Business context and reporting period
Groupon, Inc. operates a two-sided marketplace connecting consumers with merchants, across Local, Goods and Travel, in North America and internationally. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023. Unless noted otherwise, dollar amounts below are in millions.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $126.5 | $144.4 | $377.2 | $450.9 |
| Gross profit | $110.7 | $125.7 | $328.4 | $393.7 |
| Operating income (loss) | $(0.5) | $(36.3) | $(35.9) | $(135.0) |
| Net income (loss) attributable to Groupon | $(41.4) | $(56.2) | $(83.1) | $(182.3) |
| Adjusted EBITDA (non-GAAP) | $18.2 | $(8.6) | $28.5 | $(9.8) |
| Free cash flow (non-GAAP) | $(18.0) | $(51.8) | $(148.4) | $(182.3) |
Q3 gross margin, calculated as gross profit divided by revenue, was approximately 87.5%, versus 87.1% a year earlier. Q3 revenue declined 12.4%; gross profit declined 12.0%. The operating loss narrowed substantially, while the net loss remained significant, partly reflecting a $25.8 million non-cash SumUp investment remeasurement loss and foreign-currency losses. Adjusted EBITDA is a company-defined non-GAAP measure.
For the nine months, operating cash outflow was $132.5 million, compared with $151.9 million in 2022. Investing cash outflow was $17.0 million and financing cash outflow was $31.0 million. Cash and cash equivalents were $86.1 million at September 30, 2023; cash, cash equivalents and restricted cash totaled $101.3 million.
At September 30, current assets were $169.4 million and current liabilities $327.4 million. Revolver borrowings were $46.7 million, with $25.9 million of letters of credit against the facility’s $75.0 million commitment. The 2026 convertible notes had $230.0 million principal and a $226.1 million net carrying value. Total stockholders’ deficit was $49.3 million.
Changes versus the prior comparable period
- Gross billings fell 3.5% in Q3 to $418.8 million, while units fell 17.6% to 10.1 million and trailing-twelve-month active customers fell 15.7% to 17.0 million. Management attributed the decline in engagement and unit sales mainly to weaker demand, including in Goods and Local.
- Q3 North America revenue declined 12.0% and International revenue declined 13.6%. For the nine months, total revenue fell 16.4%; Goods and Local weakness and lower platform engagement were key factors.
- Marketing and SG&A expense declined year over year, principally from lower payroll and marketing investment. The nine-month 2022 comparison also included $44.2 million of goodwill and long-lived asset impairments that did not recur in 2023.
- Cash and cash equivalents declined from $281.3 million at December 31, 2022 to $86.1 million at September 30, 2023. The company also reduced revolver borrowings, including a $27.3 million repayment associated with the March credit-agreement amendment.
Outlook, risks and unusual items
The filing provides no specific revenue, earnings or cash-flow guidance. Management’s stated strategy is to strengthen the local experiences marketplace by improving merchant relationships, inventory selection and customer convenience. The 2022 Cost Savings Plan targets approximately 1,150 position reductions; most were completed by March 31, 2023, with the remainder expected by the end of 2024. Groupon expects total pre-tax plan charges of $23.6 million to $30.6 million and had incurred $20.5 million through September 30, 2023.
Going concern: Management concluded that substantial doubt exists about Groupon’s ability to continue as a going concern for one year after issuance of the statements. The filing cites operating cash outflows, losses, $86.1 million of cash and the revolving credit facility’s May 14, 2024 maturity. Management’s proposed liquidity actions do not alleviate the substantial doubt because, except for a completed SumUp share sale, they remain subject to conditions outside the company’s control.
Subsequent to quarter-end, Groupon received $8.8 million from an October sale of part of its SumUp interest. The Board approved an $80.0 million fully backstopped rights offering on November 7, at $11.30 per share, with an expected expiration date of January 17, 2024. The backstop party is affiliated with the interim CEO and a director. Groupon also agreed to a further SumUp sale for €9.4 million (approximately $10 million), expected to close on or before November 27, 2023, with no assurance of completion.
Other notable matters include a proposed foreign tax assessment of $115.7 million, which Groupon says it will vigorously contest; pending litigation and regulatory matters; and approximately $11.7 million of reasonably possible indemnification obligations in excess of accrued amounts. The company reported that disclosure controls were ineffective because a previously disclosed material weakness in internal control over financial reporting had not been fully remediated. Groupon also identifies exposure to customer and merchant demand, inflation, foreign exchange, payment-processor reserves, refinancing and access-to-capital risks.
Important facts for investors to verify
- Whether the rights offering closes, its net proceeds and resulting share dilution, and whether the related credit-agreement amendment affects liquidity or covenants.
- Cash usage, operating performance and compliance with credit-facility covenants as the May 2024 revolver maturity approaches.
- Whether the planned SumUp sale closes and what proceeds Groupon ultimately realizes from monetizing its remaining investment.
- Trends in gross billings, units, active customers and merchant participation, especially in Local and Goods.
- Progress on restructuring savings and charges, remediation of the material weakness, and developments in the $115.7 million tax assessment.