Groupon, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results; it is an annual report, not a standalone Q4 filing. Groupon operates local commerce marketplaces across North America, EMEA and Rest of World, offering Local, Goods and Travel deals.
Financial performance and liquidity
- FY revenue: $3.120 billion, up 2.5% from $3.042 billion. Gross billings were $6.256 billion, up 0.3%.
- Profitability: Gross profit fell 5.5% to $1.385 billion; gross margin declined to 44.4% from 48.2%. Continuing operations posted a net loss of $89.2 million, versus a loss of $18.5 million in 2014. Consolidated net income was $33.7 million, including income from discontinued operations; net income attributable to Groupon was $20.7 million.
- Operating results: Operating loss was $79.8 million, compared with operating income of $30.7 million in 2014. Adjusted EBITDA, a non-GAAP measure, was $256.8 million versus $262.3 million.
- Cash flow: Operating cash flow from continuing operations was $292.1 million, compared with $252.5 million. Free cash flow, a non-GAAP measure, was $208.1 million versus $168.9 million.
- Balance sheet: Cash and cash equivalents were $853.4 million, down from $1.017 billion. Working capital was negative $128.3 million. The company had no revolving-credit borrowings at year-end; its $250 million facility requires at least $400 million of unrestricted cash, including $200 million at lender-affiliated accounts. Capital lease obligations totaled $57.7 million, including $30.9 million long-term.
- Fourth quarter: Revenue was $917.2 million, versus $883.2 million a year earlier. Operating loss was $5.4 million, compared with operating income of $33.6 million. Continuing-operations loss was $32.6 million; net loss attributable to Groupon was $46.5 million.
Material changes versus prior year
- Growth shifted further toward direct Goods sales: direct revenue rose $205.9 million, while third-party revenue fell $160.4 million. Goods reached 59.3% of revenue, up from 54.9%; the category carries lower margins than Local.
- Gross profit declined despite modest revenue growth, reflecting higher direct Goods costs and a $103.7 million adverse foreign-exchange impact on gross profit. Revenue also faced a $196.2 million adverse currency impact.
- North America revenue increased to $2.048 billion; EMEA fell to $867.9 million and Rest of World to $203.9 million. Currency weakness and reduced international scale contributed to the declines.
- Active customers increased to 48.9 million from 47.4 million, while gross billings per average active customer decreased to $129.98 from $136.95.
- Cash declined amid $446.6 million of share repurchases during 2015. Approximately $156.8 million remained authorized under the repurchase program at year-end.
Outlook, management commentary and risks
- Management planned to increase 2016 marketing spending by up to $200 million to accelerate customer growth, while warning this could increase operating losses and reduce Adjusted EBITDA. The company forecast a U.S. pre-tax loss in 2016.
- Groupon began de-emphasizing lower-margin Goods products and targeting higher-margin offerings and more third-party sellers. Management expected near-term revenue pressure while seeking improved Goods margins.
- A restructuring plan, expected to be substantially complete by September 2016, included approximately 1,000 employee terminations, exits from 13 countries in 2015 and planned exits from four more EMEA countries in early 2016. Charges could reach $35 million; $29.6 million was recorded in 2015.
- The company continued a strategic review of certain international markets but gave no assurance on the likelihood, timing or form of potential transactions. Key risks include customer and merchant retention, competition, foreign exchange, execution of restructuring and strategy, inventory and fulfillment, cybersecurity, refunds, and regulatory and tax exposure.
- Groupon agreed in principle to a $45 million cash settlement of securities litigation, subject to court approval, and said it was fully reserved. Foreign tax authorities had issued or indicated VAT assessments totaling $42.3 million, which the company disputed. Other material contingencies include voucher-expiration and unclaimed-property litigation.
- The sale of a controlling stake in Ticket Monster generated a $202.2 million pre-tax gain, reported in discontinued operations. Groupon also recognized a $13.7 million gain from the Groupon India disposition in continuing operations.
Important facts for investors to verify
- Whether planned 2016 marketing investment generated customer growth and improved retention enough to offset higher spending.
- Whether Goods mix changes and fulfillment measures improved gross profit and margins without materially weakening demand.
- Progress on international exits and restructuring, including final charges, operating disruption and realized savings.
- Cash generation after buybacks, the working-capital deficit, revolving-credit covenant headroom and capital-lease commitments.
- Final court approval and payment terms for the securities settlement, and developments in VAT and voucher-related contingencies.