarily attributable to a ~~$14.5~~$79.6 million decrease in ~~gross profit~~SG&A and ~~the $75.0 million charge recorded in the second quarter 2018 related to~~ a ~~patent litigation case with IBM, partially offset by a decrease of $18.1 million in other SG&A costs, including compensation-related and facilities-related costs, a $12.1~~$9.3 million decrease in marketing expense, ~~and~~partially offset by a ~~$2.8~~$20.8 million decrease in ~~restructuring costs.~~

gross profit.

Income (loss) from operations includes stock-based compensation of ~~$15.0~~$24.1 million and ~~$20.0~~$15.0 million for the three months ended June 30, ~~2018~~2019 and ~~2017, respectively.~~

For the three months ended June 30, 2018, there was a $4.7 million favorable impact on income (loss) from operations as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2, ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~2018.

International

The decrease in our income from operations was primarily attributable to a ~~$7.0 million increase in SG&A and a $5.6~~$4.0 million increase in marketing expense and a $10.7 million decrease in gross profit, partially offset by a ~~$10.1 million increase in gross profit and a $2.1~~$3.7 million decrease in ~~restructuring costs.~~SG&A.

Income (loss) from operations includes stock-based compensation of $2.5 million and $1.3 million for the three months ended June 30, ~~2018~~2019 and ~~2017.~~

For the three months ended June 30, 2018, there was a $2.7 million unfavorable impact on income (loss) from operations as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2, ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~2018.

Six Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Income (loss) from operations by segment for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):


	Six Months Ended June 30,											Six Months Ended June 30,
	2018			2017			$ Change			% Change		2019			2018			$ Change			% Change
Income (loss) from operations
North America	$	(70,384	)	$	(26,816	)	$	(43,568	)	(162.5	)%	$	4,964		$	(70,384	)	$	75,348		107.1	%
International	9,524			7,738			1,786			23.1		(9,908		)	9,524			(19,432		)	(204.0	)
Total income (loss) from operations	$	(60,860	)	$	(19,078	)	$	(41,782	)	(219.0	)	$	(4,944	)	$	(60,860	)	$	55,916		91.9

North America

The increase in our ~~loss~~income from operations was primarily attributable to ~~a $15.7~~an $85.1 million decrease in ~~gross profit~~SG&A and ~~the $75.0 million charge recorded in the second quarter 2018 related to~~ a ~~patent litigation case with IBM, partially offset by a decrease of $38.2 million in other SG&A costs, including compensation-related and facilities-related costs, a $4.2~~$20.9 million decrease in marketing expense, ~~and~~partially offset by a ~~$4.7~~$30.7 million decrease in ~~restructuring costs.~~gross profit.

Income (loss) from operations includes stock-based compensation of ~~$32.9~~$38.9 million and ~~$38.3~~$32.9 million for the six months ended June 30, ~~2018~~2019 and ~~2017, respectively.~~

For the six months ended June 30, 2018, there was a $9.9 million favorable impact on income (loss) from operations as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2, ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~2018.

International

The ~~improvement~~decrease in our income from operations was primarily attributable to a ~~$26.8~~$9.9 million increase in ~~gross profit~~marketing expense and a ~~$2.7~~$19.7 million decrease in ~~restructuring costs,~~gross profit, partially offset by a ~~$17.2~~$10.2 million ~~increase~~decrease in SG~~&A and a $10.5 million increase in marketing expense.~~&A.

Income (loss) from operations includes stock-based compensation of $4.1 million and $2.7 million for the six months ended June 30, ~~2018~~2019 and ~~2017.~~

For the six months ended June 30, 2018, there was a $0.4 million favorable impact on income (loss) from operations as a result of adopting Topic 606 as compared to previous accounting guidance. See Note 2, ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on the impact of adopting Topic 606 and its related amendments on the Company's accounting policies.~~2018.

Other Income (Expense), Net

Other income (expense), net includes interest income, interest expense, gains and losses on fair value option investments, impairments of investments and foreign currency gains and losses, primarily resulting from intercompany balances with our subsidiaries that are denominated in foreign currencies.

Three Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Other income (expense), net for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Three Months Ended June 30,
2018 2017 $ Change % Change
Other income (expense), net $ (26,457 ) $ 5,878
$ (32,335 ) (550.1 )%



	Three Months Ended June 30,
	2019			2018			$ Change			% Change
Other income (expense), net	$	(28,494	)	$	(26,457	)	$	(2,037	)	(7.7	)%

Other income (expense), net for the three months ended June 30, 2019 primarily consisted of the following:


•	$27.6 million of net losses on our fair value option investments. See Item 1, Note 3, Investments, for additional information; and


•	$5.4 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information.

Those items were partially offset by $1.9 million in interest income and $2.6 million in foreign currency gains, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.

Other income (expense), net for the three months ended June 30, 2018 primarily consisted of the following:

$12.5 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign ~~currencies. The foreign currency losses on those intercompany balances were primarily driven by the decline of the Euro against the U.S. dollar from an exchange rate of~~ ~~1.2321~~ ~~on March 31, 2018 to~~ ~~1.1683~~ ~~on June 30, 2018;~~currencies;

~~$9.2 million of impairments of minority investments. See Note 6,~~ ~~Investments, for additional information;~~

~~$5.2 million of interest expense; and~~

~~$3.0 million of losses on our fair value option investments. See Note 6,~~ ~~Investments, for additional information.~~


•	$9.2 million of impairment charges for available-for-sale and other equity investments. See Item 1, Note 3, Investments, for additional information;


•	$5.2 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and


•	$3.0 million of net losses on our fair value option investments. See Item 1, Note 3, Investments, for additional information.

Those items were partially offset by $1.8 million in interest income and a $1.7 million gain on an embedded derivative related to an available-for-sale security.

~~Other income (expense), net for the three months ended June 30, 2017 primarily consisted of $10.8 million in foreign currency gains, partially offset by $4.9 million of interest expense.~~

Six Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Other income (expense), net for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):

Six Months Ended June 30,
2018 2017 $ Change % Change
Other income (expense), net $ (34,972 ) $ 1,276
$ (36,248 ) (2,840.8 )%



	Six Months Ended June 30,
	2019			2018			$ Change			% Change
Other income (expense), net	$	(75,349	)	$	(34,972	)	$	(40,377	)	(115.5	)%

Other income (expense), net for the six months ended June 30, 2019 primarily consisted of the following:


•	$69.0 million of net losses on our fair value option investments. See Item 1, Note 3, Investments, for additional information; and


•	$11.1 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information.

Those items were partially offset by $3.9 million in interest income and $0.9 million in foreign currency gains, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.

Other income (expense), net for the six months ended June 30, 2018 primarily consisted of the following:

$11.1 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign ~~currencies. The foreign currency losses on those intercompany balances were primarily driven by the decline of the Euro against the U.S. dollar from an exchange rate of~~ ~~1.1996~~ ~~on December 31, 2017 to~~ ~~1.1683~~ ~~on June 30, 2018;~~currencies;

~~$10.7 million of interest expense;~~

~~$10.0 million of impairments of minority investments. See Note 6,~~ ~~Investments, for additional information; and~~

~~$8.1 million of losses on our fair value option investments. See Note 6,~~ ~~Investments, for additional information.~~


•	$10.7 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information;


•	$10.0 million of impairment charges for available-for-sale and other equity investments. See Item 1, Note 3, Investments, for additional information; and


•	$8.1 million of net losses on our fair value option investments. See Item 1, Note 3, Investments, for additional information.

Those items were partially offset by $3.3 million in interest income and a $1.7 million gain on an embedded derivative related to an available-for-sale security.

~~Other income (expense), net for the six months ended June 30, 2017 primarily consisted of $10.9 million in foreign currency gains, partially offset by $10.3 million of interest expense.~~

Provision (Benefit) for Income Taxes

Three Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Provision (benefit) for income taxes for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):


	Three Months Ended June 30,											Three Months Ended June 30,
	2018			2017			$ Change			% Change		2019			2018			$ Change		% Change
Provision (benefit) for income taxes	$	1,552		$	3,883		$	(2,331	)	(60.0	)%	$	2,012		$	1,552		$	460	29.6	%
Effective tax rate	(1.7		)%	(255.5		)%						(5.6		)%	(1.7		)%

~~We are currently undergoing income~~ See Item 1, Note 10, Income Taxes, for additional information relating to tax audits ~~in multiple jurisdictions. It is likely~~and assessments and regulatory and legal developments that ~~the examination phase~~may impact our business and results of ~~some of those audits will conclude~~operations in the next 12 months. There are many factors, including factors outside of our control, which influence the progress of and completion of those audits. During the fourth quarter 2017, we received an income tax assessment and a notification of proposed assessment from the tax authorities in two foreign jurisdictions, totaling $134.5 million in the aggregate. We believe that the assessments, which primarily relate to transfer pricing on transactions occurring from 2011 to 2014, are without merit and we intend to vigorously defend ourselves in those matters. In addition to any potential increases in our liabilities for uncertain tax positions from the ultimate resolution of those assessments, we believe that it is reasonably possible that reductions of up to $40.6 million in unrecognized tax benefits may occur within the 12 months following June 30, 2018 upon closing of income tax audits or the expiration of applicable statutes of limitations.future.

The Tax Cuts and Jobs Act (the "Jobs Act") was signed into law on December 22, 2017. In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. Additionally, while we do not expect to incur the deemed repatriation tax established by the Jobs Act, an actual repatriation from our non-U.S. subsidiaries could be subject to foreign and U.S. state income taxes. Aside from limited exceptions for which the related deferred tax liabilities recognized as of June 30, 2018 and December 31, 2017 are immaterial, we do not intend to distribute earnings of foreign subsidiaries for which we have an excess of the financial reporting basis over the tax basis of our investments and therefore have not recorded any deferred taxes related to such amounts. The actual tax cost resulting from a distribution would depend on income tax laws and circumstances at the time of distribution.

~~On July 24, 2018, the Ninth Circuit Court of Appeals issued an opinion in~~ ~~Altera Corp. v. Commissioner~~ requiring related parties in an intercompany cost-sharing arrangement to share expenses related to stock-based compensation. This opinion reversed an earlier decision of the United States Tax Court. We are currently evaluating the impact of that opinion; however, we currently do not expect that it will have a material impact on our provision for income taxes for the year ending December 31, 2018 due to the valuation allowances against our net deferred tax assets in the related jurisdictions.

5644

Six Months Ended June 30, ~~2018~~2019 and ~~2017:~~2018:

Provision (benefit) for income taxes for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows (dollars in thousands):


	Six Months Ended June 30,											Six Months Ended June 30,
	2018			2017			$ Change			% Change		2019			2018			$ Change			% Change
Provision (benefit) for income taxes	$	(783	)	$	8,470		$	(9,253	)	(109.2	)%	$	(1,478	)	$	(783	)	$	(695	)	(88.8	)%
Effective tax rate	0.8		%	(47.6		)%						1.8		%	0.8		%

Our U.S. Federal income tax rate is 21%. The primary factor impacting the effective tax rate for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. The effective tax rate for the six months ended June 30, 2019 also reflected the reversal of reserves for uncertain tax positions due to the closure of a tax audit. The effective tax rate for the six months ended June 30, 2018 also reflected a $6.4 million income tax benefit resulting from the impact of ~~adopting~~ Topic 606 on intercompany activity in certain foreign jurisdictions.

We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. See Item 1, Note 10, Income ~~(Loss) from Discontinued Operations~~

~~From November 2016 through March 2017, we exited our operations in 11 non-core countries and their results have been presented as discontinued operations. See Note 3,~~ ~~Discontinued Operations and Other Business Dispositions~~Taxes, for additional information ~~about~~relating to tax audits and assessments and regulatory and legal developments that may impact our business and results of operations in the ~~dispositions and see Note 9,~~ ~~Commitments and Contingencies, for information about indemnification obligations related to discontinued operations.~~future.

Non-GAAP Financial Measures

In addition to financial results reported in accordance with U.S. GAAP, we have provided the following non-GAAP financial measures: Adjusted EBITDA, free cash flow and foreign currency exchange rate neutral operating results. Those non-GAAP financial measures, which are presented on a continuing operations basis, are intended to aid investors in better understanding our current financial performance and prospects for the future as seen through the eyes of management. We believe that those non-GAAP financial measures facilitate comparisons with our historical results and with the results of peer companies who present similar measures (although other companies may define non-GAAP measures differently than we define them, even when similar terms are used to identify such measures). However, those non-GAAP financial measures are not intended to be a substitute for those reported in accordance with U.S. GAAP.

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) from continuing operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net and other special charges and credits, including items that are unusual in nature or infrequently occurring. Our definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key measure used by our management and Board of Directors to evaluate operating performance, generate future operating plans and make strategic decisions for the allocation of capital. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors. However, Adjusted EBITDA is not intended to be a substitute for income (loss) from continuing operations.

We exclude stock-based compensation expense and depreciation and amortization because they are primarily non-cash in nature and we believe that non-GAAP financial measures excluding those items provide meaningful supplemental information about our operating performance and liquidity. Acquisition-related expense (benefit), net is comprised of the change in the fair value of contingent consideration arrangements and external transaction costs related to business combinations, primarily consisting of legal and advisory fees. The composition of our contingent consideration arrangements and the impact of those arrangements on our operating results vary over time based on a number of factors, including the terms of our business combinations and the timing of those transactions. For the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, special charges and credits included charges related to our restructuring plan. For the three and six months ended June 30, 2018, special charges and credits also included the $75.0 million charge recorded in the second quarter 2018 related to a patent litigation case with IBM. We exclude special charges and credits from Adjusted EBITDA because we believe that excluding those items provides meaningful supplemental information about our core operating performance and facilitates comparisons with our historical results.

The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, Income (loss) from continuing operations for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Income (loss) from continuing operations	$	(92,254	)	$	(5,403	)	$	(95,049	)	$	(26,272	)	$	(37,645	)	$	(92,254	)	$	(78,815	)	$	(95,049	)
Adjustments:
Stock-based compensation ⁽¹⁾	16,266			21,392			35,544			41,042			26,563			16,266			42,974			35,544
Depreciation and amortization	28,954			34,679			58,615			68,746			27,116			28,954			55,532			58,615
Acquisition-related expense (benefit), net	655			36			655			48			28			655			28			655
Restructuring charges	(399		)	4,584			(116		)	7,315			(47		)	(399		)	(114		)	(116		)
IBM patent litigation	75,000			—			75,000			—			—			75,000			—			75,000
Other (income) expense, net	26,457			(5,878		)	34,972			(1,276		)	28,494			26,457			75,349			34,972
Provision (benefit) for income taxes	1,552			3,883			(783		)	8,470			2,012			1,552			(1,478		)	(783		)
Total adjustments	148,485			58,696			203,887			124,345			84,166			148,485			172,291			203,887
Adjusted EBITDA	$	56,231		$	53,293		$	108,838		$	98,073		$	46,521		$	56,231		$	93,476		$	108,838


(1)	Represents stock-based compensation expense recorded within Selling, general and administrative, Cost of revenue and Marketing. Other income (expense), net includes $0.05 million and $0.05 million for the three months ended June 30, 2018, and 2017, respectively. Other income (expense), net includes $0.1 million and $0.1 million for the six months ended June 30, 2018 and 2017, respectively.

Free cash flow. Free cash flow is a non-GAAP liquidity measure that comprises net cash provided by operating activities from continuing operations less purchases of property and equipment and capitalized ~~software from continuing operations.~~software. We use free cash flow to conduct and evaluate our business because, although it is similar to cash flow from continuing operations,

we believe that it typically represents a more useful measure of cash flows because purchases of fixed assets, software developed for internal use and website development costs are necessary components of our ongoing operations. Free cash flow is not intended to represent the total increase or decrease in our cash balance for the applicable period.

Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not include cash payments for business acquisitions. In addition, free cash flow reflects the impact of the timing difference between when we are paid by customers and when we pay merchants and suppliers. Therefore, we believe it is important to view free cash flow as a complement to our entire condensed consolidated statements of cash flows. For a reconciliation of free cash flow to the most comparable U.S. GAAP financial measure, see Liquidity and Capital Resources below.

Foreign currency exchange rate neutral operating results. Foreign currency exchange rate neutral operating results show current period operating results as if foreign currency exchange rates had remained the same as those in effect in the prior year period. Those measures are intended to facilitate comparisons to our historical performance. For a reconciliation of foreign currency exchange rate neutral operating results to the most comparable U.S. GAAP financial measures, see Results of Operations above.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flows from operations, cash balances, which totaled ~~$662.9~~$596.8 million as of June 30, ~~2018,~~2019, and available borrowing capacity under our ~~Amended and Restated~~2019 Credit Agreement.

Our net cash flows from operating, investing and financing activities from continuing operations for three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Cash provided by (used in):
Operating activities ⁽¹⁾	$	44,175		$	(19,390	)	$	(75,572	)	$	(157,476	)	$	(1,219	)	$	44,175		$	(148,702	)	$	(75,572	)
Investing activities	(75,714		)	(13,782		)	(96,096		)	(27,802		)	(17,235		)	(75,714		)	(35,350		)	(96,096		)
Financing activities	(18,729		)	(47,924		)	(39,628		)	(93,650		)	(31,581		)	(18,729		)	(59,358		)	(39,628		)

~~(1)~~

Prior period net cash used in operating activities from continuing operations has been updated from negative $20.7 million and negative $156.9 million previously reported for the three and six months ended June 30, 2017, respectively, to reflect the adoption of ASU 2016-18 on January 1, 2018. See Note 2, ~~Adoption of New Accounting Standards, for additional information on the adoption of ASU 2016-18.~~

Free cash flow is a non-GAAP liquidity measure that comprises net cash provided by operating activities from continuing operations, less purchases of property and equipment and capitalized software from continuing operations. Our free cash flow for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 and reconciliations to the most comparable U.S. GAAP financial measure, Net cash provided by (used in) operating activities from continuing operations, for those periods are as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net cash provided by (used in) operating activities from continuing operations ⁽¹⁾	$	44,175		$	(19,390	)	$	(75,572	)	$	(157,476	)	$	(1,219	)	$	44,175		$	(148,702	)	$	(75,572	)
Purchases of property and equipment and capitalized software from continuing operations	(17,373		)	(15,385		)	(37,517		)	(29,461		)	(16,684		)	(17,373		)	(34,161		)	(37,517		)
Free cash flow ⁽¹⁾	$	26,802		$	(34,775	)	$	(113,089	)	$	(186,937	)	$	(17,903	)	$	26,802		$	(182,863	)	$	(113,089	)

~~(1)~~

Net cash used in operating activities from continuing operations and free cash flow have been updated from negative $20.7 million and negative $36.1 million previously reported, respectively, for the three months ended June 30, 2017, and from negative $156.9 million and negative $186.4 million previously reported, respectively, for the six months ended June 30, 2017 to reflect the adoption of ASU 2016-18 on January 1, 2018. See Note 2, ~~Adoption of New Accounting Standards, for additional information on the adoption of ASU 2016-18.~~

Our revenue-generating transactions are primarily structured such that we collect cash up-front from customers and pay third-party merchants at a later date, either based on a fixed payment schedule or upon the customer's redemption of the related voucher. For merchants on fixed payment terms, we remit payments on an ongoing basis, generally bi-weekly, throughout the term of the merchant's offering. For purchases of merchandise inventory, our supplier payment terms generally range from net 30 to net 60 days. We have primarily paid merchants on fixed payment terms in North America and upon voucher redemption internationally. In the third quarter of 2017, we began to increase our use of redemption payment terms with our North America merchants ~~as well~~ and we expect that trend to continue.

Our cash balances fluctuate significantly throughout the year based on many variables, including gross billings growth rates, the timing of payments to merchants and suppliers, seasonality and the mix of transactions between Goods and Local. For example, we typically generate strong cash inflows during the fourth quarter holiday season, driven primarily by our Goods category, followed by significant cash outflows in the following period when payments are made to inventory suppliers. We are currently developing and testing voucherless offerings that are linked to customer credit ~~cards, which we refer to as Groupon+.~~cards. For ~~Groupon+ deals,~~our card-linked offerings, we offer cash back on customers' credit card statements based

on qualifying purchases with participating merchants. For many of those offerings, we typically remit payment to a card brand network within two weeks of the qualifying purchase for the customer's cash back incentive and then we collect from the merchant both our commission and reimbursement for the customer's cash back incentive, usually on a monthly basis. The working capital impact of ~~Groupon+~~card-linked offerings with this merchant payment structure is less favorable to us than voucher transactions, for which we collect payment from customers at the time of sale and remit payment to merchants at a later date. As such, ~~we expect that~~ our cash flows will initially be adversely impacted to the extent ~~that Groupon+~~we scale these types of card-linked offerings ~~begin to scale~~ in future periods.

For the six months ended June 30, ~~2018,~~2019, our net cash used in operating activities from continuing operations was ~~$75.6~~$148.7 million, as compared to our $95.0 million net loss from continuing operations. That difference was primarily attributable to $111.6 million of non-cash items, including depreciation and amortization and stock-based compensation,

~~partially offset by~~with a ~~$92.1 million net decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the seasonal timing of payments to inventory suppliers.~~

~~For the six months ended June 30, 2017, our net cash used in operating activities from continuing operations was $157.5 million, as compared to a $26.3~~$78.8 million net loss from continuing operations. That difference was primarily due to $174.3 million of non-cash items, including depreciation and amortization, stock-based compensation and a ~~$248.2~~$69.4 million loss from changes in fair value of our investment in Monster LP, partially offset by a $244.2 million decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the seasonal timing of payments to inventory suppliers and ~~payments related~~ to ~~our restructuring activities. The difference between~~a lesser extent a reduction in gross billings.

For the six months ended June 30, 2018, our net cash ~~provided by~~used in operating activities ~~and our net income~~ from continuing operations was $75.6 million, as compared with a $95.0 million net loss from continuing operations. That difference was primarily due to ~~changes in working capital was partially offset by $117.0~~$111.6 million of non-cash items, including depreciation and amortization and stock-based ~~compensation.~~compensation, partially offset by a $92.1 million decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the seasonal timing of payments to inventory suppliers and to a lesser extent a reduction in gross billings.

Our net cash used in investing activities from continuing operations was ~~$96.1~~$35.4 million and ~~$27.8~~$96.1 million for the six months ended June 30, ~~2018~~2019 and ~~2017, respectively. For the six months ended June 30, 2018 and 2017, our~~2018. Our net cash used in investing activities from continuing operations included ~~$37.5 million and $29.5 million, respectively, in~~ purchases of property and equipment and capitalized ~~software.~~software of $34.2 million and $37.5 million for the six months ended June 30, 2019 and 2018. For the six months ended June 30, 2018, net cash used in investing activities also included net cash paid of $57.8 million related to the acquisition of Cloud Savings.

Our net cash used in financing activities was ~~$39.6~~$59.4 million and ~~$93.7~~$39.6 million for the six months ended June 30, ~~2018~~2019 and ~~2017, respectively.~~2018. For the six months ended June 30, 2019, net cash used in financing activities included $29.6 million in purchases of treasury stock under our share repurchase program, $12.6 million in payments of finance lease obligations and $10.2 million in taxes paid related to net share settlements of stock-based compensation awards. For the six months ended June 30, 2018, net cash used in financing activities included $17.2 million in payments of ~~capital~~finance lease obligations and $16.1 million in taxes paid related to net share settlements of stock-based compensation awards. ~~For~~

In May 2019, we entered into the six months ended June 30, 2017, net cash used in financing activities included $51.5 million in purchases of treasury stock under our share repurchase program, $16.7 million in payments of capital lease obligations and $15.4 million in taxes paid related to net share settlements of stock-based compensation awards.

~~Our Amended and Restated~~2019 Credit Agreement which provides for aggregate principal borrowings of up to ~~$250.0~~$400.0 million and matures in ~~July~~May 2024. The 2019 Credit Agreement replaced our previous $250.0 million amended and restated credit agreement that was scheduled to mature in June 2019. As of June 30, ~~2018,~~2019, we had no borrowings outstanding under ~~our Amended and Restated~~the 2019 Credit Agreement and were in compliance with all covenants. See Item 1, Note 8, 5, Financing Arrangements, for additional information.

As of June 30, ~~2018,~~2019, we had ~~$259.5~~$231.1 million in cash held by our international subsidiaries, which is primarily denominated in Euros, ~~British~~ Pounds Sterling, Canadian dollars, and, to a lesser extent, Australian dollars and Japanese yen. In general, it is our practice and intention to re-invest the earnings of our non-U.S. subsidiaries in those operations. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business.

In May 2018, the Board of Directors authorized us to repurchase up to $300.0 million of our common stock under ~~a new share repurchase program. The Company's prior share repurchase program expired in April 2018. Upon its expiration, up to $135.2 million of~~ our ~~common stock remained available for purchase under that prior~~ share repurchase program. During the three and six months ended June 30, ~~2018,~~2019, we ~~did not~~repurchased 4,228,148 and 8,636,143 shares for an aggregate purchase price of $15.1 million and $30.1 million (including fees and commissions) under our repurchase ~~any shares~~program. As of June 30, 2019, up to $260.0 million of common stock remained available for purchase under our ~~common stock.~~program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under our ~~Amended and Restated~~2019 Credit Agreement, share price and other factors, and the share repurchase program may be terminated at any time. Repurchases will be made in compliance with SEC rules and other legal requirements and may be made, in part, under a Rule 10b5-1 plan, which permits share repurchases when we might otherwise be precluded from doing so.

Our cash ~~and cash equivalents~~balances and cash flows generated from our operations may be used to fund strategic investments, business acquisitions, working capital needs, investments in technology, marketing and share ~~repurchases and litigation-related payments, including any payments related to the IBM patent litigation matter.~~ repurchases.

Additionally, we have the ability to borrow funds under our ~~Amended and Restated~~2019 Credit Agreement. We could also seek to raise additional financing, if available on terms that we believe are favorable, to increase the amount of liquid funds that we can access for acquisitions, share repurchases or other strategic investment opportunities. Although we can provide no assurances, we believe that our cash ~~and cash equivalents balance~~balances and cash generated from operations ~~and available borrowings under our Amended and Restated Credit Agreement~~ should be sufficient to meet our working capital requirements and capital expenditures for at least the next twelve months.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of June 30, ~~2018~~2019 did not materially change from the amounts set forth in our ~~2017~~2018 Annual Report on Form 10-K, except as disclosed in Item 1, Note 9, ~~Commitments and Contingencies~~.

6, Leases.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, ~~2018.~~2019.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and related ~~disclosures~~disclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting policies are discussed in Item 2, Note 2, Summary of Significant Accounting Policies, and in the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2017, as amended.~~2018. In addition, refer to the critical accounting policies and estimates under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2017, as amended.~~2018.

The changes to our ~~revenue~~lease recognition policies upon the adoption of Topic ~~606~~842 on January 1, ~~2018 represents~~2019 represent a material change to our critical accounting policies and estimates during the six months ended June 30, ~~2018.~~2019. See Item 1, Note 2, ~~Adoption of New Accounting Standards, and Note 11,~~ ~~Revenue Recognition~~6, Leases, for additional information related to our ~~revised revenue~~new lease recognition policies.

Recently Issued Accounting Standards

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. This ASU will require the recognition of lease assets and liabilities for operating leases with terms of more than 12 months, in addition to the capital lease assets and liabilities currently recorded on our consolidated balance sheets. Presentation of leases within the consolidated statements of operations and cash flows will be substantially consistent with current accounting guidance. The ASU is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. We are continuing to evaluate the impact of the ASU and expect that it will have a material impact on our consolidated balance sheets. See Note 10, ~~Commitments and Contingencies, in our Annual Report on Form 10-K, for the year ended December 31, 2017, as amended, and Note 9,~~ ~~Commitments and Contingencies, in this Quarterly Report on Form 10-Q for information about our lease commitments.~~

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses of Financial Instruments. This ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses rather than incurred losses. For available-for-sale debt securities with unrealized losses, entities will be required to recognize credit losses through an allowance for credit losses. The ASU will be effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. While we are still assessing the impact of ASU 2016-13, we currently believe that the adoption of this guidance will not have a material impact on our condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests

in fiscal years beginning after December 15, 2019. We believe that the adoption of this guidance will not have a material impact on our condensed consolidated financial statements.

In ~~June~~August 2018, the FASB issued ASU ~~2018-07,~~ ~~Compensation~~2018-13, Fair Value Measurement (Topic 820) - ~~Stock Compensation (Topic 718)~~Disclosure Framework - ~~Improvements~~Changes to ~~Nonemployee Share-Based Payment Accounting.~~ the Disclosure Requirements for Fair Value Measurement. This ASU ~~expands~~modifies the ~~scope of~~disclosure requirements in Topic ~~718 to make the guidance to share-based payment awards to nonemployees consistent with the guidance for share-based payment awards to employees.~~820, Fair Value Measurement, by removing, modifying, or adding certain disclosures. The ASU will be effective for annual reporting periods beginning after December 15, ~~2018~~2019 and interim periods within those annual periods. ~~We believe that the~~Early adoption is permitted, and entities are permitted to early adopt any removed or modified disclosures and delay adoption of ~~this guidance will not have a material~~the additional disclosures until the effective date. We are still assessing the impact of ASU 2018-13 on our condensed consolidated financial statements.

There are no other accounting standards that have been issued but not yet adopted that are expected to have a material impact on our condensed consolidated financial position or results of operations.

6250

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effect of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about those market risks is set forth below.

Foreign Currency Exchange Risk

We transact business in various foreign currencies other than the U.S. dollar, principally the euro, British pound sterling, Canadian dollar and Australian dollar, which exposes us to foreign currency risk. For the three and six months ended June 30, ~~2018,~~2019, we derived approximately ~~38.4%~~39.0% and ~~37.8%, respectively,~~38.6% of our revenue from our International segment. Revenue and related expenses generated from our international operations are generally denominated in the local currencies of the corresponding countries. The functional currencies of our subsidiaries that either operate or support those markets are generally the same as the corresponding local currencies. However, the results of operations of, and certain of our intercompany balances associated with, our international operations are exposed to foreign currency exchange rate fluctuations. Upon consolidation, as exchange rates vary, our revenue and other operating results may differ materially from expectations, and we may record significant gains or losses on the re-measurement of intercompany balances.

We assess our foreign currency exchange risk based on hypothetical changes in rates utilizing a sensitivity analysis that measures the potential impact on working capital based on a 10% change (increase and decrease) in currency rates. We use a current market pricing model to assess the changes in the value of the U.S. dollar on foreign currency denominated monetary assets and liabilities. The primary assumption used in this model is a hypothetical 10% weakening or strengthening of the U.S. dollar against those currency exposures as of June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

As of June 30, ~~2018,~~2019, our net working capital ~~deficit~~surplus (defined as current assets less current liabilities) from subsidiaries that are subject to foreign currency translation risk was ~~$2.4~~$12.7 million. The potential increase in this working capital ~~deficit~~surplus from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be ~~$0.2~~$1.3 million. This compares towith a ~~$21.5~~$20.8 million working capital ~~deficit~~surplus subject to foreign currency exposure as of December 31, ~~2017,~~2018, for which a 10% adverse change would have resulted in a potential increase in this working capital ~~deficit~~surplus of ~~$2.2~~$2.1 million.

Interest Rate Risk

Our cash balance as of June 30, ~~2018~~2019 consists of bank deposits, so exposure to market risk for changes in interest rates is limited. In April 2016, we issued convertible notes with an aggregate principal amount of $250.0 million (see Item 1, Note 8, 5, Financing Arrangements). The convertible notes bear interest at a fixed rate, so we have no financial statement impact from changes in interest rates. However, changes in market interest rates impact the fair value of the convertible notes along with other variables such as our credit spreads and the market price and volatility of our common stock. In ~~June 2016,~~May 2019, we entered into the ~~Amended and Restated~~2019 Credit Agreement ~~that~~which provides for aggregate principal borrowings of up to ~~$250.0~~$400.0 million. As of June 30, ~~2018, there were~~2019, we had no borrowings outstanding under the ~~Amended and Restated~~2019 Credit Agreement. Because the ~~Amended and Restated~~2019 Credit Agreement bears interest at a variable rate, we are exposed to market risk relating to changes in interest rates if we borrow under the ~~Amended and Restated~~2019 Credit Agreement. We also have ~~$36.8~~$174.0 million of ~~capital~~ lease ~~obligations~~obligations. Interest rates on existing leases typically do not change unless there is a modification to a lease agreement and ~~$10.2 million of investments in convertible debt securities issued by nonpublic entities that are classified~~ as ~~available-for-sale. We~~such, we do not believe that the interest rate risk on the ~~long-term capital~~ lease obligations ~~and investments~~ is significant.

Impact of Inflation

We believe that our results of operations are not materially impacted by moderate changes in the inflation rate. Inflation and changing prices did not have a material effect on our business, financial condition or results of operations for the three and six months ended June 30, ~~2018.~~2019.

6351

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our management concluded that, as of June 30, ~~2018,~~2019, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

6452

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, please see Item 1, Note 9, 7, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2017, as amended,~~2018, and Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2018.~~2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

During the three months ended June 30, ~~2018,~~2019, we did not issue any unregistered equity securities.

Issuer Purchases of Equity Securities

On May 7, 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under ~~a new~~our share repurchase program. ~~The Company's prior share repurchase program expired in April 2018.~~ During the three and six months ended June 30, ~~2018, the Company did not~~2019, we repurchased 4,228,148 and 8,636,143 shares for an aggregate purchase price of $15.1 million and $30.1 million (including fees and commissions) under our repurchase ~~any shares~~program. As of ~~its~~June 30, 2019, up to $260.0 million of common ~~stock.~~stock remained available for purchase under our program. The timing and amount of ~~any~~ share repurchases, if any, will be determined based on market conditions, limitations under the ~~amended and restated credit agreement,~~2019 Credit Agreement, share price and other factors, and the share purchase program may be terminated at any time. We will fund the repurchases, if any, through cash on hand, future cash flows and borrowings under our credit facility. Repurchases will be made in compliance with SEC rules and other legal requirements and may be made in part under a Rule 10b5-1 plan, which permits stock repurchases when ~~the Company~~we might otherwise be precluded from doing so. ~~See Note 10,~~ ~~Stockholders' Equity and Compensation Arrangements, for discussion regarding~~

A summary of our common stock repurchases during the three months ended June 30, 2019 under our share repurchase ~~program.~~program is set forth in the following table:



Date	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
April 1-30, 2019	—	$	—	—	$	275,000,002
May 1-31, 2019	1,221,792	3.54		1,221,792	270,685,687
June 1-30, 2019	3,006,356	3.57		3,006,356	260,000,005
Total	4,228,148	$	3.56	4,228,148	$	260,000,005

The following table provides information about purchases of shares of our common stock during the three months ended June 30, ~~2018~~2019 related to shares withheld upon vesting of restricted stock units for minimum tax withholding obligations:

Date
Total Number of Shares Purchased ⁽¹⁾
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
April 1-30, 2018 265,788
$ 4.29
—
—
May 1-31, 2018 184,591
4.58
—
—
June 1-30, 2018 700,880
4.51
—
—
Total 1,151,259
$ 4.47
—
—



Date	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
April 1-30, 2019	271,025	$	3.51	—	—
May 1-31, 2019	208,786	3.52		—	—
June 1-30, 2019	1,044,591	3.54		—	—
Total	1,524,402	$	3.53	—	—


(1)	Total number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-based compensation awards.

ITEM 5. OTHER INFORMATION

~~None.~~On July 29, 2019, Joey Levin resigned as a director of the Company. The departure of Mr. Levin was not the result of any disagreement with the Company, and we thank him for his dedicated service to Groupon.

ITEM 6. EXHIBITS



Exhibit Number		Description
10.1		Second Amended and Restated Credit Agreement, dated as of May 14, 2019, among the Company, JP Morgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto (incorporated by reference to the Company's Current Report on Form 8-K filed on May 20, 2019).
10.2		Groupon, Inc. 2011 Incentive Plan, as amended (incorporated by reference to Appendix B to the Company's Definitive Proxy Statement on Schedule DEF14A, filed with the SEC on April 26, 2019). **
10.3		Groupon, Inc. 2012 Employee Stock Purchase Plan, as amended (incorporated by reference to Appendix C to the Company's Definitive Proxy Statement on Schedule DEF14A, filed with the SEC on April 26, 2019). **
31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

** Management contract or compensatory plan or arrangement

6654

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this ~~3rd~~30th day of ~~August 2018.~~July 2019.



GROUPON, INC.
By:	/s/ Michael Randolfi
	Name:	Michael Randolfi
	Title:	Chief Financial Officer

6755



Non-cash investing and financing activities
Continuing operations:
Equipment acquired under capital lease obligations	$	9,581		$	16,509
Leasehold improvements funded by lessor	557			402
Liability for purchases of treasury stock	—			561
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software	(789		)	539
Investments acquired in connection with business dispositions	—			2,022
Contingent consideration liability incurred in connection with acquisition of business	1,589			—
Financing obligation incurred in connection with acquisition of business	8,604			—



	June 30, 2018		June 30, 2017		December 31, 2017
Cash and cash equivalents	$	662,893	$	618,550	$	880,129
Restricted cash included in prepaid expenses and other current assets	4,250		6,569		4,932
Restricted cash included in other non-current assets	398		5,279		420
Cash, cash equivalents and restricted cash	$	667,541	$	630,398	$	885,481



Net consideration received:
Fair value of minority investments retained or acquired	$	2,021
Cash proceeds received	3,462
Cash proceeds receivable	2,000
Less: transaction costs	1,394
Total net consideration received	6,089
Cumulative translation gain reclassified to earnings	14,718
Less: Net book value upon closing of the transactions	14,596
Less: Indemnification liabilities ⁽¹⁾	5,365
Less: Unfavorable contract liability for transition services	2,114
Loss on dispositions	$	(1,268	)



	Three Months Ended June 30, 2017 ⁽¹⁾			Six Months Ended June 30, 2017 ⁽²⁾
Service revenue	$	—		$	12,602
Product revenue	—			2,962
Service cost of revenue	—			(2,557		)
Product cost of revenue	—			(3,098		)
Marketing expense	—			(1,239		)
Selling, general and administrative expense	(1,376		)	(11,284		)
Restructuring	—			(778		)
Other income, net	—			3,852
Income (loss) from discontinued operations before loss on dispositions and provision for income taxes	(1,376		)	460
Loss on dispositions	—			(1,268		)
Provision for income taxes	—			(81		)
Income (loss) from discontinued operations, net of tax	$	(1,376	)	$	(889	)



Cash	$	64,065
Financing obligation	8,604
Contingent consideration	1,589
Total	$	74,258



Cash and cash equivalents	$	6,244
Accounts receivable	5,885
Prepaid expenses and other current assets	804
Property, equipment and software	226
Goodwill	46,217
Intangible assets⁽¹⁾:
Merchant relationships	20,322
Trade names	2,609
Developed technology	549
Other intangible assets	687
Total assets acquired	$	83,543
Accounts payable	$	693
Accrued merchant and supplier payables	386
Accrued expenses and other current liabilities	6,130
Other non-current liabilities	2,076
Total liabilities assumed	$	9,285
Total acquisition price	$	74,258



Remaining amounts in 2018	$	7,446
2019	11,025
2020	5,120
2021	4,393
2022	4,077
Thereafter	5,014
Total	$	37,075



Remaining amounts in 2018	$	1,296
2019	2,592
2020	2,592
2021	2,592
2022	2,592
Thereafter	5,832
Total minimum lease payments	$	17,496



Remaining amounts in 2018	$	—
2019	3,400
2020	3,400
2021	3,400
2022	3,400
Total	$	13,600



	Restricted Stock Units		Weighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 2017	28,939,110		$	4.32
Granted	14,631,563		4.76
Vested	(7,507,084	)	4.41
Forfeited	(3,202,754	)	4.26
Unvested at June 30, 2018	32,860,835		4.51



Account	Increase (decrease) to beginning accumulated deficit
Prepaid expenses and other current assets	$	(4,007	)
Other non-current assets	(10,223		)
Accrued merchant and supplier payables	(64,970		)
Accrued expenses and other current liabilities	(13,188		)
Other non-current liabilities	3,443
Effect on beginning accumulated deficit	$	(88,945	)



	June 30, 2018
	As reported		Adjustments			Balances without adoption of Topic 606
Total assets	$	1,488,700	$	(11,638	)	$	1,477,062
Total liabilities	1,217,563		86,124			1,303,687
Total equity	271,137		(97,762		)	173,375



	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	As reported			Adjustments			Balances without adoption of Topic 606			As reported			Adjustments			Balances without adoption of Topic 606
Revenue:
Service revenue ⁽¹⁾⁽²⁾	$	295,652		$	6,001		$	301,653		$	597,449		$	4,222		$	601,671
Product revenue	321,744			—			321,744			646,487			—			646,487
Total revenue	617,396			6,001			623,397			1,243,936			4,222			1,248,158
Cost of revenue:
Service cost of revenue ⁽³⁾	30,230			7,043			37,273			61,375			13,318			74,693
Product cost of revenue	263,508			—			263,508			534,018			—			534,018
Cost of revenue ⁽³⁾	293,738			7,043			300,781			595,393			13,318			608,711
Gross profit	323,658			(1,042		)	322,616			648,543			(9,096		)	639,447
Operating expenses:
Marketing ⁽⁴⁾	94,178			2,134			96,312			193,334			3,707			197,041
Selling, general and administrative ⁽⁵⁾	294,124			(1,227		)	292,897			516,185			(2,491		)	513,694
Restructuring charges	(399		)	—			(399		)	(116		)	—			(116		)
Total operating expenses	387,903			907			388,810			709,403			1,216			710,619
Income (loss) from operations	(64,245		)	(1,949		)	(66,194		)	(60,860		)	(10,312		)	(71,172		)
Other income (expense), net	(26,457		)	—			(26,457		)	(34,972		)	—			(34,972		)
Income (loss) before provision (benefit) for income taxes	(90,702		)	(1,949		)	(92,651		)	(95,832		)	(10,312		)	(106,144		)
Provision (benefit) for income taxes ⁽⁶⁾	1,552			886			2,438			(783		)	(133		)	(916		)
Net income (loss)	$	(92,254	)	$	(2,835	)	$	(95,089	)	$	(95,049	)	$	(10,179	)	$	(105,228	)



	Deferred Revenue
Balance as of January 1, 2018	$	25,763
Revenue deferred	21,802
Revenue recognized	(25,364		)
Foreign currency translation	(399		)
Balance as of June 30, 2018	$	21,802



	Three Months Ended June 30, 2018
	Employee Severance and Benefit Costs ⁽¹⁾			Other Exit Costs ⁽¹⁾		Total Restructuring Charges (Credits)
North America	$	—		$	177	$	177
International	(576		)	—		(576		)
Consolidated	$	(576	)	$	177	$	(399	)



	Six Months Ended June 30, 2018
	Employee Severance and Benefit Costs⁽¹⁾			Other Exit Costs ⁽¹⁾		Total Restructuring Charges (Credits)
North America	$	—		$	177	$	177
International	(346		)	53		(293		)
Consolidated	$	(346	)	$	230	$	(116	)



	Three Months Ended June 30, 2017
	Employee Severance and Benefit Costs ⁽²⁾		Other Exit Costs		Total Restructuring Charges
North America	$	2,687	$	288	$	2,975
International	86		1,523		1,609
Consolidated	$	2,773	$	1,811	$	4,584



	Six Months Ended June 30, 2017
	Employee Severance and Benefit Costs ⁽²⁾		Other Exit Costs		Total Restructuring Charges
North America	$	4,465	$	465	$	4,930
International	609		1,776		2,385
Consolidated	$	5,074	$	2,241	$	7,315



	Employee Severance and Benefit Costs			Other Exit Costs			Total
Balance as of December 31, 2017	$	3,817		$	304		$	4,121
Charges payable in cash	(346		)	230			(116		)
Cash payments	(1,428		)	(53		)	(1,481		)
Foreign currency translation	(67		)	—			(67		)
Balance as of June 30, 2018	$	1,976		$	481		$	2,457



	December 31, 2017
	Carrying Amount		Fair Value
Cost method investments ⁽¹⁾	$	25,438	$	32,792



	Three Months Ended June 30, 2018
	At Avg. Q2 2017 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾		As Reported
Gross billings	$	1,236,153	$	28,110	$	1,264,263