SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

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

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

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

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

As of ~~July 26, 2019,~~June 12, 2020, there were ~~567,619,924~~28,635,659 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS



PART I. Financial Information			Page
Forward-Looking Statements			34
Item 1. Financial Statements and Supplementary Data			45
Condensed Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 (unaudited) and December 31, ~~2018~~2019			45
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)			56
Condensed Consolidated Statements of Stockholders' Equity for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)			67
Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)			89
Notes to Condensed Consolidated Financial Statements (unaudited)			10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			2734
Item 3. Quantitative and Qualitative Disclosures about Market Risk			5150
Item 4. Controls and Procedures			5251
PART II. Other Information
Item 1. Legal Proceedings			5352
Item 1A. Risk Factors			53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5355
Item 5. Other Information			5455
Item 6. Exhibits			5455
Signatures			5557

EXPLANATORY NOTE

As previously disclosed in Groupon, Inc.’s (the “Company”) Form 8-K filed with the SEC on April 13, 2020, the filing of this Quarterly Report on Form 10-Q for the period ended March 31, 2020 (the “Quarterly Report”) was delayed due to circumstances related to the novel coronavirus (“COVID-19”) and its impact on the Company’s operations. In particular, COVID-19 has caused disruptions in the Company’s day-to-day activities, including limiting the Company’s access to its facilities and certain technology systems that the Company’s staff relies on to efficiently perform work on its Quarterly Report. The Company relied on the Securities and Exchange Commission’s order dated March 4, 2020 and amended March 25, 2020 (Release Nos. 34-88318 and 34-88465) pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, to delay the filing of this Quarterly Report.

PART I. FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations. The words "may," "will," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "continue" and other similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, but are not limited to, ~~risks related~~our ability to execute, and achieve the expected benefits of our go-forward strategy, including the planned phase down of the Goods category; volatility in our operating results; effects of pandemics or disease outbreaks, including COVID-19, on our business; execution of our business and marketing strategies; retaining existing customers and adding new customers; challenges arising from our international operations, including fluctuations in currency exchange rates, legal and regulatory developments and any potential adverse impact from the United Kingdom's ~~likely~~ exit from the European Union; retaining and adding high quality merchants; our ~~voucherless offerings;~~reliance on email, internet search engines and mobile application marketplaces to drive traffic to our marketplace; cybersecurity breaches; reliance on cloud-based computing platforms; competing successfully in our industry; ~~changes to merchant payment terms;~~ providing a strong mobile experience for our customers; maintaining and improving our information technology infrastructure; ~~delivery and routing of~~ our ~~emails;~~voucherless offerings; claims related to product and service offerings; managing inventory and order fulfillment risks; litigation; managing refund risks; retaining and attracting members of our executive team; completing and realizing the anticipated benefits from acquisitions, dispositions, joint ventures and strategic investments; lack of control over minority investments; compliance with domestic and foreign laws and regulations, including the CARD Act, GDPR and regulation of the Internet and e-commerce; classification of our independent contractors or employees; tax liabilities; tax legislation; protecting our intellectual property; maintaining a strong brand; customer and merchant fraud; payment-related risks; our ability to effectuate an amendment of our credit agreement on a timely basis or at all; our ability to raise capital if necessary and our outstanding indebtedness; global economic uncertainty; our common stock, including volatility in our stock price; our convertible senior notes; our ability to realize the anticipated benefits from the hedge and warrant transactions; and those risks and other factors discussed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2018, and~~2019, Part II, Item ~~1A ,~~1A. Risk Factors of ~~our~~this Quarterly ~~report~~Report on Form 10-Q, ~~for~~and the ~~quarter ended March 31, 2019,~~risk factor set forth in Item 8.01 of our Current Report on Form 8-K, filed with the SEC on April 13, 2020, as well as in our condensed consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the ~~Securities and Exchange Commission ("SEC").~~SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GROUPON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

June 30, 2019 December 31, 2018
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 596,837
$ 841,021
Accounts receivable, net 74,706
69,493
Prepaid expenses and other current assets 91,056
88,115
Total current assets 762,599
998,629
Property, equipment and software, net 134,672
143,117
Right-of-use assets - operating leases, net 114,500
—
Goodwill 324,705
325,491
Intangible assets, net 38,996
45,401
Investments 39,301
108,515
Other non-current assets 24,435
20,989
Total Assets $ 1,439,208
$ 1,642,142
Liabilities and Equity
Current liabilities:
Accounts payable $ 26,968
$ 38,359
Accrued merchant and supplier payables 464,125
651,781
Accrued expenses and other current liabilities 258,610
267,034
Total current liabilities 749,703
957,174
Convertible senior notes, net 208,100
201,669
Operating lease obligations 121,526
—
Other non-current liabilities 53,740
100,688
Total Liabilities 1,133,069
1,259,531
Commitments and contingencies (see Note 7)

Stockholders' Equity
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized; 767,155,735 shares issued and 566,664,464 shares outstanding at June 30, 2019; 760,939,440 shares issued and 569,084,312 shares outstanding at December 31, 2018 76
76
Additional paid-in capital 2,271,600
2,234,560
Treasury stock, at cost, 200,491,271 and 191,855,128 shares at June 30, 2019 and December 31, 2018 (907,599 ) (877,491 )
Accumulated deficit (1,093,232 ) (1,010,499 )
Accumulated other comprehensive income (loss) 34,485
34,602
Total Groupon, Inc. Stockholders' Equity 305,330
381,248
Noncontrolling interests 809
1,363
Total Equity 306,139
382,611
Total Liabilities and Equity $ 1,439,208
$ 1,642,142


	March 31, 2020		December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	666,867	$	750,887
Accounts receivable, net	45,430		54,953
Prepaid expenses and other current assets	67,103		82,073
Total current assets	779,400		887,913
Property, equipment and software, net	103,318		124,950
Right-of-use assets - operating leases, net	92,893		108,390
Goodwill	211,255		325,017
Intangible assets, net	33,096		35,292
Investments (including $0 and $1,405 at March 31, 2020 and December 31, 2019, at fair value)	33,699		76,576
Other non-current assets	28,945		28,605
Total Assets	$	1,282,606	$	1,586,743
Liabilities and Equity
Current liabilities:
Short-term borrowings	$	150,000	$	—
Accounts payable	26,061		20,415
Accrued merchant and supplier payables	311,063		540,940
Accrued expenses and other current liabilities	242,097		260,192
Total current liabilities	729,221		821,547
Convertible senior notes, net	218,385		214,869
Operating lease obligations	103,820		110,294
Other non-current liabilities	39,673		44,987
Total Liabilities	1,091,099		1,191,697
Commitments and contingencies (see Note 6)
Stockholders' Equity
Common stock, par value $0.0001 per share, 100,500,000 shares authorized; 38,712,045 shares issued and 28,417,928 shares outstanding at March 31, 2020; 38,584,854 shares issued and 28,290,737 shares outstanding at December 31, 2019	77		77
Additional paid-in capital	2,323,144		2,310,320
Treasury stock, at cost, 10,294,117 and 10,294,117 shares at March 31, 2020 and December 31, 2019	(922,666)		(922,666)
Accumulated deficit	(1,246,477)		(1,032,876)
Accumulated other comprehensive income (loss)	37,120		39,081
Total Groupon, Inc. Stockholders' Equity	191,198		393,936
Noncontrolling interests	309		1,110
Total Equity	191,507		395,046
Total Liabilities and Equity	$	1,282,606	$	1,586,743

See Notes to Condensed Consolidated Financial Statements.

GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share amounts)

(unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Revenue:
Service $ 277,603
$ 295,652
$ 563,430
$ 597,449
Product 254,974
321,744
547,557
646,487
Total revenue 532,577
617,396
1,110,987
1,243,936
Cost of revenue:
Service 28,595
30,230
57,222
61,375
Product 211,850
263,508
455,617
534,018
Total cost of revenue 240,445
293,738
512,839
595,393
Gross profit 292,132
323,658
598,148
648,543
Operating expenses:
Marketing 88,923
94,178
182,320
193,334
Selling, general and administrative 210,348
293,725
420,772
516,069
Total operating expenses 299,271
387,903
603,092
709,403
Income (loss) from operations (7,139 ) (64,245 ) (4,944 ) (60,860 )
Other income (expense), net (28,494 ) (26,457 ) (75,349 ) (34,972 )
Income (loss) from continuing operations before provision (benefit) for income taxes (35,633 ) (90,702 ) (80,293 ) (95,832 )
Provision (benefit) for income taxes 2,012
1,552
(1,478 ) (783 )
Income (loss) from continuing operations (37,645 ) (92,254 ) (78,815 ) (95,049 )
Income (loss) from discontinued operations, net of tax —
—
2,162
—
Net income (loss) (37,645 ) (92,254 ) (76,653 ) (95,049 )
Net income attributable to noncontrolling interests (2,601 ) (2,780 ) (6,080 ) (6,873 )
Net income (loss) attributable to Groupon, Inc. $ (40,246 ) $ (95,034 ) $ (82,733 ) $ (101,922 )

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

Weighted average number of shares outstanding
Basic 567,962,461
565,284,705
569,014,065
563,502,954
Diluted 567,962,461
565,284,705
569,014,065
563,502,954

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

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


	Three Months Ended March 31,
	2020		2019
Revenue:
Service	$	207,028	$	285,827
Product	167,122		292,583
Total revenue	374,150		578,410
Cost of revenue:
Service	26,915		28,627
Product	145,988		243,767
Total cost of revenue	172,903		272,394
Gross profit	201,247		306,016
Operating expenses:
Marketing	60,130		93,397
Selling, general and administrative	207,141		210,424
Goodwill impairment	109,486		—
Long-lived asset impairment	22,351		—
Total operating expenses	399,108		303,821
Income (loss) from operations	(197,861)		2,195
Other income (expense), net	(18,987)		(46,855)
Income (loss) from continuing operations before provision (benefit) for income taxes	(216,848)		(44,660)
Provision (benefit) for income taxes	(5,988)		(3,490)
Income (loss) from continuing operations	(210,860)		(41,170)
Income (loss) from discontinued operations, net of tax	382		2,162
Net income (loss)	(210,478)		(39,008)
Net income attributable to noncontrolling interests	(3,044)		(3,479)
Net income (loss) attributable to Groupon, Inc.	$	(213,522)	$	(42,487)

Basic and diluted net income (loss) per share:
Continuing operations	$	(7.54)	$	(1.57)
Discontinued operations	0.01		0.08
Basic and diluted net income (loss) per share	$	(7.53)	$	(1.49)

Weighted average number of shares outstanding
Basic	28,365,216		28,504,756
Diluted	28,365,216		28,504,756

Comprehensive income (loss):
Net income (loss)	$	(210,478)	$	(39,008)
Other comprehensive income (loss):
Other comprehensive income (loss) from continuing operations:
Net change in unrealized gain (loss) on foreign currency translation adjustments	(1,961)		3,272
Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of $0 and $13 for the three months ended March 31, 2020 and 2019)	—		41
Other comprehensive income (loss) from continuing operations	(1,961)		3,313
Other comprehensive income (loss) from discontinued operations	—		—
Other comprehensive income (loss)	(1,961)		3,313

Comprehensive income (loss)	(212,439)		(35,695)
Comprehensive income (loss) attributable to noncontrolling interest	(3,044)		(3,479)
Comprehensive income (loss) attributable to Groupon, Inc.	$	(215,483)	$	(39,174)

See Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

Groupon, Inc. Stockholders' Equity
Common Stock Additional Paid-In Capital Treasury Stock Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Groupon, Inc. Stockholders' Equity Non-controlling Interests Total Equity
Shares Amount Shares Amount
Balance at December 31, 2018 760,939,440
$ 76
$ 2,234,560
(191,855,128 ) $ (877,491 ) $ (1,010,499 ) $ 34,602
$ 381,248
$ 1,363
$ 382,611
Net income (loss) —
—
—
—
—
(42,487 ) —
(42,487 ) 3,479
(39,008 )
Foreign currency translation —
—
—
—
—
—
3,272
3,272
—
3,272
Unrealized gain (loss) on available-for-sale securities, net of tax —
—
—
—
—
—
41
41
—
41
Exercise of stock options 12,500
—
8
—
—
—
—
8
—
8
Vesting of restricted stock units and performance share units 4,160,415
—
—
—
—
—
—
—
—
—
Shares issued under employee stock purchase plan 719,297
—
1,998
—
—
—
—
1,998
—
1,998
Tax withholdings related to net share settlements of stock-based compensation awards (1,585,728 ) —
(5,681 ) —
—
—
—
(5,681 ) —
(5,681 )
Purchases of treasury stock —
—
—
(4,407,995 ) (15,055 ) —
—
(15,055 ) —
(15,055 )
Stock-based compensation on equity-classified awards —
—
17,731
—
—
—
—
17,731
—
17,731
Distributions to noncontrolling interest holders —
—
—
—
—
—
—
—
(3,521 ) (3,521 )
Balance at March 31, 2019 764,245,924
76
2,248,616
(196,263,123 ) (892,546 ) (1,052,986 ) 37,915
341,075
1,321
342,396
Net income (loss) —
—
—
—
—
(40,246 ) —
(40,246 ) 2,601
(37,645 )
Foreign currency translation —
—
—
—
—
—
(3,285 ) (3,285 ) —
(3,285 )
Unrealized gain (loss) on available-for-sale securities, net of tax —
—
—
—
—
—
(145 ) (145 ) —
(145 )
Exercise of stock options 30,000
—
32
—
—
—
—
32
—
32
Vesting of restricted stock units and performance share units 4,404,213
—
—
—
—
—
—
—
—
—
Tax withholdings related to net share settlements of stock-based compensation awards (1,524,402 ) —
(5,387 ) —
—
—
—
(5,387 ) —
(5,387 )
Purchases of treasury stock —
—
—
(4,228,148 ) (15,053 ) —
—
(15,053 ) —
(15,053 )
Stock-based compensation on equity-classified awards —
—
28,339

—
—
—
28,339
—
28,339
Distributions to noncontrolling interest holders —
—
—
—
—
—
—
—
(3,113 ) (3,113 )
Balance at June 30, 2019 767,155,735
$ 76
$ 2,271,600
(200,491,271 ) $ (907,599 ) $ (1,093,232 ) $ 34,485
$ 305,330
$ 809
$ 306,139

See Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

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


	Groupon, Inc. Stockholders' Equity
	Common Stock					Additional Paid-In Capital	Treasury Stock								Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Groupon, Inc. Stockholders' Equity		Non-controlling Interests	Total Equity
	Shares	Amount							Shares			Amount
Balance at December 31, 2018	38,496,972	$	76	$	2,234,560	(9,592,756)	$	(877,491)		$	(1,010,499)		$	34,602	$	381,248	$	1,363	$	382,611
Comprehensive income (loss)	—	—		—		—	—			(42,487)			3,313		(39,174)		3,479		(35,695)
Exercise of stock options	625	—		8		—	—			—			—		8		—		8
Vesting of restricted stock units and performance share units	208,020	—		—		—	—			—			—		—		—		—
Shares issued under employee stock purchase plan	35,964	—		1,998		—	—			—			—		1,998		—		1,998
Tax withholdings related to net share settlements of stock-based compensation awards	(79,286)	—		(5,681)		—	—			—			—		(5,681)		—		(5,681)
Payments for repurchases of common stock	—	—		—		(220,399)	(15,055)			—			—		(15,055)				(15,055)
Stock-based compensation on equity-classified awards	—	—		17,731		—	—			—			—		17,731		—		17,731
Distributions to noncontrolling interest holders	—	—		—		—	—			—			—		—		(3,521)		(3,521)
Balance at March 31, 2019	38,662,295	$	76	$	2,248,616	(9,813,155)	$	(892,546)		$	(1,052,986)		$	37,915	$	341,075	$	1,321	$	342,396

See Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

Cash, cash equivalents and restricted cash, beginning of period ⁽¹⁾

Cash, cash equivalents and restricted cash, end of period ⁽¹⁾

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(unaudited)~~(1)The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to amounts reported within the condensed consolidated balance sheets as of March 31, 2020, December 31, 2019 and December 31, 2018 and amounts previously reported within the condensed consolidated balance sheet in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 (in thousands):

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

~~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.~~


	March 31, 2020		December 31, 2019		March 31, 2019		December 31, 2018
Cash and cash equivalents	$	666,867	$	750,887	$	645,610	$	841,021
Restricted cash included in prepaid expenses and other current assets	878		1,534		1,973		3,320
Restricted cash included in other non-current assets	206		236		389		387
Cash, cash equivalents and restricted cash	$	667,951	$	752,657	$	647,972	$	844,728

See Notes to Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

Our operations are organized into ~~two~~2 segments: North America and International. See Note ~~13,~~12, Segment Information.

On June 10, 2020, we effectuated a reverse stock split of our common stock at a ratio of 1-for-20. See Note 13, Subsequent Events, for additional information. As a result, the number of shares and income (loss) per share disclosed throughout this Quarterly Report on Form 10-Q have been retrospectively adjusted to reflect the reverse stock split.

The outbreak of COVID-19 and the preventive or protective actions that governments or our merchants and consumers have taken in response to the pandemic have resulted in significant disruption of our operations and have had an adverse impact on our financial condition, results of operations and cash flows. We rely on customers' purchases of vouchers for local experiences, including events and activities, beauty and wellness, and dining. The temporary closure of businesses including restaurants and bars, event venues, and spas, resulted in a significant deterioration in our performance in March 2020, and the negative impact on our business is expected to continue at least as long as customers and merchants remain impacted by governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions, business shutdowns and restrictions on the movement of people in the United States and abroad.

In light of the impact of COVID-19 on our business, we expect a net loss and negative operating cash flows for the year ending December 31, 2020. We plan to continue to actively manage and optimize our cash balances and liquidity, working capital and operating expenses, although there can be no assurances that we will be able to do so. We have taken several steps to reduce costs and preserve cash in the near-term, including, among others: reducing our workforce and furloughing staff; continuing to sell Goods on our platform instead of quickly exiting the category; reducing marketing expense by significantly shortening payback thresholds and delaying brand marketing investments; continuing to transition merchants to redemption payment terms, instead of fixed payment terms; implementing a hiring freeze; eliminating broad-based merit increases for employees; and replacing cash compensation with equity compensation in 2020 for all Board directors. The future impact of COVID-19 on our business, results of operations, financial condition and liquidity is highly uncertain and will ultimately depend on future developments, including the magnitude and duration of the pandemic and the protective measures associated with reducing its spread.

We determined the significant deterioration in our financial performance due to the disruption in our operations from COVID-19 and the sustained decrease in our stock price required us to evaluate our long-lived assets and goodwill for impairment, which resulted in the impairment of our long-lived assets and goodwill during the first quarter 2020. See Note 2, Goodwill and Long-Lived Assets. Additionally, the economic impacts of COVID-19 resulted in an impairment or a reduction in the fair value of certain of our investments during the first quarter 2020. See Note 3, Investments.

Unaudited Interim Financial Information

We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. These condensed consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the condensed

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

consolidated balance sheets, statements of operations and comprehensive income (loss), cash flows and stockholders' equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending December 31, 2019. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2018, filed with the SEC on February 12,~~ 2019.

Principles of Consolidation

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

~~Adoption of New Accounting Standards~~

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

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

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

~~Reclassifications and Terminology Changes~~

~~Certain reclassifications have been made to the condensed consolidated financial statements of prior periods and the accompanying notes to conform to the current period presentation.~~

The preparation of ~~condensed consolidated~~ financial statements in conformity with U.S. ~~GAAP~~generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the ~~reported~~ amounts ~~and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities~~reported in the condensed consolidated financial statements and accompanying notes. Estimates in our financial statements include, but are ~~used for, but~~ not limited to, the following: variable consideration from unredeemed vouchers, income taxes, leases, initial valuation and subsequent impairment testing of goodwill, ~~and~~other intangible assets and long-lived assets, investments, receivables, customer refunds and other reserves, contingent liabilities, and the useful lives of property, equipment and software and intangible assets. Actual results could differ materially from those estimates.

Adoption of New Accounting Standards

We adopted the guidance in ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses of Financial Instruments ("CECL")on January 1, 2020. This ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses over the lifetime of the asset rather than incurred losses. The adoption of ASU 2016-13 did not have a material impact on the condensed consolidated financial statements.

We adopted the guidance in ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment on January 1, 2020. This ASU eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit's carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. During the first quarter 2020, we determined a triggering event occurred that required us to evaluate our goodwill for impairment, and we recorded an impairment charge as a result of that assessment. See Note 2, Goodwill and Long-Lived Assets, for additional information.

We adopted the guidance in ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2020. This ASU modifies the disclosure requirements in Topic 820, Fair Value Measurements, by removing, modifying, or adding certain disclosures. The adoption of ASU 2018-13 did not have a material impact on the condensed consolidated financial statements, but did impact the related disclosures. See Note 10, Fair Value Measurements, for additional information.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

2. GOODWILL AND ~~OTHER INTANGIBLE~~LONG-LIVED ASSETS

In accordance with ASC Topic 350, Intangibles — Goodwill and Other, we evaluate goodwill for impairment annually on October 1 or more frequently when an event occurs or circumstances change that indicates the carrying value may not be recoverable. We also review our long-lived assets, such as property, equipment and software, right-of-use assets and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. During the first quarter 2020, we determined the significant deterioration in our financial performance due to the disruption in our operations from COVID-19 and the sustained decrease in our stock price required us to evaluate our goodwill and long-lived assets for impairment.

Future events and changing market conditions due to the impact of COVID-19 may require us to re-evaluate the estimates used in our fair value measurements, which could result in additional impairment of long-lived assets or goodwill in future periods that may have a material effect on our operating results.

In order to evaluate goodwill for impairment, we compared the fair values of our 3 reporting units (North America, EMEA and Asia Pacific) to their carrying values. In determining fair values for our reporting units, we used the discounted cash flow method and the market multiple valuation approach that use Level 3 inputs. The significant estimates used in the discounted cash flow models are the risk-adjusted discount rates; forecasted revenue, cost of revenue and operating expenses; forecasted capital expenditures and working capital needs; weighted average cost of capital; rates of long-term growth; and income tax rates. These estimates considered the recent deterioration in financial performance of the reporting units as well as the anticipated rate of recovery, and implied risk premiums based on the market prices of our equity and debt as of the assessment date. The significant estimates used in the market multiple valuation approach include identifying business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples. As a result of the interim quantitative assessment of goodwill, we identified a partial impairment of goodwill in our EMEA reporting unit within the International segment and recognized goodwill impairment of $109.5 million for the three months ended March 31, 2020. As a result of the goodwill impairment, the EMEA reporting unit had a negative carrying value and remaining goodwill of $26.3 million as of March 31, 2020. We did not recognize any goodwill impairment in our North America or Asia Pacific reporting units.

The following table summarizes goodwill activity by segment for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 (in thousands):


	North America		International		Consolidated
Balance as of December 31, 2019	$	178,685	$	146,332	$	325,017
Impairment loss	—		(109,486)		(109,486)
Foreign currency translation	—		(4,276)		(4,276)
Balance as of March 31, 2020	$	178,685	$	32,570	$	211,255

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

~~The following table summarizes intangible assets as of June 30, 2019 and December 31, 2018 (in thousands):~~

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

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Long-lived Assets

Following our review of long-lived assets for impairment in the first quarter 2020, we also recognized long-lived asset impairment of $22.4 million within our International segment related to our EMEA operations. The assets classified as Level 3 measurements were written down to fair value based on the discounted cash flow method. The significant estimates used in the discounted cash flow models are the risk-adjusted discount rates; forecasted revenue, cost of revenue and operating expenses; forecasted capital expenditures and working capital needs; weighted average cost of capital; rates of long-term growth; and income tax rates.

The following table summarizes long-lived asset impairment by asset type for the three months ended March 31, 2020 (in thousands):


Long-Lived Asset Category	Impairment
Property, equipment and software, net
Warehouse equipment	$	—
Furniture and fixtures	413
Leasehold improvements	2,806
Office equipment	198
Purchased software	14
Computer hardware	2,842
Finance leases	—
Right-of-use assets - finance leases, net	1,318
Capitalized software	304
Internally-developed software	2,988
Total Property, equipment and software, net	$	10,883
Right-of-use assets - operating leases, net	10,494
Intangible assets, net	103
Other non-current assets	871
Total long-lived assets	$	22,351

The following table summarizes intangible assets as of March 31, 2020 and December 31, 2019 (in thousands):


	March 31, 2020										December 31, 2019
Intangible Asset Category	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Customer relationships	$	16,200	$	16,200	$	—	$	16,200	$	16,200	$	—
Merchant relationships	20,957		8,697		12,260		22,193		8,268		13,925
Trade names	9,400		7,471		1,929		9,558		7,369		2,189
Developed technology	2,300		1,556		744		3,651		2,685		966
Patents	23,627		18,674		4,953		23,021		18,167		4,854
Other intangible assets	26,701		13,491		13,210		26,115		12,757		13,358
Total	$	99,185	$	66,089	$	33,096	$	100,738	$	65,446	$	35,292

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Amortization of intangible assets is computed using the straight-line method over their estimated useful lives, which range from 1 to 10 years. Amortization expense related to intangible assets was ~~$3.8~~$2.5 million and ~~$3.5~~$3.9 million for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, and $7.7 million and $6.4 million for the six months ended June 30, 2019 and 2018.~~2019. As of ~~June 30, 2019,~~March 31, 2020, estimated future amortization expense related to intangible assets is as follows (in thousands):

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


Remaining amounts in 2020	$	6,850
2021	7,598
2022	7,007
2023	5,869
2024	2,359
Thereafter	3,413
Total	$	33,096

3. INVESTMENTS

The following table summarizes investments as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollars in thousands):

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

~~Available-for-Sale Securities - Redeemable Preferred Shares~~

~~The following table summarizes amortized cost, gross unrealized gain, gross unrealized loss and fair value of redeemable preferred shares as of June 30, 2019 and December 31, 2018 (in thousands):~~

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

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

~~GROUPON, INC.~~

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

~~(unaudited)~~


	March 31, 2020		Percent Ownership of Voting Stock					December 31, 2019		Percent Ownership of Voting Stock
Available-for-sale securities - redeemable preferred shares	$	—	19%	to	25%	$	—	19%	to	25%
Fair value option investments	—		10%	to	19%	1,405		10%	to	19%
Other equity investments	33,699		1%	to	19%	75,171		1%	to	19%
Total investments	$	33,699				$	76,576

Fair Value Option Investments

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

We determined that the fair value of our investments in Monster LP and Nearbuy were $0.0 million and $4.9 million, respectively, as of June 30, 2019 and $69.4 million and $4.5 million, respectively, as of December 31, 2018.TheThe following table summarizes gains and losses due to changes in fair value of those investments for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three Months Ended March 31,
	2020		2019
Monster LP	$	—	$	(41,459)
Nearbuy	(1,405)		51
Total	$	(1,405)	$	(41,408)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Monster LP $ (27,949 ) $ (3,054 ) $ (69,408 ) $ (8,285 )
Nearbuy 372
19
423
217
Total $ (27,577 ) $ (3,035 ) $ (68,985 ) $ (8,068 )
During the first quarter 2020, we recognized a $1.4 million loss from changes in the fair value of our investment in Nearbuy due to revised cash flow projections and an increase in the discount rate applied to those forecasts, which increased to 30% as of March 31, 2020, as compared with 20% as of December 31, 2019. The revisions to the financial projections and the increase in the discount rate applied as of March 31, 2020 were due to the deterioration in the financial condition of Nearbuy as a result of COVID-19, which resulted in underperformance as compared with prior projections and an increase to financial projection risk.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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

~~The following table summarizes~~We determined that the ~~condensed financial information for~~fair value of our investment in Monster LP ~~for the three~~ and ~~six months ended June 30, 2019~~Nearbuy was $0.0 million and ~~2018 (in thousands):~~$0.0 million as of March 31, 2020 and $0.0 million and $1.4 million as of December 31, 2019.

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

Other Equity Investments

Other equity investments ~~represents~~represent equity investments without readily determinable fair ~~values. We have elected to record equity investments without readily determinable fair~~ values recorded at cost adjusted for observable price changes and impairments. ~~We recorded a $4.6 million impairment~~During the first quarter 2020, we sold 50% of our shares in an other equity investment for ~~the three and six months ended June 30, 2018. That impairment is classified within Other income (expense), net on the condensed consolidated statements~~total cash consideration of ~~operations. There were no other adjustments~~$34.0 million, which approximated cost adjusted for observable price changes ~~related~~as of December 31, 2019.

In addition, we recorded a $6.7 million impairment during the first quarter 2020 to ~~these investments since our adoption~~an other equity method investment as a result of ~~ASU 2016-01,~~ ~~Financial Instruments (Topic 825-10) - Recognition~~revised cash flow projections and ~~Measurement of Financial Assets and Financial Liabilities,~~ ~~on January 1, 2018.~~a deterioration in financial condition due to COVID-19.

~~GROUPON, INC.~~

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

~~(unaudited)~~

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

The following table summarizes other income (expense), net for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

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


	Three Months Ended March 31,
	2020		2019
Interest income	$	2,556	$	1,936
Interest expense	(6,958)		(5,691)
Changes in fair value of investments	(1,405)		(41,408)
Foreign currency gains (losses), net	(6,503)		(1,679)
Impairment of investment	(6,684)		—
Other	7		(13)
Other income (expense), net	$	(18,987)	$	(46,855)

The following table summarizes prepaid expenses and other current assets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	March 31, 2020		December 31, 2019
Merchandise inventories	$	12,932	$	25,426
Prepaid expenses	27,521		27,077
Income taxes receivable	10,335		4,791
Other	16,315		24,779
Total prepaid expenses and other current assets	$	67,103	$	82,073

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

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

June 30, 2019 December 31, 2018
Accrued merchant payables $ 333,441
$ 371,279
Accrued supplier payables ⁽¹⁾
130,684
280,502
Total accrued merchant and supplier payables $ 464,125
$ 651,781


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

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes other non-current assets as of March 31, 2020 and December 31, 2019 (in thousands):


	March 31, 2020		December 31, 2019
Deferred income tax	$	4,625	$	4,829
Debt issue costs, net	2,033		2,156
Deferred commissions expense	8,105		10,133
Deferred cloud implementation costs	10,262		7,372
Other	3,920		4,115
Total other non-current assets	$	28,945	$	28,605

The following table summarizes accrued merchant and supplier payables as of March 31, 2020 and December 31, 2019 (in thousands):


	March 31, 2020		December 31, 2019
Accrued merchant payables	$	227,216	$	366,573
Accrued supplier payables ⁽¹⁾	83,847		174,367
Total accrued merchant and supplier payables	$	311,063	$	540,940

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

The following table summarizes accrued expenses and other current liabilities as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Refunds reserve	$	19,812	$	27,957	Refunds reserve	$	27,694	$	22,002
Compensation and benefits	56,600		56,173		Compensation and benefits	41,761		49,009
Accrued marketing	29,227		39,094		Accrued marketing	12,278		41,110
Customer credits	17,516		15,118		Customer credits	24,559		13,764
Income taxes payable	5,320		8,987		Income taxes payable	2,763		5,044
Deferred revenue	19,949		25,452		Deferred revenue	18,501		17,951
Current portion of lease obligations ⁽¹⁾	43,033		17,207
Operating and finance lease obligations					Operating and finance lease obligations	38,328		40,768
Other	67,153		77,046		Other	76,213		70,544
Total accrued expenses and other current liabilities	$	258,610	$	267,034	Total accrued expenses and other current liabilities	$	242,097	$	260,192


~~(1)~~	Current portion of lease obligations as of June 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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	March 31, 2020		December 31, 2019
Contingent income tax liabilities	$	27,077	$	30,121
Finance lease obligations	3,843		5,831
Deferred income taxes	3,682		3,903
Other	5,071		5,132
Total other non-current liabilities	$	39,673	$	44,987

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


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

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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~~9.25926 shares of common stock, which is equivalent to an initial conversion price of ~~$5.40~~$108.00 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 ~~$3.58~~$19.60 as of ~~June 30, 2019,~~March 31, 2020, 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 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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

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

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


	March 31, 2020		December 31, 2019
Liability component:
Principal amount	$	250,000	$	250,000
Less: debt discount	(31,615)		(35,131)
Net carrying amount of liability component	$	218,385	$	214,869

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

The estimated fair value of the Notes as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 was ~~$267.1~~$248.4 million and ~~$257.1~~$262.7 million, 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 ~~June 30, 2019,~~March 31, 2020, the remaining term of the Notes is approximately 2 ~~years and 9 months.~~years. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we recognized interest costs on the Notes as follows (in thousands):

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


	Three Months Ended March 31,
	2020		2019
Contractual interest (3.25% of the principal amount per annum)	$	2,032	$	2,032
Amortization of debt discount	3,516		3,175
Total	$	5,548	$	5,207

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~~2.3 million shares of our common stock at an initial strike price of ~~$5.40~~$108.00 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~~2.3 million shares of our common stock at a strike price of ~~$8.50~~$170.00 per share. The warrants expire on various dates between July 1, 2022 and August 26, 2022 and are exercisable on their expiration dates. The warrants are separate transactions and are not part of the terms of the Notes or convertible note hedges. Holders of the Notes and convertible note hedges do not have any rights with respect to the warrants.

The amounts paid and received for the convertible note hedges and warrants were recorded in additional paid-in capital in the condensed consolidated balance sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. 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~~$108.00 to ~~$8.50~~$170.00 per share.

Revolving Credit Agreement

In May 2019, we entered into a second amended and restated senior secured revolving credit agreement (the "2019 Credit Agreement") which provides for aggregate principal borrowings of up to $400.0 million and matures in May 2024. The 2019 Credit Agreement replaced our previous $250.0 million amended and restated credit agreement ~~that was scheduled to mature in June 2019~~ (the "2016 Credit Agreement"). We ~~recorded a liability for~~deferred debt issuance costs of ~~$2.3~~$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 March 31, 2020 and will be amortized to interest expense over the term of the agreement.

Borrowings under the 2019 Credit Agreement bear interest, at our option, at a rate per annum equal to (a) an adjusted LIBO rate or (b) a customary base rate (with loans denominated in certain currencies bearing interest at rates specific to such currencies) plus an additional margin ranging between 0.50% and 2.00%. We are required to pay quarterly commitment fees ranging from 0.25% to 0.35% per annum of the average daily amount of unused commitments available under the 2019 Credit Agreement. The 2019 Credit Agreement also provides for the issuance of up to $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 $400.0 million.

The 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 2019 Credit Agreement.

The 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 limiting the amount of our 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 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 leverage ratio and a minimum liquidity ratio, each as set forth in the 2019 Credit Agreement. We are also required to maintain, as of the last day of each fiscal quarter, unrestricted cash of at least $250.0 million, including $125.0 million in accounts held with lenders under the 2019 Credit Agreement or their affiliates. Non-compliance with these covenants may result in termination of the commitments under the 2019 Credit Agreement and any then outstanding borrowings may be declared due and payable immediately. We have the right to terminate the 2019 Credit Agreement or reduce the available commitments at any time.

AsWe had $150.0 million of ~~June 30, 2019, we had no~~ borrowings and $18.9 million of outstanding letters of credit under the 2019 Credit Agreement ~~and~~as of March 31, 2020. We had $18.1 million of outstanding letters of credit under the 2019 Credit Agreement as of December 31, ~~2018,~~2019. In April 2020, we ~~had no borrowings outstanding under the 2016 Credit Agreement. As of June 30, 2019, we had outstanding letters of credit of $18.2~~borrowed an additional $50.0 million under the 2019 Credit ~~Agreement~~Agreement. See Item 2. Liquidity and Capital Resources, for additional information.

6. COMMITMENTS AND CONTINGENCIES

Our contractual obligations and commitments and future operating income under our operating subleases as of ~~December~~March 31, ~~2018, we had outstanding letters of credit of $19.2 million under the 2016 Credit Agreement.~~

~~6. LEASES~~

~~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~~2020 and liabilities for operating leases, in addition to the finance lease assets and liabilities previously recorded on our condensed consolidated balance sheets. Beginning on January 1, 2019, our condensed consolidated financial statements are presented in accordance with the revised policies, while prior period amounts are not adjusted and continue to be reported in accordance with our historical policies. The modified retrospective transition method required the cumulative effect, if any, of initially applying the guidance to be recognized as an adjustment to our accumulated deficit as of our adoption date. As a result of adopting Topic 842, we recognized additional lease assets and liabilities of $109.6 million as of January 1, 2019. The discount rate used to calculate that adjustment was the rate implicit in the lease, unless that rate was not readily determinable. For leases for which the rate was not readily determinable, the discount rate used was our incremental borrowing rate as of the adoption date, January 1, 2019. There was no cumulative effect adjustment to our accumulated deficit as a result of initially applying the guidance.

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

~~General Description of Leases~~

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

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

~~GROUPON, INC.~~

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

~~(unaudited)~~

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

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

~~The following summarizes right-of-use assets as of June 30, 2019 (in thousands):~~

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


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

~~Related Party Sublease Agreement~~

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

~~Significant Assumptions and Judgments~~

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

As discussed above, the present value of minimum lease payments is used in determining the value of our operating and finance leases. The discount rate used to calculate the present value for 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 June 30, 2019 and January 1, 2019 ranged from 1.5% to 6.9%. As of June 30, 2019, the weighted-average remaining lease term for our finance leases and operating leases was 2 years and 5 years. As of June 30, 2019, the weighted-average discount rate for our finance leases and operating leases was 5.1% and 5.6%.

~~GROUPON, INC.~~

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

~~(unaudited)~~

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

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

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

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

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

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

~~GROUPON, INC.~~

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

~~(unaudited)~~

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

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

~~7. COMMITMENTS AND CONTINGENCIES~~

~~Our purchase obligations as of June 30, 2019~~this report did not materially change from the amounts set forth in our ~~2018~~2019 Annual Report on Form ~~10-K.~~10-K, except as disclosed below.

Purchase Obligations

In the first quarter 2020 and through the date of this report, we entered into non-cancellable arrangements for cloud computing services and software. Future payments under these new contractual obligations are as follows (in thousands):


Remaining in 2020	$	3,066
2021	13,103
2022	13,842
2023 ⁽¹⁾	20,987
Total	$	50,998

(1)Includes $8.0 million in cloud computing arrangement costs for which the timing of settlement is based on usage. We expect to incur those costs over the three-year contract period ending in 2023.

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, stockholder claims relating to U.S. securities law, consumer class actions and suits alleging, among other things, violations of state consumer protection or privacy laws.

On April 28, 2020, a plaintiff filed a securities fraud class action complaint in the United States District Court for the Northern District of Illinois covering the time period November 4, 2019 through February 18, 2020. The plaintiff alleges that Groupon and certain of its officers made materially false and/or misleading statements or omissions regarding its business, operations and prospects, specifically as it relates to reiterating its full year guidance on November 4, 2019. The Company and its officers have not yet been served with this lawsuit. We intend to vigorously defend against these allegations, which we believe to be without merit.

In addition, 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 continue to be subject to intellectual property infringement claims as our services expand in scope and complexity. 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 disposition of our operations in Latin America in ~~the first quarter of~~ 2017, we recorded $5.4 million in indemnification liabilities for certain tax and other matters upon the closing of the transactions as an adjustment to the net loss on the dispositions within discontinued operations at their fair value. We estimated the indemnification liabilities using a probability-weighted expected cash flow approach. During the first quarter of ~~2019,~~2020, we decreased our indemnification liabilities due to the expiration of certain indemnification obligations. The resulting benefit of ~~$2.2~~$0.4 million is recorded within Income (loss) from discontinued operations on the condensed consolidated statement of operations for ~~the six~~three months ended ~~June 30, 2019.~~March 31, 2020. Our remaining indemnification liabilities were ~~$3.2~~$2.8 million as of ~~June 30, 2019.~~March 31, 2020. We estimate that the total amount of obligations that are reasonably possible to arise under the indemnifications in excess of amounts accrued as of ~~June 30, 2019~~March 31, 2020 is approximately ~~$13.3~~$11.7 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~~our operating results, financial position or cash flows.

8.7. STOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS

Common Stock

Pursuant to our restated certificate of incorporation, as of March 31, 2020, the Board ~~has~~had the authority to issue up to a total of ~~2,010,000,000~~100,500,000 shares of common stock. Each holder of common stock is entitled to one vote per share on any matter that is submitted to a vote of stockholders. In addition, holders of our common stock will

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

vote as a single class of stock on any matter that is submitted to a vote of stockholders.

On June 10, 2020, we effectuated a reverse stock split of our common stock. See Note 13, Subsequent Events, for additional information.

Share Repurchase Program

In May 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. During the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, we ~~repurchased 4,228,148 and 8,636,143~~did not purchase any shares ~~for an aggregate purchase price of $15.1 million and $30.1 million (including fees and commissions)~~ under ~~our~~

~~GROUPON, INC.~~

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

~~(unaudited)~~

~~repurchase~~the program. As of ~~June 30, 2019,~~March 31, 2020, up to ~~$260.0~~$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 2019 Credit Agreement, share price and other factors, and the share repurchase program may be terminated at any time.

Groupon, Inc. Stock Plans

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

The Groupon, Inc. Stock Plans described above (the "Plans") are administered by the Compensation Committee of the Board (the "Compensation Committee"). As of ~~June 30, 2019, 64,223,134~~March 31, 2020, 3,201,169 shares of common stock were available for future issuance under the Plans. On June 10, 2020, we effectuated a reverse stock split of our common stock pursuant to which the number of shares of common stock available for issuance under the Plans was adjusted proportionately. See Note 13, Subsequent Events, for additional information.

The stock-based compensation expense related to stock awards issued under the Plans and acquisition-related awards are presented within the following line items of the condensed consolidated statements of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
	2019		2018		2019		2018			2020		2019
Cost of revenue	$	380	$	288	$	758	$	684	Cost of revenue	$	259	$	378
Marketing	1,490		1,763		2,915		3,557		Marketing	874		1,425
Selling, general and administrative	24,693		14,215		39,301		31,303		Selling, general and administrative	12,882		14,608
Other income (expense), net	—		52		—		100
Total stock-based compensation expense	$	26,563	$	16,318	$	42,974	$	35,644	Total stock-based compensation expense	$	14,015	$	16,411

We capitalized ~~$2.2~~$1.1 million and ~~$2.0~~$1.3 million of stock-based compensation for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, and $3.5 million and $3.7 million for the six months ended June 30, 2019 and 2018~~ in connection with internally-developed software and cloud computing arrangements.

Employee Stock Purchase Plan

The Groupon, Inc. 2012 Employee Stock Purchase Plan, as amended ("ESPP"), ~~as amended in June 2019,~~ authorizes us to grant up to ~~20,000,000~~1,000,000 shares of common stock under that ~~plan.~~plan as of March 31, 2020. On June 10, 2020, we effectuated a reverse stock split of our common stock pursuant to which the number of shares of common stock available for grant under the ESPP was adjusted proportionately. See Note 13, Subsequent Events, for additional information. For the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, 28,621 and ~~2018, 719,297 and 746,773~~35,964 shares of common stock were issued under the ESPP.

Restricted Stock Units

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

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The table below summarizes restricted stock unit activity under the Plans for the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:

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


	Restricted Stock Units	Weighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 2019	1,527,014	$	74.80
Granted	524,829	43.00
Vested	(77,269)	86.20
Forfeited	(68,454)	73.80
Unvested at March 31, 2020	1,906,120	65.60

As of ~~June 30, 2019, $118.4~~March 31, 2020, $92.4 million of unrecognized compensation costs related to unvested restricted stock units are expected to be recognized over a remaining weighted-average period of ~~1.65~~1.43 years.

Performance Share Units

We grant performance share units under the Plans that vest in shares of our common stock upon the achievement of financial and operational targets specified in the respective award agreement ("Performance Share Units"). During the ~~six~~three months ended ~~June 30,~~March 31, 2019, we also granted performance share units ~~that~~subject to a market condition ("Market-based Performance Share Units").

The Market-based Performance Share Units will vest if our average daily closing stock price is equal to or greater than ~~$6.00~~$120.00 per share over a period of 30 consecutive trading days prior to December 31, 2022 or if a change in control occurs during the performance period at the specified stock price (and on a proportional basis for a change in control price between the grant date price and the specified stock price) ~~("Market-based Performance Share Units")~~. We ~~determined these awards are subject to a market condition, and therefore we~~ used a Monte Carlo simulation to calculate the grant date fair value of the awards and the related derived service period over which we will recognize the expense. The key inputs used in the Monte Carlo simulation were the risk-free rate, our volatility of 49.8% and our cost of equity of 12.8%.

~~All of our performance share awards~~Our Performance Share units and Market-based Performance Share Units are subject to ~~both~~ continued employment through the performance period dictated by the award and certification by the Compensation Committee that the specified performance conditions have been achieved.

The table below summarizes Performance Share Unit activity under the Plans for the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:

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

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


	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, 2019	203,853	$	79.76	341,002	$	60.60
Granted	—	—		—	—
Vested	(88,436)	79.44		—	—
Forfeited	(9,534)	76.42		—	—
Unvested at March 31, 2020	105,883	80.32		341,002	60.60

Maximum shares issuable upon vesting at March 31, 2020	105,883			341,002

As of ~~June 30, 2019, $15.8~~March 31, 2020, $4.7 million of unrecognized compensation costs related to unvested ~~performance share units~~Performance Share Units are expected to be recognized over a remaining weighted-average period of ~~1.94~~2.12 years and ~~$16.7 million of~~no unrecognized compensation costs related to unvested ~~market-based performance share units~~Market-Based Performance Share Units are expected to be ~~recognized over a remaining weighted-average period of 0.66 years.~~

recognized.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

~~Stock Options~~

~~The exercise price~~For the three months ended March 31, 2020 we recognized $0.3 million of ~~stock options granted is equal~~stock-based compensation expense for Performance Share Units for which the service inception date occurred in the first quarter of 2020 and preceded the grant date as the awards' performance targets were not yet defined due to the ~~fair value~~impact of ~~the underlying stock on the date of grant.~~COVID-19. The ~~contractual term for stock options expires ten years from the grant date. Stock options generally vest~~unrecognized compensation costs related to those performance share units was $4.8 million to be recognized over a ~~three- or four-year~~remaining weighted-average period ~~with 25%~~ of ~~the awards vesting after one year and the remainder of the awards vesting on a monthly or quarterly basis thereafter. We did not grant any stock options during the six months ended June 30, 2019.~~0.84 years.

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

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

Outstanding and exercisable at June 30, 2019 170,287
$ 1.95
0.92 $ 278

~~(1)~~

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

9.8. REVENUE RECOGNITION

Refer to Note ~~13,~~12, Segment Information, for revenue summarized by reportable segment and category for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Contract Balances

A substantial majority of our deferred revenue relates to product sales for which revenue will be recognized as the products are delivered to customers, generally within one week following the balance sheet date. Our deferred revenue was ~~$19.9~~$18.5 million and ~~$25.5~~$18.0 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. The amount of revenue recognized for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 that was included in the deferred revenue balance at the beginning of the period was ~~$25.4~~$17.7 million.

Customer Credits

The following table summarizes the activity in the liability for customer credits for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 (in thousands):

Customer Credits
Balance as of December 31, 2018 $ 15,118
Credits issued 56,477
Credits redeemed ⁽¹⁾
(49,928 )
Breakage revenue recognized (4,177 )
Foreign currency translation 26
Balance as of June 30, 2019 $ 17,516


~~(1)~~	Customer ~~credits can be~~Credits
Balance as of December 31, 2019	$	13,764
Credits issued	38,128
Credits redeemed through our online marketplaces for goods or services provided by a third-party merchant or for merchandise inventory sold by us. When customer credits are redeemed for goods or services provided by a third-party merchant, service⁽¹⁾	(23,357)
Breakage revenue is recognized ~~on a net basis~~	(3,701)
Foreign currency translation	(275)
Balance as ~~the difference between the carrying amount~~ of the customer credit liability derecognized and the amount due to the merchant for the related transaction. When customer credits are redeemed for merchandise inventory sold by us, product revenue is recognized on a gross basis equal to the amount of the customer credit liability derecognized. Customer credits are typically used within one year of issuance.March 31, 2020	$	24,559

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

Costs of Obtaining Contracts

Incremental costs to obtain contracts with third-party merchants, such as sales commissions, are deferred and recognized over the expected period of the merchant arrangement, generally from 12 to 18 months. ~~Those~~Deferred contract acquisition costs are presented within the following line items of the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 (in thousands):


	March 31, 2020		December 31, 2019
Prepaid expenses and other current assets	$	2,600	$	2,501
Other non-current assets	8,105		10,133

The amortization of deferred contract acquisition costs is classified within Selling, general and administrative expense in the condensed consolidated statements of operations. For the three months ended March 31, 2020 and 2019, we amortized $4.7 million and $5.4 million of deferred contract acquisition costs and did not recognize any impairment losses in relation to the deferred costs.

Allowance for Expected Credit Losses on Accounts Receivables

We establish an allowance for expected credit losses on accounts receivables based on identifying the following customer risk characteristics: size, type of customer, and payment terms offered in the normal course of

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

business. Receivables with similar risk characteristics are grouped into pools. For each pool, the Company considers the historical credit loss experience, current economic conditions, bankruptcy filings, published or estimated credit default rates, age of the receivable and any recoveries in assessing the lifetime expected credit losses.

~~classified within Selling, general and administrative expense~~

The following table summarizes the activity in the ~~condensed consolidated statements of operations.~~ As of June 30, 2019 and December 31, 2018, we had deferred contract acquisition costs of $2.6 million and $2.9 million, respectively, recorded within Prepaid expenses and other current assets, and $10.2 million and $11.3 million, respectively, recorded within Other non-current assets. We amortized $5.1 million and $6.5 million of deferred contract acquisition costs duringallowance for expected credit losses on accounts receivables for the three months ended ~~June 30, 2019 and 2018, and $10.5 million and $13.3 million for the six months ended June 30, 2019 and 2018. We did not recognize any impairment losses in relation to the deferred costs.~~March 31, 2020 (in thousands):


	Allowance for Expected Credit Losses
Balance as of January 1, 2020	$	3,693
Change in Provision	3,558
Write-offs	(293)
Foreign currency translation	130
Balance as of March 31, 2020	$	7,088

Variable Consideration for Unredeemed Vouchers

~~In our International segment and, to a lesser extent, in our North America segment, our~~For merchant agreements ~~have~~with redemption payment terms, ~~under which~~ the merchant is not paid its share of the sale price for a voucher sold through one of our online marketplaces until the customer redeems the related voucher. If the customer does not redeem a voucher with such merchant payment terms, we retain all of the gross billings for that voucher, rather than retaining only our net commission. We estimate the variable consideration from vouchers that will not ultimately be redeemed using our historical voucher redemption experience and recognize that amount as revenue at the time of sale. We only recognize amounts in variable consideration when we believe it is probable that a significant reversal of revenue will not occur in future periods, which requires us to make significant estimates of future redemptions. If actual redemptions differ from our estimates, the effects could be material to the condensed consolidated financial statements. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we constrained ~~$15.3~~$16.3 million and ~~$13.7~~$14.6 million in revenue from unredeemed vouchers that we may recognize in future periods when we determine it is probable that a significant amount of that revenue will not be subsequently reversed.

~~10.~~9. INCOME TAXES

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items.

~~For~~Provision (benefit) for income taxes and income (loss) from continuing operations before provision (benefit) for income taxes for the three months ended ~~June 30,~~March 31, 2020 and 2019 we recorded an income tax expense from continuing operations of $2.0 million on a pretax loss from continuing operations of $35.6 million. For the three months ended June 30, 2018, we recorded an income tax expense from continuing operations of $1.6 million on a pretax loss from continuing operations of $90.7 million. For the six months ended June 30, 2019, we recorded an income tax benefit from continuing operations of $1.5 million on a pretax loss from continuing operations of $80.3 million. For the six months ended June 30, 2018, we recorded an income tax benefit from continuing operations of $0.8 million on a pretax loss from continuing operations of $95.8 million.was as follows (in thousands):

Our U.S. Federal income tax rate is 21%. The primary ~~factor~~factors impacting the effective tax rate for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and 2018 was~~were the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax ~~assets.~~assets and the reversals of reserves for uncertain tax positions due to the closure of tax audits. The three months ended March 31, 2020 was also impacted by the carryback of federal net operating losses due to the income tax relief provided by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. The effective tax rate for the six months ended June 30, 2019 also reflected the reversal of reserves for uncertain tax positions due to the closure of a tax audit. The effective tax rate for the six months ended June 30, 2018 also reflected a $6.4 million income tax benefit resulting from the impact of Accounting Standards Codification Topic 606, ~~Revenue from Contracts with Customers~~ ~~("Topic 606") on intercompany activity in certain foreign jurisdictions.~~

We are currently undergoing income tax audits in multiple jurisdictions. It is likely that the examination phase of some of those audits will conclude in the next 12 months. There are many factors, including factors outside of our control, which influence the progress and completion of those audits. We are subject to claims for tax assessments by foreign jurisdictions, including a proposed assessment for ~~$109.9 million.~~$110.8 million, inclusive of

estimated incremental interest from the original assessment. We believe that the assessment, which primarily relates to transfer pricing on transactions occurring in 2011, is without merit and we intend to vigorously defend ourselves in that matter. In addition to any potential increases in our liabilities for uncertain tax positions from the ultimate resolution of that assessment, we believe that it is reasonably possible that reductions of up to ~~$21.0~~$21.2 million in unrecognized tax benefits may occur within the 12 months following ~~June 30, 2019~~March 31, 2020 upon closing of income tax audits or the expiration of applicable statutes of limitations.

In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. Additionally, while we did not incur the deemed repatriation tax, an actual repatriation from our non-U.S. subsidiaries could be subject to foreign and U.S. state income taxes. Aside from limited exceptions for which the related deferred tax liabilities recognized as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are immaterial, we do not intend to distribute earnings of foreign subsidiaries for which we have an excess of the financial reporting basis over the tax basis of our investments and therefore have not recorded any deferred taxes related to such amounts. The actual tax cost resulting from a distribution would depend on income tax laws and circumstances at the time of distribution. Determination of the amount of unrecognized deferred tax liability related to the excess of the financial reporting basis over the tax basis of our foreign subsidiaries is not practical due to the complexities associated with the calculation.

Groupon uses a cost-sharing arrangement under which controlled members agree to share the costs and risks of developing intangible properties in accordance with their reasonably anticipated share of benefits from the intangibles. On July 24, 2018, the Ninth Circuit Court of Appeals issued an opinion in Altera Corp. v. Commissioner requiring related parties in an intercompany cost-sharing arrangement to share expenses related to stock-based compensation. This opinion reversed an earlier decision of the United States Tax Court. On August 7, 2018, the Ninth Circuit Court of Appeals withdrew its July 24, 2018 opinion. On June 7, 2019, the United States Court of Appeals for the Ninth Circuit reversed the Tax Court decision and ruled that stock-based compensation must be included in the shared pool of expenses. WeThe ruling, which was outside the Circuit Court of Appeals for Groupon, did not have a material impact on our provision for income taxes for the year ended December 31, 2019 and we do not expect that the ruling will have a material ~~net~~ impact on our provision for income taxes for the year ending December 31, ~~2019 due to the valuation allowances against our net deferred tax assets in the related jurisdictions.~~2020.

~~11.~~10. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

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

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Fair value option investments and available-for-sale securities.~~To determine the fair value of our fair value option investments each period, we first estimate the fair value of each entity in its entirety.~~ We ~~primarily~~ use the discounted cash flow method, which is an income approach, to estimate the fair value of the ~~entities.~~investees. The key inputs to determining fair values under that approach are cash flow forecasts and discount rates. We also use a market approach valuation technique, which is based on market multiples of guideline companies, to determine the fair value of each entity. As of March 31, 2020, we applied a discount rate of 30% in our discounted cash flow valuation and a revenue multiple of 1.0 in our market approach valuation to determine the fair value of our investment in Nearbuy. The discounted cash flow and market multiple valuations are then evaluated and weighted to determine the amount that is most representative of the fair value of each entity. ~~Once~~As of March 31, 2020, we ~~determine~~applied weighting to the ~~fair value~~income approach and market approach of ~~each entity, we then determine the fair value~~75% and 25%, respectively, in our valuation of our specific investments in those entities. The entities have complex capital structures, so we apply an option-pricing model that considers the liquidation preferences of each entity's respective classes of ownership interests to determine the fair value of our investment in each entity.Nearbuy.

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

~~GROUPON, INC.~~

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

~~(unaudited)~~

discounted cash flow method.

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

Contingent consideration. We are subject to a contingent consideration arrangement to transfer a maximum payout in cash of $2.5 million to the former owners of a business acquired on April 30, 2018.

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

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

The following tables summarize assets that are measured at fair value on a recurring basis as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

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

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

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table provides a rollforward of the fair value of recurring Level 3 fair value measurements for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

Unrealized gains (losses) still held ⁽¹⁾

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets that are written down to fair value as a result of an ~~impairment.~~ impairment or increased due to an observable price change in an orderly transaction.

We recognized $109.5 million in non-cash impairment charges related to goodwill, and $22.4 million in non-cash impairment charges related to long-lived assets during the three months ended March 31, 2020. See Note 2, Goodwill and Long-Lived Assets, for additional information.

We recognized $6.7 million in impairment charges to an other equity method investment during the three months ended March 31, 2020. See Note 3, Investments, for additional information.

We did not record any other significant nonrecurring fair value measurements after initial recognition for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019. During the three months ended June 30, 2018, we recorded a $4.6 million impairment of an other equity investment. To determine the fair value of the investment, we considered the financial condition of the investee and applied a market approach. We classified the fair value measurement of that other equity investment as Level 3 because it involves significant unobservable inputs. We did not record any other nonrecurring fair value measurements after initial recognition for the three and six

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

~~months ended June 30, 2018.~~

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

Our financial instruments not carried at fair value consist primarily of accounts receivable, restricted cash, short-term borrowings, accounts payable, accrued merchant and supplier payables and accrued expenses. The carrying values of those assets and liabilities approximate their respective fair values as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 due to their short-term nature.

~~12.~~11. INCOME (LOSS) PER SHARE

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

The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands, except share amounts and per share amounts):

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

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


	Three Months Ended March 31,
	2020		2019
Basic and diluted net income (loss) per share:
Numerator
Net income (loss) - continuing operations	$	(210,860)	$	(41,170)
Less: Net income (loss) attributable to noncontrolling interests	3,044		3,479
Net income (loss) attributable to common stockholders - continuing operations	(213,904)		(44,649)
Net income (loss) attributable to common stockholders - discontinued operations	382		2,162
Net income (loss) attributable to common stockholders	$	(213,522)	$	(42,487)
Denominator
Weighted-average common shares outstanding	28,365,216		28,504,756

Basic and diluted net income (loss) per share:
Continuing operations	$	(7.54)	$	(1.57)
Discontinued operations	0.01		0.08
Basic and diluted net income (loss) per share	$	(7.53)	$	(1.49)

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

~~GROUPON, INC.~~

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

~~(unaudited)~~


	Three Months Ended March 31,
	2020	2019
Restricted stock units	1,657,810	1,354,442
Other stock-based compensation awards	279,243	87,637
Convertible senior notes	2,314,815	2,314,815
Warrants	2,314,815	2,314,815
Total	6,566,683	6,071,709

We had outstanding ~~performance share units~~Market-based Performance Share Units as of ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ that were eligible to vest into shares of common stock subject to the achievement of specified performance or market conditions. Contingently issuable shares are excluded from the computation of diluted earnings per share if, based on current period results, the shares would not be issuable if the end of the reporting period were the end of the contingency period. ~~There~~As of March 31, 2020, there were up to ~~16,966,170 and 7,706,474~~341,002 shares of common stock issuable upon vesting of outstanding ~~performance share units as of June 30, 2019 and 2018~~Market-based Performance Share Units that were excluded from the table above as the performance or market conditions were not satisfied as of the end of the ~~respective periods.~~period.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

12. SEGMENT INFORMATION

The segment information reported in the tables below reflects the operating results that are regularly reviewed by our chief operating decision maker to assess performance and make resource allocation decisions. Our operations are organized into ~~two~~2 segments: North America and International.

The following table summarizes revenue by reportable segment and category for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

Total North America revenue ⁽¹⁾

Total International revenue ⁽¹⁾

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
North America
Service revenue:
Local $ 177,082
$ 185,870
$ 357,459
$ 373,281
Goods 3,714
3,796
6,841
8,670
Travel 16,125
19,888
35,066
39,972
Product revenue - Goods 127,739
170,710
282,459
351,597
Total North America revenue ⁽¹⁾
324,660
380,264
681,825
773,520

International
Service revenue:
Local 69,995
71,425
143,185
146,003
Goods 2,610
4,967
4,065
8,381
Travel 8,077
9,706
16,814
21,142
Product revenue - Goods 127,235
151,034
265,098
294,890
Total International revenue ⁽¹⁾
$ 207,917
$ 237,132
$ 429,162
$ 470,416

(1)North America includes revenue from the United States of $230.9 million and $348.8 million for the three months ended March 31, 2020 and 2019. International includes revenue from the United Kingdom of $49.5 million and $81.1 million for the three months ended March 31, 2020 and 2019. There were no other individual countries that represented more than 10% of consolidated total revenue for the three months ended March 31, 2020 and 2019. Revenue is attributed to individual countries based on the location of the customer.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes gross profit by reportable segment and category for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

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

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


	Three Months Ended March 31,
	2020		2019
North America
Service gross profit:
Local	$	123,859	$	161,082
Goods	3,008		2,563
Travel	3,962		15,268
Total service gross profit	130,829		178,913
Product gross profit - Goods	12,942		30,889
Total North America gross profit	143,771		209,802

International
Service gross profit:
Local	44,524		68,978
Goods	2,016		1,268
Travel	2,744		8,041
Total service gross profit	49,284		78,287
Product gross profit - Goods	8,192		17,927
Total International gross profit	$	57,476	$	96,214

The following table summarizes ~~operating~~ income (loss) from operations by reportable segment for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three Months Ended March 31,
	2020		2019
Income (loss) from operations ⁽¹⁾:
North America	$	(31,161)	$	5,336
International ⁽²⁾	(166,700)		(3,141)
Total income (loss) from operations	$	(197,861)	$	2,195

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Operating income (loss) ^{(1) (2) (3)}:

North America
$ (372 ) $ (68,524 ) $ 4,964
$ (70,384 )
International (6,767 ) 4,279
(9,908 ) 9,524
Total operating income (loss) $ (7,139 ) $ (64,245 ) $ (4,944 ) $ (60,860 )
(1)Includes stock-based compensation of $12.9 million and $14.8 million for North America and $1.1 million and $1.6 million for International for the three months ended March 31, 2020 and 2019.

(2)Includes goodwill impairment of $109.5 million and long-lived asset impairment of $22.4 million for the three months ended March 31, 2020. See Note 2, Goodwill and Long-Lived Assets, for additional information.

The following table summarizes total assets by reportable segment as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	March 31, 2020		December 31, 2019
Total assets:
North America ⁽¹⁾	$	1,150,501	$	1,045,500
International⁽¹⁾	132,105		541,243
Consolidated total assets	$	1,282,606	$	1,586,743

(1)North America contains assets from the United States of $982.0 million and $1,020.0 million as of March 31, 2020 and December 31, 2019. International contains assets from Switzerland of $114.9 million and $175.2 million as of March 31, 2020 and December 31, 2019. There were no other individual countries that represented more than 10% of consolidated total assets as of March 31, 2020 and December 31, 2019.

June 30, 2019 December 31, 2018
Total assets:
North America ⁽¹⁾
$ 895,928
$ 958,412
International⁽¹⁾
543,280
683,730
Consolidated total assets $ 1,439,208
$ 1,642,142

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

13. SUBSEQUENT EVENTS

In April 2020, the Board approved multi-phase restructuring actions relating to our previously announced strategic shift and as part of the cost reduction measures we are implementing in response to the impact of COVID-19. We expect to incur total pre-tax charges of up to $105.0 million in connection with these multi-phase restructuring actions. The first phase of these restructuring actions is expected to include an overall reduction of approximately 1,300 positions globally, with the majority of these reductions expected to occur by the end of the second quarter 2020 and the remainder expected to be completed by the end of 2020. We will continue to evaluate our cost structure, including additional workforce reductions and our country footprint, as part of the next phase of our restructuring plan.

On June 9, 2020, our stockholders approved amendments to our Restated Certificate of Incorporation to effect a reverse stock split of our shares of common stock, and our Board approved a final reverse stock split ratio of 1-for-20 and a corresponding reduction in the number of authorized shares of our common stock. The reverse stock split became effective on June 10, 2020, and every 20 shares of issued and outstanding common stock were, at the effective time, combined and converted into one issued and outstanding share of common stock. The number of authorized shares of Common Stock was reduced proportionately. Accordingly, the number of authorized shares of common stock decreased from 2,010,000,000 to 100,500,000 and 571,943,153 outstanding shares of our common stock were exchanged for 28,597,158 shares of common stock. Fractional shares were cancelled and stockholders will receive cash in lieu thereof. The par value per share of common stock remains unchanged. A proportionate adjustment was also made to the maximum number of shares of common stock issuable under the 2011 Plan and the ESPP.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under Risk Factors and elsewhere in this Quarterly Report. See Part I, Financial Information, Forward-Looking Statements, for additional information.

Groupon ~~operates online local commerce marketplaces in 15 countries~~is a global scaled two-sided marketplace that ~~connect merchants~~connects consumers to ~~consumers by offering goods and services, generally at a discount.~~merchants. Consumers access ~~those marketplaces~~our marketplace through our mobile applications and our websites, primarily localized groupon.com sites in many countries, and our mobile applications. Traditionally, local merchants have tried to reach consumers and generate sales through a variety of methods, including online advertising, paid telephone directories, direct mail, newspaper, radio, television and other promotions. By bringing the brick and mortar world of local commerce onto the Internet, Groupon is helping local merchants to attract customers and sell goods and services.countries. We ~~provide consumers with savings and help them discover what to do, eat, see, buy and where to travel.~~

~~Our operations are organized into~~operate in two segments: North America and International. For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we derived ~~61.4%~~62.8% of our revenue from our North America segment and ~~38.6%~~37.2% of our revenue from our International segment. See Item 1, Note ~~13,~~12, Segment Information,, for additional information. We ~~offer goods and services through our online marketplaces~~operate in three ~~primary~~ categories: Local, Goods and Travel.

In February 2020 we announced a strategic plan to focus on our local experiences marketplace, which included exiting our Goods category. However, the subsequent outbreak of the novel coronavirus ("COVID-19") and the preventive or protective actions that governments or our merchants and consumers have taken in response to the pandemic have resulted in significant disruption to our operations. We rely on customers' purchases of vouchers for local experiences, including events and activities, beauty and wellness, travel and dining. The temporary closure of businesses, including restaurants and bars, event venues, and spas, resulted in a significant deterioration in our performance in March 2020. The negative impact on our business is expected to continue at least as long as customers and merchants remain impacted by governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions, business shutdowns and restrictions on the movement of people in the United States and abroad. Because the pandemic and related economic responses arose in March, the impact of the pandemic on our business will be more pronounced in the second quarter 2020.

We expect to continue executing on our strategic plan to focus on our Local experiences marketplace; however, the ability to achieve the anticipated benefits of this strategy within the expected timeframe, or at all, may be materially impacted by the widespread effects of COVID-19. In light of the significant declines in consumer demand for local and travel services due to COVID-19, we are leveraging our Goods category in the near term. We now intend to phase down the Goods category and shift toward a third-party marketplace model instead of fully exiting the Goods category. In this third-party marketplace model, merchants assume the responsibility for fulfillment and returns. Following this transition, Goods revenue is expected to be presented on a net basis consistent with the Local and Travel categories. The Company expects this transition to be largely complete in 2021.

We generate ~~both~~ product and service revenue from our current business operations. ~~Our product revenue from transactions in which we sell merchandise inventory in our Goods category is the purchase price received from the customer. Our~~We earn service revenue from transactions in which we earn commissions by selling goods or services on behalf of third-party ~~merchants~~merchants. Service revenue from those transactions is reported on a net basis and equals the purchase price ~~collected~~received from the customer for the offering less ~~the~~an agreed upon portion of the purchase price paid to the merchant.

Our focus is on driving long-term gross profit growth by enhancing the customer experience, establishing Groupon as an open platform, continuing to realize our international potential and maintaining a culture of operational efficiency. We have developed and are testing a number of product enhancements intended to Service revenue also includes commissions that we earn when customers make our offerings easier to use for both customers and merchants and to improve purchase frequency, including cash back offers linked to customer credit cards, booking capabilities and a paid membership program in North America, Groupon Select, which offers greater discounts on our offerings and other benefits. We have also entered into commercial agreementspurchases with ~~third parties that enable us to feature additional merchant offerings~~retailers using digital coupons accessed through our ~~marketplaces~~digital properties. We earn product revenue from direct sales of merchandise inventory through our Goods category. Our product revenue from those transactions is the purchase price received from the customer. Following our shift toward a third-party marketplace model in the Goods category, we will primarily generate service revenue from our Goods category.

In April 2020, the Board approved multi-phase restructuring actions relating to our previously announced strategic shift and ~~for our inventory~~as part of the cost cutting measures implemented in response to the COVID-19 pandemic. We expect to incur total pre-tax charges of up to $105.0 million in connection with these multi-phase restructuring actions.

The first phase of these restructuring actions is expected to include an overall reduction of approximately 1,300 positions globally, with the majority of these reductions expected to occur by the end of the second quarter 2020 and the remainder expected to be ~~distributed through other marketplaces.~~completed by the end of 2020. We maintain a long-term focus on driving International to achieve gross profit that is more comparable to that of North America. Our initiatives to grow International include increasing our marketing spend and leveraging enhanced marketing analytics, investing more technology resources toward expanding product and service offerings, and growing our inventory of deal offerings. While we expect to invest in our key initiatives, we will continue to ~~do so~~evaluate our cost structure, including additional workforce reductions and our country footprint as ~~disciplined operators~~part of the next phase of our restructuring plan.

In addition to our restructuring actions, we have taken several other steps to reduce costs and ~~seek opportunities~~preserve cash in the near-term, including, but not limited to: furloughing staff; reducing marketing expense by significantly shortening payback thresholds and delaying brand marketing investments; continuing to ~~improve~~sell Goods on our ~~efficiency.~~platform instead of quickly exiting the category; continuing to transition merchants to redemption payment terms, instead of fixed payment terms; implementing a hiring freeze; eliminating broad-based merit increases for employees; and replacing cash compensation with equity compensation in 2020 for all Board directors. We believe the actions we have taken to reduce costs and preserve cash give us financial stability for at least the next 12 months.

How We Measure Our Business

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

~~Financial Metrics~~

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

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

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

~~Free cash flow~~ is a non-GAAP financial measure that comprises net cash provided by (used in) operating activities from continuing operations less purchases of property and equipment and capitalized software. For further information and a reconciliation to Net cash provided by (used in) operating activities from continuing operations, refer to our discussion in the ~~Liquidity~~ ~~and~~ ~~Capital Resources~~ ~~section.~~

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

•Gross billings is the total dollar value of customer purchases of goods and services. Gross billings is presented net of customer refunds, order discounts and sales and related taxes. The substantial majority of our service revenue transactions are comprised of sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of the transaction price to the third-party merchant who will provide the related goods or services. For these transactions, gross billings differs from revenue reported in our condensed consolidated statements of operations, which is presented net of the merchant's share of the transaction price. For product revenue transactions, gross billings are equivalent to product revenue reported in our condensed consolidated statements of operations. Gross billings is an indicator of our growth and business performance as it measures the dollar volume of transactions generated through our marketplaces. Tracking gross billings on service revenue transactions also allows us to monitor the percentage of gross billings that we are able to retain after payments to merchants. However, we are focused on achieving long-term gross profit and Adjusted EBITDA growth.

•Active customers are unique user accounts that have made a purchase during the trailing twelve months ("TTM") either through one of our online marketplaces or directly with a merchant for which we earned a commission. We consider this metric to be an important indicator of our business performance as it helps us to monitor the percentage of gross billings that we are able to retain after payments to merchants. However, management is primarily focused on optimizing the business for long-term gross profit and Adjusted EBITDA growth.

~~Active customers~~ ~~are~~unique user accounts that have made a purchase during the trailing twelve months ("TTM") either through one of our online marketplaces or directly with a merchant for which we earned a commission. We consider this metric to be an important indicator of our business performance as it helps us

to understand how the number of customers actively purchasing our offerings is trending. Some customers could establish and make purchases from more than one account, so it is possible that our active customer metric may count certain customers more than once in a given period. For entities that we have acquired in a business combination, this metric includes active customers of the acquired entity, including customers who made purchases prior to the acquisition. We do not include consumers who solely make purchases with retailers using digital coupons accessed through our websites and mobile applications in our active customer metric, nor do we include consumers who solely make purchases of our inventory through third-party marketplaces with which we partner.

Our active customer metric for the trailing twelve months ended June 30, 2019 has declined both on a year-over-year basis and sequentially from the trailing twelve months ended March 31, 2019. The decline is primarily attributable to a decline in traffic, including traffic from email and search engine optimization ("SEO"), as well as our efforts to improve the efficiency of our marketing spend by focusing that spend on customers who we believe will have higher long-term value. That strategy has resulted in lower marketing spend on less valuable customers, particularly in North America, and led to a decrease in the number of active customers. We expect the trend of declining active customers in North America to continue in 2019 and, to some extent, into 2020 due to ongoing traffic declines and our continued focus on attracting and retaining high-quality customers.

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

~~Units~~ is the number of purchases during the reporting period, before refunds and cancellations, made either through one of our online marketplaces, a third-party marketplace, or directly with a merchant for which we earn a commission. We do not include purchases with retailers using digital coupons accessed through ~~our websites and mobile applications in our units metric. We consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces.~~

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

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

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

~~Factors Affecting Our Performance~~

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

our marketplaces at any time and their willingness to continue offering products and services through our platform depends on the effectiveness of our marketing and promotional services. We primarily source the deal offerings available on our marketplaces through our sales teams, which comprise a significant portion of our global employee base. We have also entered into commercial agreements with third parties that enable us to feature additional merchant offerings through our marketplaces. We continue to focus much of our sales efforts on sourcing local deal offerings in subcategories that we believe provide us with the best opportunities for high frequency customer purchase behavior. In connection with our efforts to grow our offerings in those high frequency subcategories, which include 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 long-term value, and increase gross profit per customer in order to grow our business. Our marketing spending is intended to attract and retain active customers and to promote increased purchase frequency. We have made enhancements to 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 online marketing, such as search engine marketing ("SEM"), our marketing spending includes investments in offline campaigns intended to increase customer awareness and understanding of the Groupon brand and our product and service offerings. Additionally, we consider order discounts and certain other initiatives to drive customer acquisition and activation to be marketing-related activities, even though such activities may not be presented as marketing expense in our condensed consolidated statements of operations. The organic traffic to our websites and mobile applications ~~from consumers responding~~in our units metric. We consider units to be an important indicator of the total volume of business conducted through our emails has declined in recent years, such that an increasing proportion of our traffic is generated from SEM and other paid marketing channels. We have also experienced declines from other sources of organic traffic, such as email and SEO. As such, we are focused on developing sources of organic traffic other than email and optimizing the efficiency of our marketing spending, which is primarily guided by return on investment thresholds that are currently based on expected months-to-payback targets ranging from 12 to 18 months. Additionally, our product and supply initiatives are intended to increase the rates at which visitors to our websites and mobile applications complete a purchase.marketplaces.

•Gross billings per unit are the gross billings generated per unit. We use this metric to evaluate trends in ~~Growth. We have invested significantly in product~~units 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~~average contribution 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 cash back offers linked to customer credit cards, booking capabilities and a paid membership program in North America, Groupon Select, which offers greater discounts on our offerings and other benefits. We 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 on driving our 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 with this merchant payment structure could adversely impact our~~on a per-unit basis.

Our gross billings, ~~trends in future periods. Mobile consumers, particularly those accessing our marketplaces through the mobile web, generally complete purchases at a lower rate~~units, gross billings per unit and at lower average transaction prices than consumers accessing our marketplaces through desktop computers. As a substantial majority of our traffic comes from consumers on mobile devices, we are focused on improving the mobile experience in order to increase purchase rates. Our initiatives to improve the mobile experience include improving page speeds, enhancing our relevance algorithms, streamlining the checkout process and bringing our mobile web experience to parity with that of our mobile applications.

~~Managing Operating Efficiency~~. We are focused on effectively managing our cost structure as we seek to grow our profitability in future periods. Our 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 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 driving operating efficiency.

~~Results of Operations~~

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

~~Gross billings by category and segment~~TTM active customers for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows ~~(dollars~~(in thousands, except gross billings per unit amounts):


	Three Months Ended March 31,
	2020		2019
Gross billings	$	806,399	$	1,176,008
Units	29,766		37,193
Gross billings per unit	$	27.09	$	31.62
TTM Active customers	41,837		47,177

•Revenue is currently earned through product and service revenue transactions. We earn service revenue from transactions in ~~thousands):~~which we generate commissions by selling goods or services on behalf of third-party merchants. Service revenue from those transactions is reported on a net basis as the purchase price collected from the customer for the offering less an agreed upon portion of the purchase price paid to the third-party merchant. Service revenue also includes commissions we earn when customers make purchases with retailers using digital coupons accessed through our digital properties. We earn product revenue from direct sales of merchandise inventory in our Goods category and report product revenue on a gross basis as the purchase price received from the customer. Following our shift toward a third-party marketplace model in the Goods category, we will primarily generate service revenue from our Goods category.

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

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

International
Service gross billings:
Local 203,450
203,248
202
0.1
Goods 11,699
22,849
(11,150 ) (48.8 )
Travel 43,348
48,766
(5,418 ) (11.1 )
Total service gross billings 258,497
274,863
(16,366 ) (6.0 )
Product gross billings - Goods 127,235
151,034
(23,799 ) (15.8 )
Total International gross billings 385,732
425,897
(40,165 ) (9.4 )
Total gross billings $ 1,120,945
$ 1,264,263
$ (143,318 ) (11.3 )
•Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) from continuing operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net and other special charges and credits, including items that are unusual in nature or infrequently occurring. For further information and a reconciliation to Income (loss) from continuing operations, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.

•Free cash flow is a non-GAAP financial measure that comprises net cash provided by (used in) operating activities from continuing operations less purchases of property and equipment and capitalized software. For further information and a reconciliation to Net cash provided by (used in) operating activities from continuing operations, refer to our discussion in the Liquidity and Capital Resources section.

The ~~effect on our gross billings~~following table presents the above financial metrics for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~from changes in exchange rates versus the U.S. dollar was as follows~~ (in thousands):

Three Months Ended June 30, 2019

At Avg. Q2 2018 Rates ⁽¹⁾

Exchange Rate Effect ⁽²⁾
As Reported
Gross billings $ 1,144,245
$ (23,300 ) $ 1,120,945

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

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



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


Non-cash investing and financing activities
Continuing operations:
Liability for repurchases of common stock	—	(1,905)
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software	1,772	(355)


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



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


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



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



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



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



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



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



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



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



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



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



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



	Customer Credits
Balance as of December 31, 2018	$	15,118
Credits issued	56,477
Credits redeemed ⁽¹⁾	(49,928		)
Breakage revenue recognized	(4,177		)
Foreign currency translation	26
Balance as of June 30, 2019	$	17,516


			Fair Value Measurement at Reporting Date Using
	March 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	120,000	$	120,000	$	—	$	—
Fair value option investments	—		—		—		—

Liabilities:
Contingent consideration	1,219		—		—		1,219


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


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


~~(1)~~	Includes stock-based compensation of $24.1 million and $15.0 million for North America and $2.5 million and $1.3 million for International for the three months ended June 30, 2019 and 2018 and $38.9 million and $32.9 million for North America and $4.1 million and $2.7 million for International for the six months ended June 30, 2019 and 2018.


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


~~(3)~~	Includes a $75.0 million charge recognized in the second quarter of 2018 to increase the accrual for the IBM patent litigation matter for North America for the three and six months ended June 30, 2018.



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



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


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


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



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



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


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


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