UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______    
Commission File Number: 1-35335
Groupon, Inc.
(Exact name of registrant as specified in its charter)
Delaware27-0903295
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
600 W Chicago Avenue60654
Suite 400(Zip Code)
Chicago
Illinois(312)334-1579
(Address of principal executive offices)(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.0001 per shareGRPNNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  ☒         No ☐
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).        
Yes  ☒        No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated 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).
Yes ☐        No  ☒ 
As of October 31, 2019,November 2, 2020, there were 564,733,86728,812,655 shares of the registrant's common stock outstanding.



TABLE OF CONTENTS
PART I. Financial InformationPage
Forward-Looking Statements
3
Item 1. Financial Statements and Supplementary Data
4
Condensed Consolidated Balance Sheets as of September 30, 20192020 (unaudited) and December 31, 20182019
4
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019 and 2018 (unaudited)
5
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019 and 2018 (unaudited)
6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 and 2018 (unaudited)
8
Notes to Condensed Consolidated Financial Statements (unaudited)
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
3137
Item 3. Quantitative and Qualitative Disclosures about Market Risk
5559
Item 4. Controls and Procedures
5660
PART II. Other Information
Item 1. Legal Proceedings
5761
Item 1A. Risk Factors
5762
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
5763
Item 5. Other Information
5863
Item 6. Exhibits
5864
Signatures
5965



2
2

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 relatedour ability to execute, and achieve the expected benefits of our go-forward strategy, execution of the phase down of the Goods category and transition to a third-party marketplace model; 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;team and other qualified personnel; 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 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, and2019, Part II, Item 1A ,1A. Risk Factors of our Quarterly reportReports on Form 10-Q, for the quarterthree months ended March 31, 2019,2020 and June 30, 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"(the "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.


3
3

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GROUPON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
September 30, 2020December 31, 2019
(unaudited)
Assets
Current assets:
Cash and cash equivalents$778,967 $750,887 
Accounts receivable, net45,451 54,953 
Prepaid expenses and other current assets51,958 82,073 
Total current assets876,376 887,913 
Property, equipment and software, net88,488 124,950 
Right-of-use assets - operating leases, net79,008 108,390 
Goodwill213,009 325,017 
Intangible assets, net30,965 35,292 
Investments35,911 76,576 
Other non-current assets26,061 28,605 
Total Assets$1,349,818 $1,586,743 
Liabilities and Equity
Current liabilities:
Short-term borrowings$200,000 $0 
Accounts payable42,210 20,415 
Accrued merchant and supplier payables381,856 540,940 
Accrued expenses and other current liabilities257,298 260,192 
Total current liabilities881,364 821,547 
Convertible senior notes, net225,693 214,869 
Operating lease obligations94,142 110,294 
Other non-current liabilities50,096 44,987 
Total Liabilities1,251,295 1,191,697 
Commitments and contingencies (see Note 6)
Stockholders' Equity
Common stock, par value $0.0001 per share, 100,500,000 shares authorized; 39,084,960 shares issued and 28,790,843 shares outstanding at September 30, 2020; 38,584,854 shares issued and 28,290,737 shares outstanding at December 31, 2019 (1)
4 4 
Additional paid-in capital (1)
2,338,432 2,310,393 
Treasury stock, at cost, 10,294,117 and 10,294,117 shares at September 30, 2020 and December 31, 2019 (1)
(922,666)(922,666)
Accumulated deficit(1,334,864)(1,032,876)
Accumulated other comprehensive income (loss)17,702 39,081 
Total Groupon, Inc. Stockholders' Equity98,608 393,936 
Noncontrolling interests(85)1,110 
Total Equity98,523 395,046 
Total Liabilities and Equity$1,349,818 $1,586,743 
 September 30, 2019 December 31, 2018
 (unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$567,285
 $841,021
Accounts receivable, net56,094
 69,493
Prepaid expenses and other current assets81,667
 88,115
Total current assets705,046
 998,629
Property, equipment and software, net133,071
 143,117
Right-of-use assets - operating leases, net112,133
 —
Goodwill319,557
 325,491
Intangible assets, net36,497
 45,401
Investments38,124
 108,515
Other non-current assets26,274
 20,989
Total Assets$1,370,702
 $1,642,142
Liabilities and Equity   
Current liabilities:   
Accounts payable$21,485
 $38,359
Accrued merchant and supplier payables428,177
 651,781
Accrued expenses and other current liabilities239,104
 267,034
Total current liabilities688,766
 957,174
Convertible senior notes, net211,441
 201,669
Operating lease obligations118,408
 —
Other non-current liabilities50,961
 100,688
Total Liabilities1,069,576
 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; 769,175,284 shares issued and 563,292,929 shares outstanding at September 30, 2019; 760,939,440 shares issued and 569,084,312 shares outstanding at December 31, 2018
76
 76
Additional paid-in capital2,294,000
 2,234,560
Treasury stock, at cost, 205,882,355 and 191,855,128 shares at September 30, 2019 and December 31, 2018
(922,666) (877,491)
Accumulated deficit(1,109,917) (1,010,499)
Accumulated other comprehensive income (loss)38,877
 34,602
Total Groupon, Inc. Stockholders' Equity300,370
 381,248
Noncontrolling interests756
 1,363
Total Equity301,126
 382,611
Total Liabilities and Equity$1,370,702
 $1,642,142
(1)Prior period share information and balances have been retroactively adjusted to reflect a reverse stock split. See Note 7, Stockholders' Equity and Compensation Arrangements for additional information.
See Notes to Condensed Consolidated Financial Statements.


4
4
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share amounts)
(unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenue:
Service$155,073 $268,080 $474,478 $831,510 
Product148,946 227,532 599,337 775,089 
Total revenue304,019 495,612 1,073,815 1,606,599 
Cost of revenue:
Service17,005 28,947 60,162 86,169 
Product126,992 188,725 515,158 644,342 
Total cost of revenue143,997 217,672 575,320 730,511 
Gross profit160,022 277,940 498,495 876,088 
Operating expenses:
Marketing31,386 74,976 116,758 257,296 
Selling, general and administrative124,257 198,388 475,017 619,274 
Goodwill impairment0 0 109,486 0 
Long-lived asset impairment0 0 22,351 0 
Restructuring and related charges20,559 (61)61,037 (175)
Total operating expenses176,202 273,303 784,649 876,395 
Income (loss) from operations(16,180)4,637 (286,154)(307)
Other income (expense), net(867)(17,253)(21,549)(92,602)
Income (loss) from continuing operations before provision (benefit) for income taxes(17,047)(12,616)(307,703)(92,909)
Provision (benefit) for income taxes(486)2,069 (7,170)591 
Income (loss) from continuing operations(16,561)(14,685)(300,533)(93,500)
Income (loss) from discontinued operations, net of tax0 0 382 2,162 
Net income (loss)(16,561)(14,685)(300,151)(91,338)
Net (income) loss attributable to noncontrolling interests291 (2,000)(1,758)(8,080)
Net income (loss) attributable to Groupon, Inc.$(16,270)$(16,685)$(301,909)$(99,418)
Basic and diluted net income (loss) per share: (1)
Continuing operations$(0.57)$(0.59)$(10.59)$(3.57)
Discontinued operations0 0 0.01 0.08 
Basic and diluted net income (loss) per share$(0.57)$(0.59)$(10.58)$(3.49)
Weighted average number of shares outstanding (1)
Basic28,751,520 28,348,561 28,535,393 28,416,966 
Diluted28,751,520 28,348,561 28,535,393 28,416,966 
Comprehensive income (loss):
Net income (loss)$(16,561)$(14,685)$(300,151)$(91,338)
Other comprehensive income (loss):
Other comprehensive income (loss) from continuing operations:
Net change in unrealized gain (loss) on foreign currency translation adjustments(11,786)4,439 (21,379)4,426 
Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of $0 and $(16) for the three months ended September 30, 2020 and 2019 and $0 and $(51) for the nine months ended September 30, 2020 and 2019)0 (47)0 (151)
Other comprehensive income (loss) from continuing operations(11,786)4,392 (21,379)4,275 
Other comprehensive income (loss) from discontinued operations0 0 0 0 
Other comprehensive income (loss)(11,786)4,392 (21,379)4,275 
Comprehensive income (loss)(28,347)(10,293)(321,530)(87,063)
Comprehensive (income) loss attributable to noncontrolling interest291 (2,000)(1,758)(8,080)
Comprehensive income (loss) attributable to Groupon, Inc.$(28,056)$(12,293)$(323,288)$(95,143)
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Revenue:       
Service$268,080
 $289,214
 $831,510
 $886,663
Product227,532
 303,669
 775,089
 950,156
Total revenue495,612
 592,883
 1,606,599
 1,836,819
Cost of revenue:       
Service28,947
 29,792
 86,169
 91,167
Product188,725
 257,102
 644,342
 791,120
Total cost of revenue217,672
 286,894
 730,511
 882,287
Gross profit277,940
 305,989
 876,088
 954,532
Operating expenses:       
Marketing74,976
 92,717
 257,296
 286,051
Selling, general and administrative198,327
 160,249
 619,099
 676,318
Total operating expenses273,303
 252,966
 876,395
 962,369
Income (loss) from operations4,637
 53,023
 (307) (7,837)
Other income (expense), net(17,253) (4,860) (92,602) (39,832)
Income (loss) from continuing operations before provision (benefit) for income taxes(12,616) 48,163
 (92,909) (47,669)
Provision (benefit) for income taxes2,069
 988
 591
 205
Income (loss) from continuing operations(14,685) 47,175
 (93,500) (47,874)
Income (loss) from discontinued operations, net of tax—
 —
 2,162
 —
Net income (loss)(14,685) 47,175
 (91,338) (47,874)
Net income attributable to noncontrolling interests(2,000) (2,560) (8,080) (9,433)
Net income (loss) attributable to Groupon, Inc.$(16,685) $44,615
 $(99,418) $(57,307)
        
Basic and diluted net income (loss) per share:       
Continuing operations$(0.03) $0.08
 $(0.18) $(0.10)
Discontinued operations—
 —
 0.01 —
Basic and diluted net income (loss) per share$(0.03) $0.08
 $(0.17) $(0.10)
        
Weighted average number of shares outstanding       
Basic566,971,238
 568,634,988
 568,339,335
 565,227,625
Diluted566,971,238
 576,379,421
 568,339,335
 565,227,625
        
Comprehensive income (loss):       
Net income (loss)$(14,685) $47,175
 $(91,338) $(47,874)
Other comprehensive income (loss):       
Other comprehensive income (loss) from continuing operations:       
Net change in unrealized gain (loss) on foreign currency translation adjustments4,439
 (72) 4,426
 1,166
Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of ($16) and $46 for the three months ended September 30, 2019 and 2018, and ($51) and $60 for the nine months ended September 30, 2019 and 2018)
(47) 94
 (151) (842)
Other comprehensive income (loss) from continuing operations4,392
 22
 4,275
 324
Other comprehensive income (loss) from discontinued operations—
 —
 —
 —
Other comprehensive income (loss)4,392
 22
 4,275
 324
        
Comprehensive income (loss)(10,293) 47,197
 (87,063) (47,550)
Comprehensive income (loss) attributable to noncontrolling interest(2,000) (2,560) (8,080) (9,433)
Comprehensive income (loss) attributable to Groupon, Inc.$(12,293) $44,637
 $(95,143) $(56,983)
(1)All share and per share information has been retroactively adjusted to reflect a reverse stock split. See Note 7, Stockholders' Equity and Compensation Arrangements for additional information.
See Notes to Condensed Consolidated Financial Statements.


5
5
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
(unaudited)

Groupon, Inc. Stockholders' Equity
 
Common Stock (1)
Additional Paid-In Capital (1)
Treasury Stock (1)
Accumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Groupon, Inc. Stockholders' EquityNon-controlling InterestsTotal Equity
 SharesAmountSharesAmount
Balance at December 31, 201938,584,854 $4 $2,310,393 (10,294,117)$(922,666)$(1,032,876)$39,081 $393,936 $1,110 $395,046 
Cumulative effect of change in accounting principle, net of tax— — — — — (79)— (79)— (79)
Comprehensive income (loss)— — — — — (213,522)(1,961)(215,483)3,044 (212,439)
Vesting of restricted stock units and performance share units165,705 — — — — — — — — 0 
Shares issued under employee stock purchase plan28,621 — 1,163 — — — — 1,163 — 1,163 
Tax withholdings related to net share settlements of stock-based compensation awards(67,135)— (3,684)— — — — (3,684)— (3,684)
Stock-based compensation on equity-classified awards— — 15,345 — — — — 15,345 — 15,345 
Distributions to noncontrolling interest holders— — — — — — — — (3,845)(3,845)
Balance at March 31, 202038,712,045 $4 $2,323,217 (10,294,117)$(922,666)$(1,246,477)$37,120 $191,198 $309 $191,507 
Comprehensive income (loss)— — — — — (72,117)(7,632)(79,749)(995)(80,744)
Vesting of restricted stock units and performance share units430,100 — — — — — — — — 0 
Shares issued under employee stock purchase plan— — — — — — — — — 0 
Tax withholdings related to net share settlements of stock-based compensation awards(164,468)— (4,554)— — — — (4,554)— (4,554)
Stock-based compensation on equity-classified awards— — 10,936 — — — 10,936 — 10,936 
Receipts from noncontrolling interest holders— — — — — — — — 339 339 
Balance at June 30, 202038,977,677 $4 $2,329,599 (10,294,117)$(922,666)$(1,318,594)$29,488 $117,831 $(347)$117,484 
Comprehensive income (loss)— — — — — (16,270)(11,786)(28,056)(291)(28,347)
Vesting of restricted stock units and performance share units104,819 — — — — — — — — 0 
Shares issued under employee stock purchase plan40,750 — 628 — — — — 628 — 628 
Tax withholdings related to net share settlements of stock-based compensation awards(38,286)— (1,016)— — — — (1,016)— (1,016)
Stock-based compensation on equity-classified awards— — 9,221 — — — — 9,221 — 9,221 
Receipts from noncontrolling interest holders— — — — — — — — 553 553 
Balance at September 30, 202039,084,960 $4 $2,338,432 (10,294,117)$(922,666)$(1,334,864)$17,702 $98,608 $(85)$98,523 
 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 AmountShares Amount 
Balance at December 31, 2018760,939,440
 $76
 $2,234,560
 (191,855,128) $(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 options12,500
 —
 8
 —
 —
 —
 —
 8
 —
 8
Vesting of restricted stock units and performance share units4,160,415
 —
 —
 —
 —
 —
 —
 —
 —
 —
Shares issued under employee stock purchase plan719,297
 —
 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)
Repurchases of common 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, 2019764,245,924
 76
 2,248,616
 (196,263,123) (892,546) (1,052,986) 37,915
 341,075
 1,321
 342,396
Comprehensive income (loss)—
 —
 —
 —
 —
 (40,246) (3,430) (43,676) 2,601
 (41,075)
Exercise of stock options30,000
 —
 32
 —
 —
 —
 —
 32
 —
 32
Vesting of restricted stock units and performance share units4,404,213
 —
 —
 —
 —
 —
 —
 —
 —
 —
Tax withholdings related to net share settlements of stock-based compensation awards(1,524,402) —
 (5,387) —
 —
 —
 —
 (5,387) —
 (5,387)
Repurchases of common 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, 2019767,155,735
 76
 2,271,600
 (200,491,271) (907,599) (1,093,232) 34,485
 305,330
 809
 306,139
Comprehensive income (loss)—
 —
 —
 —
 —
 (16,685) 4,392
 (12,293) 2,000
 (10,293)
Vesting of restricted stock units and performance share units1,986,101
 —
 ��
 —
 —
 —
 —
 —
 —
 —
Shares issued under employee stock purchase plan766,709
 —
 2,085
 —
 —
 —
 —
 2,085
 —
 2,085
Tax withholdings related to net share settlements of stock-based compensation awards(733,261) —
 (2,049) —
 —
 —
 —
 (2,049) —
 (2,049)
Repurchases of common stock—
 —
 —
 (5,391,084) (15,067) —
 —
 (15,067) —
 (15,067)
Stock-based compensation on equity-classified awards—
 —
 22,364
 —
 —
 —
 —
 22,364
 —
 22,364
Distributions to noncontrolling interest holders—
 —
 —
 —
 —
 —
 —
 —
 (2,053) (2,053)
Balance at September 30, 2019769,175,284
 $76
 $2,294,000
 (205,882,355) $(922,666) $(1,109,917) $38,877
 $300,370
 $756
 $301,126
(1)All share information and balances have been retroactively adjusted to reflect a reverse stock split. See Note 7, Stockholders' Equity and Compensation Arrangements, for additional information.
See Notes to Condensed Consolidated Financial Statements.


6
6
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
(unaudited)

Groupon, Inc. Stockholders' Equity
Common Stock (1)
Additional Paid-In Capital (1)
Treasury Stock (1)
Accumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Groupon, Inc. Stockholders' EquityNon-controlling InterestsTotal Equity
SharesAmountSharesAmount
Balance at December 31, 201838,046,972 $4 $2,234,633 (9,592,756)$(877,491)$(1,010,499)$34,602 $381,249 $1,363 $382,612 
Comprehensive income (loss)— — — — — (42,487)3,313 (39,174)3,479 (35,695)
Exercise of stock options625 — 8 — — — — 8 — 8 
Vesting of restricted stock units and performance share units208,020 — — — — — — — — 0 
Shares issued under employee stock purchase plan35,964 — 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, 201938,212,295 4 $2,248,689 (9,813,155)$(892,546)$(1,052,986)$37,915 $341,076 $1,321 $342,397 
Comprehensive income (loss)— — — — — (40,246)(3,430)(43,676)2,601 (41,075)
Exercise of stock options1,500 — 32 — — — — 32 — 32 
Vesting of restricted stock units and performance share units220,211 — — — — — — — — 0 
Shares issued under employee stock purchase plan— — — — — — — — — 0 
Tax withholdings related to net share settlements of stock-based compensation awards(76,220)— (5,387)— — — — (5,387)— (5,387)
Payments for repurchases of common stock— — — (211,407)(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, 201938,357,786 $4 $2,271,673 (10,024,562)$(907,599)$(1,093,232)$34,485 $305,331 $809 $306,140 
Comprehensive income (loss)— — — — — (16,685)4,392 (12,293)2,000 (10,293)
Vesting of restricted stock units and performance share units99,306 — — — — — — 0 
Shares issued under employee stock purchase plan38,335 — 2,085 — — — — 2,085 — 2,085 
Tax withholdings related to net share settlements of stock-based compensation awards(36,663)— (2,049)— — — — (2,049)— (2,049)
Repurchases of common stock— — — (269,554)(15,067)(15,067)— (15,067)
Stock-based compensation on equity-classified awards— — 22,364 — — — — 22,364 — 22,364 
Distributions to noncontrolling interest holders— — — — — — — — (2,053)(2,053)
Balance at September 30, 201938,458,764 $4 $2,294,073 (10,294,116)$(922,666)$(1,109,917)$38,877 $300,371 $756 $301,127 
 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 AmountShares Amount 
Balance at December 31, 2017748,541,862
 $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
 —
 —
 —
Comprehensive income (loss)—
 —
 —
 —
 —
 (6,888) (2,069) (8,957) 4,093
 (4,864)
Exercise of stock options2,400
 —
 6
 —
 —
 —
 —
 6
 —
 6
Vesting of restricted stock units and performance share units4,157,462
 —
 —
 —
 —
 —
 —
 —
 —
 —
Shares issued under employee stock purchase plan746,773
 —
 2,434
 —
 —
 —
 —
 2,434
 —
 2,434
Shares issues to settle liability-classified awards1,240,379
 —
 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 at March 31, 2018752,664,286
 75
 2,192,469
 (188,602,242) (867,450) (1,006,308) 29,936
 348,722
 1,650
 350,372
Comprehensive income (loss)—
 —
 —
 —
 —
 (95,034) 2,371
 (92,663) 2,780
 (89,883)
Exercise of stock options665,343
 —
 64
 —
 —
 —
 —
 64
 —
 64
Vesting of restricted stock units and performance share units3,628,257
 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, 2018755,806,627
 76
 2,206,741
 (188,602,242) (867,450) (1,101,342) 32,307
 270,332
 805
 271,137
Comprehensive income (loss)—
 —
 —
 —
 —
 44,615
 22
 44,637
 2,560
 47,197
Exercise of stock options2,650
 —
 6
 —
 —
 —
 —
 6
 —
 6
Vesting of restricted stock units and performance share units3,221,540
 —
 —
 —
 —
 —
 —
 —
 —
 —
Shares issued under employee stock purchase plan874,288
 —
 3,200
 —
 —
 —
 —
 3,200
 —
 3,200
Tax withholdings related to net share settlements of stock-based compensation awards(1,104,495) —
 (4,531) —
 —
 —
 —
 (4,531) —
 (4,531)
Stock-based compensation on equity-classified awards—
 —
 17,007
 —
 —
 —
 —
 17,007
 —
 17,007
Distributions to noncontrolling interest holders—
 —
 —
 —
 —
 —
 —
 —
 (2,376) (2,376)
Balance at September 30, 2018758,800,610
 $76
 $2,222,423
 (188,602,242) $(867,450) $(1,056,727) $32,329
 $330,651
 $989
 $331,640
(1)All share information and balances have been retroactively adjusted to reflect a reverse stock split. See Note 7, Stockholders' Equity and Compensation Arrangements, for additional information.
See Notes to Condensed Consolidated Financial Statements.


7
7
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 Nine Months Ended September 30,
 2019 2018
Operating activities   
Net income (loss)$(91,338) $(47,874)
Less: Income (loss) from discontinued operations, net of tax2,162
 —
Income (loss) from continuing operations(93,500) (47,874)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Depreciation and amortization of property, equipment and software69,986
 76,984
Amortization of acquired intangible assets11,419
 10,316
Stock-based compensation62,517
 50,670
Impairments of investments—
 10,156
Deferred income taxes816
 (6,575)
(Gain) loss from changes in fair value of investments68,971
 8,312
Amortization of debt discount on convertible senior notes9,772
 8,822
Change in assets and liabilities, net of acquisitions and dispositions:   
Accounts receivable12,581
 20,217
Prepaid expenses and other current assets2,591
 (2,695)
Accounts payable(16,892) (16,034)
Accrued merchant and supplier payables(216,127) (214,748)
Accrued expenses and other current liabilities(62,728) (45,175)
Other, net20,476
 14,663
Net cash provided by (used in) operating activities from continuing operations(130,118) (132,961)
Net cash provided by (used in) operating activities from discontinued operations—
 —
Net cash provided by (used in) operating activities(130,118) (132,961)
Investing activities   
Purchases of property and equipment and capitalized software(51,854) (53,611)
Proceeds from sale of intangible assets—
 1,500
Proceeds from sale of investment—
 8,594
Acquisition of business, net of acquired cash—
 (57,821)
Acquisitions of intangible assets and other investing activities(3,037) (17,147)
Net cash provided by (used in) investing activities from continuing operations(54,891) (118,485)
Net cash provided by (used in) investing activities from discontinued operations—
 —
Net cash provided by (used in) investing activities(54,891) (118,485)
Financing activities   
Issuance costs for revolving credit agreement(2,384) —
Payments for repurchases of common stock(44,162) —
Taxes paid related to net share settlements of stock-based compensation awards(13,975) (18,638)
Proceeds from stock option exercises and employee stock purchase plan4,123
 5,710
Distributions to noncontrolling interest holders(8,687) (9,316)
Payments of finance lease obligations(16,868) (25,289)
Payments of contingent consideration related to acquisitions—
 (1,815)
Net cash provided by (used in) financing activities(81,953) (49,348)
Effect of exchange rate changes on cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations(9,153) (9,287)
Net increase (decrease) in cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations(276,115) (310,081)
Less: Net increase (decrease) in cash classified within current assets of discontinued operations—
 —
Net increase (decrease) in cash, cash equivalents and restricted cash(276,115) (310,081)
Cash, cash equivalents and restricted cash, beginning of period (1)
844,728
 885,481
Cash, cash equivalents and restricted cash, end of period (1)
$568,613
 $575,400
Non-cash investing and financing activities   
Continuing operations:   
Equipment acquired under capital lease arrangements (2)
$3,865
 $13,789
Leasehold improvements funded by lessor—
 557
Liability for repurchases of common stock(1,469) —
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software(201) 699
Contingent consideration liabilities incurred in connection with acquisition of business—
 1,589
Financing obligation incurred in connection with acquisition of business—
 8,604

 Nine Months Ended September 30,
 20202019
Operating activities  
Net income (loss)$(300,151)$(91,338)
Less: Income (loss) from discontinued operations, net of tax382 2,162 
Income (loss) from continuing operations(300,533)(93,500)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property, equipment and software60,988 69,986 
Amortization of acquired intangible assets7,378 11,419 
Impairment of goodwill109,486 0 
Impairment of long-lived assets22,351 0 
Restructuring-related impairment17,199 0 
Stock-based compensation30,937 62,517 
Impairment of investment6,684 0 
Deferred income taxes0 816 
(Gain) loss from changes in fair value of investments1,405 68,971 
Amortization of debt discount on convertible senior notes10,824 9,772 
Change in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable9,602 12,581 
Prepaid expenses and other current assets29,098 2,591 
Right-of-use assets - operating leases17,680 19,624 
Accounts payable20,733 (16,892)
Accrued merchant and supplier payables(163,125)(216,127)
Accrued expenses and other current liabilities2,496 (63,392)
Operating lease obligations(29,709)(18,960)
Other, net2,002 20,476 
Net cash provided by (used in) operating activities from continuing operations(144,504)(130,118)
Net cash provided by (used in) operating activities from discontinued operations0 0 
Net cash provided by (used in) operating activities(144,504)(130,118)
Investing activities
Purchases of property and equipment and capitalized software(36,662)(51,854)
Proceeds from sale of investment31,605 0 
Acquisitions of intangible assets and other investing activities(3,416)(3,037)
Net cash provided by (used in) investing activities from continuing operations(8,473)(54,891)
Net cash provided by (used in) investing activities from discontinued operations1,224 0 
Net cash provided by (used in) investing activities(7,249)(54,891)
Financing activities
Proceeds from borrowings under revolving credit agreement200,000 0 
Payment of contingent consideration related to acquisition(908)0 
Issuance costs for revolving credit agreement(1,148)(2,384)
Payments for repurchases of common stock0 (44,162)
Taxes paid related to net share settlements of stock-based compensation awards(8,787)(13,975)
Proceeds from stock option exercises and employee stock purchase plan1,791 4,123 
Distributions to noncontrolling interest holders(2,953)(8,687)
Payments of finance lease obligations(7,438)(16,868)
Net cash provided by (used in) financing activities180,557 (81,953)
Effect of exchange rate changes on cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations(716)(9,153)
Net increase (decrease) in cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations28,088 (276,115)
Less: Net increase (decrease) in cash classified within current assets of discontinued operations1,224 0 
Net increase (decrease) in cash, cash equivalents and restricted cash26,864 (276,115)
Cash, cash equivalents and restricted cash, beginning of period (1)
752,657 844,728 
Cash, cash equivalents and restricted cash, end of period (1)
$779,521 $568,613 


8
8
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Non-cash investing and financing activities
Continuing operations:
Equipment acquired under finance lease arrangements$0 $3,865 
Liability for repurchases of common stock0 (1,469)
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software261 (201)
(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 September 30, 2019, December 31, 2018, September 30, 2018 and December 31, 2017 and amounts previously reported within the condensed consolidated balance sheet in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 (in thousands):
(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 September 30, 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 September 30, 2019 (in thousands):
September 30, 2019 December 31, 2018 September 30, 2018 December 31, 2017September 30, 2020December 31, 2019September 30, 2019December 31, 2018
Cash and cash equivalents$567,285
 $841,021
 $572,358
 $880,129
Cash and cash equivalents$778,967 $750,887 $567,285 $841,021 
Restricted cash included in prepaid expenses and other current assets1,101
 3,320
 2,649
 4,932
Restricted cash included in prepaid expenses and other current assets315 1,534 1,101 3,320 
Restricted cash included in other non-current assets227
 387
 393
 420
Restricted cash included in other non-current assets239 236 227 387 
Cash, cash equivalents and restricted cash$568,613
 $844,728
 $575,400
 $885,481
Cash, cash equivalents and restricted cash$779,521 $752,657 $568,613 $844,728 

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

See Notes to Condensed Consolidated Financial Statements.


9
9
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Company Information
Groupon, Inc. and its subsidiaries, which commenced operations in October 2008, operate online local commerce marketplaces throughout the worldis a global scaled two-sided marketplace 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 2 segments: North America and International. See Note 13, Segment Information.
Reverse Stock Split
On June 10, 2020, we effectuated a reverse stock split of our common stock at a ratio of 1-for-20. See Note 7, Stockholders' Equity and Compensation Arrangements, 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.
COVID-19 Pandemic
Since March 2020, the COVID-19 pandemic has led to significant disruption in our business as a result of the preventive and protective actions, such as consumer restrictions and merchant closures that governments, our merchants and consumers have implemented in response to the pandemic. The COVID-19 pandemic has had an adverse impact on our financial condition, results of operations and cash flows. The negative impact of COVID-19 on our business is expected to continue at least as long as our performance is impacted by market conditions as we rely on customers' purchases of vouchers for local experiences, including events and activities, beauty and wellness, travel and dining. We continue to monitor the impact of COVID-19 on our business, including increases in government restrictions and the potential for colder weather in certain North America and International markets to further exacerbate negative trends.
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, preserve cash in the near-term and improve liquidity, including, but not limited to: 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; transitioning merchants to redemption payment terms, instead of fixed payment terms; implementing a hiring freeze; eliminating broad-based merit increases for employees; replacing cash compensation with equity compensation in 2020 for all members of our Board of Directors (the "Board"); and amending our Credit Agreement (as defined below) to, among other things, provide covenant relief through the first quarter of 2021. 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.
In 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 long-lived assets and goodwill for impairment, which resulted in the impairment of our long-lived assets and goodwill. 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.
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
10

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
COVID-19. We expect to incur total pre-tax charges of $75.0 million to $105.0 million in connection with these multi-phase restructuring actions through the end of 2021. See Note 9, Restructuring and Related Charges, for additional information about restructuring charges incurred during the nine months ended September 30, 2020, which included employee severance and compensation benefits expenses, facilities-related costs and impairment charges, professional advisory fees and a rationalization of our country footprint.
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")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 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 $2.4 million and $5.2 million of implementation costs for the three and nine months ended September 30, 2019. Those capitalized costs are included within Other non-current assets on the condensed consolidated balance sheet as of September 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.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAPgenerally 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 liabilitiesreported 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, andother 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.
Reclassifications
Certain reclassifications have been made to the condensed consolidated financial statements of prior periods to conform to the current period presentation.

Adoption of New Accounting Standards
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. See Note 8, Revenue Recognition, for additional information.
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.
11

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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.
2. GOODWILL AND OTHER INTANGIBLELONG-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. During the second and third quarters 2020, we determined that the actions taken under our restructuring plan changed how we used certain long-lived assets such that the carrying amount of those long-lived assets may not be recoverable, which required us to evaluate those 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.
Goodwill
In order to evaluate goodwill for impairment in the first quarter 2020, 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 in the first quarter 2020, we identified a partial impairment of goodwill in our EMEA reporting unit within the International segment and recognized goodwill impairment of $109.5 million. We did 0t recognize any goodwill impairment in our North America or Asia Pacific reporting units during the three months ended March 31, 2020.
During the second quarter 2020, we determined that we did not have a triggering event that required us to evaluate goodwill for impairment, and therefore we did 0t recognize goodwill impairment for any of our reporting units during the second quarter 2020.
During the third quarter 2020, we exited our operations in Japan and New Zealand, which represent the majority of the countries in our Asia Pacific reporting unit. As a result, we combined the remainder of the Asia Pacific reporting unit and the EMEA reporting unit into a single International reporting unit, consistent with how management reviews the operating results of the business. As a result of the change in reporting units, we performed a qualitative assessment of potential goodwill impairment for the new International reporting unit and performed separate qualitative assessments of potential goodwill impairment for our Asia Pacific and EMEA reporting units immediately prior to the change. Based on those assessments, which considered current market conditions and recent business performance, we determined that the likelihood of a goodwill impairment did not reach the more-likely-than not threshold. Accordingly, we concluded that goodwill relating to those reporting units was not impaired and further quantitative testing was not required to be performed. We did not identify any other triggering events that required us to evaluate goodwill impairment in our North America or International reporting units during the third quarter 2020 and therefore did 0t recognize goodwill impairment for any of our reporting units during the third quarter 2020.
12

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes goodwill activity by segment for the nine months ended September 30, 20192020 (in thousands):
 North America International Consolidated
Balance as of December 31, 2018$178,685
 $146,806
 $325,491
Foreign currency translation—
 (5,934) (5,934)
Balance as of September 30, 2019$178,685
 $140,872
 $319,557

North America
International (1)
Consolidated
Balance as of December 31, 2019$178,685 $146,332 $325,017 
Impairment loss0 (109,486)(109,486)
Foreign currency translation0 (2,522)(2,522)
Balance as of September 30, 2020$178,685 $34,324 $213,009 
The following table summarizes intangible assets as(1)As of September 30, 20192020, the International reporting unit had a negative carrying value.
Long-Lived Assets
Following our review of long-lived assets for impairment in the first quarter 2020, we recognized long-lived asset impairment of $22.4 million within our International segment related to our EMEA operations.
During the second quarter 2020, we recognized long-lived asset impairments of $13.5 million and December 31, 2018 (in thousands):$0.4 million within our North America and International segments for certain asset groups due to actions taken under our restructuring plan. During the third quarter 2020, we recognized long-lived asset impairments of $0.8 million and $2.5 million within our North America and International segments for certain asset groups due to actions taken under our restructuring plan. See Note 9, Restructuring and Related Charges, for more information.
 September 30, 2019 December 31, 2018
Asset CategoryGross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value
Customer relationships$16,200
 $15,750
 $450
 $16,200
 $11,700
 $4,500
Merchant relationships20,913
 7,047
 13,866
 21,554
 4,105
 17,449
Trade names9,394
 7,199
 2,195
 9,476
 6,799
 2,677
Developed technology14,882
 13,659
 1,223
 13,825
 13,485
 340
Patents22,383
 17,690
 4,693
 20,508
 16,451
 4,057
Other intangible assets26,072
 12,002
 14,070
 26,007
 9,629
 16,378
Total$109,844
 $73,347
 $36,497
 $107,570
 $62,169
 $45,401
13



10
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The assets that we deemed impaired were written down to fair value based on the discounted cash flow method that uses 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.
Impairment charges are presented within the following line items of the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 (in thousands):

Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
Long-lived asset impairment$0 $22,351 
Restructuring and related charges3,296 17,199 
Total impairment$3,296 $39,550 

The following table summarizes impairment for long-lived assets and restructuring and related charges by asset type through September 30, 2020 (in thousands):
Long-Lived Asset CategoryImpairment
Property, equipment and software, net
Furniture and fixtures$413 
Leasehold improvements (1)
7,749 
Office equipment198 
Purchased software14 
Computer hardware2,842 
Right-of-use assets - finance leases, net1,388 
Capitalized software304 
Internally-developed software2,988 
Total Property, equipment and software, net$15,896 
Right-of-use assets - operating leases, net (2)
22,680 
Intangible assets, net103 
Other non-current assets871 
Total long-lived assets$39,550 
(1)Includes long-lived asset impairment of $5.0 million presented within Restructuring and related charges during the nine months ended September 30, 2020. See Note 9, Restructuring and Related Charges, for more information.
(2)Includes right-of-use asset impairment of $12.2 million during the nine months ended September 30, 2020. See Note 9, Restructuring and Related Charges, for more information.
The following table summarizes intangible assets as of September 30, 2020 and December 31, 2019 (in thousands):
September 30, 2020December 31, 2019
Intangible Asset CategoryGross Carrying ValueAccumulated AmortizationNet Carrying ValueGross Carrying ValueAccumulated AmortizationNet Carrying Value
Customer relationships$16,200 $16,200 $0 $16,200 $16,200 $0 
Merchant relationships21,668 10,557 11,111 22,193 8,268 13,925 
Trade names9,491 7,771 1,720 9,558 7,369 2,189 
Developed technology2,319 1,906 413 3,651 2,685 966 
Patents25,809 19,850 5,959 23,021 18,167 4,854 
Other intangible assets26,736 14,974 11,762 26,115 12,757 13,358 
Total$102,223 $71,258 $30,965 $100,738 $65,446 $35,292 
14

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 $3.7$2.5 million and $3.9$3.7 million for the three months ended September 30, 2020 and 2019 and 2018,$7.4 million and $11.4 million and $10.3 million for the nine months ended September 30, 20192020 and 2018.2019. As of September 30, 2019,2020, estimated future amortization expense related to intangible assets is as follows (in thousands):
Remaining amounts in 2019$2,843
20208,445
20217,336
20226,750
20235,613
Thereafter5,510
Total$36,497

Remaining amounts in 2020$2,312 
20218,173 
20227,577 
20236,426 
20242,840 
Thereafter3,637 
Total$30,965 

3. INVESTMENTS
The following table summarizes investments as of September 30, 20192020 and December 31, 20182019 (dollars in thousands):
 September 30, 2019 Percent Ownership of Voting Stock December 31, 2018 Percent Ownership of Voting Stock
Available-for-sale securities - redeemable preferred shares$10,138
 19%to25% $10,340
 19%to25%
Fair value option investments4,931
 10%to19% 73,902
 10%to19%
Other equity investments23,055
 1%to19% 24,273
 1%to19%
Total investments$38,124
     $108,515
    

Available-for-Sale Securities - Redeemable Preferred Shares
The following table summarizes amortized cost, gross unrealized gain (loss), and fair value of redeemable preferred shares as of September 30, 2019 and December 31, 2018 (in thousands):
 September 30, 2019 December 31, 2018
Amortized cost$9,961
 $9,961
Gross unrealized gain (loss)177
 379
Fair value$10,138
 $10,340

We recorded an other-than-temporary impairment of an available-for-sale security of $5.5 million for the nine months ended September 30, 2018. That impairment is 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 nine months ended September 30, 2019.
September 30, 2020Percent Ownership of Voting StockDecember 31, 2019Percent Ownership of Voting Stock
Available-for-sale securities - redeemable preferred shares$0 19%to25%$0 19%to25%
Fair value option investments0 10%to19%1,405 10%to19%
Other equity investments35,911 1%to19%75,171 1%to19%
Total investments$35,911 $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, andas 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.


11
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

We determined that theThere were no material changes in fair value of ourthose investments in Monster LP and Nearbuy was $0.0 million and $4.9 million as offor the three months ended September 30, 20192020 and $69.4 million and $4.5 million as of December 31, 2018.2019. The following table summarizes gains and losses due to changes in fair value of those investments for the three and nine months ended September 30, 20192020 and 20182019 (in thousands):
Nine Months Ended September 30,
20202019
Monster LP$0 $(69,408)
Nearbuy(1,405)437 
Total$(1,405)$(68,971)
We determined that the fair value of our investment in Nearbuy was $0.0 million as of September 30, 2020 and $1.4 million as of December 31, 2019. During the first quarter 2020, we recognized a $1.4 million loss from changes in the fair value of our investment in Nearbuy due to revised cash flow projections and an increase in the discount rate applied to those forecasts, which increased to 30% as of March 31, 2020, as compared with 20% as of December 31, 2019. The revisions to the financial projections and the increase in the discount rate applied as of March 31, 2020 were due to the deterioration in the financial condition of Nearbuy as a result of COVID-19, which resulted in underperformance as compared with prior projections and an increase to financial projection risk.
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Monster LP$—
 $(474) $(69,408) $(8,759)
Nearbuy14
 230
 437
 447
Total$14
 $(244) $(68,971) $(8,312)
15

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
We determined that the fair value of our investment in Monster LP was $0.0 million as of September 30, 2020 and December 31, 2019. During the first quarter 2019, we recognized a $41.5 million loss from changes in the fair value of our investment in Monster LP due to the revised cash flow projections provided by TMON in March 2019 and an increase in the discount rate applied to those forecasts, which increased to 26.0% as of March 31, 2019, as compared with 21.0% as of December 31, 2018. The increase in the discount rate applied as of March 31, 2019 was due to the deterioration in the financial condition of TMON and the competitive environment in the Korean e-commerce industry, which resulted in an increase to financial projection risk. During the second quarter 2019, we recognized an additional loss of $27.9 million from changes in the fair value of our investment in Monster LP due to revised financial projections provided by TMON in June 2019. The revisions to the financial projections were made as a result of TMON’s continued underperformance as compared with prior projections along with adjustments to their business model.
The following table summarizes the condensed financial information for Monster LP for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Revenue$131,188
 $93,625
 $383,204
 $265,009
Gross profit9,854
 6,344
 27,261
 20,155
Loss before income taxes(28,980) (32,162) (89,304) (101,029)
Net loss(28,980) (32,162) (89,304) (101,029)
Other Equity Investments
Other equity investments representsrepresent 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. WeDuring the first quarter 2020, we sold 50% of our shares in an other equity investment for total cash consideration of $34.0 million, which approximated cost adjusted for observable price changes as of December 31, 2019.
In addition, we recorded $4.7a $6.7 million of impairments ofimpairment during the first quarter 2020 to an other equity method investments forinvestment as a result of revised cash flow projections and a deterioration in financial condition due to COVID-19. We did not recognize any other impairments during the nine months ended September 30, 2018. Those impairments are classified within Other income (expense), net on the condensed consolidated statements of operations. There were no other adjustments for observable price changes related to these investments since our adoption of ASU 2016-01, Financial Instruments (Topic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, on January 1, 2018.2020.


12
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 nine months ended September 30, 20192020 and 20182019 (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Interest income$1,959
 $1,513
 $5,810
 $4,858
Interest expense(6,029) (5,713) (17,162) (16,434)
Changes in fair value of investments14
 (244) (68,971) (8,312)
Foreign currency gains (losses), net(12,785) (1,033) (11,855) (12,168)
Impairments of investments—
 (112) —
 (10,156)
Other(412) 729
 (424) 2,380
Other income (expense), net$(17,253) $(4,860) $(92,602) $(39,832)

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Interest income$1,268 $1,959 $5,254 $5,810 
Interest expense(9,408)(6,029)(24,375)(17,162)
Changes in fair value of investments0 14 (1,405)(68,971)
Foreign currency gains (losses), net7,273 (13,197)5,661 (12,279)
Impairment of investment0 0 (6,684)0 
Other income (expense), net$(867)$(17,253)$(21,549)$(92,602)
The following table summarizes prepaid expenses and other current assets as of September 30, 20192020 and December 31, 20182019 (in thousands):
September 30, 2020December 31, 2019
Merchandise inventories$4,944 $25,426 
Prepaid expenses16,069 27,077 
Income taxes receivable13,585 4,791 
Other17,360 24,779 
Total prepaid expenses and other current assets$51,958 $82,073 
 September 30, 2019 December 31, 2018
Merchandise inventories$27,422
 $33,739
Prepaid expenses31,865
 28,209
Income taxes receivable6,875
 6,717
Other15,505
 19,450
Total prepaid expenses and other current assets$81,667
 $88,115
16

The following table summarizes accrued merchant and supplier payables as of September 30, 2019 and December 31, 2018 (in thousands):
 September 30, 2019 December 31, 2018
Accrued merchant payables$308,269
 $371,279
Accrued supplier payables (1)
119,908
 280,502
Total accrued merchant and supplier payables$428,177
 $651,781
(1)Amounts include payables to suppliers of inventories and providers of shipping and fulfillment services.


13
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The following table summarizes other non-current assets as of September 30, 2020 and December 31, 2019 (in thousands):
September 30, 2020December 31, 2019
Deferred income tax$4,932 $4,829 
Debt issue costs, net2,342 2,156 
Deferred commissions expense4,856 10,133 
Deferred cloud implementation costs10,175 7,372 
Other3,756 4,115 
Total other non-current assets$26,061 $28,605 
The following table summarizes accrued merchant and supplier payables as of September 30, 2020 and December 31, 2019 (in thousands):
September 30, 2020December 31, 2019
Accrued merchant payables$297,018 $366,573 
Accrued supplier payables (1)
84,838 174,367 
Total accrued merchant and supplier payables$381,856 $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 September 30, 20192020 and December 31, 20182019 (in thousands):
September 30, 2020December 31, 2019
September 30, 2019 December 31, 2018
Refunds reserve$18,083
 $27,957
Refund reserveRefund reserve$29,566 $22,002 
Compensation and benefits62,664
 56,173
Compensation and benefits37,711 49,009 
Accrued marketing22,450
 39,094
Accrued marketing10,256 41,110 
Restructuring-related liabilitiesRestructuring-related liabilities19,753 0 
Customer credits16,362
 15,118
Customer credits50,830 13,764 
Income taxes payable4,337
 8,987
Income taxes payable1,221 5,044 
Deferred revenue15,993
 25,452
Deferred revenue10,635 17,951 
Current portion of lease obligations (1)
40,399
 17,207
Operating and finance lease obligationsOperating and finance lease obligations38,055 40,768 
Deferred cloud computing contract incentiveDeferred cloud computing contract incentive3,000 0 
Other58,816
 77,046
Other56,271 70,544 
Total accrued expenses and other current liabilities$239,104
 $267,034
Total accrued expenses and other current liabilities$257,298 $260,192 

(1)
Current portion of lease obligations as of September 30, 2019 includes $25.0 million of additional lease obligations that were recognized on January 1, 2019 as a result of the adoption of Topic 842. Refer to Note 6, Leases, for additional information.
The following table summarizes other non-current liabilities as of September 30, 20192020 and December 31, 20182019 (in thousands):
September 30, 2020December 31, 2019
Contingent income tax liabilities$28,725 $30,121 
Finance lease obligations1,126 5,831 
Restructuring-related liabilities714 0 
Deferred income taxes3,832 3,903 
Deferred payroll taxes (1)
5,024 0 
Deferred cloud computing contract incentive5,000 0 
Other5,675 5,132 
Total other non-current liabilities$50,096 $44,987 
 September 30, 2019 December 31, 2018
Contingent income tax liabilities$32,440
 $39,858
Deferred rent (1)
—
 32,186
Deferred income taxes4,403
 6,619
Other14,118
 22,025
Total other non-current liabilities$50,961
 $100,688
(1)We have elected to defer certain payroll taxes under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. These amounts are due beginning December 31, 2021.
17

(1)
Non-current operating lease liabilities as of September 30, 2019 are included within Operating lease obligations on the condensed consolidated balance sheet as a result of the adoption of Topic 842 on January 1, 2019. Refer to Note 6, Leases, for additional information.
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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 185.18529.25926 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 $2.66$20.40 as of September 30, 2019,2020, 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 September 30, 20192020 and December 31, 20182019 (in thousands):
 September 30, 2019 December 31, 2018
Liability component:   
Principal amount$250,000
 $250,000
Less: debt discount(38,559) (48,331)
Net carrying amount of liability component$211,441
 $201,669
    
Net carrying amount of equity component$67,014
 $67,014

September 30, 2020December 31, 2019
Liability component:
Principal amount$250,000 $250,000 
Less: debt discount(24,307)(35,131)
Net carrying amount of liability component$225,693 $214,869 
Net carrying amount of equity component$67,014 $67,014 
The estimated fair value of the Notes as of September 30, 20192020 and December 31, 20182019 was $259.0$251.8 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 September 30, 2019,2020, the remaining term of the Notes is approximately 21 years and 6 months. During the three and nine months ended September 30, 20192020 and 2018,2019, we recognized interest costs on the Notes as follows (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Contractual interest (3.25% of the principal amount per annum)$2,032
 $2,032
 $6,096
 $6,096
Amortization of debt discount3,341
 3,016
 9,772
 8,822
Total$5,373
 $5,048
 $15,868
 $14,918

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Contractual interest (3.25% of the principal amount per annum)$2,032 $2,032 $6,096 $6,096 
Amortization of debt discount3,701 3,341 10,824 9,772 
Total$5,733 $5,373 $16,920 $15,868 
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 46.32.3 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 46.32.3 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 September 30, 20192020 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 providesprovided for aggregate principal borrowings of up to $400.0 million (prior to the Amendment described below) and matures in May 2024. The 2019 Credit Agreement replaced our previous $250.0 million amended and restated
On July 17, 2020, we entered into an amendment to the revolving credit agreement (the "2016"Amendment" and the revolving credit agreement as amended, the "Amended Credit Agreement"). in order to provide us with operational flexibility and covenant relief through the end of the first quarter of 2021 (the "Suspension Period") in light of the ongoing impacts of COVID-19 on our business. In addition to the covenant relief described below, the Amendment permanently reduces borrowing capacity under our senior secured revolving credit facility from $400.0 million to $225.0 million.
We deferred debt issuance costs of $2.4$3.2 million related toas a result of entering into the 2019Amended Credit Agreement. Those deferredDeferred debt issuance costs are included within Other non-current assets on the condensed consolidated balance sheet as of September 30, 20192020 and will beare amortized to interest expense over the term of the respective agreement.
BorrowingsPursuant to the Amendment, during the Suspension Period, the Company will be exempt from certain covenant restrictions, namely the requirements to maintain a maximum funded indebtedness to EBITDA ratio, a maximum senior secured indebtedness to EBITDA ratio, a minimum fixed charge coverage ratio, unrestricted cash of not less than$250.0 million and a minimum liquidity balance (including any undrawn amounts under the 2019credit facility) of at least 70% of our accrued merchant and supplier payables balance (collectively, the "Existing Financial Covenants"). Additionally, the Amendment provides that, during the Suspension Period, we will be required to maintain specified minimum quarterly EBITDA levels and to maintain a monthly minimum liquidity balance (including any undrawn amounts under the credit facility) of at least 100% of our accrued merchant and supplier payables balance for such month plus $50.0 million. Following the Suspension Period, we will be subject to the Existing Financial Covenants.
In addition, under the Amended Credit Agreement, bearwe are subject to various covenants, including 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 related parties and other affiliates. The Amendment further restricts certain of these negative covenants during the Suspension Period, including our ability to make share repurchases, acquisitions, investments and to incur additional indebtedness and liens.
Non-compliance with the covenants under the Amended Credit Agreement may result in termination of the commitments thereunder and any then outstanding borrowings may be declared due and payable immediately. We have the right to terminate the Amended Credit Agreement or reduce the available commitments at any time.
The Amendment also increases interest at our option,rates through the end of the first quarter of 2021, raising the alternative base rate and Canadian prime spreads to 1.50%, the fixed rate spreads to 2.50% and the commitment fee to 0.4% on the daily amount of the unused commitments under the Amended Credit Agreement. Following the Suspension Period, the applicable spread and commitment fee will revert to pre-Amendment levels, which provides for (a) interest at a rate per annum equal to (a)(i) an adjusted LIBO rate or (b)(ii) 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 and (b) commitment fees ranging from 0.25% to 0.35% per annum ofon the average daily amount of unused commitments available under the 2019 Credit Agreement.commitments. The 2019Amended 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$225.0 million.
The 2019Amended 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 and foreign subsidiaries are guarantors under the 2019Amended Credit Agreement.
The 2019We had $200.0 million of borrowings and $20.6 million of outstanding letters of credit under the Amended Credit Agreement contains various customary restrictive covenants that limit our ability to, among other things: incur additional indebtedness; make dividend and other restricted payments, including share repurchases; enter into sale and leaseback transactions; make investments, loans or advances; grant or incur liens on assets; sell assets; engage in mergers, consolidations, liquidations or dissolutions; and engage in transactions with affiliates. The 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.
As of September 30, 2019, we2020. We had no borrowings$18.1 million of outstanding letters of credit under the 2019 Credit Agreement andcredit agreement as of December 31, 2018, we had no borrowings outstanding under the 2016 Credit Agreement. As2019. See Item 2. Management's Discussion of September 30, 2019, we had outstanding lettersFinancial Condition and Results of credit of $18.0 million under the 2019 Credit AgreementOperations - Liquidity and as of December 31, 2018, we had outstanding letters of credit of $19.2 million under the 2016 Credit Agreement.
6. LEASESCapital Resources, for additional information.
Adoption of ASC Topic 842, Leases
On January 1, 2019, we adopted ASC Topic 842 using the modified retrospective transition method. Topic 842 requires the recognition of lease assets and liabilities for operating leases, in addition to the 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 0 cumulative effect adjustment to our accumulated deficit as a result of initially applying the guidance.
We elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed us to carry forward prior conclusions about lease identification, classification and initial direct costs for leases entered into prior to adoption of Topic 842. Additionally, we elected to not separate lease and non-lease components for all of our leases. For leases with a term of 12 months or less, we elected the short-term lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition and new leases we may enter into in the future.


14
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

General Description of Leases
We have entered into various non-cancelable operating lease agreements for our offices and data centers and non-cancelable finance lease agreements for property and equipment. We classify leases at their commencement as either operating or finance leases and may receive renewal or expansion options, rent holidays and leasehold improvement or other incentives on certain lease agreements.
Our operating leases primarily consist of leases for real estate throughout the world with lease expirations between 2019 and 2026. These arrangements typically do not transfer ownership of the underlying asset as we do not assume, nor do we intend to assume, the risks and rewards of ownership. Our finance leases are related to purchases of property and equipment, primarily computer hardware, with expirations between 2019 and 2023.
We recognize a right-of-use asset and lease liability for all of our leases at the commencement of the lease. Lease liabilities are measured based on the present value of the minimum lease payments discounted by a rate determined as of the date of commencement. Right-of-use assets are measured based on the lease liability adjusted for any initial direct costs, prepaid rent, or lease incentives. Minimum lease payments made under operating and finance leases are apportioned between interest expense and a reduction of the related operating and finance lease obligations. The interest expense on operating leases is presented within Selling, general and administrative expense on the condensed consolidated statements of operations and the related operating lease obligation is presented within Accrued expenses and other current liabilities and Operating lease obligations on the condensed consolidated balance sheets. The interest expense on finance leases is presented within Other income (expense), net on the condensed consolidated statements of operations and the related finance lease obligation is presented within Accrued expenses and other current liabilities and Other non-current liabilities on the condensed consolidated balance sheets.
We have also subleased certain office facilities under operating lease agreements, with expirations between 2023 and 2026. We recognize sublease rentals on a straight-line basis over their respective lease terms.
The following summarizes right-of-use assets as of September 30, 2019 (in thousands):
 September 30, 2019
Right-of-use assets - operating leases$130,757
Right-of-use assets - finance leases (1)
31,255
Total right-of-use assets, gross162,012
Less: accumulated depreciation and amortization(29,964)
Right-of-use assets, net$132,048

(1)Right-of-use assets for finance leases are included in Property, equipment and software, net on the condensed consolidated balance sheet.
Related Party Sublease Agreement
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 for both the three months ended September 30, 2019 and 2018, and $1.7 millionand $1.5 million for the nine months ended September 30, 2019 and 2018.
Significant Assumptions and Judgments
Significant judgment is required when determining whether a contract is or contains a lease. We review contracts to determine whether the language conveys the right to control the use of an identified asset for a period of time in exchange for consideration.


15
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

As discussed above, the present value of minimum lease payments is used in determining the value of our operating and finance leases. The discount rate used to calculate the present value for lease payments is the rate implicit in the lease, unless that rate cannot be readily determined. For leases in which the rate implicit in the lease is not readily determinable, the discount rate is our incremental borrowing rate, which is determined based on information available at lease commencement and is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. The discount rate used for our lease obligations as of September 30, 2019 and January 1, 2019 ranged from 1.5% to 6.9%. As of September 30, 2019, the weighted-average remaining lease term for our finance leases and operating leases was 2 years and 5 years. As of September 30, 2019, the weighted-average discount rate for our finance leases and operating leases was 5.1% and 5.6%.
The following table summarizes our lease cost and sublease income for the three and nine months ended September 30, 2019 (in thousands):
 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Financing lease cost:   
Amortization of right-of-use assets$3,492
 $16,247
Interest on lease liabilities243
 816
Total finance lease cost3,735
 17,063
Operating lease cost8,573
 25,784
Variable lease cost2,410
 6,319
Short-term lease cost52
 262
Sublease income, gross(1,248) (3,872)
Total lease cost$13,522
 $45,556

As of September 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$2,056
 $10,003
20209,611
 36,609
20215,261
 34,416
2022715
 33,579
202312
 25,130
Thereafter—
 33,103
Total minimum lease payments17,655
 172,840
Less: Amount representing interest(863) (22,972)
Present value of net minimum lease payments16,792
 149,868
Less: Current portion of lease obligations(8,939) (31,460)
Total long-term lease obligations$7,853
 $118,408



16
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

As of September 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$1,246
20205,027
20215,065
20225,103
20234,385
Thereafter4,891
Total future sublease income$25,717

The following table summarizes supplemental cash flow information on our leasing obligations for the nine months ended September 30, 2019 (in thousands):
 Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash flows from finance leases$(816)
Operating cash flows from operating leases(25,121)
Financing cash flows from finance leases(16,868)
Right-of-use assets obtained in exchange for lease liabilities: 
Finance leases3,865
Operating leases23,123

7.6. COMMITMENTS AND CONTINGENCIES
Our contractual obligations and commitments and future operating income under our operating subleases as of September 30, 20192020 and through the date of this report, did not materially change from the amounts set forth in our 20182019 Annual Report on Form 10-K, except as disclosed below.
Purchase Obligations
During the nine months ended September 30, 2020, we entered into non-cancellable arrangements for cloud computing services and software. Future payments under these new contractual obligations are as follows (in thousands):
2020$5,810 
202117,672 
202217,118 
2023 (1)
22,753 
Total$63,353 
(1)Includes $8.0 million in Note 6, Leases.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 employeesmerchants, employment and merchants,related matters, 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, an individual plaintiff filed a securities fraud class action complaint in the United States District Court for the Northern District of Illinois, and in July 2020, another individual was appointed as lead plaintiff. The lawsuit covers the time period from July 30, 2019 through February 18, 2020. The lead 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 and the Groupon Select program. 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 willmay 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, materially damage our brand or reputation, 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 nine months ended September 30, 2019.2020. Our remaining indemnification liabilities were $3.2$2.8 million as of September 30, 2019.2020. We estimate that the total amount of obligations that are reasonably possible to arise under the indemnifications in excess of amounts accrued as of September 30, 20192020 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 theour operating results, financial position or cash flows.


17
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

8.7. STOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS
Reverse Stock Split
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. On the effective date, every 20 shares of issued and outstanding common stock were combined and converted into one issued and outstanding share of common stock. The number of authorized shares of Common Stock was reduced proportionately. Fractional shares were cancelled and stockholders received cash in lieu thereof and 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 Groupon, Inc. Stock Plans (the "Plans"), and the Groupon, Inc. 2012 Employee Stock Purchase Plan, as amended ("ESPP").
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.
Common Stock
Pursuant to our restated certificate of incorporation, as of September 30, 2020, the Board hashad the authority to issue up to a total of 2,010,000,000100,500,000 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 vote as a single class of stock on any matter that is submitted to a vote of stockholders.
Share Repurchase Program
In May 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. During the three and nine months ended September 30, 2019,2020, we repurchased 5,391,084 and 14,027,227did not purchase any shares for an aggregate purchase price of $15.1 million and $45.2 million (including fees and commissions) under our repurchasethe program. As of September 30, 2019,2020, up to $245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the 2019Amended Credit Agreement, share price, available cash and other factors, and the share repurchase program may be terminated at any time.
Groupon, Inc. Stock Plans
In January 2008, we adopted the 2008 Stock Option Plan, as amended (the "2008 Plan"), under which options for up to 64,618,500 shares of common stock were authorized to be issued to employees, consultants and directors. The 2008 Plan was frozen in December 2010. In April 2010, we established the Groupon, Inc. 2010 Stock Plan, as amended in April 2011 (the "2010 Plan"), under which options and restricted stock units ("RSUs") for up to 20,000,000 shares of common stock were authorized for future issuance to employees, consultants and directors. No new awards may be granted under the 2010 Plan following our initial public offering in November 2011. In August 2011, we established the Groupon, Inc. 2011 Incentive Plan, as amended (the "2011 Plan"), under which options, RSUs and performance stock units for up to 187,500,000 shares of common stock were authorized for future issuance to employees, consultants and directors.
The Groupon, Inc. Stock Plans (the "Plans") are administered by the Compensation Committee of the Board (the "Compensation Committee"). As of September 30, 2019, 71,768,2892020, 2,899,062 shares of common stock were available for future issuance under the Plans.
18

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The stock-based compensation expense related to stock awards issued under the Plans and acquisition-related awards are presented within the following line items of the condensed consolidated statements of operations for the three and nine months ended September 30, 20192020 and 20182019 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 20182020201920202019
Cost of revenue$405
 $419
 $1,163
 $1,103
Cost of revenue$156 $405 $496 $1,163 
Marketing1,671
 1,854
 4,586
 5,411
Marketing377 1,671 1,218 4,586 
Selling, general and administrative17,467
 12,753
 56,768
 44,056
Selling, general and administrative7,846 17,467 29,223 56,768 
Other income (expense), net—
 —
 —
 100
Restructuring and related chargesRestructuring and related charges311 0 1,735 0 
Total stock-based compensation expense$19,543
 $15,026
 $62,517
 $50,670
Total stock-based compensation expense$8,690 $19,543 $32,672 $62,517 
We capitalized $2.0$1.1 million and $2.0 million of stock-based compensation for the three months ended September 30, 2020 and 2019, and 2018,$3.4 million and $5.5 million and $5.7$5.5 million for the nine months ended September 30, 20192020 and 20182019 in connection with internally-developed software and cloud computing arrangements.


18
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Employee Stock Purchase Plan
The Groupon, Inc. 2012 Employee Stock Purchase Plan, as amended ("ESPP"),ESPP authorizes us to grant up to 20,000,0001,000,000 shares of common stock under that plan.plan as of September 30, 2020. For the nine months ended September 30, 2020 and 2019, 69,371 and 2018, 1,486,006 and 1,621,06174,300 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.
The table below summarizes restricted stock unit activity under the Plans for the nine months ended September 30, 2019:2020:
 Restricted Stock Units Weighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 201826,623,432
 $4.47
Granted25,446,060
 3.52
Vested(9,773,156) 4.37
Forfeited(9,511,750) 4.17
Unvested at September 30, 201932,784,586
 3.84

Restricted Stock UnitsWeighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 20191,527,014 $74.80 
Granted1,744,782 24.59 
Vested(596,183)74.86 
Forfeited(720,949)65.70 
Unvested at September 30, 20201,954,664 33.41 
As of September 30, 2019, $96.62020, $49.7 million of unrecognized compensation costs related to unvested restricted stock units are expected to be recognized over a remaining weighted-average period of 1.621.09 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 nine months ended September 30, 2019, we also granted performance share units thatsubject to a market condition ("Market-based Performance Share Units").
19

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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 recognizerecognized 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%. We did 0t recognize any compensation costs related to our Market-based Performance Share Units during the three months ended September 30, 2020 as the derived service period ended during the first quarter 2020, at which time these awards were fully expensed.
All of our performance share awardsOur 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.


19
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The table below summarizes Performance Share Unit activity under the Plans for the nine months ended September 30, 2019:2020:
 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, 20183,431,918
 $4.90
 —
 $—
Granted4,640,467
 3.89
 8,486,708
 3.03
Vested(777,573) 4.88
 —
 —
Forfeited(3,124,591) 4.64
 (1,666,667) 3.03
Unvested at September 30, 20194,170,221
 3.98
 6,820,041
 3.03
        
Maximum shares issuable upon vesting at September 30, 20197,980,870
   6,820,041
  

Performance Share UnitsWeighted-Average Grant Date Fair Value (per unit)Market-based Performance Share UnitsWeighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 2019203,853 $79.76 341,002 $60.60 
Granted96,598 15.44 0 0 
Vested(104,441)80.77 0 0 
Forfeited(71,128)79.94 (91,668)60.60 
Unvested at September 30, 2020124,882 29.78 249,334 60.60 
Maximum shares issuable upon vesting at September 30, 2020173,181 249,334 
As of September 30, 2019, $8.92020, $1.5 million of unrecognized compensation costs related to unvested performance share unitsPerformance Share Units are expected to be recognized over a remaining weighted-average period of 1.94 years and $8.1 million of unrecognized1.44 years. We have recognized all compensation costs related to our unvested market-based performance share units are expected to be recognized over a remaining weighted-average period of 0.41 years.Market-Based Performance Share Units.
Stock Options
The exercise price of stock options granted is equal to the fair value of the underlying stock on the date of grant. The contractual term for stock options expires ten years from the grant date. Stock options generally vest over a three- or four-year period, with 25% of the awards vesting after one year and the remainder of the awards vesting on a monthly or quarterly basis thereafter. We did not grant any stock options during the nine months ended September 30, 2019.
The table below summarizes stock option activity for the nine months ended September 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, 2018212,787
 $1.80
 1.37 $298
Exercised(42,500) 0.96
    
Forfeited(2,050) 1.68
    
Outstanding and exercisable at September 30, 2019168,237
 $1.95
 0.67 $119
(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 September 30, 2019 and December 31, 2018.
9.8. REVENUE RECOGNITION
Refer to Note 13, Segment Information, for revenue summarized by reportable segment and category for the three and nine months ended September 30, 20192020 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 $16.0 million and $25.5$10.6 million as of September 30, 2019 and2020. As of December 31, 2018. The amount2019, our deferred revenue was $18.0 million, all of revenuewhich was recognized forduring the nine months ended September 30, 20192020.
Customer Credits
We issue credits to customers that was included in the deferred revenue balance at the beginning of the period was $25.0 million.

can be applied to future purchases through our online marketplaces. Credits are primarily issued as consideration for refunds. To a lesser extent, credits are issued for customer

20
20
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

relationship purposes. The following table summarizes the activity in the liability for customer credits for the nine months ended September 30, 20192020 (in thousands):
 Customer Credits
Balance as of December 31, 2018$15,118
Credits issued85,053
Credits redeemed (1)
(74,974)
Breakage revenue recognized(8,617)
Foreign currency translation(218)
Balance as of September 30, 2019$16,362
(1)Customer credits can beCredits
Balance as of December 31, 2019$13,764 
Credits issued153,638 
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)
(102,373)
Breakage revenue is recognized on a net basis(15,055)
Foreign currency translation856 
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.September 30, 2020$50,830 
(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. Deferred contract acquisition costs are presented within the following line items of the condensed consolidated balance sheets as of September 30, 20192020 and December 31, 20182019 (in thousands):
 September 30, 2019 December 31, 2018
Prepaid expenses and other current assets$2,185
 $2,923
Other non-current assets10,449
 11,285

September 30, 2020December 31, 2019
Prepaid expenses and other current assets$1,132 $2,501 
Other non-current assets4,856 10,133 
The amortization of deferred contract acquisition costs is classified within Selling, general and administrative expense in the condensed consolidated statements of operations. We amortized $3.6 million and $5.0 million of deferred contract acquisition costs during the three months ended September 30, 2020 and 2019, and $12.3 million and $15.5 million during the nine months ended September 30, 2020 and 2019. We did not recognize any impairment lossesimpairments in relation to the deferred costs. Duringcontract acquisition costs during the three and nine months ended September 30, 20192020 and 2018, amortization expense related to deferred contract acquisition costs is as follows2019.
Allowance for Expected Credit Losses on Accounts Receivable
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 business. Receivables with similar risk characteristics are grouped into pools. For each pool, we consider the historical credit loss experience, current economic conditions, bankruptcy filings, published or estimated credit default rates, age of the receivable and any recoveries in assessing the lifetime expected credit losses.
The following table summarizes the activity in the allowance for expected credit losses on accounts receivables for the nine months ended September 30, 2020 (in thousands):
Allowance for Expected Credit Losses
Balance as of January 1, 2020$3,693 
Change in Provision8,683 
Write-offs(2,330)
Foreign currency translation187 
Balance as of September 30, 2020$10,233 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Amortization of deferred contract acquisition costs$5,010
 $6,151
 $15,549
 $19,450
21

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Variable Consideration for Unredeemed Vouchers
In our International segment and, to a lesser extent, in our North America segment, ourFor merchant agreements havewith 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 September 30, 20192020 and December 31, 2018,2019, we constrained $16.5$41.0 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.

 We have increased our constraint on revenue from unredeemed vouchers due to variability in customer redemption behavior due to the impacts of COVID-19. In addition, the revenue we have constrained on unredeemed vouchers has increased in connection with our increased use of pay on redemption terms for our North America merchants.

22
21
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

9. RESTRUCTURING AND RELATED CHARGES
In April 2020, the Board approved a multi-phase restructuring plan of up to $105.0 million of total pretax charges related to our previously announced strategic shift and as part of the cost cutting measures implemented in response to the impact of COVID-19 on our business. We expect to incur total pretax charges of $75.0 million to $105.0 million in connection with the multi-phase restructuring actions through the end of 2021. The first phase of the restructuring actions includes an overall reduction of approximately 1,300 positions globally and the exit or discontinuation of the use of certain leases and other assets by the end of 2020. The majority of the first phase of workforce reductions and impairments of our right-of-use and other long-lived assets occurred during the second quarter 2020. In the third quarter 2020, we initiated the second phase of our restructuring plan, which included additional workforce reductions and the exit of our operations in New Zealand and Japan. The majority of our restructuring charges are expected to be paid in cash and primarily relate to employee severance and benefits expenses, facilities-related costs and impairment charges and professional advisory fees. We will continue to evaluate our cost structure, including additional workforce reductions, as part of our restructuring plan. Costs incurred related to the restructuring plan are classified as Restructuring and related charges on the condensed consolidated statements of operations.
The following table summarizes costs incurred by segment related to the restructuring plans for both the three and nine months ended September 30, 2020 (in thousands):
Three Months Ended September 30, 2020
Employee Severance and Benefit Costs (1)
Legal and Advisory CostsProperty, Equipment and Software ImpairmentsRight-of-Use Asset Impairments and Lease-related Charges (Credits)Total Restructuring Charges (Credits)
North America$1,489 $435 $70 $736 $2,730 
International14,400 18 195 3,216 17,829 
Consolidated$15,889 $453 $265 $3,952 $20,559 
(1)The employee severance and benefits costs for the three months ended September 30, 2020 are related to the termination of and planned termination of approximately 500 employees. Additional severance and benefits costs may be incurred in future periods. Substantially all of the remaining cash payments for the costs accrued as of September 30, 2020 are expected to be disbursed by the end of 2020.
Nine Months Ended September 30, 2020
Employee Severance and Benefit Costs (1)
Legal and Advisory CostsProperty, Equipment and Software ImpairmentsRight-of-Use Asset Impairments and Lease-related Charges (Credits)Total Restructuring Charges (Credits)
North America$17,548 $443 $4,790 $10,047 $32,828 
International23,041 759 227 4,182 28,209 
Consolidated$40,589 $1,202 $5,017 $14,229 $61,037 
(1)The employee severance and benefits costs for the nine months ended September 30, 2020 are related to the termination and planned termination of approximately 1,200 employees. Additional severance and benefits costs may be incurred in future periods. Substantially all of the remaining cash payments for the costs accrued as of September 30, 2020 are expected to be disbursed by the end of 2020.
As a part of our restructuring plan, we vacated several of our leased facilities, and many of those facilities are being actively marketed for sublease or we are in negotiations with the landlord to potentially terminate or modify those leases. During the nine months ended September 30, 2020, we recognized $17.2 million in restructuring charges related to the impairment of right-of-use assets and leasehold improvements related to those leases as we reduced the carrying value of the those assets to their respective fair value. See Note 2, Goodwill and Long-Lived Assets for more information. Rent expense, including amortization of the right-of-use asset and accretion of the operating lease liability, sublease income and other variable lease costs related to the leased facilities vacated as part of our restructuring plan are presented within Restructuring and related charges in the condensed consolidated statements of operations. The current and non-current liabilities associated with these leases continue to be presented within Other current liabilities and Operating lease obligations in the condensed consolidated balance sheets.
23

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes restructuring liability activity for the nine months ended September 30, 2020 (in thousands):
Employee Severance and Benefit CostsLegal and Advisory CostsTotal
Balance as of December 31, 2019 (1)
$699 $0 $699 
Charges payable in cash (2)
38,854 1,202 40,056 
Cash payments(20,319)(753)(21,072)
Foreign currency translation722 62 784 
Balance as of September 30, 2020$19,956 $511 $20,467 
(1)Amounts included in the beginning balance are related to prior restructuring plans and the liabilities under those plans have been substantially settled.
(2)Excludes stock-based compensation of $1.7 million related to accelerated vesting of stock-based compensation awards for certain employees terminated as a result of our restructuring activities during the nine months ended September 30, 2020.
24

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10. INCOME TAXES
Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items.
Provision (benefit) for income taxes and income (loss) from continuing operations before provision (benefit) for income taxes for the three and nine months ended September 30, 20192020 and 20182019 was as follows (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Provision (benefit) for income taxes$2,069
 $988
 $591
 $205
Income (loss) from continuing operations before provision (benefit) for income taxes(12,616) 48,163
 (92,909) (47,669)

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Provision (benefit) for income taxes$(486)$2,069 $(7,170)$591 
Income (loss) from continuing operations before provision (benefit) for income taxes(17,047)(12,616)(307,703)(92,909)
Our U.S. Federal income tax rate is 21%. The primary factorfactors impacting the effective tax rate for the three and nine months ended September 30, 2020 and 2019 and 2018 waswere the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. The nine months ended September 30, 2020 and 2019 were impacted by the reversals of reserves for uncertain tax positions due to the closure of tax audits. The nine months ended September 30, 2020 were also impacted by the carryback of federal net operating losses due to the income tax relief provided by the 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 nine months ended September 30, 2019 also reflected the reversal of reserves for uncertain tax positions due to the closure of a tax audit. The effective tax rate for the nine months ended September 30, 2018 also reflected a $6.4 million income tax benefit resulting from the impact of 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 $105.6 million.$119.1 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$5.8 million in unrecognized tax benefits may occur within the 12 months following September 30, 20192020 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 September 30, 20192020 and December 31, 20182019 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,In 2019, the Ninth Circuit Court of Appeals issued an opinionentered a decision 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 ofAltera then petitioned the United States Tax Court. On August 7, 2018,Supreme Court to review the Ninth CircuitCircuit's decision. In June 2020, the Supreme Court of Appeals withdrew its July 24, 2018 opinion. On June 7, 2019, the United States Court of Appeals fordenied this petition, and accordingly, the Ninth Circuit reversed the Tax CourtCircuit's Altera decision and ruled that stock-based compensation must be included in the shared pool of expenses. We dostands. The Altera decision did not expect that the ruling will have a material impact on our provision for income taxes for the year endingended December 31, 2019, dueand is not expected to have an impact for the valuation allowances against our net deferred tax assets in the related jurisdictions.

year ended December 31, 2020.

25
22
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

11. FAIR VALUE MEASUREMENTS
Fair value is defined under U.S. GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability.
To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs in valuation methodologies used to measure fair value:
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:
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. 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 we determine the fair value of each entity, we then determine the fair value 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.
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 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. Our fair value option investments were $0.0 million and $1.4 million as of September 30, 2020 and December 31, 2019.
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.

 We determined that the fair value of our contingent consideration was $0.3 million and $1.3 million as of September 30, 2020 and December 31, 2019.

26
23
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The following tables summarize assets that are measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 (in thousands):
   Fair Value Measurement at Reporting Date Using
 September 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$4,931
 $—
 $—
 $4,931
Available-for-sale securities - redeemable preferred shares10,138
 —
 —
 10,138
        
Liabilities:       
Contingent consideration1,207
 —
 —
 1,207
   Fair Value Measurement at Reporting Date Using
 December 31, 2018 Quoted Prices in Active Markets for
Identical Assets
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Assets:       
Fair value option investments$73,902
 $—
 $—
 $73,902
Available-for-sale securities - redeemable preferred shares10,340
 —
 —
 10,340
        
Liabilities:       
Contingent consideration1,529
 —
 —
 1,529



24
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The following table provides a rollforwardroll forward of the fair value of recurring Level 3 fair value measurements for the three and nine months ended September 30, 20192020 and 20182019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Assets
Fair value option investments:
Beginning Balance$0 $4,917 $1,405 $73,902 
Total gains (losses) included in earnings0 14 (1,405)(68,971)
Ending Balance$0 $4,931 $0 $4,931 
Unrealized gains (losses) still held (1)
$0 $14 $(1,405)$(68,971)
Available-for-sale securities - Redeemable preferred shares:
Beginning Balance$0 $10,201 $0 $10,340 
Total gains (losses) included in other comprehensive income (loss)0 (63)0 (202)
Ending Balance$0 $10,138 $0 $10,138 
Unrealized gains (losses) still held (1)
$0 $(63)$0 $(202)
Liabilities
Contingent Consideration:
Beginning Balance$278 $1,239 $1,298 $1,529 
Settlements of contingent consideration liabilities0 0 (908)(312)
Total losses (gains) included in earnings0 6 6 33 
Foreign currency translation13 (38)(105)(43)
Ending Balance$291 $1,207 $291 $1,207 
Unrealized gains (losses) still held (1)
$0 $6 $6 $33 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Assets       
Fair value option investments:       
Beginning Balance$4,917
 $74,898
 $73,902
 $82,966
Total gains (losses) included in earnings14
 (244) (68,971) (8,312)
Ending Balance$4,931
 $74,654
 $4,931
 $74,654
Unrealized gains (losses) still held (1)
$14
 $(244) $(68,971) $(8,312)
Available-for-sale securities       
Convertible debt securities:       
Beginning Balance$—
 $10,236
 $—
 $11,354
Proceeds from sale of convertible debt security—
 (8,594) —
 (8,594)
Transfer to other equity investment upon conversion of convertible debt security—
 (1,500) —
 (4,008)
Total gains (losses) included in other comprehensive income (loss)—
 (106) —
 (1,148)
Total gains (losses) included in earnings (2)
—
 (36) —
 2,396
Ending Balance$—
 $—
 $—
 $—
Unrealized gains (losses) still held (1)
$—
 $—
 $—
 $—
Redeemable preferred shares:       
Beginning Balance$10,201
 $9,961
 $10,340
 $15,431
Total gains (losses) included in other comprehensive income (loss)(63) 246
 (202) 246
Impairments included in earnings—
 —
 —
 (5,470)
Ending Balance$10,138
 $10,207
 $10,138
 $10,207
Unrealized gains (losses) still held (1)
$(63) $246
 $(202) $(5,224)
Liabilities       
Contingent Consideration:       
Beginning Balance$1,239
 $1,542
 $1,529
 $—
Issuance of contingent consideration in connection with acquisition—
 —
 —
 1,589
Settlements of contingent consideration liabilities—
 —
 (312) —
Total losses (gains) included in earnings6
 21
 33
 35
Foreign currency translation(38) (20) (43) (81)
Ending Balance$1,207
 $1,543
 $1,207
 $1,543
Unrealized gains (losses) still held (1)
$6
 $21
 $33
 $35

(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.
(1)Represents the unrealized gains or losses recorded in earnings and/or other comprehensive income (loss) during the period for assets and liabilities classified as Level 3 that are still held (or outstanding) at the end of the period.
(2)Represents a gain at maturity of a previously impaired convertible debt security, accretion of interest income and changes in the fair value of an embedded derivative.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets that are written down to fair value as a result of an impairment. 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 $39.6 million in non-cash impairment charges related to long-lived assets during the nine months ended September 30, 2020, of which $17.2 million is included in Restructuring and related charges on our condensed consolidated statement of operations. See Note 2, Goodwill and Long-Lived Assets, and Note 9, Restructuring and Related Charges, for additional information.
We recognized $6.7 million in impairment charges related to an other equity method investment during the nine months ended September 30, 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 nine months ended September 30, 2019. We recorded $4.7 million of impairments of other equity investments for the nine months ended September 30, 2018. To determine the fair value of the investment, we considered the financial condition of the investee2020 and applied a market approach. We classified the fair value measurement of that other equity investment as Level 3 because it involves significant


25
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

unobservable inputs. We did not record any other nonrecurring fair value measurements after initial recognition for the three and nine months ended September 30, 2018.2019.
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 September 30, 20192020 and December 31, 20182019 due to their short-term nature.
27

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
12. INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities include stock options, restricted stock units, performance share units, performance bonus awards, ESPP shares, warrants and convertible senior notes. If dilutive, those potentially dilutive securities are reflected in diluted net income (loss) per share by application ofusing the treasury stock method, except for the convertible senior notes, which are subject to the if-converted method.
The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the three and nine months ended September 30, 20192020 and 20182019 (in thousands, except share amounts and per share amounts):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Basic and diluted net income (loss) per share:       
Numerator       
Net income (loss) - continuing operations$(14,685) $47,175
 $(93,500) $(47,874)
Less: Net income (loss) attributable to noncontrolling interests2,000
 2,560
 8,080
 9,433
Net income (loss) attributable to common stockholders - continuing operations(16,685) 44,615
 (101,580) (57,307)
Net income (loss) attributable to common stockholders - discontinued operations—
 —
 2,162
 —
Net income (loss) attributable to common stockholders$(16,685) $44,615
 $(99,418) $(57,307)
Denominator       
Shares used in computation of basic net income (loss) per share566,971,238
 568,634,988
 568,339,335
 565,227,625
Weighted-average effect of dilutive securities:       
Stock options—
 171,662
 —
 —
Restricted stock units—
 7,344,425
 —
 —
Employee stock purchase plan—
 228,346
 —
 —
Shares used in computation of diluted net income (loss) per share566,971,238
 576,379,421
 568,339,335
 565,227,625
        
Basic and diluted net income (loss) per share:       
Continuing operations$(0.03) $0.08
 $(0.18) $(0.10)
Discontinued operations—
 —
 0.01 —
Basic and diluted net income (loss) per share$(0.03) $0.08
 $(0.17) $(0.10)



26
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Basic and diluted net income (loss) per share:
Numerator
Net income (loss) - continuing operations$(16,561)$(14,685)$(300,533)$(93,500)
Less: Net income (loss) attributable to noncontrolling interests(291)2,000 1,758 8,080 
Net income (loss) attributable to common stockholders - continuing operations(16,270)(16,685)(302,291)(101,580)
Net income (loss) attributable to common stockholders - discontinued operations0 0 382 2,162 
Net income (loss) attributable to common stockholders$(16,270)$(16,685)$(301,909)$(99,418)
Denominator
Weighted-average common shares outstanding28,751,520 28,348,561 28,535,393 28,416,966 
Basic and diluted net income (loss) per share:
Continuing operations$(0.57)$(0.59)$(10.59)$(3.57)
Discontinued operations00 0.010.08 
Basic and diluted net income (loss) per share$(0.57)$(0.59)$(10.58)$(3.49)
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:
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Restricted stock units35,378,166
 12,462,410
 33,148,939
 31,072,428
Other stock-based compensation awards1,561,105
 16,000
 1,630,902
 2,073,802
Convertible senior notes46,296,300
 46,296,300
 46,296,300
 46,296,300
Warrants46,296,300
 46,296,300
 46,296,300
 46,296,300
Total129,531,871
 105,071,010
 127,372,441
 125,738,830

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Restricted stock units1,907,396 1,768,908 1,879,752 1,657,446 
Performance share units and other stock-based compensation awards151,110 78,055 199,849 81,545 
Convertible senior notes2,314,815 2,314,815 2,314,815 2,314,815 
Warrants2,314,815 2,314,815 2,314,815 2,314,815 
Total6,688,136 6,476,593 6,709,231 6,368,621 
We had outstanding performance share units as of September 30, 20192020 and 20182019 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. ThereAs of September 30, 2020, there were up to 14,441,345 and 5,326,725268,654 shares of common stock issuable upon vesting of outstanding performance share units as of September 30, 2019 and 2018 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.

28
27
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

13. 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 two2 segments: North America and International. During the third quarter 2020, we changed our measure of segment profitability from operating income (loss) to contribution profit, defined as gross profit less marketing expense, which is consistent with how management reviews the operating results of the segments. Contribution profit measures the amount of marketing investment needed to generate gross profit. Other operating expenses are excluded from contribution profit as management does not review those expenses by segment. Prior period segment information has been retrospectively adjusted to reflect the change.
The following table summarizes revenue by reportable segment and category for the three and nine months ended September 30, 20192020 and 20182019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
North America
Service revenue:
Local$98,561 $175,140 $322,945 $532,599 
Goods8,787 3,000 18,401 9,841 
Travel4,748 13,680 13,722 48,746 
Total service revenue112,096 191,820 355,068 591,186 
Product revenue - Goods68,215 111,776 293,729 394,235 
Total North America revenue (1)
180,311 303,596 648,797 985,421 
International
Service revenue:
Local36,528 65,440 103,221 208,625 
Goods3,309 2,817 8,821 6,882 
Travel3,140 8,003 7,368 24,817 
Total service revenue42,977 76,260 119,410 240,324 
Product revenue - Goods80,731 115,756 305,608 380,854 
Total International revenue (1)
$123,708 $192,016 $425,018 $621,178 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
North America       
Service revenue:       
Local$175,140
 $180,059
 $532,599
 $553,340
Goods3,000
 4,021
 9,841
 12,691
Travel13,680
 17,217
 48,746
 57,189
Total service revenue191,820
 201,297
 591,186
 623,220
Product revenue - Goods111,776
 159,854
 394,235
 511,451
Total North America revenue (1)
303,596
 361,151
 985,421
 1,134,671
        
International       
Service revenue:       
Local65,440
 75,946
 208,625
 221,949
Goods2,817
 2,584
 6,882
 10,965
Travel8,003
 9,387
 24,817
 30,529
Total service revenue76,260
 87,917
 240,324
 263,443
Product revenue - Goods115,756
 143,815
 380,854
 438,705
Total International revenue (1)
$192,016
 $231,732
 $621,178
 $702,148
(1)
North America includes revenue from the United States of $297.9 million and $352.3(1)North America includes revenue from the United States of $177.3 million and $297.9 million for the three months ended September 30, 2020 and 2019, and $640.4 million and $965.9 million for the nine months ended September 30, 2020 and 2019. International includes revenue from the United Kingdom of $42.9 million and $69.4 million for the three months ended September 30, 2020 and 2019, and $151.1 million and $221.8 million for the nine months ended September 30, 2020 and 2019. There were no other individual countries that represented more than 10% of consolidated total revenue for the three and nine months ended September 30, 2020 and 2019 and 2018 and $965.9 million and $1,108.8 million for the nine months ended September 30, 2019 and 2018. International includes revenue from the United Kingdom of $69.4 million and $94.0 million for the three months ended September 30, 2019 and 2018 and $221.8 million and $268.5 million for the nine months ended September 30, 2019 and 2018. There were no other individual countries that represented more than 10% of consolidated total revenue for thethree and nine months ended September 30, 2019 and 2018. Revenue is attributed to individual countries based on the location of the customer.


29
28
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 nine months ended September 30, 20192020 and 20182019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
North America
Service gross profit:
Local$87,507 $155,032 $283,004 $473,787 
Goods7,440 2,280 14,851 7,838 
Travel3,874 10,717 9,726 38,791 
Total service gross profit98,821 168,029 307,581 520,416 
Product gross profit - Goods10,896 24,046 47,599 80,045 
Total North America gross profit109,717 192,075 355,180 600,461 
International
Service gross profit:
Local33,687 61,183 93,054 195,941 
Goods2,849 2,589 7,422 6,241 
Travel2,711 7,332 6,259 22,743 
Total service gross profit39,247 71,104 106,735 224,925 
Product gross profit - Goods11,058 14,761 36,580 50,702 
Total International gross profit$50,305 $85,865 $143,315 $275,627 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
North America       
Service gross profit:       
Local$155,032
 $159,379
 $473,787
 $491,420
Goods2,280
 3,634
 7,838
 10,565
Travel10,717
 13,801
 38,791
 46,106
Total service gross profit168,029
 176,814
 520,416
 548,091
Product gross profit - Goods24,046
 27,234
 80,045
 95,008
Total North America gross profit192,075
 204,048
 600,461
 643,099
        
International       
Service gross profit:       
Local61,183
 71,639
 195,941
 209,214
Goods2,589
 2,320
 6,241
 9,972
Travel7,332
 8,649
 22,743
 28,219
Total service gross profit71,104
 82,608
 224,925
 247,405
Product gross profit - Goods14,761
 19,333
 50,702
 64,028
Total International gross profit$85,865
 $101,941
 $275,627
 $311,433
30

The following table summarizes income (loss) from operations by reportable segment for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Income (loss) from operations (1) (2) (3):
       
North America 
$15,691
 $51,004
 $20,655
 $(19,380)
International(11,054) 2,019
 (20,962) 11,543
Total income (loss) from operations$4,637
 $53,023
 $(307) $(7,837)
(1)
Includes stock-based compensation of $16.8 million and $13.8 million for North America and $2.7 million and $1.2 million for International for the three months ended September 30, 2019 and 2018 and $55.7 million and $46.7 million for North America and $6.8 million and $3.9 million for International for the nine months ended September 30, 2019 and 2018.
(2)Includes acquisition-related (benefit) expense, net of $0.7 million for International for the nine months ended September 30, 2018.
(3)The three months ended September 30, 2018 includes a $40.4 million benefit for North America related to the settlement of the IBM patent litigation and the nine months ended September 30, 2018 includes a $34.6 million charge for North America related to the IBM patent litigation.


29
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The following table summarizes contribution profit by reportable segment for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
North America
Gross profit$109,717 $192,075 $355,180 $600,461 
Marketing19,718 45,223 73,203 162,132 
Contribution profit89,999 146,852 281,977 438,329 
International
Gross profit50,305 85,865 143,315 275,627 
Marketing11,668 29,753 43,555 95,164 
Contribution profit38,637 56,112 99,760 180,463 
Consolidated
Gross profit160,022 277,940 498,495 876,088 
Marketing31,386 74,976 116,758 257,296 
Contribution profit128,636 202,964 381,737 618,792 
Selling, general and administrative124,257 198,388 475,017 619,274 
Goodwill impairment0 0 109,486 0 
Long-lived asset impairment0 0 22,351 0 
Restructuring and related charges20,559 (61)61,037 (175)
Income (loss) from operations$(16,180)$4,637 $(286,154)$(307)
The following table summarizes total assets by reportable segment as of September 30, 20192020 and December 31, 20182019 (in thousands):
September 30, 2020December 31, 2019
Total assets:
North America (1)
$1,071,325 $1,045,500 
International (1)
278,493 541,243 
Consolidated total assets$1,349,818 $1,586,743 
(1)North America contains assets from the United States of $1,047.9 million and $1,020.0 million as of September 30, 2020 and December 31, 2019. International contains assets from Switzerland of $128.5 million and $175.2 million as of September 30, 2020 and December 31, 2019. There were no other individual countries that represented more than 10% of consolidated total assets as of September 30, 2020 and December 31, 2019.
31

 September 30, 2019 December 31, 2018
Total assets:   
North America (1)
$883,200
 $958,412
International (1)
487,502
 683,730
Consolidated total assets$1,370,702
 $1,642,142
(1)
North America contains assets from the United States of $861.2 million and $940.5 million as of September 30, 2019 and December 31, 2018. International contains assets from Ireland of $204.6 million as of December 31, 2018. Assets from Ireland were less than 10% of consolidated total assets as of September 30, 2019. There were no other individual countries that represented more than 10% of consolidated total assets as of September 30, 2019 and December 31, 2018.


30

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 Item 1A, Risk Factors and elsewhere in this Quarterly Report. See Part I, Financial Information, Forward-Looking Statements, for additional information.
Overview
Groupon operates online local commerce marketplaces in 15 countriesis a global scaled two-sided marketplace that connect merchantsconnects consumers to consumers by offering goods and services, generally at a discount.merchants. Consumers access those marketplacesour marketplace through our 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 intooperate in two segments: North America and International. For the nine months ended September 30, 2019,2020, we derived 61.3%60.4% of our revenue from our North America segment and 38.7%39.6% of our revenue from our International segment. See Item 1, Note 13, Segment Information,, for additional information. We offer goods and services through our online marketplacesoperate in three primary categories: Local, Goods and Travel.
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. OurWe earn service revenue from transactions in which we earn commissions by selling goods or services in our Local, Travel and Goods Categories on behalf of third-party merchantsmerchants. Service revenue from those transactions is reported on a net basis and equals the purchase price collectedreceived from the customer for the offering less thean agreed upon portion of the purchase price paid to the merchant. Service revenue also includes commissions that 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 through our Goods category. Our product revenue from those direct sales transactions is the purchase price received from the customer.
OurStrategy
In February 2020 we announced a strategic plan to focus is on driving long-term gross profit growth by enhancingour local experiences marketplace, which included exiting our Goods category. However, since March 2020, the customer experience, establishing GrouponCOVID-19 pandemic has led to significant disruption in our business as an open platform, continuing to realizea result of the preventative or protective actions, such as consumer restrictions and merchant closures that governments, our international potential and maintaining a culture of operational efficiency. We have developed and are testing a number of product enhancements intended to make our offerings easier to use for both customers and merchants and consumers have implemented in response to improve purchase frequency,the pandemic. The negative impact of COVID-19 on our business is expected to continue at least as long as our performance is impacted by market conditions as we rely on customers' purchases of vouchers for local experiences, including cash back offers linkedevents and activities, beauty and wellness, travel and dining. Recovery from the COVID-19 pandemic could be volatile given the unprecedented and continuously evolving nature of the situation. We continue to customer credit cards, booking capabilitiesmonitor the impact of COVID-19 on our business, including increases in government restrictions and the potential for colder weather in certain North America and International markets to further exacerbate negative trends.
In light of COVID-19, we continued to sell Goods on our platform instead of quickly exiting the category. We are shifting to a paid membership programthird-party marketplace in the Goods category and expect this transition to be substantially completed in North America Groupon Select, which offers greater discountsby the end of 2020 and on a global basis in 2021. In a third-party marketplace model, merchants assume the responsibility for fulfillment and returns. Following this transition, we will primarily generate service revenue from our offeringsGoods category, and other benefits. We have also entered into commercial agreements with third parties that enable us to feature additional merchant offerings through our marketplaces and for our inventoryGoods revenue is expected to be distributed through other marketplaces. We maintainpresented on a long-term focus on driving Internationalnet basis consistent with the Local and Travel categories. The change in presentation of revenue to achievea net basis does not impact gross profit thator income generated from operations.
In August 2020, we announced our updated strategy and plan to prioritize expanding our Local inventory and modernizing our marketplace by improving the merchant and customer experiences. While both of these are important to building a successful marketplace, we believe the most critical of these is more comparableexpanding Local inventory, and in the near term, we intend to thatdedicate a majority of North America. Our initiativesour efforts and resources to grow International include 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,growth. As COVID-19 evolves, we will continue to do so as disciplined operatorsadjust accordingly, if needed.
Restructuring and seek opportunitiesCost Reduction
During the nine months ended September 30, 2020 we took significant actions to improve our efficiency.cash position and materially reduce our cost structure. In April 2020, the Board approved a multi-phase restructuring plan related to our previously announced strategic shift and as part of the cost cutting measures implemented in response to the impact of COVID-19 on our business.
The first phase of our restructuring actions included an overall reduction of approximately 1,300 positions globally and the exit or discontinuation of the use of certain leases and other assets by the end of 2020. The majority of the first phase of workforce reductions and impairments of our right-of-use and other long-lived assets occurred during the second quarter 2020. In the third quarter 2020, we initiated the second phase of our restructuring plan, which included additional workforce reductions and the exit of our operations in New Zealand and Japan. We expect to incur total pre-tax charges of $75.0 million to $105.0 million in connection with our multi-phase restructuring plan through the end of 2021. Once fully implemented, we expect our multi-phase restructuring plan to result in $225.0 million in annualized cost savings. During the three and nine months ended September 30, 2020, we recorded $20.6 million and $61.0 million in pre-tax charges in connection with our restructuring actions. See Note 9, Restructuring and Related Charges, for more information.
In addition to the actions described above, we have taken several steps to reduce costs, preserve cash in the near-term and improve liquidity, including, but not limited to: 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; transitioning merchants to redemption payment terms, instead of fixed payment terms; implementing a hiring freeze; eliminating broad-based merit increases for employees; replacing cash compensation with equity compensation in 2020 for Board members; and amending our Credit Agreement to, among other things, provide covenant relief through the first quarter of 2021.
How We Measure Our Business
We use several financialoperating and operatingfinancial 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.


31

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 nine months ended September 30, 2019 and 2018 (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Revenue$495,612
 $592,883
 $1,606,599
 $1,836,819
Gross profit277,940
 305,989
 876,088
 954,532
Adjusted EBITDA49,997
 56,369
 143,473
 165,207
Free cash flow891
 (73,483) (181,972) (186,572)
Operating Metrics
•
•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 areunique 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


32

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,
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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 TTM ended September 30, 2019 has declined both on a year-over-year basis and sequentially from the TTM ended September 30, 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, which have led to a decrease in•Units are the number of active customers.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 expect the trend of declining active customersdo not include purchases with retailers using digital coupons accessed through our websites and mobile applications in our North America segmentunits metric. We consider units to continuebe an important indicator of the total volume of business conducted through our marketplaces. We report units on a gross basis prior to the consideration of customer refunds and therefore units are not always a good proxy for gross billings.
•Gross billings per unit are the gross billings generated per unit. We use this metric to evaluate trends in 2019units and in the average contribution to some extent, into 2020 due to ongoing traffic declines.
•
Gross billings and gross profit per active customer are the TTM gross billings and gross profit generated per active customer. We use these metrics to evaluate trends in customer spend and in the average contribution to gross billings and gross profit on a per-customergross billings on a per-unit 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 totalgross billings, units sold declined by 9.4% and 11.1%gross billings per unit for the three and nine months ended September 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 customers2020 and lower customer traffic, including traffic from email and SEO. We expect sequential improvement in year-over-year unit trends in the remainder of 2019.
Our gross billings and units for the three and nine months ended September 30, 2019 and 2018 were as follows (in thousands, except gross billings per unit amounts):
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 20182020201920202019
Gross billings$1,093,378
 $1,216,229
 $3,390,331
 $3,773,756
Gross billings$597,123 $1,093,378 $1,986,245 $3,390,331 
Units35,754
 39,450
 108,270
 121,824
Units21,410 35,754 74,208 108,270 
Gross billings per unit$30.58
 $30.83
 $31.31
 $30.98
Gross billings per unit$27.89 $30.58 $26.77 $31.31 
Our active customers gross billings per active customer and gross profit per active customer for the TTM period ended September 30, 2020 and 2019 and 2018 were as follows:
 Trailing Twelve Months Ended September 30,
 2019 2018
TTM Active customers (in thousands)45,258
 48,769
TTM Gross billings per active customer$106.49
 $109.82
TTM Gross profit per active customer$27.45
 $27.51
Factors Affecting Our Performance
Attracting and Retaining Local Merchants. As we seek to continue to build a more complete online local commerce marketplace platform, we depend on our ability to attract and retain merchants who are willing to offer discounted products and services through our marketplaces. Additionally, merchants can generally withdraw their offerings from our marketplaces at any time and their willingness to continue offering products and services through our platform depends on the effectiveness of our marketing and promotional services. We primarily source the deal offerings available on our marketplaces through our sales teams, which comprise a significant portion of our global


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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 Customer Value. We are focused on increasing the long-term value of our customer base and increasing gross profit per customer in order to grow our business. We continue to improve the customer experience on our websites and mobile applications in order to attract and retain customers. Our efforts in these areas are focused on enhancing our products, deploying targeted marketing campaigns and expanding our supply. We expect our new products, such as voucherless offerings and Groupon Select, as well as other enhancements to the customer experience to improve engagement, promote increased purchase frequency and drive customer retention. Within marketing, we are deploying strategies that allow us to leverage data to better segment our customer base and personalize the overall Groupon experience. We use online marketing, such as search engine marketing ("SEM"), and offline campaigns to educate customers on our brand and offerings. Additionally, we consider order discounts and certain other initiatives to drive customer engagement and acquisition to be marketing-related activities, even though such activities may not be presented as marketing expense in our condensed consolidated statements of operations. The traffic to our websites and mobile applications, including from consumers responding to our emails and SEO, has declined in recent years. As such, we are focused on developing sources of traffic other than email and SEO and optimizing the efficiency of our marketing spending, which is primarily guided by return on investment thresholds that are based on expected months-to-payback targets ranging from 12 to 18 months. Additionally, we are actively expanding and improving our supply in order to increase the rate at which visitors to our websites and mobile applications complete a purchase.
Investing in Growth. We have invested significantly in product and technology enhancements intended to support the growth of our online marketplaces and we intend to continue to do so in the future. We have also invested in business acquisitions to grow our merchant and customer base and advance our product and technology capabilities. We are currently developing and testing a number of product enhancements intended to make our offerings easier to use for both customers and merchants and to improve purchase frequency, including cash back offers linked to customer credit cards, booking capabilities and Groupon Select. We believe that those initiatives may be important drivers for increasing customer purchase frequency and growing our business over time. We are currently focusing our efforts on growing customer awareness of those products and scaling the related merchant base. As such, our gross profit and operating income may be adversely impacted in the near term as we focus more 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 gross billings trends in future periods. Mobile consumers, particularly those accessing our marketplaces through the mobile web, generally complete purchases at a lower rate and at lower average transaction prices than consumers accessing our marketplaces through desktop computers. As a substantial majority of our traffic comes from consumers on mobile devices, we are focused on improving the mobile experience in order to increase purchase rates. Our initiatives to improve the mobile experience include improving page speeds, enhancing our relevance algorithms, streamlining the checkout process and bringing our mobile web experience to parity with that of our mobile applications.
Managing Operating Efficiency. We are focused on effectively managing our cost structure as we seek to 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.


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Results of Operations
Gross Billings
Three Months Ended September 30, 2019 and 2018:
Gross billings by category and segment for the three months ended September 30, 2019 and 2018 were as follows (dollars in thousands):
 Three Months Ended September 30,
 2019 2018 $ Change % Change
North America       
Service gross billings:       
Local$511,173
 $534,246
 $(23,073) (4.3)%
Goods21,300
 24,503
 (3,203) (13.1)
Travel71,144
 83,991
 (12,847) (15.3)
Total service gross billings603,617
 642,740
 (39,123) (6.1)
Product gross billings - Goods111,776
 159,854
 (48,078) (30.1)
Total North America gross billings715,393
 802,594
 (87,201) (10.9)
        
International       
Service gross billings:       
Local204,823
 209,623
 (4,800) (2.3)
Goods13,308
 14,041
 (733) (5.2)
Travel44,098
 46,156
 (2,058) (4.5)
Total service gross billings262,229
 269,820
 (7,591) (2.8)
Product gross billings - Goods115,756
 143,815
 (28,059) (19.5)
Total International gross billings377,985
 413,635
 (35,650) (8.6)
Total gross billings$1,093,378
 $1,216,229
 $(122,851) (10.1)
The effect on our gross billings for the three months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Trailing Twelve Months Ended September 30,
20202019
TTM Active Customers (in thousands)34,154 45,258 
 Three Months Ended September 30, 2019
 
At Avg. Q3 2018 Rates (1)
 
Exchange Rate Effect (2)
 As Reported
Gross billings$1,110,431
 $(17,053) $1,093,378
(1)Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North AmericaFinancial Metrics
North America gross billings were 65.4%•Revenue is currently earned through product and 66.0% of total gross billings for the three months ended September 30, 2019 and 2018. North America gross billings decreased for the three months ended September 30, 2019 compared with the prior year period due to fewer customers and lower customer traffic, including traffic from email and SEO. Those decreases were partially offset by higher gross billings per unit due to a shift in mix of offerings sold.
The above factors also resulted in a decline in total units sold, which decreased to 21.8 million units for the three months ended September 30, 2019, as compared with 25.3 million units in the prior year period.


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International
International gross billings were 34.6% and 34.0% of total gross billings for the three months ended September 30, 2019 and 2018. International gross billings decreased $35.7 million for the three months ended September 30, 2019 compared with the prior year period, primarily due to weak consumer sentiment in Europe, especially in the United Kingdom, intense competition in our Goods business, a $17.0 million unfavorable impact from year-over-year changes in foreign currency rates and lower gross billings per unit due to a shift in mix of offerings sold.
Nine Months Ended September 30, 2019 and 2018:
Gross billings by category and segment for the nine months ended September 30, 2019 and 2018 were as follows (dollars in thousands):
 Nine Months Ended September 30,
 2019 2018 $ Change % Change
North America       
Service gross billings:       
Local$1,517,312
 $1,625,323
 $(108,011) (6.6)%
Goods60,833
 78,883
 (18,050) (22.9)
Travel247,256
 280,299
 (33,043) (11.8)
Total service gross billings1,825,401
 1,984,505
 (159,104) (8.0)
Product gross billings - Goods394,235
 511,451
 (117,216) (22.9)
Total North America gross billings2,219,636
 2,495,956
 (276,320) (11.1)
        
International       
Service gross billings:       
Local615,669
 630,178
 (14,509) (2.3)
Goods34,787
 56,473
 (21,686) (38.4)
Travel139,385
 152,444
 (13,059) (8.6)
Total service gross billings789,841
 839,095
 (49,254) (5.9)
Product gross billings - Goods380,854
 438,705
 (57,851) (13.2)
Total International gross billings1,170,695
 1,277,800
 (107,105) (8.4)
Total gross billings$3,390,331
 $3,773,756
 $(383,425) (10.2)
The effect on our gross billings for the nine months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
 Nine Months Ended September 30, 2019
 
At Avg. Q3 2018 YTD Rates (1)
 
Exchange Rate Effect (2)
 As Reported
Gross billings$3,462,952
 $(72,621) $3,390,331
(1)Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North America
North America gross billings were 65.5% and 66.1% of total gross billings for the nine months ended September 30, 2019 and 2018. North America gross billings decreased for the nine months ended September 30, 2019 compared with the prior year period due to fewer customers and lower customer traffic, including traffic from email and SEO. Those decreases were partially offset by higher gross billings per unit due to a shift in mix of offerings sold.
The above factors also resulted in a decline in total units sold, which decreased to 66.8 million units for the nine months ended September 30, 2019, as compared with 80.0 million units in the prior year period.


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International
International gross billings were 34.5% and 33.9% of total gross billings for the nine months ended September 30, 2019 and 2018. International gross billings decreased $107.1 million for the nine months ended September 30, 2019 compared with the prior year period, primarily due to weak consumer sentiment in Europe, especially in the United Kingdom, intense competition in our Goods business, a $72.3 million unfavorable impact from year-over-year changes in foreign currency rates and lower gross billings per unit due to a shift in mix of offerings sold.
Revenue
Three Months Ended September 30, 2019 and 2018:
Revenue by category and segment for the three months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
 Three Months Ended September 30,
 2019 2018 $ Change % Change
North America       
Service revenue:       
Local$175,140
 $180,059
 $(4,919) (2.7)%
Goods3,000
 4,021
 (1,021) (25.4)
Travel13,680
 17,217
 (3,537) (20.5)
Total service revenue191,820
 201,297
 (9,477) (4.7)
Product revenue - Goods111,776
 159,854
 (48,078) (30.1)
Total North America revenue303,596
 361,151
 (57,555) (15.9)
        
International       
Service revenue:       
Local65,440
 75,946
 (10,506) (13.8)
Goods2,817
 2,584
 233
 9.0
Travel8,003
 9,387
 (1,384) (14.7)
Total service revenue76,260
 87,917
 (11,657) (13.3)
Product revenue - Goods115,756
 143,815
 (28,059) (19.5)
Total International revenue192,016
 231,732
 (39,716) (17.1)
Total revenue$495,612
 $592,883
 $(97,271) (16.4)
The effect on revenue for the three months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
 Three Months Ended September 30, 2019
 
At Avg. Q3 2018 Rates (1)
 
Exchange Rate Effect (2)
 As Reported
Revenue$504,315
 $(8,703) $495,612
(1)Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.


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The percentage of service gross billings that we retained after deducting the merchant's share for the three months ended September 30, 2019 and 2018 was as follows:
North AmericaInternational
chart-6dcfb0d5e4615865b74.jpgchart-3b51cc63230d576a97a.jpg
North America
North America revenue was 61.3% and 60.9% of total revenue for the three months ended September 30, 2019 and 2018. North America revenue decreased$57.6 million for the three months ended September 30, 2019 compared with the prior year period, primarily driven by the decline in transaction volume and gross billings as discussed above, and a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis.
International
International revenue was 38.7% and 39.1% of total revenue for the three months ended September 30, 2019 and 2018. International revenue decreased$39.7 million for the three months ended September 30, 2019 compared with the prior year period, primarily driven by lower gross billings as discussed above, a customer shift toward lower margin offerings, a shift in our category mix from product revenue transactions, which are reported on a gross basis, towardtransactions. We earn service revenue from transactions in which arewe generate commissions by selling goods or services on behalf of third-party merchants. Service revenue from those transactions is reported on a net basis andas the purchase price collected from the customer for the offering less an $8.7 million unfavorable impactagreed 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 year-over-year changesdirect sales of merchandise inventory in foreign exchange rates.


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Nine Months Ended September 30, 2019 and 2018:
Revenue byour Goods category and segment for the nine months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
 Nine Months Ended September 30,
 2019 2018 $ Change % Change
North America       
Service revenue:       
Local$532,599
 $553,340
 $(20,741) (3.7)%
Goods9,841
 12,691
 (2,850) (22.5)
Travel48,746
 57,189
 (8,443) (14.8)
Total service revenue591,186
 623,220
 (32,034) (5.1)
Product revenue - Goods394,235
 511,451
 (117,216) (22.9)
Total North America revenue985,421
 1,134,671
 (149,250) (13.2)
        
International       
Service revenue:       
Local208,625
 221,949
 (13,324) (6.0)
Goods6,882
 10,965
 (4,083) (37.2)
Travel24,817
 30,529
 (5,712) (18.7)
Total service revenue240,324
 263,443
 (23,119) (8.8)
Product revenue - Goods380,854
 438,705
 (57,851) (13.2)
Total International revenue621,178
 702,148
 (80,970) (11.5)
Total revenue$1,606,599
 $1,836,819
 $(230,220) (12.5)
The effect on revenue for the nine months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
 Nine Months Ended September 30, 2019
 
At Avg. Q3 2018 YTD Rates (1)
 
Exchange Rate Effect (2)
 As Reported
Revenue$1,645,767
 $(39,168) $1,606,599
(1)Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.


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The percentage of service gross billings that we retained after deducting the merchant's share for the nine months ended September 30, 2019 and 2018 was as follows:
North AmericaInternational
chart-390ebc7d1e045142b13.jpgchart-6a6c96592ed0599f934.jpg
North America
North America revenue was 61.3% and 61.8% of total revenue for the nine months ended September 30, 2019 and 2018. North America revenue decreased $149.3 million for the nine months ended September 30, 2019 compared with the prior year period, primarily driven by the decline in transaction volume and gross billings as discussed above, and a shift in our category mix fromreport product revenue transactions, which are reported on a gross basis towardas the purchase price received from the customer. Following our shift to a third-party marketplace model in the Goods category, we will primarily generate service revenue transactions, which are reported on afrom our Goods category.
•Gross profit reflects the net basis.
International
Internationalmargin we earn after deducting our cost of revenue was 38.7% and 38.2%from our revenue. Due to the lack of total revenue for the nine months ended September 30, 2019 and 2018. International revenue decreased$81.0 million for the nine months ended September 30, 2019 compared with the prior year period, primarily driven by lower gross billings as discussed above, a customer shift toward lower margin offerings, a shift in our category mix fromcomparability between product revenue, transactions, which are reported on a net basis, toward service revenue transactions, which areis reported on a gross basis, and a $39.1 millionunfavorable impact from year-over-year changes in foreign exchange rates.
Cost of Revenue
Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue including credit card processing fees, editorial costs, compensation expense for technology support personnel who are responsible for maintaining the infrastructure of our websites, amortization of internal-use software relating to customer-facing applications, web hosting and other processing fees. For product revenue transactions, cost of revenue also includes the cost of inventory, shipping and fulfillment costs and inventory markdowns. Fulfillment costs are comprised of third-party logistics provider costs, as well as rent, depreciation, personnel costs and other costs of operating our fulfillment center. 


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Three Months Ended September 30, 2019 and 2018:
Cost of revenue by category and segment for the three months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
 Three Months Ended September 30,
 2019 2018 $ Change % Change
North America       
Service cost of revenue:       
Local$20,108
 $20,680
 $(572) (2.8)%
Goods720
 387
 333
 86.0
Travel2,963
 3,416
 (453) (13.3)
Total service cost of revenue23,791
 24,483
 (692) (2.8)
Product cost of revenue - Goods87,730
 132,620
 (44,890) (33.8)
Total North America cost of revenue111,521
 157,103
 (45,582) (29.0)
        
International       
Service cost of revenue:       
Local4,257
 4,307
 (50) (1.2)
Goods228
 264
 (36) (13.6)
Travel671
 738
 (67) (9.1)
Total service cost of revenue5,156
 5,309
 (153) (2.9)
Product cost of revenue - Goods100,995
 124,482
 (23,487) (18.9)
Total International cost of revenue106,151
 129,791
 (23,640) (18.2)
Total cost of revenue$217,672
 $286,894
 $(69,222) (24.1)
The effect on cost of revenue for the three months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
 Three Months Ended September 30, 2019
 
At Avg. Q3 2018 Rates (1)
 
Exchange Rate Effect (2)
 As Reported
Cost of revenue$222,461
 $(4,789) $217,672
(1)Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North America
North America cost of revenue was 51.2% and 54.8% of total cost of revenue for the three months ended September 30, 2019 and 2018. North America cost of revenue decreased$45.6 million for the three months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in transaction volume and gross billings as discussed above and a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue, transactions, which are reported on a net basis.


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International
International costprimarily consists of revenue was 48.8% and 45.2% of total cost of revenue for the three months ended September 30, 2019 and 2018. International cost of revenue decreased$23.6 million for the three months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in gross billings as discussed above, a shift in our category mix from product revenue transactions which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis, 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 net income (loss) from continuing operations, refer to our discussion under Non-GAAP Financial Measures in the $4.8 millionResults 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.
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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 favorableand impact from year-over-year changes in foreign exchange rates.Capital Resources section.
Nine Months Ended September 30, 2019 and 2018:
Cost of revenue by category and segmentThe following table presents the above financial metrics for the three and nine months ended September 30, 20192020 and 2018 was as follows (dollars in thousands):
 Nine Months Ended September 30,
 2019 2018 $ Change % Change
North America       
Service cost of revenue:       
Local$58,812
 $61,920
 $(3,108) (5.0)%
Goods2,003
 2,126
 (123) (5.8)
Travel9,955
 11,083
 (1,128) (10.2)
Total service cost of revenue70,770
 75,129
 (4,359) (5.8)
Product cost of revenue - Goods314,190
 416,443
 (102,253) (24.6)
Total North America cost of revenue384,960
 491,572
 (106,612) (21.7)
        
International       
Service cost of revenue:       
Local12,684
 12,735
 (51) (0.4)
Goods641
 993
 (352) (35.4)
Travel2,074
 2,310
 (236) (10.2)
Total service cost of revenue15,399
 16,038
 (639) (4.0)
Product cost of revenue - Goods330,152
 374,677
 (44,525) (11.9)
Total International cost of revenue345,551
 390,715
 (45,164) (11.6)
Total cost of revenue$730,511
 $882,287
 $(151,776) (17.2)
The effect on cost of revenue for the nine months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenue$304,019 $495,612 $1,073,815 1,606,599 
Gross profit160,022 277,940 498,495 876,088 
Adjusted EBITDA30,781 49,997 9,655 143,473 
Free cash flow(6,953)891 (181,166)(181,972)
 Nine Months Ended September 30, 2019
 
At Avg. Q3 2018 YTD Rates (1)
 
Exchange Rate Effect (2)
 As Reported
Cost of revenue$752,521
 $(22,010) $730,511
(1)Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.


Operating Expenses
42•

North America
North America cost of revenue was Marketing52.7% and 55.7% of total cost of revenue for the nine months ended September 30, 2019 and 2018. North America cost of revenue decreased$106.6 million for the nine months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in transaction volume and gross billings as discussed above and a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis.
International
International cost of revenue was47.3% and 44.3% of total cost of revenue for the nine months ended September 30, 2019 and 2018. International cost of revenue decreased$45.2 million for the nine months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in gross billings as discussed above, a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis, and a $22.0 millionfavorable impact from year-over-year changes in foreign exchange rates.
Gross Profit
Three Months Ended September 30, 2019 and 2018:
Gross profit by category and segment for the three months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
 Three Months Ended September 30,
 2019 2018 $ Change % Change
North America       
Service gross profit:       
Local$155,032
 $159,379
 $(4,347) (2.7)%
Goods2,280
 3,634
 (1,354) (37.3)
Travel10,717
 13,801
 (3,084) (22.3)
Total service gross profit168,029
 176,814
 (8,785) (5.0)
Product gross profit - Goods24,046
 27,234
 (3,188) (11.7)
Total North America gross profit192,075
 204,048
 (11,973) (5.9)
     

  
International    

  
Service gross profit:    

  
Local61,183
 71,639
 (10,456) (14.6)
Goods2,589
 2,320
 269
 11.6
Travel7,332
 8,649
 (1,317) (15.2)
Total service gross profit71,104
 82,608
 (11,504) (13.9)
Product gross profit - Goods14,761
 19,333
 (4,572) (23.6)
Total International gross profit85,865
 101,941
 (16,076) (15.8)
Total gross profit$277,940
 $305,989
 $(28,049) (9.2)


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The effect on gross profit for the three months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
 Three Months Ended September 30, 2019
 
At Avg. Q3 2018 Rates (1)
 
Exchange Rate Effect (2)
 As Reported
Gross profit$281,854
 $(3,914) $277,940
(1)Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North America
North America gross profit was 69.1% and 66.7% of total gross profit for the three months ended September 30, 2019 and 2018. The decrease in North America gross profit for the three months ended September 30, 2019 compared with the prior year period reflects a decline in transaction volume and gross billings as discussed above.
International
International gross profit was 30.9% and 33.3% of total gross profit for the three months ended September 30, 2019 and 2018. The decrease in International gross profit for the three months ended September 30, 2019 compared with the prior year period was primarily attributable to lower gross billings as discussed above, a customer shift toward lower margin offerings and a $3.9 millionunfavorable impact from year-over-year changes in foreign exchange rates.
Nine Months Ended September 30, 2019 and 2018:
Gross profit by category and segment for the nine months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
 Nine Months Ended September 30,
 2019 2018 $ Change % Change
North America       
Service gross profit:       
Local$473,787
 $491,420
 $(17,633) (3.6)%
Goods7,838
 10,565
 (2,727) (25.8)
Travel38,791
 46,106
 (7,315) (15.9)
Total service gross profit520,416
 548,091
 (27,675) (5.0)
Product gross profit - Goods80,045
 95,008
 (14,963) (15.7)
Total North America gross profit600,461
 643,099
 (42,638) (6.6)
        
International       
Service gross profit:       
Local195,941
 209,214
 (13,273) (6.3)
Goods6,241
 9,972
 (3,731) (37.4)
Travel22,743
 28,219
 (5,476) (19.4)
Total service gross profit224,925
 247,405
 (22,480) (9.1)
Product gross profit - Goods50,702
 64,028
 (13,326) (20.8)
Total International gross profit275,627
 311,433
 (35,806) (11.5)
Total gross profit$876,088
 $954,532
 $(78,444) (8.2)


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The effect on gross profit for the nine months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
 Nine Months Ended September 30, 2019
 
At Avg. Q3 2018 YTD Rates (1)
 
Exchange Rate Effect (2)
 As Reported
Gross profit$893,246
 $(17,158) $876,088
(1)Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North America
North America gross profit was 68.5% and 67.4% of total gross profit for the nine months ended September 30, 2019 and 2018. The decrease in North America gross profit for the nine months ended September 30, 2019 compared with the prior year period reflects a decline in transaction volume and gross billings as discussed above.
International
International gross profit was 31.5% and 32.6% of total gross profit for the nine months ended September 30, 2019 and 2018. The decrease in International gross profit for the nine months ended September 30, 2019 compared with the prior year period was primarily attributable to lower gross billings as discussed above, a customer shift toward lower margin offerings and a $17.1 million unfavorable impact from year-over-year changes in foreign exchange rates.
Marketing
Marketing expense consists primarily of online marketing costs, such as search engine marketing, advertising on social networking sites and affiliate programs, and offline marketing costs, such as television and radio advertising. Additionally, compensation expense for marketing employees is classified within marketing expense. We record these costs within Marketing on the condensed consolidated statements of operations when incurred. From time to time, we offer deals withhave offerings from well-known national merchants for customer acquisition and activation purposes, for which the amount we owe the merchant for each voucher sold exceeds the transaction price paid by the customer. Our gross billings from those transactions generate no service revenue and our net cost (i.e., the excess of the amount owed to the merchant over the amount paid by the customer) is classified as marketing expense. We evaluate marketing expense as a percentage of gross profit because it gives us an indication of how well our marketing spend is driving gross profit performance.
Three Months Ended September 30, 2019 and 2018:
Marketing expense by segment as a percentage of gross profit for the three months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
 Three Months Ended September 30,
 2019 % of Gross Profit 2018 % of Gross Profit $ Change % Change
Marketing:           
North America$45,223
 23.5% $60,296
 29.5% $(15,073) (25.0)%
International29,753
 34.7
 32,421
 31.8
 (2,668) (8.2)
Total marketing$74,976
 27.0
 $92,717
 30.3
 $(17,741) (19.1)
North America
North America segment marketing expense was •60.3% and 65.0% of total marketing expense for the three months ended September 30, 2019 and 2018. North America marketing expense and marketing expense as a percentage of gross profit for the three months ended September 30, 2019 decreased from the prior year period as we leveraged improved marketing analytics to drive efficiency in our marketing spend and maximize the lifetime value


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of our customer base. We also decreased our offline marketing spend as we are currently in the process of adapting our brand strategy to better support our evolving marketplace.
International
International segment marketing expense was 39.7% and 35.0% of total marketing expense for the three months ended September 30, 2019 and 2018. The decrease in International marketing expense for the three months ended September 30, 2019 compared with the prior year period was primarily attributable to a $1.2 millionfavorable impact from year-over-year changes in foreign exchange rates.
Nine Months Ended September 30, 2019 and 2018:
Marketing expense by segment as a percentage of gross profit for the nine months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
 Nine Months Ended September 30,
 2019 % of Gross Profit 2018 % of Gross Profit $ Change % Change
Marketing:           
North America$162,132
 27.0% $198,149
 30.8% $(36,017) (18.2)%
International95,164
 34.5
 87,902
 28.2
 7,262
 8.3
Total marketing$257,296
 29.4
 $286,051
 30.0
 $(28,755) (10.1)
North America
North America segment marketing expense was 63.0% and 69.3% of total marketing expense for the nine months ended September 30, 2019 and 2018. North America marketing expense and marketing expense as a percentage of gross profit for the nine months ended September 30, 2019 decreased from the prior year period as we leveraged improved marketing analytics to drive efficiency in our marketing spend and maximize the lifetime value of our customer base. We also decreased our offline marketing spend as we are currently in the process of adapting our brand strategy to better support our evolving marketplace.
International
International segment marketing expense was 37.0% and 30.7% of total marketing expense for the nine months ended September 30, 2019 and 2018. International marketing expense and marketing expense as a percentage of gross profit for the nine months ended September 30, 2019 increased from the prior year period as we continued to invest in the long-term potential of the International segment. The increase in marketing expense was partially offset by a $5.5 millionfavorable impact from year-over-year changes in foreign exchange rates.
Selling, General, and Administrative
Selling expenses reported within Selling, general and administrative ("SG&A") on the condensed consolidated statements of operations consist ofexpenses include selling expenses such as sales commissions and other compensation expenses for sales representatives, as well as costs associated with supporting the sales function such as technology, telecommunications and travel. General and administrative expenses include compensation expense for employees involved in customer service, operations, technology and product development, as well as general corporate functions, such as finance, legal and human resources. Additional costs included in general and administrative include depreciation and amortization, rent, professional fees, litigation costs, travel and entertainment, recruiting, office supplies, maintenance, certain technology costs and other general corporate costs. We evaluate SG&A expense as a percentage of gross profit because it gives us an indication of our operating efficiency.

•Restructuring and related charges represent severance and benefit costs for workforce reductions, impairments of long-lived assets and other exit costs resulting from our restructuring activities. See Note 9, Restructuring and Related Charges, for information about our restructuring plan.
Factors Affecting Our Performance
Attracting and retaining local merchants. As we focus on our local experiences marketplace, we depend on our ability to attract and retain merchants who are willing to offer their experiences on our platform. Merchants can generally withdraw their offerings from our marketplace at any time, and their willingness to continue offering services through our marketplace depends on the effectiveness of our marketing and promotional services. Since the widespread economic impacts of COVID-19 began in March 2020, we are prioritizing opportunities to help drive demand for our merchants and highlighting offers that customers can enjoy right now. In addition to offerings that we can highlight during COVID-19, we have been able to drive demand to certain local merchants that are staying open. As we continue to navigate through the volatility of the COVID-19 recovery period, we intend to take a market by market approach to attracting and retaining local merchants.
Driving purchase frequency and retaining customers. In light of significant declines in consumer demand for local and travel services due to COVID-19, we must highlight offers that customers can enjoy right now in order to drive purchase frequency and retain customers. This includes surfacing the relevant Local inventory in each market depending on the government restrictions currently in place and continuing to leverage our Goods category in the near-term. We must also continue to improve the customer experience on our websites and

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mobile applications, launch innovative products that remove friction from the customer journey, and grow our high-quality, bookable inventory.
Increasing traffic to our websites and mobile applications. The traffic to our websites and mobile applications, including from consumers responding to our emails and search engine optimization ("SEO"), has declined in recent years, and we have experienced further declines in traffic due to the impacts of COVID-19. As such, we must focus on improving the effectiveness of our emails, as well as developing sources of traffic in addition to email and SEO and optimizing the efficiency of our marketing spending, which historically was guided by return on investment thresholds based on expected months-to-payback targets ranging from 12 to 18 months. In light of COVID-19, we significantly shortened our payback thresholds.
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Results of Operations
North America
Operating Metrics
North America segment gross billings and units for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages and gross billings per unit):
Three Months Ended September 30,Nine Months Ended September 30,
20202019% Change20202019% Change
Gross billings
Service gross billings:
Local$230,422 $511,173 (54.9)%790,486 $1,517,312 (47.9)%
Goods40,299 21,300 89.2 88,713 60,833 45.8 
Travel23,373 71,144 (67.1)68,557 247,256 (72.3)
Total service gross billings294,094 603,617 (51.3)947,756 1,825,401 (48.1)
Product gross billings - Goods68,215 111,776 (39.0)293,729 394,235 (25.5)
Total gross billings$362,309 $715,393 (49.4)1,241,485 $2,219,636 (44.1)
Units
Local8,148 16,332 (50.1)%28,151 48,773 (42.3)%
Goods4,428 5,080 (12.8)15,166 16,847 (10.0)
Travel151 355 (57.5)542 1,187 (54.3)
Total units12,727 21,767 (41.5)43,859 66,807 (34.3)
Gross billings per unit$28.47$32.87(13.4)%$28.31$33.22(14.8)%
North America TTM active customers for the trailing twelve months ended September 30, 2020 were as follows (in thousands):
Trailing Twelve Months Ended September 30,
20202019% Change
TTM Active customers20,246 27,747 (27)%
Comparison of the Three Months Ended September 30, 2020 and 2019:
North America gross billings and units declined by $353.1 million and 9.0 million for the three months ended September 30, 2020. TTM active customers declined by 7.5 million for the three months ended September 30, 2020. These declines were primarily due to the significant decrease in consumer demand as governmental measures were in place to control the spread of COVID-19, including quarantines, travel restrictions, as well as business restrictions and shutdowns. Gross billings per unit were adversely impacted by an increase in Local customer refunds.
Comparison of the Nine Months Ended September 30, 2020 and 2019:
North America gross billings and units declined by $978.2 million and 22.9 million for the nine months ended September 30, 2020. These declines were primarily due to the significant decrease in consumer demand as governmental measures were implemented to control the spread of COVID-19, including quarantines, travel restrictions, as well as business restrictions and shutdowns. Gross billings per unit were adversely impacted by a shift in mix of offerings sold and increase in Local customer refunds.
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Financial Metrics
North America segment revenue, cost of revenue and gross profit for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20202019% Change20202019% Change
Revenue
Service revenue
Local$98,561 $175,140 (43.7)%$322,945 $532,599 (39.4)%
Goods8,787 3,000 192.9 18,401 9,841 87.0 
Travel4,748 13,680 (65.3)13,722 48,746 (71.8)
Total service revenue112,096 191,820 (41.6)355,068 591,186 (39.9)
Product revenue - Goods68,215 111,776 (39.0)293,729 394,235 (25.5)
Total revenue$180,311 $303,596 (40.6)$648,797 $985,421 (34.2)
Cost of revenue
Service cost of revenue
Local$11,054 $20,108 (45.0)%$39,941 $58,812 (32.1)%
Goods1,347 720 87.1 3,550 2,003 77.2 
Travel874 2,963 (70.5)3,996 9,955 (59.9)
Total service cost of revenue13,275 23,791 (44.2)47,487 70,770 (32.9)
Product cost of revenue - Goods57,319 87,730 (34.7)246,130 314,190 (21.7)
Total cost of revenue$70,594 $111,521 (36.7)$293,617 $384,960 (23.7)
Gross profit
Service gross profit
Local$87,507 $155,032 (43.6)%$283,004 $473,787 (40.3)%
Goods7,440 2,280 226.3 14,851 7,838 89.5 
Travel3,874 10,717 (63.9)9,726 38,791 (74.9)
Total service gross profit98,821 168,029 (41.2)307,581 520,416 (40.9)
Product gross profit - Goods10,896 24,046 (54.7)47,599 80,045 (40.5)
Total gross profit$109,717 $192,075 (42.9)$355,180 $600,461 (40.8)
Service margin (1)
38.1 %31.8 %37.5 %32.4 %
% of Consolidated revenue59.3 %61.3 %60.4 %61.3 %
% of Consolidated cost of revenue49.0 51.2 51.0 52.7 
% of Consolidated gross profit68.6 69.1 71.3 68.5 
(1)     Represents the percentage service gross billings that we retained after deducting the merchant's share from revenue.
Comparison of the Three Months Ended September 30, 2020 and 2018:2019:
SG&ANorth America revenue and gross profit decreased by $123.3 million and $82.4 million for the three months ended September 30, 2020. Those decreases were primarily driven by a decline in gross billings and transaction volume due to the impacts of COVID-19. Revenue also declined due to the ongoing transition of Goods to a third party marketplace model. In a third party marketplace model, we generate service revenue which is presented on a net basis. The increase in service margin was due to a shift in mix of offerings sold and higher variable consideration from unredeemed vouchers due to our shift towards payment on redemption terms in North America.
Cost of revenue decreased by $40.9 million for the three months ended September 30, 2020 primarily due to the decrease in transaction volume and gross billings and the impacts of the ongoing transition of Goods to a third party marketplace model.
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Comparison of the Nine Months Ended September 30, 2020 and 2019:
North America revenue and gross profit decreased by $336.6 million and $245.3 million for the nine months ended September 30, 2020. Those decreases were primarily driven by a decline in gross billings and transaction volume due to the impacts of COVID-19. The increase in service margin was due to a shift in mix of offerings sold and higher variable consideration from unredeemed vouchers due to our shift towards payment on redemption terms in North America. Revenue also declined due to the ongoing transition of Goods to a third party marketplace model. In a third party marketplace model, we generate service revenue which is presented on a net basis.
Cost of revenue decreased by $91.3 million for the nine months ended September 30, 2020 primarily due to the decrease in transaction volume and gross billings and the impacts of the ongoing transition of Goods to a third party marketplace model.
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Marketing and Contribution Profit
We define contribution profit as gross profit less marketing expense. North America contribution profit for the three and nine months ended September 30, 2020 and 2019 was as follows (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20202019% Change20202019% Change
Marketing$19,718 $45,223 (56.4)%$73,203 $162,132 (54.8)%
% of Gross profit:18.0 %23.5 %20.6 %27.0 %
Contribution profit$89,999 $146,852 (38.7)%$281,977 $438,329 (35.7)%
Comparison of the Three Months Ended September 30, 2020 and 2019:
North America marketing expense and marketing expense as a percentage of gross profit declined for the three months ended September 30, 2020 due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our offline marketing and brand spend in light of COVID-19.
The decline in our North America contribution profit for the three months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
 Three Months Ended September 30,
 2019 % of Gross Profit 2018 % of Gross Profit $ Change % Change
Selling, general and administrative$198,327
 71.4% $160,249
 52.4% $38,078
 23.8%
The increase in SG&A for the three months ended September 30, 2019 as compared with the prior year period2020 was primarily attributable to a $40.4$82.4 million benefit recordeddecrease in the three months ended September 30, 2018 related to the settlement of our patent litigation case with IBM,gross profit, as discussed above, partially offset by a $25.5 million decrease in marketing.
Comparison of the following:
•
a $3.9 millionfavorable impact from year-over-year changes in foreign currency exchange rates; and
decreases in compensation-related costs, facilities costs and other general expenses.
Nine Months Ended September 30, 20192020 and 2018:2019:
SG&ANorth America marketing expense and marketing expense as a percentage of gross profit declined for the nine months ended September 30, 2020 due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our offline marketing and brand spend in light of COVID-19.
The decline in our North America contribution profit for the nine months ended September 30, 2020 was primarily attributable to a $245.3 million decrease in gross profit, as discussed above, partially offset by a $88.9 million decrease in marketing.
International
Operating Metrics
International segment gross billings and units for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages and 2018gross billings per unit):
Three Months Ended September 30,Nine Months Ended September 30,
20202019% Change20202019% Change
Gross billings
Service gross billings:
Local$113,105 $204,823 (44.8)%$332,403 $615,669 (46.0)%
Goods15,151 13,308 13.8 45,322 34,787 30.3 
Travel25,827 44,098 (41.4)61,427 139,385 (55.9)
Total service gross billings154,083 262,229 (41.2)439,152 789,841 (44.4)
Product gross billings - Goods80,731 115,756 (30.3)305,608 380,854 (19.8)
Total gross billings$234,814 $377,985 (37.9)$744,760 $1,170,695 (36.4)
Units
Local4,171 8,241 (49.4)%13,217 23,814 (44.5)%
Goods4,320 5,415 (20.2)16,627 16,616 0.1 
Travel192 331 (42.0)505 1,033 (51.1)
Total units8,683 13,987 (37.9)30,349 41,463 (26.8)
Gross billings per unit$27.04$27.020.1 %$24.54$28.23(13.1)%
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International TTM active customers for the trailing twelve months ended September 30, 2020 were as followings (in thousands):
Trailing Twelve Months Ended September 30,
20202019% Change
TTM Active customers13,908 17,511 (20.6)%
Comparison of the Three Months Ended September 30, 2020 and 2019:
International gross billings and units decreased by $143.2 million and 5.3 million for the three months ended September 30, 2020. TTM active customers declined by 3.6 million for the three months ended September 30, 2020. These declines were primarily due to the significant decrease in consumer demand as governmental measures were implemented to control the spread of COVID-19, including quarantines, travel restrictions, as well as business restrictions and shutdowns. The decline in gross billings was partially offset by a $13.2 million favorable impact from year-over-year changes in foreign currency exchange rates.
Comparison of the Nine Months Ended September 30, 2020 and 2019:
International gross billings and units decreased by $425.9 million and 11.1 million for the nine months ended September 30, 2020. These declines were primarily due to the significant decrease in consumer demand as governmental measures were implemented to control the spread of COVID-19, including quarantines, travel restrictions, as well as business restrictions and shutdowns, and a decline in gross billings per unit due to a shift in mix of offerings sold and an increase in Local customer refunds. The decline in gross billings was partially offset by an $11.2 million favorable impact from year-over-year changes in foreign currency exchange rates.
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Financial Metrics
International segment revenue, cost of revenue and gross profit for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20202019% Change20202019% Change
Revenue
Service revenue:
Local$36,528 $65,440 (44.2)%$103,221 $208,625 (50.5)%
Goods3,309 2,817 17.5 8,821 6,882 28.2 
Travel3,140 8,003 (60.8)7,368 24,817 (70.3)
Total service revenue42,977 76,260 (43.6)119,410 240,324 (50.3)
Product revenue - Goods80,731 115,756 (30.3)305,608 380,854 (19.8)
Total revenue$123,708 $192,016 (35.6)$425,018 $621,178 (31.6)
Cost of revenue
Service cost of revenue:
Local$2,841 $4,257 (33.3)%$10,167 $12,684 (19.8)%
Goods460 228 101.8 1,399 641 118.3 
Travel429 671 (36.1)1,109 2,074 (46.5)
Total service revenue3,730 5,156 (27.7)12,675 15,399 (17.7)
Product cost of revenue - Goods69,673 100,995 (31.0)269,028 330,152 (18.5)
Total cost of revenue$73,403 $106,151 (30.9)$281,703 $345,551 (18.5)
Gross profit
Service gross profit:
Local$33,687 $61,183 (44.9)%$93,054 $195,941 (52.5)%
Goods2,849 2,589 10.0 7,422 6,241 18.9 
Travel2,711 7,332 (63.0)6,259 22,743 (72.5)
Total service gross profit39,247 71,104 (44.8)106,735 224,925 (52.5)
Product gross profit - Goods11,058 14,761 (25.1)36,580 50,702 (27.9)
Total gross profit$50,305 $85,865 (41.4)$143,315 $275,627 (48.0)
Service margin (1)
27.9 %29.1 %27.2 %30.4 %
% of Consolidated revenue40.7 %38.7 %39.6 %38.7 %
% of Consolidated cost of revenue51.0 48.8 49.0 47.3 
% of Consolidated gross profit31.4 30.9 28.7 31.5 
(1)     Represents the percentage of service gross billings that we retained after deducting the merchant's share from revenue.
Comparison of the Three Months Ended September 30, 2020 and 2019
International revenue and gross profit decreased by $68.3 million and $35.6 million for the three months ended September 30, 2020. Those decreases were primarily driven by a decline in gross billings due to the impacts of COVID-19 as discussed above and the decline in International revenue was also impacted by a decline in Goods product revenue, which is presented on a gross basis. The decreases in revenue and gross profit were partially offset by favorable impacts of $7.0 million and $2.8 million from year-over-year changes in foreign currency exchange rates.
Cost of revenue decreased by $32.7 million for the three months ended September 30, 2020 primarily due to the decrease in transaction volume and gross billings, partially offset by a $4.2 million unfavorable impact from year-over-year changes in foreign currency exchange rates.
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Comparison of the Nine Months Ended September 30, 2020 and 2019:
International revenue and gross profit decreased by $196.2 million and $132.3 million for the nine months ended September 30, 2020. Those decreases were primarily driven by a decline in gross billings due to the impacts of COVID-19 as discussed above and the decline in International revenue was also impacted by a decline in Goods product revenue, which is presented on a gross basis. The decreases in revenue and gross profit were partially offset by favorable impacts of $5.8 million and $2.6 million from year-over-year changes in foreign currency exchange rates.
Cost of revenue decreased by $63.8 million for the nine months ended September 30, 2020 primarily due to the decrease in transaction volume and gross billings, partially offset by a $3.2 million unfavorable impact from year-over-year changes in foreign currency exchange rates.
Marketing and Contribution Profit
International marketing and contribution profit for the three and nine months ended September 30, 2020 and 2019 was as follows (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20202019% Change20202019% Change
Marketing$11,668 $29,753 (60.8)%$43,555 $95,164 (54.2)%
% of Gross profit:23.2 %34.7 %30.4 %34.5 %
Contribution profit$38,637 $56,112 (31.1)%$99,760 $180,463 (44.7)%
 Nine Months Ended September 30,
 2019 % of Gross Profit 2018 % of Gross Profit $ Change % Change
Selling, general and administrative$619,099
 70.7% $676,318
 70.9% $(57,219) (8.5)%
The decrease in SG&A forComparison of the nine months ended September 30, 2019 as compared with the prior year period was attributable to the following:
a $75.0 million charge recorded in the second quarter 2018 as a result of a jury award related to a patent litigation case with IBM. That charge was subsequently reduced by $40.4 million in the third quarter 2018 upon execution of settlement and license agreements with IBM;
•
a $15.1 millionfavorable impact from year-over-year changes in foreign currency exchange rates; and
decreases in compensation-related costs, facilities costs, system costs and other general expenses.
Income (Loss) from Operations
Three Months Ended September 30, 20192020 and 2018:2019:
Income (loss) from operations by segmentInternational marketing expense and marketing expense as a percentage of gross profit declined for the three months ended September 30, 20192020 due to accelerated traffic declines, significantly shortened payback thresholds and 2018 was as follows (dollarslower investment in thousands):our offline marketing and brand spend in light of COVID-19, partially offset by a $0.6 million unfavorable impact from year-over-year changes in foreign currency exchange rates.
 Three Months Ended September 30,
 2019 2018 $ Change % Change
Income (loss) from operations       
North America$15,691
 $51,004
 $(35,313) (69.2)%
International(11,054) 2,019
 (13,073) (647.5)
Total income (loss) from operations$4,637
 $53,023
 $(48,386) (91.3)
North America
The decrease in our income from operationsInternational contribution profit for the three months ended September 30, 2020 was primarily attributable to a $38.4$35.6 millionincrease in SG&A and a $12.0 million decrease in gross profit, partially offset by a $15.1$18.1 milliondecrease in marketing expense.marketing.


47

Comparison of the Nine Months Ended September 30, 2020 and 2019:
International
The decrease marketing expense and marketing expense as a percentage of gross profit declined for the nine months ended September 30, 2020 due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our incomeoffline marketing and brand spend in light of COVID-19, partially offset by a $0.4 million unfavorable impact from operationsyear-over-year change in foreign currency exchange rates.
The decrease in International contribution profit for the nine months ended September 30, 2020 was primarily attributable to a $16.1$132.3 million decrease in gross profit, partially offset by a $51.6 million decrease in marketing.

42
$2.7 million

decrease
Operating Expenses
Operating expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20202019% Change20202019% Change
Marketing$31,386 $74,976 (58.1)%$116,758 $257,296 (54.6)%
Selling, general and administrative124,257 198,388 (37.4)475,017 619,274 (23.3)
Goodwill impairment— — — 109,486 — — 
Long-lived asset impairment— — — 22,351 — — 
Restructuring and related charges20,559 (61)NM61,037 (175)NM
Total Operating expenses$176,202 $273,303 (35.5)%$784,649 $876,395 (10.5)%
% of Gross profit:
Marketing19.6 %27.0 %23.4 %29.4 %
Selling, general and administrative77.6 %71.4 %95.3 %70.7 %
Comparison of the Three Months Ended September 30, 2020 and 2019:
Marketing expense and marketing expense as a percentage of gross profit declined for the three months ended September 30, 2020 due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our offline marketing and brand spend in light of COVID-19, partially offset by a $0.6 million unfavorable impact from year-over-year change in foreign currency exchange rates.
SG&A decreased for the three months ended September 30, 2020 primarily due to lower payroll-related expenses due to furloughs and restructuring actions, partially offset by a $2.2 million unfavorable impact from year-over-year changes in foreign currency exchange rates. SG&A as a percentage of gross profit increased for the three months ended September 30, 2020 due to the decline in demand and traffic as a result of COVID-19.
Restructuring and related charges for the three months ended September 30, 2020 represent severance and benefit costs for workforce reductions, impairments of long-lived assets and lease terminations and other exit costs resulting from our restructuring activities. See Note 9, $0.3 millionRestructuring and Related Chargesdecrease in SG&A., for more information.
Comparison of the Nine Months Ended September 30, 20192020 and 2018:2019:
Income (loss) from operations by segmentMarketing expense and marketing expense as a percentage of gross profit declined for the nine months ended September 30, 20192020 due to accelerated traffic declines, significantly shortened payback thresholds and 2018 was as follows (dollars in thousands):
 Nine Months Ended September 30,
 2019 2018 $ Change % Change
Income (loss) from operations       
North America$20,655
 $(19,380) $40,035
 206.6 %
International(20,962) 11,543
 (32,505) (281.6)
Total income (loss) from operations$(307) $(7,837) $7,530
 96.1
North America
The increaselower investment in our income from operations was primarily attributable to a $46.7 milliondecreaseoffline marketing and brand spend in SG&A and a $36.0 milliondecrease in marketing expense,light of COVID-19, partially offset by a $42.6$0.4 milliondecrease unfavorable impact from year-over-year change in gross profit.foreign currency rates.
International
The decrease in our income from operations wasSG&A decreased for the nine months ended September 30, 2020 primarily attributabledue to a $7.3 millionincrease in marketing expenselower payroll-related expenses due to furloughs and a $35.8 milliondecrease in gross profit,restructuring actions, partially offset by a $1.2 million unfavorable impact from year-over-year changes in foreign currency exchange rates. SG&A as a percentage of gross profit increased for the nine months ended September 30, 2020 due to the decline in demand and traffic as a result of COVID-19.
During the first quarter 2020, we performed an interim quantitative assessment of goodwill and long-lived assets as a result of significant deterioration in our financial performance due to the impact of COVID-19. As a result, we recognized goodwill impairment of $109.5 million, that represented the excess of the EMEA reporting unit's carrying value over its fair value, and long-lived asset impairment of $22.4 million for the nine months ended September 30, 2020. See Note 2, $10.6 millionGoodwill and Long-Lived Assets, decrease in SG&A.for additional information about goodwill and long-lived asset impairments.
Restructuring and related charges for the nine months ended September 30, 2020 represent severance and benefit costs for workforce reductions, impairments of long-lived assets and lease terminations and other exit costs resulting from our restructuring activities. See Note 9, Restructuring and Related Charges, for more information.
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Other Income (Expense), Net
Other income (expense), net includes interest income, interest expense, gains and losses on fair value option investments, adjustments for observable price changes of investments, impairments of investments and foreign currency gains and losses, primarily resulting from intercompany balances with our subsidiaries that are denominated in foreign currencies.
Other income (expense), net for the three and nine months ended September 30, 2020 and 2019 was as follows (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Interest income$1,268 $1,959 $5,254 $5,810 
Interest expense(9,408)(6,029)(24,375)(17,162)
Changes in fair value of investments— 14 (1,405)(68,971)
Foreign currency gains (losses), net7,273 (13,197)5,661 (12,279)
Impairment of investment— — (6,684)— 
Other income (expense), net$(867)$(17,253)$(21,549)$(92,602)
Comparison of the Three Months Ended September 30, 20192020 and 2018:2019:
The change in Other income (expense), net for the three months ended September 30, 20192020 as compared with the prior year period is primarily related to a change in foreign currency gains and 2018 was as follows (dollars in thousands):
 Three Months Ended September 30,
 2019 2018 $ Change % Change
Other income (expense), net$(17,253) $(4,860) $(12,393) (255.0)%
Other income (expense), net for the three months ended September 30, 2019 primarily consistedlosses of the following:
•
$6.0$20.5 million, of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and
•
$12.8 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.
Those items were partially offset by $2.0a $3.4 million increase in interest income.expense.


48

Other income (expense), net for the three months ended September 30, 2018 primarily consistedComparison of the following:
•
$5.7 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and
$1.0 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.
Those items were partially offset by $1.5 million in interest income.
Nine Months Ended September 30, 20192020 and 2018:2019:
The change in Other income (expense), net for the nine months ended September 30, 20192020 as compared with the prior year period is primarily related to a $67.6 million decrease in losses from changes in our fair value of investments and 2018 was as follows (dollarsa change in thousands):
 Nine Months Ended September 30,
 2019 2018 $ Change % Change
Other income (expense), net$(92,602) $(39,832) $(52,770) (132.5)%
Other income (expense), net for the nine months ended September 30, 2019 primarily consistedforeign currency gains and losses of the following:
•
$69.0$17.9 million, of net losses on our fair value option investments. See Item 1, Note 3, Investments, for additional information;
•
$17.2 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and
•
$11.9 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.
Those items were partially offset by $5.8a $6.7 million impairment of an other equity investment and a $7.2 million increase in interest income.expense.
Other income (expense), net for the nine months ended September 30, 2018 primarily consisted of the following:
•
$16.4 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information;
$12.2 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies;
•
$10.2 million of impairments of minority investments. See Item 1, Note 3, Investments, for additional information; and
•
$8.3 million of losses on fair value option investments. See Item 1, Note 3, Investments, for additional information.
Those items were partially offset by $4.9 million in interest income and a $2.4 million gain on an embedded derivative related to an available-for-sale security.
Provision (Benefit) for Income Taxes
Three Months Ended September 30, 2019 and 2018:
Provision (benefit) for income taxes for the three and nine months ended September 30, 20192020 and 20182019 was as follows (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20202019% Change20202019% Change
Provision (benefit) for income taxes$(486)$2,069 (123.5)%$(7,170)$591 (1,313.2)%
Effective tax rate2.9 %(16.4)%2.3 %(0.6)%
 Three Months Ended September 30,
 2019 2018 $ Change % Change
Provision (benefit) for income taxes$2,069
 $988
 $1,081
 109.4%
Effective tax rate(16.4)% 2.1%    


49

Comparison of the Three Months Ended September 30, 2020 and 2019:
Our U.S. federal income tax rate is 21%. The primary factorfactors impacting the effective tax rate for the three months ended September 30, 2020 and 2019 and 2018 waswere the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. See Item 1, Note 10, Income Taxes, for additional information relating to tax audits and assessments and regulatory and legal developments that may impact our business and results of operations in the future.
Comparison of the Nine Months Ended September 30, 20192020 and 2018:2019:
Provision (benefit) for income taxes for the nine months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
 Nine Months Ended September 30,
 2019 2018 $ Change % Change
Provision (benefit) for income taxes$591
 $205
 $386
 188.3%
Effective tax rate(0.6)% (0.4)%    
Our U.S. federal income tax rate is 21%. The primary factorfactors impacting the effective tax rate for the nine months ended September 30, 2020 and 2019 and 2018 waswere the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. The effective tax rate forassets and the nine months ended September 30, 2019 also reflected the reversalreversals of reserves for uncertain tax positions due to the closure of a tax audit.audits. The effective tax rate for the nine months ended September 30, 20182020 were also reflected a $6.4 million impacted by the carryback of federal net operating losses due to the
44


income tax benefit resulting fromrelief provided by the impact of Topic 606 on intercompany activity in certain foreign jurisdictions.Coronavirus Aid, Relief, and Economic Security Act ("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 raterates as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. See Item 1, Note 10, Income Taxes, for additional information relating to tax audits and assessments and regulatory and legal developments that may impact our business and resultsresult of operations in the future.future.


45
50

Non-GAAP Financial Measures
In addition to financial results reported in accordance with U.S. GAAP, we have provided the following non-GAAP financial measures: Adjusted EBITDA, free cash flow and foreign currency exchange rate neutral operating results. Those non-GAAP financial measures, which are presented on a continuing operations basis, are intended to aid investors in better understanding our current financial performance and prospects for the future as seen through the eyes of management. We believe that those non-GAAP financial measures facilitate comparisons with our historical results and with the results of peer companies who present similar measures (although other companies may define non-GAAP measures differently than we define them, even when similar terms are used to identify such measures). However, those non-GAAP financial measures are not intended to be a substitute for those reported in accordance with U.S. GAAP.
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) from continuing operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net and other special charges and credits, including items that are unusual in nature or infrequently occurring. Our definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key measure used by our management and Board of Directors to evaluate operating performance, generate future operating plans and make strategic decisions for the allocation of capital. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors. However, Adjusted EBITDA is not intended to be a substitute for income (loss) from continuing operations.
We exclude stock-based compensation expense and depreciation and amortization because they are primarily non-cash in nature and we believe that non-GAAP financial measures excluding those items provide meaningful supplemental information about our operating performance and liquidity. Acquisition-related expense (benefit), net is comprised of the change in the fair value of contingent consideration arrangements and external transaction costs related to business combinations, primarily consisting of legal and advisory fees. The composition of our contingent consideration arrangements and the impact of those arrangements on our operating results vary over time based on a number of factors, including the terms of our business combinations and the timing of those transactions. For the three and nine months ended September 30, 20192020 and 2018,2019, special charges and credits included charges related to our restructuring plan. For the threeplan, goodwill and nine months ended September 30, 2018, special chargeslong-lived asset impairments, and credits also included a $40.4 million credit and a $34.6 million charge related to our patent litigation with IBM.strategic advisor costs. We exclude special charges and credits from Adjusted EBITDA because we believe that excluding those items provides meaningful supplemental information about our core operating performance and facilitates comparisons with our historical results.
46


The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, Income (loss) from continuing operations for the three and nine months ended September 30, 20192020 and 20182019 (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Income (loss) from continuing operations$(14,685) $47,175
 $(93,500) $(47,874)
Adjustments:  

    
Stock-based compensation (1)
19,543
 15,026
 62,517
 50,570
Depreciation and amortization25,873
 28,685
 81,405
 87,300
Acquisition-related expense (benefit), net5
 —
 33
 655
Restructuring charges(61) 35
 (175) (81)
IBM patent litigation—
 (40,400) —
 34,600
Other (income) expense, net17,253
 4,860
 92,602
 39,832
Provision (benefit) for income taxes2,069
 988
 591
 205
Total adjustments64,682
 9,194
 236,973
 213,081
Adjusted EBITDA$49,997
 $56,369
 $143,473
 $165,207
(1)Represents stock-based compensation expense recorded within Selling, general and administrative, Cost of revenue and Marketing.


Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Income (loss) from continuing operations$(16,561)$(14,685)$(300,533)$(93,500)
Adjustments:
Stock-based compensation8,379 19,543 30,937 62,517 
Depreciation and amortization18,023 25,873 68,366 81,405 
Acquisition-related expense (benefit), net— 5 6 33
Restructuring and related charges (1)
20,559 (61)61,037 (175)
Goodwill impairment— — 109,486 — 
Long-lived asset impairment— — 22,351 — 
Strategic advisor costs— — 3,626 — 
Other (income) expense, net867 17,253 21,549 92,602 
Provision (benefit) for income taxes(486)2,069 (7,170)591 
Total adjustments47,342 64,682 310,188 236,973 
Adjusted EBITDA$30,781 $49,997 $9,655 $143,473 
51(1)Restructuring and related charges includes $3.3 million and $17.2 million of long-lived asset impairments for the three and nine months ended September 30, 2020 and $0.3 million and $1.7 million of additional stock-based compensation for the three and nine months ended September 30, 2020.

Free cash flow. Free cash flow is a non-GAAP liquidity measure that comprises net cash provided by operating activities from continuing operations less purchases of property and equipment and capitalized software. We use free cash flow to conduct and evaluate our business because, although it is similar to cash flow from continuing operations, we believe that it typically represents a more useful measure of cash flows because purchases of fixed assets, software developed for internal use and website development costs are necessary components of our ongoing operations. Free cash flow is not intended to represent the total increase or decrease in our cash balance for the applicable period.
Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not include cash payments for business acquisitions. In addition, free cash flow reflects the impact of the timing difference between when we are paid by customers and when we pay merchants and suppliers. Therefore, we believe it is important to view free cash flow as a complement to our entire condensed consolidated statements of cash flows. For a reconciliation of free cash flow to the most comparable U.S. GAAP financial measure, see Liquidity and Capital Resources below.
Foreign currency exchange rate neutral operating results. Foreign currency exchange rate neutral operating results show current period operating results as if foreign currency exchange rates had remained the same as those in effect in the prior year period. Those measures are intended to facilitate comparisons to our historical performance. For a reconciliation
47


The following table represents the effect on our condensed consolidated statements of foreign currencyoperations from changes in exchange rate neutral operating results torates versus the most comparable U.S. GAAP financial measures, see dollar for the three and nine months ended September 30, 2020 (in thousands):
Three Months Ended September 30, 2020
At Avg. Q3 2019 Rates (1)
Exchange Rate Effect (2)
As Reported
Gross billings$583,887 $13,236 $597,123 
Revenue296,982 7,037 304,019 
Cost of revenue139,811 4,186 143,997 
Gross profit157,171 2,851 160,022 
Marketing30,767 619 31,386 
Selling, general and administrative122,017 2,240 124,257 
Income (loss) from operations(15,317)(863)(16,180)
Results of Operations above.
Nine Months Ended September 30, 2020
At Avg. Q3 2019 Rates (1)
Exchange Rate Effect (2)
As Reported
Gross billings$1,975,069 $11,176 $1,986,245 
Revenue1,068,009 5,806 1,073,815 
Cost of revenue572,083 3,237 575,320 
Gross profit495,926 2,569 498,495 
Marketing116,319 439 116,758 
Selling, general and administrative473,860 1,157 475,017 
Income (loss) from operations(288,989)2,835 (286,154)
(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.
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows from operations and cash balances, which totaled $567.3 million asprimarily consisted of bank deposits and government money market funds. As of September 30, 2019, and available borrowing capacity2020, cash balances, including outstanding borrowings under our 2019the Credit Agreement.Agreement, were $779.0 million.
Our net cash flows from operating, investing and financing activities from continuing operations for the three and nine months ended September 30, 20192020 and 20182019 were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Cash provided by (used in):
Operating activities$4,792 $18,584 $(144,504)$(130,118)
Investing activities(12,469)(19,541)(8,473)(54,891)
Financing activities(3,617)(22,595)180,557 (81,953)
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 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Cash provided by (used in):       
Operating activities$18,584
 $(57,389) $(130,118) $(132,961)
Investing activities(19,541) (22,389) (54,891) (118,485)
Financing activities(22,595) (9,720) (81,953) (49,348)

Our free cash flow for the three and nine months ended September 30, 2020 and 2019 and 2018 and reconciliationsa reconciliation to the most comparable U.S. GAAP financial measure, Net cash provided by (used in) operating activities from continuing operations, for those periods are as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 20182020201920202019
Net cash provided by (used in) operating activities from continuing operations$18,584
 $(57,389) $(130,118) $(132,961)Net cash provided by (used in) operating activities from continuing operations$4,792 $18,584 $(144,504)$(130,118)
Purchases of property and equipment and capitalized software from continuing operations(17,693) (16,094) (51,854) (53,611)Purchases of property and equipment and capitalized software from continuing operations(11,745)(17,693)(36,662)(51,854)
Free cash flow$891
 $(73,483) $(181,972) $(186,572)Free cash flow$(6,953)$891 $(181,166)$(181,972)
Our revenue-generating transactions are primarily structured such that we collect cash up-front from customers and pay third-party merchants at a later date, either based on a fixed payment schedule or upon the customer's redemption of the related voucher. For merchants on fixed payment terms, we remit payments on an ongoing basis, generally bi-weekly, throughout the term of the merchant's offering. For purchases of merchandise inventory, our supplier payment terms generally range from net 30 to net 60 days. We have historically primarily paid merchants on fixed payment terms in North America and upon voucher redemption internationally. In 2017,prior periods, we began to increase our use of redemption payment terms with our North America merchants, and in the third quarter 2020, we expect that trendaccelerated these efforts and largely completed the transition to continue.redemption payment terms.
Our cash balances fluctuate significantly throughout the year based on many variables, including gross billings growth rates, the timing of payments to merchants and suppliers, seasonality and the mix of transactions between Goods and Local. For example, we typically generatehave historically generated strong cash inflows during the fourth quarter holiday season,
driven primarily by our Goods category, followed by significant cash outflows in the following period when payments are made to inventorymerchants and suppliers. We are currently developing
For the nine months ended September 30, 2020, our net cash used in operating activities from continuing operations was $144.5 million, as compared with a $300.5 million net loss from continuing operations. That difference is primarily due to $267.3 million of non-cash items, including $109.5 million of goodwill impairment, $22.4 million of long-lived asset impairments, $17.2 million of restructuring-related impairments, depreciation and testing voucherless offerings that typically resultamortization and stock-based compensation, partially offset by a $111.2 million net decrease from changes in cash back on customers' credit card statements for qualifying purchases. For many of those offerings, we fund the cash back to the customer within two weeks of purchaseworking capital and collect our commissionother assets and reimbursement for the customer's cash back incentive from our merchants on a monthly basis.liabilities. The working capital impact was related to the seasonal timing of card-linked offerings with this merchant payment structure is less favorablepayments to us than voucher transactions, for which we collect payment from customers atinventory suppliers and the timeimpact of sale and remit payment to merchants at a later date.COVID-19.
For the nine months ended September 30, 2019, our net cash used in operating activities from continuing operations was $130.1 million, as compared with a $93.5 million net loss from continuing operations. That difference was primarily due to $223.5 million of non-cash items, including depreciation and amortization, stock-based compensation and a $69.4 million loss from changes in fair value of our investment in Monster LP, partially offset by a $260.1 million decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the seasonal timing of payments to inventory suppliers and to a lesser extent a reduction in gross billings.
For the nine months ended September 30, 2018,2020, our net cash used in operating activities from continuing operations was $133.0 million, as compared with a $47.9 million net loss from continuing operations. That difference was primarily due to a $243.8 million net decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the seasonal timing of payments to inventory suppliers and also includes $42.1 million of the payment to IBM related to the settlement of patent litigation. The difference between our net cash provided by operating activities and our net income from continuing operations due to changes in working capital was partially offset by $158.7 million of non-cash items, including depreciation and amortization and stock-based compensation.
Our net cash used in investing activities from continuing operations was $54.9 million and $118.5 million for the nine months ended September 30, 2019 and 2018.$8.5 million. Our net cash used in investing activities from continuing operations included purchases of property and equipment and capitalized software of $51.9$36.7 million, and $53.6 million forwhich was partially offset by proceeds from the sale of an investment of $31.6 million.
For the nine months ended September 30, 2019, our net cash used in investing activities from continuing operations was $54.9 million. Our net cash used in investing activities included purchases of property and 2018. equipment and capitalized software of $51.9 million.
For the nine months ended September 30, 2018,2020, our net cash used in investingprovided by financing activities also includedwas $180.6 million. Our net cash paidprovided by financing activities included $200.0 million of $57.8borrowings under our revolving credit facility, partially offset by $8.8 million in taxes paid related to net share settlements of stock-based compensation awards, $7.4 million in payments of finance lease obligations and $3.0 million of distributions to noncontrolling interest holders.
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For the acquisition of Cloud Savings and net cash paid of $17.1 million for acquisitions of intangible assets, including $15.4 million related to the settlement ofnine months ended September 30, 2019, our IBM patent litigation.
Our net cash used in financing activities was $82.0 million and $49.3 million for the nine months ended September 30, 2019 and 2018. For the nine months ended September 30, 2019,million. Our net cash used in financing activities included $44.2 million in repurchases of common stock under our share repurchase program, $16.9 million in payments of finance lease obligations and $14.0 million in taxes paid related to net share settlements of stock-based compensation awards. For the nine months ended September 30, 2018, net cash used in financing activities included $25.3 million in payments of finance lease obligations and $18.6 million in taxes paid related to net share settlements of stock-based compensation awards.
In May 2019,On July 17, 2020, we entered into the 2019an amendment of our Credit Agreement whichin order to, among other things, provide us operational flexibility and covenant relief through the end of the first quarter 2021 in light of the ongoing impacts of COVID-19 on our business. The Amended Credit Agreement provides for aggregate principal borrowings of up to $400.0$225.0 million and matures in May 2024. As of September 30, 2019,2020, we had no$200.0 million of borrowings and $20.6 million of letters of credit outstanding under the 2019 Credit Agreement and were in compliance with all covenants.Agreement. See Item 1, Note 5, Financing Arrangements, for additional information.
We believe that our cash balances, excluding borrowings under the Amended Credit Agreement, and cash generated from operations will be sufficient to meet our working capital requirements and capital expenditures for at least the next 12 months. However, we expect a net loss and negative operating cash flows for the year ended 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 as described above in Overview.
As of September 30, 2019,2020, we had $196.4$112.2 million in cash held by our international subsidiaries, which is primarily denominated in Euros, British Pounds Sterling, Canadian dollars, and, to a lesser extent, Australian dollars and Japanese yen. In general, it is our practice and intention to re-invest the earnings of our non-U.S. subsidiaries in those operations. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business.
In May 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. During the three and nine months ended September 30, 2019, we repurchased 5,391,084 and 14,027,227 shares for an aggregate purchase price of $15.1 million and $45.2 million (including fees and commissions) under our repurchase program. As of September 30, 2019,2020, up to $245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the 2019Amended Credit Agreement, share price, available cash and other factors, and the share repurchase program may be terminated at any time. Repurchases will be made in compliance with SEC rules and other legal


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requirements and may be made, in part, under a Rule 10b5-1 plan, which permits share repurchases when we might otherwise be precluded from doing so.
Our cash balances and cash flows generated from our operations may be used to fund strategic investments, business acquisitions, working capital needs, investments in technology, marketing and share repurchases. Additionally, we have the ability to borrow funds under the 2019 Credit Agreement. We could also seek to raise additional financing, if available on terms that we believe are favorable, to increase the amount of liquid funds that we can access for acquisitions, share repurchases or other strategic investment opportunities. Although we can provide no assurances, we believe that our cash balances and cash generated from operations should be sufficient to meet our working capital requirements and capital expenditures for at least the next twelve months.
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Contractual Obligations and Commitments
Our contractual obligations and commitments as of September 30, 20192020 did not materially change from the amounts set forth in our 20182019 Annual Report on Form 10-K, except as disclosed in Item 1, Note 6, Leases.Commitments and Contingencies.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2019.2020.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and related disclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.estimates.
Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting policies are discussed in Item 2, Note 2, Summary of Significant Accounting Policies, and in the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. In addition, refer to the critical accounting policies and estimates under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
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The changes to our lease recognition policies upon the adoption of Topic 842 on January 1, 2019 represent a material change to our critical accounting policies and estimates during the nine months ended September 30, 2019. See Item 1, Note 6, Leases, for additional information related to our new lease recognition policies.

Recently Issued Accounting Standards
In June 2016,December 2019, the FASB issued ASU 2016-13,2019-12, Financial InstrumentsIncome Taxes (Topic 740) - Credit Losses (Topic 326) - Measurement of Credit Losses of Financial InstrumentsSimplifying the Accounting for Income Taxes.. This ASU requires entitiessimplifies the accounting for income taxes by removing certain exceptions to measure credit losses for financial assets measured at amortized cost based on expected losses rather than incurred losses. For available-for-sale debt securities with unrealized losses, entities will be requiredthe general principles in Topic 740 and also clarifies and amends existing guidance to recognize credit losses through an allowance for credit losses.improve consistent application. The ASU will be effective for annual reporting periods beginning after December 15, 20192020 and interim periods within those annual periods. Although we are still assessing the impact of ASU 2016-13, we believe theperiods and early adoption of this guidance will not have a material impact on our condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.permitted. We believe that the adoption of this guidance will not have a material impact on our condensed consolidated financial statements.


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In August 2018,March 2020, the FASB issued ASU 2018-13,2020-03, Fair Value Measurement (Topic 820) - Disclosure Framework - ChangesCodification Improvements to the Disclosure Requirements for Fair Value MeasurementFinancial Instruments. This ASU modifiesamends a wide variety of Topics in the disclosure requirements in Topic 820, Codification, including Fair Value Measurement, by removing, modifying, or adding certain disclosures.Option measurement and disclosures, revolving-debt arrangements and allowance for credit losses related to leases. The ASU will be effective for annual reporting periods beginning after December 15, 20192020 and interim periods within those annual periods. Earlyperiods and early adoption is permitted, and entities are permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until the effective date.permitted. We are still assessing the impact of ASU 2018-132020-03 on our condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted. We are still assessing the impact of ASU 2020-06 on our condensed consolidated financial statements.

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

statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effect of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about thosethese market risks is set forth below.
Foreign Currency Exchange Risk
We transact business in various foreign currencies other than the U.S. dollar, principally the euro, British pound sterling, Canadian dollar and Australian dollar, which exposes us to foreign currency risk. For both the three and nine months ended September 30, 2019,2020, we derived approximately 38.7%40.7% and 39.6% of our revenue from our International segment. Revenue and related expenses generated from our international operations are generally denominated in the local currencies of the corresponding countries. The functional currencies of our subsidiaries that either operate or support thosethese markets are generally the same as the corresponding local currencies. However, the results of operations of, and certain of our intercompany balances associated with, our international operations are exposed to foreign currency exchange rate fluctuations. Upon consolidation, as exchange rates vary, our revenue and other operating results may differ materially from expectations, and we may record significant gains or losses on the re-measurement of intercompany balances.
We assess our foreign currency exchange risk based on hypothetical changes in rates utilizing a sensitivity analysis that measures the potential impact on working capital based on a 10% change (increase and decrease) in currency rates. We use a current market pricing model to assess the changes in the value of the U.S. dollar on foreign currency denominated monetary assets and liabilities. The primary assumption used in this model is a hypothetical 10% weakening or strengthening of the U.S. dollar against those currency exposures as of September 30, 20192020 and December 31, 2018.2019.
As of September 30, 2019,2020, our net working capital deficit (defined as current assets less current liabilities) from subsidiaries that are subject to foreign currency translation risk was $3.6 million.$104.9 million. The potential decreaseincrease in this working capital deficit from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be $0.4 million.$10.5 million. This compares with a $20.8$69.2 million working capital surplusdeficit subject to foreign currency exposure as of December 31, 2018,2019, for which a 10% adverse change would have resulted in a potential increase in this working capital surplusdeficit of $2.1$6.9 million.
Interest Rate Risk
Our cash balance as of September 30, 20192020 consists of bank deposits and government money market funds, so exposure to market risk for changes in interest rates is limited. In April 2016, we issued convertible notes with an aggregate principal amount of $250.0 million (see Item 1, Note 5, Financing Arrangements). The convertible notes bear interest at a fixed rate, so we have no financial statement impact from changes in interest rates. However, changes in market interest rates impact the fair value of the convertible notes along with other variables such as our credit spreads and the market price and volatility of our common stock. In May 2019,June 2020, we entered into the 2019Amended Credit Agreement which provides for aggregate principal borrowings of up to $400.0$225.0 million. As of September 30, 2019,2020, we had no$200.0 million of borrowings outstanding and $20.6 million of outstanding letters of credit under the 2019Amended Credit Agreement. See Item 2, Liquidity and Capital Resources for additional information. Because borrowings under the 2019Amended Credit Agreement bearsbear interest at a variable rate, we are exposed to market risk relating to changes in interest rates if we borrow under the 2019Amended Credit Agreement. We also have $166.7had $133.3 million of lease obligations as of September 30, 2019.2020. Interest rates on existing leases typically do not change unless there is a modification to a lease agreement and as such, we do not believe that the interest rate risk on the lease obligations is significant.
Impact of Inflation
We believe that our results of operations are not materially impacted by moderate changes in the inflation rate. Inflation and changing prices did not have a material effect on our business, financial condition or results of operations for the three and nine months ended September 30, 2019.

2020.

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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our management concluded that, as of September 30, 2019,2020, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting as a result of COVID-19 and related restrictions. We are continually monitoring and assessing the impact COVID-19 pandemic and related restrictions has on our internal controls to minimize the effect on their design and operating effectiveness.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.


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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please see Item 1, Note 7,6, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2018,2019, and Quarterly ReportReports on Form 10-Q for the quarterquarters ended March 31, 2019.2020 and June 30, 2020.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the three months ended September 30, 2019,2020, we did not issue any unregistered equity securities.
Issuer Purchases of Equity Securities
On May 7, 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. During the three and nine months ended September 30, 2019, we repurchased 5,391,084 and 14,027,227 shares for an aggregate purchase price of $15.1 million and $45.2 million (including fees and commissions) under our repurchase program. As of September 30, 2019,2020, up to $245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the 2019Amended Credit Agreement, share price, available cash and other factors, and the share repurchase program may be terminated at any time. We will fund the repurchases, if any, through cash on hand, future cash flows and borrowings under our credit facility. Repurchases will be made in compliance with SEC rules and other legal requirements and may be made in part under a Rule 10b5-1 plan, which permits stockshare repurchases when we might otherwise be precluded from doing so.
A summary of our common stock repurchases during the three months ended September 30, 2019 under See Item 1, Note 7, Stockholders' Equity and Compensation Arrangements, for information regarding our share repurchase program is set forth in the following table:
Date Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
July 1-31, 2019 —
 $—
 —
 $260,000,005
August 1-31, 2019 —
 —
 —
 260,000,005
September 1-30, 2019 5,391,084
 2.79
 5,391,084
 245,000,007
Total 5,391,084
 $2.79
 5,391,084
 $245,000,007
program.
The following table provides information about purchases of shares of our common stock during the three months ended September 30, 20192020 related to shares withheld upon vesting of restricted stock units for minimum tax withholding obligations:
Date 
Total Number of Shares Purchased (1)
 Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
July 1-31, 2019 158,105
 $2.99
 —
 —
August 1-31, 2019 78,698
 2.41
 —
 —
September 1-30, 2019 496,458
 2.79
 —
 —
Total 733,261
 $2.79
 —
 —
(1)Total number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-based compensation awards.


Date
Total Number of Shares Purchased (1)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramMaximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
July 1-31, 20204,533 $16.99 — — 
August 1-31, 202016,235 23.59 — — 
September 1-30, 202017,518 31.74 — — 
Total38,286 $26.54 — — 
57(1)Total number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-based compensation awards.

ITEM 5. OTHER INFORMATION
None.On November 4, 2020, Groupon, Inc. (the “Company”) entered into an amendment (the “Amendment”) to the Rights Agreement (the “Rights Agreement”) dated as of April 10, 2020, between the Company and Computershare Trust Company, N.A., as rights agent. The Amendment removes the provisions pertaining to persons “acting in concert” from the Rights Agreement. The foregoing description of the Amendment is qualified in its entirety by reference to the Amendment, a copy of which is attached hereto as Exhibit 4.1 and is incorporated herein by reference.
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ITEM 6. EXHIBITS
Exhibit
Number
Description
4.1
10.1**Amendment No. 1 to Rights Agreement, dated as ofNovember 4, 2020, between Groupon, Inc. and Computershare Trust Company, N.A. as Rights Agent.
Form of Severance Benefit Agreement
31.1
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS ***XBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104 ***Cover Page Interactive Data File

** Management contract or compensatory plan or arrangement
*** The XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 4th5th day of November 2019.
2020.
GROUPON, INC.
By:/s/ Melissa Thomas
Name:Melissa Thomas
Title:Interim Chief Financial Officer



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