September 30, 2018 December 31, 2017
Refunds reserve $ 23,800
$ 31,275
Compensation and benefits 56,016
73,096
Accrued marketing 34,948
32,912
Customer credits 17,420
28,487
Income taxes payable 11,587
9,645
Deferred revenue 20,709
29,539
Current portion of capital lease obligations 21,043
25,958
Other 84,203
100,284
Total accrued expenses and other current liabilities $ 269,726
$ 331,196


(1)	Current portion of lease obligations as of September 30, 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 Note 6, Leases, for additional information.

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



	September 30, 2019		December 31, 2018
Contingent income tax liabilities	$	32,440	$	39,858
Deferred rent ⁽¹⁾	—		32,186
Deferred income taxes	4,403		6,619
Other	14,118		22,025
Total other non-current liabilities	$	50,961	$	100,688

September 30, 2018 December 31, 2017
Contingent income tax liabilities $ 46,073
$ 43,699
Deferred rent 31,860
29,032
Capital lease obligations 12,224
18,500
Deferred income taxes 2,776
811
Other 9,610
10,366
Total other non-current liabilities $ 102,543
$ 102,408

~~The following table summarizes the components of accumulated other comprehensive income (loss) as of September 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) 1,166
(842 ) 324
Balance as of September 30, 2018 $ 32,128
$ 201
$ 32,329


(1)	Non-current operating lease liabilities as of September 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.

~~GROUPON, INC.~~

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

~~(unaudited)~~

8.5. FINANCING ARRANGEMENTS

Convertible Senior Notes

On April 4, 2016, 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 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, we can elect to settle the conversion value in cash, shares of our common stock, or any combination of cash and shares of 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, 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 common stock of ~~$3.77~~$2.66 as of September 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 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, we may redeem the Notes, at 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 exercise of this redemption right.

The Notes are senior unsecured obligations that rank equal in right of payment to all senior unsecured indebtedness 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.

We have separated the Notes into their liability and equity components in the accompanying condensed consolidated balance 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 sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	September 30, 2019			December 31, 2018
Liability component:
Principal amount	$	250,000		$	250,000
Less: debt discount	(38,559		)	(48,331		)
Net carrying amount of liability component	$	211,441		$	201,669

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

September 30, 2018 December 31, 2017
Liability component:
Principal amount $ 250,000
$ 250,000
Less: debt discount (51,425 ) (60,247 )
Net carrying amount of liability component $ 198,575
$ 189,753

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

The estimated fair value of the Notes as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$262.8~~$259.0 million and ~~$285.6~~$257.1 million, ~~respectively,~~ and was determined using a lattice model. 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 our stock price volatility over the term of the Notes and our cost of debt.

As of September 30, ~~2018,~~2019, the remaining term of the Notes is approximately 32 years and 6 months. During the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we recognized interest costs on the Notes as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Contractual interest (3.25% of the principal amount per annum)	$	2,032	$	2,032	$	6,096	$	6,096
Amortization of debt discount	3,341		3,016		9,772		8,822
Total	$	5,373	$	5,048	$	15,868	$	14,918

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Contractual interest (3.25% of the principal amount per annum) $ 2,032
$ 2,032
$ 6,096
$ 6,096
Amortization of debt discount 3,016
2,722
8,822
7,964
Total $ 5,048
$ 4,754
$ 14,918
$ 14,060

Note Hedges and Warrants

In May 2016, we purchased convertible note hedges with respect to our common stock for a cost of $59.1 million from certain bank counterparties. The convertible note hedges provide us with the right to purchase up to 46.3 million shares of 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 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, 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 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 September 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 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~~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 ~~June 2019.~~ May 2024. The 2019 Credit Agreement replaced our previous $250.0 million amended and restated credit agreement (the "2016 Credit Agreement"). We deferred debt issuance costs of $2.4 million related to the 2019 Credit Agreement. Those deferred costs are included within Other non-current assets on the condensed consolidated balance sheet as of September 30, 2019 and will be amortized to interest expense over the term of the agreement.

Borrowings under the ~~Amended and Restated~~2019 Credit Agreement bear interest, at 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%. 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 our tangible and intangible assets, including a pledge of 100% of the outstanding capital stock of substantially all of 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 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 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 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. 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. We have the right to terminate the ~~Amended and Restated~~2019 Credit Agreement or reduce the available commitments at any time.

As of September 30, ~~2018~~2019, we had no borrowings outstanding under the 2019 Credit Agreement and as of December 31, ~~2017,~~2018, we ~~have~~had no borrowings ~~and have~~outstanding under the 2016 Credit Agreement. As of September 30, 2019, we had outstanding letters of credit of ~~$18.3~~$18.0 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 ~~commitments~~condensed consolidated balance sheets. Beginning on January 1, 2019, our condensed consolidated financial statements are presented in accordance with the 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 0 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.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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.

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 2023 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 September 30, ~~2018 did not materially change from the amounts set forth in our 2017 Annual Report on Form 10-K.~~2019 (in thousands):

~~Leases~~



	September 30, 2019
Right-of-use assets - operating leases	$	130,757
Right-of-use assets - finance leases⁽¹⁾	31,255
Total right-of-use assets, gross	162,012
Less: accumulated depreciation and amortization	(29,964		)
Right-of-use assets, net	$	132,048


(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 the second quarter 2018,~~On December 28, 2016, we entered into a ~~new office lease~~sublease for ~~one~~portions of our ~~foreign locations.~~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 for both the three months ended September 30, 2019 and 2018, and $1.7 millionand $1.5 million for the nine months ended September 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.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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 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 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 September 30, 2019 and January 1, 2019 ranged from 1.5% to 6.9%. As of September 30, ~~2018,~~2019, the weighted-average remaining lease term for our finance leases and operating leases was 2 years and 5 years. As of September 30, 2019, the weighted-average discount rate for our finance leases and operating leases was 5.1% and 5.6%.

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



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Financing lease cost:
Amortization of right-of-use assets	$	3,492		$	16,247
Interest on lease liabilities	243			816
Total finance lease cost	3,735			17,063
Operating lease cost	8,573			25,784
Variable lease cost	2,410			6,319
Short-term lease cost	52			262
Sublease income, gross	(1,248		)	(3,872		)
Total lease cost	$	13,522		$	45,556

As of September 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	$	2,056		$	10,003
2020	9,611			36,609
2021	5,261			34,416
2022	715			33,579
2023	12			25,130
Thereafter	—			33,103
Total minimum lease payments	17,655			172,840
Less: Amount representing interest	(863		)	(22,972		)
Present value of net minimum lease payments	16,792			149,868
Less: Current portion of lease obligations	(8,939		)	(31,460		)
Total long-term lease obligations	$	7,853		$	118,408

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Remaining amounts in 2018 $ 639
2019 2,556
2020 2,556
2021 2,556
2022 2,556
Thereafter 5,751
Total minimum lease payments $ 16,614

~~Other Contractual Commitments~~

~~In the first quarter 2018, we entered into a non-cancelable arrangement for cloud computing services.~~ As of September 30, ~~2018,~~2019, the future ~~payments~~amounts due under ~~that contractual obligation~~subleases for each of the next five years and thereafter are as follows (in thousands):



	Subleases
Remaining in 2019	$	1,246
2020	5,027
2021	5,065
2022	5,103
2023	4,385
Thereafter	4,891
Total future sublease income	$	25,717

Remaining amounts in 2018 $ —
2019 3,400
2020 3,400
2021 3,400
2022 3,400
Total $ 13,600
The following table summarizes supplemental cash flow information on our leasing obligations for the nine months ended September 30, 2019 (in thousands):



	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	(816	)
Operating cash flows from operating leases	(25,121		)
Financing cash flows from finance leases	(16,868		)
Right-of-use assets obtained in exchange for lease liabilities:
Finance leases	3,865
Operating leases	23,123

7. COMMITMENTS AND CONTINGENCIES

Our contractual obligations and commitments as of September 30, 2019 did not materially change from the amounts set forth in our 2018 Annual Report on Form 10-K, except as disclosed in Note 6, Leases.

Legal Matters and Other Contingencies

From time to time, we are party to various legal proceedings incident to the operation of our business. For example, we currently are 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 us (the "Delaware Action"). In the Delaware Action, IBM alleged that we infringed certain IBM patents that IBM claimed 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 sought 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 we willfully infringed each of these patents and awarded damages of $82.5 million to IBM.

On May 9, 2016, we filed a complaint in the United States District Court for the Northern District of Illinois against IBM (the "Illinois Action"). We alleged that IBM infringed one of our patents relating to location-based services.

On September 28, 2018, we entered into settlement and license agreements with IBM fully resolving the Delaware Action, the Illinois Action and related proceedings with IBM. The settlement terms provide for the payment of $57.5 million to IBM, a cross-license to the parties’ respective patent portfolios, mutual releases of claims and the dismissal with prejudice of the Delaware Action and the Illinois Action. On October 2, 2018, the court in the Delaware Action entered an order dismissing the Delaware Action with prejudice. On October 1, 2018, the court in the Illinois Action entered an order dismissing the Illinois Action with prejudice.

We previously recorded a $75.0 million charge in the second quarter 2018 to increase our contingent liability for this matter to the $82.5 million jury award. That charge was classified within Selling, general and administrative expense in our condensed consolidated statement of operations. During the third quarter 2018, we reduced Selling, general and administrative expense by $40.4 million as a result of the IBM settlement, reflecting the $25.0 million decrease from the jury award and $15.4 million that was capitalized for the license to use the patented technology in future periods under the terms of the settlement and license agreements. We allocated the settlement amount between the litigation settlement component and the license for future use of the patented technology based on their relative fair values.

In addition, ~~other~~ third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to intellectual property disputes, including patent infringement claims, and expect that we will ~~increasingly~~continue to be subject to intellectual property infringement claims as our services expand in scope and complexity. ~~We have in~~In the past, we have litigated such claims, and we are presently involved in several patent infringement and other intellectual property-related claims, including pending litigation or trademark disputes relating to, for example, our Goods category, some of which could involve potentially substantial claims for damages or injunctive relief. 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 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. We believe that additional lawsuits alleging that we have violated patent, copyright or trademark laws will be filed against us. Intellectual property claims, whether meritorious or not, are time consuming and often costly to resolve, could require expensive changes in our methods of doing business or the goods we sell, or could require us to enter into costly royalty or licensing agreements.

We also are 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 us to change our business practices, sometimes in expensive ways.

We are also subject to, or in the future may become subject to, a variety of regulatory inquiries, audits, and investigations across the jurisdictions where 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 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 us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm our business.

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, 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 our business, condensed consolidated financial position, results of operations or cash flows. 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 us because of defense and settlement costs, diversion of management resources and other factors.

Indemnifications

In connection with the ~~dispositions~~disposition of our operations in Latin America ~~(see Note 3,~~ ~~Discontinued Operations and Other Business Dispositions~~),in the first quarter of 2017, we ~~agreed to indemnify the buyer~~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 resulting benefit of $2.2 million is recorded within Income (loss) from discontinued operations on the condensed consolidated statement of operations for the nine months ended September 30, 2019. Our remaining indemnification liabilities were $3.2 million as of September 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 September 30, ~~2018~~2019 is approximately ~~$18.0~~$13.3 million.

In the normal course of business to facilitate transactions related to our operations, 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. 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. We are also subject to increased exposure to various claims as a result of our divestitures and acquisitions, particularly in cases where we are entering into new businesses in connection with such acquisitions. We may also become more vulnerable to claims as we expand the range and scope of our services and are subject to laws in jurisdictions where the underlying laws with respect to potential liability are either unclear or less favorable. In addition, we have entered into indemnification agreements with our officers, directors and underwriters, and 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 we have made under these agreements have not had a material impact on the operating results, financial position or cash flows.

~~10.~~

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

8. STOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS

Our 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 our common stock. As of September 30, 2018 and December 31, 2017, there were no shares of preferred stock outstanding.

Common Stock

Pursuant to 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 us to repurchase up to $300.0 million of our common stock under ~~a new~~our share repurchase program. ~~The prior share repurchase program expired in April 2018.~~ During the three and nine months ended September 30, ~~2018,~~2019, we ~~did not~~repurchased 5,391,084 and 14,027,227 shares for an aggregate purchase ~~any shares~~price of $15.1 million and $45.2 million (including fees and commissions) under ~~those share~~our repurchase ~~programs.~~program. As of September 30, 2019, up to $245.0 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, as amended (the "2011 Plan"), 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"). As of September 30, ~~2018, 54,556,190~~2019, 71,768,289 shares of common stock were available for future issuance under the Plans.

~~GROUPON, INC.~~

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

~~(unaudited)~~

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 nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Cost of revenue	$	419	$	582	$	1,103	$	2,039	$	405	$	419	$	1,163	$	1,103
Marketing	1,854		1,797		5,411		5,829		1,671		1,854		4,586		5,411
Selling, general and administrative	12,753		15,856		44,056		51,409		17,467		12,753		56,768		44,056
Restructuring charges	—		849		—		849
Other income (expense)	—		93		100		192
Other income (expense), net									—		—		—		100
Total stock-based compensation expense	$	15,026	$	19,177	$	50,670	$	60,318	$	19,543	$	15,026	$	62,517	$	50,670

~~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~~2020 due 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.ongoing traffic declines.


•	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.

~~Units~~. This metric represents the number of purchases during the reporting period, before refunds and cancellations, made either through one of our online marketplaces or directly with a merchant for which we

~~earned a commission. We consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces.~~

~~For the three and nine months ended September 30, 2018, our~~Our total units sold declined by ~~10.6%~~9.4% and ~~9.3%~~, respectively, as compared to the prior year quarterly and year-to-date periods, reflecting unit declines in our North America segment, partially offset by unit growth in our International segment. The net decline in total units sold was attributable to the same factors that impacted gross billings for the quarterly and year-to-date periods, as discussed below under "Results of Operations."

~~Our gross billings~~11.1% for the three and nine months ended September 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 and ~~2017~~lower customer traffic, including traffic from email and SEO. We expect sequential improvement in year-over-year unit trends in the remainder of 2019.

Our gross billings and units for the three and nine months ended September 30, 2019 and 2018 were as follows (in ~~thousands)~~thousands, except gross billings per unit amounts):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Gross billings $ 1,216,229
$ 1,341,497
3,773,756
4,063,706



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Gross billings	$	1,093,378	$	1,216,229	$	3,390,331	$	3,773,756
Units	35,754		39,450		108,270		121,824
Gross billings per unit	$	30.58	$	30.83	$	31.31	$	30.98

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

Trailing Twelve Months Ended September 30,
2018 2017
TTM Active customers (in thousands) 48,769
49,140
TTM Gross billings per active customer ⁽¹⁾
$ 109.82
$ 115.37
TTM Gross profit per active customer ⁽¹⁾
$ 27.51
$ 26.43


~~(1)~~	TTM Gross billings per active customer have been updated from $119.57 previously reported and TTM Gross profit per active customer has been updated from $27.35 previously reported for the trailing twelve months ended September 30, 2017 due to the change in the calculation discussed above.

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

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Units 39,450
44,142
121,824
134,334



	Trailing Twelve Months Ended September 30,
	2019		2018
TTM Active customers (in thousands)	45,258		48,769
TTM Gross billings per active customer	$	106.49	$	109.82
TTM Gross profit per active customer	$	27.45	$	27.51

Factors Affecting Our Performance

Attracting and Retaining Local Merchants. As we seek to continue 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 health, beauty and wellness, 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~~are focused on increasing the long-term value of our customer base and ~~increase~~increasing gross profit per customer in order to grow our business. ~~Our marketing spending is intended~~We continue to improve the customer experience on our websites and mobile applications in order to attract and retain ~~active customers~~customers. Our efforts in these areas are focused on enhancing our products, deploying targeted marketing campaigns and expanding our supply. We expect our new products, such as voucherless offerings and Groupon Select, as well as other enhancements to the customer experience to improve engagement, promote increased purchase ~~frequency. We have made enhancements~~frequency and drive customer retention. Within marketing, we are deploying strategies that allow us to leverage data to better segment our customer ~~segmentation in recent periods that are intended to better focus our marketing efforts on customers that we believe have a greater potential for long-term gross profit generation. In addition to~~base and personalize the overall Groupon experience. We use online

marketing, such as search engine marketing ("SEM"), ~~our marketing spending includes investments in~~and offline campaigns ~~intended~~ to ~~increase customer awareness and understanding of the Groupon~~educate customers on our brand and ~~our product and service~~ offerings. Additionally, we consider order discounts and certain other initiatives to drive customer ~~acquisition~~engagement and ~~activation~~acquisition to be marketing-related activities, even though such activities may not be presented as marketing ~~expenses~~expense in our condensed consolidated statements of operations.

The ~~organic~~ traffic to our websites and mobile applications, including from consumers responding to our emails and SEO, has declined in recent years, such that an increasing proportion of our traffic is generated from SEM and other paid marketing channels. More recently, we have also experienced declines from other sources of organic traffic, such as search engine optimization ("SEO").years. As such, we are focused on developing sources of ~~organic~~ traffic other than email and SEO 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 are actively expanding and improving our ~~product and~~ supply ~~initiatives are intended~~in order to increase the ~~rates~~rate at which visitors to our websites and 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~~ cash back offers linked to customer credit cards, ~~which we currently refer to as Groupon+,~~booking capabilities and ~~functionality enabling appointment booking at the time an offering is purchased.~~Groupon Select. 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 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 ofon driving our ~~marketing initiatives and related efforts on early stage voucherless cash back offerings.~~strategic initiatives. Additionally, many of our cash back offers linked to customer credit cards involve 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 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 ~~redirecting~~bringing our mobile web ~~consumers~~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 September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Three Months Ended September 30,
2018 2017 $ Change % Change
Gross billings:
Service $ 912,560
$ 1,009,489
$ (96,929 ) (9.6 )%
Product 303,669
332,008
(28,339 ) (8.5 )
Total gross billings $ 1,216,229
$ 1,341,497
$ (125,268 ) (9.3 )



	Three Months Ended September 30,
	2019		2018		$ Change			% Change
North America
Service gross billings:
Local	$	511,173	$	534,246	$	(23,073	)	(4.3	)%
Goods	21,300		24,503		(3,203		)	(13.1	)
Travel	71,144		83,991		(12,847		)	(15.3	)
Total service gross billings	603,617		642,740		(39,123		)	(6.1	)
Product gross billings - Goods	111,776		159,854		(48,078		)	(30.1	)
Total North America gross billings	715,393		802,594		(87,201		)	(10.9	)

International
Service gross billings:
Local	204,823		209,623		(4,800		)	(2.3	)
Goods	13,308		14,041		(733		)	(5.2	)
Travel	44,098		46,156		(2,058		)	(4.5	)
Total service gross billings	262,229		269,820		(7,591		)	(2.8	)
Product gross billings - Goods	115,756		143,815		(28,059		)	(19.5	)
Total International gross billings	377,985		413,635		(35,650		)	(8.6	)
Total gross billings	$	1,093,378	$	1,216,229	$	(122,851	)	(10.1	)

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

Three Months Ended September 30, 2018

At Avg. Q3 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Gross billings 1,222,987
(6,758 ) $ 1,216,229



	Three Months Ended September 30, 2019
	At Avg. Q3 2018 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Gross billings	$	1,110,431	$	(17,053	)	$	1,093,378


(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.

~~Gross Billings by Segment~~North America

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

Three Months Ended September 30,
2018 2017 $ Change % Change
North America
Service gross billings:
Local $ 534,246
$ 606,184
$ (71,938 ) (11.9 )%
Goods 24,503
31,978
(7,475 ) (23.4 )
Travel 83,991
93,186
(9,195 ) (9.9 )
Product gross billings - Goods 159,854
197,501
(37,647 ) (19.1 )
Total North America gross billings 802,594
928,849
(126,255 ) (13.6 )

International
Service gross billings:
Local 209,623
202,991
6,632
3.3
Goods 14,041
25,313
(11,272 ) (44.5 )
Travel 46,156
49,837
(3,681 ) (7.4 )
Product gross billings - Goods 143,815
134,507
9,308
6.9
Total International gross billings 413,635
412,648
987
0.2
Total gross billings $ 1,216,229
$ 1,341,497
$ (125,268 ) (9.3 )

~~The percentages of~~North America gross billings ~~by segment for the three months ended September 30, 2018~~were 65.4% and ~~2017 were as follows:~~



~~Q3 2018~~		~~Q3 2017~~



	~~North America~~			~~International~~

~~North America~~

~~North America~~66.0% of total gross billings for the three months ended September 30, ~~2018 decreased from the prior year, primarily reflecting decreases of $71.9 million in our Local category~~2019 and ~~$45.1 million in our Goods category. Factors impacting~~2018. North America gross billings ~~included the following:~~

~~Declines in customer traffic, primarily related to organic traffic sources;~~

A decrease in gross billings from our Goods category, which reflected our ongoing focus on optimizing for long-term gross profit generation, which has resulted in pricing and promotional decisions that have adversely impacted transaction volume;

We have shifted customer impressions from traditional voucher offerings with food and drink merchants towards Groupon+ voucherless cash back offerings as we seek to scale that product. While we believe that voucherless cash-back 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; and

~~We ceased most of our food delivery operations in the third quarter 2017, which resulted in an $11.6 million decrease in Local gross billings as compared to the prior year period.~~

~~The above drivers adversely impacted gross billings per active customer, which was $113.41~~decreased for the ~~trailing twelve~~three months ended September 30, ~~2018, as~~2019 compared ~~to $122.38 in~~with the ~~corresponding~~ prior year ~~period. Additionally, the~~period due to fewer customers and lower customer traffic, including traffic from email and SEO. 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 a decline in total ~~number of~~ units sold, which decreased to ~~25.3~~21.8 million units for the three months ended September 30, ~~2018,~~2019, as compared ~~to 30.4~~with 25.3 million units in the prior year period.

~~Order discounts, which are presented as a reduction of~~

International

International gross billings were 34.6% and ~~revenue, increased by $1.4 million to $33.8 million for the three months ended September 30, 2018, as compared to $32.4 million in the prior year period.~~

~~For the three months ended September 30, 2018, there was a $14.2 million unfavorable impact on gross billings as a result~~34.0% 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 our accounting policies.~~

~~International~~

~~International~~total gross billings for the three months ended September 30, ~~2018 were substantially consistent~~2019 and 2018. International gross billings decreased $35.7 million for the three months ended September 30, 2019 compared with the prior year ~~period.~~

~~There was~~period, primarily due to weak consumer sentiment in Europe, especially in the United Kingdom, intense competition in our Goods business, a ~~$6.6~~$17.0 million unfavorable impact from year-over-year changes in foreign currency rates ~~for the three months ended September 30, 2018.~~

~~Order discounts, which are presented as a reduction of~~and lower gross billings ~~and revenue, increased by $1.8 million~~per unit due to ~~$12.8 million for the three months ended September 30, 2018, as compared to $11.0 million~~a shift in ~~the prior year period.~~

~~For the three months ended September 30, 2018, there was a $0.9 million unfavorable impact on gross billings as a result~~mix 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 our accounting policies.~~offerings sold.

Nine Months Ended September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Nine Months Ended September 30,
2018 2017 $ Change % Change
Gross billings:
Service $ 2,823,600
$ 3,012,879
$ (189,279 ) (6.3 )%
Product 950,156
1,050,827
(100,671 ) (9.6 )
Total gross billings $ 3,773,756
$ 4,063,706
$ (289,950 ) (7.1 )



	Nine Months Ended September 30,
	2019		2018		$ Change			% Change
North America
Service gross billings:
Local	$	1,517,312	$	1,625,323	$	(108,011	)	(6.6	)%
Goods	60,833		78,883		(18,050		)	(22.9	)
Travel	247,256		280,299		(33,043		)	(11.8	)
Total service gross billings	1,825,401		1,984,505		(159,104		)	(8.0	)
Product gross billings - Goods	394,235		511,451		(117,216		)	(22.9	)
Total North America gross billings	2,219,636		2,495,956		(276,320		)	(11.1	)

International
Service gross billings:
Local	615,669		630,178		(14,509		)	(2.3	)
Goods	34,787		56,473		(21,686		)	(38.4	)
Travel	139,385		152,444		(13,059		)	(8.6	)
Total service gross billings	789,841		839,095		(49,254		)	(5.9	)
Product gross billings - Goods	380,854		438,705		(57,851		)	(13.2	)
Total International gross billings	1,170,695		1,277,800		(107,105		)	(8.4	)
Total gross billings	$	3,390,331	$	3,773,756	$	(383,425	)	(10.2	)

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

Nine Months Ended September 30, 2018

At Avg. Q3 2017 YTD Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Gross billings $ 3,700,360
$ 73,396
$ 3,773,756



	Nine Months Ended September 30, 2019
	At Avg. Q3 2018 YTD Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Gross billings	$	3,462,952	$	(72,621	)	$	3,390,331


(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 nine months ended September 30, 2018 and 2017 were as follows (dollars in thousands):~~

Nine Months Ended September 30,
2018 2017 $ Change % Change
North America
Service gross billings:
Local $ 1,625,323
$ 1,809,783
$ (184,460 ) (10.2 )%
Goods 78,883
71,898
6,985
9.7
Travel 280,299
320,019
(39,720 ) (12.4 )
Product gross billings - Goods 511,451
666,093
(154,642 ) (23.2 )
Total North America gross billings 2,495,956
2,867,793
(371,837 ) (13.0 )

International
Service gross billings:
Local 630,178
583,618
46,560
8.0
Goods 56,473
78,582
(22,109 ) (28.1 )
Travel 152,444
148,979
3,465
2.3
Product gross billings - Goods 438,705
384,734
53,971
14.0
Total International gross billings 1,277,800
1,195,913
81,887
6.8
Total gross billings $ 3,773,756
$ 4,063,706
$ (289,950 ) (7.1 )

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



~~Q3 2018 YTD~~		~~Q3 2017 YTD~~



	~~North America~~			~~International~~

~~North America~~

~~North America~~66.1% of total gross billings for the nine months ended September 30, ~~2018 decreased from the prior year, primarily reflecting decreases of $184.5 million in our Local category~~2019 and ~~$147.7 million in our Goods category. Factors impacting~~2018. North America gross billings ~~included the following:~~

We have shifted customer impressions from traditional voucher offerings with food and drink merchants toward Groupon+ voucherless cash back offerings as we seek to scale that product. While we believe that voucherless cash back 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;

~~Declines in customer traffic, primarily related to organic traffic sources; and~~

~~We ceased most of our food delivery operations in the third quarter 2017, which resulted in a $45.0 million decrease in Local gross billings as compared to the prior year period.~~

The above drivers adversely impacted gross billings per active customer, which was $113.41 for the trailing twelve months ended September 30, 2018, as compared to $122.38 in the corresponding prior year period. Additionally, the total number of units sold decreased ~~to 80.0 million~~ for the nine months ended September 30, ~~2018~~2019 compared with the prior year period due to fewer customers and lower customer traffic, including traffic from email and SEO. 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 a decline in total units sold, which decreased to 66.8 million units for the nine months ended September 30, 2019, as compared ~~to 93.2~~with 80.0 million units in the prior year period.

~~Order discounts, which are presented as a reduction of~~

International

International gross billings were 34.5%and ~~revenue, decreased by $24.2 million to $105.1 million~~33.9% of total gross billings for the nine months ended September 30, ~~2018, as compared to $129.3~~2019 and 2018. International gross billings decreased $107.1 million ~~in the prior year period.~~

~~For~~ for the nine months ended September 30, ~~2018, there was a $20.5 million unfavorable impact on gross billings as a result of adopting Topic 606 as~~2019 compared with the prior year period, primarily due to ~~previous accounting guidance. See Note 2,~~ ~~Adoption of New Accounting Policies, and Note 11,~~ ~~Revenue Recognition, for additional information on~~weak consumer sentiment in Europe, especially in the ~~impact of adopting the ASU and its related amendments on our accounting policies.~~

~~International~~

~~International gross billings increased during the nine months ended September 30, 2018, primarily reflecting increases of $46.6 million and $31.9 million~~United Kingdom, intense competition in our ~~Local and~~ Goods ~~categories, respectively. The increase in International gross billings was primarily driven by~~business, a ~~$73.1~~$72.3 million ~~favorable~~ unfavorable impact from year-over-year changes in foreign currency rates ~~for the nine months ended September 30, 2018.~~

~~Order discounts, which are presented as a reduction of~~and lower gross billings ~~and revenue, increased by $10.9 million~~per unit due to ~~$40.3 million for the nine months ended September 30, 2018, as compared to $29.4 million~~a shift in ~~the prior year period.~~

~~For the nine months ended September 30, 2018, there was a $1.4 million unfavorable impact on gross billings as a result~~mix 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 our accounting policies.~~offerings sold.

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 September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Three Months Ended September 30,
2018 2017 $ Change % Change
Revenue:
Service $ 289,214
$ 302,458
$ (13,244 ) (4.4 )%
Product 303,669
332,008
(28,339 ) (8.5 )
Total revenue $ 592,883
$ 634,466
$ (41,583 ) (6.6 )



	Three Months Ended September 30,
	2019		2018		$ Change			% Change
North America
Service revenue:
Local	$	175,140	$	180,059	$	(4,919	)	(2.7	)%
Goods	3,000		4,021		(1,021		)	(25.4	)
Travel	13,680		17,217		(3,537		)	(20.5	)
Total service revenue	191,820		201,297		(9,477		)	(4.7	)
Product revenue - Goods	111,776		159,854		(48,078		)	(30.1	)
Total North America revenue	303,596		361,151		(57,555		)	(15.9	)

International
Service revenue:
Local	65,440		75,946		(10,506		)	(13.8	)
Goods	2,817		2,584		233			9.0
Travel	8,003		9,387		(1,384		)	(14.7	)
Total service revenue	76,260		87,917		(11,657		)	(13.3	)
Product revenue - Goods	115,756		143,815		(28,059		)	(19.5	)
Total International revenue	192,016		231,732		(39,716		)	(17.1	)
Total revenue	$	495,612	$	592,883	$	(97,271	)	(16.4	)

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

Three Months Ended September 30, 2018

At Avg. Q3 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Revenue 595,967
(3,084 ) $ 592,883



	Three Months Ended September 30, 2019
	At Avg. Q3 2018 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Revenue	$	504,315	$	(8,703	)	$	495,612


(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 September 30, 2018 and 2017 was as follows (dollars in thousands):~~

Three Months Ended September 30,
2018 2017 $ Change % Change
North America
Service revenue:
Local $ 180,059
$ 194,090
$ (14,031 ) (7.2 )%
Goods 4,021
4,323
(302 ) (7.0 )
Travel 17,217
18,300
(1,083 ) (5.9 )
Product revenue - Goods 159,854
197,501
(37,647 ) (19.1 )
Total North America revenue 361,151
414,214
(53,063 ) (12.8 )

International
Service revenue:
Local 75,946
71,574
4,372
6.1
Goods 2,584
4,370
(1,786 ) (40.9 )
Travel 9,387
9,801
(414 ) (4.2 )
Product revenue - Goods 143,815
134,507
9,308
6.9
Total International revenue 231,732
220,252
11,480
5.2
Total revenue $ 592,883
$ 634,466
(41,583 ) (6.6 )

3937

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



~~Q3 2018~~		~~Q3 2017~~



	~~North America~~			~~International~~

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



North America		International

North America

~~The decrease in~~ North America revenue was 61.3% and 60.9% of total revenue for the three months ended September 30, ~~2018 primarily reflects decreases of $14.0~~2019 and 2018. North America revenue decreased$57.6 million ~~and $37.9 million in our Local and Goods categories, respectively. The decreases were attributable to the decreases in Goods and Local gross billings, as discussed.~~

~~That decrease was 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 31.3%~~ for the three months ended September 30, ~~2018, as~~2019 compared ~~to 29.6% in~~with the prior year ~~period. The percentage of~~period, primarily driven by the decline in transaction volume and gross billings ~~that we retain after deducting the merchant's share reflects the overall results of individual deal-by-deal negotiations with merchants~~as discussed above, and ~~can vary significantly from period-to-period.~~

~~For the three months ended September 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 our accounting policies.~~

~~International~~

~~The increase in International revenue for the three months ended September 30, 2018 primarily reflects increases of $4.4 million and $7.5 million~~shift in our ~~Local and Goods categories, respectively. The increases were primarily attributable to the following:~~

~~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~~mix from product revenue transactions, which are reported on a gross ~~basis; and~~

~~an increase in the percentage of gross billings that we retained after deducting the merchant’s share in~~basis, toward service revenue transactions, ~~to 32.6%~~which are reported on a net basis.

International

International revenue was 38.7% and 39.1% of total revenue for the three months ended September 30, 2018, as compared to 30.8% 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 merchants2019 and ~~can vary significantly from period-to-period.~~

~~There was a $3.1~~2018. International revenue decreased$39.7 million ~~unfavorable impact on international revenue from year-over-year changes in foreign exchange rates~~ for the three months ended September 30, ~~2018.~~2019 compared with the prior year period, primarily driven by lower gross billings as discussed above, a customer shift toward lower margin offerings, a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis, and an $8.7 million unfavorable impact from year-over-year changes in foreign exchange rates.

~~For the three months ended September 30, 2018, there was a $0.4 million favorable 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 our accounting policies.~~

Nine Months Ended September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Nine Months Ended September 30,
2018 2017 $ Change % Change
Revenue:
Service $ 886,663
$ 919,884
$ (33,221 ) (3.6 )%
Product 950,156
1,050,827
(100,671 ) (9.6 )
Total revenue $ 1,836,819
$ 1,970,711
$ (133,892 ) (6.8 )



	Nine Months Ended September 30,
	2019		2018		$ Change			% Change
North America
Service revenue:
Local	$	532,599	$	553,340	$	(20,741	)	(3.7	)%
Goods	9,841		12,691		(2,850		)	(22.5	)
Travel	48,746		57,189		(8,443		)	(14.8	)
Total service revenue	591,186		623,220		(32,034		)	(5.1	)
Product revenue - Goods	394,235		511,451		(117,216		)	(22.9	)
Total North America revenue	985,421		1,134,671		(149,250		)	(13.2	)

International
Service revenue:
Local	208,625		221,949		(13,324		)	(6.0	)
Goods	6,882		10,965		(4,083		)	(37.2	)
Travel	24,817		30,529		(5,712		)	(18.7	)
Total service revenue	240,324		263,443		(23,119		)	(8.8	)
Product revenue - Goods	380,854		438,705		(57,851		)	(13.2	)
Total International revenue	621,178		702,148		(80,970		)	(11.5	)
Total revenue	$	1,606,599	$	1,836,819	$	(230,220	)	(12.5	)

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

Nine Months Ended September 30, 2018

At Avg. Q3 2017 YTD Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Revenue $ 1,793,532
$ 43,287
$ 1,836,819



	Nine Months Ended September 30, 2019
	At Avg. Q3 2018 YTD Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Revenue	$	1,645,767	$	(39,168	)	$	1,606,599


(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.

4139

~~Revenue by Segment~~

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

Nine Months Ended September 30,
2018 2017 $ Change % Change
North America
Service revenue:
Local $ 553,340
$ 602,169
$ (48,829 ) (8.1 )%
Goods 12,691
10,139
2,552
25.2
Travel 57,189
61,082
(3,893 ) (6.4 )
Product revenue - Goods 511,451
666,093
(154,642 ) (23.2 )
Total North America revenue 1,134,671
1,339,483
(204,812 ) (15.3 )

International
Service revenue:
Local 221,949
201,257
20,692
10.3
Goods 10,965
13,638
(2,673 ) (19.6 )
Travel 30,529
31,599
(1,070 ) (3.4 )
Product revenue - Goods 438,705
384,734
53,971
14.0
Total International revenue 702,148
631,228
70,920
11.2
Total revenue $ 1,836,819
$ 1,970,711
(133,892 ) (6.8 )

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



~~Q3 2018 YTD~~		~~Q3 2017 YTD~~



	~~North America~~			~~International~~

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



North America		International

North America

~~The decrease in~~ North America revenue was 61.3% and 61.8% of total revenue for the nine months ended September 30, ~~2018~~2019 and 2018. North America revenue decreased $149.3 million for the nine months ended September 30, 2019 compared with the prior year period, primarily ~~reflects decreases of $48.8 million~~driven by the decline in transaction volume and ~~$152.1 million in our Local and Goods categories, respectively. The decreases were attributable to the following:~~

~~decreases in Goods and Local~~ gross billings as discussed ~~above;~~above, and

~~an increase in the proportion of service revenue transactions~~ a shift in our ~~Goods~~ category ~~which are reported on a net basis, with a corresponding decrease in the proportion of~~mix from 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~~basis, toward service revenue transactions, to 31.4% for the nine months ended September 30, 2018, as compared to 30.6% 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 nine months ended September 30, 2018, there was~~which are reported on a ~~$4.2 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 our accounting policies.~~net basis.

International

~~The increase in~~ International revenue was 38.7% and 38.2% of total revenue for the nine months ended September 30, ~~2018 primarily reflects increases of $20.7 million~~2019 and ~~$51.3 million in our Local and Goods categories, respectively. The increases were primarily attributable to the following:~~

~~a $43.2 million favorable impact on~~2018. International revenue ~~from year-over-year changes in foreign exchange rates~~decreased$81.0 million for the nine months ended September 30, ~~2018;~~

2019 compared with the prior year period, primarily driven by lower gross billings as discussed above, a ~~decrease in the proportion of service revenue transactions~~customer shift toward lower margin offerings, a shift in our ~~Goods~~ category ~~which are reported on a net basis, with a corresponding increase in the proportion of~~mix from product revenue transactions, which are reported on a ~~gross basis; and~~

~~an increase in the percentage of gross billings that we retained after deducting the merchant’s share in~~net basis, toward service revenue transactions, ~~to 31.4% for the nine months ended September 30, 2018, as compared to 30.4%~~which are reported on a gross basis, and a $39.1 millionunfavorable impact from year-over-year changes 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 nine months ended September 30, 2018, there was a $1.6 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 our accounting policies.~~foreign exchange rates.

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 September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Three Months Ended September 30,
2018 2017 $ Change % Change
Cost of revenue:
Service $ 29,792
$ 41,858
$ (12,066 ) (28.8 )%
Product 257,102
283,183
(26,081 ) (9.2 )
Total cost of revenue $ 286,894
$ 325,041
$ (38,147 ) (11.7 )



	Three Months Ended September 30,
	2019		2018		$ Change			% Change
North America
Service cost of revenue:
Local	$	20,108	$	20,680	$	(572	)	(2.8	)%
Goods	720		387		333			86.0
Travel	2,963		3,416		(453		)	(13.3	)
Total service cost of revenue	23,791		24,483		(692		)	(2.8	)
Product cost of revenue - Goods	87,730		132,620		(44,890		)	(33.8	)
Total North America cost of revenue	111,521		157,103		(45,582		)	(29.0	)

International
Service cost of revenue:
Local	4,257		4,307		(50		)	(1.2	)
Goods	228		264		(36		)	(13.6	)
Travel	671		738		(67		)	(9.1	)
Total service cost of revenue	5,156		5,309		(153		)	(2.9	)
Product cost of revenue - Goods	100,995		124,482		(23,487		)	(18.9	)
Total International cost of revenue	106,151		129,791		(23,640		)	(18.2	)
Total cost of revenue	$	217,672	$	286,894	$	(69,222	)	(24.1	)

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

Three Months Ended September 30, 2018

At Avg. Q3 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Cost of revenue $ 288,363
$ (1,469 ) $ 286,894



	Three Months Ended September 30, 2019
	At Avg. Q3 2018 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Cost of revenue	$	222,461	$	(4,789	)	$	217,672


(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 51.2% and 54.8% of total cost of revenue for the three months ended September 30, 2019 and 2018. North America cost of revenue decreased$45.6 million for the three months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in transaction volume and gross billings as discussed above and a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis.

4441

~~Cost~~International

International cost of ~~Revenue by Segment~~revenue was 48.8% and 45.2% of total cost of revenue for the three months ended September 30, 2019 and 2018. International cost of revenue decreased$23.6 million for the three months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in gross billings as discussed above, a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis, and a $4.8 millionfavorable impact from year-over-year changes in foreign exchange rates.

Nine Months Ended September 30, 2019 and 2018:

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

Three Months Ended September 30,
2018 2017 $ Change % Change
North America
Service cost of revenue:
Local $ 20,680
$ 31,176
$ (10,496 ) (33.7 )%
Goods 387
1,118
(731 ) (65.4 )
Travel 3,416
4,240
(824 ) (19.4 )
Product cost of revenue - Goods 132,620
169,772
(37,152 ) (21.9 )
Total North America cost of revenue 157,103
206,306
(49,203 ) (23.8 )

International
Service cost of revenue:
Local 4,307
3,714
593
16.0
Goods 264
731
(467 ) (63.9 )
Travel 738
879
(141 ) (16.0 )
Product cost of revenue - Goods 124,482
113,411
11,071
9.8
Total International cost of revenue 129,791
118,735
11,056
9.3
Total cost of revenue $ 286,894
$ 325,041
$ (38,147 ) (11.7 )

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



~~Q3 2018~~		~~Q3 2017~~



	~~North America~~			~~International~~

~~North America~~

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

~~For the three months ended September 30, 2018, there was an $8.6 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 our accounting policies.~~

~~International~~

The increase in International cost of revenue for the three months ended September 30, 2018 was primarily attributable to the increase in product revenue transactions as discussed above, partially offset by a $1.5 million favorable impact from year-over-year changes in foreign exchange rates.

~~Nine Months Ended September 30, 2018 and 2017:~~

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

Nine Months Ended September 30,
2018 2017 $ Change % Change
Cost of revenue:
Service $ 91,167
$ 123,209
$ (32,042 ) (26.0 )%
Product 791,120
900,559
(109,439 ) (12.2 )
Total cost of revenue $ 882,287
$ 1,023,768
$ (141,481 ) (13.8 )



	Nine Months Ended September 30,
	2019		2018		$ Change			% Change
North America
Service cost of revenue:
Local	$	58,812	$	61,920	$	(3,108	)	(5.0	)%
Goods	2,003		2,126		(123		)	(5.8	)
Travel	9,955		11,083		(1,128		)	(10.2	)
Total service cost of revenue	70,770		75,129		(4,359		)	(5.8	)
Product cost of revenue - Goods	314,190		416,443		(102,253		)	(24.6	)
Total North America cost of revenue	384,960		491,572		(106,612		)	(21.7	)

International
Service cost of revenue:
Local	12,684		12,735		(51		)	(0.4	)
Goods	641		993		(352		)	(35.4	)
Travel	2,074		2,310		(236		)	(10.2	)
Total service cost of revenue	15,399		16,038		(639		)	(4.0	)
Product cost of revenue - Goods	330,152		374,677		(44,525		)	(11.9	)
Total International cost of revenue	345,551		390,715		(45,164		)	(11.6	)
Total cost of revenue	$	730,511	$	882,287	$	(151,776	)	(17.2	)

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

Nine Months Ended September 30, 2018

At Avg. Q3 2017 YTD Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Cost of revenue $ 856,544
$ 25,743
$ 882,287



	Nine Months Ended September 30, 2019
	At Avg. Q3 2018 YTD Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Cost of revenue	$	752,521	$	(22,010	)	$	730,511


(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.

4642

~~Cost of Revenue by Segment~~North America

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

Nine Months Ended September 30,
2018 2017 $ Change % Change
North America
Service cost of revenue:
Local $ 61,920
$ 90,304
$ (28,384 ) (31.4 )%
Goods 2,126
2,420
(294 ) (12.1 )
Travel 11,083
14,102
(3,019 ) (21.4 )
Product cost of revenue - Goods 416,443
569,952
(153,509 ) (26.9 )
Total North America cost of revenue 491,572
676,778
(185,206 ) (27.4 )

International
Service cost of revenue:
Local 12,735
11,900
835
7.0
Goods 993
1,838
(845 ) (46.0 )
Travel 2,310
2,645
(335 ) (12.7 )
Product cost of revenue - Goods 374,677
330,607
44,070
13.3
Total International cost of revenue 390,715
346,990
43,725
12.6
Total cost of revenue $ 882,287
$ 1,023,768
$ (141,481 ) (13.8 )

~~The percentages of~~North America cost of revenue ~~by segment for the nine months ended September 30, 2018~~was 52.7% and ~~2017 were as follows:~~



~~Q3 2018 YTD~~		~~Q3 2017 YTD~~



	~~North America~~			~~International~~

~~North America~~

~~The decrease in North America~~55.7% of total cost of revenue for the nine months ended September 30, ~~2018 was primarily attributable to the decrease in product~~2019 and 2018. North America cost of revenue ~~transactions as discussed above.~~

~~For~~decreased$106.6 million for the nine months ended September 30, ~~2018, there was~~2019 compared with the prior year period, primarily due to the decrease in transaction volume and gross billings as discussed above and a ~~$21.9 million favorable impact~~shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis.

International

International cost of revenue ~~as a result~~was47.3% and 44.3% 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 our accounting policies.~~

~~International~~

~~The increase in International~~total cost of revenue for the nine months ended September 30, ~~2018 was~~2019 and 2018. International cost of revenue decreased$45.2 million for the nine months ended September 30, 2019 compared with the prior year period, primarily ~~attributable~~due to the decrease in gross billings as discussed above, a ~~$25.7~~shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis, and a $22.0 million ~~unfavorable~~favorable impact from year-over-year changes in foreign exchange ~~rates and the increase in product revenue transactions as discussed above.~~rates.

Gross Profit

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

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

Three Months Ended September 30,
2018 2017 $ Change % Change
Gross profit:
Service $ 259,422
$ 260,600
$ (1,178 ) (0.5 )%
Product 46,567
48,825
(2,258 ) (4.6 )
Total gross profit $ 305,989
$ 309,425
$ (3,436 ) (1.1 )



	Three Months Ended September 30,
	2019		2018		$ Change			% Change
North America
Service gross profit:
Local	$	155,032	$	159,379	$	(4,347	)	(2.7	)%
Goods	2,280		3,634		(1,354		)	(37.3	)
Travel	10,717		13,801		(3,084		)	(22.3	)
Total service gross profit	168,029		176,814		(8,785		)	(5.0	)
Product gross profit - Goods	24,046		27,234		(3,188		)	(11.7	)
Total North America gross profit	192,075		204,048		(11,973		)	(5.9	)

International
Service gross profit:
Local	61,183		71,639		(10,456		)	(14.6	)
Goods	2,589		2,320		269			11.6
Travel	7,332		8,649		(1,317		)	(15.2	)
Total service gross profit	71,104		82,608		(11,504		)	(13.9	)
Product gross profit - Goods	14,761		19,333		(4,572		)	(23.6	)
Total International gross profit	85,865		101,941		(16,076		)	(15.8	)
Total gross profit	$	277,940	$	305,989	$	(28,049	)	(9.2	)

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

Three Months Ended September 30, 2018

At Avg. Q3 2017 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Gross profit 307,604
(1,615 ) $ 305,989



	Three Months Ended September 30, 2019
	At Avg. Q3 2018 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Gross profit	$	281,854	$	(3,914	)	$	277,940


(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 69.1% and ~~segment~~66.7% of total gross profit for the three months ended September 30, ~~2018~~2019 and ~~2017 was as follows (dollars in thousands):~~

Three Months Ended September 30,
2018 2017 $ Change % Change
North America
Service gross profit:
Local $ 159,379
$ 162,914
$ (3,535 ) (2.2 )%
Goods 3,634
3,205
429
13.4
Travel 13,801
14,060
(259 ) (1.8 )
Product gross profit - Goods 27,234
27,729
(495 ) (1.8 )
Total North America gross profit 204,048
207,908
(3,860 ) (1.9 )

International

Service gross profit:

Local 71,639
67,860
3,779
5.6
Goods 2,320
3,639
(1,319 ) (36.2 )
Travel 8,649
8,922
(273 ) (3.1 )
Product gross profit - Goods 19,333
21,096
(1,763 ) (8.4 )
Total International gross profit 101,941
101,517
424
0.4
Total gross profit $ 305,989
$ 309,425
$ (3,436 ) (1.1 )

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



~~Q3 2018~~		~~Q3 2017~~



	~~North America~~			~~International~~

~~North America~~

~~The~~ decrease in North America gross profit for the three months ended September 30, ~~2018~~2019 compared with the prior year period reflects a ~~$3.5 million decrease~~decline in transaction volume and gross billings as discussed above.

International

International gross profit ~~from our Local category, which~~ was ~~attributable to the decrease in revenue, as discussed above.~~

~~Gross~~30.9% and 33.3% of total gross profit from product revenue transactions in our Goods category decreased by 1.8%, as compared to the 19.1% decrease in revenue from those transactions. That difference was attributable to higher gross margins on product revenue transactions, which were 17.0% for the three months ended September 30, ~~2018 as compared to 14.0% in the prior year period.~~2019 and 2018. The ~~margin improvement primarily resulted from our ongoing efforts to reduce our shipping and fulfillment costs and from pricing and promotional decisions intended to optimize for gross profit.~~

For the three months ended September 30, 2018, there was a $6.6 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 our 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 our accounting policies.~~

~~International~~

~~The increase~~decrease in International gross profit for the three months ended September 30, ~~2018 reflects a $3.8 million increase in gross profit from our Local category, which~~2019 compared with the prior year period was primarily attributable to ~~the increase in revenue~~lower gross billings as discussed above, ~~partially offset by~~ a ~~$3.1~~customer shift toward lower margin offerings and a $3.9 million ~~decrease in our Goods category. For the three months ended September 30, 2018 there was a $1.6 million~~ unfavorable ~~impact on International gross profit~~impact from year-over-year changes in foreign exchange rates.

For the three months ended September 30, 2018, there was a $0.4 million favorable impact on gross profit as a result of adopting Topic 606 as compared to previous accounting guidance. 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 our accounting policies.~~

Nine Months Ended September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Nine Months Ended September 30,
2018 2017 $ Change % Change
Gross profit:
Service $ 795,496
$ 796,675
$ (1,179 ) (0.1 )%
Product 159,036
150,268
8,768
5.8
Total gross profit $ 954,532
$ 946,943
$ 7,589
0.8



	Nine Months Ended September 30,
	2019		2018		$ Change			% Change
North America
Service gross profit:
Local	$	473,787	$	491,420	$	(17,633	)	(3.6	)%
Goods	7,838		10,565		(2,727		)	(25.8	)
Travel	38,791		46,106		(7,315		)	(15.9	)
Total service gross profit	520,416		548,091		(27,675		)	(5.0	)
Product gross profit - Goods	80,045		95,008		(14,963		)	(15.7	)
Total North America gross profit	600,461		643,099		(42,638		)	(6.6	)

International
Service gross profit:
Local	195,941		209,214		(13,273		)	(6.3	)
Goods	6,241		9,972		(3,731		)	(37.4	)
Travel	22,743		28,219		(5,476		)	(19.4	)
Total service gross profit	224,925		247,405		(22,480		)	(9.1	)
Product gross profit - Goods	50,702		64,028		(13,326		)	(20.8	)
Total International gross profit	275,627		311,433		(35,806		)	(11.5	)
Total gross profit	$	876,088	$	954,532	$	(78,444	)	(8.2	)

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

Nine Months Ended September 30, 2018

At Avg. Q3 2017 YTD Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Gross profit 936,988
17,544
$ 954,532



	Nine Months Ended September 30, 2019
	At Avg. Q3 2018 YTD Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾			As Reported
Gross profit	$	893,246	$	(17,158	)	$	876,088


(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 68.5% and ~~segment~~67.4% of total gross profit for the nine months ended September 30, ~~2018~~2019 and ~~2017 was as follows (dollars in thousands):~~

Nine Months Ended September 30,
2018 2017 $ Change % Change
North America
Service gross profit:
Local $ 491,420
$ 511,865
$ (20,445 ) (4.0 )%
Goods 10,565
7,719
2,846
36.9
Travel 46,106
46,980
(874 ) (1.9 )
Product gross profit - Goods 95,008
96,141
(1,133 ) (1.2 )
Total North America gross profit 643,099
662,705
(19,606 ) (3.0 )

International
Service gross profit:
Local 209,214
189,357
19,857
10.5
Goods 9,972
11,800
(1,828 ) (15.5 )
Travel 28,219
28,954
(735 ) (2.5 )
Product gross profit - Goods 64,028
54,127
9,901
18.3
Total International gross profit 311,433
284,238
27,195
9.6
Total gross profit $ 954,532
$ 946,943
$ 7,589
0.8

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



~~Q3 2018 YTD~~		~~Q3 2017 YTD~~



	~~North America~~			~~International~~

~~North America~~

~~The~~ decrease in North America gross profit for the nine months ended September 30, ~~2018~~2019 compared with the prior year period reflects a ~~$20.4 million decrease~~decline in transaction volume and gross billings ~~from our Local category, which was attributable to the decrease in revenue,~~ as discussed above.

International

~~Gross~~International gross profit ~~from product revenue transactions in our Goods category decreased by 1.2%, as compared to the 23.2% decrease in revenue from those transactions. That difference~~ was ~~attributable to higher~~31.5% and 32.6% of total gross ~~margins on product revenue transactions, which were 18.6%~~profit for the nine months ended September 30, ~~2018 as compared to 14.4% in the prior year period.~~2019 and 2018. The ~~margin improvement primarily resulted from our ongoing efforts to reduce our shipping and fulfillment costs and from pricing and promotional decisions intended to optimize for gross profit.~~

For the nine months ended September 30, 2018, there was a $17.7 million favorable impact on gross profit as a result of adopting Topic 606 as compared to previous accounting guidance. That favorable impact primarily reflected $16.3 million related to the change in the timing of recognition of variable consideration from unredeemed vouchers. 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 our accounting policies.~~

~~International~~

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

lower gross billings as discussed above, a ~~$17.5~~customer shift toward lower margin offerings and a $17.1 million ~~favorable~~unfavorable impact ~~on International gross profit~~ from year-over-year changes in foreign exchange ~~rates for the nine months ended September 30, 2018; and~~

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

~~For the nine months ended September 30, 2018, there was a $1.6 million unfavorable impact on gross profit 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 our accounting policies.~~rates.

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 performance.

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

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

Three Months Ended September 30,
2018 % of Gross Profit 2017 % of Gross Profit $ Change % Change
Marketing:
North America $ 60,296
29.5 % $ 75,088
36.1 % $ (14,792 ) (19.7 )%
International 32,421
31.8
26,368
26.0
6,053
23.0
Total marketing $ 92,717
30.3
$ 101,456
32.8
$ (8,739 ) (8.6 )

~~Marketing by Segment~~

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



~~Q3 2018~~		~~Q3 2017~~



	~~North America~~			~~International~~



	Three Months Ended September 30,
	2019		% of Gross Profit		2018		% of Gross Profit		$ Change			% Change
Marketing:
North America	$	45,223	23.5	%	$	60,296	29.5	%	$	(15,073	)	(25.0	)%
International	29,753		34.7		32,421		31.8		(2,668		)	(8.2	)
Total marketing	$	74,976	27.0		$	92,717	30.3		$	(17,741	)	(19.1	)

North America

North America segment marketing expense was 60.3% and 65.0% of total marketing expense for the three months ended September 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 September 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 September 30, ~~2018 increased~~2019 decreased from the prior year period ~~which~~as we leveraged improved marketing analytics to drive efficiency in our marketing spend and maximize the lifetime value

of our customer base. We also decreased our offline marketing spend as we are currently in the process of adapting our brand strategy to better support our evolving marketplace.

International

International segment marketing expense was 39.7% and 35.0% of total marketing expense for the three months ended September 30, 2019 and 2018. The decrease in International marketing expense for the three months ended September 30, 2019 compared with the prior year period was primarily attributable to ~~our ongoing investments~~a $1.2 millionfavorable impact from year-over-year changes in ~~marketing activities to drive customer growth in our international markets.~~foreign exchange rates.

Nine Months Ended September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Nine Months Ended September 30,
2018 % of Gross Profit 2017 % of Gross Profit $ Change % Change
Marketing:
North America $ 198,149
30.8 % $ 217,092
32.8 % $ (18,943 ) (8.7 )%
International 87,902
28.2
71,364
25.1
16,538
23.2
Total marketing $ 286,051
30.0
$ 288,456
30.5
$ (2,405 ) (0.8 )

~~Marketing by Segment~~

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



~~Q3 2018 YTD~~		~~Q3 2017 YTD~~



	~~North America~~			~~International~~



	Nine Months Ended September 30,
	2019		% of Gross Profit		2018		% of Gross Profit		$ Change			% Change
Marketing:
North America	$	162,132	27.0	%	$	198,149	30.8	%	$	(36,017	)	(18.2	)%
International	95,164		34.5		87,902		28.2		7,262			8.3
Total marketing	$	257,296	29.4		$	286,051	30.0		$	(28,755	)	(10.1	)

North America

North America segment marketing expense was 63.0% and 69.3% of total marketing expense for the nine months ended September 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 nine months ended September 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~~2019 and 2018. North America marketing expense and marketing expense as a percentage of gross profit for the nine months ended September 30, ~~2018 increased~~2019 decreased from the prior year period ~~which~~as we leveraged improved marketing analytics to drive efficiency in our marketing spend and maximize the lifetime value of our customer base. We also decreased our offline marketing spend as we are currently in the process of adapting our brand strategy to better support our evolving marketplace.

International

International segment marketing expense was ~~primarily attributable~~37.0% and 30.7% of total marketing expense for the nine months ended September 30, 2019 and 2018. International marketing expense and marketing expense as a percentage of gross profit for the nine months ended September 30, 2019 increased from the prior year period as we continued to ~~our ongoing investments~~invest in the long-term potential of the International segment. The increase in marketing ~~activities to drive customer growth in our international markets and~~expense was partially offset by a ~~$5.2~~$5.5 million ~~unfavorable~~favorable impact from year-over-year changes in foreign exchange 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 September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Three Months Ended September 30,
2018 % of Gross Profit 2017 % of Gross Profit $ Change % Change
Selling, general and administrative $ 160,214
52.4 % $ 214,828
69.4 % $ (54,614 ) (25.4 )%



	Three Months Ended September 30,
	2019		% of Gross Profit		2018		% of Gross Profit		$ Change		% Change
Selling, general and administrative	$	198,327	71.4	%	$	160,249	52.4	%	$	38,078	23.8	%

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

a $40.4 million benefit recorded in the three months ended September 30, 2018 related to the settlement of our patent litigation case with IBM, ~~as described in Note 9, Commitments and Contingencies;~~partially offset by the following:


•	a $3.9 millionfavorable impact from year-over-year changes in foreign currency exchange rates; and

~~a $6.2 million decrease~~decreases in compensation-related costs, ~~including variable compensation; and~~

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

~~There was a $1.3 million favorable impact from year-over-year changes in foreign currency exchange rates for the three months ended September 30, 2018.~~

Nine Months Ended September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Nine Months Ended September 30,
2018 % of Gross Profit 2017 % of Gross Profit $ Change % Change
Selling, general and administrative $ 676,399
70.9 % $ 677,109
71.5 % $ (710 ) (0.1 )%



	Nine Months Ended September 30,
	2019		% of Gross Profit		2018		% of Gross Profit		$ Change			% Change
Selling, general and administrative	$	619,099	70.7	%	$	676,318	70.9	%	$	(57,219	)	(8.5	)%

The decrease in SG&A ~~and SG&A as a percentage of gross profit~~ for the nine months ended September 30, ~~2018 was substantially consistent~~2019 as compared with the prior year period ~~which reflects~~was attributable to the ~~net impact of:~~following:

~~a $16.3 million decrease in compensation-related costs, including variable compensation; and~~

~~decreases in facilities costs, systems costs, and other general expenses, offset by the year-to-date expense related to our patent litigation with IBM. As described in Note 9,~~ ~~Commitments and Contingencies, we recognized~~ a $75.0 million charge recorded in the second quarter 2018 as a result of a jury award ~~and~~related to a patent litigation case with IBM. That charge was subsequently reduced ~~that charge~~ by $40.4 million in the third quarter 2018 upon execution of settlement and license agreements with ~~IBM.~~IBM;

~~There was a $12.7 million unfavorable~~


•	a $15.1 millionfavorable impact from year-over-year changes in foreign currency exchange rates; and

decreases in ~~foreign currency exchange rates for the nine months ended September 30, 2018.~~

~~Restructuring Charges~~

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

~~Gain on Sale of Intangible Assets~~

~~During the third quarter 2017, we sold customer lists and other intangible assets in certain food delivery markets to Grubhub, Inc., resulting in a pretax gain of $17.1 million. See Note 5,~~ ~~Goodwill and Other Intangible Assets, for additional information.~~general expenses.

Income (Loss) from Operations

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

2018:

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


	Three Months Ended September 30,										Three Months Ended September 30,
	2018		2017			$ Change			% Change		2019			2018		$ Change			% Change
Income (loss) from operations
North America	$	51,004	$	(6,995	)	$	57,999		829.1	%	$	15,691		$	51,004	$	(35,313	)	(69.2	)%
International	2,019		5,782			(3,763		)	(65.1	)	(11,054		)	2,019		(13,073		)	(647.5	)
Total income (loss) from operations	$	53,023	$	(1,213	)	$	54,236		4,471.2		$	4,637		$	53,023	$	(48,386	)	(91.3	)

North America

The increase in our income from operations was primarily attributable to a $40.4 million benefit recognized upon settlement of our patent litigation with IBM during the third quarter 2018, as described in Note 9, ~~Commitments and Contingencies~~, a $16.9 million decrease in other SG&A costs, including compensation-related and facilities-related costs, a $14.8 million decrease in marketing expense and a $7.0 million decrease in restructuring costs, partially offset by a $17.1 million decrease in gains from the sale of intangible assets and a $3.9 million decrease in gross profit.

~~Income (loss) from operations includes stock-based compensation of $13.8 million and $16.9 million for the three months ended September 30, 2018 and 2017, respectively.~~

For the three months ended September 30, 2018, there was a $6.4 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 our accounting policies.~~

~~International~~

The decrease in our income from operations was primarily attributable to a ~~$6.1~~$38.4 millionincrease in SG&A and a $12.0 million decrease in gross profit, partially offset by a $15.1 milliondecrease in marketing expense.

International

The decrease in our income from operations was primarily attributable to a $16.1 million decrease in gross profit, partially offset by a $2.7 milliondecrease in marketing expense and a ~~$2.6~~$0.3 million ~~increase~~decrease in SG~~&A, partially offset by a $4.5 million decrease in restructuring costs and a $0.4 million increase in gross profit.~~

~~Income (loss) from operations includes stock-based compensation of $1.2 million and $1.4 million for the three months ended September 30, 2018 and 2017.~~

For the three months ended September 30, 2018, there was a $1.7 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 our accounting policies.~~&A.

Nine Months Ended September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Nine Months Ended September 30,
2018 2017 $ Change % Change
Income (loss) from operations
North America $ (19,380 ) $ (33,811 ) $ 14,431
42.7 %
International 11,543
13,520
(1,977 ) (14.6 )
Total income (loss) from operations $ (7,837 ) $ (20,291 ) $ 12,454
61.4



	Nine Months Ended September 30,
	2019			2018			$ Change			% Change
Income (loss) from operations
North America	$	20,655		$	(19,380	)	$	40,035		206.6	%
International	(20,962		)	11,543			(32,505		)	(281.6	)
Total income (loss) from operations	$	(307	)	$	(7,837	)	$	7,530		96.1

North America

The decrease in our loss from operations was attributable to a $21.0 million decrease in SG&A costs, an $18.9 million decrease in marketing expense and an $11.7 million decrease in restructuring costs, partially offset by a $19.6 million decrease in gross profit and a $17.1 million decrease in gains from the sale of intangible assets. The decrease in SG&A costs includes decreases in compensation-related and facilities-related costs, partially offset by the year-to-date expense related to our patent litigation with IBM. As described in Note 9, ~~Commitments and Contingencies~~, we recognized a $75.0 million charge in the second quarter 2018 as a result of a jury award and subsequently reduced that charge by $40.4 million in the third quarter 2018 upon execution of settlement and license agreements with IBM.

~~Income (loss) from operations includes stock-based compensation of $46.7 million and $55.2 million for the nine months ended September 30, 2018 and 2017, respectively.~~

For the nine months ended September 30, 2018, there was a $16.3 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 our accounting policies.~~

~~International~~

~~The decrease~~increase in our income from operations was primarily attributable to a ~~$19.7~~$46.7 million ~~increase~~decrease in SG&A and a ~~$16.5~~$36.0 million ~~increase~~decrease in marketing expense, partially offset by a ~~$27.2~~$42.6 milliondecrease in gross profit.

International

The decrease in our income from operations was primarily attributable to a $7.3 millionincrease in marketing expense and a $35.8 milliondecrease in gross profit, ~~and~~partially offset by a ~~$7.0~~$10.6 milliondecrease in ~~restructuring costs.~~

~~Income (loss) from operations includes stock-based compensation of $3.9 million and $4.1 million for the nine months ended September 30, 2018 and 2017.~~

For the nine months ended September 30, 2018, there was a $2.1 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 our accounting policies.~~SG&A.

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 September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Three Months Ended September 30,
2018 2017 $ Change % Change
Other income (expense), net $ (4,860 ) $ 7,546
$ (12,406 ) (164.4 )%



	Three Months Ended September 30,
	2019			2018			$ Change			% Change
Other income (expense), net	$	(17,253	)	$	(4,860	)	$	(12,393	)	(255.0	)%

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


•	$6.0 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and


•	$12.8 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.

Those items were partially offset by $2.0 million in interest income.

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

~~$5.7 million of interest expense;~~


•	$5.7 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and

$1.0 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.

Those items were partially offset by $1.5 million in interest income.

Other income (expense), net for the three months ended September 30, 2017 primarily consisted of $8.2 million in foreign currency gains and a $7.6 million gain on the sale of a minority investment, partially offset by $5.2 million of interest expense and a $4.0 million of losses on the fair value option investments.

Nine Months Ended September 30, ~~2018~~2019 and ~~2017:~~2018:

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

Nine Months Ended September 30,
2018 2017 $ Change % Change
Other income (expense), net $ (39,832 ) $ 8,822
$ (48,654 ) (551.5 )%



	Nine Months Ended September 30,
	2019			2018			$ Change			% Change
Other income (expense), net	$	(92,602	)	$	(39,832	)	$	(52,770	)	(132.5	)%

Other income (expense), net for the nine months ended September 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;


•	$17.2 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and


•	$11.9 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.

Those items were partially offset by $5.8 million in interest income.

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

~~$16.4 million of interest expense;~~


•	$16.4 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information;

$12.2 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 1.1607 on September 30, 2018;currencies;

~~$10.2 million of impairments of minority investments. See Note 6,~~ ~~Investments, for additional information; and~~

~~$8.3 million of losses on fair value option investments. See Note 6,~~ ~~Investments, for additional information.~~


•	$10.2 million of impairments of minority investments. See Item 1, Note 3, Investments, for additional information; and


•	$8.3 million of losses on fair value option investments. See Item 1, Note 3, Investments, for additional information.

Those items were partially offset by $4.9 million in interest income and a $2.4 million gain on an embedded derivative related to an available-for-sale security.

Other income (expense), net for the nine months ended September 30, 2017 primarily consisted of $19.1 million in foreign currency gains and a $7.6 million gain on the sale of a minority investment, partially offset by $15.4 million of interest expense and $5.1 million of losses on fair value option investments.

Provision (Benefit) for Income Taxes

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

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


	Three Months Ended September 30,											Three Months Ended September 30,
	2018			2017			$ Change			% Change		2019			2018			$ Change		% Change
Provision (benefit) for income taxes	$	988		$	2,531		$	(1,543	)	(61.0	)%	$	2,069		$	988		$	1,081	109.4	%
Effective tax rate	2.1		%	40.0		%						(16.4		)%	2.1		%

Our U.S. ~~Federal~~federal income tax rate is 21% ~~for the three and nine months ended September 30, 2018 and was 35% for the three and nine months ended September 30, 2017.~~. The primary factor impacting the effective tax rate for the three months ended September 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.

~~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 $133.6 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 $41.6 million in unrecognized tax benefits may occur within the 12 months following September 30, 2018 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. Pursuant to the guidance in SAB 118, we previously made provisional estimates for the impact of the Jobs Act as of and for the year ended December 31, 2017 related to the re-measurement of deferred income taxes, valuation allowances, uncertain tax positions, and our assessment of permanently reinvested earnings. Additionally, while we did not expect to incur the deemed repatriation tax established by the Jobs Act due to the aggregate cumulative losses of our foreign operations, we had not previously finalized the related calculations. As of September 30, 2018, we have substantially completed our accounting and measurement analyses related to the income tax effects of the Jobs Act and no significant adjustments to the provisional amounts were recorded during the three and nine months then ended.

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. We are continuing to monitor the status of the case; 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. future.

Nine Months Ended September 30, ~~2018~~2019 and ~~2017:~~2018:

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


	Nine Months Ended September 30,											Nine Months Ended September 30,
	2018			2017			$ Change			% Change		2019			2018			$ Change		% Change
Provision (benefit) for income taxes	$	205		$	11,001		$	(10,796	)	(98.1	)%	$	591		$	205		$	386	188.3	%
Effective tax rate	(0.4		)%	(95.9		)%						(0.6		)%	(0.4		)%

Our U.S. ~~Federal~~federal income tax rate is 21%. The primary factor impacting the effective tax rate for the nine months ended September ~~2018~~30, 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 nine months ended September 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 nine months ended September 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 nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, special charges and credits included charges related to our restructuring plan. For the three and nine months ended September 30, 2018, special charges and credits also included a $40.4 million credit and a $34.6 million charge ~~respectively,~~ related to our patent litigation with ~~IBM as described in Note 9,~~ ~~Commitments and Contingencies. For the three and nine months ended September 30, 2017, special charges and credits also included a $17.1 million credit related to the sale of intangible assets, as described in Note 5,~~ ~~Goodwill and Other Intangible Assets~~.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 nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Income (loss) from continuing operations	$	47,175		$	3,802		$	(47,874	)	$	(22,470	)	$	(14,685	)	$	47,175		$	(93,500	)	$	(47,874	)
Adjustments:
Stock-based compensation ⁽¹⁾	15,026			18,235			50,570			59,277			19,543			15,026			62,517			50,570
Depreciation and amortization	28,685			35,231			87,300			103,977			25,873			28,685			81,405			87,300
Acquisition-related expense (benefit), net	—			—			655			48			5			—			33			655
Restructuring charges ⁽¹⁾	35			11,503			(81		)	18,818			(61		)	35			(175		)	(81		)
IBM patent litigation	(40,400		)	—			34,600			—			—			(40,400		)	—			34,600
Gain on sale of intangible assets	—			(17,149		)	—			(17,149		)
Other (income) expense, net ⁽¹⁾	4,860			(7,546		)	39,832			(8,822		)
Other (income) expense, net													17,253			4,860			92,602			39,832
Provision (benefit) for income taxes	988			2,531			205			11,001			2,069			988			591			205
Total adjustments	9,194			42,805			213,081			167,150			64,682			9,194			236,973			213,081
Adjusted EBITDA	$	56,369		$	46,607		$	165,207		$	144,680		$	49,997		$	56,369		$	143,473		$	165,207

(1)

Represents stock-based compensation expense recorded within Selling, general and administrative, Cost of revenue and Marketing. Restructuring charges includes $0.8 million of additional stock-based compensation for the three and nine months ended September, 30 2017. Other income (expense), net includes $0.1 million of additional stock-based compensation for the three months ended September 30, 2017. Other income (expense), net includes $0.1 million and $0.2 million of additional stock-based compensation for the nine months ended September 30, 2018 and 2017, respectively.

6051

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 ~~$572.4~~$567.3 million as of September 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 the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 were as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Cash provided by (used in):
Operating activities ⁽¹⁾	$	(57,389	)	$	21,772		$	(132,961	)	$	(135,704	)	$	18,584		$	(57,389	)	$	(130,118	)	$	(132,961	)
Investing activities	(22,389		)	18,230			(118,485		)	(9,572		)	(19,541		)	(22,389		)	(54,891		)	(118,485		)
Financing activities	(9,720		)	(27,972		)	(49,348		)	(121,622		)	(22,595		)	(9,720		)	(81,953		)	(49,348		)



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)



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



PART I. Financial Information	Page
Forward-Looking Statements	3
Item 1. Financial Statements and Supplementary Data	4
Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018	4
Condensed Consolidated Statements of Operations ~~for the three~~ and ~~nine months ended September 30, 2018 and 2017 (unaudited)~~	5
~~Condensed Consolidated Statements of~~ Comprehensive Income (Loss) for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	65
Condensed Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2019 and 2018 (unaudited)	76
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	8
Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	3031
Item 3. Quantitative and Qualitative ~~Disclosure~~Disclosures about Market Risk	6655
Item 4. Controls and Procedures	6756
PART II. Other Information
Item 1. Legal Proceedings	6857
Item 1A. Risk Factors	6857
Item 2. Unregistered ~~sales~~Sales of ~~equity securities~~Equity Securities and ~~use~~Use of ~~proceeds~~Proceeds	6857
Item 5. Other Information	6858
Item 6. Exhibits	6958
Signatures	7059


	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	572,358		$	880,129		$	567,285		$	841,021
Accounts receivable, net	81,478			98,294			56,094			69,493
Prepaid expenses and other current assets	98,169			94,025			81,667			88,115
Total current assets	752,005			1,072,448			705,046			998,629
Property, equipment and software, net	146,897			151,145			133,071			143,117
Right-of-use assets - operating leases, net							112,133			—
Goodwill	327,430			286,989			319,557			325,491
Intangible assets, net	49,032			19,196			36,497			45,401
Investments (including $84,861 and $109,751 at September 30, 2018 and December 31, 2017, respectively, at fair value)	109,306			135,189
Investments							38,124			108,515
Other non-current assets	19,250			12,538			26,274			20,989
Total Assets	$	1,403,920		$	1,677,505		$	1,370,702		$	1,642,142
Liabilities and Equity
Current liabilities:
Accounts payable	$	16,810		$	31,968		$	21,485		$	38,359
Accrued merchant and supplier payables	484,626			770,335			428,177			651,781
Accrued expenses and other current liabilities	269,726			331,196			239,104			267,034
Total current liabilities	771,162			1,133,499			688,766			957,174
Convertible senior notes, net	198,575			189,753			211,441			201,669
Operating lease obligations							118,408			—
Other non-current liabilities	102,543			102,408			50,961			100,688
Total Liabilities	1,072,280			1,425,660			1,069,576			1,259,531
Commitments and contingencies (see Note 9)
Commitments and contingencies (see Note 7)
Stockholders' Equity
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized; 758,800,610 shares issued and 570,198,368 shares outstanding at September 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; 769,175,284 shares issued and 563,292,929 shares outstanding at September 30, 2019; 760,939,440 shares issued and 569,084,312 shares outstanding at December 31, 2018							76			76
Additional paid-in capital	2,222,423			2,174,708			2,294,000			2,234,560
Treasury stock, at cost, 188,602,242 shares at September 30, 2018 and December 31, 2017	(867,450		)	(867,450		)
Treasury stock, at cost, 205,882,355 and 191,855,128 shares at September 30, 2019 and December 31, 2018							(922,666		)	(877,491		)
Accumulated deficit	(1,056,727		)	(1,088,204		)	(1,109,917		)	(1,010,499		)
Accumulated other comprehensive income (loss)	32,329			31,844			38,877			34,602
Total Groupon, Inc. Stockholders' Equity	330,651			250,973			300,370			381,248
Noncontrolling interests	989			872			756			1,363
Total Equity	331,640			251,845			301,126			382,611
Total Liabilities and Equity	$	1,403,920		$	1,677,505		$	1,370,702		$	1,642,142



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Income (loss) from continuing operations	$	47,175		$	3,802		$	(47,874	)	$	(22,470	)
Other comprehensive income (loss) from continuing operations:
Net change in unrealized gain (loss) on foreign currency translation adjustments	(72		)	(5,034		)	1,166			(10,748		)
Net change in unrealized gain (loss) on defined benefit pension plan	—			—			—			585
Available for sale securities:
Net unrealized gain (loss) during the period	94			(225		)	(948		)	(938		)
Reclassification adjustment for realized (gain) loss on investment included in income (loss) from continuing operations	—			—			106			(1,341		)
Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of $46 and $0 for the three months ended September 30, 2018 and 2017, respectively, and $60 and $0 for the nine months ended September 30, 2018 and 2017, respectively)	94			(225		)	(842		)	(2,279		)
Other comprehensive income (loss) from continuing operations	22			(5,259		)	324			(12,442		)
Comprehensive income (loss) from continuing operations	47,197			(1,457		)	(47,550		)	(34,912		)

Income (loss) from discontinued operations	—			(862		)	—			(1,751		)
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	—			(862		)	—			(18,262		)

Comprehensive income (loss)	47,197			(2,319		)	(47,550		)	(53,174		)
Comprehensive income (loss) attributable to noncontrolling interests	(2,560		)	(2,881		)	(9,433		)	(9,460		)
Comprehensive income (loss) attributable to Groupon, Inc.	$	44,637		$	(5,200	)	$	(56,983	)	$	(62,634	)



	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)	—		—		—			—		—			(57,307		)	—			(57,307		)	9,433			(47,874		)
Foreign currency translation	—		—		—			—		—			—			1,166			1,166			—			1,166
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—			—		—			—			(842		)	(842		)	—			(842		)
Exercise of stock options	670,393		—		76			—		—			—			—			76			—			76
Vesting of restricted stock units and performance share units	11,007,259		1		(1		)	—		—			—			—			—			—			—
Shares issued under employee stock purchase plan	1,621,061		—		5,634			—		—			—			—			5,634			—			5,634
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	(4,280,344	)	—		(19,030		)	—		—			—			—			(19,030		)	—			(19,030		)
Stock-based compensation on equity-classified awards	—		—		54,600			—		—			—			—			54,600			—			54,600
Distributions to noncontrolling interest holders	—		—		—			—		—			—			—			—			(9,316		)	(9,316		)
Balance at September 30, 2018	758,800,610		$	76	$	2,222,423		(188,602,242	)	$	(867,450	)	$	(1,056,727	)	$	32,329		$	330,651		$	989		$	331,640



Non-cash investing and financing activities
Continuing operations:
Equipment acquired under capital lease obligations	$	13,789	$	17,892
Leasehold improvements funded by lessor	557		402
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software	699		396
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		—



Non-cash investing and financing activities
Continuing operations:
Equipment acquired under capital lease arrangements ⁽²⁾	$	3,865		$	13,789
Leasehold improvements funded by lessor	—			557
Liability for repurchases of common stock	(1,469		)	—
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software	(201		)	699
Contingent consideration liabilities incurred in connection with acquisition of business	—			1,589
Financing obligation incurred in connection with acquisition of business	—			8,604


(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.



	September 30, 2018		September 30, 2017		December 31, 2017
Cash and cash equivalents	$	572,358	$	638,657	$	880,129
Restricted cash included in prepaid expenses and other current assets	2,649		4,375		4,932
Restricted cash included in other non-current assets	393		5,374		420
Cash, cash equivalents and restricted cash	$	575,400	$	648,406	$	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	14,958
Less: Indemnification liabilities ⁽¹⁾	5,365
Less: Unfavorable contract liability for transition services	2,114
Loss on dispositions	$	(1,630	)


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



	Three Months Ended September 30, 2017 ⁽¹⁾			Nine Months Ended September 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	(500		)	(11,784		)
Restructuring	—			(778		)
Other income, net	—			3,852
Income (loss) from discontinued operations before loss on dispositions and provision for income taxes	(500		)	(40		)
Loss on dispositions	(362		)	(1,630		)
Provision for income taxes	—			(81		)
Income (loss) from discontinued operations, net of tax	$	(862	)	$	(1,751	)


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



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



	September 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	$	15,750	$	450	$	16,200	$	11,700	$	4,500
Merchant relationships	20,913		7,047		13,866		21,554		4,105		17,449
Trade names	9,394		7,199		2,195		9,476		6,799		2,677
Developed technology	14,882		13,659		1,223		13,825		13,485		340
Patents	22,383		17,690		4,693		20,508		16,451		4,057
Other intangible assets	26,072		12,002		14,070		26,007		9,629		16,378
Total	$	109,844	$	73,347	$	36,497	$	107,570	$	62,169	$	45,401



	September 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	$	55,758	$	49,908	$	5,850	$	56,749	$	46,513	$	10,236
Merchant relationships	30,650		11,769		18,881		11,598		9,853		1,745
Trade names	14,390		11,298		3,092		12,077		10,469		1,608
Developed technology	37,093		36,680		413		36,864		36,864		—
Patents	36,184		16,236		19,948		19,031		15,204		3,827
Other intangible assets	11,294		10,446		848		10,875		9,095		1,780
Total	$	185,369	$	136,337	$	49,032	$	147,194	$	127,998	$	19,196



	September 30, 2019		Percent Ownership of Voting Stock			December 31, 2018		Percent Ownership of Voting Stock
Available-for-sale securities - redeemable preferred shares	$	10,138	19%	to	25%	$	10,340	19%	to	25%
Fair value option investments	4,931		10%	to	19%	73,902		10%	to	19%
Other equity investments	23,055		1%	to	19%	24,273		1%	to	19%
Total investments	$	38,124				$	108,515



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.~~



	North America		International			Consolidated
Balance as of December 31, 2018	$	178,685	$	146,806		$	325,491
Foreign currency translation	—		(5,934		)	(5,934		)
Balance as of September 30, 2019	$	178,685	$	140,872		$	319,557



Remaining amounts in 2019	$	2,843
2020	8,445
2021	7,336
2022	6,750
2023	5,613
Thereafter	5,510
Total	$	36,497



Remaining amounts in 2018	$	4,448
2019	14,179
2020	8,279
2021	7,553
2022	7,237
Thereafter	7,336
Total	$	49,032



	September 30, 2019		December 31, 2018
Amortized cost	$	9,961	$	9,961
Gross unrealized gain (loss)	177		379
Fair value	$	10,138	$	10,340


~~(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.~~



	September 30, 2019		December 31, 2018
Merchandise inventories	$	27,422	$	33,739
Prepaid expenses	31,865		28,209
Income taxes receivable	6,875		6,717
Other	15,505		19,450
Total prepaid expenses and other current assets	$	81,667	$	88,115


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



	September 30, 2019		December 31, 2018
Refunds reserve	$	18,083	$	27,957
Compensation and benefits	62,664		56,173
Accrued marketing	22,450		39,094
Customer credits	16,362		15,118
Income taxes payable	4,337		8,987
Deferred revenue	15,993		25,452
Current portion of lease obligations ⁽¹⁾	40,399		17,207
Other	58,816		77,046
Total accrued expenses and other current liabilities	$	239,104	$	267,034



Remaining amounts in 2018	$	639
2019	2,556
2020	2,556
2021	2,556
2022	2,556
Thereafter	5,751
Total minimum lease payments	$	16,614



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, 2018	26,623,432		$	4.47
Granted	25,446,060		3.52
Vested	(9,773,156	)	4.37
Forfeited	(9,511,750	)	4.17
Unvested at September 30, 2019	32,784,586		3.84



	Restricted Stock Units		Weighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 2017	28,939,110		$	4.32
Granted	16,036,764		4.75
Vested	(10,728,624	)	4.40
Forfeited	(5,222,435	)	4.30
Unvested at September 30, 2018	29,024,815		4.54



	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	4,640,467		3.89		8,486,708		3.03
Vested	(777,573	)	4.88		—		—
Forfeited	(3,124,591	)	4.64		(1,666,667	)	3.03
Unvested at September 30, 2019	4,170,221		3.98		6,820,041		3.03

Maximum shares issuable upon vesting at September 30, 2019	7,980,870				6,820,041



	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	(670,393	)	0.11
Outstanding and exercisable at September 30, 2018	215,187		1.80		1.63	$	424



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	)



	September 30, 2018
	As reported		Effects of Topic 606			Balances without adoption of Topic 606
Total assets	$	1,403,920	$	(10,836	)	$	1,393,084
Total liabilities	1,072,280		93,799			1,166,079
Total equity	331,640		(104,635		)	227,005



	Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
	As reported			Effects of Topic 606			Balances without adoption of Topic 606			As reported			Effects of Topic 606			Balances without adoption of Topic 606
Revenue:
Service revenue ⁽¹⁾⁽²⁾	$	289,214		$	1,568		$	290,782		$	886,663		$	5,790		$	892,453
Product revenue	303,669			—			303,669			950,156			—			950,156
Total revenue	592,883			1,568			594,451			1,836,819			5,790			1,842,609
Cost of revenue:
Service cost of revenue ⁽³⁾	29,792			8,609			38,401			91,167			21,927			113,094
Product cost of revenue	257,102			—			257,102			791,120			—			791,120
Cost of revenue ⁽³⁾	286,894			8,609			295,503			882,287			21,927			904,214
Gross profit	305,989			(7,041		)	298,948			954,532			(16,137		)	938,395
Operating expenses:
Marketing ⁽⁴⁾	92,717			1,799			94,516			286,051			5,506			291,557
Selling, general and administrative ⁽⁵⁾	160,214			(763		)	159,451			676,399			(3,254		)	673,145
Restructuring charges	35			—			35			(81		)	—			(81		)
Total operating expenses	252,966			1,036			254,002			962,369			2,252			964,621
Income (loss) from operations	53,023			(8,077		)	44,946			(7,837		)	(18,389		)	(26,226		)
Other income (expense), net	(4,860		)	—			(4,860		)	(39,832		)	—			(39,832		)
Income (loss) before provision (benefit) for income taxes	48,163			(8,077		)	40,086			(47,669		)	(18,389		)	(66,058		)
Provision (benefit) for income taxes ⁽⁶⁾	988			(643		)	345			205			(776		)	(571		)
Net income (loss)	$	47,175		$	(7,434	)	$	39,741		$	(47,874	)	$	(17,613	)	$	(65,487	)


~~(3)~~	~~Reflects decreases to Cost of revenue following the adoption of Topic 606 for refunds on service revenue transactions for which the merchant's share is not recoverable.~~