Groupon, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Comparisons are with Q1 2021 unless stated otherwise. Groupon operates a two-sided marketplace in North America and International, across Local, Goods and Travel. The company completed its transition to a third-party marketplace model in North America in 2020 and International in 2021, changing how much Goods revenue is reported on a gross versus net basis.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $153.3 million | $263.8 million | Down 41.9%; affected by lower demand and the shift from gross product sales to net marketplace revenue |
| Gross profit | $134.0 million | $167.0 million | Down 19.8% |
| Gross margin | 87.4% | 63.3% | Calculated as gross profit divided by revenue; mix and reporting-model changes limit comparability |
| Operating income (loss) | $(32.1) million | $(1.2) million | Operating margin was approximately (21.0)% versus (0.5)% |
| Net income (loss) attributable to Groupon | $(34.9) million | $14.6 million | Loss per diluted share was $1.17, versus income per diluted share of $0.48 |
| Adjusted EBITDA | $(7.0) million | $30.4 million | Non-GAAP measure defined by the company |
| Operating cash flow | $(78.2) million | $(46.4) million | Use of cash worsened, primarily reflecting working-capital changes |
| Free cash flow | $(91.2) million | $(58.4) million | Non-GAAP measure; operating cash flow less capital expenditures and capitalized software |
| Cash and cash equivalents | $403.0 million | — | Down from $498.7 million at December 31, 2021 |
At March 31, current assets were $509.2 million and current liabilities were $579.3 million, a current ratio of approximately 0.88. Debt comprised $100.0 million of revolver borrowings and $223.8 million carrying value of 2026 convertible notes. The revolver had $225.0 million of total commitments and $25.0 million of letters of credit outstanding; access to full capacity may be restricted by financial covenants. Groupon reported covenant compliance at quarter-end. Management said cash balances and operating cash generation should meet working-capital and capital-expenditure needs for at least 12 months.
Changes and operating trends
- Gross billings fell 16.8% to $460.7 million; units declined 28.8% to 12.7 million; trailing-twelve-month active customers fell 14.0% to 22.2 million.
- North America revenue declined 25.2% to $110.2 million, with gross profit down 27.7% to $94.2 million. Management cited reduced Goods demand and COVID-variant-related weakness in Local. Marketing expense rose 22.9%, contributing to a 38.4% decline in segment contribution profit.
- International revenue declined 63.0% to $43.2 million, largely because Goods moved from first-party product sales reported gross to third-party marketplace transactions generally reported net. International gross profit nevertheless increased 8.6% to $39.8 million, helped by Local growth and improved refund levels.
- Consolidated marketing expense increased 17.1% to $39.4 million as Groupon invested in consumer awareness and demand. SG&A was nearly flat at $126.4 million; restructuring charges declined to $0.3 million from $7.4 million.
- Other expense was $4.9 million, versus $18.1 million of other income in Q1 2021. The prior-year result included a $32.2 million foreign-currency translation gain related to the liquidation of the Japan subsidiary.
Outlook, risks and unusual items
- The filing provides no specific numerical revenue, earnings or cash-flow guidance. Management’s strategy is to improve the expense structure and differentiate inventory, including curated collections and a premium Beauty & Wellness marketplace experience.
- Management described the COVID-19 recovery as uncertain and potentially prolonged, citing changes in consumer behavior, new variants, merchant staffing and supply-chain issues. Inflation may pressure discretionary spending and costs.
- International operations face currency, geopolitical, regulatory and execution risks, including disruption related to the conflict in Ukraine. Currency movements reduced Q1 reported revenue by $2.6 million and gross profit by $2.4 million versus prior-year exchange rates.
- A foreign tax authority proposed an assessment of $116.0 million, including estimated interest, primarily related to 2011 transfer pricing. Groupon disputes the assessment and intends to defend itself. The company also said up to $25.8 million of unrecognized tax benefits could be reduced within the next 12 months.
- A securities class-action settlement was preliminarily agreed on May 6, 2022 for $13.5 million, subject to final documentation and court approval. Groupon said insurance covers the full amount and insurers would pay directly under preliminary terms. Related shareholder derivative lawsuits seek unspecified damages and other relief; Groupon intends to defend them.
- Management found no goodwill or long-lived-asset impairment in Q1 despite conducting an impairment assessment in response to COVID-related developments. The restructuring plan was substantially completed by year-end 2021; approximately $7.9 million of restructuring liabilities remained at March 31, with substantially all remaining cash payments expected during 2022.
Key facts for investors to verify
- How much of the reported revenue decline reflects lower underlying demand versus the Goods transition to net marketplace reporting; assess gross billings, gross profit and customer trends alongside revenue.
- Whether operating cash use and negative free cash flow improve, particularly as merchant and supplier payment timing and customer bookings affect working capital.
- Available revolver capacity under covenant restrictions and the company’s liquidity if operating cash flows remain negative.
- Developments in the $116.0 million disputed tax assessment, other tax audits, and the approval, insurance payment and accounting treatment of the $13.5 million securities settlement.
- Whether management’s marketplace and cost-efficiency initiatives reverse customer and unit declines while sustaining adequate merchant supply.