Groupon, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Groupon operates a two-sided marketplace across North America and International, with Local, Goods and Travel offerings.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $263.8 million | $374.2 million |
| Gross profit | $167.0 million | $201.2 million |
| Operating income (loss) | $(1.2) million | $(197.9) million |
| Net income (loss) attributable to Groupon | $14.6 million | $(213.5) million |
| Diluted EPS | $0.48 | $(7.53) |
| Adjusted EBITDA | $30.4 million | $(22.5) million |
| Operating cash flow | $(46.4) million | $(236.4) million |
| Free cash flow | $(58.4) million | $(247.0) million |
Gross margin was approximately 63.3%, compared with 53.8% a year earlier; revenue mix shifted as North America transitioned Goods sales to a third-party marketplace model. Cash and cash equivalents were $676.8 million at quarter-end, down from $850.6 million at year-end. Restricted cash was $169.8 million, bringing cash, cash equivalents and restricted cash to $847.1 million. Current assets were $763.5 million and current liabilities were $766.9 million. Total equity was $65.6 million.
At March 31, debt included $100.0 million drawn on the revolving facility, $250.0 million principal of 2022 convertible notes, and $200.0 million principal of 2026 convertible notes. The facility had $225.0 million of total borrowing capacity and $23.1 million of letters of credit outstanding. The 2026 notes’ proceeds included $169.8 million classified as restricted cash for the planned repurchase of the 2022 notes.
Changes versus the prior comparable period
- Revenue fell 29% and gross profit fell 17%. Gross billings decreased to $554.0 million from $806.4 million; units declined to 17.8 million from 29.8 million, and trailing-twelve-month active customers fell to 25.8 million from 41.8 million.
- North America revenue fell 37% to $147.2 million; International revenue fell 16% to $116.6 million. COVID-related demand weakness drove declines, particularly in International Local and Travel.
- Marketing expense declined 44% to $33.7 million, while SG&A declined 39% to $127.1 million. No goodwill or long-lived asset impairment was recorded in Q1 2021, versus $131.8 million combined in Q1 2020.
- Operating cash use improved year over year but remained substantial. Q1 2021 cash use reflected a $53.1 million net working-capital and other asset/liability outflow, including seasonal supplier-payment timing.
Outlook, management commentary and key risks
- Management cited COVID-19 as a continuing source of uncertainty, with restrictions, weaker consumer demand, reduced redemptions and elevated refunds affecting results. It noted that International recovery could be more prolonged.
- Groupon plans to expand Local inventory and improve merchant and customer experiences. It began scaling repeat-purchase flexibility and Offers in North America and started rolling out an updated North America app and mobile-web experience in April 2021.
- The company planned to begin transitioning International Goods to a third-party marketplace in Q2 2021. Management expects the model to shift Goods revenue primarily to net-reported service revenue.
- The restructuring plan is expected to generate $225 million in annualized cost savings when fully implemented, with total pretax charges of $75 million to $105 million through 2021. Q1 charges were $7.4 million.
- Management stated cash balances and operating cash generation should be sufficient for working capital and capital expenditures for at least the next 12 months, while noting there can be no assurance. The credit agreement imposes minimum liquidity and EBITDA requirements during covenant relief through Q4 2021.
- Q1 net income included a $32.2 million foreign-currency translation gain reclassified to earnings following substantial liquidation of the Japan subsidiary. This was a material unusual item; reported earnings should be considered in that context.
- After quarter-end, Groupon agreed to repurchase all $250 million principal of its 2022 notes for principal, accrued interest and a $4 million prepayment fee, with closing expected by May 14, 2021. The company also issued an additional $30 million of 2026 notes in April.
- Other notable exposures include a disputed foreign tax assessment of $122.4 million and ongoing legal, intellectual-property, consumer-protection and regulatory matters. A securities class action was dismissed without prejudice, with the plaintiff permitted to seek leave to amend.
Important facts for investors to verify
- Whether the planned 2022-note repurchase closed on the stated terms and how the related note hedges and warrants were unwound.
- Whether revenue, gross billings, customer activity and cash flow stabilize as pandemic restrictions ease and the marketplace transition proceeds.
- Progress against the restructuring timeline, total charges and stated $225 million annualized savings target.
- Compliance with the revolving-credit agreement’s minimum liquidity and quarterly EBITDA covenants, and liquidity after the note repurchase.
- Potential outcomes of the $122.4 million tax assessment and material legal or regulatory contingencies.