Groupon, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Groupon operates a two-sided marketplace connecting consumers with merchants, across North America and International. Unless stated otherwise, amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $144.4 million | $214.2 million | $450.9 million | $743.9 million |
| Gross profit | $125.7 million | $181.4 million | $393.7 million | $542.4 million |
| Operating income (loss) | $(36.3) million | $(3.7) million | $(135.0) million | $(6.9) million |
| Net income (loss) attributable to Groupon | $(56.2) million | $78.1 million | $(182.3) million | $89.3 million |
| Adjusted EBITDA (non-GAAP) | $(8.6) million | $34.6 million | $(9.8) million | $105.9 million |
| Free cash flow (non-GAAP) | $(51.8) million | $(87.6) million | $(182.3) million | $(192.8) million |
- Q3 diluted loss per share was $1.86; nine-month diluted loss per share was $6.06.
- Q3 gross margin was approximately 87.1%, versus 84.7% a year earlier; reported revenue mix and the transition away from first-party Goods sales affect period comparability.
- Cash and cash equivalents were $308.0 million at September 30, down from $498.7 million at December 31, 2021. Nine-month operating cash outflow was $151.9 million; capital spending was $30.5 million.
- Current assets were $403.3 million and current liabilities $522.1 million. Debt included $110.0 million in revolving-credit borrowings and $224.5 million net carrying value of convertible notes due 2026 ($230.0 million principal). Total equity fell to $97.1 million from $210.3 million at year-end.
Material changes versus the prior comparable period
- Q3 revenue fell 32.6% year over year. Gross billings declined 21.6%, units 22.0%, and trailing-twelve-month active customers from 24.0 million to 20.2 million. Management attributed the declines mainly to reduced platform engagement and fewer purchases.
- North America Q3 revenue fell 24.6%; International revenue fell 48.6%. International comparisons were materially affected by the transition of Goods to a third-party marketplace model and foreign-exchange movements. Groupon reported no product revenue in Q3 2022, versus $15.2 million in Q3 2021 and $166.2 million for the first nine months of 2021.
- For the first nine months, Groupon recorded $35.4 million of goodwill impairment, fully impairing International goodwill, and $8.8 million of long-lived asset impairment. The prior-year period had neither charge.
- Other expense was $23.5 million in Q3 2022, compared with $82.5 million of other income in Q3 2021. The prior-year result included an $89.1 million unrealized investment gain; 2022 results also reflected significant foreign-currency losses.
Outlook, management commentary and risks
- Groupon’s first phase of its 2022 cost-savings plan is estimated to generate approximately $150 million of run-rate savings by the end of 2023. The plan includes an approximately 500-position global reduction; $6.2 million of charges had been incurred by September 30, with total pre-tax charges estimated at $10–$20 million. A further phase is expected in 2023, including technology-platform cost reductions after the cloud transition.
- Management expects cash balances and operating cash generation to cover working capital and capital expenditures for at least the next 12 months, and expects the usual seasonal Q4 operating cash inflow in 2022. This outlook depends on operating performance and cash management; Groupon had generated operating cash outflows in most annual and interim periods since March 2020.
- A September 2022 credit-facility amendment reduced revolving capacity from $225 million to $150 million, changed financial covenants, and increased certain borrowing spreads and commitment fees through June 2023. At September 30, Groupon had $110 million drawn and $24.5 million of letters of credit outstanding; it reported covenant compliance. The facility matures in May 2024 and is secured by substantially all relevant assets.
- Management cited ongoing COVID-19 effects, inflation, higher labor costs, labor shortages, supply-chain challenges, consumer and merchant behavior, customer engagement, merchant retention, competition, foreign exchange, and access to capital as risks. Variable-rate revolver borrowings expose the company to interest-rate changes.
- A securities class action settlement of $13.5 million received final court approval on October 28, 2022; insurers funded the settlement into escrow. Four related shareholder derivative lawsuits remained stayed. Groupon also disclosed a proposed foreign tax assessment of $105.7 million, which it disputes and intends to defend.
- After quarter-end, the company appointed Jan Barta to its board and Damien Schmitz as Chief Financial Officer, both effective November 7, 2022. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether customer engagement, gross billings, units, and active-customer declines stabilize, and how much revenue change reflects lower demand versus the Goods marketplace transition.
- Whether the cost-savings plan achieves its estimated $150 million run-rate savings on schedule, and the cash costs and operational effects of workforce and technology changes.
- Cash-flow and liquidity trends, seasonal Q4 cash generation, and continued compliance with the amended credit-facility covenants.
- Developments in the disputed $105.7 million tax assessment, related derivative lawsuits, and other legal or regulatory matters.
- The underlying performance excluding unusual comparisons, particularly the 2021 investment gain and Japan currency-translation gain, 2022 impairments, restructuring items, and foreign-exchange effects.