Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34 Filing Table of Contents
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69: R2 Condensed Consolidated Balance Sheets HTML 112K
81: R3 Condensed Consolidated Balance Sheets HTML 40K
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Equity
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Statements of Operations Information
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Policies (Policies)
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39: R24 Supplemental Consolidated Balance Sheets and HTML 104K
Statements of Operations Information (Tables)
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Tables (Tables)
37: R28 Revenue Recognition (Tables) HTML 53K
30: R29 INCOME TAXES Tables (Tables) HTML 39K
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41: R31 Income (Loss) Per Share (Tables) HTML 101K
74: R32 Segment Information (Tables) HTML 162K
64: R33 Description of Business and Basis of Presentation HTML 32K
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12: R34 GOODWILL AND OTHER INTANGIBLE ASSETS - Schedule of HTML 36K
Goodwill (Details)
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Intangible Assets (Details)
73: R36 GOODWILL AND OTHER INTANGIBLE ASSETS - Schedule of HTML 42K
Estimated Future Amortization Expense (Details)
63: R37 GOODWILL AND OTHER INTANGIBLE ASSETS - Additional HTML 35K
Information (Details)
11: R38 INVESTMENTS - Summary of Investments (Details) HTML 85K
42: R39 INVESTMENTS - Schedule of Activity for Available HTML 33K
For Sale Securities (Details)
27: R40 INVESTMENTS - Additional Information (Details) HTML 50K
35: R41 SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS AND HTML 46K
STATEMENTS OF OPERATIONS INFORMATION - Schedule of
Other Income (Expense) (Details)
85: R42 SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS AND HTML 42K
STATEMENTS OF OPERATIONS INFORMATION - Schedule of
Prepaid and Other Current Assets (Details)
53: R43 SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS AND HTML 32K
STATEMENTS OF OPERATIONS INFORMATION - Schedule of
Accrued Merchant and Supplier Payables (Details)
26: R44 SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS AND HTML 50K
STATEMENTS OF OPERATIONS INFORMATION - Schedule of
Accrued Expense and Other Current Liabilities
(Details)
34: R45 SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS AND HTML 42K
STATEMENTS OF OPERATIONS INFORMATION - Schedule of
Other Non-current Liabilities (Details)
83: R46 FINANCING ARRANGEMENTS - Schedule of Notes HTML 42K
(Details)
52: R47 FINANCING ARRANGEMENTS - Schedule of Convertible HTML 35K
Debt Interest Expense (Details)
25: R48 FINANCING ARRANGEMENTS - Convertible Senior Notes HTML 70K
(Details)
36: R49 FINANCING ARRANGEMENTS - Note Hedges and Warrants HTML 37K
(Details)
49: R50 FINANCING ARRANGEMENTS - Revolving Credit Facility HTML 56K
(Details)
20: R51 LEASES - Additional Information (Details) HTML 55K
65: R52 LEASES Right-of-Use Assets (Details) HTML 35K
75: R53 LEASES Total Lease Cost (Details) HTML 46K
51: R54 LEASES Future Lease Amount (Details) HTML 76K
21: R55 LEASES Sublease (Details) HTML 42K
66: R56 LEASES Supplemental Cash Flow (Details) HTML 38K
76: R57 COMMITMENTS AND CONTINGENCIES - Additional HTML 33K
Information (Details)
48: R58 STOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS HTML 82K
Narrative (Details)
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Stock-based Compensation Expense (Details)
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Rsu (Details)
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Stock Options (Details)
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Psu (Details)
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costs (Details)
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33: R66 FAIR VALUE MEASUREMENTS - Additional Information HTML 35K
(Details)
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Assets and Liabilities Measured on Recurring Basis
(Details)
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Liabilities, Reconciliation of Level 3 Inputs
(Details)
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of Basic and Diluted Net Income (Loss) Per Share
(Details)
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Weighted-Average Potentially Dilutive Instruments
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68: R71 SEGMENT INFORMATION Schedule of Revenue by Segment HTML 62K
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(Exact name of registrant as specified in its charter)
iDelaware
i27-0903295
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i600 W Chicago Avenue
i60654
iSuite
400
(Zip Code)
iChicago
iIllinois
i(312)
i334-1579
(Address
of principal executive offices)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
stock, par value $0.0001 per share
iGRPN
iNASDAQ Global Select Market
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYes☒ No ☐
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge accelerated filer☒ Accelerated filer ☐
Non-accelerated filer
☐ Smaller reporting company i☐
Emerging growth company i☐
If an
emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018 (unaudited)
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations. The words "may,""will,""should,""could,""expect,""anticipate,""believe,""estimate,""intend,""continue" and other similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, but are not limited to, risks related to volatility in our operating results; execution of our business and marketing strategies; retaining existing customers and adding new customers; challenges arising from our international operations, including fluctuations in currency exchange rates, legal and regulatory
developments and any potential adverse impact from the United Kingdom's likely exit from the European Union; retaining and adding high quality merchants; our voucherless offerings; cybersecurity breaches; reliance on cloud-based computing platforms; competing successfully in our industry; changes to merchant payment terms; providing a strong mobile experience for our customers; maintaining and improving our information technology infrastructure; delivery and routing of our emails; claims related to product and service offerings; managing inventory and order fulfillment risks; litigation; managing refund risks; retaining and attracting members of our executive team; completing and realizing the anticipated benefits from acquisitions, dispositions, joint ventures and strategic investments; lack of control over minority investments; compliance with domestic and foreign laws and regulations, including the CARD Act, GDPR and regulation of the Internet and e-commerce; classification
of our independent contractors or employees; tax liabilities; tax legislation; protecting our intellectual property; maintaining a strong brand; customer and merchant fraud; payment-related risks; our ability to raise capital if necessary and our outstanding indebtedness; global economic uncertainty; our common stock, including volatility in our stock price; our convertible senior notes; our ability to realize the anticipated benefits from the hedge and warrant transactions; and those risks and other factors discussed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2018, and Part II, Item 1A , Risk Factors of our Quarterly report on Form 10-Q for the quarter ended March 31, 2019, as well as in our condensed consolidated financial statements, related notes, and the other financial
information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission ("SEC"). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
As used herein, "Groupon," the "Company,""we,""our,""us"
and similar terms include Groupon, Inc. and its subsidiaries, unless the context indicates otherwise.
3
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GROUPON, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized; 769,175,284shares issued and 563,292,929shares outstanding at September 30,
2019; 760,939,440 shares issued and 569,084,312 shares outstanding at December 31, 2018
Income
(loss) from continuing operations before provision (benefit) for income taxes
(i12,616
)
i48,163
(i92,909
)
(i47,669
)
Provision
(benefit) for income taxes
i2,069
i988
i591
i205
Income
(loss) from continuing operations
(i14,685
)
i47,175
(i93,500
)
(i47,874
)
Income
(loss) from discontinued operations, net of tax
i—
i—
i2,162
i—
Net
income (loss)
(i14,685
)
i47,175
(i91,338
)
(i47,874
)
Net
income attributable to noncontrolling interests
(i2,000
)
(i2,560
)
(i8,080
)
(i9,433
)
Net
income (loss) attributable to Groupon, Inc.
$
(i16,685
)
$
i44,615
$
(i99,418
)
$
(i57,307
)
Basic
and diluted net income (loss) per share:
Continuing operations
$
(i0.03
)
$
i0.08
$
(i0.18
)
$
(i0.10
)
Discontinued
operations
i—
i—
i0.01
i—
Basic
and diluted net income (loss) per share
$
(i0.03
)
$
i0.08
$
(i0.17
)
$
(i0.10
)
Weighted
average number of shares outstanding
Basic
i566,971,238
i568,634,988
i568,339,335
i565,227,625
Diluted
i566,971,238
i576,379,421
i568,339,335
i565,227,625
Comprehensive
income (loss):
Net income (loss)
$
(i14,685
)
$
i47,175
$
(i91,338
)
$
(i47,874
)
Other
comprehensive income (loss):
Other comprehensive income (loss) from continuing operations:
Net
change in unrealized gain (loss) on foreign currency translation adjustments
i4,439
(i72
)
i4,426
i1,166
Net
change in unrealized gain (loss) on available-for-sale securities (net of tax effect of ($16) and $46 for the three months ended September 30, 2019 and 2018, and ($51) and $60 for the nine months ended September 30, 2019 and 2018)
(i47
)
i94
(i151
)
(i842
)
Other
comprehensive income (loss) from continuing operations
i4,392
i22
i4,275
i324
Other
comprehensive income (loss) from discontinued operations
i—
i—
i—
i—
Other
comprehensive income (loss)
i4,392
i22
i4,275
i324
Comprehensive
income (loss)
(i10,293
)
i47,197
(i87,063
)
(i47,550
)
Comprehensive
income (loss) attributable to noncontrolling interest
(i2,000
)
(i2,560
)
(i8,080
)
(i9,433
)
Comprehensive
income (loss) attributable to Groupon, Inc.
$
(i12,293
)
$
i44,637
$
(i95,143
)
$
(i56,983
)
See
Notes to Condensed Consolidated Financial Statements.
5
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Less:
Income (loss) from discontinued operations, net of tax
i2,162
i—
Income
(loss) from continuing operations
(i93,500
)
(i47,874
)
Adjustments
to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property, equipment and software
i69,986
i76,984
Amortization
of acquired intangible assets
i11,419
i10,316
Stock-based
compensation
i62,517
i50,670
Impairments
of investments
i—
i10,156
Deferred
income taxes
i816
(i6,575
)
(Gain)
loss from changes in fair value of investments
i68,971
i8,312
Amortization
of debt discount on convertible senior notes
i9,772
i8,822
Change
in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable
i12,581
i20,217
Prepaid
expenses and other current assets
i2,591
(i2,695
)
Accounts
payable
(i16,892
)
(i16,034
)
Accrued
merchant and supplier payables
(i216,127
)
(i214,748
)
Accrued
expenses and other current liabilities
(i62,728
)
(i45,175
)
Other,
net
i20,476
i14,663
Net
cash provided by (used in) operating activities from continuing operations
(i130,118
)
(i132,961
)
Net
cash provided by (used in) operating activities from discontinued operations
i—
i—
Net
cash provided by (used in) operating activities
(i130,118
)
(i132,961
)
Investing
activities
Purchases of property and equipment and capitalized software
(i51,854
)
(i53,611
)
Proceeds
from sale of intangible assets
i—
i1,500
Proceeds
from sale of investment
i—
i8,594
Acquisition
of business, net of acquired cash
i—
(i57,821
)
Acquisitions
of intangible assets and other investing activities
(i3,037
)
(i17,147
)
Net
cash provided by (used in) investing activities from continuing operations
(i54,891
)
(i118,485
)
Net
cash provided by (used in) investing activities from discontinued operations
i—
i—
Net
cash provided by (used in) investing activities
(i54,891
)
(i118,485
)
Financing
activities
Issuance costs for revolving credit agreement
(i2,384
)
i—
Payments
for repurchases of common stock
(i44,162
)
i—
Taxes
paid related to net share settlements of stock-based compensation awards
(i13,975
)
(i18,638
)
Proceeds
from stock option exercises and employee stock purchase plan
i4,123
i5,710
Distributions
to noncontrolling interest holders
(i8,687
)
(i9,316
)
Payments
of finance lease obligations
(i16,868
)
(i25,289
)
Payments
of contingent consideration related to acquisitions
i—
(i1,815
)
Net
cash provided by (used in) financing activities
(i81,953
)
(i49,348
)
Effect
of exchange rate changes on cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations
(i9,153
)
(i9,287
)
Net
increase (decrease) in cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations
(i276,115
)
(i310,081
)
Less:
Net increase (decrease) in cash classified within current assets of discontinued operations
i—
i—
Net
increase (decrease) in cash, cash equivalents and restricted cash
(i276,115
)
(i310,081
)
Cash,
cash equivalents and restricted cash, beginning of period (1)
i844,728
i885,481
Cash,
cash equivalents and restricted cash, end of period (1)
$
i568,613
$
i575,400
Non-cash
investing and financing activities
Continuing operations:
Equipment acquired under capital lease arrangements (2)
$
i3,865
$
i13,789
Leasehold
improvements funded by lessor
i—
i557
Liability
for repurchases of common stock
(i1,469
)
i—
Increase
(decrease) in liabilities related to purchases of property and equipment and capitalized software
(i201
)
i699
Contingent
consideration liabilities incurred in connection with acquisition of business
i—
i1,589
Financing
obligation incurred in connection with acquisition of business
i—
i8,604
8
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
(1)
The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to amounts reported within the condensed consolidated balance sheets as of September 30, 2019, December 31, 2018, September 30, 2018
and December 31, 2017 and amounts previously reported within the condensed consolidated balance sheet in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 (in thousands):
Restricted
cash included in prepaid expenses and other current assets
i1,101
i3,320
i2,649
i4,932
Restricted
cash included in other non-current assets
i227
i387
i393
i420
Cash,
cash equivalents and restricted cash
$
i568,613
$
i844,728
$
i575,400
$
i885,481
(2)
Please
refer to Note 6, Leases, for supplemental cash flow information on our leasing obligations, as required by our adoption of ASU 2016-02, Leases ("Topic 842"), on January 1, 2019.
See Notes to Condensed Consolidated Financial Statements.
9
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
1. iDESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Company Information
Groupon, Inc. and
its subsidiaries, which commenced operations in October 2008, operate online local commerce marketplaces throughout the world that connect merchants to consumers by offering goods and services, generally at a discount. Customers access those marketplaces through our websites, primarily localized groupon.com sites in many countries, and our mobile applications.
Our operations are organized into itwo
segments: North America and International. See Note 13, Segment Information.
Unaudited Interim Financial Information
We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. These condensed consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations and comprehensive income (loss), cash flows and stockholders' equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected
for the full year ending December 31, 2019. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 12, 2019.
i
Principles
of Consolidation
The condensed consolidated financial statements include the accounts of Groupon, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements were prepared in accordance with U.S. GAAP and include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which we exercise control and a variable interest entity for which we have determined that we are the primary beneficiary. In the first quarter of 2019, we extended our arrangement through July 2022 with the strategic partner in the variable
interest entity that we consolidate. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as Noncontrolling interests. Investments in entities in which we do not have a controlling financial interest are accounted for under the equity method, the fair value option, as available-for-sale securities or at cost adjusted for observable price changes and impairments, as appropriate.
i
Adoption of New Accounting Standards
We
adopted the guidance in ASU 2016-02, Leases (Topic 842), on January 1, 2019. This ASU requires the recognition of lease assets and liabilities for operating leases, in addition to the finance lease assets and liabilities historically recorded on our condensed consolidated balance sheets. See Note6,Leases, for information on the impact of adopting Topic 842 on our accounting policies.
We adopted the guidance in ASU 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, on January 1,
2019. This ASU expands the scope to make the guidance for share-based payment awards to nonemployees consistent with the guidance for share-based payment awards to employees. The adoption of ASU 2018-07 did not have a material impact on the condensed consolidated financial statements.
We adopted the guidance in ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, on January 1, 2019. This ASU requires entities in a hosting arrangement that is a service contract
to follow the guidance in Subtopic 350-40, Internal Use Software, to determine which costs to implement the service contract would be capitalized as an asset related to the service contract and which costs would be expensed. The requirements of ASU 2018-15 have been applied on a prospective basis to implementation costs incurred on or after January 1, 2019. As a result of the adoption of ASU 2018-15, we capitalized $i2.4
million and $i5.2 million of implementation costs for the three and nine months ended September 30, 2019. Those capitalized costs are included within Other non-current assets on the condensed consolidated
balance sheet as of September 30, 2019. We have not recognized any amortization related to these implementation costs. We will amortize the implementation costs on a straight-line basis over the term of the associated hosting arrangement for each module or component of the related hosting arrangement when it is ready for its intended use. Amortization costs will be recorded in Selling, general and administrative expense on the condensed consolidated statements of operations.
/i
Reclassifications
and Terminology Changes
Certain reclassifications have been made to the condensed consolidated financial statements of prior periods and the accompanying notes to conform to the current period presentation.
i
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities in the condensed consolidated financial statements and accompanying notes.
Estimates are used for, but not limited to, variable consideration from unredeemed vouchers, income taxes, initial valuation and subsequent impairment testing of goodwill and intangible assets, investments, customer refunds, contingent liabilities and the useful lives of property, equipment and software and intangible assets. Actual results could differ materially from those estimates.
2. iGOODWILL
AND OTHER INTANGIBLE ASSETS
i
The following table summarizes goodwill activity by segment for the nine months ended September 30, 2019 (in thousands):
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Amortization of intangible assets is computed using the straight-line method over their estimated useful lives, which range from i1 to i10
years. Amortization expense related to intangible assets was $i3.7 million and $i3.9 million for
the three months ended September 30, 2019 and 2018, and $i11.4 million and $i10.3
million for the nine months ended September 30, 2019 and 2018. iAs of September 30, 2019, estimated future amortization expense related to intangible assets is as follows (in thousands):
The following table summarizes amortized cost, gross unrealized gain (loss), and fair value of redeemable preferred shares as of September 30, 2019 and December 31, 2018 (in thousands):
We
recorded an other-than-temporary impairment of an available-for-sale security of $i5.5 million for the nine months ended September 30, 2018. That impairment is classified within Other income (expense), net on the condensed consolidated statements of operations. There were no impairments of available-for-sale securities for the three
and nine months ended September 30, 2019.
Fair Value Option Investments
In connection with the dispositions of controlling stakes in TMON Inc. ("TMON"), an entity based in the Republic of Korea, in May 2015 and Groupon India in August 2015, we obtained minority investments in Monster Holdings LP ("Monster LP") and in Nearbuy Pte Ltd. ("Nearbuy"), respectively. We have made an irrevocable election to account for both of those investments at fair value with changes in fair value reported in earnings. We elected to apply fair value accounting to those investments because we believe that fair value is the most relevant measurement attribute for those investments, and to reduce operational and accounting complexity. Our election to apply fair value accounting to those investments has and
may continue to cause fluctuations in our earnings from period to period.
11
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
We determined that the fair value of our investments in Monster LP and Nearbuy was $i0.0
million and $i4.9 million as of September 30, 2019 and $i69.4
million and $i4.5 million as of December 31, 2018. iThe
following table summarizes gains and losses due to changes in fair value of those investments for the three and nine months ended September 30, 2019 and 2018 (in thousands):
During
the first quarter 2019, we recognized a $i41.5 million loss from changes in the fair value of our investment in Monster LP due to the revised cash flow projections provided by TMON in March 2019 and an increase in the discount rate applied to those forecasts, which increased to i26.0%
as of March 31, 2019, as compared with i21.0% as of December 31, 2018. The increase in the discount rate applied as of March
31, 2019 was due to the deterioration in the financial condition of TMON and the competitive environment in the Korean e-commerce industry, which resulted in an increase to financial projection risk. During the second quarter 2019, we recognized an additional loss of $i27.9 million from changes in the fair value of our investment in Monster LP due to revised financial projections provided by TMON in June 2019. The revisions to the financial projections
were made as a result of TMON’s continued underperformance as compared with prior projections along with adjustments to their business model.
i
The following table summarizes the condensed financial information for Monster LP for the three and nine months ended September 30, 2019 and 2018 (in thousands):
Other equity investments represents equity investments without readily determinable fair values. We have elected to record equity investments without readily determinable fair values at cost adjusted for observable price changes and impairments. We recorded $i4.7 million of impairments of other equity method investments for the nine months ended September 30,
2018. Those impairments are classified within Other income (expense), net on the condensed consolidated statements of operations. There were no other adjustments for observable price changes related to these investments since our adoption of ASU 2016-01, Financial Instruments (Topic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, on January 1, 2018.
12
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
4.
iSUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION
i
The following table summarizes
other income (expense), net for the three and nine months ended September 30, 2019 and 2018 (in thousands):
Total
accrued expenses and other current liabilities
$
i239,104
$
i267,034
/
(1)
Current
portion of lease obligations as of September 30, 2019 includes $i25.0 million of additional lease obligations that were recognized on January 1, 2019 as a result of the adoption of Topic 842. Refer to Note 6, Leases,
for additional information.
Non-current
operating lease liabilities as of September 30, 2019 are included within Operating lease obligations on the condensed consolidated balance sheet as a result of the adoption of Topic 842 on January 1, 2019. Refer to Note 6, Leases, for additional information.
5. iFINANCING
ARRANGEMENTS
Convertible Senior Notes
On April 4, 2016, we issued $i250.0 million in aggregate principal amount of convertible senior notes (the "Notes") in a private placement to A-G Holdings, L.P. ("AGH"). Michael Angelakis, the chairman and chief executive officer of Atairos Group, Inc. ("Atairos"), joined our Board of
Directors (the "Board") in connection with the issuance of the Notes. Atairos controls the voting power of AGH. The net proceeds from this offering were $i243.2 million after deducting issuance costs. The Notes bear interest at a rate of i3.25%
per annum, payable annually in arrears on April 1 of each year, beginning on April 1, 2017. The Notes will mature on April 1, 2022, subject to earlier conversion or redemption.
Each $i1,000 of principal amount of the Notes initially is convertible into i185.1852
shares of common stock, which is equivalent to an initial conversion price of $i5.40 per share, subject to adjustment upon the occurrence of specified events. Upon conversion, we can elect to settle the conversion value in cash, shares of our common stock, or any combination of cash and shares of our common stock. Holders of the Notes may convert their Notes at their option at any time until the close of business on the scheduled trading day immediately
preceding the maturity date. In addition, if specified corporate events occur prior to the maturity date, we may be required to increase the conversion rate for holders who elect to convert based on the effective date of such event and the applicable stock price attributable to the event, as set forth in a table contained in the indenture governing the Notes (the "Indenture"). Based on the closing price of the common stock of $i2.66
as of September 30, 2019, the if-converted value of the Notes was less than the principal amount.
With certain exceptions, upon a fundamental change (as defined in the Indenture), the holders of the Notes may require us to repurchase all or a portion of their Notes for cash at a purchase price equal to the principal amount plus accrued and unpaid interest. In addition, we may redeem the Notes, at our option, at a purchase price equal to the principal amount plus accrued and unpaid interest on or after April 1, 2020, if the closing sale price of the common stock exceeds i150%
of the then-current conversion price for i20 or more trading days in the i30
consecutive trading-day period preceding the exercise of this redemption right.
The Notes are senior unsecured obligations that rank equal in right of payment to all senior unsecured indebtedness and rank senior in right of payment to any indebtedness that is contractually subordinated to the Notes.
The Indenture includes customary events of default. If an event of default, as defined in the Indenture, occurs and is continuing, the principal amount of the Notes and any accrued and unpaid interest may be declared immediately due and payable. In the case of bankruptcy or insolvency, the principal amount of the Notes and any accrued and unpaid interest would automatically become immediately due and payable.
We
have separated the Notes into their liability and equity components in the accompanying condensed consolidated balance sheets. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the principal amount of the Notes. The difference between the principal amount of the Notes and the liability component (the "debt discount") is amortized to interest expense at an effective interest rate of i9.75%
over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.
We incurred transaction costs of approximately $i6.8 million related to the issuance of the Notes. Those transaction costs were allocated to the liability and equity components in the same manner as the allocation of
the proceeds from the Notes. Transaction costs attributable to the liability component of $i4.8 million were recorded as a debt discount in the condensed consolidated balance sheet and are being amortized to interest expense over the term of the Notes. Transaction costs attributable to the equity component of $i2.0
million were recorded in stockholders' equity as a reduction of the equity component.
The
estimated fair value of the Notes as of September 30, 2019 and December 31, 2018 was $i259.0 million and $i257.1
million, and was determined using a lattice model. We classified the fair value of the Notes as a Level 3 measurement due to the lack of observable market data over fair value inputs such as our stock price volatility over the term of the Notes and our cost of debt.
As of September 30, 2019, the remaining term of the Notes is approximately 2 years and 6 months. iDuring
the three and nine months ended September 30, 2019 and 2018, we recognized interest costs on the Notes as follows (in thousands):
Contractual interest (3.25% of the principal amount per annum)
$
i2,032
$
i2,032
$
i6,096
$
i6,096
Amortization
of debt discount
i3,341
i3,016
i9,772
i8,822
Total
$
i5,373
$
i5,048
$
i15,868
$
i14,918
Note
Hedges and Warrants
In May 2016, we purchased convertible note hedges with respect to our common stock for a cost of $i59.1 million from certain bank counterparties. The convertible note hedges provide us with the right to purchase up to i46.3
million shares of our common stock at an initial strike price of $i5.40 per share, which corresponds to the initial conversion price of the Notes, and are exercisable upon conversion of the Notes. The convertible note hedges are intended to reduce the potential economic dilution upon conversion of the Notes. The convertible note hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes do not have any rights with respect to the convertible note hedges.
In
May 2016, we also sold warrants for total cash proceeds of $i35.5 million to certain bank counterparties. The warrants provide the counterparties with the right to purchase up to i46.3
million shares of our common stock at a strike price of $i8.50 per share. The warrants expire on various dates between July 1, 2022 and August 26, 2022 and are exercisable on their expiration dates. The warrants are separate transactions and are not part of the terms of the Notes or convertible note hedges. Holders of the Notes and convertible
note hedges do not have any rights with respect to the warrants.
The amounts paid and received for the convertible note hedges and warrants were recorded in additional paid-in capital in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018. The convertible note hedges and warrants are not remeasured as long as they continue to meet the conditions for equity classification. The amounts paid for the convertible note hedges are tax deductible over the term of the Notes, while the proceeds received from the warrants are not taxable.
Under the if-converted method, the shares of common stock underlying the conversion option in the Notes are included in the
diluted earnings per share denominator and the interest expense on the Notes, net of tax, is added to the numerator. However, upon conversion, there will be no economic dilution from the Notes, as exercise of the convertible note hedges eliminates any dilution from the Notes that would have otherwise occurred when the price of our common stock exceeds the conversion price. Taken together, the purchase of the convertible note hedges and sale of warrants are intended to offset any actual dilution from the conversion of the Notes and to effectively increase the overall conversion price from $i5.40
to $i8.50 per share.
Revolving Credit Agreement
In May 2019, we entered into a second amended and restated senior secured revolving credit agreement (the "2019 Credit Agreement") which provides for aggregate principal borrowings of up to $i400.0
million and matures in May 2024. The 2019 Credit Agreement replaced our previous $250.0 million amended and restated credit agreement (the "2016 Credit Agreement"). We deferred debt issuance costs of $i2.4 million related to the 2019 Credit Agreement. Those deferred costs are included within Other non-current assets on the condensed consolidated balance sheet as of September
30, 2019 and will be amortized to interest expense over the term of the agreement.
Borrowings under the 2019 Credit Agreement bear interest, at our option, at a rate per annum equal to (a) an adjusted LIBO rate or (b) a customary base rate (with loans denominated in certain currencies bearing interest at rates specific to such currencies) plus an additional margin ranging between i0.50%
and i2.00%. We are required to pay quarterly commitment fees ranging from i0.25%
to i0.35% per annum of the average daily amount of unused commitments available under the 2019 Credit Agreement. The 2019 Credit Agreement also provides for the issuance of up to $i75.0
million in letters of credit, provided that the sum of outstanding borrowings and letters of credit do not exceed the maximum funding commitment of $i400.0 million.
The 2019 Credit Agreement is secured by substantially all of our tangible and intangible assets, including a pledge of i100%
of the outstanding capital stock of substantially all of our direct and indirect domestic subsidiaries and i65% of the shares or equity interests of first-tier foreign subsidiaries and each U.S. entity whose assets substantially consist of capital stock and/or intercompany
debt of one or more foreign subsidiaries, subject to certain exceptions. Certain of our domestic subsidiaries are guarantors under the 2019 Credit Agreement.
The 2019 Credit Agreement contains various customary restrictive covenants that limit our ability to, among other things: incur additional indebtedness; make dividend and other restricted payments, including share repurchases; enter into sale and leaseback transactions; make investments, loans or advances; grant or incur liens on assets; sell assets; engage in mergers, consolidations, liquidations or dissolutions; and engage in transactions with affiliates. The 2019 Credit Agreement requires us to maintain compliance with specified financial covenants, comprised of a minimum fixed charge
coverage ratio, a maximum leverage ratio, a maximum senior secured leverage ratio and a minimum liquidity ratio, each as set forth in the 2019 Credit Agreement. We are also required to maintain, as of the last day of each fiscal quarter, unrestricted cash of at least $i250.0 million, including $i125.0
million in accounts held with lenders under the 2019 Credit Agreement or their affiliates. Non-compliance with these covenants may result in termination of the commitments under the 2019 Credit Agreement and any then outstanding borrowings may be declared due and payable immediately. We have the right to terminate the 2019 Credit Agreement or reduce the available commitments at any time.
As of September 30, 2019, we had no borrowings outstanding under the 2019 Credit Agreement and as of December 31, 2018, we had no borrowings outstanding under the 2016 Credit Agreement. As of September 30, 2019, we had outstanding
letters of credit of $i18.0 million under the 2019 Credit Agreement and as of December 31, 2018, we had outstanding letters of credit of $i19.2
million under the 2016 Credit Agreement.
6. LEASES
i
Adoption of ASC Topic 842, Leases
On January 1, 2019, we adopted ASC Topic 842 using the modified retrospective transition method. Topic
842 requires the recognition of lease assets and liabilities for operating leases, in addition to the finance lease assets and liabilities previously recorded on our condensed consolidated balance sheets. Beginning on January 1, 2019, our condensed consolidated financial statements are presented in accordance with the revised policies, while prior period amounts are not adjusted and continue to be reported in accordance with our historical policies. The modified retrospective transition method required the cumulative effect, if any, of initially applying the guidance to be recognized as an adjustment to our accumulated deficit as of our adoption date. As a result of adopting Topic 842, we recognized additional lease assets and liabilities of $i109.6
million as of January 1, 2019. The discount rate used to calculate that adjustment was the rate implicit in the lease, unless that rate was not readily determinable. For leases for which the rate was not readily determinable, the discount rate used was our incremental borrowing rate as of the adoption date, January 1, 2019. There was ino
cumulative effect adjustment to our accumulated deficit as a result of initially applying the guidance.
We elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed us to carry forward prior conclusions about lease identification, classification and initial direct costs for leases entered into prior to adoption of Topic 842. Additionally, we elected to not separate lease and non-lease components for all of our leases. For leases with a term of 12 months or less, we elected the short-term lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition and new leases we may enter into in the future.
/
14
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
General Description of Leases
We have entered into various non-cancelable operating lease agreements for our offices and data centers and non-cancelable finance lease agreements for property and equipment. We classify leases at their commencement as either operating or finance leases and may receive renewal or expansion options, rent holidays and leasehold improvement or other incentives on certain lease agreements.
Our operating leases primarily consist of leases for real estate throughout the world with lease expirations between 2019 and 2026. These
arrangements typically do not transfer ownership of the underlying asset as we do not assume, nor do we intend to assume, the risks and rewards of ownership. Our finance leases are related to purchases of property and equipment, primarily computer hardware, with expirations between 2019 and 2023.
We recognize a right-of-use asset and lease liability for all of our leases at the commencement of the lease. Lease liabilities are measured based on the present value of the minimum lease payments discounted by a rate determined as of the date of commencement. Right-of-use assets are measured based on the lease liability adjusted for any initial direct costs, prepaid rent, or lease incentives. Minimum lease payments made under operating and finance leases are apportioned between interest expense and a reduction of the related operating and finance lease obligations. The interest expense on operating leases is presented within Selling,
general and administrative expense on the condensed consolidated statements of operations and the related operating lease obligation is presented within Accrued expenses and other current liabilities and Operating lease obligations on the condensed consolidated balance sheets. The interest expense on finance leases is presented within Other income (expense), net on the condensed consolidated statements of operations and the related finance lease obligation is presented within Accrued expenses and other current liabilities and Other non-current liabilities on the condensed consolidated balance sheets.
We have also subleased certain office facilities under operating lease agreements, with expirations between 2023 and 2026. We recognize sublease rentals on a straight-line basis over their respective lease terms.
The following summarizes right-of-use assets as of September
30, 2019 (in thousands):
Right-of-use
assets for finance leases are included in Property, equipment and software, net on the condensed consolidated balance sheet.
Related Party Sublease Agreement
On December 28, 2016, we entered into a sublease for portions of our office space at 600 West Chicago to Uptake, Inc. ("Uptake"), a Lightbank LLC ("Lightbank") portfolio company. Eric Lefkofsky, our co-founder and Chairman of the Board, is a co-founder and owns a significant equity interest in Lightbank. The sublease was a market rate transaction on terms that we believe are no less favorable than would have been reached with an unrelated third party. The sublease extends through January 31, 2026 and the sublease rentals over the entire term total approximately $i18.2
million. Pursuant to our related party transaction policy, our Audit Committee approved the sublease. We recognized income from the sublease of $i0.5 million for both the three months ended September 30, 2019 and 2018, and $i1.7
millionand$i1.5 million for the nine months ended September 30, 2019 and 2018.
Significant Assumptions and Judgments
Significant judgment is required when determining whether a contract
is or contains a lease. We review contracts to determine whether the language conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
15
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
As discussed above, the present value of minimum lease payments is used in determining the value of our operating and finance leases. The discount rate used to calculate the present value for lease payments is the rate
implicit in the lease, unless that rate cannot be readily determined. For leases in which the rate implicit in the lease is not readily determinable, the discount rate is our incremental borrowing rate, which is determined based on information available at lease commencement and is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. The discount rate used for our lease obligations as of September 30, 2019 and January 1, 2019 ranged from i1.5%
to i6.9%. As of September 30, 2019, the weighted-average remaining lease term for our finance leases and operating leases was i2
years and i5 years. As of September 30, 2019, the weighted-average discount rate for our finance leases and operating leases was i5.1%
and i5.6%.
i
The following table summarizes our lease cost and sublease income for the three
and nine months ended September 30, 2019 (in thousands):
As
of September 30, 2019, the future payments under finance leases and operating leases for each of the next five years and thereafter are as follows (in thousands):
Finance Leases
Operating Leases
Remaining in 2019
$
i2,056
$
i10,003
2020
i9,611
i36,609
2021
i5,261
i34,416
2022
i715
i33,579
2023
i12
i25,130
Thereafter
i—
i33,103
Total
minimum lease payments
i17,655
i172,840
Less:
Amount representing interest
(i863
)
(i22,972
)
Present
value of net minimum lease payments
i16,792
i149,868
Less:
Current portion of lease obligations
(i8,939
)
(i31,460
)
Total
long-term lease obligations
$
i7,853
$
i118,408
//
16
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
i
As of September 30, 2019, the future amounts due under subleases for each of the next five years and thereafter are as follows (in thousands):
Subleases
Remaining in 2019
$
i1,246
2020
i5,027
2021
i5,065
2022
i5,103
2023
i4,385
Thereafter
i4,891
Total
future sublease income
$
i25,717
/i
The
following table summarizes supplemental cash flow information on our leasing obligations for the nine months ended September 30, 2019 (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from
finance leases
$
(i816
)
Operating cash flows from operating leases
(i25,121
)
Financing
cash flows from finance leases
(i16,868
)
Right-of-use assets obtained in exchange for lease liabilities:
Finance leases
i3,865
Operating
leases
i23,123
/
7.
iCOMMITMENTS AND CONTINGENCIES
Our contractual obligations and commitments as of September 30, 2019 did not materially change from the amounts set forth in our 2018 Annual Report on Form 10-K, except as disclosed in Note 6, Leases.
Legal
Matters and Other Contingencies
From time to time, we are party to various legal proceedings incident to the operation of our business. For example, we currently are involved in proceedings brought by former employees and merchants, intellectual property infringement suits, customer lawsuits, consumer class actions and suits alleging, among other things, violations of state consumer protection or privacy laws.
In addition, third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to intellectual property disputes, including patent infringement claims, and expect that we will continue to be subject to intellectual property infringement claims as our services expand in scope and complexity. In the past, we have litigated such claims, and we are presently involved in several patent infringement
and other intellectual property-related claims, including pending litigation or trademark disputes relating to, for example, our Goods category, some of which could involve potentially substantial claims for damages or injunctive relief. We may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act are interpreted by the courts, and we become subject to laws in jurisdictions where the underlying laws with respect to the potential liability of online intermediaries are either unclear or less favorable. We believe that additional lawsuits alleging that we have violated patent, copyright or trademark laws will be filed against us. Intellectual property claims, whether meritorious or not, are time consuming and often costly to resolve, could require expensive changes in our methods of doing business or the goods we sell, or could require us to enter into costly royalty or licensing agreements.
We
also are subject to consumer claims or lawsuits relating to alleged violations of consumer protection or privacy rights and statutes, some of which could involve potentially substantial claims for damages, including statutory or punitive damages. Consumer and privacy related claims or lawsuits, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, or require us to change our business practices, sometimes in expensive ways.
We are also subject to, or in the future may become subject to, a variety of regulatory inquiries, audits, and investigations across the jurisdictions where we conduct our business, including, for example, inquiries related to consumer protection, employment matters and/or hiring practices, marketing practices, tax, unclaimed property and privacy rules
and regulations. Any regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm our business.
We establish an accrued liability for loss contingencies related to legal and regulatory matters when the loss is both probable and reasonably estimable. Those accruals represent management's best estimate of probable losses and, in such cases, there may be an exposure to loss in excess of the amounts accrued. For certain of the matters described above, there are inherent and significant uncertainties based on, among other factors, the stage of the proceedings, developments
in the applicable facts of law, or the lack of a specific damage claim. However, we believe that the amount of reasonably possible losses in excess of the amounts accrued for those matters would not have a material adverse effect on our business, condensed consolidated financial position, results of operations or cash flows. Our accrued liabilities for loss contingencies related to legal and regulatory matters may change in the future as a result of new developments, including, but not limited to, the occurrence of new legal matters, changes in the law or regulatory environment, adverse or favorable rulings, newly discovered facts relevant to the matter, or changes in the strategy for the matter. Regardless of the outcome, litigation and other regulatory matters can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Indemnifications
In
connection with the disposition of our operations in Latin America in the first quarter of 2017, we recorded $i5.4 million in indemnification liabilities for certain tax and other matters upon the closing of the transactions as an adjustment to the net loss on the dispositions within discontinued operations at their fair value. We estimated the indemnification liabilities using a probability-weighted expected cash
flow approach. During the first quarter of 2019, we decreased our indemnification liabilities due to the expiration of certain indemnification obligations. The resulting benefit of $i2.2 million is recorded within Income (loss) from discontinued operations on the condensed consolidated statement of operations for the nine months ended September 30, 2019. Our remaining indemnification liabilities were $i3.2
million as of September 30, 2019. We estimate that the total amount of obligations that are reasonably possible to arise under the indemnifications in excess of amounts accrued as of September 30, 2019 is approximately $i13.3 million.
In the normal course of
business to facilitate transactions related to our operations, we indemnify certain parties, including employees, lessors, service providers, merchants, and counterparties to investment agreements and asset and stock purchase agreements with respect to various matters. We have agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or other claims made against those parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. We are also subject to increased exposure to various claims as a result of our divestitures and acquisitions, particularly in cases where we are entering into new businesses in connection with such acquisitions. We may also become more vulnerable to claims as we expand the range and scope of our services and are subject to laws in jurisdictions where the underlying laws with respect to potential liability are either unclear or less
favorable. In addition, we have entered into indemnification agreements with our officers, directors and underwriters, and our bylaws contain similar indemnification obligations that cover officers, directors, employees and other agents.
Except as noted above, it is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, any payments that we have made under these agreements have not had a material impact on the operating results, financial position or cash flows.
17
GROUPON,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
8. iSTOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS
Common Stock
Pursuant to our restated certificate
of incorporation, the Board has the authority to issue up to a total of i2,010,000,000 shares of common stock. Each holder of common stock is entitled to one vote per share on any matter that is submitted to a vote of stockholders. In addition, holders of our common stock will vote as a single class of stock on any matter that is submitted to a vote of stockholders.
Share Repurchase Program
In May 2018, the Board authorized us to repurchase up to
$i300.0 million of our common stock under our share repurchase program. During the three and nine months ended September 30, 2019, we repurchased i5,391,084
and i14,027,227 shares for an aggregate purchase price of $i15.1 million and $i45.2
million (including fees and commissions) under our repurchase program. As of September 30, 2019, up to $i245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the 2019 Credit
Agreement, share price and other factors, and the share repurchase program may be terminated at any time.
Groupon, Inc. Stock Plans
In January 2008, we adopted the 2008 Stock Option Plan, as amended (the "2008 Plan"), under which options for up to i64,618,500 shares of common stock were authorized to be issued to employees, consultants and directors. The 2008 Plan was frozen in December 2010. In April 2010,
we established the Groupon, Inc. 2010 Stock Plan, as amended in April 2011 (the "2010 Plan"), under which options and restricted stock units ("RSUs") for up to i20,000,000 shares of common stock were authorized for future issuance to employees, consultants and directors. No new awards may be granted under the 2010 Plan following our initial public offering in November 2011. In August 2011, we established the Groupon, Inc. 2011 Incentive Plan, as amended (the "2011 Plan"), under which
options, RSUs and performance stock units for up to i187,500,000 shares of common stock were authorized for future issuance to employees, consultants and directors.
The Groupon, Inc. Stock Plans (the "Plans") are administered by the Compensation Committee of the Board (the "Compensation Committee"). As of September 30, 2019, i71,768,289
shares of common stock were available for future issuance under the Plans.
i
The stock-based compensation expense related to stock awards issued under the Plans and acquisition-related awards are presented within the following line items of the condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018 (in thousands):
We
capitalized $i2.0 million and $i2.0
million of stock-based compensation for the three months ended September 30, 2019 and 2018, and $i5.5 million and $i5.7
million for the nine months ended September 30, 2019 and 2018 in connection with internally-developed software and cloud computing arrangements.
/
18
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Employee
Stock Purchase Plan
The Groupon, Inc. 2012 Employee Stock Purchase Plan, as amended ("ESPP"), authorizes us to grant up to i20,000,000 shares of common stock under that plan. For the nine months ended September 30, 2019
and 2018, i1,486,006 and i1,621,061
shares of common stock were issued under the ESPP.
Restricted Stock Units
The restricted stock units granted under the Plans generally have vesting periods between one and ifour years and are amortized on a straight-line basis over their requisite service period. Additionally,
we are required to issue restricted stock units to settle amounts that exceed targeted bonus amounts under our primary bonus plans. We account for those obligations, if any, as liability-classified awards with performance conditions.
i
The table below summarizes restricted stock unit activity under the Plans for the nine months ended September 30, 2019:
As
of September 30, 2019, $i96.6 million of unrecognized compensation costs related to unvested restricted stock units are expected to be recognized over a remaining weighted-average period of i1.62
years.
Performance Share Units
We grant performance share units under the Plans that vest in shares of our common stock upon the achievement of financial and operational targets specified in the respective award agreement ("Performance Share Units"). During the nine months ended September 30, 2019, we also granted performance share units that will vest if our average daily closing stock price is equal to or greater than $i6.00
per share over a period of 30 consecutive trading days prior to December 31, 2022 or if a change in control occurs during the performance period at the specified stock price (and on a proportional basis for a change in control price between the grant date price and the specified stock price) ("Market-based Performance Share Units"). We determined these awards are subject to a market condition, and therefore we used a Monte Carlo simulation to calculate the grant date fair value of the awards and the related derived service period over which we will recognize the expense. The key inputs used in the Monte Carlo simulation were the risk-free rate, our volatility of i49.8%
and our cost of equity of i12.8%.
All of our performance share awards are subject to both continued employment through the performance period dictated by the award and certification by the Compensation Committee that the specified performance conditions have been achieved.
19
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
i
The table below summarizes Performance Share Unit activity under the Plans for the nine months ended September 30, 2019:
As
of September 30, 2019, $i8.9 million of unrecognized compensation costs related to unvested performance share units are expected to be recognized over a remaining weighted-average period of i1.94
years and $i8.1 million of unrecognized compensation costs related to unvested market-based performance share units are expected to be recognized over a remaining weighted-average period of i0.41
years.
Stock Options
The exercise price of stock options granted is equal to the fair value of the underlying stock on the date of grant. The contractual term for stock options expires iten years from the grant date. Stock options generally vest over a three- or four-year
period, with i25% of the awards vesting after one year and the remainder of the awards vesting on a monthly or quarterly basis thereafter. We did not grant any stock options during the nine months ended September 30, 2019.
i
The
table below summarizes stock option activity for the nine months ended September 30, 2019:
Options
Weighted-Average Exercise Price
Weighted-Average
Remaining Contractual Term (in years)
The aggregate intrinsic value of options outstanding and exercisable represents the total pretax intrinsic value (the difference between the fair value of our stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of September 30, 2019 and December 31, 2018.
9. iREVENUE
RECOGNITION
Refer to Note 13, Segment Information, for revenue summarized by reportable segment and category for the three and nine months ended September 30, 2019 and 2018.
A substantial majority of our deferred revenue relates to product sales for which revenue will be recognized as the products are delivered to customers, generally within one week following the balance sheet date. Our deferred revenue was
$i16.0 million and $i25.5 million as of September 30, 2019 and December
31, 2018. The amount of revenue recognized for the nine months ended September 30, 2019 that was included in the deferred revenue balance at the beginning of the period was$i25.0 million.
20
GROUPON,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
i
The following table summarizes the activity in the liability for customer credits for the nine months ended September 30, 2019 (in thousands):
Customer
credits can be redeemed through our online marketplaces for goods or services provided by a third-party merchant or for merchandise inventory sold by us. When customer credits are redeemed for goods or services provided by a third-party merchant, service revenue is recognized on a net basis as the difference between the carrying amount of the customer credit liability derecognized and the amount due to the merchant for the related transaction. When customer credits are redeemed for merchandise inventory sold by us, product revenue is recognized on a gross basis equal to the amount of the customer credit liability derecognized. Customer credits are typically used within one year of issuance.
Incremental
costs to obtain contracts with third-party merchants, such as sales commissions, are deferred and recognized over the expected period of the merchant arrangement, generally from 12 to 18 months. Deferred contract acquisition costs are presented within the following line items of the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 (in thousands):
The
amortization of deferred contract acquisition costs is classified within Selling, general and administrative expense in the condensed consolidated statements of operations. We did not recognize any impairment losses in relation to the deferred costs. During the three and nine months ended September 30, 2019 and 2018, amortization expense related to deferred contract acquisition costs is as follows (in thousands):
Amortization of deferred contract
acquisition costs
$
i5,010
$
i6,151
$
i15,549
$
i19,450
/
Variable
Consideration for Unredeemed Vouchers
In our International segment and, to a lesser extent, in our North America segment, our merchant agreements have redemption payment terms, under which the merchant is not paid its share of the sale price for a voucher sold through one of our online marketplaces until the customer redeems the related voucher. If the customer does not redeem a voucher with such merchant payment terms, we retain all of the gross billings for that voucher, rather than retaining only our net commission. We estimate the variable consideration from vouchers that will not ultimately be redeemed using our historical voucher redemption experience and recognize that amount as revenue at the time of sale. We only recognize amounts in variable consideration when we believe it is probable that a significant reversal of revenue will not occur in future periods, which requires us to make significant estimates of future
redemptions. If actual redemptions differ from our estimates, the effects could be material to the condensed consolidated financial statements. As of September 30, 2019 and December 31, 2018, we constrained $i16.5 million and $i13.7
million in revenue from unredeemed vouchers that we may recognize in future periods when we determine it is probable that a significant amount of that revenue will not be subsequently reversed.
21
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10. iINCOME
TAXES
Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items.
Provision (benefit) for income taxes and income (loss) from continuing operations before provision (benefit) for income taxes for the three and nine months ended September 30, 2019 and 2018 was as follows (in thousands):
Income
(loss) from continuing operations before provision (benefit) for income taxes
(i12,616
)
i48,163
(i92,909
)
(i47,669
)
/
Our
U.S. Federal income tax rate is 21%. The primary factor impacting the effective tax rate for the three and nine months ended September 30, 2019 and 2018 was the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. The effective tax rate for the nine months ended September 30, 2019 also reflected
the reversal of reserves for uncertain tax positions due to the closure of a tax audit. The effective tax rate for the nine months ended September 30, 2018 also reflected a $i6.4 million income tax benefit resulting from the impact of Accounting Standards Codification Topic 606, Revenue
from Contracts with Customers ("Topic 606") on intercompany activity in certain foreign jurisdictions.
We are currently undergoing income tax audits in multiple jurisdictions. It is likely that the examination phase of some of those audits will conclude in the next 12 months. There are many factors, including factors outside of our control, which influence the progress and completion of those audits. We are subject to claims for tax assessments by foreign jurisdictions, including a proposed assessment for $i105.6
million. We believe that the assessment, which primarily relates to transfer pricing on transactions occurring in 2011, is without merit and we intend to vigorously defend ourselves in that matter. In addition to any potential increases in our liabilities for uncertain tax positions from the ultimate resolution of that assessment, we believe that it is reasonably possible that reductions of up to $i21.0
million in unrecognized tax benefits may occur within the 12 months following September 30, 2019 upon closing of income tax audits or the expiration of applicable statutes of limitations.
In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. Additionally, while we did not incur the deemed repatriation tax, an actual repatriation from our non-U.S. subsidiaries could be subject to foreign and U.S. state income taxes. Aside from limited exceptions for which the related deferred tax liabilities recognized as of September
30, 2019 and December 31, 2018 are immaterial, we do not intend to distribute earnings of foreign subsidiaries for which we have an excess of the financial reporting basis over the tax basis of our investments and therefore have not recorded any deferred taxes related to such amounts. The actual tax cost resulting from a distribution would depend on income tax laws and circumstances at the time of distribution. Determination of the amount of unrecognized deferred tax liability related to the excess of the financial reporting basis over the tax basis of our foreign subsidiaries is not practical due to the complexities associated with the calculation.
Groupon
uses a cost-sharing arrangement under which controlled members agree to share the costs and risks of developing intangible properties in accordance with their reasonably anticipated share of benefits from the intangibles. On July 24, 2018, the Ninth Circuit Court of Appeals issued an opinion in Altera Corp. v. Commissioner requiring related parties in an intercompany cost-sharing arrangement to share expenses related to stock-based compensation. This opinion reversed an earlier decision of the United States Tax Court. On August 7, 2018, the Ninth Circuit Court of Appeals withdrew its July 24, 2018 opinion. On June 7, 2019, the United States Court of Appeals for the Ninth Circuit reversed the Tax Court
decision and ruled that stock-based compensation must be included in the shared pool of expenses. We do not expect that the ruling will have a material impact on our provision for income taxes for the year ending December 31, 2019 due to the valuation allowances against our net deferred tax assets in the related jurisdictions.
22
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
11. iFAIR VALUE MEASUREMENTS
Fair value is defined under U.S. GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability.
To increase the comparability of fair value
measures, the following hierarchy prioritizes the inputs in valuation methodologies used to measure fair value:
Level 1 - Measurements that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Measurements that include other inputs that are directly or indirectly observable in the marketplace.
Level 3 - Measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. These fair value measurements require significant judgment.
In determining fair value, we use various valuation approaches within the fair value measurement framework. The valuation methodologies used for our assets and liabilities measured at fair value and their classification in the valuation hierarchy are summarized
below:
Fair value option investments and available-for-sale securities. To determine the fair value of our fair value option investments each period, we first estimate the fair value of each entity in its entirety. We primarily use the discounted cash flow method, which is an income approach, to estimate the fair value of the entities. The key inputs to determining fair values under that approach are cash flow forecasts and discount rates. We also use a market approach valuation technique, which is based on market multiples of guideline companies, to determine the fair value of each entity. The discounted cash flow and market multiple valuations are then evaluated and weighted to determine the amount that is most representative of the fair value of each entity. Once we determine the fair value of each entity, we then determine the fair value of our specific investments in those entities. The entities
have complex capital structures, so we apply an option-pricing model that considers the liquidation preferences of each entity's respective classes of ownership interests to determine the fair value of our investment in each entity.
We also have investments in redeemable preferred shares and had investments in convertible debt securities issued by nonpublic entities. We measure the fair value of those available-for-sale securities using the discounted cash flow method.
We have classified our fair value option investments and our investments in available-for-sale securities as Level 3 due to the lack of observable market data over fair value inputs such as cash flow projections and discount rates. Increases in projected cash flows and decreases in discount rates contribute to increases in the estimated fair values of the fair value option investments and available-for-sale securities,
whereas decreases in projected cash flows and increases in discount rates contribute to decreases in their fair values.
Contingent consideration. We are subject to a contingent consideration arrangement to transfer a maximum payout in cash of $i2.5 million to the former owners of a business acquired on April 30, 2018.
Liabilities for
contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred in the related business combination and subsequent changes in fair value recorded in earnings within Selling, general and administrative expense on the condensed consolidated statements of operations.
We use an income approach to value contingent consideration obligations based on the present value of probability-weighted future cash flows. We classify the contingent consideration liabilities as Level 3 due to the lack of relevant observable market data over fair value inputs such as probability-weighting of payment outcomes.
23
GROUPON, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
i
The following tables summarize assets that are measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 (in thousands):
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
i
The following table provides a rollforward of the fair value of recurring Level 3 fair value measurements for the three and nine months ended September 30, 2019 and
2018 (in thousands):
Transfer
to other equity investment upon conversion of convertible debt security
i—
(i1,500
)
i—
(i4,008
)
Total
gains (losses) included in other comprehensive income (loss)
i—
(i106
)
i—
(i1,148
)
Total
gains (losses) included in earnings (2)
i—
(i36
)
i—
i2,396
Ending
Balance
$
i—
$
i—
$
i—
$
i—
Unrealized
gains (losses) still held (1)
$
i—
$
i—
$
i—
$
i—
Redeemable
preferred shares:
Beginning Balance
$
i10,201
$
i9,961
$
i10,340
$
i15,431
Total
gains (losses) included in other comprehensive income (loss)
(i63
)
i246
(i202
)
i246
Impairments
included in earnings
i—
i—
i—
(i5,470
)
Ending
Balance
$
i10,138
$
i10,207
$
i10,138
$
i10,207
Unrealized
gains (losses) still held (1)
$
(i63
)
$
i246
$
(i202
)
$
(i5,224
)
Liabilities
Contingent
Consideration:
Beginning Balance
$
i1,239
$
i1,542
$
i1,529
$
i—
Issuance
of contingent consideration in connection with acquisition
i—
i—
i—
i1,589
Settlements
of contingent consideration liabilities
i—
i—
(i312
)
i—
Total
losses (gains) included in earnings
i6
i21
i33
i35
Foreign
currency translation
(i38
)
(i20
)
(i43
)
(i81
)
Ending
Balance
$
i1,207
$
i1,543
$
i1,207
$
i1,543
Unrealized
gains (losses) still held (1)
$
i6
$
i21
$
i33
$
i35
/
(1)
Represents
the unrealized gains or losses recorded in earnings and/or other comprehensive income (loss) during the period for assets and liabilities classified as Level 3 that are still held (or outstanding) at the end of the period.
(2)
Represents a gain at maturity of a previously impaired convertible debt security, accretion of interest income and changes in the fair value of an embedded derivative.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets that are written down to fair value as a result of an impairment. We did not
record any significant nonrecurring fair value measurements after initial recognition for the three and nine months ended September 30, 2019. We recorded $i4.7 million of impairments of other equity investments for the nine months ended September 30, 2018. To determine the fair value of the investment,
we considered the financial condition of the investee and applied a market approach. We classified the fair value measurement of that other equity investment as Level 3 because it involves significant
25
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
unobservable inputs. We did not record any other nonrecurring fair value measurements after initial recognition for the three and nine months ended September 30, 2018.
Estimated
Fair Value of Financial Assets and Liabilities Not Measured at Fair Value
Our financial instruments not carried at fair value consist primarily of accounts receivable, restricted cash, accounts payable, accrued merchant and supplier payables and accrued expenses. The carrying values of those assets and liabilities approximate their respective fair values as of September 30, 2019 and December 31, 2018 due to their short-term nature.
12. iINCOME
(LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities include stock options, restricted stock units, performance share units, ESPP shares, warrants and convertible senior notes. If dilutive, those potentially dilutive securities are reflected in diluted net income (loss) per share by application of the treasury stock method, except for the convertible senior notes, which are subject to the if-converted method.
i
The
following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the three and nine months ended September 30, 2019 and 2018 (in thousands, except share and per share amounts):
Less:
Net income (loss) attributable to noncontrolling interests
i2,000
i2,560
i8,080
i9,433
Net
income (loss) attributable to common stockholders - continuing operations
(i16,685
)
i44,615
(i101,580
)
(i57,307
)
Net
income (loss) attributable to common stockholders - discontinued operations
i—
i—
i2,162
i—
Net
income (loss) attributable to common stockholders
$
(i16,685
)
$
i44,615
$
(i99,418
)
$
(i57,307
)
Denominator
Shares
used in computation of basic net income (loss) per share
i566,971,238
i568,634,988
i568,339,335
i565,227,625
Weighted-average
effect of dilutive securities:
Stock options
i—
i171,662
i—
i—
Restricted
stock units
i—
i7,344,425
i—
i—
Employee
stock purchase plan
i—
i228,346
i—
i—
Shares
used in computation of diluted net income (loss) per share
i566,971,238
i576,379,421
i568,339,335
i565,227,625
Basic
and diluted net income (loss) per share:
Continuing operations
$
(i0.03
)
$
i0.08
$
(i0.18
)
$
(i0.10
)
Discontinued
operations
i—
i—
i0.01
i—
Basic
and diluted net income (loss) per share
$
(i0.03
)
$
i0.08
$
(i0.17
)
$
(i0.10
)
/
26
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
i
The following weighted-average potentially dilutive instruments are not included in the diluted net income (loss) per share calculations above because they would have had an antidilutive effect on the net income (loss) per share from
continuing operations:
We
had outstanding performance share units as of September 30, 2019 and 2018 that were eligible to vest into shares of common stock subject to the achievement of specified performance conditions. Contingently issuable shares are excluded from the computation of diluted earnings per share if, based on current period results, the shares would not be issuable if the end of the reporting period were the end of the contingency period. There were up to i14,441,345
and i5,326,725 shares of common stock issuable upon vesting of outstanding performance share units as of September 30, 2019 and 2018 that were excluded from the table above as the performance
conditions were not satisfied as of the end of the respective periods.
27
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
13. iSEGMENT
INFORMATION
The segment information reported in the tables below reflects the operating results that are regularly reviewed by our chief operating decision maker to assess performance and make resource allocation decisions. Our operations are organized into two segments: North America and International.
i
The following table summarizes revenue by reportable segment and category for the three and nine months
ended September 30, 2019 and 2018 (in thousands):
North
America includes revenue from the United States of $i297.9 million and $i352.3 million for the three months ended September
30, 2019 and 2018 and $i965.9 million and $i1,108.8
million for the nine months ended September 30, 2019 and 2018. International includes revenue from the United Kingdom of $i69.4 million and $i94.0
million for the three months ended September 30, 2019 and 2018 and $i221.8 million and $i268.5
million for the nine months ended September 30, 2019 and 2018.There were no other individual countries that represented more than 10% of consolidated total revenue for thethree and nine months ended September 30, 2019and2018. Revenue is attributed to individual countries based on the location of the customer.
28
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
i
The following table summarizes gross profit by reportable segment and category for the three and nine months ended September 30, 2019 and 2018
(in thousands):
The
following table summarizes income (loss) from operations by reportable segment for the three and nine months ended September 30, 2019 and 2018 (in thousands):
Includes
stock-based compensation of $i16.8 million and $i13.8
million for North America and $i2.7 million and $i1.2
million for International for the three months ended September 30, 2019 and 2018 and $i55.7 million and $i46.7
million for North America and $i6.8 million and $i3.9
million for International for the nine months ended September 30, 2019 and 2018.
(2)
Includes acquisition-related (benefit) expense, net of$i0.7
million for International for the nine months ended September 30, 2018.
(3)
The three months ended September 30, 2018 includes a $i40.4
million benefit for North America related to the settlement of the IBM patent litigation and the nine months ended September 30, 2018 includes a $i34.6 million charge for North America related to the IBM patent litigation.
29
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
North
America contains assets from the United States of $i861.2 million and $i940.5 million as of September
30, 2019 and December 31, 2018. International contains assets from Ireland of $i204.6 million as of December 31, 2018. Assets from Ireland were less than 10% of consolidated total assets as of September 30, 2019. There were no other individual countries
that represented more than 10% of consolidated total assets as of September 30, 2019 and December 31, 2018.
30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together
with our condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under Risk Factors and elsewhere in this Quarterly Report. See Part I, Financial Information, Forward-Looking Statements, for additional information.
Overview
Groupon operates online local commerce marketplaces in 15 countries that connect merchants to consumers by offering goods and services, generally at a discount.
Consumers access those marketplaces through our websites, primarily localized groupon.com sites in many countries, and our mobile applications. Traditionally, local merchants have tried to reach consumers and generate sales through a variety of methods, including online advertising, paid telephone directories, direct mail, newspaper, radio, television and other promotions. By bringing the brick and mortar world of local commerce onto the Internet, Groupon is helping local merchants to attract customers and sell goods and services. We provide consumers with savings and help them discover what to do, eat, see, buy and where to travel.
Our operations are organized into two segments: North America and International. For the nine months ended September
30, 2019, we derived 61.3% of our revenue from our North America segment and 38.7% of our revenue from our International segment. See Item 1, Note 13, Segment Information, for additional information. We offer goods and services through our online marketplaces in three primary categories: Local, Goods and Travel.
We generate both product and service revenue from our business operations. Our product revenue from transactions in which we sell merchandise inventory in our Goods category is the purchase price received from the customer. Our service revenue from transactions in which we earn commissions by selling goods or services on behalf of third-party merchants is the purchase price collected from the customer
less the portion of the purchase price paid to the merchant.
Our focus is on driving long-term gross profit growth by enhancing the customer experience, establishing Groupon as an open platform, continuing to realize our international potential and maintaining a culture of operational efficiency. We have developed and are testing a number of product enhancements intended to make our offerings easier to use for both customers and merchants and to improve purchase frequency, including cash back offers linked to customer credit cards, booking capabilities and a paid membership program in North America, Groupon Select, which offers greater discounts on our offerings and other benefits. We have also entered into commercial agreements with third parties that enable us to feature additional merchant offerings through our marketplaces and for our inventory to be distributed through other marketplaces. We maintain a long-term focus
on driving International to achieve gross profit that is more comparable to that of North America. Our initiatives to grow International include leveraging enhanced marketing analytics, investing more technology resources toward expanding product and service offerings and growing our inventory of deal offerings. While we expect to invest in our key initiatives, we will continue to do so as disciplined operators and seek opportunities to improve our efficiency.
How We Measure Our Business
We use several financial and operating metrics to assess the progress of our business and make decisions on where to allocate capital, time and technology investments. Certain of the financial metrics are reported in accordance with U.S. GAAP and certain of those metrics are
considered non-GAAP financial measures. As our business evolves, we may make changes to the key financial and operating metrics that we use to measure our business. For further information and reconciliations to the most applicable financial measures under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.
31
Financial Metrics
•
Revenue is earned through product and service revenue transactions. We
earn product revenue from direct sales of merchandise inventory in our Goods category and report product revenue on a gross basis as the purchase price received from the customer. We earn service revenue from transactions in which we generate commissions by selling goods or services on behalf of third-party merchants, primarily through sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of that transaction price to the third-party merchant who will provide the related goods or services. We report service revenue from those transactions on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant. Service revenue also includes commissions we earn when customers make purchases with retailers using digital coupons accessed through our websites
and mobile applications and from voucherless merchant offerings in which customers earn cash back on their credit card statements when they transact with third-party merchants.
•
Gross profit reflects the net margin we earn after deducting our cost of revenue from our revenue. Due to the lack of comparability between product revenue, which is reported on a gross basis, and service revenue, which primarily consists of transactions reported on a net basis, we believe that gross profit is an important measure for evaluating our performance.
•
Adjusted
EBITDA is a non-GAAP financial measure that we define as net income (loss) from continuing operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net and other special charges and credits, including items that are unusual in nature or infrequently occurring. For further information and a reconciliation to Income (loss) from continuing operations, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.
•
Free cash flow is a non-GAAP financial measure that comprises net cash provided by (used in)
operating activities from continuing operations less purchases of property and equipment and capitalized software. For further information and a reconciliation to Net cash provided by (used in) operating activities from continuing operations, refer to our discussion in the Liquidity and Capital Resources section.
The following table presents the above financial metrics for the three and nine months ended September 30, 2019 and 2018 (in thousands):
Gross
billings is the total dollar value of customer purchases of goods and services. Gross billings is presented net of customer refunds, order discounts and sales and related taxes. The substantial majority of our service revenue transactions are comprised of sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of the transaction price to the third-party merchant who will provide the related goods or services. For these transactions, gross billings differs from revenue reported in our condensed consolidated statements of operations, which is presented net of the merchant's share of the transaction price. For product revenue transactions, gross billings are equivalent to product revenue reported in our condensed consolidated statements of operations. Gross billings is an indicator of our growth and business performance as it measures
the dollar volume of transactions generated through our marketplaces. Tracking gross billings on service revenue transactions also allows us to monitor the percentage of gross billings that we are able to retain after payments to merchants. However, management is primarily focused on optimizing the business for long-term gross profit and Adjusted EBITDA growth.
•
Active customers areunique user accounts that have made a purchase during the trailing twelve months ("TTM") either through one of our online marketplaces or directly with a merchant for which we earned a commission. We consider this metric to be an important indicator of our business performance as it
helps us
32
to understand how the number of customers actively purchasing our offerings is trending. Some customers could establish and make purchases from more than one account, so it is possible that our active customer metric may count certain customers more than once in a given period. For entities that we have acquired in a business combination, this metric includes active customers of the acquired entity, including customers who made purchases prior to the acquisition. We do not include consumers who solely make purchases with retailers using digital coupons accessed through our websites and
mobile applications in our active customer metric, nor do we include consumers who solely make purchases of our inventory through third-party marketplaces with which we partner.
Our active customer metric for the TTM ended September 30, 2019 has declined both on a year-over-year basis and sequentially from the TTM ended September 30, 2019. The decline is primarily attributable to a decline in traffic, including traffic from email and search engine optimization ("SEO"), as well as our efforts to improve the efficiency of our marketing spend, which have led to a decrease in the number of active customers. We expect the trend of declining active customers in our North America segment to continue in 2019
and, to some extent, into 2020 due to ongoing traffic declines.
•
Gross billings and gross profit per active customer are the TTM gross billings and gross profit generated per active customer. We use these metrics to evaluate trends in customer spend and in the average contribution to gross billings and gross profit on a per-customer basis.
•
Units is the number of purchases during the reporting period, before refunds and cancellations, made either through one
of our online marketplaces, a third-party marketplace, or directly with a merchant for which we earn a commission. We do not include purchases with retailers using digital coupons accessed through our websites and mobile applications in our units metric. We consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces.
Our total units sold declined by 9.4% and 11.1% for the three and nine months ended September 30, 2019 as compared with the prior year, primarily reflecting unit declines in our North America segment. The
decline in total units sold in the current year was primarily attributable to fewer customers and lower customer traffic, including traffic from email and SEO. We expect sequential improvement in year-over-year unit trends in the remainder of 2019.
Our gross billings and units for the three and nine months ended September 30, 2019 and 2018 were as follows (in thousands, except gross billings per unit amounts):
Our
active customers, gross billings per active customer and gross profit per active customer for the TTM ended September 30, 2019 and 2018 were as follows:
Attracting and Retaining Local Merchants. As we seek to continue to build a more complete online local commerce marketplace platform, we depend on our ability to attract
and retain merchants who are willing to offer discounted products and services through our marketplaces. Additionally, merchants can generally withdraw their offerings from our marketplaces at any time and their willingness to continue offering products and services through our platform depends on the effectiveness of our marketing and promotional services. We primarily source the deal offerings available on our marketplaces through our sales teams, which comprise a significant portion of our global
33
employee base. We have also entered into commercial agreements with third parties that enable us to feature additional merchant offerings through our marketplaces. We continue to focus much of our sales efforts on sourcing local deal
offerings in subcategories that we believe provide us with the best opportunities for high frequency customer purchase behavior. In connection with our efforts to grow our offerings in those high frequency subcategories, which include health, beauty and wellness, events and activities, and food and drink, we may be willing to offer more attractive terms to local merchants that could reduce our deal margins in future periods.
Growing Customer Value. We are focused on increasing the long-term value of our customer base and increasing gross profit per customer in order to grow our business. We continue to improve the customer experience on our websites and mobile applications in order to attract and retain customers. Our efforts in these areas are focused on enhancing our products, deploying
targeted marketing campaigns and expanding our supply. We expect our new products, such as voucherless offerings and Groupon Select, as well as other enhancements to the customer experience to improve engagement, promote increased purchase frequency and drive customer retention. Within marketing, we are deploying strategies that allow us to leverage data to better segment our customer base and personalize the overall Groupon experience. We use online marketing, such as search engine marketing ("SEM"), and offline campaigns to educate customers on our brand and offerings. Additionally, we consider order discounts and certain other initiatives to drive customer engagement and acquisition to be marketing-related activities, even though such activities may not be presented as marketing expense in our condensed consolidated statements of operations. The traffic to our websites
and mobile applications, including from consumers responding to our emails and SEO, has declined in recent years. As such, we are focused on developing sources of traffic other than email and SEO and optimizing the efficiency of our marketing spending, which is primarily guided by return on investment thresholds that are based on expected months-to-payback targets ranging from 12 to 18 months. Additionally, we are actively expanding and improving our supply in order to increase the rate at which visitors to our websites and mobile applications complete a purchase.
Investing in Growth. We have invested significantly in product and technology enhancements intended to support the growth of our online marketplaces and we intend to continue to do so in the future. We have also invested in
business acquisitions to grow our merchant and customer base and advance our product and technology capabilities. We are currently developing and testing a number of product enhancements intended to make our offerings easier to use for both customers and merchants and to improve purchase frequency, including cash back offers linked to customer credit cards, booking capabilities and Groupon Select. We believe that those initiatives may be important drivers for increasing customer purchase frequency and growing our business over time. We are currently focusing our efforts on growing customer awareness of those products and scaling the related merchant base. As such, our gross profit and operating income may be adversely impacted in the near term as we focus more on driving our strategic initiatives. Additionally, many of our cash back offers linked to customer credit cards involve collecting a net fee from the merchant, rather than selling a voucher to the customer and
then remitting a portion of the proceeds to the merchant. As we report sales of vouchers to customers as gross billings, the growth of voucherless cash back transactions with this merchant payment structure could adversely impact our gross billings trends in future periods. Mobile consumers, particularly those accessing our marketplaces through the mobile web, generally complete purchases at a lower rate and at lower average transaction prices than consumers accessing our marketplaces through desktop computers. As a substantial majority of our traffic comes from consumers on mobile devices, we are focused on improving the mobile experience in order to increase purchase rates. Our initiatives to improve the mobile experience include improving page speeds, enhancing our relevance algorithms, streamlining the checkout process and bringing our mobile web experience to parity with that of our mobile applications.
Managing Operating
Efficiency. We are focused on effectively managing our cost structure as we seek to grow our profitability in future periods. Our prior restructuring actions and our continuing efforts to automate internal processes have allowed us to centralize many of our back office activities in lower cost shared service centers resulting in significant reductions in our selling, general and administrative expense in recent periods. We have primarily used those savings to invest in marketing, people and product enhancements intended to drive the long-term growth of our business. We intend to continue to focus on driving operating efficiency.
The
effect on our gross billings for the three months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Represents
the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North America
North America gross billings were 65.4% and 66.0% of total gross billings for the three months ended September 30, 2019 and
2018. North America gross billingsdecreased for the three months ended September 30, 2019 compared with the prior year period due to fewer customers and lower customer traffic, including traffic from email and SEO. Those decreases were partially offset by higher gross billings per unit due to a shift in mix of offerings sold.
The above factors also resulted in a decline in total units sold, whichdecreasedto 21.8 million units for the three months ended September
30, 2019, as compared with 25.3 million units in the prior year period.
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International
International gross billings were 34.6% and 34.0% of total gross billings for the three months ended September 30, 2019 and 2018. International gross billings
decreased $35.7 million for the three months ended September 30, 2019 compared with the prior year period, primarily due to weak consumer sentiment in Europe, especially in the United Kingdom, intense competition in our Goods business, a $17.0 million unfavorable impact from year-over-year changes in foreign currency rates and lower gross billings per unit due to a shift in mix of offerings sold.
The
effect on our gross billings for the nine months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Represents
the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North America
North America gross billings were 65.5% and 66.1% of total gross billings for the nine months ended September 30, 2019 and
2018. North America gross billings decreased for the nine months ended September 30, 2019 compared with the prior year period due to fewer customers and lower customer traffic, including traffic from email and SEO. Those decreases were partially offset by higher gross billings per unit due to a shift in mix of offerings sold.
The above factors also resulted in a decline in total units sold, which decreased to 66.8 million units for the nine months ended September 30, 2019, as compared with 80.0 million units in the
prior year period.
36
International
International gross billings were 34.5% and 33.9% of total gross billings for the nine months ended September 30, 2019 and 2018. International gross billings decreased $107.1 million for the nine months
ended September 30, 2019 compared with the prior year period, primarily due to weak consumer sentiment in Europe, especially in the United Kingdom, intense competition in our Goods business, a $72.3 million unfavorable impact from year-over-year changes in foreign currency rates and lower gross billings per unit due to a shift in mix of offerings sold.
The
effect on revenue for the three months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Represents
the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
37
The percentage of service gross billings that we retained after deducting the merchant's share for the three months ended September
30, 2019 and 2018 was as follows:
North America
International
North
America
North America revenue was 61.3% and 60.9% of total revenue for the three months ended September 30, 2019 and 2018. North America revenue decreased$57.6 million for the three months ended September 30, 2019 compared with the prior year period, primarily driven by the decline in transaction volume and gross billings as discussed above, and a shift in our category mix from product revenue transactions, which are reported
on a gross basis, toward service revenue transactions, which are reported on a net basis.
International
International revenue was 38.7% and 39.1% of total revenue for the three months ended September 30, 2019 and 2018. International revenue decreased$39.7 million for the three months ended September 30, 2019 compared with the prior year period, primarily driven by lower gross billings as discussed above,
a customer shift toward lower margin offerings, a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis, and an $8.7 million unfavorable impact from year-over-year changes in foreign exchange rates.
The
effect on revenue for the nine months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Represents
the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
39
The percentage of service gross billings that we retained after deducting the merchant's share for the nine months ended September
30, 2019 and 2018 was as follows:
North America
International
North
America
North America revenue was 61.3% and 61.8% of total revenue for the nine months ended September 30, 2019 and 2018. North America revenue decreased $149.3 million for the nine months ended September 30, 2019 compared with the prior year period, primarily driven by the decline in transaction volume and gross billings as discussed above, and a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions,
which are reported on a net basis.
International
International revenue was 38.7% and 38.2% of total revenue for the nine months ended September 30, 2019 and 2018. International revenuedecreased$81.0 million for the nine months ended September 30, 2019 compared with the prior year period, primarily driven by lower gross billings as discussed above, a customer shift toward lower
margin offerings, a shift in our category mix from product revenue transactions, which are reported on a net basis, toward service revenue transactions, which are reported on a gross basis, and a $39.1 millionunfavorable impact from year-over-year changes in foreign exchange rates.
Cost of Revenue
Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue including credit card processing fees, editorial costs, compensation expense for technology support personnel who are responsible for maintaining the infrastructure of our websites,
amortization of internal-use software relating to customer-facing applications, web hosting and other processing fees. For product revenue transactions, cost of revenue also includes the cost of inventory, shipping and fulfillment costs and inventory markdowns. Fulfillment costs are comprised of third-party logistics provider costs, as well as rent, depreciation, personnel costs and other costs of operating our fulfillment center.
The
effect on cost of revenue for the three months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Represents
the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North America
North America cost of revenue was 51.2% and 54.8% of total cost of revenue for the three months ended September 30, 2019 and
2018. North America cost of revenue decreased$45.6 million for the three months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in transaction volume and gross billings as discussed above and a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis.
41
International
International
cost of revenue was 48.8% and 45.2% of total cost of revenue for the three months ended September 30, 2019 and 2018. International cost of revenue decreased$23.6 million for the three months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in gross billings as discussed above, a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported
on a net basis, and a $4.8 millionfavorable impact from year-over-year changes in foreign exchange rates.
The
effect on cost of revenue for the nine months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Represents
the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
42
North America
North America cost of revenue was 52.7% and 55.7%
of total cost of revenue for the nine months ended September 30, 2019 and 2018. North America cost of revenue decreased$106.6 million for the nine months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in transaction volume and gross billings as discussed above and a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions, which are reported on a net basis.
International
International
cost of revenue was47.3% and 44.3% of total cost of revenue for the nine months ended September 30, 2019 and 2018. International cost of revenue decreased$45.2 million for the nine months ended September 30, 2019 compared with the prior year period, primarily due to the decrease in gross billings as discussed above, a shift in our category mix from product revenue transactions, which are reported on a gross basis, toward service revenue transactions,
which are reported on a net basis, and a $22.0 millionfavorable impact from year-over-year changes in foreign exchange rates.
The effect on gross profit for the three months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Represents
the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North America
North America gross profit was 69.1% and 66.7% of total gross profit for the three months ended September 30, 2019 and 2018.
The decrease in North America gross profit for the three months ended September 30, 2019 compared with the prior year period reflects a decline in transaction volume and gross billings as discussed above.
International
International gross profit was 30.9% and 33.3% of total gross profit for the three months ended September 30, 2019 and 2018. Thedecrease in International gross profit
for the three months ended September 30, 2019 compared with the prior year period was primarily attributable to lower gross billings as discussed above, a customer shift toward lower margin offerings and a $3.9 millionunfavorable impact from year-over-year changes in foreign exchange rates.
The effect on gross profit for the nine months ended September 30, 2019 from changes in exchange rates versus the U.S. dollar was as follows (in thousands):
Represents
the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.
(2)
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.
North America
North America gross profit was 68.5% and 67.4% of total gross profit for the nine months ended September 30, 2019 and 2018.
The decrease in North America gross profit for the nine months ended September 30, 2019 compared with the prior year period reflects a decline in transaction volume and gross billings as discussed above.
International
International gross profit was 31.5% and 32.6% of total gross profit for the nine months ended September 30, 2019 and 2018. The decrease in International gross profit for the nine
months ended September 30, 2019 compared with the prior year period was primarily attributable to lower gross billings as discussed above, a customer shift toward lower margin offerings and a $17.1 million unfavorable impact from year-over-year changes in foreign exchange rates.
Marketing
Marketing expense consists primarily of online marketing costs, such as search engine marketing, advertising on social networking sites and affiliate programs, and offline marketing costs, such as television and radio advertising. Additionally, compensation expense for marketing employees is classified within
marketing expense. We record these costs within Marketing on the condensed consolidated statements of operations when incurred. From time to time, we offer deals with well-known national merchants for customer acquisition and activation purposes, for which the amount we owe the merchant for each voucher sold exceeds the transaction price paid by the customer. Our gross billings from those transactions generate no service revenue and our net cost (i.e., the excess of the amount owed to the merchant over the amount paid by the customer) is classified as marketing expense. We evaluate marketing expense as a percentage of gross profit because it gives us an indication of how well our marketing spend is driving gross profit performance.
Marketing expense by segment as a percentage of gross profit for the three months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
North America segment marketing expense was 60.3% and 65.0% of total marketing expense for the three months ended September 30, 2019 and 2018. North America marketing expense and marketing expense as a percentage of gross profit for the three months ended September 30, 2019 decreased from the prior year period as we leveraged improved marketing analytics to drive efficiency in our marketing spend and maximize the lifetime value
45
of our customer base. We also decreased our offline marketing spend as we are currently in the process of adapting our brand strategy to better support our evolving marketplace.
International
International segment marketing expense was 39.7% and 35.0% of total marketing expense for the three months ended September 30, 2019 and 2018. The decrease in International marketing expense for the three months ended September
30, 2019 compared with the prior year period was primarily attributable to a $1.2 millionfavorable impact from year-over-year changes in foreign exchange rates.
Marketing expense by segment as a percentage of gross profit for the nine months ended September 30, 2019 and 2018 was as follows (dollars in thousands):
North America segment marketing expense was 63.0% and 69.3% of total marketing expense for the nine months ended September 30, 2019 and 2018. North America marketing expense and marketing expense as a percentage of gross profit for the nine months ended September 30, 2019 decreased from the prior year period as we leveraged improved marketing analytics to drive efficiency in our marketing spend and maximize the lifetime value of our customer base. We also decreased our offline marketing spend as we are currently in the process of adapting
our brand strategy to better support our evolving marketplace.
International
International segment marketing expense was 37.0% and 30.7% of total marketing expense for the nine months ended September 30, 2019 and 2018. International marketing expense and marketing expense as a percentage of gross profit for the nine months ended September 30, 2019increased from the prior year period as we continued to invest in the long-term potential of the International
segment. The increase in marketing expense was partially offset by a $5.5 millionfavorable impact from year-over-year changes in foreign exchange rates.
Selling, General, and Administrative
Selling expenses reported within Selling, general and administrative ("SG&A") on the condensed consolidated statements of operations consist of sales commissions and other compensation expenses for sales representatives, as well as costs associated with supporting the sales function such as technology, telecommunications and travel. General and administrative expenses include compensation expense for employees involved in
customer service, operations, technology and product development, as well as general corporate functions, such as finance, legal and human resources. Additional costs included in general and administrative include depreciation and amortization, rent, professional fees, litigation costs, travel and entertainment, recruiting, office supplies, maintenance, certain technology costs and other general corporate costs. We evaluate SG&A expense as a percentage of gross profit because it gives us an indication of our operating efficiency.
The
increase in SG&A for the three months ended September 30, 2019 as compared with the prior year period was primarily attributable to a $40.4 million benefit recorded in the three months ended September 30, 2018 related to the settlement of our patent litigation case with IBM, partially offset by the following:
•
a $3.9 millionfavorable impact from year-over-year changes in foreign currency exchange rates; and
•
decreases
in compensation-related costs, facilities costs and other general expenses.
The
decrease in SG&A for the nine months ended September 30, 2019 as compared with the prior year period was attributable to the following:
•
a $75.0 million charge recorded in the second quarter 2018 as a result of a jury award related to a patent litigation case with IBM. That charge was subsequently reduced by $40.4 million in the third quarter 2018 upon execution of settlement and license agreements with IBM;
•
a
$15.1 millionfavorable impact from year-over-year changes in foreign currency exchange rates; and
•
decreases in compensation-related costs, facilities costs, system costs and other general expenses.
The decrease in our income from operations was primarily attributable to a $38.4 millionincrease in SG&A and a $12.0 million decrease in gross profit, partially offset by a $15.1 milliondecrease in marketing expense.
47
International
Thedecrease in our income from operations was primarily attributable to a
$16.1 million decrease in gross profit, partially offset by a $2.7 milliondecrease in marketing expense and a $0.3 milliondecrease in SG&A.
Theincrease in our income from operations was primarily attributable to a $46.7 milliondecrease in SG&A and a $36.0 milliondecrease in marketing expense, partially offset by a $42.6 milliondecrease in gross profit.
International
The decrease in our income from operations was primarily attributable to a $7.3 millionincrease
in marketing expense and a $35.8 milliondecrease in gross profit, partially offset by a $10.6 milliondecrease in SG&A.
Other Income (Expense), Net
Other income (expense), net includes interest income, interest expense, gains and losses on fair value option investments, impairments of investments and foreign currency gains and losses, primarily resulting from intercompany balances with our subsidiaries that are denominated in foreign currencies.
Other
income (expense), net for the three months ended September 30, 2019 primarily consisted of the following:
•
$6.0 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and
•
$12.8 million in foreign currency losses, which primarily
resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.
Those items were partially offset by $2.0 million in interest income.
48
Other income (expense), net for the three months ended September 30, 2018 primarily consisted of the following:
•
$5.7
million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and
•
$1.0 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.
Those items were partially offset by $1.5 million in interest income.
Other
income (expense), net for the nine months ended September 30, 2019 primarily consisted of the following:
•
$69.0 million of net losses on our fair value option investments. See Item 1, Note 3, Investments, for additional information;
•
$17.2 million of interest expense primarily related to interest
on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information; and
•
$11.9 million in foreign currency losses, which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies.
Those items were partially offset by $5.8 million in interest income.
Other income (expense),
net for the nine months ended September 30, 2018 primarily consisted of the following:
•
$16.4 million of interest expense primarily related to interest on our convertible notes. See Item 1, Note 5, Financing Arrangements, for additional information;
•
$12.2 million in foreign currency losses,
which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies;
•
$10.2 million of impairments of minority investments. See Item 1, Note 3, Investments, for additional information; and
•
$8.3 million of losses on fair value option
investments. See Item 1, Note 3, Investments, for additional information.
Those items were partially offset by $4.9 million in interest income and a $2.4 million gain on an embedded derivative related to an available-for-sale security.
Our U.S. federal income tax rate is 21%. The primary factor impacting
the effective tax rate for the three months ended September 30, 2019 and 2018 was the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. See Item 1, Note 10, Income Taxes, for additional information relating to tax audits and assessments and regulatory and legal developments that may impact our business and results of operations in the future.
Our U.S. federal income tax rate is 21%. The primary factor impacting the effective tax rate for the nine months ended September 30, 2019 and 2018
was the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. The effective tax rate for the nine months ended September 30, 2019 also reflected the reversal of reserves for uncertain tax positions due to the closure of a tax audit. The effective tax rate for the nine months ended September 30, 2018 also reflected a $6.4 million income tax benefit resulting from the impact of Topic 606 on intercompany activity in certain foreign jurisdictions. We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions
with profits and valuation allowances in jurisdictions with losses. See Item 1, Note 10, Income Taxes, for additional information relating to tax audits and assessments and regulatory and legal developments that may impact our business and results of operations in the future.
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Non-GAAP Financial Measures
In addition to financial results reported in accordance with U.S. GAAP, we have provided the following non-GAAP financial measures: Adjusted EBITDA,
free cash flow and foreign currency exchange rate neutral operating results. Those non-GAAP financial measures, which are presented on a continuing operations basis, are intended to aid investors in better understanding our current financial performance and prospects for the future as seen through the eyes of management. We believe that those non-GAAP financial measures facilitate comparisons with our historical results and with the results of peer companies who present similar measures (although other companies may define non-GAAP measures differently than we define them, even when similar terms are used to identify such measures). However, those non-GAAP financial measures are not intended to be a substitute for those reported in accordance with U.S. GAAP.
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) from continuing operations excluding income
taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net and other special charges and credits, including items that are unusual in nature or infrequently occurring. Our definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key measure used by our management and Board of Directors to evaluate operating performance, generate future operating plans and make strategic decisions for the allocation of capital. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors. However, Adjusted EBITDA is not intended to be a substitute for income (loss) from continuing operations.
We exclude
stock-based compensation expense and depreciation and amortization because they are primarily non-cash in nature and we believe that non-GAAP financial measures excluding those items provide meaningful supplemental information about our operating performance and liquidity. Acquisition-related expense (benefit), net is comprised of the change in the fair value of contingent consideration arrangements and external transaction costs related to business combinations, primarily consisting of legal and advisory fees. The composition of our contingent consideration arrangements and the impact of those arrangements on our operating results vary over time based on a number of factors, including the terms of our business combinations and the timing of those transactions. For the three and nine months ended September 30, 2019 and 2018,
special charges and credits included charges related to our restructuring plan. For the three and nine months ended September 30, 2018, special charges and credits also included a $40.4 million credit and a $34.6 million charge related to our patent litigation with IBM. We exclude special charges and credits from Adjusted EBITDA because we believe that excluding those items provides meaningful supplemental information about our core operating performance and facilitates comparisons with our historical results.
The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, Income (loss) from continuing operations for the three and nine months ended September
30, 2019 and 2018 (in thousands):
Represents
stock-based compensation expense recorded within Selling, general and administrative, Cost of revenue and Marketing.
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Free cash flow. Free cash flow is a non-GAAP liquidity measure that comprises net cash provided by operating activities from continuing operations less purchases of property and equipment and capitalized software. We use free cash flow to conduct and evaluate our business because, although it is similar to cash flow from continuing operations, we believe that it typically represents a more useful measure of cash flows because purchases of fixed assets, software developed for internal use and website
development costs are necessary components of our ongoing operations. Free cash flow is not intended to represent the total increase or decrease in our cash balance for the applicable period.
Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not include cash payments for business acquisitions. In addition, free cash flow reflects the impact of the timing difference between when we are paid by customers and when we pay merchants and suppliers. Therefore, we believe it is important to view free cash flow as a complement to our entire condensed consolidated statements of cash flows. For a reconciliation of free cash flow to the most comparable U.S. GAAP financial measure, see Liquidity and Capital Resources below.
Foreign
currency exchange rate neutral operating results. Foreign currency exchange rate neutral operating results show current period operating results as if foreign currency exchange rates had remained the same as those in effect in the prior year period. Those measures are intended to facilitate comparisons to our historical performance. For a reconciliation of foreign currency exchange rate neutral operating results to the most comparable U.S. GAAP financial measures, see Results of Operations above.
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows from operations, cash balances, which totaled $567.3 million as of
September 30, 2019, and available borrowing capacity under our 2019 Credit Agreement.
Our net cash flows from operating, investing and financing activities from continuing operations for the three and nine months ended September 30, 2019 and 2018 were as follows (in thousands):
Our
free cash flow for the three and nine months ended September 30, 2019 and 2018 and reconciliations to the most comparable U.S. GAAP financial measure, Net cash provided by (used in) operating activities from continuing operations, for those periods are as follows (in thousands):
Net cash provided by (used in) operating activities from continuing operations
$
18,584
$
(57,389
)
$
(130,118
)
$
(132,961
)
Purchases
of property and equipment and capitalized software from continuing operations
(17,693
)
(16,094
)
(51,854
)
(53,611
)
Free cash flow
$
891
$
(73,483
)
$
(181,972
)
$
(186,572
)
Our
revenue-generating transactions are primarily structured such that we collect cash up-front from customers and pay third-party merchants at a later date, either based on a fixed payment schedule or upon the customer's redemption of the related voucher. For merchants on fixed payment terms, we remit payments on an ongoing basis, generally bi-weekly, throughout the term of the merchant's offering. For purchases of merchandise inventory, our supplier payment terms generally range from net 30 to net 60 days. We have primarily paid merchants on fixed payment terms in North America and upon voucher redemption internationally. In 2017, we began to increase our use of redemption payment terms with our North America merchants and we expect that trend to continue.
Our cash balances fluctuate significantly throughout the year based on many variables, including gross billings growth rates, the timing of payments to merchants and suppliers,
seasonality and the mix of transactions between Goods and Local. For example, we typically generate strong cash inflows during the fourth quarter holiday season,
driven primarily by our Goods category, followed by significant cash outflows in the following period when payments are made to inventory suppliers. We are currently developing and testing voucherless offerings that typically result in cash back on customers' credit card statements for qualifying purchases. For many of those offerings, we fund the cash back to the customer within two weeks of purchase and collect our commission and reimbursement for the customer's cash back incentive from our merchants on a monthly basis. The working capital impact of card-linked offerings with this merchant payment structure is less favorable to us than voucher transactions, for which we collect payment from customers at the time of sale and remit payment to merchants at a later
date.
For the nine months ended September 30, 2019, our net cash used in operating activities from continuing operations was $130.1 million, as compared with a $93.5 million net loss from continuing operations. That difference was primarily due to $223.5 million of non-cash items, including depreciation and amortization, stock-based compensation and a $69.4 million loss from changes in fair value of our investment in Monster LP, partially offset by a $260.1 million decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the
seasonal timing of payments to inventory suppliers and to a lesser extent a reduction in gross billings.
For the nine months ended September 30, 2018, our net cash used in operating activities from continuing operations was $133.0 million, as compared with a $47.9 million net loss from continuing operations. That difference was primarily due to a $243.8 million net decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the seasonal timing of payments to inventory suppliers and also includes $42.1 million of the payment to IBM related to the settlement of patent litigation.
The difference between our net cash provided by operating activities and our net income from continuing operations due to changes in working capital was partially offset by $158.7 million of non-cash items, including depreciation and amortization and stock-based compensation.
Our net cash used in investing activities from continuing operations was $54.9 million and $118.5 million for the nine months ended September 30, 2019 and 2018. Our net cash used in investing activities from continuing operations included purchases of property and equipment and capitalized software of $51.9
million and $53.6 million for the nine months ended September 30, 2019 and 2018. For the nine months ended September 30, 2018, net cash used in investing activities also included net cash paid of$57.8 million related to the acquisition of Cloud Savings and net cash paid of $17.1 million for acquisitions of intangible assets, including $15.4 million related to the settlement of our IBM patent litigation.
Our net cash used
in financing activities was $82.0 million and $49.3 million for the nine months ended September 30, 2019 and 2018. For the nine months ended September 30, 2019, net cash used in financing activities included $44.2 million in repurchases of common stock under our share repurchase program, $16.9 million in payments of finance lease obligations and $14.0 million in taxes paid related to net share settlements of stock-based compensation awards. For
the nine months ended September 30, 2018, net cash used in financing activities included $25.3 million in payments of finance lease obligations and $18.6 million in taxes paid related to net share settlements of stock-based compensation awards.
In May 2019, we entered into the 2019 Credit Agreement which provides for aggregate principal borrowings of up to $400.0 million and matures in May 2024. As of September 30, 2019, we had no borrowings outstanding under the 2019 Credit Agreement and were in compliance with all covenants. See Item 1, Note 5,
Financing Arrangements, for additional information.
As of September 30, 2019, we had $196.4 million in cash held by our international subsidiaries, which is primarily denominated in Euros, Pounds Sterling, Canadian dollars, and, to a lesser extent, Australian dollars and Japanese yen. In general, it is our practice and intention to re-invest the earnings of our non-U.S. subsidiaries in those operations. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course
of business.
In May 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. During the three and nine months ended September 30, 2019, we repurchased 5,391,084 and 14,027,227 shares for an aggregate purchase price of $15.1 million and $45.2 million (including fees and commissions) under our repurchase program. As of September 30, 2019, up to $245.0 million of common stock remained available
for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the 2019 Credit Agreement, share price and other factors, and the share repurchase program may be terminated at any time. Repurchases will be made in compliance with SEC rules and other legal
52
requirements and may be made, in part, under a Rule 10b5-1 plan, which permits share repurchases when we might otherwise be precluded from doing so.
Our cash balances and cash flows generated from our operations may be used to fund strategic investments, business acquisitions, working capital needs, investments in technology, marketing and share repurchases.
Additionally, we have the ability to borrow funds under the 2019 Credit Agreement. We could also seek to raise additional financing, if available on terms that we believe are favorable, to increase the amount of liquid funds that we can access for acquisitions, share repurchases or other strategic investment opportunities. Although we can provide no assurances, we believe that our cash balances and cash generated from operations should be sufficient to meet our working capital requirements and capital expenditures for at least the next twelve months.
Contractual Obligations and Commitments
Our contractual obligations and commitments as of September 30, 2019 did not
materially change from the amounts set forth in our 2018 Annual Report on Form 10-K, except as disclosed in Item 1, Note 6, Leases.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2019.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and classifications
of assets and liabilities, revenue and expenses, and related disclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting policies are discussed in Item 2, Note 2, Summary of Significant Accounting Policies, and in the notes to the consolidated
financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. In addition, refer to the critical accounting policies and estimates under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.
The changes to our lease recognition policies upon the adoption of Topic 842 on January 1, 2019 represent a material change to our critical accounting policies and estimates during the nine months ended September 30, 2019.
See Item 1, Note 6,Leases, for additional information related to our new lease recognition policies.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses of Financial Instruments. This ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses rather than incurred losses. For available-for-sale debt securities with unrealized losses, entities will be required to recognize credit losses through an allowance for credit losses. The
ASU will be effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Although we are still assessing the impact of ASU 2016-13, we believe the adoption of this guidance will not have a material impact on our condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December
15, 2019. We believe that the adoption of this guidance will not have a material impact on our condensed consolidated financial statements.
53
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing, modifying, or adding certain disclosures. The ASU will be effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods.
Early adoption is permitted, and entities are permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until the effective date. We are still assessing the impact of ASU 2018-13 on our condensed consolidated financial statements.
There are no other accounting standards that have been issued but not yet adopted that are expected to have a material impact on our condensed consolidated financial position or results of operations.
54
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We
have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effect of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about those market risks is set forth below.
Foreign Currency Exchange Risk
We transact business in various foreign currencies other than the U.S. dollar, principally the euro, British pound sterling, Canadian dollar and Australian dollar, which exposes us to foreign currency risk. For both the three and nine months ended September 30, 2019, we derived approximately 38.7% of our revenue from our International segment. Revenue and related expenses
generated from our international operations are generally denominated in the local currencies of the corresponding countries. The functional currencies of our subsidiaries that either operate or support those markets are generally the same as the corresponding local currencies. However, the results of operations of, and certain of our intercompany balances associated with, our international operations are exposed to foreign currency exchange rate fluctuations. Upon consolidation, as exchange rates vary, our revenue and other operating results may differ materially from expectations, and we may record significant gains or losses on the re-measurement of intercompany balances.
We assess our foreign currency exchange risk based on hypothetical changes in rates utilizing a sensitivity analysis that measures the potential impact on working
capital based on a 10% change (increase and decrease) in currency rates. We use a current market pricing model to assess the changes in the value of the U.S. dollar on foreign currency denominated monetary assets and liabilities. The primary assumption used in this model is a hypothetical 10% weakening or strengthening of the U.S. dollar against those currency exposures as of September 30, 2019 and December 31, 2018.
As of September 30, 2019, our net working capital deficit (defined as current assets less current liabilities) from subsidiaries
that are subject to foreign currency translation risk was $3.6 million. The potential decrease in this working capital deficit from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be $0.4 million. This compares with a $20.8 million working capital surplus subject to foreign currency exposure as of December 31, 2018, for which a 10% adverse change would have resulted in a potential increase in this working capital surplus of $2.1 million.
Interest Rate Risk
Our cash balance as of September 30,
2019 consists of bank deposits, so exposure to market risk for changes in interest rates is limited. In April 2016, we issued convertible notes with an aggregate principal amount of $250.0 million (see Item 1, Note 5, Financing Arrangements). The convertible notes bear interest at a fixed rate, so we have no financial statement impact from changes in interest rates. However, changes in market interest rates impact the fair value of the convertible notes along with other variables such as our credit spreads and the market price and volatility of our common stock. In May 2019, we entered into the 2019 Credit Agreement which provides for aggregate principal borrowings of up to $400.0 million. As of September
30, 2019, we had no borrowings outstanding under the 2019 Credit Agreement. Because the 2019 Credit Agreement bears interest at a variable rate, we are exposed to market risk relating to changes in interest rates if we borrow under the 2019 Credit Agreement. We also have $166.7 million of lease obligations as of September 30, 2019. Interest rates on existing leases typically do not change unless there is a modification to a lease agreement and as such, we do not believe that the interest rate risk on the lease obligations is significant.
Impact of Inflation
We believe that our results of operations are not materially impacted by moderate changes in the inflation rate. Inflation and changing prices did not have
a material effect on our business, financial condition or results of operations for the three and nine months ended September 30, 2019.
55
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant
to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our management concluded that, as of September 30, 2019, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints
and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
56
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please see Item 1, Note 7, Commitments and Contingencies,
to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2018, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the three months ended September 30, 2019, we did not issue any unregistered equity securities.
Issuer Purchases of Equity Securities
On May 7, 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. During the three and nine months ended September 30, 2019, we repurchased 5,391,084
and 14,027,227 shares for an aggregate purchase price of $15.1 million and $45.2 million (including fees and commissions) under our repurchase program. As of September 30, 2019, up to $245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the 2019 Credit Agreement, share price and other factors, and the share repurchase program may be terminated at any time. We will fund the repurchases, if any, through cash on hand, future cash flows and borrowings under our credit facility. Repurchases will be made in compliance with
SEC rules and other legal requirements and may be made in part under a Rule 10b5-1 plan, which permits stock repurchases when we might otherwise be precluded from doing so.
A summary of our common stock repurchases during the three months ended September 30, 2019 under our share repurchase program is set forth in the following table:
Date
Total
Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Program
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
July 1-31, 2019
—
$
—
—
$
260,000,005
August
1-31, 2019
—
—
—
260,000,005
September 1-30, 2019
5,391,084
2.79
5,391,084
245,000,007
Total
5,391,084
$
2.79
5,391,084
$
245,000,007
The
following table provides information about purchases of shares of our common stock during the three months ended September 30, 2019 related to shares withheld upon vesting of restricted stock units for minimum tax withholding obligations:
Date
Total Number of Shares Purchased (1)
Average
Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Program
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
July 1-31, 2019
158,105
$
2.99
—
—
August
1-31, 2019
78,698
2.41
—
—
September 1-30, 2019
496,458
2.79
—
—
Total
733,261
$
2.79
—
—
(1)
Total
number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-based compensation awards.
** Management contract or compensatory plan or arrangement
*** The XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 4th day of November 2019.
