ITEM 7. 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 consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. 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 Annual Report. See Part I, Forward-Looking Statements, for additional information.
Overview
Groupon is a global scaled two-sided marketplace that connects consumers to merchants. Consumers access our marketplace through our mobile applications and our websites, primarily localized groupon.com sites in many countries. We operate in two segments: North America and International. For the year ended December 31, 2019, we derived 61.2% of our revenue from our North America segment and 38.8% of our revenue from our International segment. See Item 8, Note 20, Segment Information for additional information. Historically, we have operated in three categories: Local, Goods and Travel. In February 2020, following a comprehensive review of opportunities and strategic alternatives, we announced that we plan to exit the Goods category by the end of 2020 and focus on our local experiences marketplace, which we believe best positions us for long-term and sustained growth.
We generate product and service revenue from our current business operations. We earn service revenue from transactions in which we earn commissions by selling goods or services on behalf of third-party merchants. Those transactions generally involve a customer's purchase of a voucher through one of our online marketplaces that can be redeemed with a third-party merchant for goods or services (or for discounts on goods or services). Service revenue from those transactions is reported on a net basis and equals the purchase price received from the customer for the voucher less an 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 and from voucherless merchant offerings. We earn product revenue from direct sales of merchandise inventory through our Goods category. Our product revenue from those transactions is the purchase price received from the customer. Following our planned exit of the Goods category, which we expect to occur by the end of 2020, we will no longer generate product revenue or service revenue from goods offerings. We currently anticipate that given our plan to exit the Goods category, its financial results will ultimately be presented as a discontinued operation in our consolidated financial statements.
How We Measure Our Business
We use several operating and financial metrics to assess the progress of our business and make decisions on where to allocate capital, time and technology investments. Certain of the financial metrics are reported in accordance with U.S. GAAP and certain of those metrics are considered non-GAAP financial measures. As our business evolves, we may make changes to the key financial and operating metrics that we use to measure our business. For further information and reconciliations to the most applicable financial measures under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.
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 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 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 understand how the number of customers actively purchasing our offerings is trending. Some customers could establish and make purchases from more than one account, so it is possible that our active customer metric may count certain customers more than once in a given period. For entities that we have acquired in a business combination, this metric includes active customers of the acquired entity, including customers who made purchases prior to the acquisition. We do not include consumers who solely make purchases with retailers using digital coupons accessed through our websites and mobile applications in our active customer metric, nor do we include consumers who solely make purchases of our inventory through third-party marketplaces with which we partner.
|
|
|
•
|
Gross billings and gross profit per active customer are the TTM gross billings and gross profit generated per active customer. We use these metrics to evaluate trends in customer spend and in the average contribution to gross billings and gross profit on a per-customer basis.
|
|
|
•
|
Units are 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 units to be an important indicator of the total volume of business conducted through our marketplaces.
|
|
|
•
|
Gross billings per unit are the TTM gross billings generated per unit. We use this metric to evaluate trends in units and in the average contribution to gross billings on a per-unit basis.
|
Our gross billings, units and gross billings per unit for the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands, except gross billings per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Gross billings
|
$
|
4,613,531
|
|
|
$
|
5,202,814
|
|
|
$
|
5,645,898
|
|
Units
|
150,879
|
|
|
172,305
|
|
|
188,905
|
|
Gross billings per unit
|
$
|
30.58
|
|
|
$
|
30.20
|
|
|
$
|
29.89
|
|
Our active customers, gross billings per active customer and gross profit per active customer for the years ended December 31, 2019, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
TTM Active customers (in thousands)
|
43,620
|
|
|
48,159
|
|
|
49,536
|
|
TTM Gross billings per active customer
|
$
|
105.77
|
|
|
$
|
108.03
|
|
|
$
|
113.98
|
|
TTM Gross profit per active customer
|
$
|
27.19
|
|
|
$
|
27.42
|
|
|
$
|
26.93
|
|
Financial Metrics
|
|
•
|
Revenue is earned through product and service revenue transactions. 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. 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. After we exit the Goods category, we will no longer generate product revenue or service revenue from goods offerings.
|
|
|
•
|
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 years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Revenue
|
$
|
2,218,915
|
|
|
$
|
2,636,746
|
|
|
$
|
2,843,877
|
|
Gross profit
|
1,186,129
|
|
|
1,320,601
|
|
|
1,333,861
|
|
Adjusted EBITDA
|
227,248
|
|
|
269,807
|
|
|
249,939
|
|
Free cash flow
|
3,955
|
|
|
121,160
|
|
|
71,387
|
|
Operating Expenses
|
|
•
|
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 consolidated statements of operations when incurred. From time to time, we have 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.
|
|
|
•
|
Selling, general and administrative expenses ("SG&A") 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 charges represent severance and benefit costs for workforce reductions, impairments of long-lived assets and other exit costs resulting from our restructuring activities. See Item 8, Note 15, Restructuring, for additional information.
|
Factors Affecting Our Performance
Attracting and retaining local merchants. As we seek to build a more complete 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.
Driving purchase frequency and retaining customers. In order to drive purchase frequency and retain our customers, we must increase high-quality inventory density in core cities, continue to improve the customer experience on our websites and mobile applications, and launch innovative products that remove friction from the customer journey.
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. As such, we must focus on developing sources of traffic in addition to 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. We also plan to relaunch our brand in 2020, and our new marketing strategy will take a full-funnel approach to drive top-of-mind awareness.
In addition to the factors outlined above, we believe that our plan to exit the Goods category by the end of 2020 presents three key challenges set forth below that could affect our performance:
Disruption caused by the planned Goods exit. Aligning our global organization toward one vision may cause disruption that negatively impacts our team. We must encourage our employees to focus on our core priorities and work to minimize disruption including decreased productivity, employee morale and retention.
Consultation and negotiation with international workers’ councils. We must inform, negotiate and consult with our international workers’ councils on an exit plan for our Goods category, which may impact the timing, cost and execution of our planned exit in International.
Keeping our cross-shopping customers engaged on our platform. As we shift more impressions toward our Local category, we intend to target our Goods-Local cross-shoppers with marketing efforts designed to retain these customers.
Results of Operations
North America
Operating Metrics
North America segment gross billings, units and TTM active customers for the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands, except percentages and gross billings per unit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
2019
|
|
2018
|
|
2017
|
|
2019 vs 2018
|
|
2018 vs 2017
|
Gross billings
|
|
|
|
|
|
|
|
|
|
Service gross billings:
|
|
|
|
|
|
|
|
|
|
Local
|
$
|
2,021,052
|
|
|
$
|
2,161,192
|
|
|
$
|
2,415,243
|
|
|
(6.5
|
)%
|
|
(10.5
|
)%
|
Goods
|
95,855
|
|
|
113,863
|
|
|
114,638
|
|
|
(15.8
|
)
|
|
(0.7
|
)
|
Travel
|
306,012
|
|
|
352,247
|
|
|
404,523
|
|
|
(13.1
|
)
|
|
(12.9
|
)
|
Total service gross billings
|
2,422,919
|
|
|
2,627,302
|
|
|
2,934,404
|
|
|
(7.8
|
)
|
|
(10.5
|
)
|
Product gross billings - Goods
|
563,694
|
|
|
796,393
|
|
|
993,326
|
|
|
(29.2
|
)
|
|
(19.8
|
)
|
Total gross billings
|
$
|
2,986,613
|
|
|
$
|
3,423,695
|
|
|
$
|
3,927,730
|
|
|
(12.8
|
)
|
|
(12.8
|
)
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
|
|
|
|
|
|
|
Local
|
64,976
|
|
|
74,533
|
|
|
85,247
|
|
|
(12.8
|
)%
|
|
(12.6
|
)%
|
Goods
|
25,632
|
|
|
35,330
|
|
|
42,208
|
|
|
(27.4
|
)
|
|
(16.3
|
)
|
Travel
|
1,514
|
|
|
1,567
|
|
|
1,792
|
|
|
(3.4
|
)
|
|
(12.6
|
)
|
Total units
|
92,122
|
|
|
111,430
|
|
|
129,247
|
|
|
(17.3
|
)
|
|
(13.8
|
)
|
|
|
|
|
|
|
|
|
|
|
Gross billings per unit
|
$
|
32.42
|
|
|
$
|
30.73
|
|
|
$
|
30.39
|
|
|
5.5
|
%
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
TTM Active customers
|
26,505
|
|
|
30,579
|
|
|
32,722
|
|
|
(13.3
|
)%
|
|
(6.5
|
)%
|
Comparison of the Years Ended December 31, 2019 and 2018:
North America active customers declined by 4.1 million for the year ended December 31, 2019. The decline is primarily attributable to a decline in traffic, including traffic from email and SEO, as well as our efforts to improve the efficiency of our marketing spend, which has led to a decrease in the number of active customers. We expect the trend of declining active customers in our North America segment to continue in 2020 due to ongoing traffic declines and our plan to exit the Goods category by the end of 2020.
The decline in active customers also impacted North America gross billings and units, which declined by $437.1 million and 19.3 million for the year ended December 31, 2019. The decrease in gross billings was partially offset by higher gross billings per unit due to a shift in mix of offerings sold.
Comparison of the Years Ended December 31, 2018 and 2017:
North America active customers declined by 2.1 million for the year ended December 31, 2018, due primarily to a decline in traffic to our websites and mobile applications, as well as our efforts to improve the efficiency of our marketing spend.
The decrease in active customers adversely impacted North America gross billings and units, which declined by $504.0 million and 17.8 million for the year ended December 31, 2018. Gross billings were also impacted by the following:
|
|
•
|
our shift of customer impressions from traditional voucher offerings with food and drink merchants towards voucherless cash-back offerings;
|
|
|
•
|
our ongoing focus on optimizing for long-term gross profit generation rather than gross billings growth, which resulted in merchandising and product mix decisions that adversely impacted transaction volume and gross billings from our Goods category;
|
|
|
•
|
ceasing most of our food delivery operations in the third quarter 2017, which resulted in a $45.9 million decrease in Local gross billings; and
|
|
|
•
|
a $25.5 million unfavorable impact on gross billings for the year ended December 31, 2018 as a result of adopting Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("Topic 606") as compared with previous accounting guidance.
|
Financial Metrics
North America segment revenue, cost of revenue and gross profit for the years ended December 31, 2019, 2018 and 2017 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
2019
|
|
2018
|
|
2017
|
|
2019 vs 2018
|
|
2018 vs 2017
|
Revenue
|
|
|
|
|
|
|
|
|
|
Service revenue:
|
|
|
|
|
|
|
|
|
|
Local
|
$
|
721,038
|
|
|
$
|
752,863
|
|
|
$
|
825,579
|
|
|
(4.2
|
)%
|
|
(8.8
|
)%
|
Goods
|
16,236
|
|
|
18,283
|
|
|
16,768
|
|
|
(11.2
|
)
|
|
9.0
|
|
Travel
|
57,939
|
|
|
71,856
|
|
|
78,495
|
|
|
(19.4
|
)
|
|
(8.5
|
)
|
Total service revenue
|
795,213
|
|
|
843,002
|
|
|
920,842
|
|
|
(5.7
|
)
|
|
(8.5
|
)
|
Product revenue - Goods
|
563,694
|
|
|
796,393
|
|
|
993,326
|
|
|
(29.2
|
)
|
|
(19.8
|
)
|
Total revenue
|
$
|
1,358,907
|
|
|
$
|
1,639,395
|
|
|
$
|
1,914,168
|
|
|
(17.1
|
)
|
|
(14.4
|
)
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
Service cost of revenue:
|
|
|
|
|
|
|
|
|
|
Local
|
$
|
77,539
|
|
|
$
|
81,511
|
|
|
$
|
117,006
|
|
|
(4.9
|
)%
|
|
(30.3
|
)%
|
Goods
|
3,071
|
|
|
2,981
|
|
|
3,839
|
|
|
3.0
|
|
|
(22.3
|
)
|
Travel
|
12,200
|
|
|
13,911
|
|
|
17,901
|
|
|
(12.3
|
)
|
|
(22.3
|
)
|
Total service cost of revenue
|
92,810
|
|
|
98,403
|
|
|
138,746
|
|
|
(5.7
|
)
|
|
(29.1
|
)
|
Product cost of revenue - Goods
|
458,352
|
|
|
650,308
|
|
|
847,744
|
|
|
(29.5
|
)
|
|
(23.3
|
)
|
Total cost of revenue
|
$
|
551,162
|
|
|
$
|
748,711
|
|
|
$
|
986,490
|
|
|
(26.4
|
)
|
|
(24.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
Service gross profit:
|
|
|
|
|
|
|
|
|
|
Local
|
$
|
643,499
|
|
|
$
|
671,352
|
|
|
$
|
708,573
|
|
|
(4.1
|
)%
|
|
(5.3
|
)%
|
Goods
|
13,165
|
|
|
15,302
|
|
|
12,929
|
|
|
(14.0
|
)
|
|
18.4
|
|
Travel
|
45,739
|
|
|
57,945
|
|
|
60,594
|
|
|
(21.1
|
)
|
|
(4.4
|
)
|
Total service gross profit
|
702,403
|
|
|
744,599
|
|
|
782,096
|
|
|
(5.7
|
)
|
|
(4.8
|
)
|
Product gross profit - Goods
|
105,342
|
|
|
146,085
|
|
|
145,582
|
|
|
(27.9
|
)
|
|
0.3
|
|
Total gross profit
|
$
|
807,745
|
|
|
$
|
890,684
|
|
|
$
|
927,678
|
|
|
(9.3
|
)
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Service margin (1)
|
32.8
|
%
|
|
32.1
|
%
|
|
31.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Consolidated revenue
|
61.2
|
%
|
|
62.2
|
%
|
|
67.3
|
%
|
|
|
|
|
% of Consolidated cost of revenue
|
53.4
|
|
|
56.9
|
|
|
65.3
|
|
|
|
|
|
% of Consolidated gross profit
|
68.1
|
|
|
67.4
|
|
|
69.5
|
|
|
|
|
|
|
|
(1)
|
Represents the percentage of service gross billings that we retained after deducting the merchant's share from revenue.
|
Comparison of the Years Ended December 31, 2019 and 2018:
North America revenue and gross profit decreased by $280.5 million and $82.9 million for the year ended December 31, 2019. Those decreases were driven by a decline in gross billings and transaction volume due to fewer customers and lower customer traffic, including traffic from email and SEO, as discussed above.
The decrease in gross profit was partially offset by a $197.5 million decline in cost of revenue, which was primarily due to the decrease in transaction volume and gross billings, and higher gross profit per customer due to a shift in mix of offerings sold.
Comparison of the Years Ended December 31, 2018 and 2017:
North America revenue and gross profit decreased by $274.8 million and $37.0 million for the year ended December 31, 2018. Those declines were primarily driven by a decline in transaction volume and gross billings, as discussed above.
The decline in gross profit was partially offset by a $2.4 million favorable impact to revenue as a result of adopting Topic 606, as well as a decrease in cost of revenue. The decrease in cost of revenue was due to a decline in gross billings and transaction volume, our optimization of shipping and fulfillment costs and a $25.4 million favorable impact to cost of revenue as a result of adopting Topic 606.
Operating Expenses and Income (Loss) from Operations
North America segment operating expenses and income (loss) from operations for the years ended December 31, 2019, 2018 and 2017 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
2019
|
|
2018
|
|
2017
|
|
2019 vs 2018
|
|
2018 vs 2017
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Marketing
|
$
|
214,069
|
|
|
$
|
273,787
|
|
|
$
|
299,454
|
|
|
(21.8
|
)%
|
|
(8.6
|
)%
|
Selling, general and administrative
|
527,948
|
|
|
596,811
|
|
|
633,420
|
|
|
(11.5
|
)
|
|
(5.8
|
)
|
Restructuring charges
|
—
|
|
|
177
|
|
|
11,998
|
|
|
(100.0
|
)
|
|
(98.5
|
)
|
Gain on sale of intangible assets
|
—
|
|
|
—
|
|
|
(17,149
|
)
|
|
—
|
|
|
100.0
|
|
Total operating expenses
|
$
|
742,017
|
|
|
$
|
870,775
|
|
|
$
|
927,723
|
|
|
(14.8
|
)
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
$
|
65,728
|
|
|
$
|
19,909
|
|
|
$
|
(45
|
)
|
|
230.1
|
%
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
% of Gross profit:
|
|
|
|
|
|
|
|
|
|
Marketing
|
26.5
|
%
|
|
30.7
|
%
|
|
32.3
|
%
|
|
|
|
|
Selling, general and administrative
|
65.4
|
|
|
67.0
|
|
|
68.3
|
|
|
|
|
|
Comparison of the Years Ended December 31, 2019 and 2018:
North America marketing expense and marketing expense as a percentage of gross profit declined for the year ended December 31, 2019 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 during the year in anticipation of relaunching our brand in 2020 to better support our evolving marketplace.
The decrease in North America SG&A and SG&A as a percentage of gross profit for the year ended December 31, 2019 was primarily due to the following:
|
|
•
|
the absence of expense related to our patent litigation with IBM of $34.6 million recorded in 2018; and
|
|
|
•
|
lower technology, facilities, and payroll-related expenses.
|
The improvement in our North America income (loss) from operations for the year ended December 31, 2019 was primarily attributable to decreases in SG&A and marketing expense of $68.9 million and $59.7 million, partially offset by an $82.9 million decrease in gross profit, as discussed above.
Comparison of the Years Ended December 31, 2018 and 2017:
North America marketing expense and marketing expense as a percentage of gross profit declined for the year ended December 31, 2018 as compared with the prior year as we leveraged improved marketing analytics to drive efficiency in our marketing spend and maximize the lifetime value of our customer base.
North America SG&A and SG&A as a percentage of gross profit declined for the year ended December 31, 2018, primarily due to the following:
|
|
•
|
a $38.9 million decrease in compensation-related costs, including variable compensation; and
|
|
|
•
|
decreases in facilities costs, systems costs, and other general expenses; partially offset by
|
|
|
•
|
the expense related to our patent litigation with IBM of $34.6 million.
|
North America restructuring charges declined for the year ended December 31, 2018. See Item 8, Note 15, Restructuring, for additional information.
The improvement in our North America income (loss) from operations for the year ended December 31, 2018 was attributable to decreases in SG&A, marketing expense and restructuring charges, partially offset by a decrease in gross profit and a decrease in gains from the sale of intangible assets. See Item 8, Note 6, Goodwill and Other Intangible Assets for additional information on our sale of customer lists and other intangible assets during 2017. For the year ended December 31, 2018, there was also a $27.0 million favorable impact on income (loss) from operations as a result of adopting Topic 606 as compared with previous accounting guidance.
International
Operating Metrics
International segment gross billings, units and TTM active customers for the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands, except percentages and gross billings per unit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
2019
|
|
2018
|
|
2017
|
|
2019 vs 2018
|
|
2018 vs 2017
|
Gross billings
|
|
|
|
|
|
|
|
|
|
Service gross billings:
|
|
|
|
|
|
|
|
|
|
Local
|
$
|
855,820
|
|
|
$
|
865,271
|
|
|
$
|
812,785
|
|
|
(1.1
|
)%
|
|
6.5
|
%
|
Goods
|
51,663
|
|
|
71,492
|
|
|
112,639
|
|
|
(27.7
|
)
|
|
(36.5
|
)
|
Travel
|
190,571
|
|
|
207,490
|
|
|
208,645
|
|
|
(8.2
|
)
|
|
(0.6
|
)
|
Total service gross billings
|
1,098,054
|
|
|
1,144,253
|
|
|
1,134,069
|
|
|
(4.0
|
)
|
|
0.9
|
|
Product gross billings - Goods
|
528,864
|
|
|
634,866
|
|
|
584,099
|
|
|
(16.7
|
)
|
|
8.7
|
|
Total gross billings
|
$
|
1,626,918
|
|
|
$
|
1,779,119
|
|
|
$
|
1,718,168
|
|
|
(8.6
|
)
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
|
|
|
|
|
|
|
Local
|
33,069
|
|
|
32,055
|
|
|
30,860
|
|
|
3.2
|
%
|
|
3.9
|
%
|
Goods
|
24,269
|
|
|
27,300
|
|
|
27,180
|
|
|
(11.1
|
)
|
|
0.4
|
|
Travel
|
1,419
|
|
|
1,520
|
|
|
1,618
|
|
|
(6.6
|
)
|
|
(6.1
|
)
|
Total units
|
58,757
|
|
|
60,875
|
|
|
59,658
|
|
|
(3.5
|
)
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
Gross billings per unit
|
$
|
27.69
|
|
|
$
|
29.23
|
|
|
$
|
28.80
|
|
|
(5.3
|
)%
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
TTM Active customers
|
17,115
|
|
|
17,580
|
|
|
16,814
|
|
|
(2.6
|
)%
|
|
4.6
|
%
|
Comparison of the Years Ended December 31, 2019 and 2018:
International gross billings, units and active customers decreased by $152.2 million, 2.1 million and 0.5 million for the year ended December 31, 2019. Those decreases were primarily due to weak consumer sentiment in Europe, especially in the United Kingdom, and intense competition in our Goods business. The decline in gross billings was also attributable to an $83.1 million unfavorable impact from year-over-year changes in foreign currency rates. We expect the trend of declining active customers in our International segment to continue in 2020, primarily after we exit the Goods category, which we expect to occur by the end of 2020.
Comparison of the Years Ended December 31, 2018 and 2017:
International units increased by 1.2 million during the year ended December 31, 2018 primarily due to higher transaction volume from our customer acquisition.
The increase in customers favorably impacted International gross billings, which increased $61.0 million during the year ended December 31, 2018. That increase was also largely driven by a $55.0 million benefit from year-over-year changes in foreign currency rates, partially offset by the impact of pricing and promotional strategies on our International gross billings per unit.
Financial Metrics
International segment revenue, cost of revenue and gross profit for the years ended December 31, 2019, 2018 and 2017 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
2019
|
|
2018
|
|
2017
|
|
2019 vs 2018
|
|
2018 vs 2017
|
Revenue
|
|
|
|
|
|
|
|
|
|
Service revenue:
|
|
|
|
|
|
|
|
|
|
Local
|
$
|
287,611
|
|
|
$
|
306,700
|
|
|
$
|
281,466
|
|
|
(6.2
|
)%
|
|
9.0
|
%
|
Goods
|
9,441
|
|
|
14,602
|
|
|
20,358
|
|
|
(35.3
|
)
|
|
(28.3
|
)
|
Travel
|
34,092
|
|
|
41,183
|
|
|
43,786
|
|
|
(17.2
|
)
|
|
(5.9
|
)
|
Total service revenue
|
331,144
|
|
|
362,485
|
|
|
345,610
|
|
|
(8.6
|
)
|
|
4.9
|
|
Product revenue - Goods
|
528,864
|
|
|
634,866
|
|
|
584,099
|
|
|
(16.7
|
)
|
|
8.7
|
|
Total revenue
|
$
|
860,008
|
|
|
$
|
997,351
|
|
|
$
|
929,709
|
|
|
(13.8
|
)
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
Service cost of revenue:
|
|
|
|
|
|
|
|
|
|
Local
|
$
|
17,945
|
|
|
$
|
17,273
|
|
|
$
|
16,118
|
|
|
3.9
|
%
|
|
7.2
|
%
|
Goods
|
932
|
|
|
1,350
|
|
|
2,448
|
|
|
(31.0
|
)
|
|
(44.9
|
)
|
Travel
|
2,775
|
|
|
3,051
|
|
|
3,498
|
|
|
(9.0
|
)
|
|
(12.8
|
)
|
Total service cost of revenue
|
21,652
|
|
|
21,674
|
|
|
22,064
|
|
|
(0.1
|
)
|
|
(1.8
|
)
|
Product cost of revenue - Goods
|
459,972
|
|
|
545,760
|
|
|
501,462
|
|
|
(15.7
|
)
|
|
8.8
|
|
Total cost of revenue
|
$
|
481,624
|
|
|
$
|
567,434
|
|
|
$
|
523,526
|
|
|
(15.1
|
)
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
Service gross profit:
|
|
|
|
|
|
|
|
|
|
Local
|
$
|
269,666
|
|
|
$
|
289,427
|
|
|
$
|
265,348
|
|
|
(6.8
|
)%
|
|
9.1
|
%
|
Goods
|
8,509
|
|
|
13,252
|
|
|
17,910
|
|
|
(35.8
|
)
|
|
(26.0
|
)
|
Travel
|
31,317
|
|
|
38,132
|
|
|
40,288
|
|
|
(17.9
|
)
|
|
(5.4
|
)
|
Total service gross profit
|
309,492
|
|
|
340,811
|
|
|
323,546
|
|
|
(9.2
|
)
|
|
5.3
|
|
Product gross profit - Goods
|
68,892
|
|
|
89,106
|
|
|
82,637
|
|
|
(22.7
|
)
|
|
7.8
|
|
Total gross profit
|
$
|
378,384
|
|
|
$
|
429,917
|
|
|
$
|
406,183
|
|
|
(12.0
|
)
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
Service margin (1)
|
30.2
|
%
|
|
31.7
|
%
|
|
30.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Consolidated revenue
|
38.8
|
%
|
|
37.8
|
%
|
|
32.7
|
%
|
|
|
|
|
% of Consolidated cost of revenue
|
46.6
|
|
|
43.1
|
|
|
34.7
|
|
|
|
|
|
% of Consolidated gross profit
|
31.9
|
|
|
32.6
|
|
|
30.5
|
|
|
|
|
|
|
|
(1)
|
Represents the percentage of service gross billings that we retained after deducting the merchant's share from revenue.
|
Comparison of the Years Ended December 31, 2019 and 2018:
International revenue and gross profit decreased by $137.3 million and $51.5 million for the year ended December 31, 2019. Those decreases were primarily driven by a decline in gross billings as a result of weak consumer sentiment in Europe, especially in the United Kingdom, and intense competition in our Goods business, as well as unfavorable impacts on revenue and gross profit of $45.3 million and $19.3 million from year-over-year changes in foreign currency rates. The decrease in gross profit was also driven by a customer shift toward lower margin offerings.
The decline in gross profit was partially offset by a decrease in cost of revenue of $85.8 million, which was primarily due to the decline in gross billings, as discussed above, a shift in our Goods 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 $26.0 million favorable impact from year-over-year changes in foreign currency rates.
Comparison of the Years Ended December 31, 2018 and 2017:
International revenue and gross profit increased by $67.6 million and $23.7 million for the year ended December 31, 2018. Those increases resulted from the following:
|
|
•
|
favorable impacts on revenue and gross profit of $33.1 million and $13.3 million from year-over-year changes in foreign currency rates;
|
|
|
•
|
higher transaction volume driven in part by our customer acquisition, as discussed above; and
|
|
|
•
|
the expansion of our digital coupon offerings through our acquisition of Cloud Savings.
|
The increase in gross profit was partially offset by the impact of pricing and promotional strategies, as well as an increase in cost of revenue of $43.9 million for the year ended December 31, 2018. The increase in cost of revenue was due primarily to a shift in our Goods category mix from service revenue transactions, which are reported on a net basis, toward product revenue transactions, which are reported on a gross basis, and a $19.9 million unfavorable impact from year-over-year changes in foreign currency rates.
Operating Expenses and Income (Loss) from Operations
International segment operating expenses and income (loss) from operations for the years ended December 31, 2019, 2018 and 2017 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
2019
|
|
2018
|
|
2017
|
|
2019 vs 2018
|
|
2018 vs 2017
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Marketing
|
$
|
125,286
|
|
|
$
|
121,950
|
|
|
$
|
101,464
|
|
|
2.7
|
%
|
|
20.2
|
%
|
Selling, general and administrative
|
278,997
|
|
|
274,150
|
|
|
268,409
|
|
|
1.8
|
|
|
2.1
|
|
Restructuring charges
|
31
|
|
|
(313
|
)
|
|
6,830
|
|
|
NM
|
|
(104.6
|
)
|
Total operating expenses
|
$
|
404,314
|
|
|
$
|
395,787
|
|
|
$
|
376,703
|
|
|
2.2
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
$
|
(25,930
|
)
|
|
$
|
34,130
|
|
|
$
|
29,480
|
|
|
(176.0
|
)%
|
|
15.8
|
%
|
|
|
|
|
|
|
|
|
|
|
% of Gross profit:
|
|
|
|
|
|
|
|
|
|
Marketing
|
33.1
|
%
|
|
28.4
|
%
|
|
25.0
|
%
|
|
|
|
|
Selling, general and administrative
|
73.7
|
|
|
63.8
|
|
|
66.1
|
|
|
|
|
|
Comparison of the Years Ended December 31, 2019 and 2018:
International marketing expense and marketing expense as a percentage of gross profit increased for the year ended December 31, 2019 as we continued to invest in the long-term potential of our International segment. That increase was partially offset by a $6.2 million favorable impact from year-over-year changes in foreign currency rates.
SG&A and SG&A as a percentage of gross profit increased for the year ended December 31, 2019 primarily due to increases in technology-related expenses, partially offset by lower payroll and facilities-related expenses and a $14.4 million favorable impact from year-over-year changes in foreign currency rates.
The decrease in International income (loss) from operations for the year ended December 31, 2019 was primarily attributable to a $51.5 million decrease in gross profit, as well as increases in SG&A and marketing expense, as discussed above.
Comparison of the Years Ended December 31, 2018 and 2017:
International marketing expense and marketing expense as a percentage of gross profit for the year ended December 31, 2018 increased as we continued to invest in the long-term potential of our International segment.
International SG&A increased for the year ended December 31, 2018 primarily due to an $8.7 million unfavorable impact from year-over-year changes in foreign currency rates.
International restructuring charges declined for the year ended December 31, 2018. See Item 8, Note 15, Restructuring, for additional information.
The increase in our income from operations for the year ended December 31, 2018 as compared with the prior year was primarily attributable to an increase in gross profit and a decrease in restructuring costs, partially offset by an increase in marketing expense and SG&A, as discussed above. For the year ended December 31, 2018, there was a $2.7 million favorable impact on income (loss) from operations as a result of adopting Topic 606 as compared with previous accounting guidance.
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 years ended December 31, 2019, 2018 and 2017 was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Interest income
|
$
|
7,744
|
|
|
$
|
6,420
|
|
|
$
|
3,287
|
|
Interest expense
|
(23,593
|
)
|
|
(21,909
|
)
|
|
(20,680
|
)
|
Changes in fair value of investments
|
(72,497
|
)
|
|
(9,064
|
)
|
|
382
|
|
Gain on sale of investment
|
(412
|
)
|
|
—
|
|
|
7,624
|
|
Foreign currency gains (losses), net
|
(5,960
|
)
|
|
(20,325
|
)
|
|
18,634
|
|
Impairments of investments
|
(9,961
|
)
|
|
(10,156
|
)
|
|
(2,944
|
)
|
Upward adjustment for observable price changes of investment
|
51,397
|
|
|
—
|
|
|
—
|
|
Other
|
(47
|
)
|
|
2,026
|
|
|
407
|
|
Other income (expense), net
|
$
|
(53,329
|
)
|
|
$
|
(53,008
|
)
|
|
$
|
6,710
|
|
Comparison of the Years Ended December 31, 2019, 2018, and 2017:
The change in Other income (expense), net for the year ended December 31, 2019 as compared with the prior year is primarily related to a $69.4 million loss from changes in fair value of our investment in Monster LP, partially offset by an unrealized gain of $51.4 million as a result of an upward adjustment for observable price changes on an other equity investment. See Item 8, Note 7, Investments, for additional information. The change in Other income (expense) was also partially offset by a $14.4 million decrease in foreign currency losses for the year ended December 31, 2019. Foreign currency gains (losses) primarily result from intercompany balances with our subsidiaries that are denominated in foreign currencies.
The change in Other income (expense), net for the year ended December 31, 2018 as compared with the prior year was primarily related to $20.3 million in foreign currency losses for the year ended December 31, 2018, as compared with $18.6 million in foreign currency gains for the year ended December 31, 2017. Foreign currency gains (losses) primarily result from intercompany balances with our subsidiaries that are denominated in foreign currencies. Foreign currency losses for the year ended December 31, 2018 were driven by the depreciation of the Euro against the U.S. dollar from December 31, 2017 to December 31, 2018.
Provision (Benefit) for Income Taxes
Comparison of the Years Ended December 31, 2019, 2018, and 2017:
Provision (benefit) for income taxes for the years ended December 31, 2019, 2018 and 2017 was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019 vs 2018
|
|
2018 vs 2017
|
Provision (benefit) for income taxes
|
|
$
|
761
|
|
|
$
|
(957
|
)
|
|
$
|
7,544
|
|
|
179.5
|
%
|
|
(112.7
|
)%
|
Effective tax rate
|
|
(5.6
|
)%
|
|
(92.8
|
)%
|
|
20.9
|
%
|
|
|
|
|
Our U.S. Federal income tax rate was 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017. The primary factor impacting the effective tax rate for the years ended December 31, 2019, 2018 and 2017 was the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. See Item 8, Note 16, 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.
The effective tax rate for the year ended December 31, 2019 also reflected the reversal of reserves for uncertain tax positions due to the closure of a tax audit and due to the close of applicable statutes of limitation. The effective tax rate for year ended December 31, 2018 also reflected a $6.4 million income tax benefit resulting from the impact of adopting Topic 606 on intercompany activity in certain foreign jurisdictions.
Income (Loss) from Discontinued Operations
In connection with a strategic initiative to optimize our global footprint, we sold or ceased our operations in 12 countries between November 2016 and March 2017. The financial results of those operations have been presented as discontinued operations in the consolidated financial statements. See Item 8, Note 3, Discontinued Operations, for additional information about the dispositions and see Item 8, Note 11, Commitments and Contingencies, for information about indemnification obligations related to discontinued operations.
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 years ended December 31, 2019, 2018, 2017, special charges and credits included charges related to our restructuring plan. For the year ended December 31, 2018, special charges and credits also included a $34.6 million charge related to our patent litigation with IBM. For the year ended December 31, 2017, special charges and credits also included a $17.1 million credit related to the sale of intangible assets (see Item 8, Note 6, Goodwill and Other Intangible Assets). We exclude special charges and credits from Adjusted EBITDA because we believe that excluding those items provides meaningful supplemental information about our core operating performance and facilitates comparisons with our historical results.
The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, Income (loss) from continuing operations for the years ended December 31, 2019, 2018, and 2017 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Income (loss) from continuing operations
|
$
|
(14,292
|
)
|
|
$
|
1,988
|
|
|
$
|
28,601
|
|
Adjustments:
|
|
|
|
|
|
Stock-based compensation (1)
|
81,615
|
|
|
64,821
|
|
|
80,950
|
|
Depreciation and amortization
|
105,765
|
|
|
115,828
|
|
|
137,827
|
|
Acquisition-related expense (benefit), net
|
39
|
|
|
655
|
|
|
48
|
|
Restructuring charges (1)
|
31
|
|
|
(136
|
)
|
|
18,828
|
|
IBM patent litigation
|
—
|
|
|
34,600
|
|
|
—
|
|
Gain on sale of intangible assets
|
—
|
|
|
—
|
|
|
(17,149
|
)
|
Other (income) expense, net
|
53,329
|
|
|
53,008
|
|
|
(6,710
|
)
|
Provision (benefit) for income taxes
|
761
|
|
|
(957
|
)
|
|
7,544
|
|
Total adjustments
|
241,540
|
|
|
267,819
|
|
|
221,338
|
|
Adjusted EBITDA
|
$
|
227,248
|
|
|
$
|
269,807
|
|
|
$
|
249,939
|
|
|
|
(1)
|
Represents stock-based compensation expense recorded within Selling, general and administrative, Cost of revenue and Marketing. Restructuring charges include $0.8 million of additional stock-based compensation for the year ended December 31, 2017. Stock-based compensation recorded within Restructuring for the years ended December 31, 2019 and 2018 was not material.
|
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 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.
The following table represents the effect on our consolidated statements of operations from changes in exchange rates versus the U.S. dollar for the years ended December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Year Ended December 31, 2018
|
|
At Avg. 2018 Rates (1)
|
|
Exchange Rate Effect (2)
|
|
As Reported
|
|
At Avg. 2017 Rates (1)
|
|
Exchange Rate Effect (2)
|
|
As Reported
|
Gross billings
|
$
|
4,696,950
|
|
|
$
|
(83,419
|
)
|
|
$
|
4,613,531
|
|
|
$
|
5,147,297
|
|
|
$
|
55,517
|
|
|
$
|
5,202,814
|
|
Revenue
|
2,264,279
|
|
|
(45,364
|
)
|
|
2,218,915
|
|
|
2,603,611
|
|
|
33,135
|
|
|
2,636,746
|
|
Cost of revenue
|
1,058,791
|
|
|
(26,005
|
)
|
|
1,032,786
|
|
|
1,296,296
|
|
|
19,849
|
|
|
1,316,145
|
|
Gross profit
|
1,205,488
|
|
|
(19,359
|
)
|
|
1,186,129
|
|
|
1,307,315
|
|
|
13,286
|
|
|
1,320,601
|
|
Marketing
|
345,568
|
|
|
(6,213
|
)
|
|
339,355
|
|
|
391,569
|
|
|
4,168
|
|
|
395,737
|
|
Selling, general and administrative
|
823,527
|
|
|
(16,582
|
)
|
|
806,945
|
|
|
861,274
|
|
|
9,687
|
|
|
870,961
|
|
Restructuring charges
|
27
|
|
|
4
|
|
|
31
|
|
|
(184
|
)
|
|
48
|
|
|
(136
|
)
|
Income (loss) from operations
|
36,366
|
|
|
3,432
|
|
|
39,798
|
|
|
54,656
|
|
|
(617
|
)
|
|
54,039
|
|
|
|
(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, cash balances, which totaled $750.9 million as of December 31, 2019, and available borrowing capacity under our 2019 Credit Agreement.
Our net cash flows from operating, investing and financing activities from continuing operations for the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Cash provided by (used in):
|
|
|
|
|
|
Operating activities
|
$
|
71,283
|
|
|
$
|
190,855
|
|
|
$
|
130,545
|
|
Investing activities
|
(67,591
|
)
|
|
(135,982
|
)
|
|
(25,323
|
)
|
Financing activities
|
(92,619
|
)
|
|
(84,417
|
)
|
|
(138,046
|
)
|
Free cash flow is a non-GAAP liquidity measure that comprises net cash provided by operating activities from continuing operations, less purchases of property and equipment and capitalized software from continuing operations. Our free cash flow for the years ended December 31, 2019, 2018 and 2017 and reconciliations to the most comparable U.S. GAAP financial measure, Net cash provided by (used in) operating activities from continuing operations, for those periods are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Net cash provided by (used in) operating activities from continuing operations
|
$
|
71,283
|
|
|
$
|
190,855
|
|
|
$
|
130,545
|
|
Purchases of property and equipment and capitalized software from continuing operations
|
(67,328
|
)
|
|
(69,695
|
)
|
|
(59,158
|
)
|
Free cash flow
|
$
|
3,955
|
|
|
$
|
121,160
|
|
|
$
|
71,387
|
|
Our revenue-generating transactions are primarily structured such that we collect cash up-front from customers and pay third-party merchants at a later date, either based on a fixed payment schedule or upon the customer's redemption of the related voucher. For merchants on fixed payment terms, we remit payments on an ongoing basis, generally bi-weekly, throughout the term of the merchant's offering. For purchases of merchandise inventory, our supplier payment terms generally range from net 30 to net 60 days. We have primarily paid merchants on fixed payment terms in North America and upon voucher redemption internationally. In prior periods, we began to increase our use of redemption payment terms with our North America merchants and we expect that trend to continue.
Our cash balances fluctuate significantly throughout the year based on many variables, including gross billings growth rates, the timing of payments to merchants and suppliers, seasonality and the mix of transactions between Goods and Local. For example, we have 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 inventory suppliers.
For the year ended December 31, 2019, our net cash provided by operating activities from continuing operations was $71.3 million, as compared with our $14.3 million loss from continuing operations. That difference was primarily attributable to $230.6 million of non-cash items, including depreciation and amortization, stock-based compensation, a $69.4 million loss from changes in fair value of our investment in Monster LP and a $51.4 million upward adjustment to an other equity investment for observable price changes in an orderly transaction. The difference between our net cash provided by operating activities and our income from continuing operations due to non-cash items was partially offset by a $145.0 million net decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the decline of billings, and to a lesser extent, seasonal timing of payments to inventory suppliers.
For the year ended December 31, 2018, our net cash provided by operating activities from continuing operations was $190.9 million, as compared with our $2.0 million income from continuing operations. That difference was primarily attributable to $206.8 million of non-cash items, including depreciation and amortization and stock-based compensation. The difference between our net cash provided by operating activities and our income from continuing operations due to non-cash items was partially offset by a $17.9 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 our patent litigation.
For the year ended December 31, 2017, our net cash provided by operating activities from continuing operations was $130.5 million, as compared with our $28.6 million income from continuing operations. That difference was primarily attributable to $209.1 million of non-cash items, including depreciation and amortization, stock-based compensation and the gain on sale of intangible assets. The difference between net cash provided by operating activities and our income from continuing operations due to non-cash items was partially offset by a $107.1 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 payments related to our restructuring activities.
Our net cash used in investing activities from continuing operations was $67.6 million, $136.0 million and $25.3 million for the years ended December 31, 2019, 2018 and 2017. For the year ended December 31, 2019, our net cash used in investing activities from continuing operations included purchases of property and equipment and capitalized software of $67.3 million. For the year ended December 31, 2018, our net cash used in investing activities from continuing operations included net cash paid for a business acquisition of $58.1 million, purchases of property and equipment and capitalized software of $69.7 million and net cash paid of $18.3 million for acquisitions of intangible assets, including $15.4 million related to the settlement of our IBM patent litigation. For the year ended December 31, 2017, our net cash used in investing activities from continuing operations included purchases of property and equipment and capitalized software of $59.2 million, proceeds of $18.3 million from the sale of intangible assets and proceeds of $16.6 million from sales and maturities of investments.
Our net cash used in financing activities was $92.6 million, $84.4 million and $138.0 million for the years ended December 31, 2019, 2018 and 2017. For the year ended December 31, 2019, net cash used in financing activities included $45.6 million in repurchases of common stock under our share repurchase program, $19.7 million in payments of finance lease obligations and $18.1 million in taxes paid related to net share settlements of stock-based compensation awards. For the year ended December 31, 2018, net cash used in financing activities included $33.0 million in payments of finance lease obligations, $24.1 million in taxes paid related to net share settlements of stock-based compensation awards, $9.6 million in repurchases of common stock under our share repurchase program and an $8.4 million payment of a financing obligation related to a business acquisition. For the year ended December 31, 2017, net cash used in financing activities included $61.2 million in repurchases of common stock under our share repurchase program, $34.0 million in payments of finance lease obligations and $27.7 million in taxes paid related to net share settlements of stock-based compensation awards.
In May 2019, we entered into the 2019 Credit Agreement which provides for aggregate principal borrowings of up to $400.0 million and matures in May 2024. As of December 31, 2019, we had no borrowings under our 2019 Credit Agreement and were in compliance with all covenants. See Item 8, Note 9, Financing Arrangements, for additional information.
As of December 31, 2019, we had $205.2 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 of Directors authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. During the year ended December 31, 2019, we repurchased 14,027,227 shares for an aggregate purchase price of $45.2 million (including fees and commissions) under our repurchase program. As of December 31, 2019, up to $245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the 2019 Credit Agreement, share price and other factors, and the program may be terminated at any time. Repurchases will be made in compliance with SEC rules and other legal requirements and may be made, in part, under a Rule 10b5-1 plan, which permits share repurchases when we might otherwise be precluded from doing so.
In April 2016, we issued convertible notes with an aggregate principal amount of $250.0 million. We received net proceeds of $243.2 million from the issuance of the Notes. We have used the proceeds from the Notes for general corporate purposes, including repurchases of shares of our common stock. Additionally, we entered into note hedge and warrant transactions with certain bank counterparties that are designed to offset, in part, the potential dilution from conversion of the Notes. See Item 8, Note 9, Financing Arrangements, for additional information.
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, which requires compliance with specified financial covenants. Although we were in compliance with all covenants as of December 31, 2019, general economic conditions, as well as our future operating performance, which will be impacted by our plan to exit the Goods category by the end of 2020, could limit our access to funding under our revolving 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. We also believe our working capital will be impacted by our plan to exit the Goods category, and expect a one-time decrease in working capital, which could impact our liquidity. 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.
Contractual Obligations and Commitments
The following table summarizes (in thousands) our future contractual obligations and commitments as of December 31, 2019. The table below excludes $30.1 million of non-current liabilities for unrecognized tax benefits, including interest and penalties, as of December 31, 2019. We cannot make a reasonable estimate of the period of cash settlement for the tax positions classified as non-current liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
Total
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
Finance lease obligations (1)
|
$
|
14,501
|
|
|
$
|
8,510
|
|
|
$
|
5,264
|
|
|
$
|
715
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating lease obligations (2)
|
163,749
|
|
|
39,261
|
|
|
34,457
|
|
|
32,546
|
|
|
24,126
|
|
|
17,117
|
|
|
16,242
|
|
Convertible senior notes (3)
|
274,375
|
|
|
8,125
|
|
|
8,125
|
|
|
258,125
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase obligations (4)
|
19,550
|
|
|
10,675
|
|
|
4,671
|
|
|
4,123
|
|
|
61
|
|
|
20
|
|
|
—
|
|
Total
|
$
|
472,175
|
|
|
$
|
66,571
|
|
|
$
|
52,517
|
|
|
$
|
295,509
|
|
|
$
|
24,199
|
|
|
$
|
17,137
|
|
|
$
|
16,242
|
|
|
|
(1)
|
Finance lease obligations include both principal and interest components of future minimum finance lease payments.
|
|
|
(2)
|
Operating lease obligations are primarily for office facilities and are noncancelable. Certain leases contain periodic rent escalation adjustments and renewal and expansion options. Operating lease obligations expire at various dates with the latest maturity in 2026.
|
|
|
(3)
|
Represents the principal amount and related interest on our convertible senior notes.
|
|
|
(4)
|
Purchase obligations primarily represent noncancelable contractual obligations related to cloud computing and other information technology services.
|
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2019.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting policies are discussed in Item 8, Note 2, Summary of Significant Accounting Policies, in the notes to the consolidated financial statements.
The preparation of 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 those estimates under different assumptions or conditions.
We believe that the estimates and assumptions related to revenue recognition, lease recognition, impairment assessments of goodwill and long-lived assets, income taxes and fair value option investments have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Revenue Recognition
Refer to Item 8, Note 2, Summary of Significant Accounting Policies and Item 8, Note 14, Revenue Recognition, for information about our revenue recognition accounting policies, including estimates of our refund liabilities.
Leases
Refer to Item 8, Note 2, Summary of Significant Accounting Policies and Item 8, Note 10, Leases for information about our lease accounting policies, including lease recognition policy.
Impairment Assessments of Goodwill and Long-Lived Assets
Refer to Item 8, Note 2, Summary of Significant Accounting Policies, and Note 6, Goodwill and Other Intangible Assets, for information about our accounting policies relating to goodwill and impairment of long-lived assets. Additional information about those accounting policies and estimates is set forth in the following paragraphs.
When determining fair values in impairment tests, we use one of the following recognized valuation methods: the income approach (including discounted cash flows), the market approach and the cost approach. Our significant estimates in those fair value measurements include identifying business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples. Further, when measuring fair value based on discounted cash flows, we make assumptions about risk-adjusted discount rates; rates of increase in revenue, cost of revenue and operating expenses; weighted average cost of capital; rates of long-term growth; and income tax rates. Valuations are performed by management or third-party valuation specialists under management's supervision, where appropriate. We believe that the estimated fair values used in impairment tests are based on reasonable assumptions that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates.
Our three reporting units as of October 1, 2019 were North America, EMEA (Europe, the Middle East and Africa) and Asia Pacific. There was no impairment of goodwill for any reporting unit because the fair values of the reporting units exceeded their carrying values.
Future changes in our assumptions or the interrelationship of the assumptions described above may negatively impact future valuations. In future measurements of fair value, adverse changes in assumptions could result in impairments of goodwill or long-lived assets that would require non-cash charges to the consolidated statements of operations and may have a material effect on our financial condition and operating results.
Income Taxes
Refer to Item 8, Note 2, Summary of Significant Accounting Policies, and Note 16, Income Taxes, for information about our income tax accounting policies.
Fair Value Option Investments
Refer to Item 8, Note 7, Investments, for information about the fair value measurements of our fair value option investments.
Estimating the fair values of our investments requires significant judgment regarding the assumptions that market participants would use in pricing those assets. As the fair value measurements involve significant unobservable inputs, such as cash flow projections and discount rates, they are classified as Level 3 within the fair value hierarchy. Future changes in judgment about the related fair value inputs, including changes that may result from any subsequent financing transactions undertaken by those investees, could result in significant increases or decreases in fair value that would be recognized in earnings. Our election to apply fair value accounting to those investments has and may continue to cause fluctuations in our earnings from period to period.
Recently Issued Accounting Standards
For a description of recently issued accounting standards, please see Item 8, Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements of this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Table of Contents
Groupon, Inc.
Consolidated Financial Statements
As of December 31, 2019 and 2018 and for the Years Ended December 31, 2019, 2018 and 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Groupon, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Groupon, Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15(2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 18, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.
Adoption of New Lease Accounting Standard
As discussed in Note 10 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of the guidance in ASC Topic 842, Leases, using the modified retrospective method.
Adoption of New Revenue Recognition Accounting Standard
As discussed in Note 14 to the financial statements, the Company has changed its method of accounting for revenue transactions in 2018 due to the adoption of the guidance in ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Income Taxes - Foreign tax position- Refer to Notes 2 and 16 to the financial statements
Critical Audit Matter Description
The Company received a proposed income tax assessment from the tax authority in one foreign jurisdiction in the amount of $113.3 million, inclusive of estimated incremental interest from the original assessment. The Company
believes the assessment, which primarily relates to transfer pricing on transactions occurring during 2011, is without merit and it intends to vigorously defend itself.
Given the complexity of the relevant tax laws and regulations, auditing management’s evaluation and accounting for the tax position associated with the foreign income tax assessment involved especially subjective and complex judgments.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for the tax position associated with the foreign income tax assessment included the following, among others:
|
|
•
|
We tested the effectiveness of controls over income taxes, including those over accounting for uncertain tax positions.
|
|
|
•
|
With the assistance of our foreign and US income tax specialists, we evaluated management’s analysis regarding the likelihood of sustaining its foreign tax position upon examination by the relevant foreign tax authorities; and, we evaluated management’s estimate of the amount of tax benefit recognized.
|
|
|
•
|
We assessed the basis of the Company’s analysis and measurement by:
|
|
|
◦
|
Obtaining, reading, and evaluating the outside legal opinion received by the Company supporting its foreign tax position.
|
|
|
◦
|
Obtaining, reading, and evaluating the written response from the outside legal counsel representing the Company provided to us as part of our annual legal inquiry process.
|
|
|
◦
|
Obtaining, reading, and evaluating management’s written analysis supporting the accounting position.
|
|
|
◦
|
Making direct inquiries of the outside legal counsel representing the Company in this proposed assessment by the foreign tax authority.
|
|
|
◦
|
Evaluating any developments in the matter during the current fiscal year through inquiry of Company personnel and their outside legal counsel.
|
Investments - Monster Holdings LP Fair Value Option Investment - Refer to Notes 2 and 7 to the financial statements
Critical Audit Matter Description
The Company has a minority interest investment in Monster Holdings LP, an entity based in the Republic of Korea, which is accounted for using the fair value method. When determining the fair value of the investment, management is required to make significant estimates and assumptions, particularly regarding cash flow forecasts of the investee, including revenue growth, margins, and operating expenses. The Company recorded a $69.4 million loss during 2019 due to a decline in the fair value of the investment. The reported fair value of the investment at December 31, 2019 is $0.
Auditing the Company’s cash flow forecasts of the investee used in its valuation of its investment in Monster Holdings LP involved especially subjective judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasted cash flows of the investee included the following, among others:
|
|
•
|
We tested the effectiveness of controls over the measurement of the fair value of the investment, including those over the determination of forecasted cash flows of the investee.
|
|
|
•
|
We assessed the reasonableness of forecasted investee cash flows by (1) comparing the projections to historical results and previous forecasts, (2) considering the extent of management’s historical ability to reliably forecast prospective operating results of the investee, (3) obtaining and evaluating management’s written analysis supporting the forecasted cash flows of the investee, and (4) making direct inquiries of management of the investee regarding operating strategies and outlook of the business to assess the reasonability of management achieving the forecasted performance.
|
Goodwill - Refer to Notes 2 and 6 to the financial statements
Critical Audit Matter Description
The Company’s annual evaluation of goodwill impairment involves the comparison of the fair value of each of the Company’s three reporting units to its carrying value. The Company determines the fair value of its reporting units
using the income approach (including discounted cash flows) and the market approach. With respect to the income approach, management makes significant estimates and assumptions related to forecasts of future performance, including revenues; earnings before interest, income taxes, depreciation, and amortization (EBITDA) margins; and risk-adjusted discount rates. The goodwill balance subject to the impairment test was $325 million as of December 31, 2019.
Auditing the estimates and assumptions that impacted the valuation of the reporting units involved especially subjective judgment, specifically related to the forecasts of revenues, EBITDA margins, and selection of risk-adjusted discount rates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s forecasts of revenues and EBITDA margins, and its selection of risk-adjusted discount rates included the following, among others:
|
|
•
|
We tested the effectiveness of controls over the annual goodwill impairment assessment, including those over the forecasts.
|
|
|
•
|
We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.
|
|
|
•
|
We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results and previous forecasts, (2) internal communications to management and the Board of Directors, and (3) analyst and industry reports of the Company and companies in its peer group. Additionally, we obtained and evaluated management’s written analysis supporting the forecasted cash flows.
|
|
|
•
|
With the assistance of fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) risk-adjusted discount rates by:
|
|
|
◦
|
Evaluating whether the fair value models being used are appropriate considering the Company’s circumstances and valuation premise identified.
|
|
|
◦
|
Testing the source information and the mathematical accuracy of the calculation underlying the determination of the risk-adjusted discount rates, and developing a range of independent estimates and comparing those to the risk-adjusted discount rates selected by management.
|
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 18, 2020
We have served as the Company's auditor since 2017.
GROUPON, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
750,887
|
|
|
$
|
841,021
|
|
Accounts receivable, net
|
54,953
|
|
|
69,493
|
|
Prepaid expenses and other current assets
|
82,073
|
|
|
88,115
|
|
Total current assets
|
887,913
|
|
|
998,629
|
|
Property, equipment and software, net
|
124,950
|
|
|
143,117
|
|
Right-of-use assets - operating leases, net
|
108,390
|
|
|
—
|
|
Goodwill
|
325,017
|
|
|
325,491
|
|
Intangible assets, net
|
35,292
|
|
|
45,401
|
|
Investments (including $1,405 and $84,242 at December 31, 2019 and December 31, 2018 at fair value)
|
76,576
|
|
|
108,515
|
|
Other non-current assets
|
28,605
|
|
|
20,989
|
|
Total Assets
|
$
|
1,586,743
|
|
|
$
|
1,642,142
|
|
Liabilities and Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
20,415
|
|
|
$
|
38,359
|
|
Accrued merchant and supplier payables
|
540,940
|
|
|
651,781
|
|
Accrued expenses and other current liabilities
|
260,192
|
|
|
267,034
|
|
Total current liabilities
|
821,547
|
|
|
957,174
|
|
Convertible senior notes, net
|
214,869
|
|
|
201,669
|
|
Operating lease obligations
|
110,294
|
|
|
—
|
|
Other non-current liabilities
|
44,987
|
|
|
100,688
|
|
Total Liabilities
|
1,191,697
|
|
|
1,259,531
|
|
Commitments and contingencies (see Note 11)
|
|
|
|
Stockholders' Equity
|
|
|
|
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized; 771,697,087 shares issued and 565,814,732 shares outstanding at December 31, 2019; 760,939,440 shares issued and 569,084,312 shares outstanding at December 31, 2018
|
77
|
|
|
76
|
|
Additional paid-in capital
|
2,310,320
|
|
|
2,234,560
|
|
Treasury stock, at cost, 205,882,355 and 191,855,128 shares at December 31, 2019 and December 31, 2018
|
(922,666
|
)
|
|
(877,491
|
)
|
Accumulated deficit
|
(1,032,876
|
)
|
|
(1,010,499
|
)
|
Accumulated other comprehensive income (loss)
|
39,081
|
|
|
34,602
|
|
Total Groupon, Inc. Stockholders' Equity
|
393,936
|
|
|
381,248
|
|
Noncontrolling interests
|
1,110
|
|
|
1,363
|
|
Total Equity
|
395,046
|
|
|
382,611
|
|
Total Liabilities and Equity
|
$
|
1,586,743
|
|
|
$
|
1,642,142
|
|
See Notes to Consolidated Financial Statements.
GROUPON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Revenue:
|
|
|
|
|
|
Service
|
$
|
1,126,357
|
|
|
$
|
1,205,487
|
|
|
$
|
1,266,452
|
|
Product
|
1,092,558
|
|
|
1,431,259
|
|
|
1,577,425
|
|
Total revenue
|
2,218,915
|
|
|
2,636,746
|
|
|
2,843,877
|
|
Cost of revenue:
|
|
|
|
|
|
Service
|
114,462
|
|
|
120,077
|
|
|
160,810
|
|
Product
|
918,324
|
|
|
1,196,068
|
|
|
1,349,206
|
|
Total cost of revenue
|
1,032,786
|
|
|
1,316,145
|
|
|
1,510,016
|
|
Gross profit
|
1,186,129
|
|
|
1,320,601
|
|
|
1,333,861
|
|
Operating expenses:
|
|
|
|
|
|
Marketing
|
339,355
|
|
|
395,737
|
|
|
400,918
|
|
Selling, general and administrative
|
806,945
|
|
|
870,961
|
|
|
901,829
|
|
Restructuring charges
|
31
|
|
|
(136
|
)
|
|
18,828
|
|
Gain on sale of intangible assets
|
—
|
|
|
—
|
|
|
(17,149
|
)
|
Total operating expenses
|
1,146,331
|
|
|
1,266,562
|
|
|
1,304,426
|
|
Income (loss) from operations
|
39,798
|
|
|
54,039
|
|
|
29,435
|
|
Other income (expense), net
|
(53,329
|
)
|
|
(53,008
|
)
|
|
6,710
|
|
Income (loss) from continuing operations before provision (benefit) for income taxes
|
(13,531
|
)
|
|
1,031
|
|
|
36,145
|
|
Provision (benefit) for income taxes
|
761
|
|
|
(957
|
)
|
|
7,544
|
|
Income (loss) from continuing operations
|
(14,292
|
)
|
|
1,988
|
|
|
28,601
|
|
Income (loss) from discontinued operations, net of tax
|
2,597
|
|
|
—
|
|
|
(1,974
|
)
|
Net income (loss)
|
(11,695
|
)
|
|
1,988
|
|
|
26,627
|
|
Net income attributable to noncontrolling interests
|
(10,682
|
)
|
|
(13,067
|
)
|
|
(12,587
|
)
|
Net income (loss) attributable to Groupon, Inc.
|
$
|
(22,377
|
)
|
|
$
|
(11,079
|
)
|
|
$
|
14,040
|
|
|
|
|
|
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.03
|
|
Discontinued operations
|
0.00
|
|
|
—
|
|
|
(0.00
|
)
|
Basic net income (loss) per share
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.03
|
|
Discontinued operations
|
0.00
|
|
|
—
|
|
|
(0.01
|
)
|
Diluted net income (loss) per share
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
Basic
|
567,408,340
|
|
|
566,511,108
|
|
|
559,367,075
|
|
Diluted
|
567,408,340
|
|
|
566,511,108
|
|
|
568,418,371
|
|
See Notes to Consolidated Financial Statements.
GROUPON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Income (loss) from continuing operations
|
$
|
(14,292
|
)
|
|
$
|
1,988
|
|
|
$
|
28,601
|
|
Other comprehensive income (loss) from continuing operations:
|
|
|
|
|
|
Net change in unrealized gain (loss) on foreign currency translation adjustments
|
4,858
|
|
|
3,332
|
|
|
(10,776
|
)
|
Net change in unrealized gain (loss) on defined benefit pension plan
|
—
|
|
|
—
|
|
|
585
|
|
Available-for-sale securities:
|
|
|
|
|
|
Net unrealized gain (loss) during the period
|
(379
|
)
|
|
(841
|
)
|
|
(1,109
|
)
|
Reclassification adjustment for realized (gain) loss on investment included in income (loss) from continuing operations
|
—
|
|
|
106
|
|
|
1,603
|
|
Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of $0, $34 and $0 for the years ended December 31, 2019, 2018, and 2017)
|
(379
|
)
|
|
(735
|
)
|
|
494
|
|
Other comprehensive income (loss) from continuing operations
|
4,479
|
|
|
2,597
|
|
|
(9,697
|
)
|
Comprehensive income (loss) from continuing operations
|
(9,813
|
)
|
|
4,585
|
|
|
18,904
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
2,597
|
|
|
—
|
|
|
(1,974
|
)
|
Other comprehensive income (loss) from discontinued operations - foreign currency translation adjustments:
|
|
|
|
|
|
Net unrealized gain (loss) during the period
|
—
|
|
|
—
|
|
|
(1,793
|
)
|
Reclassification adjustment included in income (loss) from discontinued operations
|
—
|
|
|
—
|
|
|
(14,718
|
)
|
Net change in unrealized gain (loss)
|
—
|
|
|
—
|
|
|
(16,511
|
)
|
Comprehensive income (loss) from discontinued operations
|
2,597
|
|
|
—
|
|
|
(18,485
|
)
|
|
|
|
|
|
|
Comprehensive income (loss)
|
(7,216
|
)
|
|
4,585
|
|
|
419
|
|
Comprehensive income attributable to noncontrolling interests
|
(10,682
|
)
|
|
(13,067
|
)
|
|
(12,587
|
)
|
Comprehensive income (loss) attributable to Groupon, Inc.
|
$
|
(17,898
|
)
|
|
$
|
(8,482
|
)
|
|
$
|
(12,168
|
)
|
See Notes to Consolidated Financial Statements.
GROUPON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Groupon, Inc. Stockholders' Equity
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Treasury Stock
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total Groupon, Inc. Stockholders' Equity
|
|
Non-controlling Interests
|
|
Total Equity
|
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
|
Balance at December 31, 2016
|
736,531,771
|
|
|
$
|
74
|
|
|
$
|
2,112,728
|
|
|
(171,695,908
|
)
|
|
$
|
(807,424
|
)
|
|
$
|
(1,099,010
|
)
|
|
$
|
58,052
|
|
|
$
|
264,420
|
|
|
$
|
642
|
|
|
$
|
265,062
|
|
Cumulative effect of change in accounting principle
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,234
|
)
|
|
—
|
|
|
(3,234
|
)
|
|
—
|
|
|
(3,234
|
)
|
Comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,040
|
|
|
(26,208
|
)
|
|
(12,168
|
)
|
|
12,587
|
|
|
419
|
|
Exercise of stock options
|
102,803
|
|
|
—
|
|
|
230
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
230
|
|
|
—
|
|
|
230
|
|
Vesting of restricted stock units and performance share units
|
16,596,562
|
|
|
2
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Shares issued under employee stock purchase plan
|
1,879,656
|
|
|
—
|
|
|
5,283
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,283
|
|
|
—
|
|
|
5,283
|
|
Tax withholdings related to net share settlements of stock-based compensation awards
|
(6,568,930
|
)
|
|
(1
|
)
|
|
(27,187
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27,188
|
)
|
|
—
|
|
|
(27,188
|
)
|
Stock-based compensation on equity-classified awards
|
—
|
|
|
—
|
|
|
83,656
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
83,656
|
|
|
—
|
|
|
83,656
|
|
Repurchases of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,906,334
|
)
|
|
(60,026
|
)
|
|
—
|
|
|
—
|
|
|
(60,026
|
)
|
|
—
|
|
|
(60,026
|
)
|
Distributions to noncontrolling interest holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,357
|
)
|
|
(12,357
|
)
|
Balance at December 31, 2017
|
748,541,862
|
|
|
$
|
75
|
|
|
$
|
2,174,708
|
|
|
(188,602,242
|
)
|
|
$
|
(867,450
|
)
|
|
$
|
(1,088,204
|
)
|
|
$
|
31,844
|
|
|
$
|
250,973
|
|
|
$
|
872
|
|
|
$
|
251,845
|
|
Cumulative effect of change in accounting principle, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88,945
|
|
|
—
|
|
|
88,945
|
|
|
—
|
|
|
88,945
|
|
Reclassification for impact of U.S. tax rate change
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(161
|
)
|
|
161
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,079
|
)
|
|
2,597
|
|
|
(8,482
|
)
|
|
13,067
|
|
|
4,585
|
|
Exercise of stock options
|
672,793
|
|
|
—
|
|
|
81
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81
|
|
|
—
|
|
|
81
|
|
Vesting of restricted stock units and performance share units
|
14,264,895
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Shares issued under employee stock purchase plan
|
1,621,061
|
|
|
—
|
|
|
5,634
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,634
|
|
|
—
|
|
|
5,634
|
|
Shares issued to settle liability-classified awards
|
1,240,379
|
|
|
—
|
|
|
6,436
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,436
|
|
|
—
|
|
|
6,436
|
|
Tax withholdings related to net share settlements of stock-based compensation awards
|
(5,401,550
|
)
|
|
—
|
|
|
(22,709
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,709
|
)
|
|
—
|
|
|
(22,709
|
)
|
Stock-based compensation on equity-classified awards
|
—
|
|
|
—
|
|
|
70,411
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
70,411
|
|
|
—
|
|
|
70,411
|
|
Repurchases of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,252,886
|
)
|
|
(10,041
|
)
|
|
—
|
|
|
—
|
|
|
(10,041
|
)
|
|
—
|
|
|
(10,041
|
)
|
Distributions to noncontrolling interest holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,576
|
)
|
|
(12,576
|
)
|
Balance at December 31, 2018
|
760,939,440
|
|
|
$
|
76
|
|
|
$
|
2,234,560
|
|
|
(191,855,128
|
)
|
|
$
|
(877,491
|
)
|
|
$
|
(1,010,499
|
)
|
|
$
|
34,602
|
|
|
$
|
381,248
|
|
|
$
|
1,363
|
|
|
$
|
382,611
|
|
Comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,377
|
)
|
|
4,479
|
|
|
(17,898
|
)
|
|
10,682
|
|
|
(7,216
|
)
|
Exercise of stock options
|
74,875
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
40
|
|
Vesting of restricted stock units and performance share units
|
14,419,012
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Shares issued under employee stock purchase plan
|
1,486,006
|
|
|
—
|
|
|
4,083
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,083
|
|
|
—
|
|
|
4,083
|
|
Tax withholdings related to net share settlements of stock-based compensation awards
|
(5,222,246
|
)
|
|
—
|
|
|
(17,413
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,413
|
)
|
|
—
|
|
|
(17,413
|
)
|
Stock-based compensation on equity-classified awards
|
—
|
|
|
—
|
|
|
89,051
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
89,051
|
|
|
—
|
|
|
89,051
|
|
Repurchases of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,027,227
|
)
|
|
(45,175
|
)
|
|
—
|
|
|
—
|
|
|
(45,175
|
)
|
|
—
|
|
|
(45,175
|
)
|
Distributions to noncontrolling interest holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,935
|
)
|
|
(10,935
|
)
|
Balance at December 31, 2019
|
771,697,087
|
|
|
$
|
77
|
|
|
$
|
2,310,320
|
|
|
(205,882,355
|
)
|
|
$
|
(922,666
|
)
|
|
$
|
(1,032,876
|
)
|
|
$
|
39,081
|
|
|
$
|
393,936
|
|
|
$
|
1,110
|
|
|
$
|
395,046
|
|
See Notes to Consolidated Financial Statements.
GROUPON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Operating activities
|
|
|
|
|
|
Net income (loss)
|
$
|
(11,695
|
)
|
|
$
|
1,988
|
|
|
$
|
26,627
|
|
Less: Income (loss) from discontinued operations, net of tax
|
2,597
|
|
|
—
|
|
|
(1,974
|
)
|
Income (loss) from continuing operations
|
(14,292
|
)
|
|
1,988
|
|
|
28,601
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization of property, equipment and software
|
91,410
|
|
|
101,330
|
|
|
114,795
|
|
Amortization of acquired intangible assets
|
14,355
|
|
|
14,498
|
|
|
23,032
|
|
Stock-based compensation
|
81,615
|
|
|
64,821
|
|
|
82,044
|
|
Gain on sale of intangible assets
|
—
|
|
|
—
|
|
|
(17,149
|
)
|
(Gain) loss on sale of investment
|
412
|
|
|
—
|
|
|
(7,624
|
)
|
Impairments of investments
|
9,961
|
|
|
10,156
|
|
|
2,944
|
|
Upward adjustment for observable price change of investment
|
(51,397
|
)
|
|
—
|
|
|
—
|
|
Deferred income taxes
|
(1,485
|
)
|
|
(5,000
|
)
|
|
603
|
|
(Gain) loss from changes in fair value of investments
|
72,497
|
|
|
9,064
|
|
|
(382
|
)
|
Amortization of debt discount on convertible senior notes
|
13,200
|
|
|
11,916
|
|
|
10,758
|
|
Change in assets and liabilities, net of acquisitions and dispositions:
|
|
|
|
|
|
Accounts receivable
|
13,577
|
|
|
32,057
|
|
|
(18,793
|
)
|
Prepaid expenses and other current assets
|
3,176
|
|
|
7,166
|
|
|
4,074
|
|
Right-of-use assets - operating leases
|
26,226
|
|
|
—
|
|
|
—
|
|
Accounts payable
|
(17,401
|
)
|
|
5,805
|
|
|
(199
|
)
|
Accrued merchant and supplier payables
|
(109,176
|
)
|
|
(45,268
|
)
|
|
(29,823
|
)
|
Accrued expenses and other current liabilities
|
(26,071
|
)
|
|
(31,430
|
)
|
|
(40,361
|
)
|
Operating lease obligations
|
(28,552
|
)
|
|
—
|
|
|
—
|
|
Other, net
|
(6,772
|
)
|
|
13,752
|
|
|
(21,975
|
)
|
Net cash provided by (used in) operating activities from continuing operations
|
71,283
|
|
|
190,855
|
|
|
130,545
|
|
Net cash provided by (used in) operating activities from discontinued operations
|
—
|
|
|
—
|
|
|
(2,418
|
)
|
Net cash provided by (used in) operating activities
|
71,283
|
|
|
190,855
|
|
|
128,127
|
|
Investing activities
|
|
|
|
|
|
Purchases of property and equipment and capitalized software
|
(67,328
|
)
|
|
(69,695
|
)
|
|
(59,158
|
)
|
Proceeds from sale of intangible assets
|
—
|
|
|
1,500
|
|
|
18,333
|
|
Proceeds from sales and maturities of investments
|
3,475
|
|
|
8,594
|
|
|
16,561
|
|
Acquisition of business, net of acquired cash
|
—
|
|
|
(58,119
|
)
|
|
—
|
|
Acquisitions of intangible assets and other investing activities
|
(3,738
|
)
|
|
(18,262
|
)
|
|
(1,059
|
)
|
Net cash provided by (used in) investing activities from continuing operations
|
(67,591
|
)
|
|
(135,982
|
)
|
|
(25,323
|
)
|
Net cash provided by (used in) investing activities from discontinued operations
|
—
|
|
|
—
|
|
|
(9,548
|
)
|
Net cash provided by (used in) investing activities
|
(67,591
|
)
|
|
(135,982
|
)
|
|
(34,871
|
)
|
Financing activities
|
|
|
|
|
|
Issuance costs for revolving credit agreement
|
(2,384
|
)
|
|
—
|
|
|
—
|
|
Payments for repurchases of common stock
|
(45,631
|
)
|
|
(9,585
|
)
|
|
(61,233
|
)
|
Taxes paid related to net share settlements of stock-based compensation awards
|
(18,105
|
)
|
|
(24,105
|
)
|
|
(27,681
|
)
|
Proceeds from stock option exercises and employee stock purchase plan
|
4,123
|
|
|
5,715
|
|
|
5,513
|
|
Distributions to noncontrolling interest holders
|
(10,935
|
)
|
|
(12,576
|
)
|
|
(12,357
|
)
|
Payments of finance lease obligations
|
(19,687
|
)
|
|
(33,023
|
)
|
|
(34,025
|
)
|
Payments of contingent consideration related to acquisitions
|
—
|
|
|
(1,815
|
)
|
|
(7,790
|
)
|
Payment of financing obligation related to acquisition
|
—
|
|
|
(8,391
|
)
|
|
—
|
|
Other financing activities
|
—
|
|
|
(637
|
)
|
|
(473
|
)
|
Net cash provided by (used in) financing activities
|
(92,619
|
)
|
|
(84,417
|
)
|
|
(138,046
|
)
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations
|
(3,144
|
)
|
|
(11,209
|
)
|
|
26,499
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations
|
(92,071
|
)
|
|
(40,753
|
)
|
|
(18,291
|
)
|
Less: Net increase (decrease) in cash classified within current assets of discontinued operations
|
—
|
|
|
—
|
|
|
(28,866
|
)
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(92,071
|
)
|
|
(40,753
|
)
|
|
10,575
|
|
Cash, cash equivalents and restricted cash, beginning of period (1)
|
844,728
|
|
|
885,481
|
|
|
874,906
|
|
Cash, cash equivalents and restricted cash, end of period (1)
|
$
|
752,657
|
|
|
$
|
844,728
|
|
|
$
|
885,481
|
|
See Notes to Consolidated Financial Statements.
GROUPON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
Income tax payments (refunds) for continuing operations
|
$
|
11,898
|
|
|
$
|
2,781
|
|
|
$
|
8,646
|
|
Income tax payments (refunds) for discontinued operations
|
—
|
|
|
—
|
|
|
(56
|
)
|
Cash paid for interest
|
9,145
|
|
|
9,556
|
|
|
9,425
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
Equipment acquired under capital lease arrangements (2)
|
$
|
—
|
|
|
$
|
18,064
|
|
|
$
|
28,271
|
|
|
|
(1)
|
The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to amounts reported within the consolidated balance sheets as of December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
December 31, 2017
|
Cash and cash equivalents
|
$
|
750,887
|
|
|
$
|
841,021
|
|
|
$
|
880,129
|
|
Restricted cash included in prepaid expenses and other current assets
|
1,534
|
|
|
3,320
|
|
|
4,932
|
|
Restricted cash included in other non-current assets
|
236
|
|
|
387
|
|
|
420
|
|
Cash, cash equivalents and restricted cash
|
$
|
752,657
|
|
|
$
|
844,728
|
|
|
$
|
885,481
|
|
|
|
(2)
|
Please refer to Note 10, Leases, for supplemental cash flow information on our leasing obligations, as required by our adoption of Accounting Standards Update ("ASU") 2016-02, Leases ("Topic 842"), on January 1, 2019.
|
See Notes to Consolidated Financial Statements.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Company Information
Groupon, Inc. and subsidiaries, which commenced operations in October 2008, operates online local commerce marketplaces throughout the world that connect merchants to consumers by offering goods and services, generally at a discount. Customers access those marketplaces through our mobile applications and our websites, primarily localized groupon.com sites in many countries.
Our operations are organized into two segments: North America and International. See Note 20, Segment Information.
In connection with a strategic initiative to optimize our global footprint, we sold or ceased our operations in 12 countries between November 2016 and March 2017. The financial results of those operations have been presented as discontinued operations in the consolidated financial statements. See Note 3, Discontinued Operations, for additional information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Groupon, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The 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 variable interest entities for which we have determined that we are the primary beneficiary. Outside stockholders' interests in subsidiaries are shown on the consolidated financial statements as Noncontrolling interests. Investments in entities in which we do not have a controlling financial interest are accounted for at fair value, 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 consolidated balance sheets. See Note 10, Leases, for additional 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 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 $7.4 million of implementation costs for the year ended December 31, 2019. We have not recognized any amortization related to these implementation costs for the year ended December 31, 2019.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We adopted the guidance in ASC Topic 606, Revenue from Contracts with Customers, on January 1, 2018. Topic 606 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. We adopted Topic 606 using the modified retrospective method. Beginning on January 1, 2018, results 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 adoption of Topic 606 did not significantly impact our presentation of revenue on a gross or net basis. For additional information on the impact of adoption of Topic 606 on our accounting policies, refer to our discussion under Revenue Recognition below.
We recorded a net reduction to our opening accumulated deficit of $88.9 million, which is net of a $6.7 million income tax effect, as of January 1, 2018 due to the cumulative impact of adopting Topic 606. The following table summarizes balance sheet accounts impacted by the cumulative effect of adopting Topic 606 (in thousands):
|
|
|
|
|
|
|
|
Increase (decrease) to beginning accumulated deficit
|
Prepaid expenses and other current assets
|
|
$
|
(4,007
|
)
|
Other non-current assets
|
|
(10,223
|
)
|
Accrued merchant and supplier payables
|
|
(64,970
|
)
|
Accrued expenses and other current liabilities
|
|
(13,188
|
)
|
Other non-current liabilities
|
|
3,443
|
|
Effect on beginning accumulated deficit
|
|
$
|
(88,945
|
)
|
We adopted the guidance in ASU 2016-01, Financial Instruments (Topic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, as amended, on January 1, 2018. This ASU generally requires equity investments to be measured at fair value with changes in fair value recognized through net income and eliminates the cost method for equity securities. However, for equity investments without readily determinable fair values, the ASU permits entities to elect to measure the investments at cost adjusted for observable price changes and impairments, with changes in the measurement recognized through net income. We applied that measurement alternative to our equity investments that were previously accounted for under the cost method. At the time of the adoption of ASU 2016-01, there was not a material impact on the consolidated financial statements.
We adopted the guidance in ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash, on January 1, 2018. This ASU requires companies to include amounts generally described as restricted cash and restricted cash equivalents, along with cash and cash equivalents, when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. Previously, changes in restricted cash were reported within cash flows from operating activities. We applied that change in cash flow classification on a retrospective basis, which resulted in a $7.0 million decrease to net cash provided by operating activities for the year ended December 31, 2017.
We adopted the guidance in ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, on January 1, 2018. This ASU is meant to clarify the scope of ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. The adoption of ASU 2017-05 did not have a material impact on the consolidated financial statements.
We adopted the guidance in ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on January 1, 2018. This ASU requires employers to include only the service cost component of net periodic pension cost in operating expenses, together with other employee compensation costs. The other components of net periodic pension cost, including interest cost, expected return on plan assets, amortization of prior service cost and settlement and curtailment effects, are to be included in non-operating expenses. The adoption of ASU 2017-07 did not have a material impact on the consolidated financial statements.
We adopted the guidance in ASU 2017-09, Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting, on January 1, 2018. This ASU clarifies the changes to terms or conditions of a share-based payment award that require an entity to apply modification accounting. The adoption of ASU 2017-09 did not have a material impact on the consolidated financial statements.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We adopted the guidance in ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, as of January 1, 2018. This ASU permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Jobs Act"). As a result of the adoption of ASU 2018-02, we reclassified $0.2 million from accumulated other comprehensive income to accumulated deficit.
We adopted the guidance in ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business, on July 1, 2017. This ASU provides clarification on the definition of a business and provides guidance on whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance in ASU 2017-01 was applied in determining that the sale of customer lists and other intangible assets in certain food delivery markets, as described in Note 6, Goodwill and Other Intangible Assets, did not meet the definition of a business. The adoption of ASU 2017-01 did not otherwise have a material impact on the consolidated financial statements.
We adopted the guidance in ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (Topic 740), on January 1, 2017. This ASU requires immediate recognition of the income tax consequences of intercompany asset transfers other than inventory. We recorded a $3.2 million cumulative effect adjustment to increase our accumulated deficit as of January 1, 2017 to recognize the impact of that change in accounting policy.
We adopted the guidance in ASU 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory, on January 1, 2017. This ASU requires inventory to be measured at the lower of cost or net realizable value, rather than the lower of cost or market. The adoption of ASU 2015-11 did not have a material impact on the consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the consolidated financial statements of prior periods and the accompanying notes to conform to the current period presentation, including the change in presentation of restricted cash in the consolidated statements of cash flows upon adoption of ASU 2016-18 as described above.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, variable consideration from unredeemed vouchers, income taxes, leases, initial valuation and subsequent impairment testing of goodwill and intangible assets, investments, customer refunds, contingent liabilities and the useful lives of property, equipment and software and intangible assets. Actual results could differ materially from those estimates.
Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents. Restricted cash represents amounts that we are unable to access for operational purposes. These amounts primarily relate to withholdings from employee paychecks under our employee stock purchase plan ("ESPP").
Accounts Receivable, Net
Accounts receivable primarily represents the net cash due from credit card and other payment processors and from merchants and performance marketing networks for commissions earned on consumer purchases. The carrying amount of receivables is reduced by an allowance for doubtful accounts that reflects management's best estimate of amounts that will not be collected. The allowance is based on historical loss experience and any specific risks identified in collection matters. Accounts receivable are charged off against the allowance for doubtful accounts when it is determined that the receivable is uncollectible.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories
Inventories, consisting of merchandise purchased for resale, are accounted for using the first-in, first-out method of accounting and are valued at the lower of cost or net realizable value. We write down our inventory to the lower of cost or net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related inventory write-down represents a new cost basis.
Property and Equipment
Property and equipment are stated at cost and assets under finance leases are stated at the lesser of the present value of minimum lease payments or their fair market value. Depreciation and amortization of property and equipment is recorded on a straight-line basis over the estimated useful lives of the assets. Generally, the useful lives are three to five years for computer hardware and office equipment, five to ten years for furniture and fixtures and warehouse equipment and the shorter of the term of the lease or five years for leasehold improvements and assets under finance leases.
Internal-Use Software
We incur costs related to internal-use software and website development, including purchased software and internally-developed software. Costs incurred in the planning and evaluation stage of internally-developed software and website development are expensed as incurred. Costs incurred and accumulated during the application development stage are capitalized and included within Property, equipment and software, net on the consolidated balance sheets. Amortization of internal-use software is recorded on a straight-line basis over the two-year estimated useful life of the assets.
Cloud Computing Costs
We have entered into non-cancellable cloud computing hosting arrangements for which we incur implementation costs. Costs incurred in the planning and evaluation stage of the cloud computing hosting arrangement are expensed as incurred. Costs incurred during the application development stage related to implementation of the hosting arrangement are capitalized and included within Other non-current assets on the consolidated balance sheets. Amortization of implementation costs is recorded 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 primarily in Selling, general and administrative expense on the consolidated statements of operations.
Impairment of Long-Lived Assets
Long-lived assets, such as property, equipment and software and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If circumstances require that a long-lived asset or asset group to be held and used be tested for possible impairment, we first compare the undiscounted cash flows expected to be generated by that long-lived asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.
Long-lived assets or disposal groups classified as held for sale are recorded at the lower of their carrying amount or fair value less estimated selling costs. Long-lived assets are not depreciated or amortized while classified as held for sale.
Goodwill
Goodwill is allocated to our reporting units at the date the goodwill is initially recorded. Once goodwill has been allocated to the reporting units, it no longer retains its identification with a particular acquisition and becomes identified with the reporting unit in its entirety. Accordingly, the fair value of the reporting unit as a whole is available to support the recoverability of its goodwill.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 have the option to assess goodwill for impairment by first performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or if we do not elect the option to perform an initial qualitative assessment, we perform the two-step goodwill impairment test. In the first step, the fair value of the reporting unit is compared with its book value including goodwill. If the fair value of the reporting unit is in excess of its book value, the related goodwill is not impaired and no further analysis is necessary. If the fair value of the reporting unit is less than its book value, there is an indication of potential impairment and a second step is performed. When required, the second step of testing involves calculating the implied fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit determined in step one over the fair value of its net assets, including identifiable intangible assets, as if the reporting unit had been acquired. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For reporting units with a negative book value (i.e., excess of liabilities over assets), we evaluate qualitative factors to determine whether it is necessary to perform the second step of the goodwill impairment test.
During the fourth quarter of 2019, we determined the deterioration of our financial condition when compared with our previous projections to be a triggering event requiring assessment of goodwill impairment as of December 31, 2019. There was no goodwill impairment recognized for the year ended December 31, 2019 as a result of that assessment.
Investments
Investments in equity shares without a readily determinable fair value and for which we do not have the ability to exercise significant influence are accounted for at cost adjusted for observable price changes and impairments, with changes in the measurement recognized through net income (loss). Those investments are classified within Investments on the consolidated balance sheets.
We have investments in common stock or in-substance common stock for which we have the ability to exercise significant influence and we have made an irrevocable election to account for those investments at fair value. Those investments are classified within Investments on the consolidated balance sheets.
Investments in convertible debt securities and convertible redeemable preferred shares are accounted for as available-for-sale securities, which are classified within Investments on the consolidated balance sheets. Available-for-sale securities are recorded at fair value each reporting period. Unrealized gains and losses, net of the related tax effects, are excluded from earnings and recorded as a separate component within Accumulated other comprehensive income (loss) on the consolidated balance sheets until realized. Interest income from available-for-sale securities is reported within Other income (expense), net on the consolidated statements of operations.
Other-than-Temporary Impairment of Investments
An unrealized loss exists when the current fair value of an investment is less than its cost basis. We conduct reviews of our available-for-sale investments with unrealized losses on a quarterly basis to evaluate whether those impairments are other-than-temporary. This evaluation, which is performed at the individual investment level, considers qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as our intent and ability to hold the investment for a period of time that is sufficient to allow for an anticipated recovery in value. Evidence considered in this evaluation includes the amount of the impairment, the length of time that the investment has been impaired, the factors contributing to the impairment, the financial condition and near-term prospects of the investee, recent operating trends and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and our strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery in value. Additionally, we consider whether we intend to sell the investment or whether it is more likely than not that it will be required to sell the investment before recovery of its amortized cost basis. Investments with unrealized losses that are determined to be other-than-temporary are written down to fair value with a charge to earnings. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in Accumulated other comprehensive income (loss) for available-for-sale securities.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes
We account for income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. We regularly review deferred tax assets to assess whether it is more likely than not that the deferred tax assets will be realized and, if necessary, establish a valuation allowance for portions of such assets to reduce the carrying value.
For purposes of assessing whether it is more likely than not that deferred tax assets will be realized, we consider the following four sources of taxable income for each tax jurisdiction: (a) future reversals of existing taxable temporary differences, (b) projected future earnings, (c) taxable income in carryback years, to the extent that carrybacks are permitted under the tax laws of the applicable jurisdiction, and (d) tax planning strategies, which represent prudent and feasible actions that a company ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused. To the extent that evidence about one or more of these sources of taxable income is sufficient to support a conclusion that a valuation allowance is not necessary, other sources need not be considered. Otherwise, evidence about each of the sources of taxable income is considered in arriving at a conclusion about the need for and amount of a valuation allowance. See Note 16, Income Taxes, for further information about our valuation allowance assessments.
We are subject to taxation in the United States, various states and foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rate could be adversely affected by earnings being lower than anticipated in countries where it has lower statutory rates and higher than anticipated in countries where it has higher statutory rates, by changes in foreign currency exchange rates, by changes in the valuation of deferred tax assets and liabilities, by changes in the measurement of uncertain tax positions or by changes in the relevant laws, regulations, principles and interpretations. We account for uncertainty in income taxes by recognizing the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not criteria, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
Lease and Asset Retirement Obligations
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. On January 1, 2019, we adopted Topic 842 using the modified retrospective transition method. Beginning on January 1, 2019, results 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. See Note 10, Leases, for additional information on the impact of adoption of Topic 842.
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.
We classify leases at their commencement as either operating or finance leases. We may receive renewal or expansion options, rent holidays, leasehold improvements or other incentives on certain lease agreements. 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. Operating lease costs, including interest expense on operating leases, are presented within Selling, general and administrative expense on the 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 consolidated balance sheets. Amortization and interest expense on finance leases are presented within Selling, general and administrative expense and Other income (expense), net on the 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 consolidated balance sheets.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Certain lease agreements include variable lease costs which are primarily related to costs that are dependent on our usage of the underlying asset or lease payments that are dependent on an index when that index has changed since lease commencement. Those costs are expenses in the period in which they are incurred.
We establish assets and liabilities for the present value of estimated future costs to retire long-lived assets at the termination or expiration of a lease. Such assets are amortized over the lease term, and the recorded liabilities are accreted to the future value of the estimated retirement costs. The related amortization and accretion expenses are presented within Selling, general and administrative on the consolidated statements of operations.
We have also subleased certain office facilities under operating lease agreements, for which we recognize sublease income on a straight-line basis over their respective lease terms.
Revenue Recognition
We recognize revenue when we satisfy a performance obligation by transferring a promised good or service to a customer. Substantially all of our performance obligations are satisfied at a point in time rather than over time. We offer goods and services through our online marketplaces in three primary categories: Local, Goods and Travel.
Service revenue
Service revenue primarily represents the net commissions earned from selling goods or services on behalf of third-party merchants. Those transactions generally involve a customer's purchase of a voucher through one of our online marketplaces that can be redeemed by the customer with a third-party merchant for goods or services (or for discounts on goods or services). Service revenue from those transactions is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant. We recognize revenue from those transactions when our commission has been earned, which occurs when a sale through one of our online marketplaces is completed and the related voucher has been made available to the customer. We believe that our remaining obligations to remit payment to the merchant and to provide information about vouchers sold are administrative activities that are immaterial in the context of the contract with the merchant. Revenue from hotel reservation offerings is recognized at the time the reservation is made, net of an allowance for estimated cancellations. Prior to our adoption of Topic 606, we deferred the revenue from hotel reservation offerings until the customer's stay commenced.
We also earn commissions when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications. We recognize those commissions as revenue in the period in which the underlying transactions between the customer and the third-party merchant are completed. Additionally, we earn advertising revenue when the advertiser's logo or website link has been included on our websites or in specified email distributions for the requisite period of time as set forth in the agreement with the advertiser.
Product revenue
We generate product revenue from direct sales of merchandise inventory to customers through our Goods category. For product revenue transactions, we are the primary party responsible for providing the good to the customer, we have inventory risk and we have discretion in establishing prices. As such, product revenue is reported on a gross basis as the purchase price received from the customer. Product revenue, including associated shipping revenue, is recognized when title passes to the customer upon delivery of the product.
Variable Consideration for Unredeemed Vouchers
For merchant agreements with redemption payment terms, the merchant is not paid its share of the sale price for a voucher sold through one of 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
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 consolidated financial statements. As of December 31, 2019 and 2018, we constrained $14.6 million and $13.7 million in revenue from unredeemed vouchers that we may recognize in future periods when we determine it is probable that a significant amount of that revenue will not be subsequently reversed. Prior to our adoption of Topic 606, we recognized that variable consideration from unredeemed vouchers and derecognized the related accrued merchant payables when our legal obligation to the merchant expired.
Refunds
Refunds are recorded as a reduction of revenue. The liability for estimated refunds is included within Accrued expenses and other current liabilities on the consolidated balance sheets. Prior to our adoption of Topic 606, we classified refunds on service revenue transactions for which the merchant's share of the refund amount is not recoverable as a cost of revenue.
We estimate our refund reserve using historical refund experience by category. We assess the trends that could affect our estimates on an ongoing basis and make adjustments to the refund reserve calculations if it appears that changes in circumstances, including changes to our refund policies or general economic conditions, may cause future refunds to differ from our initial estimates. If actual refunds differ from our estimates, the effects could be material to the consolidated financial statements.
Discounts, Customer Credits and Other Consideration Payable to Customers
We provide discount offers to encourage purchases of goods and services through our online marketplaces. We record discounts as a reduction of revenue.
Additionally, we issue credits to customers that 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 relationship purposes. Credits issued to satisfy refund requests are applied as a reduction to the refunds reserve and customer credits issued for relationship purposes are classified as a reduction of revenue. Prior to our adoption of Topic 606, we classified credits issued to consumers for relationship purposes as a marketing expense. Breakage income from customer credits that are not expected to be used is estimated and recognized as revenue in proportion to the pattern of redemption for customer credits that are used. Prior to our adoption of Topic 606, we recognized breakage income for unused customer credits when they expired or were forfeited.
Sales and Related Taxes
Sales, use, value-added and related taxes that are imposed on specific revenue-generating transactions are presented on a net basis and excluded from revenue.
Costs of Obtaining Contracts
Incremental costs to obtain contracts with third-party merchants, such as sales commissions, are deferred and recognized over the expected period of the merchant arrangement, generally from 12 to 18 months. Those costs are classified within Selling, general and administrative expenses in the consolidated statements of operations. Prior to our adoption of Topic 606, we expensed the incremental costs to obtain contracts with third-party merchants, such as sales commissions, as incurred.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cost of Revenue
Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue. Costs incurred to generate revenue, which include credit card processing fees, editorial costs, compensation expense for technology support personnel who are responsible for maintaining the infrastructure of our websites, amortization of internal-use software relating to customer-facing applications, web hosting and other processing fees are attributed to the cost of service and product revenue in proportion to gross billings during the period. For product revenue transactions, cost of revenue also includes the cost of inventory, shipping and fulfillment costs and inventory markdowns. Fulfillment costs are comprised of third-party logistics provider costs, as well as rent, depreciation, personnel costs and other costs of operating our fulfillment center.
Stock-Based Compensation
We measure stock-based compensation cost at fair value. Expense is generally recognized on a straight-line basis over the service period during which awards are expected to vest, except for awards with both performance conditions and a graded vesting schedule, which are recognized using the accelerated method. We present stock-based compensation expense within the consolidated statements of operations based on the classification of the respective employees' cash compensation. See Note 13, Compensation Arrangements.
Foreign Currency
Balance sheet accounts of our operations outside of the United States are translated from foreign currencies into U.S. dollars at exchange rates as of the consolidated balance sheet dates. Revenue and expenses are translated at average exchange rates during the period. Foreign currency translation adjustments and foreign currency gains and losses on intercompany balances that are of a long-term investment nature are included within Accumulated other comprehensive income on the consolidated balance sheets. Foreign currency gains and losses resulting from transactions that are denominated in currencies other than the entity's functional currency, including foreign currency gains and losses on intercompany balances that are not of a long-term investment nature, are included within Other income (expense), net on the consolidated statements of operations.
Business Combinations
The results of businesses acquired are included in the consolidated financial statements beginning on the respective acquisition dates. The fair value of consideration transferred in business combinations is allocated to the tangible and intangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. Acquired goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired. We may pay a premium for a number of reasons, including growing our merchant base and acquiring an assembled workforce. The goodwill from business combinations is generally not deductible for tax purposes.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses of Financial Instruments. This ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses rather than incurred losses. For available-for-sale debt securities with unrealized losses, entities will be required to recognize credit losses through an allowance for credit losses. The ASU will be effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. We believe that the adoption of this guidance will not have a material impact on our 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 and early adoption is permitted. We believe that the adoption of this guidance will not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in Topic 820, Fair Value Measurement, by removing, modifying, or adding certain disclosures. The ASU will be effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. 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. We believe that the adoption of this guidance will not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The ASU will be effective for annual reporting periods beginning after December 15, 2020 and interim periods within those annual periods and early adoption is permitted. We are still assessing the impact of ASU 2019-12 on our consolidated financial statements.
There are no other accounting standards that have been issued but not yet adopted that we believe could have a material impact on our consolidated financial statements.
3. DISCONTINUED OPERATIONS
In October 2016, we completed a strategic review of our international markets in connection with our efforts to optimize our global footprint and focus on the markets that we believe have the greatest potential to benefit our long-term financial performance. Based on that review, we decided to focus our business on 15 core countries and to pursue strategic alternatives for our operations in the remaining 12 countries, which were primarily based in Asia and Latin America. The dispositions of our operations in those 12 countries were completed between November 2016 and March 2017.
A business disposition that represents a strategic shift and has (or will have) a major effect on our operations and financial results is reported as a discontinued operation. We determined that the decision reached by management and our Board of Directors to exit those 12 non-core countries, which comprised a substantial majority of the operations outside of North America and EMEA (Europe, the Middle East and Africa), represented a strategic shift in our business. Additionally, based on our review of quantitative and qualitative factors relevant to the dispositions, we determined that the disposition of the businesses in those countries would have a major effect on our operations and financial results. As such, the results of operations and cash flows for the operations in those countries, including the gains and losses on the dispositions and related income tax effects, are presented as discontinued operations in the accompanying consolidated financial statements.
In connection with our strategic initiative to exit non-core countries as discussed above, we sold an 83% controlling stake in our subsidiary in Israel and sold our subsidiaries in Argentina, Chile, Colombia, Peru, Mexico, Brazil, Singapore and Hong Kong during the first quarter 2017. For the year ended December 31, 2017, we recognized a net pretax loss of $1.6 million on those dispositions, which consisted of the following (in thousands):
|
|
|
|
|
|
Year Ended December 31, 2017
|
Net consideration received:
|
|
Fair value of minority investments retained or acquired
|
$
|
2,021
|
|
Cash proceeds received
|
3,462
|
|
Cash proceeds receivable
|
2,000
|
|
Less: Transaction costs
|
1,394
|
|
Total net consideration received
|
6,089
|
|
Cumulative translation gain reclassified to earnings
|
14,718
|
|
Less: Net book value upon closing of the transactions
|
14,958
|
|
Less: Indemnification liabilities (1)
|
5,365
|
|
Less: Unfavorable contract liability for transition services
|
2,114
|
|
Loss on dispositions
|
$
|
(1,630
|
)
|
|
|
(1)
|
See Note 11, Commitments and Contingencies, for additional information about the indemnification liabilities.
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the major classes of line items included in income (loss) from discontinued operations, net of tax, for the years ended December 31, 2019 and 2017 (in thousands).There was no activity related to discontinued operations for the year ended December 31, 2018.
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2017 (1)
|
Service revenue
|
$
|
—
|
|
|
$
|
12,602
|
|
Product revenue
|
—
|
|
|
2,962
|
|
Service cost of revenue
|
—
|
|
|
(2,557
|
)
|
Product cost of revenue
|
—
|
|
|
(3,098
|
)
|
Marketing expense
|
—
|
|
|
(1,239
|
)
|
Selling, general and administrative expense (2)
|
2,597
|
|
|
(12,007
|
)
|
Restructuring
|
—
|
|
|
(778
|
)
|
Other income (expense), net
|
—
|
|
|
3,852
|
|
Income (loss) from discontinued operations before loss on dispositions and provision for income taxes
|
2,597
|
|
|
(263
|
)
|
Loss on dispositions
|
—
|
|
|
(1,630
|
)
|
Provision for income taxes
|
—
|
|
|
(81
|
)
|
Income (loss) from discontinued operations, net of tax
|
$
|
2,597
|
|
|
$
|
(1,974
|
)
|
|
|
(1)
|
The loss from discontinued operations before loss on dispositions and provision for income taxes for the year ended December 31, 2017 includes the results of each business through its respective disposition date.
|
|
|
(2)
|
Selling, general and administrative expense from discontinued operations for the year ended December 31, 2019 primarily consists of a gain related to the expiration of certain contingent liabilities under indemnification agreements. Selling, general and administrative expense from discontinued operations for the year ended December 31, 2017 includes increases to contingent liabilities under indemnification agreements. See Note 11, Commitments and Contingencies, for additional information about the indemnification liabilities.
|
4. BUSINESS COMBINATIONS
On April 30, 2018, we acquired 80% of the outstanding shares of Cloud Savings Company, Ltd. ("Cloud Savings"), a UK-based business that operates online discount code and digital gift card platforms. The primary purpose of this acquisition was to expand digital coupon offerings in our International segment. The transaction included a contingent consideration arrangement with an acquisition-date fair value of $1.6 million. In addition, concurrent with the acquisition, we entered into an agreement with the noncontrolling shareholder that gave us the right to acquire and the noncontrolling shareholder's right to put to us the remaining outstanding shares of Cloud Savings in December 2018. The acquisition-date fair value of the right and obligation to acquire the remaining outstanding shares of $8.6 million was initially recorded as a financing obligation and classified within Accrued expenses and other current liabilities on the consolidated balance sheets. We paid $8.4 million to exercise that right in December 2018. The aggregate acquisition-date fair value of the consideration transferred for the Cloud Savings acquisition totaled $74.6 million, which consisted of the following (in thousands):
|
|
|
|
|
Cash
|
$
|
64,363
|
|
Financing obligation
|
8,604
|
|
Contingent consideration
|
1,589
|
|
Total
|
$
|
74,556
|
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the allocation of the aggregate acquisition price of the Cloud Savings acquisition (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
$
|
6,244
|
|
Accounts receivable
|
5,885
|
|
Prepaid expenses and other current assets
|
804
|
|
Property, equipment and software
|
226
|
|
Goodwill
|
46,515
|
|
Intangible assets (1) :
|
|
Merchant relationships
|
20,322
|
|
Trade names
|
2,609
|
|
Developed technology
|
549
|
|
Other intangible assets
|
687
|
|
Total assets acquired
|
$
|
83,841
|
|
Accounts payable
|
$
|
693
|
|
Accrued merchant and supplier payables
|
386
|
|
Accrued expenses and other current liabilities
|
6,130
|
|
Other non-current liabilities
|
2,076
|
|
Total liabilities assumed
|
$
|
9,285
|
|
Total acquisition price
|
$
|
74,556
|
|
|
|
(1)
|
The estimated useful lives of the acquired intangible assets are 6 years for merchant relationships, 8 years for trade names, 2 years for developed technology, and 1 year for other intangible assets.
|
The results of the Cloud Savings acquisition are included in the consolidated financial statements beginning on the acquisition date of April 30, 2018. The revenue and net income of Cloud Savings included in our consolidated statements of operations were $12.9 million and $1.1 million for the period from April 30, 2018 through December 31, 2018. Pro forma results of operations for the Cloud Savings acquisition are not presented because the pro forma effects of that acquisition were not material to our consolidated results of operations.
In connection with the acquisition of Cloud Savings, we incurred $0.7 million of external transaction costs, primarily consisting of legal and advisory fees. Those costs are classified within Selling, general and administrative on the consolidated statements of operations. We did not acquire any other businesses during the years ended December 31, 2019, 2018 and 2017.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. PROPERTY, EQUIPMENT AND SOFTWARE, NET
The following summarizes property, equipment and software, net as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Warehouse equipment
|
$
|
5,144
|
|
|
$
|
5,265
|
|
Furniture and fixtures
|
9,113
|
|
|
9,677
|
|
Leasehold improvements
|
47,927
|
|
|
50,314
|
|
Office equipment
|
1,735
|
|
|
2,261
|
|
Purchased software
|
7,207
|
|
|
8,523
|
|
Computer hardware (1)
|
143,118
|
|
|
174,700
|
|
Internally-developed software (2)
|
222,140
|
|
|
196,807
|
|
Total property, equipment and software, gross
|
436,384
|
|
|
447,547
|
|
Less: accumulated depreciation and amortization
|
(311,434
|
)
|
|
(304,430
|
)
|
Property, equipment and software, net
|
$
|
124,950
|
|
|
$
|
143,117
|
|
|
|
(1)
|
Includes computer hardware acquired under finance leases of $78.5 million and $120.5 million as of December 31, 2019 and 2018.
|
|
|
(2)
|
The net carrying amount of internally-developed software was $71.1 million and $70.9 million as of December 31, 2019 and 2018.
|
Depreciation and amortization expense on property, equipment and software is classified as follows in the accompanying consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Service cost of revenue
|
$
|
28,917
|
|
|
$
|
28,102
|
|
|
$
|
26,738
|
|
Product cost of revenue
|
6,466
|
|
|
8,467
|
|
|
9,900
|
|
Selling, general and administrative
|
56,027
|
|
|
64,761
|
|
|
78,157
|
|
Total
|
$
|
91,410
|
|
|
$
|
101,330
|
|
|
$
|
114,795
|
|
The above amounts include amortization of internally-developed software of $56.6 million, $53.9 million and $57.0 million, and amortization expense on assets under finance leases of $18.9 million, $30.2 million and $35.2 million, for the years ended December 31, 2019, 2018 and 2017.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes goodwill activity by segment for the years ended December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
Consolidated
|
Balance as of December 31, 2017
|
|
$
|
178,685
|
|
|
$
|
108,304
|
|
|
$
|
286,989
|
|
Goodwill related to acquisition
|
|
—
|
|
|
46,515
|
|
|
46,515
|
|
Foreign currency translation
|
|
—
|
|
|
(8,013
|
)
|
|
(8,013
|
)
|
Balance as of December 31, 2018
|
|
$
|
178,685
|
|
|
$
|
146,806
|
|
|
$
|
325,491
|
|
Foreign currency translation
|
|
—
|
|
|
(474
|
)
|
|
(474
|
)
|
Balance as of December 31, 2019
|
|
$
|
178,685
|
|
|
$
|
146,332
|
|
|
$
|
325,017
|
|
There was no goodwill impairment for the years ended December 31, 2019, 2018 and 2017.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes intangible assets as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Customer relationships
|
$
|
16,200
|
|
|
$
|
16,200
|
|
|
$
|
—
|
|
|
$
|
16,200
|
|
|
$
|
11,700
|
|
|
$
|
4,500
|
|
Merchant relationships
|
22,193
|
|
|
8,268
|
|
|
13,925
|
|
|
21,554
|
|
|
4,105
|
|
|
17,449
|
|
Trade names
|
9,558
|
|
|
7,369
|
|
|
2,189
|
|
|
9,476
|
|
|
6,799
|
|
|
2,677
|
|
Developed technology
|
3,651
|
|
|
2,685
|
|
|
966
|
|
|
13,825
|
|
|
13,485
|
|
|
340
|
|
Patents
|
23,021
|
|
|
18,167
|
|
|
4,854
|
|
|
20,508
|
|
|
16,451
|
|
|
4,057
|
|
Other intangible assets
|
26,115
|
|
|
12,757
|
|
|
13,358
|
|
|
26,007
|
|
|
9,629
|
|
|
16,378
|
|
Total
|
$
|
100,738
|
|
|
$
|
65,446
|
|
|
$
|
35,292
|
|
|
$
|
107,570
|
|
|
$
|
62,169
|
|
|
$
|
45,401
|
|
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 from continuing operations related to intangible assets was $14.4 million, $14.5 million and $23.0 million for the years ended December 31, 2019, 2018 and 2017. As of December 31, 2019, our estimated future amortization expense related to intangible assets is as follows (in thousands):
|
|
|
|
|
2020
|
$
|
8,791
|
|
2021
|
7,692
|
|
2022
|
7,118
|
|
2023
|
5,956
|
|
2024
|
2,316
|
|
Thereafter
|
3,419
|
|
Total
|
$
|
35,292
|
|
Sale of Intangible Assets
In 2017, we sold customer lists and other intangible assets in certain food delivery markets to a subsidiary of Grubhub Inc. ("Grubhub"). We recognized a pretax gain on the sale of assets of $17.1 million, which represents the excess of the $19.8 million in net proceeds received, consisting of $20.0 million in cash less $0.2 million in transaction costs, over the $2.7 million net book value of the assets upon closing of the transaction. See Note 15, Restructuring, for additional information.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INVESTMENTS
The following table summarizes investments as of December 31, 2019 and 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Percent Ownership of Voting Stock
|
|
December 31, 2018
|
|
Percent Ownership of Voting Stock
|
Available-for-sale securities - redeemable preferred shares
|
$
|
—
|
|
|
19%
|
to
|
25%
|
|
$
|
10,340
|
|
|
19%
|
to
|
25%
|
Fair value option investments
|
1,405
|
|
|
10%
|
to
|
19%
|
|
73,902
|
|
|
10%
|
to
|
19%
|
Other equity investments
|
75,171
|
|
|
1%
|
to
|
19%
|
|
24,273
|
|
|
1%
|
to
|
19%
|
Total investments
|
$
|
76,576
|
|
|
|
|
|
|
$
|
108,515
|
|
|
|
|
|
Available-for-Sale Securities
The following table summarizes amortized cost, gross unrealized gain (loss) and fair value of redeemable preferred shares as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Amortized cost
|
$
|
—
|
|
|
$
|
9,961
|
|
Gross unrealized gain (loss) in Accumulated other comprehensive income (loss)
|
—
|
|
|
379
|
|
Fair value
|
$
|
—
|
|
|
$
|
10,340
|
|
We recorded $10.0 million, $5.6 million and $2.9 million of impairments of available-for-sale securities for the years ended December 31, 2019, 2018 and 2017 due to declines in the financial performance of the investee. Those impairments are classified within Other income (expense), net on the consolidated statements of operations.
In September 2018, we sold an available-for-sale security for total consideration of $8.6 million, which approximated its carrying amount and amortized cost as of the closing date.
Fair Value Option Investments
In connection with the dispositions of controlling stakes in Ticket Monster, an entity based in the Republic of Korea, and Groupon India in prior periods, we obtained minority investments in Monster Holdings LP ("Monster LP") and in Nearbuy Pte Ltd. ("Nearbuy"). 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, as well as to reduce operational and accounting complexity. Our election to apply fair value accounting to those investments has and may continue to cause fluctuations in our earnings from period to period.
We determined that the fair value of our investments in Monster LP and Nearbuy was $0.0 million and $1.4 million as of December 31, 2019, and $69.4 million and $4.5 million as of December 31, 2018. The following table summarizes gains and losses due to changes in fair value of those investments for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Monster LP
|
$
|
(69,408
|
)
|
|
$
|
(9,509
|
)
|
|
$
|
249
|
|
Nearbuy
|
(3,089
|
)
|
|
445
|
|
|
133
|
|
Total
|
$
|
(72,497
|
)
|
|
$
|
(9,064
|
)
|
|
$
|
382
|
|
Monster LP
In 2015, we completed the sale of a controlling stake in Ticket Monster to an investor group, whereby we contributed all of the issued and outstanding share capital of Ticket Monster to Monster LP in exchange for Class B units of Monster LP, a newly-formed limited partnership, and $285.0 million in cash consideration. In February 2017, we participated in a recapitalization transaction with Monster LP whereby it exchanged all of its Class B units for
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16,609,195 newly issued Class A-1 units. Upon closing of the transaction, we own 57% of the outstanding Class A-1 units, which represents 9% of the total outstanding partnership units.
Following the February 2017 recapitalization transaction, the Class A-1 units are entitled to an $150.0 million liquidation preference, including an $85.0 million liquidation preference attributable to the Class A-1 units held by us, which must be paid prior to any distributions to the holders of the Class A-2, Class B and Class C units. Class A-1 unit holders are also entitled to share in distributions between $950.0 million and $1,494.0 million in accordance with the terms of Monster LP's distribution waterfall and in distributions in excess of $1,494.0 million based on their pro rata ownership of total outstanding partnership units. As a result of the February 2017 recapitalization transaction, we currently hold an investment in the most senior equity units in Monster LP’s capital structure. However, while providing more downside protection, those Class A-1 units provide less opportunity for appreciation than the Class B units previously held by us.
During the first quarter of 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 of 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 tables summarize the condensed financial information for Monster LP as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Revenue
|
$
|
569,869
|
|
|
$
|
416,042
|
|
|
$
|
280,612
|
|
Gross profit
|
43,416
|
|
|
27,838
|
|
|
37,773
|
|
Loss before income taxes
|
(105,212
|
)
|
|
(132,276
|
)
|
|
(124,873
|
)
|
Net loss
|
(105,212
|
)
|
|
(132,276
|
)
|
|
(124,873
|
)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Current assets
|
$
|
73,598
|
|
|
$
|
85,844
|
|
Non-current assets
|
436,809
|
|
|
482,505
|
|
Current liabilities
|
430,592
|
|
|
432,133
|
|
Non-current liabilities
|
150,118
|
|
|
78,434
|
|
Nearbuy
In 2015, Groupon India completed an equity financing transaction with a third-party investor that obtained a majority voting interest in the entity, whereby (a) the investor contributed $17.0 million in cash to Nearbuy, a newly formed Singapore-based entity, in exchange for Series A Preference Shares and (b) we contributed the shares of Groupon India to Nearbuy in exchange for seed preference shares of Nearbuy. In January 2017, Nearbuy issued additional Series A Preference Shares to its controlling investor for total proceeds of $3.0 million. Upon closing of that transaction, the Series A Preference Shares are entitled to a $20.0 million liquidation preference, which must be paid prior to any distributions to other equity holders. In December 2017, Nearbuy sold its subsidiary Nearbuy India Pte Ltd., which represented substantially all of its business operations, to a third-party investor in exchange for a minority investment in the acquirer. During the fourth quarter of 2019, we recognized a $3.1 million loss from changes in the fair value of our investment in Nearbuy due to the revised cash flow projections provided in December 2019.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables summarize the condensed financial information for Nearbuy as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Revenue
|
$
|
5,507
|
|
|
$
|
6,016
|
|
|
$
|
3,839
|
|
Gross profit
|
4,944
|
|
|
5,857
|
|
|
3,405
|
|
Income (loss) before income taxes (1)
|
(1,777
|
)
|
|
(13,594
|
)
|
|
15,122
|
|
Net income (loss) (1)
|
(1,777
|
)
|
|
(13,594
|
)
|
|
15,122
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Current assets
|
$
|
3,611
|
|
|
$
|
5,286
|
|
Non-current assets
|
40,083
|
|
|
46,940
|
|
Current liabilities
|
4,966
|
|
|
4,015
|
|
Non-current liabilities
|
1,268
|
|
|
144
|
|
|
|
(1)
|
Nearbuy's income before income taxes and net income for the year ended December 31, 2017 includes a $22.6 million gain from the sale of its subsidiary Nearbuy India Pte Ltd.
|
Other Equity Investments
Other equity investments represent equity investments without readily determinable fair values. Upon our adoption of ASU 2016-01 on January 1, 2018, we have elected to record equity investments without readily determinable fair values at cost adjusted for observable price changes and impairments.
The following table summarizes other equity investment activity for the years ended December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
Balance as of December 31, 2017
|
$
|
25,438
|
|
Transfer to other equity investment upon conversion of convertible debt security
|
4,008
|
|
Impairment of investment included in earnings
|
(4,574
|
)
|
Foreign currency translation
|
(599
|
)
|
Balance as of December 31, 2018
|
$
|
24,273
|
|
Upward adjustments for observable price changes
|
51,397
|
|
Dispositions
|
(640
|
)
|
Foreign currency translation
|
141
|
|
Balance as of December 31, 2019
|
$
|
75,171
|
|
We adjusted the carrying value of an other equity investment due to observable price changes in orderly transactions that occurred during the fourth quarter of 2019, which resulted in an unrealized gain of $51.4 million. That gain is included within Other income (expense), net on the consolidated statements of operations for the year ended December 31, 2019. During the fourth quarter of 2019, we also identified buyers for 50% of our shares in that investment for an agreed-upon purchase price of $34.0 million which approximated the cost adjusted for observable price changes as of December 31, 2019. Refer to Note 23, Subsequent Events, for additional information on the closing of that sale in January 2020.
In July 2017, we sold an other equity investment for total cash consideration of $16.0 million. We recognized a pretax gain on the disposition of $7.6 million, which is classified within Other income (expense), net on the consolidated statement of operations.
In March 2017, in connection with the disposition of Groupon Israel, we retained a minority investment in the entity. The investment was recorded at its $0.4 million fair value at initial recognition and is accounted for as an other equity investment.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION
The following table summarizes other income (expense), net for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Interest income
|
$
|
7,744
|
|
|
$
|
6,420
|
|
|
$
|
3,287
|
|
Interest expense
|
(23,593
|
)
|
|
(21,909
|
)
|
|
(20,680
|
)
|
Changes in fair value of investments
|
(72,497
|
)
|
|
(9,064
|
)
|
|
382
|
|
Gain (loss) on sale of investment
|
(412
|
)
|
|
—
|
|
|
7,624
|
|
Foreign currency gains (losses), net
|
(5,960
|
)
|
|
(20,325
|
)
|
|
18,634
|
|
Impairments of investments
|
(9,961
|
)
|
|
(10,156
|
)
|
|
(2,944
|
)
|
Upward adjustment for observable price change of investment
|
51,397
|
|
|
—
|
|
|
—
|
|
Other
|
(47
|
)
|
|
2,026
|
|
|
407
|
|
Other income (expense), net
|
$
|
(53,329
|
)
|
|
$
|
(53,008
|
)
|
|
$
|
6,710
|
|
The following table summarizes prepaid expenses and other current assets as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Merchandise inventories
|
$
|
25,426
|
|
|
$
|
33,739
|
|
Prepaid expenses
|
27,077
|
|
|
28,209
|
|
Income taxes receivable
|
4,791
|
|
|
6,717
|
|
Other
|
24,779
|
|
|
19,450
|
|
Total prepaid expenses and other current assets
|
$
|
82,073
|
|
|
$
|
88,115
|
|
The following table summarizes accrued merchant and supplier payables as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Accrued merchant payables
|
$
|
366,573
|
|
|
$
|
371,279
|
|
Accrued supplier payables (1)
|
174,367
|
|
|
280,502
|
|
Total accrued merchant and supplier payables
|
$
|
540,940
|
|
|
$
|
651,781
|
|
|
|
(1)
|
Amounts include payables to suppliers of inventories and providers of shipping and fulfillment services.
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes accrued expenses and other current liabilities as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Refund reserve
|
$
|
22,002
|
|
|
$
|
27,957
|
|
Compensation and benefits
|
49,009
|
|
|
56,173
|
|
Accrued marketing
|
41,110
|
|
|
39,094
|
|
Customer credits
|
13,764
|
|
|
15,118
|
|
Income taxes payable
|
5,044
|
|
|
8,987
|
|
Deferred revenue
|
17,951
|
|
|
25,452
|
|
Current portion of lease obligations (1)
|
40,768
|
|
|
17,207
|
|
Other
|
70,544
|
|
|
77,046
|
|
Total accrued expenses and other current liabilities
|
$
|
260,192
|
|
|
$
|
267,034
|
|
|
|
(1)
|
Current portion of lease obligations as of December 31, 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 10, Leases, for additional information.
|
The following table summarizes other non-current liabilities as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Contingent income tax liabilities
|
$
|
30,121
|
|
|
$
|
39,858
|
|
Deferred rent (1)
|
—
|
|
|
32,186
|
|
Finance lease obligations
|
5,831
|
|
|
12,481
|
|
Deferred income taxes
|
3,903
|
|
|
6,619
|
|
Other
|
5,132
|
|
|
9,544
|
|
Total other non-current liabilities
|
$
|
44,987
|
|
|
$
|
100,688
|
|
|
|
(1)
|
Non-current operating lease liabilities as of December 31, 2019 are included within Operating lease obligations on the consolidated balance sheet as a result of the adoption of Topic 842 on January 1, 2019. Refer to Note 10, Leases, for additional information.
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the activity for accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
Unrealized gain (loss) on available-for-sale securities
|
|
Pension adjustments
|
|
Total
|
Balance as of December 31, 2016
|
$
|
58,249
|
|
|
$
|
388
|
|
|
$
|
(585
|
)
|
|
$
|
58,052
|
|
Other comprehensive income (loss) before reclassification adjustments
|
(12,382
|
)
|
|
(1,109
|
)
|
|
—
|
|
|
(13,491
|
)
|
Reclassification adjustments included in net income (loss)
|
(14,905
|
)
|
|
1,603
|
|
|
585
|
|
|
(12,717
|
)
|
Other comprehensive income (loss)
|
(27,287
|
)
|
|
494
|
|
|
585
|
|
|
(26,208
|
)
|
Balance as of December 31, 2017
|
30,962
|
|
|
882
|
|
|
—
|
|
|
31,844
|
|
Other comprehensive income (loss) before reclassification adjustments
|
3,332
|
|
|
(841
|
)
|
|
—
|
|
|
2,491
|
|
Reclassification adjustments included in net income (loss)
|
—
|
|
|
106
|
|
|
—
|
|
|
106
|
|
Other comprehensive income (loss)
|
3,332
|
|
|
(735
|
)
|
|
—
|
|
|
2,597
|
|
Reclassification for impact of U.S. tax rate change
|
—
|
|
|
161
|
|
|
—
|
|
|
161
|
|
Balance as of December 31, 2018
|
34,294
|
|
|
308
|
|
|
—
|
|
|
34,602
|
|
Other comprehensive income (loss) before reclassification adjustments
|
4,858
|
|
|
(379
|
)
|
|
—
|
|
|
4,479
|
|
Reclassification adjustments included in net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income (loss)
|
4,858
|
|
|
(379
|
)
|
|
—
|
|
|
4,479
|
|
Balance as of December 31, 2019
|
$
|
39,152
|
|
|
$
|
(71
|
)
|
|
$
|
—
|
|
|
$
|
39,081
|
|
The effects of amounts reclassified from accumulated other comprehensive income (loss) to net income (loss) for the years ended December 31, 2019, 2018 and 2017 are presented within the following line items in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Consolidated Statements of Operations Line Item
|
|
2019
|
|
2018
|
|
2017
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
Loss (gain) on country exits - continuing operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(187
|
)
|
|
Other income (expense), net
|
Loss (gain) on dispositions - discontinued operations
|
—
|
|
|
—
|
|
|
(14,718
|
)
|
|
Income (loss) from discontinued operations, net of tax
|
Reclassification adjustments
|
—
|
|
|
—
|
|
|
(14,905
|
)
|
|
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
|
|
Other-than-temporary impairment of available-for-sale security
|
—
|
|
|
—
|
|
|
2,944
|
|
|
Other income (expense), net
|
Realized (gain) loss on investment
|
—
|
|
|
106
|
|
|
(1,341
|
)
|
|
Other income (expense), net
|
Reclassification adjustment
|
—
|
|
|
106
|
|
|
1,603
|
|
|
|
Pension adjustments
|
|
|
|
|
|
|
|
Curtailment gain
|
—
|
|
|
—
|
|
|
583
|
|
|
Selling, general and administrative
|
Amortization of net actuarial loss (gain)
|
—
|
|
|
—
|
|
|
2
|
|
|
Selling, general and administrative
|
Reclassification adjustment
|
—
|
|
|
—
|
|
|
585
|
|
|
|
Total reclassification adjustments
|
$
|
—
|
|
|
$
|
106
|
|
|
$
|
(12,717
|
)
|
|
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. FINANCING ARRANGEMENTS
Convertible Senior Notes
On April 4, 2016, we issued $250.0 million in aggregate principal amount of convertible senior notes (the "Notes") in a private placement to A-G Holdings, L.P. ("AGH"). Michael Angelakis, the chairman and chief executive officer of Atairos Group, Inc. ("Atairos"), joined our Board of Directors (the "Board") in connection with the issuance of the Notes. Atairos controls the voting power of AGH. The net proceeds from this offering were $243.2 million after deducting issuance costs. The Notes bear interest at a rate of 3.25% per annum, payable annually in arrears on April 1 of each year, beginning on April 1, 2017. The Notes will mature on April 1, 2022, subject to earlier conversion or redemption.
Each $1,000 of principal amount of the Notes initially is convertible into 185.1852 shares of common stock, which is equivalent to an initial conversion price of $5.40 per share, subject to adjustment upon the occurrence of specified events. Upon conversion, we can elect to settle the conversion value in cash, shares of our common stock, or any combination of cash and shares of our common stock. Holders of the Notes may convert their Notes at their option at any time until the close of business on the scheduled trading day immediately preceding the maturity date. In addition, if specified corporate events occur prior to the maturity date, we may be required to increase the conversion rate for holders who elect to convert based on the effective date of such event and the applicable stock price attributable to the event, as set forth in a table contained in the indenture governing the Notes (the "Indenture"). Based on the closing price of the common stock of $2.39 as of December 31, 2019, the if-converted value of the Notes was less than the principal amount.
With certain exceptions, upon a fundamental change (as defined in the Indenture), the holders of the Notes may require us to repurchase all or a portion of their Notes for cash at a purchase price equal to the principal amount plus accrued and unpaid interest. In addition, we may redeem the Notes, at our option, at a purchase price equal to the principal amount plus accrued and unpaid interest on or after April 1, 2020, if the closing sale price of the common stock exceeds 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive trading-day 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 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 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 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.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The carrying amount of the Notes consisted of the following as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Liability component:
|
|
|
|
Principal amount
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Less: debt discount
|
(35,131
|
)
|
|
(48,331
|
)
|
Net carrying amount of liability component
|
$
|
214,869
|
|
|
$
|
201,669
|
|
|
|
|
|
Net carrying amount of equity component
|
$
|
67,014
|
|
|
$
|
67,014
|
|
The estimated fair value of the Notes as of December 31, 2019 and 2018 was $262.7 million and $257.1 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 December 31, 2019, the remaining term of the Notes is approximately 2 years and 3 months. During the years ended December 31, 2019, 2018 and 2017, we recognized interest costs on the Notes as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Contractual interest (3.25% of the principal amount per annum)
|
$
|
8,128
|
|
|
$
|
8,128
|
|
|
$
|
8,128
|
|
Amortization of debt discount
|
13,200
|
|
|
11,916
|
|
|
10,758
|
|
Total
|
$
|
21,328
|
|
|
$
|
20,044
|
|
|
$
|
18,886
|
|
Note Hedges and Warrants
In May 2016, we purchased convertible note hedges with respect to our common stock for a cost of $59.1 million from certain bank counterparties. The convertible note hedges provide us with the right to purchase up to 46.3 million shares of our common stock at an initial strike price of $5.40 per share, which corresponds to the initial conversion price of the Notes, and are exercisable upon conversion of the Notes. The convertible note hedges are intended to reduce the potential economic dilution upon conversion of the Notes. The convertible note hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes do not have any rights with respect to the convertible note hedges.
In May 2016, we also sold warrants for total cash proceeds of $35.5 million to certain bank counterparties. The warrants provide the counterparties with the right to purchase up to 46.3 million shares of our common stock at a strike price of $8.50 per share. The warrants expire on various dates between July 1, 2022 and August 26, 2022 and are exercisable on their expiration dates. The warrants are separate transactions and are not part of the terms of the Notes or convertible note hedges. Holders of the Notes and convertible note hedges do not have any rights with respect to the warrants.
The amounts paid and received for the convertible note hedges and warrants were recorded in additional paid-in capital in the consolidated balance sheets as of December 31, 2019 and 2018. The convertible note hedges and warrants are not remeasured as long as they continue to meet the conditions for equity classification. The amounts paid for the convertible note hedges are tax deductible over the term of the Notes, while the proceeds received from the warrants are not taxable.
Under the if-converted method, the shares of common stock underlying the conversion option in the Notes are included in the diluted earnings per share denominator and the interest expense on the Notes, net of tax, is added to the numerator. However, upon conversion, there will be no economic dilution from the Notes, as exercise of the convertible note hedges eliminates any dilution from the Notes that would have otherwise occurred when the price of our common stock exceeds the conversion price. Taken together, the purchase of the convertible note hedges and
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
sale of warrants are intended to offset any actual dilution from the conversion of the Notes and to effectively increase the overall conversion price from $5.40 to $8.50 per share.
Revolving Credit Agreement
In May 2019, we entered into a second amended and restated senior secured revolving credit agreement (the "2019 Credit Agreement") which provides for aggregate principal borrowings of up to $400.0 million and matures in May 2024. The 2019 Credit Agreement replaced our previous $250.0 million amended and restated credit agreement (the "2016 Credit Agreement"). We deferred debt issuance costs of $2.4 million related to the 2019 Credit Agreement. Those deferred costs are included within Other non-current assets on the consolidated balance sheet as of December 31, 2019 and will be amortized to interest expense over the term of the agreement.
Borrowings under the 2019 Credit Agreement bear interest, at our option, at a rate per annum equal to (a) an adjusted LIBO rate or (b) a customary base rate (with loans denominated in certain currencies bearing interest at rates specific to such currencies) plus an additional margin ranging between 0.50% and 2.00%. We are required to pay quarterly commitment fees ranging from 0.25% to 0.35% per annum of the average daily amount of unused commitments available under the 2019 Credit Agreement. The 2019 Credit Agreement also provides for the issuance of up to $75.0 million in letters of credit, provided that the sum of outstanding borrowings and letters of credit do not exceed the maximum funding commitment of $400.0 million.
The 2019 Credit Agreement is secured by substantially all of our tangible and intangible assets, including a pledge of 100% of the outstanding capital stock of substantially all of our direct and indirect domestic subsidiaries and 65% of the shares or equity interests of first-tier foreign subsidiaries and each U.S. entity whose assets substantially consist of capital stock and/or intercompany debt of one or more foreign subsidiaries, subject to certain exceptions. Certain of our domestic subsidiaries are guarantors under the 2019 Credit Agreement.
The 2019 Credit Agreement contains various customary restrictive covenants that limit our ability to, among other things: incur additional indebtedness; make dividend and other restricted payments, including limiting the amount of our share repurchases; enter into sale and leaseback transactions; make investments, loans or advances; grant or incur liens on assets; sell assets; engage in mergers, consolidations, liquidations or dissolutions; and engage in transactions with affiliates. The 2019 Credit Agreement requires us to maintain compliance with specified financial covenants, comprised of a minimum fixed charge coverage ratio, a maximum leverage ratio, a maximum senior secured leverage ratio and a minimum liquidity ratio, each as set forth in the 2019 Credit Agreement. We are also required to maintain, as of the last day of each fiscal quarter, unrestricted cash of at least $250.0 million, including $125.0 million in accounts held with lenders under the 2019 Credit Agreement or their affiliates. Non-compliance with these covenants may result in termination of the commitments under the 2019 Credit Agreement and any then outstanding borrowings may be declared due and payable immediately. We have the right to terminate the 2019 Credit Agreement or reduce the available commitments at any time.
As of December 31, 2019 and 2018, we had no borrowings outstanding under the respective credit agreements. As of December 31, 2019 and 2018, we had outstanding letters of credit of $18.1 million and $19.2 million under the 2019 Credit Agreement and 2016 Credit Agreement, respectively.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. LEASES
Adoption of ASC Topic 842, Leases
On January 1, 2019, we adopted ASC Topic 842 using the modified retrospective transition method. Topic 842 requires the recognition of lease assets and liabilities for operating leases, in addition to the finance lease assets and liabilities previously recorded on our consolidated balance sheets. Beginning on January 1, 2019, our consolidated financial statements are presented in accordance with the revised policies, while prior period amounts are not adjusted and continue to be reported in accordance with our historical policies. The modified retrospective transition method required the cumulative effect, if any, of initially applying the guidance to be recognized as an adjustment to our accumulated deficit as of our adoption date. As a result of adopting Topic 842, we recognized additional lease assets and liabilities of $109.6 million as of January 1, 2019. The discount rate used to calculate that adjustment was the rate implicit in the lease, unless that rate was not readily determinable. For leases for which the rate was not readily determinable, the discount rate used was our incremental borrowing rate as of the adoption date, January 1, 2019. There was no cumulative effect adjustment to our accumulated deficit as a result of initially applying the guidance. Aside from the impact to our consolidated balance sheet discussed above, lease accounting policies and presentation within the consolidated statement of operations and consolidated statements of cash flows is substantially consistent with historical treatment.
We elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed us to carry forward prior conclusions about lease identification, classification and initial direct costs for leases entered into prior to adoption of Topic 842. Additionally, we elected to not separate lease and non-lease components for all of our leases. For leases with a term of 12 months or less, we elected the short-term lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition and new leases we may enter into in the future.
General Description of Leases
We have entered into various non-cancelable operating lease agreements for our offices and data centers and non-cancelable finance lease agreements for property and equipment. We classify leases at their commencement as either operating or finance leases. We may receive renewal or expansion options, rent holidays, leasehold improvements or other incentives on certain lease agreements.
Our operating leases primarily consist of leases for real estate throughout the world with lease expirations between 2020 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 2020 and 2023. We have also subleased certain office facilities under operating lease agreements, with expirations between 2023 and 2026.
We lease our headquarters located in Chicago, Illinois ("600 West Chicago"). Our lease agreement for 600 West Chicago extends through January 31, 2026 and includes rent escalations that range from one to two percent per year, as well as expansion options and a five-year renewal option. The 600 West Chicago lease represents $79.4 million of the estimated future payments under operating leases shown in the table below. We account for the 600 West Chicago lease as an operating lease and recognize rent expense on a straight-line basis, taking into account rent escalations and lease incentives.
For more information about our lease accounting policies, including lease recognition policy and significant assumptions and judgments used, refer to Note 2, Summary of Significant Accounting Policies.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following summarizes right-of-use assets as of December 31, 2019 (in thousands):
|
|
|
|
|
|
December 31, 2019
|
Right-of-use assets - operating leases
|
$
|
133,832
|
|
Right-of-use assets - finance leases (1)
|
28,193
|
|
Total right-of-use assets, gross
|
162,025
|
|
Less: accumulated depreciation and amortization
|
(36,380
|
)
|
Right-of-use assets, net
|
$
|
125,645
|
|
|
|
(1)
|
Right-of-use assets for finance leases are included in Property, equipment and software, net on the consolidated balance sheet.
|
The following table summarizes our lease cost and sublease income for the year ended December 31, 2019 (in thousands):
|
|
|
|
|
|
Year Ended December 31, 2019
|
Financing lease cost:
|
|
Amortization of right-of-use assets
|
$
|
18,922
|
|
Interest on lease liabilities
|
1,021
|
|
Total finance lease cost
|
19,943
|
|
Operating lease cost (1)
|
34,397
|
|
Variable lease cost
|
8,551
|
|
Short-term lease cost
|
365
|
|
Sublease income, gross (2)
|
(5,045
|
)
|
Total lease cost
|
$
|
58,211
|
|
|
|
(1)
|
Rent expense under operating leases was $40.1 million and $42.5 million for the years ended December 31, 2018 and 2017.
|
|
|
(2)
|
Sublease income was $6.5 million and $7.1 million for the years ended December 31, 2018 and 2017.
|
As of December 31, 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
|
2020
|
$
|
8,510
|
|
|
$
|
39,261
|
|
2021
|
5,264
|
|
|
34,457
|
|
2022
|
715
|
|
|
32,546
|
|
2023
|
12
|
|
|
24,126
|
|
2024
|
—
|
|
|
17,117
|
|
Thereafter
|
—
|
|
|
16,242
|
|
Total minimum lease payments
|
14,501
|
|
|
163,749
|
|
Less: Amount representing interest
|
(658
|
)
|
|
(20,699
|
)
|
Present value of net minimum lease payments
|
13,843
|
|
|
143,050
|
|
Less: Current portion of lease obligations
|
(8,012
|
)
|
|
(32,756
|
)
|
Total long-term lease obligations
|
$
|
5,831
|
|
|
$
|
110,294
|
|
As of December 31, 2019, we also had $12.3 million of non-cancelable operating lease commitments for offices that have not yet commenced. These operating leases will commence in 2020 with lease terms of 3 years to 5 years.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2018, the future payments under lease agreements in accordance with our historical accounting policies under Topic 840 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
Operating Leases
|
2019
|
$
|
18,169
|
|
|
$
|
32,533
|
|
2020
|
7,634
|
|
|
31,116
|
|
2021
|
4,784
|
|
|
26,876
|
|
2022
|
687
|
|
|
26,097
|
|
2023
|
—
|
|
|
21,944
|
|
Thereafter
|
—
|
|
|
31,633
|
|
Total minimum lease payments
|
31,274
|
|
|
$
|
170,199
|
|
Less: Amount representing interest
|
(1,586
|
)
|
|
|
Present value of net minimum capital lease payments
|
29,688
|
|
|
|
Less: Current portion of capital lease obligations
|
(17,207
|
)
|
|
|
Total long-term capital lease obligations
|
$
|
12,481
|
|
|
|
As of December 31, 2019, the future amounts due under subleases for each of the next five years and thereafter are as follows (in thousands):
|
|
|
|
|
|
Subleases
|
2020
|
$
|
5,027
|
|
2021
|
5,065
|
|
2022
|
5,103
|
|
2023
|
4,385
|
|
2024
|
2,333
|
|
Thereafter
|
2,559
|
|
Total future sublease income
|
$
|
24,472
|
|
The discount rate used for our lease obligations as of both December 31, 2019 and January 1, 2019 ranged from 1.5% to 6.9%. As of December 31, 2019, the weighted-average remaining lease term and weighted-average discount rate for our finance leases and operating leases was as follows:
|
|
|
|
|
|
|
|
Finance Leases
|
|
Operating Leases
|
Weighted-average lease term
|
2 years
|
|
|
5 years
|
|
Weighted-average discount rate
|
5.2
|
%
|
|
5.6
|
%
|
The following table summarizes supplemental cash flow information on our leasing obligations for the year ended December 31, 2019 (in thousands):
|
|
|
|
|
|
Year Ended December 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from finance leases
|
$
|
(1,021
|
)
|
Operating cash flows from operating leases
|
(36,723
|
)
|
Financing cash flows from finance leases
|
(19,687
|
)
|
Right-of-use assets obtained in exchange for lease liabilities:
|
|
Finance leases
|
3,929
|
|
Operating leases
|
27,293
|
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. COMMITMENTS AND CONTINGENCIES
Purchase Obligations
We have entered into non-cancelable arrangements with third-parties, primarily related to cloud computing and other information technology services. As of December 31, 2019, future payments under these contractual obligations were as follows (in thousands):
|
|
|
|
|
2020
|
$
|
10,675
|
|
2021
|
4,671
|
|
2022
|
4,123
|
|
2023
|
61
|
|
2024
|
20
|
|
Thereafter
|
—
|
|
Total purchase obligations
|
$
|
19,550
|
|
Legal Matters and Other Contingencies
From time to time, we are party to various legal proceedings incident to the operation of our business. For example, we currently are involved in proceedings brought by former employees and merchants, intellectual property infringement suits, customer lawsuits, consumer class actions and suits alleging, among other things, violations of state consumer protection or privacy laws.
In addition, third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to intellectual property disputes, including patent infringement claims, and expect that we will continue to be subject to intellectual property infringement claims as our services expand in scope and complexity. In the past, we have litigated such claims, and we are presently involved in several patent infringement and other intellectual property-related claims, including pending litigation or trademark disputes relating to, for example, our Goods category, some of which could involve potentially substantial claims for damages or injunctive relief. We may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act are interpreted by the courts, and we become subject to laws in jurisdictions where the underlying laws with respect to the potential liability of online intermediaries are either unclear or less favorable. We believe that additional lawsuits alleging that we have violated patent, copyright or trademark laws will be filed against us. Intellectual property claims, whether meritorious or not, are time consuming and often costly to resolve, could require expensive changes in our methods of doing business or the goods we sell, or could require us to enter into costly royalty or licensing agreements.
We also are subject to consumer claims or lawsuits relating to alleged violations of consumer protection or privacy rights and statutes, some of which could involve potentially substantial claims for damages, including statutory or punitive damages. Consumer and privacy related claims or lawsuits, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, or require us to change our business practices, sometimes in expensive ways.
We are also subject to, or in the future may become subject to, a variety of regulatory inquiries, audits, and investigations across the jurisdictions where we conduct our business, including, for example, inquiries related to consumer protection, employment matters and/or hiring practices, marketing practices, tax, unclaimed property and privacy rules and regulations. Any regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm our business.
We establish an accrued liability for loss contingencies related to legal and regulatory matters when the loss is both probable and reasonably estimable. Those accruals represent management's best estimate of probable losses and, in such cases, there may be an exposure to loss in excess of the amounts accrued. For certain of the matters described above, there are inherent and significant uncertainties based on, among other factors, the stage of the proceedings, developments in the applicable facts of law, or the lack of a specific damage claim. However, we believe
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 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 (see Note 3, Discontinued Operations), 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. In 2019, we decreased our indemnification liabilities due to the expiration of certain indemnification obligations. The resulting benefit of $2.2 million is recorded within Income (loss) from discontinued operations on the consolidated statement of operations for the year ended December 31, 2019. Our remaining indemnification liabilities were $3.2 million as of December 31, 2019. We estimate that the total amount of obligations that are reasonably possible to arise under the indemnifications in excess of amounts accrued as of December 31, 2019 is approximately $13.3 million.
In the normal course of business to facilitate transactions related to our operations, we indemnify certain parties, including employees, lessors, service providers, merchants, and counterparties to investment agreements and asset and stock purchase agreements with respect to various matters. We have agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or other claims made against those parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. We are also subject to increased exposure to various claims as a result of our divestitures and acquisitions, particularly in cases where we are entering into new businesses in connection with such acquisitions. We may also become more vulnerable to claims as we expand the range and scope of our services and are subject to laws in jurisdictions where the underlying laws with respect to potential liability are either unclear or less favorable. In addition, we have entered into indemnification agreements with our officers, directors and underwriters, and our bylaws contain similar indemnification obligations that cover officers, directors, employees and other agents.
Except as noted above, it is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, any payments that we have made under these agreements have not had a material impact on our operating results, financial position or cash flows.
12. STOCKHOLDERS' EQUITY
Preferred Stock
Our Board of Directors has the authority, without approval by the stockholders, to issue up to a total of 50,000,000 shares of preferred stock in one or more series. The Board may establish the number of shares to be included in each such series and may fix the designations, preferences, powers and other rights of the shares of a series of preferred stock. The Board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of our common stock. As of December 31, 2019 and 2018, there were no shares of preferred stock outstanding.
Common Stock
Pursuant to our restated certificate of incorporation, the Board has the authority to issue up to a total of 2,010,000,000 shares of common stock. Each holder of common stock 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 year ended December 31, 2019, we repurchased 14,027,227 shares for an aggregate
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
purchase price of $45.2 million (including fees and commissions) under our repurchase program. As of December 31, 2019, up to $245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the 2019 Credit Agreement, share price and other factors, and the share repurchase program may be terminated at any time.
13. COMPENSATION ARRANGEMENTS
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 Stock Plan (the "2011 Plan"), as amended in November 2013, May 2014, June 2016 and April 2019, under which options, RSUs and performance stock units for up to 187,500,000 shares of common stock were authorized for future issuance to employees, consultants and directors.
The Groupon, Inc. Stock Plans described above (the "Plans") are administered by the Compensation Committee of the Board (the "Compensation Committee"). As of December 31, 2019, 71,617,500 shares of common stock were available for future issuance under the Plans.
The stock-based compensation expense related to stock awards issued under the Plans and acquisition-related awards are presented within the following line items of the consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Cost of revenue
|
$
|
1,482
|
|
|
$
|
1,485
|
|
|
$
|
2,658
|
|
Marketing
|
5,809
|
|
|
6,948
|
|
|
7,949
|
|
Selling, general and administrative
|
74,324
|
|
|
56,288
|
|
|
70,343
|
|
Restructuring charges
|
—
|
|
|
—
|
|
|
849
|
|
Other income (expense), net
|
—
|
|
|
100
|
|
|
245
|
|
Total stock-based compensation expense
|
$
|
81,615
|
|
|
$
|
64,821
|
|
|
$
|
82,044
|
|
We capitalized $7.1 million, $7.4 million and $6.2 million of stock-based compensation for the years ended December 31, 2019, 2018 and 2017, in connection with internally-developed software and cloud computing arrangements. We recognized stock-based compensation from discontinued operations of $0.2 million for the year ended December 31, 2017.
Employee Stock Purchase Plan
The Groupon, Inc. 2012 Employee Stock Purchase Plan, as amended, authorizes us to grant up to 20,000,000 shares of common stock under that plan. For the years ended December 31, 2019, 2018 and 2017, 1,486,006, 1,621,061 and 1,879,656 shares of common stock were issued under the ESPP.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
The table below summarizes restricted stock unit activity under the Plans for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Weighted- Average Grant Date Fair Value (per share)
|
Unvested at December 31, 2018
|
$
|
26,623,432
|
|
|
$
|
4.47
|
|
Granted
|
28,922,775
|
|
|
3.44
|
|
Vested
|
(13,641,439
|
)
|
|
4.23
|
|
Forfeited
|
(11,364,476
|
)
|
|
4.10
|
|
Unvested at December 31, 2019
|
$
|
30,540,292
|
|
|
$
|
3.74
|
|
The weighted-average grant date fair value of restricted stock units granted in 2018 and 2017 was $4.59 and $4.10. The fair value of restricted stock units that vested during each of the three years ended December 31, 2019, 2018 and 2017 was $43.8 million, $64.1 million and $67.0 million. As of December 31, 2019, $85.3 million of unrecognized compensation costs related to unvested employee restricted stock units are expected to be recognized over a remaining weighted-average period of 1.61 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"). For the year ended December 31, 2019, we granted performance share units that will vest if our average daily closing stock price is equal to or greater than $6.00 per share over a period of 30 consecutive trading days prior to December 31, 2022 or if a change in control occurs during the performance period at the specified stock price (and on a proportional basis for a change in control price between the grant date price and the specified stock price) ("Market-based Performance Share Units"). We determined these awards are subject to a market condition, and therefore we used a Monte Carlo simulation to calculate the grant date fair value of the awards and the related derived service period over which we will recognize the expense. The key inputs used in the Monte Carlo simulation were the risk-free rate, our volatility of 49.8% and our cost of equity of 12.8%.
All of our performance share awards are subject to both continued employment through the performance period dictated by the award and certification by the Compensation Committee that the specified performance conditions have been achieved.
The table below summarizes Performance Share Unit activity under the Plans for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share Units
|
|
Weighted-Average Grant Date Fair Value (per unit)
|
|
Market-based Performance Share Units
|
|
Weighted-Average Grant Date Fair Value (per unit)
|
Unvested at December 31, 2018
|
3,431,918
|
|
|
$
|
4.90
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
4,640,467
|
|
|
3.89
|
|
|
8,486,708
|
|
|
3.03
|
|
Vested
|
(777,573
|
)
|
|
4.88
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(3,217,736
|
)
|
|
4.65
|
|
|
(1,666,667
|
)
|
|
3.03
|
|
Unvested at December 31, 2019
|
4,077,076
|
|
|
$
|
3.99
|
|
|
6,820,041
|
|
|
$
|
3.03
|
|
|
|
|
|
|
|
|
|
Maximum shares issuable upon vesting at December 31, 2019
|
3,898,508
|
|
|
|
|
6,820,041
|
|
|
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2019, $5.6 million of unrecognized compensation costs related to unvested performance share units are expected to be recognized over a remaining weighted-average period of 2.26 years and $3.1 million of unrecognized compensation costs related to unvested market-based performance share units are expected to be recognized over a remaining weighted-average period of 0.16 years.
Restricted Stock Awards
We previously granted restricted stock awards in connection with business combinations. Compensation expense on those awards was recognized on a straight-line basis over the requisite service periods of the awards. During the year ended December 31, 2017, 1.2 million restricted shares with a fair value of 5.2 million vested. There were no restricted shares outstanding as of December 31, 2017. No Restricted stock awards were granted, vested or forfeited in the years ended December 31, 2019 and 2018.
Stock Options
The exercise price of stock options granted is equal to the fair value of the underlying stock on the date of grant. The contractual term for stock options expires ten years from the grant date. Stock options generally vested 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.
The table below summarizes the stock option activity for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted- Average Exercise Price
|
|
Weighted- Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value
(in thousands) (1)
|
Outstanding and exercisable at December 31, 2018
|
$
|
212,787
|
|
|
$
|
1.80
|
|
|
1.37
|
|
$
|
298
|
|
Exercised
|
(74,875
|
)
|
|
0.96
|
|
|
|
|
|
Forfeited
|
(3,250
|
)
|
|
1.68
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2019
|
$
|
134,662
|
|
|
$
|
1.95
|
|
|
0.67
|
|
$
|
74
|
|
|
|
(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 December 31, 2019 and 2018, respectively.
|
We did not grant any stock options during the years ended December 31, 2019, 2018 and 2017. The total intrinsic value of options that were exercised during the years ended December 31, 2019, 2018 and 2017 was $0.1 million, $3.2 million and $4.0 million.
14. REVENUE RECOGNITION
We recognize revenue when we satisfy a performance obligation by transferring a promised good or service to a customer. Substantially all of our performance obligations are satisfied at a point in time rather than over time. We offer goods and services through our online marketplaces in three primary categories: Local, Goods and Travel. Refer to Note 20, Segment Information, for revenue summarized by reportable segment and category.
Product revenue is earned from direct sales of merchandise inventory to customers through our Goods category and includes any related shipping fees. Service revenue primarily represents the net commissions earned from selling goods or services on behalf of third-party merchants. Those transactions generally involve a customer's purchase of a voucher through one of our online marketplace that can be redeemed by the customer with a third-party merchant for goods or services (or for discounts on goods or services). To a lesser extent, service revenue also includes commissions earned when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications.
In connection with most of our product and service revenue transactions, we collect cash from credit card payment processors shortly after a sale occurs. For transactions in which we earn commissions when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications, we generally collect payment from affiliate networks on terms ranging from 30 to 150 days.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On January 1, 2018, we adopted ASC Topic 606 using the modified retrospective method. Beginning on January 1, 2018, results 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 adoption of Topic 606 did not significantly impact our presentation of revenue on a gross or net basis. Refer to Note 2, Summary of Significant Accounting Policies, for additional information about our revenue recognition accounting policies and the impact of adopting Topic 606.
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 $18.0 million, $25.5 million and $25.8 million as of December 31, 2019, December 31, 2018 and January 1, 2018. The amount of revenue recognized for the years ended December 31, 2019 and 2018 that was included in the deferred revenue balance at the beginning of the period was $25.4 million and $25.1 million.
The following table summarizes the activity in the liability for customer credits for the years ended December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
Customer Credits
|
Balance as of January 1, 2018
|
$
|
19,414
|
|
Credits issued
|
126,874
|
|
Credits redeemed (1)
|
(112,161
|
)
|
Breakage revenue recognized
|
(18,802
|
)
|
Foreign currency translation
|
(207
|
)
|
Balance as of December 31, 2018
|
15,118
|
|
Credits issued
|
115,031
|
|
Credits redeemed (1)
|
(102,682
|
)
|
Breakage revenue recognized
|
(13,699
|
)
|
Foreign currency translation
|
(4
|
)
|
Balance as of December 31, 2019
|
$
|
13,764
|
|
|
|
(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.
|
Cost of Obtaining Contracts
Deferred contract acquisition costs are presented within the following line items of the consolidated balance sheets as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Prepaid expenses and other current assets
|
2,501
|
|
|
2,923
|
|
Other non-current assets
|
10,133
|
|
|
11,285
|
|
For the years ended December 31, 2019 and 2018, we amortized $20.4 million and $25.2 million of deferred contract acquisition costs and did not recognize any impairment losses in relation to the deferred costs.
15. RESTRUCTURING
In September 2015, we commenced a restructuring plan relating primarily to workforce reductions in our international operations. We have also undertaken workforce reductions in our North America segment. In addition to workforce reductions in our ongoing markets, we ceased operations in 17 countries within our International segment as part of the restructuring plan between September 2015 and March 2016. Those country exits, which generally comprised our smallest international markets, resulted from a series of separate decisions made at different times
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
during that period that were not part of an overall strategic shift. Costs related to the restructuring plan are classified as Restructuring charges on the consolidated statements of operations. The actions under our restructuring plan were completed as of September 30, 2017 and substantially all of the cash payments for actions under that plan were disbursed as of December 31, 2018.
During the third quarter of 2017, we reached a decision to cease most of our food delivery operations and entered into a long-term commercial agreement with a subsidiary of Grubhub that will allow us to provide customers with the ability to order food delivery through our websites and mobile applications in the United States from Grubhub's network of restaurant merchants. See Note 6, Goodwill and Other Intangible Assets, for additional information. For the year ended December 31, 2017, our restructuring costs associated with ceasing those food delivery operations were $2.6 million, primarily related to employee severance. Additionally, we entered into an agreement to sell customer lists and other intangible assets in certain food delivery markets to Grubhub.
We incurred cumulative costs for employee severance and benefits and other exit costs of $80.1 million under the plan since its inception in September 2015. In addition to those costs, we incurred cumulative long-lived asset impairment charges of $7.5 million resulting from our restructuring activities. There were no asset impairments as a result of restructuring activities during the years ended December 31, 2019, 2018 and 2017. The amounts presented in Restructuring charges for the years ended December 31, 2019 and 2018 reflect changes in estimates related to prior actions.
The following tables summarize costs incurred by segment related to the restructuring plan for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
Employee Severance and Benefit Costs
|
|
Other Exit Costs
|
|
Total Restructuring Charges
|
North America
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
International
|
|
31
|
|
|
—
|
|
|
31
|
|
Consolidated
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
Employee Severance and Benefit Costs
|
|
Other Exit Costs
|
|
Total Restructuring Charges
|
North America
|
|
$
|
—
|
|
|
$
|
177
|
|
|
$
|
177
|
|
International
|
|
(353
|
)
|
|
40
|
|
|
(313
|
)
|
Consolidated
|
|
$
|
(353
|
)
|
|
$
|
217
|
|
|
$
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
Employee Severance and Benefit Costs (1)
|
|
Other Exit Costs
|
|
Total Restructuring Charges
|
North America
|
|
$
|
8,172
|
|
|
$
|
3,826
|
|
|
$
|
11,998
|
|
International
|
|
4,814
|
|
|
2,016
|
|
|
6,830
|
|
Consolidated
|
|
$
|
12,986
|
|
|
$
|
5,842
|
|
|
$
|
18,828
|
|
|
|
(1)
|
The employee severance and benefit costs for the year ended December 31, 2017 related to the termination of approximately 750 employees.
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes restructuring liability activity for the years ended December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance and Benefit Costs
|
|
Other Exit Costs
|
|
Total
|
Balance as of December 31, 2017
|
|
$
|
3,817
|
|
|
$
|
304
|
|
|
$
|
4,121
|
|
Charges payable in cash
|
|
(353
|
)
|
|
217
|
|
|
(136
|
)
|
Cash payments
|
|
(2,256
|
)
|
|
(521
|
)
|
|
(2,777
|
)
|
Foreign currency translation
|
|
(89
|
)
|
|
—
|
|
|
(89
|
)
|
Balance as of December 31, 2018
|
|
$
|
1,119
|
|
|
$
|
—
|
|
|
$
|
1,119
|
|
Charges payable in cash
|
|
31
|
|
|
—
|
|
|
31
|
|
Cash payments
|
|
(436
|
)
|
|
—
|
|
|
(436
|
)
|
Foreign currency translation
|
|
(15
|
)
|
|
—
|
|
|
(15
|
)
|
Balance as of December 31, 2019
|
|
$
|
699
|
|
|
$
|
—
|
|
|
$
|
699
|
|
16. INCOME TAXES
The components of pretax income (loss) from continuing operations for the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
United States
|
$
|
6,758
|
|
|
$
|
23,349
|
|
|
$
|
30,095
|
|
International
|
(20,289
|
)
|
|
(22,318
|
)
|
|
6,050
|
|
Income (loss) before provision (benefit) for income taxes
|
$
|
(13,531
|
)
|
|
$
|
1,031
|
|
|
$
|
36,145
|
|
The provision (benefit) for income taxes for the years ended December 31, 2019, 2018 and 2017 was allocated between continuing operations and discontinued operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Continuing Operations
|
$
|
761
|
|
|
$
|
(957
|
)
|
|
$
|
7,544
|
|
Discontinued Operations
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
761
|
|
|
$
|
(957
|
)
|
|
$
|
7,544
|
|
The provision (benefit) for income taxes from continuing operations for the years ended December 31, 2019, 2018 and 2017 consisted of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Current taxes:
|
|
|
|
|
|
U.S. federal
|
$
|
(5,901
|
)
|
|
$
|
768
|
|
|
$
|
(120
|
)
|
State
|
929
|
|
|
57
|
|
|
191
|
|
International
|
7,218
|
|
|
3,218
|
|
|
6,870
|
|
Total current taxes
|
2,246
|
|
|
4,043
|
|
|
6,941
|
|
Deferred taxes:
|
|
|
|
|
|
U.S. federal
|
32
|
|
|
(319
|
)
|
|
(1,335
|
)
|
State
|
(9
|
)
|
|
—
|
|
|
50
|
|
International
|
(1,508
|
)
|
|
(4,681
|
)
|
|
1,888
|
|
Total deferred taxes
|
(1,485
|
)
|
|
(5,000
|
)
|
|
603
|
|
Provision (benefit) for income taxes
|
$
|
761
|
|
|
$
|
(957
|
)
|
|
$
|
7,544
|
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The items accounting for differences between the income tax provision (benefit) from continuing operations computed at the U.S. federal statutory rate and the provision (benefit) for income taxes for the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018 (3)
|
|
2017
|
U.S. federal income tax provision (benefit) at statutory rate
|
$
|
(2,842
|
)
|
|
$
|
216
|
|
|
$
|
12,651
|
|
Foreign income and losses taxed at different rates (1)
|
5,529
|
|
|
2,113
|
|
|
4,524
|
|
State income taxes, net of federal benefits, and state tax credits
|
5,297
|
|
|
720
|
|
|
(4,980
|
)
|
Change in valuation allowances
|
(10,074
|
)
|
|
(7,727
|
)
|
|
(36,057
|
)
|
Effect of income tax rate changes on deferred items (2)
|
(3,443
|
)
|
|
1,544
|
|
|
20,466
|
|
Tax effects of intercompany transactions
|
—
|
|
|
607
|
|
|
3,332
|
|
Adjustments related to uncertain tax positions
|
(12,418
|
)
|
|
18
|
|
|
1,824
|
|
Non-deductible stock-based compensation expense
|
6,355
|
|
|
3,239
|
|
|
5,002
|
|
Tax shortfalls on stock-based compensation awards
|
2,042
|
|
|
(335
|
)
|
|
4,290
|
|
Federal research and development credits
|
3,447
|
|
|
(8,331
|
)
|
|
(7,862
|
)
|
Forgiveness of intercompany liabilities
|
67
|
|
|
(1,340
|
)
|
|
(2,494
|
)
|
Ordinary stock loss
|
—
|
|
|
(11,815
|
)
|
|
—
|
|
Net operating loss expiration
|
12,537
|
|
|
—
|
|
|
—
|
|
Non-deductible or non-taxable items
|
(5,736
|
)
|
|
20,134
|
|
|
6,848
|
|
Provision (benefit) for income taxes
|
$
|
761
|
|
|
$
|
(957
|
)
|
|
$
|
7,544
|
|
|
|
(1)
|
Tax rates in foreign jurisdictions were generally lower than the U.S. federal statutory rate through December 31, 2019. This results in an adverse impact to the provision (benefit) for income taxes in this rate reconciliation for the years ended December 31, 2019, 2018 and 2017 prior to the impact of valuation allowances, due to the net pretax losses from continuing operations in certain foreign jurisdictions with lower tax rates.
|
|
|
(2)
|
The effect of income tax rate changes on deferred items for the year ended December 31, 2017 is primarily related to the U.S. tax reform legislation that was signed into law on December 22, 2017, which included a reduction of the U.S. Federal income tax rate to 21 percent. That rate reduction did not impact our provision for income taxes for the year ended December 31, 2017 due to the valuation allowance against our U.S. net deferred tax assets.
|
|
|
(3)
|
During the year ended December 31, 2019, we updated our net operating losses to remove deferred tax assets that could never be utilized due to IRC Section 382 limitations. The amount of State income taxes, net of federal benefits, and state tax credits, Change in valuation allowances and Non-deductible or non-taxable items for the year ended December 31, 2018 have been updated from $2.0 million, $3.8 million and $7.3 million previously reported to reflect that change.
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The deferred income tax assets and liabilities consisted of the following components as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Accrued expenses and other liabilities
|
$
|
35,565
|
|
|
$
|
25,694
|
|
Operating lease obligation
|
22,557
|
|
|
—
|
|
Stock-based compensation
|
7,657
|
|
|
5,167
|
|
Net operating loss and tax credit carryforwards (1)
|
157,202
|
|
|
194,773
|
|
Intangible assets, net
|
21,002
|
|
|
16,482
|
|
Investments
|
23,012
|
|
|
5,916
|
|
Unrealized foreign currency exchange losses
|
3,765
|
|
|
1,882
|
|
Other
|
1,017
|
|
|
1,021
|
|
Total deferred tax assets
|
271,777
|
|
|
250,935
|
|
Less: Valuation allowances (1)
|
(206,394
|
)
|
|
(216,468
|
)
|
Deferred tax assets, net of valuation allowance
|
65,383
|
|
|
34,467
|
|
Deferred tax liabilities:
|
|
|
|
Prepaid expenses and other assets
|
(16,343
|
)
|
|
(12,737
|
)
|
Property, equipment and software, net
|
(11,994
|
)
|
|
(12,576
|
)
|
Right-of-use asset
|
(20,172
|
)
|
|
—
|
|
Convertible senior notes
|
(1,883
|
)
|
|
(2,457
|
)
|
Deferred revenue
|
(14,064
|
)
|
|
(7,255
|
)
|
Total deferred tax liabilities
|
(64,456
|
)
|
|
(35,025
|
)
|
Net deferred tax asset (liability)
|
$
|
927
|
|
|
$
|
(558
|
)
|
|
|
(1)
|
During the year ended December 31, 2019, we updated our net operating losses to remove deferred tax assets that could never be utilized due to IRC Section 382 limitations. The amount of Net operating loss and tax credit carryforwards and Valuation allowances for the year ended December 31, 2018 have been updated from $206.3 million and $228.0 million previously reported to reflect that change.
|
We have incurred significant losses in recent periods and had an accumulated deficit of $1,032.9 million as of December 31, 2019. As a result, we maintained valuation allowances against our domestic deferred tax assets and substantially all of our foreign deferred tax assets as of December 31, 2019 and 2018 to reduce their carrying values to amounts that are realizable either through future reversals of existing taxable temporary differences or through taxable income in carryback years for the applicable jurisdictions.
We had $48.1 million of federal net operating loss carryforwards as of December 31, 2019 which will begin expiring in 2027. We had $214.7 million of state net operating loss carryforwards as of December 31, 2019, which began expiring in the current period. As of December 31, 2019, we had $343.0 million of foreign net operating loss carryforwards, a significant portion of which carry forward for an indefinite period.
We are subject to taxation in the United States, state jurisdictions and foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not criterion, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes activity related to our gross unrecognized tax benefits, excluding interest and penalties, for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Beginning Balance
|
$
|
87,637
|
|
|
$
|
87,359
|
|
|
$
|
80,081
|
|
Increases related to prior year tax positions
|
3,754
|
|
|
1,500
|
|
|
960
|
|
Decreases related to prior year tax positions
|
(28,767
|
)
|
|
(21
|
)
|
|
(1,196
|
)
|
Increases related to current year tax positions
|
6,086
|
|
|
7,533
|
|
|
9,571
|
|
Decreases based on settlements with taxing authorities
|
—
|
|
|
—
|
|
|
—
|
|
Decreases due to lapse of statute limitations
|
(3,875
|
)
|
|
(9,447
|
)
|
|
(3,777
|
)
|
Foreign currency translation
|
(474
|
)
|
|
713
|
|
|
1,720
|
|
Ending Balance
|
$
|
64,361
|
|
|
$
|
87,637
|
|
|
$
|
87,359
|
|
The total amount of unrecognized tax benefits as of December 31, 2019, 2018 and 2017 that, if recognized, would affect the effective tax rate are $25.1 million, $33.3 million and $37.6 million.
We recognized $1.4 million, $1.6 million and $0.2 million of interest and penalties within Provision (benefit) for income taxes on our consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017. Total accrued interest and penalties as of December 31, 2019 and 2018 were $4.9 million and $5.4 million, and are included within Other non-current liabilities in our consolidated balance sheets.
We are currently under IRS audit for the 2015, 2016 and 2017 tax years. Additionally, we are currently under audit by several foreign 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 recognized income tax benefits of $12.3 million, $7.9 million and $3.0 million for the years ended December 31, 2019, 2018 and 2017, as a result of new information that impacted our estimates of the amounts that are more-likely-than not of being realized upon settlement of the related tax positions and due to expirations of the applicable statutes of limitations. We are subject to claims for tax assessments by foreign jurisdictions, including a proposed assessment for $113.3 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 $20.4 million in unrecognized tax benefits may occur within the 12 months following December 31, 2019 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 December 31, 2019 and 2018 are immaterial, we do not intend to distribute earnings of foreign subsidiaries for which we have an excess of the financial reporting basis over the tax basis of our investments and therefore have not recorded any deferred taxes related to such amounts. The actual tax cost resulting from a distribution would depend on income tax laws and circumstances at the time of distribution. Determination of the amount of unrecognized deferred tax liability related to the excess of the financial reporting basis over the tax basis of our foreign subsidiaries is not practical due to the complexities associated with the calculation.
Groupon uses a cost-sharing arrangement under which controlled members agree to share the costs and risks of developing intangible properties in accordance with their reasonably anticipated share of benefits from the intangibles. On July 24, 2018, the Ninth Circuit Court of Appeals issued an opinion in Altera Corp. v. Commissioner requiring related parties in an intercompany cost-sharing arrangement to share expenses related to stock-based compensation. This opinion reversed an earlier decision of the United States Tax Court. On August 7, 2018, the Ninth Circuit Court of Appeals withdrew its July 24, 2018 opinion. On June 7, 2019, the United States Court of Appeals for the Ninth Circuit reversed the Tax Court decision and ruled that stock-based compensation must be included in the shared pool of expenses. The ruling, which was outside the Circuit Court of Appeals for Groupon, did not have a material impact on our provision for income taxes for the year ended December 31, 2019.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. VARIABLE INTEREST ENTITY
Variable interest entities ("VIEs") are entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e., the ability to make significant decisions through voting rights and the right to receive the expected residual returns of the entity or the obligation to absorb the expected losses of the entity). A variable interest holder that has both (a) the power to direct the activities of the VIE that most significantly impact its economic performance and (b) either an obligation to absorb losses or a right to receive benefits that could potentially be significant to the VIE is referred to as the primary beneficiary and must consolidate the VIE.
We have an arrangement with a strategic partner to offer deals related to live events, and a limited liability company ("LLC") has been established to administer that arrangement. Groupon and the strategic partner each own 50% of the outstanding LLC interests and income and cash flows of the LLC are allocated based on agreed upon percentages specified in the related LLC agreement.
Our obligations associated with our interests in the LLC are primarily administering transactions, contributing intellectual property, identifying deals and promoting the sale of deal offerings, coordinating the distribution of deal offerings and providing the record keeping.
Under the LLC agreement, as amended, the LLC shall be dissolved upon the occurrence of any of the following events: (1) either party becoming a majority owner; (2) July 2022; (3) certain elections of Groupon or the strategic partner based on the operational performance of the LLC or other changes to certain terms in the agreement; (4) election of either Groupon or the strategic partner in the event of bankruptcy by the other party; (5) sale of the LLC; or (6) a court's dissolution of the LLC.
We have determined that the LLC is a VIE and that we are its primary beneficiary. We consolidate the LLC because we have the power to direct the activities of the LLC that most significantly impact the LLC's economic performance. In particular, we identify and promote the deal offerings, provide all of the operational and back office support, present the LLC's deal offerings via our websites and mobile applications and provide the editorial resources that create the verbiage for the related deal offers.
18. 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. 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
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. 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.
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. See Note 4, Business Combinations, for further discussion of that acquisition. Additionally, we had contingent obligations in prior periods to transfer cash to the former owners of a previous business acquisition if specified financial results were met (i.e. an earnout).
Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred in the related business combination and subsequent changes in fair value recorded in earnings within Selling, general and administrative expense on the consolidated statements of operations.
We use an income approach to value contingent consideration obligations based on the present value of probability-weighted future cash flows. We classify the contingent consideration liabilities as Level 3 due to the lack of relevant observable market data over fair value inputs such as probability-weighting of payment outcomes.
The following tables summarize assets that are measured at fair value on a recurring basis as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
December 31, 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
|
$
|
1,405
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,405
|
|
Available-for-sale securities - redeemable preferred shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
1,298
|
|
|
—
|
|
|
—
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
December 31, 2018
|
|
Quoted Prices in Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Fair value option investments
|
$
|
73,902
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73,902
|
|
Available-for-sale securities - redeemable preferred shares
|
10,340
|
|
|
—
|
|
|
—
|
|
|
10,340
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
1,529
|
|
|
—
|
|
|
—
|
|
|
1,529
|
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Assets
|
|
|
|
|
|
Fair value option investments:
|
|
|
|
|
|
Beginning Balance
|
$
|
73,902
|
|
|
$
|
82,966
|
|
|
$
|
82,584
|
|
Total gains (losses) included in earnings
|
(72,497
|
)
|
|
(9,064
|
)
|
|
382
|
|
Ending Balance
|
$
|
1,405
|
|
|
$
|
73,902
|
|
|
$
|
82,966
|
|
Unrealized (losses) gains still held (1)
|
$
|
(72,497
|
)
|
|
$
|
(9,064
|
)
|
|
$
|
382
|
|
Available-for-sale securities
|
|
|
|
|
|
Convertible debt securities:
|
|
|
|
|
|
Beginning Balance
|
$
|
—
|
|
|
$
|
11,354
|
|
|
$
|
10,038
|
|
Purchases and acquisition of convertible debt securities
|
—
|
|
|
—
|
|
|
1,612
|
|
Proceeds from sales and maturities of convertible debt securities
|
—
|
|
|
(8,594
|
)
|
|
(1,843
|
)
|
Transfer to other equity method investment upon conversion of convertible debt security
|
—
|
|
|
(4,008
|
)
|
|
—
|
|
Total gains (losses) included in other comprehensive income (loss)
|
—
|
|
|
(1,148
|
)
|
|
(437
|
)
|
Total gains (losses) included in earnings(2)
|
—
|
|
|
2,396
|
|
|
1,984
|
|
Ending Balance
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,354
|
|
Unrealized gains (losses) still held (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,303
|
|
Redeemable preferred shares:
|
|
|
|
|
|
Beginning Balance
|
$
|
10,340
|
|
|
$
|
15,431
|
|
|
$
|
17,444
|
|
Total gains (losses) included in other comprehensive income (loss)
|
(379
|
)
|
|
379
|
|
|
931
|
|
Impairments included in earnings
|
(9,961
|
)
|
|
(5,470
|
)
|
|
(2,944
|
)
|
Ending Balance
|
$
|
—
|
|
|
$
|
10,340
|
|
|
$
|
15,431
|
|
Unrealized gains (losses) still held (1)
|
$
|
(10,340
|
)
|
|
$
|
(5,091
|
)
|
|
$
|
(2,013
|
)
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Contingent Consideration:
|
|
|
|
|
|
Beginning Balance
|
$
|
1,529
|
|
|
$
|
—
|
|
|
$
|
14,588
|
|
Issuance of contingent consideration in connection with acquisitions
|
—
|
|
|
1,589
|
|
|
—
|
|
Settlements of contingent consideration liabilities
|
(312
|
)
|
|
—
|
|
|
(7,858
|
)
|
Reclass to non-fair value liabilities when no longer contingent
|
—
|
|
|
—
|
|
|
(6,778
|
)
|
Total losses (gains) included in earnings
|
39
|
|
|
56
|
|
|
48
|
|
Foreign currency translation
|
42
|
|
|
(116
|
)
|
|
—
|
|
Ending Balance
|
$
|
1,298
|
|
|
$
|
1,529
|
|
|
$
|
—
|
|
Unrealized losses (gains) still held (1)
|
$
|
39
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
|
(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 or increased due to an observable price change in an orderly transaction. For the year ended December 31, 2019, we adjusted the carrying value of an other equity investment for observable price changes in an orderly transaction, which resulted in an unrealized gain of $51.4 million.
For the year ended December 31, 2018, we recorded a $4.6 million impairment of an other equity investment. To determine the fair value of the investment, we considered the financial condition of the investee and applied a market approach. We have classified the fair value measurement of that other equity investment as Level 3 because it involves significant unobservable inputs. Refer to Note 7, Investments, for additional information.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We did not record any significant nonrecurring fair value measurements after initial recognition for the year ended December 31, 2017.
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, 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 December 31, 2019 and 2018 due to their short-term nature.
19. 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 using the treasury stock method, except for the convertible senior notes, which are subject to the if-converted method.
The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the years ended December 31, 2019, 2018 and 2017 (in thousands, except share amounts and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Basic and diluted net income (loss) per share:
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
Net income (loss) - continuing operations
|
$
|
(14,292
|
)
|
|
$
|
1,988
|
|
|
$
|
28,601
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
10,682
|
|
|
13,067
|
|
|
12,587
|
|
Net income (loss) attributable to common stockholders - continuing operations
|
$
|
(24,974
|
)
|
|
$
|
(11,079
|
)
|
|
$
|
16,014
|
|
Net income (loss) attributable to common stockholders - discontinued operations
|
2,597
|
|
|
—
|
|
|
(1,974
|
)
|
Net income (loss) attributable to common stockholders
|
$
|
(22,377
|
)
|
|
$
|
(11,079
|
)
|
|
$
|
14,040
|
|
Denominator
|
|
|
|
|
|
Shares used in computation of basic net income (loss) per share
|
567,408,340
|
|
|
566,511,108
|
|
|
559,367,075
|
|
Weighted-average effect of diluted securities:
|
|
|
|
|
|
Stock Options
|
—
|
|
|
—
|
|
|
842,047
|
|
Restricted Stock
|
—
|
|
|
—
|
|
|
488,773
|
|
Restricted Stock Units
|
—
|
|
|
—
|
|
|
7,153,674
|
|
Employee Stock Purchase Plan
|
—
|
|
|
—
|
|
|
201,504
|
|
Performance Share Units and Performance Bonus Awards
|
—
|
|
|
—
|
|
|
365,298
|
|
Shares used in computation of diluted net income (loss) per share
|
567,408,340
|
|
|
566,511,108
|
|
|
568,418,371
|
|
|
|
|
|
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.03
|
|
Discontinued operations
|
0.00
|
|
—
|
|
|
(0.00
|
)
|
Basic net income (loss) per share
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.03
|
|
Discontinued operations
|
0.00
|
|
—
|
|
|
(0.01
|
)
|
Diluted net income (loss) per share
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.02
|
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Restricted stock units
|
33,040,043
|
|
|
30,552,028
|
|
|
8,087,545
|
|
Other stock-based compensation awards
|
2,511,249
|
|
|
2,041,099
|
|
|
13,000
|
|
Convertible senior notes
|
46,296,300
|
|
|
46,296,300
|
|
|
46,296,300
|
|
Warrants
|
46,296,300
|
|
|
46,296,300
|
|
|
46,296,300
|
|
Total
|
128,143,892
|
|
|
125,185,727
|
|
|
100,693,145
|
|
We had outstanding Market-based Performance Share Units as of December 31, 2019 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. As of December 31, 2019, there were up to 6,820,041 shares of common stock issuable upon vesting of outstanding Market-based Performance Share Units that were excluded from the table above as the performance or market conditions were not satisfied as of the end of the period.
20. SEGMENT INFORMATION
The segment information reported in the tables below reflects the operating results that are regularly reviewed by our chief operating decision maker to assess performance and make resource allocation decisions. Our operations are organized into two segments: North America and International.
The following table summarizes revenue by reportable segment and category for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
North America
|
|
|
|
|
|
Service revenue:
|
|
|
|
|
|
Local
|
$
|
721,038
|
|
|
$
|
752,863
|
|
|
$
|
825,579
|
|
Goods
|
16,236
|
|
|
18,283
|
|
|
16,768
|
|
Travel
|
57,939
|
|
|
71,856
|
|
|
78,495
|
|
Total service revenue
|
795,213
|
|
|
843,002
|
|
|
920,842
|
|
Product revenue - Goods
|
563,694
|
|
|
796,393
|
|
|
993,326
|
|
Total North America revenue (1)
|
1,358,907
|
|
|
1,639,395
|
|
|
1,914,168
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
Service revenue:
|
|
|
|
|
|
Local
|
287,611
|
|
|
306,700
|
|
|
281,466
|
|
Goods
|
9,441
|
|
|
14,602
|
|
|
20,358
|
|
Travel
|
34,092
|
|
|
41,183
|
|
|
43,786
|
|
Total service revenue
|
331,144
|
|
|
362,485
|
|
|
345,610
|
|
Product revenue - Goods
|
528,864
|
|
|
634,866
|
|
|
584,099
|
|
Total International revenue (1)
|
$
|
860,008
|
|
|
$
|
997,351
|
|
|
$
|
929,709
|
|
|
|
(1)
|
North America includes revenue from the United States of $1,333.9 million, $1,600.2 million and $1,884.7 million for the years ended December 31, 2019, 2018 and 2017. International includes revenue from the United Kingdom of $314.3 million, $390.4 million and $343.9 million for the years ended December 31, 2019, 2018 and 2017. There were no other individual countries that represented more than 10% of consolidated total revenue for the years ended December 31, 2019, 2018 and 2017. Revenue is attributed to individual countries based on the location of the customer.
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes gross profit by reportable segment and category for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
North America
|
|
|
|
|
|
Service gross profit:
|
|
|
|
|
|
Local
|
$
|
643,499
|
|
|
$
|
671,352
|
|
|
$
|
708,573
|
|
Goods
|
13,165
|
|
|
15,302
|
|
|
12,929
|
|
Travel
|
45,739
|
|
|
57,945
|
|
|
60,594
|
|
Total service gross profit
|
702,403
|
|
|
744,599
|
|
|
782,096
|
|
Product gross profit - Goods
|
105,342
|
|
|
146,085
|
|
|
145,582
|
|
Total North America gross profit
|
807,745
|
|
|
890,684
|
|
|
927,678
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
Service gross profit:
|
|
|
|
|
|
Local
|
269,666
|
|
|
289,427
|
|
|
265,348
|
|
Goods
|
8,509
|
|
|
13,252
|
|
|
17,910
|
|
Travel
|
31,317
|
|
|
38,132
|
|
|
40,288
|
|
Total service gross profit
|
309,492
|
|
|
340,811
|
|
|
323,546
|
|
Product gross profit - Goods
|
68,892
|
|
|
89,106
|
|
|
82,637
|
|
Total International gross profit
|
$
|
378,384
|
|
|
$
|
429,917
|
|
|
$
|
406,183
|
|
The following table summarizes operating income by reportable segment for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Operating income (loss) (1) (2) (3) (4) :
|
|
|
|
|
|
North America
|
$
|
65,728
|
|
|
$
|
19,909
|
|
|
$
|
(45
|
)
|
International
|
(25,930
|
)
|
|
34,130
|
|
|
29,480
|
|
Total operating income (loss)
|
$
|
39,798
|
|
|
$
|
54,039
|
|
|
$
|
29,435
|
|
|
|
(1)
|
Includes stock-based compensation of $72.8 million, $59.7 million and $76.1 million for North America and $8.8 million, $5.0 million and $5.7 million for International for the years ended December 31, 2019, 2018 and 2017, respectively.
|
|
|
(2)
|
Includes acquisition-related (benefit) expense, net of $0.7 million for International for the year ended December 31, 2018.
|
|
|
(3)
|
Includes restructuring charges for North America and International. See Note 15, Restructuring, for restructuring charges by segment.
|
|
|
(4)
|
Includes a $34.6 million charge related to the IBM patent litigation matter for North America for the year ended December 31, 2018.
|
The following table summarizes total assets by reportable segment as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Total assets:
|
|
|
|
North America (1)
|
$
|
1,045,500
|
|
|
$
|
958,412
|
|
International (1)
|
541,243
|
|
|
683,730
|
|
Consolidated total assets
|
$
|
1,586,743
|
|
|
$
|
1,642,142
|
|
|
|
(1)
|
North America contains assets from the United States of $1,020.0 million and $940.5 million as of December 31, 2019 and 2018. International contains assets from Ireland of $204.6 million as of December 31, 2018 and from Switzerland of $175.2 million as of December 31, 2019. Assets from Ireland were less than 10% of consolidated total assets as of December 31, 2019. There were no other individual countries that represented more than 10% of consolidated total assets as of December 31, 2019 and 2018.
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes tangible property and equipment, net of accumulated depreciation and amortization, by reportable segment as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
North America (1)
|
$
|
35,798
|
|
|
$
|
51,032
|
|
International (1)
|
17,719
|
|
|
20,773
|
|
Consolidated total
|
$
|
53,517
|
|
|
$
|
71,805
|
|
|
|
(1)
|
Substantially all tangible property and equipment within North America is located in the United States. There were no other individual countries located outside of the United States that represented more than 10% of consolidated tangible property and equipment, net as of December 31, 2019 and 2018.
|
The following table summarizes depreciation and amortization of property, equipment and software and intangible assets by reportable segment for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
North America
|
$
|
89,083
|
|
|
$
|
101,419
|
|
|
$
|
121,616
|
|
International
|
16,682
|
|
|
14,409
|
|
|
16,211
|
|
Consolidated total
|
$
|
105,765
|
|
|
$
|
115,828
|
|
|
$
|
137,827
|
|
The following table summarizes expenditures for additions to tangible long-lived assets by reportable segment for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
North America
|
$
|
6,791
|
|
|
$
|
6,194
|
|
|
$
|
5,917
|
|
International
|
6,103
|
|
|
10,393
|
|
|
5,106
|
|
Consolidated total
|
$
|
12,894
|
|
|
$
|
16,587
|
|
|
$
|
11,023
|
|
21. RELATED PARTY TRANSACTION
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 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 $2.1 million, $2.1 million and $1.9 million for the years ended December 31, 2019, 2018 and 2017.
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. QUARTERLY RESULTS (UNAUDITED)
The following table represents data from our unaudited consolidated statements of operations for the most recent eight quarters. This quarterly information has been prepared on the same basis as the consolidated financial statements and includes all normal recurring adjustments necessary to fairly state the information for the periods presented. The results of operations of any quarter are not necessarily indicative of the results that may be expected for any future period (in thousands, except share and per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Dec. 31,
|
|
Sept. 30,
|
|
June 30,
|
|
Mar. 31,
|
|
Dec. 31,
|
|
Sept. 30,
|
|
June 30,
|
|
Mar. 31,
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
|
2018
|
|
2018 (1)
|
|
2018 (1)
|
|
2018
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
612,316
|
|
|
$
|
495,612
|
|
|
$
|
532,577
|
|
|
$
|
578,410
|
|
|
$
|
799,927
|
|
|
$
|
592,883
|
|
|
$
|
617,396
|
|
|
$
|
626,540
|
|
Cost of revenue
|
302,275
|
|
|
217,672
|
|
|
240,445
|
|
|
272,394
|
|
|
433,858
|
|
|
286,894
|
|
|
293,738
|
|
|
301,655
|
|
Gross profit
|
310,041
|
|
|
277,940
|
|
|
292,132
|
|
|
306,016
|
|
|
366,069
|
|
|
305,989
|
|
|
323,658
|
|
|
324,885
|
|
Income (loss) from operations
|
40,105
|
|
|
4,637
|
|
|
(7,139
|
)
|
|
2,195
|
|
|
61,876
|
|
|
53,023
|
|
|
(64,245
|
)
|
|
3,385
|
|
Income (loss) from continuing operations
|
79,208
|
|
|
(14,685
|
)
|
|
(37,645
|
)
|
|
(41,170
|
)
|
|
49,862
|
|
|
47,175
|
|
|
(92,254
|
)
|
|
(2,795
|
)
|
Income (loss) from discontinued operations, net of tax
|
435
|
|
|
—
|
|
|
—
|
|
|
2,162
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to Groupon, Inc.
|
77,041
|
|
|
(16,685
|
)
|
|
(40,246
|
)
|
|
(42,487
|
)
|
|
46,228
|
|
|
44,615
|
|
|
(95,034
|
)
|
|
(6,888
|
)
|
Basic net income (loss) per share (2) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.14
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.01
|
)
|
Discontinued operations
|
0.00
|
|
—
|
|
|
—
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Basic net income (loss) per share
|
$
|
0.14
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.01
|
)
|
Diluted net income (loss) per share (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.13
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.01
|
)
|
Discontinued operations
|
0.00
|
|
—
|
|
|
—
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted net income (loss) per share
|
$
|
0.13
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.01
|
)
|
|
|
(1)
|
Income (loss) from continuing operations includes a $40.4 million benefit and $75.0 million charge for the three months ended September 30, 2018 and June 30, 2018 related to our patent litigation with IBM.
|
|
|
(2)
|
The sum of per share amounts for quarterly periods may not equal year-to-date amounts due to rounding.
|
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. SUBSEQUENT EVENTS
In January 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. Refer to Note 7, Investments, for additional information.
In February 2020, we announced that we plan to exit our Goods category. After we exit the Goods category, we will no longer generate product revenue or service revenue from goods offerings and no longer incur the related costs of revenue. We are currently evaluating the accounting impacts of this announcement.