Groupon, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Groupon operates a two-sided marketplace connecting consumers with merchants, across North America and International segments and Local, Goods, and Travel categories. Revenue is generally reported net of merchants’ shares.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $121.6 million | $153.3 million | Down 20.7% |
| Gross profit | $104.7 million | $134.0 million | Down 21.9% |
| Operating loss | $30.6 million | $32.1 million | Loss narrowed |
| Net loss attributable to Groupon | $29.1 million | $34.9 million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $(4.9) million | $(7.0) million | Improved |
| Operating cash flow | $(76.3) million | $(78.2) million | Cash outflow eased |
| Free cash flow (non-GAAP) | $(85.9) million | $(91.2) million | Cash outflow eased |
- Marketing expense fell 37% to $24.8 million and SG&A fell 19.6% to $101.6 million; restructuring and related charges rose to $8.8 million from $0.3 million.
- Gross billings declined 14% to $396.4 million; units fell 17% to 10.5 million. Trailing-twelve-month active customers decreased 18% to 18.2 million.
- At March 31, cash and cash equivalents were $163.8 million (including $51.5 million held internationally); current assets were $241.7 million and current liabilities $425.8 million. Stockholders’ equity was a $24.5 million deficit.
- Debt included $47.7 million in revolving-credit borrowings and $225.3 million net carrying value of 2026 convertible notes ($230 million principal). The amended revolving facility has $75 million capacity, with $24.8 million of letters of credit outstanding, and matures May 14, 2024.
Material changes and management commentary
- Revenue declined in both segments: North America down 19% and International down 25%. Management cited lower engagement and demand, particularly for Goods, and a shift toward lower-margin offerings in International. Currency movements reduced International gross billings by $7.6 million and consolidated revenue by $1.9 million, on a constant-currency comparison.
- Management’s strategy is to strengthen the local-services marketplace through better merchant relationships, inventory selection, convenience, and customer experience. Lower marketing spend and payroll costs helped reduce expenses, but declines in gross profit and customer activity remain significant.
- Cash fell from $281.3 million at year-end 2022 to $163.8 million. Q1 cash use included a $27.3 million repayment under the revolving facility and a $9.6 million payment to terminate the Chicago office lease early.
Outlook, risks, contingencies, and unusual items
- Going concern: The filing states that continued operating losses and cash outflows raise substantial doubt about Groupon’s ability to meet obligations over the next 12 months. Management believes its plans are probable of alleviating that doubt, citing cost reductions and actions to limit payment-processor reserves or holdbacks. It is also evaluating further cost actions, financing, and asset monetization; there is no assurance these measures will succeed.
- Cost savings and restructuring: The broader cost savings plan targets a $250 million reduction in the expense structure. The restructuring plan involves approximately 1,000 job reductions, with most completed by March 31 and the remainder expected during 2023. Estimated total restructuring charges are $20–$27 million; $18.6 million had been incurred. The filing estimates approximately $100 million in annualized savings from the second phase.
- Credit and liquidity: The March 2023 credit amendment reduced facility capacity from $150 million to $75 million and changed covenants. Groupon reported covenant compliance at quarter-end, but notes that access to the full facility is not assured and that processor reserve or receivable-holdback increases could materially affect liquidity.
- Other risks: A foreign tax authority has proposed a $115.3 million assessment, primarily relating to 2011 transfer pricing; Groupon disputes it and intends to defend the matter. The company also disclosed ongoing litigation and regulatory matters, while stating that reasonably possible losses above recorded accruals are not expected to have a material adverse effect.
- Controls and leadership: Disclosure controls were deemed ineffective because a previously reported material weakness in internal control over financial reporting had not been fully remediated. The filing also describes senior leadership changes and workforce reductions as potential sources of operational disruption.
Key facts for investors to verify
- Cash burn, available liquidity, facility access and covenant compliance, especially given the going-concern disclosure and near-term facility maturity.
- Whether planned cost savings are realized without further damaging customer activity, merchant supply, or revenue.
- Trends in active customers, units, gross billings, and Local-category performance; Goods demand and International margins also merit monitoring.
- Developments in the proposed tax assessment, legal contingencies, and payment-processor reserve or holdback requirements.
- Progress in remediating the material weakness and the impact of executive turnover and restructuring on operations.