Business context and reporting period
Groupon, Inc. filed this Form 10-K for the fiscal year ended December 31, 2020. It operates a two-sided marketplace connecting consumers with merchants across Local, Goods and Travel, in North America and International. This is an annual filing; the provided text does not give a clear standalone fourth-quarter financial result.
COVID-19 materially disrupted demand, redemptions and merchant activity. In the third quarter, Groupon reset its strategy around expanding Local inventory and improving the customer and merchant experience. It had transitioned North American Goods to a third-party marketplace by year-end and planned to begin the International transition in the second quarter of 2021.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1,416.9 million | $2,218.9 million |
| Gross profit | $677.3 million | $1,186.1 million |
| Gross margin | 47.8% | 53.5% |
| Operating income (loss) | $(277.1) million | $39.8 million |
| Net income (loss) attributable to Groupon | $(287.9) million | $(22.4) million |
| Adjusted EBITDA | $49.7 million | $227.2 million |
| Cash from operating activities | $(63.6) million | $71.3 million |
| Free cash flow | $(112.3) million | $4.0 million |
Revenue included $643.7 million of service revenue and $773.2 million of product revenue. Gross billings fell 43.2% to $2.62 billion; units declined 34.2% to 99.2 million and trailing-twelve-month active customers fell 32.2% to 29.6 million. North America revenue decreased 39.8% to $818.6 million, while International revenue decreased 30.4% to $598.2 million.
At December 31, 2020, cash and cash equivalents were $850.6 million, versus $750.9 million a year earlier. Current liabilities of $939.0 million exceeded current assets of $934.0 million, resulting in a $5.0 million working-capital deficit. Total assets were $1.41 billion and Groupon stockholders’ equity was $107.7 million, down from $393.9 million.
Debt included $200.0 million drawn under a $225.0 million revolving credit facility, plus $250.0 million principal amount of 3.25% convertible notes due April 2022. The revolver matures in May 2024, but its maturity could spring forward to January 2022 if the notes are not redeemed or refinanced at least 91 days before maturity, subject to exceptions. The company reported covenant compliance at year-end; covenant relief was scheduled through the first quarter of 2021.
Material changes, outlook and notable items
- Revenue fell 36.1% year over year and gross profit fell 42.9%, primarily because of COVID-19-driven declines in consumer demand and transaction volume. Lower Goods sales and the shift toward a third-party marketplace also affected reported revenue.
- Operating results included $109.5 million of goodwill impairment, $22.4 million of long-lived asset impairment and $64.8 million of restructuring charges. The impairments reflected COVID-19-related deterioration and restructuring actions; they are not equivalent to recurring operating costs.
- The restructuring plan included an approximately 1,200-position workforce reduction, facility and asset exits, and exits from Japan and New Zealand. Groupon expected total pretax restructuring charges of $75 million to $105 million through 2021 and estimated $225 million in annualized savings once fully implemented.
- Management said a four-market North American test of Local inventory expansion met its goals and that it intended to scale elements more broadly in 2021. It also planned further customer and merchant experience improvements. The filing provides no numerical revenue or earnings guidance, and emphasizes that recovery from COVID-19 could be volatile and prolonged.
- COVID-19 response measures included cutting marketing, furloughs, a hiring freeze and moving North American merchants toward payment upon voucher redemption. Refund levels increased; revenue and liabilities for unredeemed vouchers depend on estimates that may change as redemption patterns evolve.
- A foreign tax authority proposed an assessment of $126.4 million, including estimated interest, primarily concerning 2011 transfer pricing. Groupon said it believed the assessment was without merit and intended to defend itself. The filing also describes pending litigation, including a securities class action; management said reasonably possible losses beyond accrued amounts were not expected to have a material adverse effect, while noting litigation outcomes are uncertain.
- The auditor issued an unqualified opinion on the financial statements and internal controls. Goodwill valuation, long-lived asset impairment and the foreign tax position were identified as critical audit matters.
Important facts for investors to verify
- Whether Local inventory expansion and marketplace improvements produce a sustained recovery in billings, customers, revenue and gross profit as COVID-19 effects change.
- Whether the planned $225 million of annualized restructuring savings are achieved, and how much additional restructuring cost or workforce action remains.
- Liquidity and covenant headroom after the temporary covenant-relief period, including refinancing or repayment plans for the $250 million convertible notes and the revolver’s potential springing maturity.
- The adequacy of refund reserves and estimates for unredeemed vouchers, especially as redemption payment terms become more common.
- The status and potential financial impact of the $126.4 million proposed tax assessment, pending litigation and other contingencies.
- The pace and financial-reporting effect of the International Goods marketplace transition planned for the second quarter of 2021.