Market Overview

Groupon Announces Second Quarter 2018 Results

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Generates Q2 Gross Profit of $324 Million, Reiterates Adjusted EBITDA
Guidance

  • Gross profit of $323.7 million
  • Net loss from continuing operations of $92.3 million
  • Adjusted EBITDA of $56.2 million
  • GAAP loss per diluted share of $0.17; non-GAAP earnings per diluted
    share of $0.02
  • Operating cash flow of $212.4 million for the trailing twelve month
    period; Free cash flow of $145.2 million for the trailing twelve month
    period
  • 2018 Adjusted EBITDA guidance of $280 million to $290 million
    reiterated

Groupon,
Inc.
(NASDAQ:GRPN) today announced financial results for the
quarter ended June 30, 2018.

"In the second quarter, we continued our progress and invested in the
key things necessary to make Groupon the daily habit in local commerce,"
said CEO Rich Williams. "With strong Adjusted EBITDA and free cash flow,
as well as improvement in International and continued operational
efficiency, we enter the second half of 2018 well positioned for
success."

Second Quarter 2018 Summary

North America

  • During the quarter we continued to make progress on our customer
    experience and platform initiatives in North America. We now have over
    5.1 million cards linked in Groupon+™, one of our leading voucherless
    initiatives, and continue to deepen supply in our more than 25
    Groupon+ markets.
  • North America gross profit in the second quarter 2018 decreased 6% to
    $219.4 million. In Local, gross profit decreased 8% to $165.3 million,
    impacted by our continued scaling of Groupon+ and the sale of certain
    OrderUp assets in the second half of 2017. Goods gross profit
    increased 4% to $37.8 million resulting from our continued focus on
    optimizing for gross profit. Gross profit in Travel decreased 8% to
    $16.3 million.
  • North America active customers were 32.2 million as of June 30, 2018,
    and trailing twelve month gross profit per active customer was flat.

International

  • We generated positive results in International in the second quarter
    as we advanced our product, supply, and marketing initiatives. In
    Goods, we made further operational improvements focused on driving
    long-term gross profit growth and improving the customer experience.
  • International gross profit increased 11% (4% FX-neutral) in the second
    quarter 2018 to $104.3 million. Gross profit increased 8% (2%
    FX-neutral) in Local, 28% (19% FX-neutral) in Goods, and decreased 11%
    (17% FX-neutral) in Travel.
  • International active customers increased to 17.1 million as of
    June 30, 2018, and trailing twelve month gross profit per active
    customer increased 10%.

Consolidated

  • Revenue was $617.4 million in the second quarter 2018, down 7% (9%
    FX-neutral) reflecting our continued focus on revenue generation that
    maximizes gross profit.
  • Gross profit was $323.7 million in the second quarter 2018, down 1%
    (3% FX-neutral).
  • SG&A increased to $294.1 million in the second quarter 2018 compared
    to $230.2 million in the second quarter 2017. That increase resulted
    from a $75.0 million charge related to a patent litigation case with
    IBM as a result of an adverse jury verdict in July 2018. Although
    Groupon cannot predict the ultimate outcome of this lawsuit, it
    currently intends to continue vigorously pursuing its position through
    post-trial motions and appeal. Excluding the charge related to the IBM
    matter, SG&A declined 5% as we continue to focus on operational
    efficiency.
  • Marketing expense was $94.2 million in the second quarter 2018, down
    6% as we optimize spend toward high value customers.
  • Other expense was $26.5 million in the second quarter 2018, compared
    to other income of $5.9 million in second quarter 2017. In the second
    quarter 2018, other expense included write-downs of minority
    investments and foreign currency losses.
  • Net loss from continuing operations was $92.3 million in the second
    quarter 2018 compared to $5.4 million in the second quarter 2017. That
    increase was primarily attributable to the $75.0 million charge
    related to the IBM litigation.
  • Net loss attributable to common stockholders was $95.0 million, or
    $0.17 per diluted share, compared to $9.3 million, or $0.02 per
    diluted share, in the second quarter 2017. That increase was primarily
    related to the $0.13 per diluted share impact of the IBM litigation.
    Non-GAAP net income attributable to common stockholders was $10.7
    million, or $0.02 per diluted share, compared to $12.0 million, or
    $0.02 per diluted share, in the second quarter 2017.
  • Adjusted EBITDA, a non-GAAP financial measure, was $56.2 million in
    the second quarter 2018, up 6% from $53.3 million in the second
    quarter 2017.
  • Global units sold declined 10% to 40.0 million in the second quarter
    2018 as we continued to manage our business to maximize gross profit,
    which in some instances, resulted in fewer units. Units in North
    America were down 14% with a significant portion of that decline due
    to our focus on long-term gross profit optimization in Goods as well
    as our continued scaling of Groupon+ and the sale of certain OrderUp
    assets that occurred in the second half of 2017.
  • Operating cash flow was $212.4 million for the trailing twelve month
    period as of the second quarter 2018, and free cash flow, a non-GAAP
    financial measure, was $145.2 million for the trailing twelve month
    period.
  • Cash and cash equivalents as of June 30, 2018 were $662.9 million, and
    we had no outstanding borrowings under our $250 million revolving
    credit facility.

Definitions and reconciliations of all non-GAAP financial measures and
additional information regarding operating measures are included below
in the section titled "Terminology Changes, Non-GAAP Financial Measures
and Operating Metrics" and in the accompanying tables. All comparisons
are year-over-year unless otherwise provided.

Outlook

For the full year 2018, Groupon continues to expect Adjusted EBITDA to
be between $280 million and $290 million. Excluding any amounts that
might be paid related to the IBM litigation, Groupon anticipates
generating free cash flow of approximately $200 million.

Conference Call

A conference call will be webcast live today at 9:00 a.m. CDT / 10:00
a.m. EDT and will be available on Groupon's investor relations website
at http://investor.groupon.com.
This call will contain forward-looking statements and other material
information regarding the Company's financial and operating results.

Groupon encourages investors to use its investor relations website as a
way of easily finding information about the company. Groupon promptly
makes available on this website, free of charge, the reports that the
company files or furnishes with the SEC, corporate governance
information (including Groupon's Global Code of Conduct), and select
press releases and social media postings. Groupon uses its investor
relations site (investor.groupon.com) and
the Groupon blog (www.groupon.com/blog)
as a means of disclosing material non-public information and for
complying with its disclosure obligations under Regulation FD.

Terminology Changes, Non-GAAP Financial Measures and Operating Metrics

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

In addition to financial results reported in accordance with U.S. GAAP,
we have provided the following non-GAAP financial measures: Foreign
exchange rate neutral operating results, adjusted EBITDA, non-GAAP
income (loss) from continuing operations before provision (benefit) for
income taxes, non-GAAP net income (loss) attributable to common
stockholders, non-GAAP income (loss) per share, non-GAAP provision
(benefit) for income taxes and free cash flow. These 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 these 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, these
non-GAAP financial measures are not intended to be a substitute for
those reported in accordance with U.S. GAAP. For reconciliations of
these measures to the most applicable financial measures under U.S.
GAAP, see "Non-GAAP Reconciliation Schedules" and "Supplemental
Financial and Operating Metrics" included in the tables accompanying
this release.

We exclude the following items from one or more of our non-GAAP
financial measures:

Stock-based compensation. We exclude stock-based compensation
because it is primarily non-cash in nature and we believe that non-GAAP
financial measures excluding this item provide meaningful supplemental
information about our operating performance and liquidity.

Acquisition-related expense (benefit), net. 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. We
exclude acquisition-related expense (benefit), net because we believe
that non-GAAP financial measures excluding this item provide meaningful
supplemental information about our operating performance and facilitate
comparisons to our historical operating results.

Depreciation and amortization. We exclude depreciation and
amortization expenses because they are non-cash in nature and we believe
that non-GAAP financial measures excluding these items provide
meaningful supplemental information about our operating performance and
liquidity.

Interest and Other Non-Operating Items. Interest and other
non-operating items include: gains and losses related to minority
investments, foreign currency gains and losses, interest income and
interest expense, including non-cash interest expense from our
convertible senior notes. We exclude interest and other non-operating
items from certain of our non-GAAP financial measures because we believe
that excluding these items provides meaningful supplemental information
about our core operating performance and facilitates comparisons to our
historical operating results.

Special Charges and Credits. For the three months ended June 30,
2018 and 2017, special charges and credits included charges related to
our restructuring plan. For the three months ended June 30, 2018,
special charges and credits also included the $75.0 million charge
recorded in the second quarter of 2018 related to a patent litigation
case with IBM. We exclude special charges and credits from Adjusted
EBITDA because we believe that excluding those items provides meaningful
supplemental information about our core operating performance and
facilitates comparisons with our historical results.

Descriptions of the non-GAAP financial measures included in this release
and the accompanying tables are as follows:

Foreign 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. These
measures are intended to facilitate comparisons to our historical
performance.

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.

Non-GAAP income (loss) from continuing operations before provision
(benefit) for income taxes, Non-GAAP net income (loss) attributable to
common stockholders
and non-GAAP income (loss) per diluted share
are non-GAAP performance measures that adjust our net income
attributable to common stockholders and earnings per share to exclude
the impact of:

  • stock-based compensation,
  • amortization of acquired intangible assets,
  • acquisition-related expense (benefit), net,
  • special charges and credits, including restructuring charges,
  • non-cash interest expense on convertible senior notes,
  • non-operating foreign currency gains and losses related to
    intercompany balances and reclassifications of cumulative translation
    adjustments to earnings as a result of business dispositions or
    country exits,
  • non-operating gains and losses from minority investments that we have
    elected to record at fair value with changes in fair value reported in
    earnings,
  • non-operating gains and losses from sales of minority investments, and
  • income (loss) from discontinued operations.

We believe that excluding the above items from our measures of non-GAAP
income from continuing operations before provision (benefit) from income
taxes, non-GAAP net income attributable to common stockholders and
non-GAAP earnings per diluted share provides useful supplemental
information for evaluating our operating performance and facilitates
comparisons to our historical results by eliminating items that are
non-cash in nature, relate to discrete events, or are otherwise not
indicative of the core operating performance of our ongoing business.

Non-GAAP Provision (Benefit) for Income Taxes. Non-GAAP provision
(benefit) for income taxes reflects our current and deferred tax
provision computed based on non-GAAP income from continuing operations
before provision (benefit) for income taxes.

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. 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.

Descriptions of the operating metrics included in this release and the
accompanying tables are as follows:

Gross Billings. This metric represents the total dollar value of
customer purchases of goods and services. For sales of vouchers and
similar transactions in which we collect the transaction price from the
customer and remit a portion of the transaction price to the third-party
merchant who will provide the related goods or services, which comprise
a substantial majority of our service revenue transactions, gross
billings differs from revenue reported in our condensed consolidated
statements of operations, which is presented net of the merchant's share
of the transaction price. For product revenue transactions, gross
billings are equivalent to product revenue reported in our condensed
consolidated statements of operations. We consider this metric to be an
important indicator of our growth and business performance as it
measures the dollar volume of transactions generated through our
marketplaces. Tracking gross billings on service revenue transactions
also allows us to monitor the percentage of gross billings that we are
able to retain after payments to merchants.

Active customers. We define active customers as unique user
accounts that have made a purchase during the trailing twelve months
("TTM") either through one of our online marketplaces or directly with a
merchant for which we earned a commission. We consider this metric to be
an important indicator of our business performance as it helps us to
understand how the number of customers actively purchasing our offerings
is trending. Some customers could establish and make purchases from more
than one account, so it is possible that our active customer metric may
count certain customers more than once in a given period. For entities
that we have acquired in a business combination, this metric includes
active customers of the acquired entity, including customers who made
purchases prior to the acquisition. We do not include consumers who
solely make purchases with retailers using digital coupons accessed
through our websites and mobile applications in our active customers
metric, so the acquisition of Cloud Savings Company, Ltd. on April 30,
2018 did not impact that metric.

Units. This metric represents the number of purchases during the
reporting period, before refunds and cancellations, made either through
one of our online marketplaces or directly with a merchant for which we
earned a commission. We consider unit growth to be an important
indicator of the total volume of business conducted through our
marketplaces.

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

Note on Forward-Looking Statements

The statements contained in this release that refer to plans and
expectations for the next quarter, the full year or the future are
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding our
future results of operations and financial position, business strategy
and plans and our objectives for future operations. The words "may,"
"will," "should," "could," "expect," "anticipate," "believe,"
"estimate," "intend," "continue" and other similar expressions are
intended to identify forward-looking statements. We have based these
forward looking statements largely on current expectations and
projections about future events and financial trends that we believe may
affect our financial condition, results of operations, business
strategy, short-term and long-term business operations and objectives,
and financial needs. These forward-looking statements involve risks and
uncertainties that could cause our actual results to differ materially
from those expressed or implied in our forward-looking statements. Such
risks and uncertainties include, but are not limited to, risk related to
volatility in our operating results; execution of our business and
marketing strategies; retaining existing customers and adding new
customers; challenges arising from our international operations,
including fluctuations in currency exchange rates, legal and regulatory
developments and any potential adverse impact from the United Kingdom's
likely exit from the European Union; retaining and adding high quality
merchants; our voucherless offerings; cybersecurity breaches; competing
successfully in our industry; changes to merchant payment terms;
providing a strong mobile experience for our customers; maintaining our
information technology infrastructure; delivery and routing of our
emails; claims related to product and service offerings; managing
inventory and order fulfillment risks; litigation; managing refund
risks; retaining and attracting members of our executive team;
completing and realizing the anticipated benefits from acquisitions,
dispositions, joint ventures and strategic investments; lack of control
over minority investments; tax liabilities; tax legislation; compliance
with domestic and foreign laws and regulations, including the CARD Act,
GDPR and regulation of the Internet and e-commerce; classification of
our independent contractors; protecting our intellectual property;
maintaining a strong brand; customer and merchant fraud; payment-related
risks; our ability to raise capital if necessary and our outstanding
indebtedness; global economic uncertainty; our common stock, including
volatility in our stock price; our convertible senior notes; and our
ability to realize the anticipated benefits from the hedge and warrant
transactions. For additional information regarding these and other risks
and uncertainties, we urge you to refer to the factors included under
the headings "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the company's Annual
Report on Form 10-K for the year ended December 31, 2017, and our other
filings with the Securities and Exchange Commission, copies of which may
be obtained by visiting the company's Investor Relations web site at investor.groupon.com
or the SEC's web site at www.sec.gov.
Groupon's actual results could differ materially from those predicted or
implied and reported results should not be considered an indication of
future performance.

You should not rely upon forward-looking statements as predictions of
future events. Although Groupon believes that the expectations reflected
in the forward-looking statements are reasonable, it cannot guarantee
that the future results, levels of activity, performance or events and
circumstances reflected in the forward-looking statements will be
achieved or occur. Moreover, neither the company nor any other person
assumes responsibility for the accuracy and completeness of the
forward-looking statements. The forward-looking statements reflect
Groupon's expectations as of August 3, 2018. Groupon undertakes no
obligation to update publicly any forward-looking statements for any
reason after the date of this release to conform these statements to
actual results or to changes in its expectations.

About Groupon

Groupon (NASDAQ:GRPN) is building the daily habit in local commerce,
offering a vast mobile and online marketplace where people discover and
save on amazing things to do, eat, see and buy. By enabling real-time
commerce across local businesses, travel destinations, consumer products
and live events, shoppers can find the best a city has to offer.

Groupon is redefining how small businesses attract and retain customers
by providing them with customizable and scalable marketing tools and
services to profitably grow their businesses.

To download Groupon's top-rated mobile apps, visit www.groupon.com/mobile.
To search for great deals or subscribe to Groupon emails, visit www.groupon.com.
To learn more about the company's merchant solutions and how to work
with Groupon, visit www.groupon.com/merchant.

 
Groupon, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
   
June 30, 2018 December 31, 2017
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 662,893 $ 880,129
Accounts receivable, net 76,302 98,294
Prepaid expenses and other current assets (including $8,517 and $0
at June 30, 2018 and December 31, 2017, respectively, at fair value)
104,524   94,025  
Total current assets 843,719 1,072,448
Property, equipment and software, net 148,450 151,145
Goodwill 328,799 286,989
Intangible assets, net 37,075 19,196
Investments (including $86,578 and $109,751 at June 30, 2018 and
December 31, 2017, respectively, at fair value)
109,606 135,189
Other non-current assets 21,051   12,538  
Total Assets $ 1,488,700   $ 1,677,505  
Liabilities and Equity
Current liabilities:
Accounts payable $ 23,026 $ 31,968
Accrued merchant and supplier payables 528,224 770,335
Accrued expenses and other current liabilities 367,519   331,196  
Total current liabilities 918,769 1,133,499
Convertible senior notes, net 195,559 189,753
Other non-current liabilities 103,235   102,408  
Total Liabilities 1,217,563   1,425,660  
Commitments and contingencies
Stockholders' Equity
Common stock, par value $0.0001 per share, 2,010,000,000 shares
authorized; 755,806,627 shares issued and 567,204,385 shares
outstanding at June 30, 2018; 748,541,862 shares issued and
559,939,620 shares outstanding at December 31, 2017
76 75
Additional paid-in capital 2,206,741 2,174,708
Treasury stock, at cost, 188,602,242 shares at June 30, 2018 and
December 31, 2017
(867,450 ) (867,450 )
Accumulated deficit (1,101,342 ) (1,088,204 )
Accumulated other comprehensive income (loss) 32,307   31,844  
Total Groupon, Inc. Stockholders' Equity 270,332 250,973
Noncontrolling interests 805   872  
Total Equity 271,137   251,845  
Total Liabilities and Equity $ 1,488,700   $ 1,677,505  
 
 
Groupon, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
   
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
Revenue:
Service $ 295,652 $ 315,854 $ 597,449 $ 617,426
Product 321,744   346,765   646,487   718,819  
Total revenue 617,396   662,619   1,243,936   1,336,245  
Cost of revenue:
Service 30,230 38,478 61,375 81,351
Product 263,508   296,074   534,018   617,376  
Total cost of revenue 293,738   334,552   595,393   698,727  
Gross profit 323,658   328,067   648,543   637,518  
Operating expenses:
Marketing 94,178 100,658 193,334 187,000
Selling, general and administrative 294,124 230,223 516,185 462,281
Restructuring charges (399 ) 4,584   (116 ) 7,315  
Total operating expenses 387,903   335,465   709,403   656,596  
Income (loss) from operations (64,245 ) (7,398 ) (60,860 ) (19,078 )
Other income (expense), net (26,457 ) 5,878   (34,972 ) 1,276  
Income (loss) from continuing operations before provision
(benefit) for income taxes
(90,702 ) (1,520 ) (95,832 ) (17,802 )
Provision (benefit) for income taxes 1,552   3,883   (783 ) 8,470  
Income (loss) from continuing operations (92,254 ) (5,403 ) (95,049 ) (26,272 )
Income (loss) from discontinued operations, net of tax   (1,376 )   (889 )
Net income (loss) (92,254 ) (6,779 ) (95,049 ) (27,161 )
Net income attributable to noncontrolling interests (2,780 ) (2,547 ) (6,873 ) (6,579 )
Net income (loss) attributable to Groupon, Inc. $ (95,034 ) $ (9,326 ) $ (101,922 ) $ (33,740 )
 
Basic and diluted net income (loss) per share:
Continuing operations $ (0.17 ) $ (0.01 ) $ (0.18 ) $ (0.06 )
Discontinued operations 0.00   (0.01 ) 0.00   0.00  
Basic and diluted net income (loss) per share $ (0.17 ) $ (0.02 ) $ (0.18 ) $ (0.06 )
 
Weighted average number of shares outstanding
Basic 565,284,705 559,762,180 563,502,954 560,978,712
Diluted 565,284,705 559,762,180 563,502,954 560,978,712
 
 
Groupon, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
   
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
Operating activities
Net income (loss) $ (92,254 ) $ (6,779 ) $ (95,049 ) $ (27,161 )
Less: Income (loss) from discontinued operations, net of tax   (1,376 )   (889 )
Income (loss) from continuing operations (92,254 ) (5,403 ) (95,049 ) (26,272 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization of property, equipment and software 25,428 28,496 52,149 57,163
Amortization of acquired intangible assets 3,526 6,183 6,466 11,583
Stock-based compensation 16,318 21,440 35,644 41,141
Impairments of investments 9,189 10,044
Deferred income taxes 833 (6,575 ) 759
(Gain) loss from changes in fair value of investments 3,035 1,448 8,068 1,145
Amortization of debt discount on convertible senior notes 2,940 2,655 5,806 5,242
Change in assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable 9,673 5,635 27,296 16,229
Prepaid expenses and other current assets (8,112 ) (16,519 ) 1,489 (11,139 )
Accounts payable (999 ) 2,461 (9,340 ) (10,723 )
Accrued merchant and supplier payables (29,652 ) (44,716 ) (172,982 ) (182,954 )
Accrued expenses and other current liabilities 92,704 (5,451 ) 51,140 (41,491 )
Other, net 12,379   (16,452 ) 10,272   (18,159 )
Net cash provided by (used in) operating activities from continuing
operations
44,175 (19,390 ) (75,572 ) (157,476 )
Net cash provided by (used in) operating activities from
discontinued operations
  (1,097 )   (2,195 )
Net cash provided by (used in) operating activities 44,175   (20,487 ) (75,572 ) (159,671 )
Investing activities
Purchases of property and equipment and capitalized software (17,373 ) (15,385 ) (37,517 ) (29,461 )
Proceeds from maturity of investment 1,843 1,843
Acquisition of business, net of acquired cash (57,821 ) (57,821 )
Acquisitions of intangible assets and other investing activities (520 ) (240 ) (758 ) (184 )
Net cash provided by (used in) investing activities from continuing
operations
(75,714 ) (13,782 ) (96,096 ) (27,802 )
Net cash provided by (used in) investing activities from
discontinued operations
  (2,001 )   (9,548 )
Net cash provided by (used in) investing activities (75,714 ) (15,783 ) (96,096 ) (37,350 )
Financing activities
Payments for purchases of treasury stock (24,279 ) (51,513 )
Taxes paid related to net share settlements of stock-based
compensation awards
(6,959 ) (6,386 ) (16,138 ) (15,356 )
Proceeds from stock option exercises and employee stock purchase plan 70 9 2,504 2,477
Distributions to noncontrolling interest holders (3,625 ) (2,976 ) (6,940 ) (6,426 )
Payments of capital lease obligations (8,215 ) (8,603 ) (17,239 ) (16,670 )
Payments of contingent consideration related to acquisitions (5,689 ) (1,815 ) (5,689 )
Other financing activities       (473 )
Net cash provided by (used in) financing activities (18,729 ) (47,924 ) (39,628 ) (93,650 )
Effect of exchange rate changes on cash, cash equivalents and
restricted cash, including cash classified within current assets of
discontinued operations
(12,835 ) 13,324   (6,644 ) 17,297  
Net increase (decrease) in cash, cash equivalents and restricted
cash, including cash classified within current assets of
discontinued operations
(63,103 ) (70,870 ) (217,940 ) (273,374 )
Less: Net increase (decrease) in cash classified within current
assets of discontinued operations
      (28,866 )
Net increase (decrease) in cash, cash equivalents and restricted
cash
(63,103 ) (70,870 ) (217,940 ) (244,508 )
Cash, cash equivalents and restricted cash, beginning of period 730,644   701,268   885,481   874,906  
Cash, cash equivalents and restricted cash, end of period $ 667,541   $ 630,398   $ 667,541   $ 630,398  
 
 
Groupon, Inc.
Supplemental Financial and Operating Metrics
(dollars in thousands; active customers in millions)
(unaudited)
             
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
North America Segment: Q2 2018
Gross Billings (1): Y/Y Growth
Local $ 615,833 $ 606,184 $ 605,460 $ 543,021 548,056 (11.0 ) %
Travel 112,670 93,186 84,504 102,499 93,809 (16.7 )
Goods 245,924   229,479   369,973   209,476   196,501   (20.1 )
Total Gross Billings $ 974,427   $ 928,849   $ 1,059,937   $ 854,996   $ 838,366   (14.0 ) %
Revenue:
Local $ 207,534 $ 194,090 $ 223,410 $ 187,411 $ 185,870 (10.4 ) %
Travel 22,320 18,300 17,413 20,084 19,888 (10.9 )
Goods 222,058   201,824   333,862   185,761   174,506   (21.4 )
Total Revenue $ 451,912   $ 414,214   $ 574,685   $ 393,256   $ 380,264   (15.9 ) %
Gross Profit:
Local $ 179,609 $ 162,914 $ 196,708 $ 166,756 $ 165,285 (8.0 ) %
Travel 17,755 14,060 13,614 16,002 16,303 (8.2 )
Goods 36,496   30,934   54,651   36,922   37,783   3.5
Total Gross Profit $ 233,860   $ 207,908   $ 264,973   $ 219,680   $ 219,371   (6.2 ) %
 
Operating income (loss) $ (12,033 ) $ (6,995 ) $ 33,766 $ (1,860 ) $ (68,524 ) (469.5 ) %
 
International Segment: Q2 2018
Y/Y Growth
Gross Billings: Y/Y Growth

FX Effect (2)

excluding FX (2)

Local $ 189,408 $ 202,991 $ 229,167 $ 217,307 $ 203,248 7.3 % (6.2 ) 1.1 %
Travel 45,981 49,837 59,666 57,522 48,766 6.1 (6.9 ) (0.8 )
Goods 154,417   159,820   233,422   163,439   173,883   12.6 (8.4 ) 4.2
Total Gross Billings $ 389,806   $ 412,648   $ 522,255   $ 438,268   $ 425,897   9.3 % (7.2 ) 2.1 %
Revenue:
Local $ 66,108 $ 71,574 $ 80,209 $ 74,578 $ 71,425 8.0 % (6.5 ) 1.5 %
Travel 10,796 9,801 12,187 11,436 9,706 (10.1 ) (5.9 ) (16.0 )
Goods 133,803   138,877   206,085   147,270   156,001   16.6 (9.1 ) 7.5
Total Revenue $ 210,707   $ 220,252   $ 298,481   $ 233,284   $ 237,132   12.5 % (8.0 ) 4.5 %
Gross Profit:
Local $ 62,303 $ 67,860 $ 75,991 $ 70,215 $ 67,360 8.1 % (6.5 ) 1.6 %
Travel 9,996 8,922 11,334 10,651 8,919 (10.8 ) (5.9 ) (16.7 )
Goods 21,908   24,735   34,620   24,339   28,008   27.8 (9.3 ) 18.5
Total Gross Profit $ 94,207   $ 101,517   $ 121,945   $ 105,205   $ 104,287   10.7 % (7.1 ) 3.6 %
 
Operating income (loss) $ 4,635 $ 5,782 $ 15,960 $ 5,245 $ 4,279 (7.7 ) %
 
Consolidated Results of Operations:
Gross Billings:
Local $ 805,241 $ 809,175 $ 834,627 $ 760,328 $ 751,304 (6.7 ) % (1.5 ) (8.2 ) %
Travel 158,651 143,023 144,170 160,021 142,575 (10.1 ) (2.0 ) (12.1 )
Goods 400,341   389,299   603,395   372,915   370,384   (7.5 ) (3.2 ) (10.7 )

Total Gross Billings

$ 1,364,233   $ 1,341,497   $ 1,582,192   $ 1,293,264   $ 1,264,263   (7.3 ) % (2.1 ) (9.4 ) %
Revenue:
Local $ 273,642 $ 265,664 $ 303,619 $ 261,989 $ 257,295 (6.0 ) % (1.6 ) (7.6 ) %
Travel 33,116 28,101 29,600 31,520 29,594 (10.6 ) (2.0 ) (12.6 )
Goods 355,861   340,701   539,947   333,031   330,507   (7.1 ) (3.4 ) (10.5 )
Total Revenue $ 662,619   $ 634,466   $ 873,166   $ 626,540   $ 617,396   (6.8 ) % (2.6 ) (9.4 ) %
Gross Profit:
Local $ 241,912 $ 230,774 $ 272,699 $ 236,971 $ 232,645 (3.8 ) % (1.7 ) (5.5 ) %
Travel 27,751 22,982 24,948 26,653 25,222 (9.1 ) (2.2 ) (11.3 )
Goods 58,404   55,669   89,271   61,261   65,791   12.6 (3.6 ) 9.0
Total Gross Profit $ 328,067   $ 309,425   $ 386,918   $ 324,885   $ 323,658   (1.3 ) % (2.1 ) (3.4 ) %
 
Operating income (loss) $ (7,398 ) $ (1,213 ) $ 49,726 $ 3,385 $ (64,245 ) (768.4 ) %
Net cash provided by (used in) operating activities from continuing
operations
$ (19,390 ) $ 21,772 $ 266,249 $ (119,747 ) $ 44,175 327.8 %
Free Cash Flow $ (34,775 ) $ 7,517 $ 250,807 $ (139,891 ) $ 26,802 177.1 %
 
   
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
Active Customers (3)
North America 31.9 32.5 32.7 32.6 32.2
International 16.4 16.6 16.8 17.0 17.1
Total Active Customers 48.3 49.1 49.5 49.6 49.3
 
TTM Gross Profit / Active Customer (4)
North America $ 28.41 $ 28.09 $ 28.35 $ 28.38 $ 28.36
International 22.88 23.19 24.16 24.83 25.24
Consolidated 26.53 26.43 26.93 27.16 27.27
 
Consolidated Units 44.5 44.1 54.6 42.4 40.0
Year-over-year unit growth:
North America (1.9 ) % (0.1 ) % (6.6 ) % (11.3 ) % (14.3 ) %
International (7.8 ) (1.5 ) (3.9 ) 2.0 (0.6 )
Consolidated (3.8 ) (0.5 ) (5.7 ) (7.2 ) (10.1 )
 
Headcount
Sales (5) 2,485 2,457 2,407 2,404 2,373
Other 4,176   4,159   4,265   4,235   4,262  
Total Headcount 6,661 6,616 6,672 6,639 6,635
 
 
(1) Represents the total dollar value of customer purchases of goods and
services.
 
(2) Represents the change in financial measures that would have resulted
had average exchange rates in the reporting periods been the same as
those in effect in the prior year periods.
 
(3) Reflects the total number of unique user accounts that have made a
purchase during the TTM either through one of our online
marketplaces or directly with a merchant for which we earned a
commission.
 
(4) During the first quarter 2018, we updated the calculation of TTM
Gross Profit / Active Customer to reflect active customers as of the
end of the period, rather than the average of active customers as of
the beginning and end of period, in the denominator of the
calculation. Because our active customer metrics are based on
purchases over a TTM period, we believe that this change improves
the usefulness of this metric. The prior period amounts have been
updated to reflect this change.
 
(5) Includes merchant sales representatives, as well as sales support
personnel.
 

Groupon, Inc.
Non-GAAP Reconciliation Schedules
(in
thousands, except share and per share amounts)

(unaudited)

Adjusted EBITDA, non-GAAP earnings attributable to common stockholders
and non-GAAP earnings per share are non-GAAP performance measures. The
Company reconciles Adjusted EBITDA to the most comparable U.S. GAAP
performance measure, Net income (loss) from continuing operations for
the periods presented and the Company reconciles non-GAAP earnings per
share to the most comparable U.S. GAAP performance measure, Diluted net
income (loss) per share, for the periods presented.

The following is a quarterly reconciliation of Adjusted EBITDA to the
most comparable U.S. GAAP performance measure, Income (loss) from
continuing operations.

         
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
Income (loss) from continuing operations $ (5,403 ) $ 3,802 $ 51,071 $ (2,795 ) $ (92,254 )
Adjustments:
Stock-based compensation (1) 21,392 18,235 21,673 19,278 16,266
Depreciation and amortization 34,679 35,231 33,850 29,661 28,954
Acquisition-related expense (benefit), net 36 655
Restructuring charges 4,584 11,503 10 283 (399 )
Gain on sale of intangible assets

 

(17,149 )
IBM patent litigation 75,000
Other (income) expense, net (5,878 ) (7,546 ) 2,112 8,515 26,457
Provision (benefit) for income taxes 3,883   2,531   (3,457 ) (2,335 ) 1,552  
Total adjustments 58,696   42,805   54,188   55,402   148,485  
Adjusted EBITDA $ 53,293   $ 46,607   $ 105,259   $ 52,607   $ 56,231  
 
 
(1) Represents stock-based compensation recorded within Selling, general
and administrative, Cost of revenue and Marketing. Other (income)
expense, net, includes $0.05 million, $0.07 million, $0.06 million,
$0.05 million and $0.05 million of additional stock-based
compensation for the three months ended June 30, 2017, September 30,
2017, December 31, 2017, March 31, 2018 and June 30, 2018,
respectively. Restructuring charges include $0.8 million of
additional stock-based compensation for the three months ended
September 30, 2017.
 

The following is a reconciliation of the Company's annual outlook for
Adjusted EBITDA to the Company's outlook for the most comparable U.S.
GAAP performance measure, Income (loss) from continuing operations.

 

 

Year Ending December
31, 2018
Expected income (loss) from continuing operations range $ (45,000) to (35,000)
Expected adjustments:
Stock-based compensation 80,000
Depreciation and amortization 120,000
IBM patent litigation 75,000
Other (income) expense, net 43,000
Provision (benefit) for income taxes   7,000
Total expected adjustments   325,000
Expected Adjusted EBITDA range $ 280,000 to 290,000
 

The outlook provided above does not reflect the potential impact of any
business or asset acquisitions or dispositions, changes in the fair
values of investments, foreign currency gains or losses, adjustments to
our accrual for IBM patent litigation or unusual or infrequently
occurring items that may occur during the remainder of 2018.

The following is a reconciliation of net income (loss) attributable to
common stockholders to non-GAAP net income (loss) attributable to common
stockholders and a reconciliation of diluted net income (loss) per share
to non-GAAP net income (loss) per share for the three months ended June
30, 2018 and 2017.

   
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
Net income (loss) attributable to common stockholders $ (95,034 ) $ (9,326 ) $ (101,922 ) $ (33,740 )
Less: Net income attributable to noncontrolling interest (2,780 ) (2,547 ) (6,873 ) (6,579 )
Net income (loss) (92,254 ) (6,779 ) (95,049 ) (27,161 )
Less: Income (loss) from discontinued operations, net of tax   (1,376 )   (889 )
Income (loss) from continuing operations (92,254 ) (5,403 ) (95,049 ) (26,272 )
Less: Provision (benefit) for income taxes 1,552   3,883   (783 ) 8,470  
Income (loss) from continuing operations before provision
(benefit) for income taxes
(90,702 ) (1,520 ) (95,832 ) (17,802 )
Stock-based compensation 16,318 21,440 35,644 41,141
Amortization of acquired intangible assets 3,526 6,183 6,466 11,583
Acquisition-related expense (benefit), net 655 36 655 48
Restructuring charges (399 ) 4,584 (116 ) 7,315
IBM patent litigation 75,000 75,000
Losses (gains), net from changes in fair value of investments 3,035 1,448 8,068 1,145
Intercompany foreign currency losses (gains) and reclassifications
of translation adjustments to earnings
11,047 (10,112 ) 7,620 (10,222 )
Non-cash interest expense on convertible senior notes 2,940   2,655   5,806   5,242  
Non-GAAP income (loss) from continuing operations before
provision (benefit) for income taxes
21,420 24,714 43,311 38,450
Non-GAAP provision (benefit) for income taxes 7,925   10,212   9,486   14,744  
Non-GAAP net income (loss) 13,495 14,502 33,825 23,706
Net income attributable to noncontrolling interest (2,780 ) (2,547 ) (6,873 ) (6,579 )
Non-GAAP net income (loss) attributable to common stockholders $ 10,715   $ 11,955   $ 26,952   $ 17,127  
 
Weighted-average shares of common stock - diluted 565,284,705 559,762,180 563,502,954 560,978,712
Incremental dilutive securities 8,982,700   6,821,361   9,527,932   7,152,421  
Weighted-average shares of common stock - non-GAAP 574,267,405   566,583,541   573,030,886   568,131,133  
 
Diluted net loss per share $ (0.17 ) $ (0.02 ) $ (0.18 ) $ (0.06 )
Impact of non-GAAP adjustments and related tax effects 0.19   0.04   0.23   0.09  
Non-GAAP net income per share $ 0.02   $ 0.02   $ 0.05   $ 0.03  
 

Free cash flow is a non-GAAP liquidity measure. The following is a
reconciliation of free cash flow to the most comparable U.S. GAAP
liquidity measure, Net cash provided by (used in) operating activities
from continuing operations.

           
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
Net cash provided by (used in) operating activities from continuing
operations (1)
$ (19,390 ) $ 21,772 $ 266,249 $ (119,747 ) $ 44,175
Purchases of property and equipment and capitalized software from
continuing operations
(15,385 ) (14,255 ) (15,442 ) (20,144 ) (17,373 )
Free cash flow (1) $ (34,775 ) $ 7,517 $ 250,807 $ (139,891 ) $ 26,802
 
Net cash provided by (used in) investing activities from continuing
operations
$ (13,782 ) $ 18,230 $ (15,751 ) $ (20,382 ) $ (75,714 )
Net cash provided by (used in) financing activities $ (47,924 ) $ (27,972 ) $ (16,424 ) $ (20,899 ) $ (18,729 )
 
 
(1) Prior period cash flows from operating activities of continuing
operations has been updated from negative $20.7 million, $23.9
million and $270.6 million previously reported for the three months
ended June 30, 2017, September 30, 2017 and December 31, 2017,
respectively, and prior period free cash flow has been updated from
negative $36.1 million, $9.6 million and $255.1 million previously
reported for the three months ended June 30, 2017, September 30,
2017 and December 31, 2017, respectively, to reflect the adoption of
ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash,
on January 1, 2018. For additional information on the adoption of
ASU 2016-18, refer to Note 2, Adoption of New Accounting Standards,
in the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2018.
 

The following is a reconciliation of the Company's annual outlook for
free cash flow to the Company's outlook for the most comparable U.S.
GAAP liquidity measure, Net cash provided by (used in) operating
activities from continuing operations.

   
Year Ending
December 31,2018
Expected net cash provided by (used in) operating activities from
continuing operations
$ 270,000
Expected purchases of property and equipment and capitalized
software from continuing operations
  (70,000 )
Expected free cash flow $ 200,000  
 

The outlook provided above does not reflect the potential impact of
payments that could be disbursed during the remainder of 2018, if any,
related to the IBM patent litigation matter.

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