Groupon, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Groupon operates a two-sided marketplace connecting consumers and merchants, through North America and International segments and Local, Goods, and Travel categories. Amounts below are in millions of dollars unless otherwise stated.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $129.1 | $153.2 | $250.7 | $306.5 |
| Gross profit | $113.0 | $134.0 | $217.7 | $268.0 |
| Operating income (loss) | $(4.9) | $(66.5) | $(35.4) | $(98.7) |
| Net income (loss) attributable to Groupon | $(12.6) | $(91.2) | $(41.8) | $(126.1) |
| Adjusted EBITDA (non-GAAP) | $15.2 | $5.7 | $10.3 | $(1.2) |
| Free cash flow (non-GAAP) | $(44.6) | $(39.3) | $(130.4) | $(130.5) |
- Q2 gross profit was 87.5% of revenue, compared with 87.4% a year earlier. This is the calculated gross profit-to-revenue ratio; the company’s segment “gross margin” measure is defined differently.
- For the six months, operating cash flow was $(118.6) million versus $(108.4) million in 2022. Investing cash flow was $(11.5) million; financing cash flow was $(32.1) million. The company reported a $(9.6) million early lease-termination payment as a factor in cash outflows.
- At June 30, cash and cash equivalents were $118.1 million ($121.4 million including restricted cash), down from $281.3 million at year-end 2022. Cash and cash equivalents were $100.1 million as of July 31, 2023.
- Debt included $46.7 million of revolving borrowings and $230.0 million principal on 2026 convertible notes (net carrying amount $225.7 million). The amended revolver matures May 14, 2024, has a $75 million maximum commitment, and had $24.5 million of letters of credit outstanding at June 30. Borrowings plus letters of credit therefore used nearly all committed capacity.
- Total liabilities were $612.1 million and total equity was negative $24.8 million at June 30, versus positive equity of $8.9 million at December 31, 2022. Current assets were $192.3 million and current liabilities $364.2 million.
Material changes versus prior comparable periods
- Q2 revenue fell 15.7% year over year; first-half revenue fell 18.2%. Gross billings declined 14.5% in Q2 and 14.2% for the first half; units fell 20.0% and 18.7%, respectively. Trailing-twelve-month active customers declined 17.0%, to 17.5 million.
- Management attributed lower billings and units mainly to weaker demand and reduced platform engagement, particularly in Local and Goods. International gross profit also suffered from mix shifts toward lower-margin offerings and the de-emphasis of Goods.
- Lower marketing and SG&A expenses, and the absence of 2022 goodwill and long-lived-asset impairments, helped narrow reported operating and net losses. Q2 2023 included a restructuring credit; first-half restructuring charges were $8.1 million.
- First-half operating cash use increased by $10.3 million year over year. Cash balances contracted substantially, while the March 2023 credit amendment reduced revolver capacity from $150 million to $75 million.
Outlook, risks, contingencies and unusual items
- Going concern: Management concluded that substantial doubt exists about Groupon’s ability to continue as a going concern within one year after issuance of the statements. Cash outflows, operating losses, and the May 2024 credit-facility maturity contribute to the uncertainty. Management is considering additional financing, monetizing non-core assets, further cost reductions, contract renegotiations, and steps to limit payment-processor reserve or holdback requirements. These plans are not final and, as disclosed, do not alleviate the substantial doubt. No quantified revenue or earnings guidance is provided in the filing text.
- Restructuring: The first two phases of the 2022 plan target approximately 1,000 global position reductions; most had been completed by March 31, 2023, with the remainder expected by year-end. Expected pretax charges for those phases were $20–$27 million; $19.1 million had been incurred. A third phase approved in July 2023 is expected to incur approximately $3.6 million of pretax charges.
- Tax matter: Groupon is contesting a foreign tax assessment of $117.3 million, including estimated incremental interest, primarily concerning transfer pricing for 2011 transactions. The company says it believes the assessment is without merit and intends to defend itself.
- Other matters: The filing describes ongoing intellectual-property, consumer/privacy, employment, and other legal or regulatory matters. A shareholder derivative settlement received final approval in June 2023; $950,000 in attorneys’ fees was paid directly by insurers in July. Remaining indemnification liabilities related to the 2017 Latin America disposition were $2.8 million, with approximately $11.7 million of reasonably possible exposure above accrued amounts.
- Controls: Disclosure controls and procedures were deemed ineffective at June 30 because a previously reported material weakness in internal control over financial reporting had not been fully remediated. Management reported implementing controls for certain complex manual calculations and continuing remediation work.
- Key operating risks include customer and merchant retention, demand and discretionary spending, competition, foreign exchange, inflation and labor costs, payment-processor holdbacks, cybersecurity, and the company’s ability to access capital and comply with debt covenants.
Most important facts for investors to verify
- Whether Groupon secures financing, asset-sale proceeds, or other liquidity measures before the revolver matures, and whether it can meet its obligations as cash declines.
- Current revolver availability and covenant headroom, including the effect of borrowings and letters of credit on the $75 million commitment and required liquidity tests.
- Whether revenue, gross billings, units, and active customers stabilize, especially in Local and Goods, and whether cost reductions can offset weaker contribution profit.
- The status and potential financial impact of the $117.3 million tax assessment, legal contingencies, and restructuring costs.
- Progress in remediating the material weakness and any subsequent changes in cash, operating results, or liquidity after June 30.