Groupon, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are to the corresponding 2020 periods. Amounts below are in U.S. dollars. Groupon operates a two-sided marketplace across North America and International, with Local, Goods and Travel offerings.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $214.2m | $304.0m | $743.9m | $1,073.8m |
| Gross profit | $181.4m | $160.0m | $542.4m | $498.5m |
| Operating income (loss) | $(3.7)m | $(16.2)m | $(6.9)m | $(286.2)m |
| Net income (loss) attributable to Groupon | $78.1m | $(16.3)m | $89.3m | $(301.9)m |
| Adjusted EBITDA | $34.6m | $30.8m | $105.9m | $9.7m |
| Free cash flow | $(87.6)m | $(7.0)m | $(192.8)m | $(181.2)m |
- Q3 gross margin was approximately 84.7%, versus 52.6% a year earlier; the comparison is affected by the shift from first-party Goods sales reported gross to third-party marketplace transactions reported net.
- Q3 net income included an $89.1m unrealized gain from an observable price increase in an equity investment. The gain was included in other income and was described as expected to be non-taxable. Nine-month other income also included a $32.3m foreign-currency translation gain reclassified to earnings after the substantial liquidation of the Japan subsidiary.
- Cash and cash equivalents were $476.8m at September 30, down from $850.6m at December 31, 2020. Nine-month operating cash use was $154.9m; management attributed the gap between operating cash use and reported income chiefly to working-capital movements and non-cash items.
- Current assets were $561.6m and current liabilities $608.3m. Debt included $100.0m drawn on the revolving facility and $223.0m net carrying value of 2026 convertible notes. The revolver had $225.0m total capacity and $19.7m of letters of credit outstanding.
Changes versus the prior comparable period
- Q3 revenue fell 29.6%, while gross profit rose 13.4%. Service revenue increased to $199.0m from $155.1m, but product revenue dropped to $15.2m from $148.9m, principally reflecting the Goods marketplace transition and lower product sales.
- North America Q3 gross billings increased 6.4%, driven mainly by Local demand and lower refunds; International gross billings fell 28.6%, reflecting weakness in Goods and Local demand, including ongoing pandemic effects.
- Trailing-twelve-month active customers declined to 24.0m from 34.2m; units declined to 15.7m from 21.4m in Q3. Marketing expense increased 69.4% in Q3, while SG&A declined 3.8%.
- Q3 operating loss narrowed, but the reported net-income swing was driven primarily by the investment gain. For nine months, 2020 results included $109.5m of goodwill impairment and $22.4m of long-lived asset impairment, which did not recur in 2021.
Outlook, management commentary and risks
- Management said cash balances and expected operating cash generation should cover working-capital needs and capital expenditures for at least the next 12 months, while cautioning that active cash and cost management is needed and cannot be assured.
- The restructuring plan is expected to incur up to $105m in total pretax charges through the end of 2021; $99m had been incurred cumulatively. Management expects $225m of run-rate cost savings once fully implemented. The plan includes workforce reductions, lease and asset exits, and exits from Japan and New Zealand.
- Strategy focuses on expanding Local inventory and improving merchant and customer experiences. The company completed rollout of its new North America customer experience to all users in Q3 and was scaling Deals with fewer restrictions, Offers and Market Rate inventory. The International Goods transition to a third-party marketplace was expected to be complete by year-end 2021.
- COVID-19 recovery remained uncertain and potentially prolonged, with stricter or longer-lasting restrictions in International markets, changing customer behavior, refund exposure, supply-chain issues and staffing shortages. Management reported no goodwill impairment in Q3 but recorded $7.7m of restructuring-related asset impairments.
- Groupon voluntarily ended its credit-facility covenant-relief period in Q3 and reported compliance with applicable covenants at September 30. Covenant noncompliance could restrict borrowing or accelerate debt repayment. The company also disclosed significant leadership changes and interim senior-management roles.
- Contingencies include a proposed foreign tax assessment of $121.2m, which the company disputes, and securities and derivative litigation. The filing says reasonably possible losses above accrued amounts for the described legal matters were not expected to have a material adverse effect, but outcomes remain uncertain.
Most important facts for investors to verify
- Whether Local demand, customer activity and active-customer trends improve, particularly in International markets.
- How much of reported earnings reflects recurring operations versus the $89.1m unrealized investment gain and the Japan translation gain.
- Whether operating cash flow and free cash flow improve after the substantial nine-month cash use and working-capital outflows.
- Progress and realized savings from the restructuring plan, including remaining charges and the timing of the stated $225m run-rate savings.
- Compliance with revolver covenants, available borrowing capacity, and developments in the disputed tax assessment and litigation.