2018 ANNUAL REPORT
Dear Stockholders --
2018 was an important transition year for Groupon, and we continued to make progress in our
mission to be the daily habit in local commerce.
As Groupon enters our second decade, we do so with significant positional advantages: a vast,
local marketplace with nearly 50 million engaged customers around the world and an
outstanding team of more than 6,500 people committed to helping small businesses thrive and
customers discover amazing things where they live and work.
These are important assets, considering the multi-trillion-dollar addressable market that is Local.
Even as the overall world of online commerce has exploded, Local remains decidedly behind
the curve. There are millions of local businesses and hundreds of millions of customers.
The opportunity is simple: connect those two groups. The solution is more challenging -- there
are often gaps between small business offerings and consumer needs. On one side of our
marketplace, we have small businesses with a wide range of technological enablement, and
they’re geographically dispersed. On the other side, consumers are increasingly pressed for
time and are increasingly willing to trade price for convenience. They’re always on the go.
Groupon sits at the center of this tension, and we’re attacking it in four important ways:
● Build an amazing customer experience – remove friction for both consumers and
merchants, including removing the voucher everywhere possible
● Extend the power of our platform – enable great partners to sell on our platform and
distribute our catalog of offers to other great partners
● Grow our International business – continue to implement our North America playbook
to accelerate progress
● Run a great business – further improve operating efficiency and cost structure
We believe these are table stakes to be the preeminent local marketplace. In the last year,
we’ve made important progress on each. Along the way, we delivered $2 million in Net Income
and $191 million in Operating Cash Flow for the year, as well as $270 million of Adjusted
EBITDA and $121 million in Free Cash Flow1 — the highest levels of both in three years. We
delivered these results even as we faced traffic headwinds in email and search. I’ve provided
more specifics in our now-quarterly Letter to Stockholders, but some highlights:
CUSTOMER EXPERIENCE
1 Adjusted EBITDA and Free Cash Flow are non-GAAP financial metrics. For additional information
regarding these metrics and reconciliations to the most comparable GAAP metrics, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Non-
GAAP Financial Measures” in this Annual Report.
Despite their differences, one way in which general and local online ecommerce are the same is
that the customer flocks to the easiest experience. Friction often is a deal breaker, and we’re
working to eradicate it across our platform.
To do so, we’re focused on:
Card-linked offers – where we enrolled more than 6.7 million cards by the end of 2018 with more
than 7,000 locations now active.
New partnerships – where we signed and onboarded a number of great brands, thousands of
quality offers and grew gross profit in this area by 70% in 2018.
Booking – where we sold tens of millions of deals and grew 12% for the year. Increasingly, you
should expect booking to be a requirement for businesses working with Groupon.
All three of these make it easier and more rewarding to use Groupon, and we believe this
better-than-the-original approach is important to unlock purchase frequency and lifetime
customer value. Powered by our best-in-class mobile apps, our marketplace is becoming larger,
more compelling and simpler to search, browse and buy.
OPEN PLATFORM
In addition to convenience, another key feature for a successful marketplace is broad,
compelling selection. As Groupon has grown, we are increasingly leveraging the power of our
platform to bring even more merchants to our customers. These partnerships and integrations
allow us to rapidly scale our supply, improve coverage and work with great brands and
properties in ways that were impossible just a few years ago.
In 2018, we signed a number of exciting partnerships that work alongside our increasingly
efficient internal sales team to help us put a wider range of relevant offers -- both in terms of
merchants and discounts -- in front of a large set of our customers.
In 2019, we are working to onboard even more and further expand our partnership roster. We
will also work to bring Groupon offers to properties outside our own ecosystem to better reach
customers wherever they may be shopping.
INTERNATIONAL
We continue to see our International business as a significant long-term growth lever. As we’ve
often noted, International has roughly twice the addressable population, but only half the market
penetration. In 2018, this segment’s Gross Profit grew by 6%, as reported, customers grew by
5%, and we exited the year growing Local Gross Profit by 6%.
These are encouraging trends as we apply our North America playbook to these regions and
bring our products and apps to technological parity. As part of that, we’ve also shifted some of
our marketing efforts to International, where we see an opportunity for customer acquisition,
especially as we continue to grow supply and improve the customer experience.
OPERATIONAL RIGOR
None of the amazing things we have planned for customers and merchants are possible without
operational excellence. This has been a consistent area of focus for us, and the team continues
to perform at a high level. This is important, because our efforts to streamline and become more
efficient create opportunities to invest in our growth initiatives and in improved returns for
stockholders.
These four areas continue to be our priorities in 2019, because we believe they are foundational
to succeeding in local. We continue to make strides in each, and are firmly focused on
capitalizing on our immense opportunity. Most importantly, the Groupon team remains deeply
committed to success on behalf of our customers, our merchants and our stockholders.
I look forward to continuing to report on our progress.
Sincerely,
Rich Williams
CEO, Groupon, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number: 1-35335
Groupon, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
600 West Chicago Avenue, Suite 400
Chicago, Illinois
(Address of principal executive offices)
27-0903295
(I.R.S. Employer
Identification No.)
60654
(Zip Code)
312-334-1579
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.0001
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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.
Yes
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).
Yes
No
1
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
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).
Yes
No
As of June 30, 2018, the aggregate market value of shares held by non-affiliates of the registrant was $2,034,326,435 based
on the number of shares of common stock held by non-affiliates as of June 30, 2018 and based on the last reported sale price of
the registrant's common stock on June 30, 2018.
As of February 8, 2019, there were 570,314,522 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from
the registrant's definitive proxy statement relating to the Annual Meeting of Stockholders to be held in 2019, which definitive proxy
statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this
Report relates.
2
TABLE OF CONTENTS
PART I
Page
Forward-Looking Statements
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary (optional)
______________________________________________________
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5
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32
32
32
32
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36
38
72
73
136
136
138
139
139
139
139
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143
3
PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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; 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 Item 1A. Risk Factors of this
Annual Report on Form 10-K, as well as in our 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," "we," "our," "us" and similar terms include Groupon, Inc. and its subsidiaries,
unless the context indicates otherwise.
4
ITEM 1. BUSINESS
Groupon is a global leader in local commerce, making it easy for people around the world to search and
discover great businesses and merchandise. Our vision is to connect local commerce, increasing consumer buying
power while driving more business to merchants through price and discovery. We want Groupon to be the destination
that consumers check first when they are out and about; the place they start when they are looking to buy just about
anything, anywhere, anytime. We provide consumers with savings and help them discover what to do, eat, see, buy
and where to travel. 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.
Groupon operates online local commerce marketplaces throughout the world 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.
Our operations are organized into two segments: North America and International. See Item 8, Note 19,
Segment 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. In prior years, we referred to
product revenue and service revenue as "direct revenue" and "third-party and other revenue," respectively. This
terminology change did not impact the amounts presented in the accompanying consolidated financial statements.
We earn product revenue from direct sales of merchandise inventory through our Goods category. We primarily
earn service revenue from transactions in which we earn commissions by selling goods or services on behalf of third-
party merchants. Those transactions generally involve a customer's purchase of a voucher through one of our online
marketplaces that can be redeemed with a third-party merchant for specified goods or services (or for discounts on
specified goods or services). Service revenue also includes commissions that 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.
Our results from 2018 were impacted by the strategic initiatives discussed in Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations. Those results include the following:
• Gross billings decreased to $5.2 billion in 2018, as compared with $5.6 billion in 2017. In 2018, 65.8%
and 34.2% of our gross billings were generated in North America and International, respectively, as
compared with 69.6% and 30.4% in 2017. Gross billings represent the total dollar value of customer
purchases of goods and services. The substantial majority of our service revenue transactions is
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 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 consolidated statements of operations.
• Revenue decreased to $2.6 billion in 2018, as compared with $2.8 billion in 2017. In 2018, 62.2% and
37.8% of our revenue was generated in North America and International, respectively, as compared
with 67.3% and 32.7% in 2017.
• Gross profit of $1.3 billion in 2018 was consistent with prior year. In 2018, 67.4% and 32.6% of our
gross profit was generated in North America and International, respectively, as compared with 69.5%
and 30.5% in 2017.
•
Income from operations was $54.0 million in 2018, as compared with $29.4 million in 2017.
• The number of active customers, which is defined as unique 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, decreased to 48.2 million as of December 31,
2018 from 49.5 million as of December 31, 2017.
5
We are a Delaware corporation, incorporated on January 15, 2008 under the name "ThePoint.com, Inc." We
started Groupon in October 2008 and officially changed our name to Groupon, Inc. by filing an amended certificate of
incorporation on June 16, 2009. Our principal executive offices are located at 600 West Chicago Avenue, Suite 400,
Chicago, Illinois 60654, and our telephone number at this address is (312) 334-1579. Our investor relations department
can be reached via email at ir@groupon.com. Our website is www.groupon.com. Information contained on our website
is not a part of this Annual Report on Form 10-K. We completed our initial public offering in November 2011 and our
common stock is listed on the Nasdaq Global Select Market under the symbol "GRPN."
GROUPON, the GROUPON logo and other GROUPON-formative marks are trademarks of Groupon, Inc. in
the United States or other countries. This Annual Report on Form 10-K also includes other trademarks of Groupon
and trademarks of other persons.
Our Strategy
Our goal is to continue to build marketplaces that our customers rely on to discover and save on amazing
things to do, eat, see, buy and where to travel. Key elements of our strategy include the following:
Enhance the customer experience. With a mobile-first strategy, we intend to improve the customer experience
by continuing to invest in innovative, frictionless products and differentiated local supply coupled with strong national
brands. As we build out our marketplaces, we want our customers to have a superior, frictionless experience when
they use our product whether finding, booking, buying or redeeming an offer. For merchants, this includes providing
capabilities to manage demand for their goods and services and improving their ability to acquire customers. For
consumers, this includes easily finding offers and accessing features that augment the overall experience, as well as
seamlessly purchasing and redeeming offers. We are currently investing in initiatives to improve the purchase and
redemption experience, such as enhancing our mobile applications, testing offerings with voucherless redemption
resulting in cash back directly to customers' credit cards, and adding direct booking capabilities. These initiatives are
targeted at growing customer value via increased purchase frequency and gross profit per customer to drive long-term
growth in our business.
Establish Groupon as an open platform. We ultimately want Groupon to become a daily habit for our customers
and believe that significantly increasing the offerings available through our online local commerce marketplaces is
critical to this goal. Our initiatives to grow our inventory of deal offerings include entering into commercial agreements
with third parties that enable us to feature additional merchant offerings through our marketplaces, identifying new
distribution channels through which to sell our marketplace offerings, and continuing to optimize the activities performed
by our sales teams. Additionally, we believe that our efforts to increase our customer value may improve the health of
our marketplaces, making our marketing and promotional services more effective for the merchants who feature
offerings on our platform.
Continue to realize our international potential. In 2018, the gross profit generated by our International segment
represented 32.6% of our consolidated gross profit. 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 gross profit include
increasing our international marketing spending and leveraging enhanced marketing analytics, prioritizing more
technology resources in order to expand and advance its product and service offerings, growing our inventory of deal
offerings by entering into commercial agreements with third parties that enable us to feature additional merchant
offerings through our marketplaces, and other initiatives.
Maintain culture of operational efficiency. Our company runs with a fundamental emphasis on maximizing
operational efficiency. While we expect to invest in our key initiatives, we will continue to do so as disciplined operators
and seek out opportunities to improve our efficiency.
Our Business
We earn revenue from transactions in which we provide marketing services primarily by selling vouchers
through our online local marketplaces that can be redeemed for goods or services with third-party merchants. Our
service revenue from those transactions is reported on a net basis as the purchase price received from the customer
for the voucher less an agreed upon portion of the purchase price paid to the merchant. We also earn revenue by
selling merchandise inventory directly to customers through our online marketplaces. Our product revenue from those
transactions is the purchase price received from the customer.
6
Our business model has evolved in recent years from primarily an email-based "push" model with a limited
number of deals offered at any given time to more extensive online "pull" marketplaces, where customers can come
to Groupon's websites and mobile applications to search and browse for deals on goods and services. We also publish
ratings and helpful tips from customers to highlight the unique aspects of local merchants, including merchants that
have featured offerings through our marketplaces.
Local. Our Local category includes offerings from local and national merchants, as well as local events. Local
also includes other revenue sources such as commission revenue and advertising revenue, as these revenue sources
are primarily generated through our relationships with local and national merchants. Our local offerings comprise
multiple subcategories, including events and activities, beauty and spa, health and fitness, food and drink, home and
garden and automotive. National merchants also have used our marketplaces as an alternative to traditional marketing
and brand advertising. Although our business today is weighted toward offerings from local merchants, we continue
to feature offerings from national merchants to build our brand awareness, acquire new customers and generate
additional revenue. In addition to local and national deals, we give consumers the ability to access digital coupons
from thousands of retailers through our Coupons offering. We also offer deals on concerts, sports, theater and other
live entertainment events. We are increasingly featuring offerings on our site from other online marketplaces to further
expand local offerings.
Goods. In our Goods category, we earn product revenue from transactions in which we sell merchandise
inventory directly to customers, as well as service revenue from transactions in which third-party merchants sell products
to customers through our marketplaces. Our Goods category offers customers the ability to find discounted merchandise
across multiple product lines, including electronics, sporting goods, jewelry, toys, household items and apparel. We
expect that we will continue to add new brands to our platform in order to expand our offerings.
Travel. Through our Travel category, we feature travel offers at both discounted and market rates, including
hotels, airfare and package deals covering both domestic and international travel. For many of our travel offerings,
the customer must contact the merchant directly to make a travel reservation after purchasing a travel voucher from
us. However, for some of our hotel offerings, customers make room reservations directly through our websites.
Distribution
Our customers access our online local commerce marketplaces through our mobile applications and our
websites, which primarily consist of localized groupon.com sites in countries throughout the world. We use a variety
of marketing channels to direct customers to the deal offerings available through these marketplaces, as described in
the Marketing section below.
Consumers predominately access our offerings through our mobile applications and, to a lesser extent, through
mobile web browsers. Our applications and mobile websites enable consumers to browse, purchase, manage and
redeem deals on their mobile devices. In addition, the mobile experience leverages location in several ways, enabling
consumers to filter by distance, discover deals near them and visualize the assortment of Groupon offers through a
maps view. For the year ended December 31, 2018, over 70% of our global transactions were completed on mobile
devices.
Marketing
We primarily use marketing to acquire and retain high-quality customers and promote awareness of our
marketplaces. In North America, we are using improved marketing analytics to drive efficiency in our marketing spend
and maximize the lifetime value of our customer base. Internationally, we are also leveraging improved marketing
analytics while ramping up overall marketing spend to drive customer acquisition. In total, we decreased our global
marketing spend by $5.2 million, or 1.3%, for the year ended December 31, 2018 as compared with the prior period.
We expect to continue to use marketing in future periods in connection with our efforts to acquire and retain high-
quality customers.
We use a variety of marketing channels to make customers aware of the deal offerings on our mobile and web
platforms, including search engines, email and push notifications, affiliate channels, social and display advertising and
offline marketing.
7
Search engines. Customers can access our deal offerings indirectly through third-party search engines. We
use search engine optimization ("SEO") and marketing ("SEM") to increase the visibility of our offerings in web search
results.
Email and push notifications. We use targeting technology to determine which deal offerings to communicate
to our subscribers based on their locations and personal preferences. A subscriber who clicks on a deal offering within
an email or push notification is directed to our website or mobile application to learn more about the deal and be able
to make a purchase.
Affiliate channels. We have an affiliate program that utilizes third parties to promote our deal offerings online.
Affiliates earn commissions when customers access our deal offerings through links on their websites and make
purchases on our platform. We expect to continue to leverage affiliate relationships to extend the distribution of our
deals to a broad base of potential customers.
Social and display. We publish deals through various social networks and adapt our notifications to the particular
format of each of these social networking platforms. Our websites and mobile application interfaces enable consumers
to share deal offerings with their personal social networks. We also promote our deal offerings using display advertising
on websites.
Television and other offline. We use offline marketing such as television advertising, and to a lesser extent,
print and radio advertising, to help build awareness of our offerings and brand strength.
Our marketing activities also include elements that are not presented as Marketing on our consolidated
statements of operations, such as order discounts and free shipping on qualifying merchandise sales.
Sales and Operations
Our sales force consists of 2,268 merchant sales representatives and sales support staff, who build merchant
relationships and provide local expertise. Our North American merchant sales representatives and support staff are
primarily based in our offices in Chicago and Phoenix, and our international merchant sales representatives and support
staff are based in their respective local offices. Our global sales and sales support headcount by segment as of
December 31, 2018 was as follows:
North America
International
Total
934
1,334
2,268
Other key operational functions include editorial, merchant development, customer service, technology,
merchandising and logistics. Our editorial department is responsible for creating the written and visual content on the
deals we offer. The merchant development team works with merchants to plan the deal before an offering is active
and serve as an ongoing point of contact for the merchant over the term of a deal. Our customer service department
is responsible for answering questions via phone, email, chat and on social media platforms regarding purchases,
shipping status, returns and other areas of customer inquiry. Our technology team is focused on the design and
development of new features and products to enhance the customer and merchant experience, maintenance of our
websites and development and maintenance of our internal systems. Merchandising and logistics personnel are
responsible for managing inventory and the flow of products from suppliers to our customers.
Our websites are hosted at two U.S. data centers in California and at an international data center in Ireland.
Our data centers host our public-facing websites and applications, as well as our back-end business intelligence
systems. We employ security practices to protect and maintain the systems located at our data centers. We have
invested in intrusion and anomaly detection tools to try to recognize intrusions to our websites. We engage independent
third-party Internet security firms to regularly test the security of our websites and identify vulnerabilities. In financial
transactions with customers conducted on our websites and mobile applications, we use data encryption protocols to
secure information while in transit. See Risk Factors for additional information relating to cyber threats.
8
Competition
Our business is rapidly evolving and we face competition from a variety of sources. Some of our competitors
offer deals as an add-on to their core business, and others have adopted a business model similar to ours. We also
compete against companies that offer other types of advertising and promotional services to local businesses. In
addition to such competitors, we expect to increasingly compete against other large Internet and technology-based
businesses that have launched initiatives in the local space. We also expect to compete against other Internet sites
that are focused on specific communities or interests and offer coupons or discount arrangements related to such
communities or interests. Further, as our business continues to evolve, we anticipate facing new competition. We
believe the principal competitive factors in our markets include the following:
•
•
quality and performance of our merchants;
size and composition of our customer base;
• mobile penetration;
•
•
•
•
understanding of local business trends;
ability to structure deal offerings to generate a positive return on investment for merchants;
ability to generate large volumes of sales; and
reputation, strength and recognition of brand.
Although we believe that we compete favorably on the factors described above and benefit from scale, we
anticipate that larger, more established companies may directly compete with us over time. Many of our current and
potential competitors have longer operating histories, significantly greater financial, technical, marketing and other
resources, greater scale and larger customer bases than we do. These factors may allow our competitors to benefit
from their existing customer base with lower acquisition costs or to respond more quickly than we can to new or
emerging technologies and changes in customer requirements. These competitors may engage in more extensive
research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive
pricing policies, which may allow them to build a larger subscriber base or to monetize that subscriber base more
effectively than we do. Our competitors may develop products or services that are similar to our products and services
or that achieve greater market acceptance than our products and services.
Seasonality
Some of our offerings experience seasonal buying patterns mirroring that of the larger consumer retail and e-
commerce markets, where demand declines during customary summer vacation periods and increases during the
fourth quarter holiday season. We believe that this seasonality pattern has affected, and will continue to affect, our
business and quarterly sequential revenue growth rates. We recognized 30.3%, 30.7% and 30.0% of our annual
revenue during the fourth quarter of 2018, 2017 and 2016.
Regulation
We are subject to a number of foreign and domestic laws and regulations that affect companies conducting
business on the Internet. Additionally, those laws and regulations may be interpreted differently across domestic and
foreign jurisdictions. As a company in a relatively new and rapidly innovating industry, we are exposed to the risk that
many of those laws may evolve or be interpreted by regulators or in the courts in ways that could materially affect our
business. Those laws and regulations may involve taxation, unclaimed property, intellectual property, product liability,
travel, distribution, electronic contracts and other communications, competition, consumer protection, the provision of
various online payment services, employee, merchant and customer privacy and data security or other areas.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD Act"), as well as the
laws of most states, contain provisions governing gift cards, gift certificates, stored value or pre-paid cards or coupons
("gift cards"). Groupon vouchers may be included within the definition of "gift cards" under many laws. In addition,
certain foreign jurisdictions have laws that govern disclosure and certain product terms and conditions, including
restrictions on expiration dates and fees, that may apply to Groupon vouchers. There are also a number of legislative
proposals pending before the U.S. Congress, various state legislative bodies and foreign governments that could affect
us, and our global operations may be constrained by regulatory regimes and laws in Europe and other jurisdictions
outside the United States that may be more restrictive and adversely impact our business.
9
Various U.S. laws and regulations, such as the Bank Secrecy Act of 1970 (the "Bank Secrecy Act"), the Dodd-
Frank Wall Street Reform and Consumer Protection Act, the USA PATRIOT Act and the CARD Act impose certain anti-
money laundering requirements on companies that are financial institutions or that provide financial products and
services. Those laws and regulations broadly define financial institutions to include money services businesses such
as money transmitters, check cashers and sellers or issuers of stored value. Requirements imposed on financial
institutions under those laws include customer identification and verification programs, record retention policies and
procedures and transaction reporting. We do not believe that we are a financial institution subject to those laws and
regulations.
We are subject to a variety of federal, state and international laws and regulations governing consumer data.
The General Data Protection Regulation ("GDPR"), which was recently adopted by the European Union became
effective in May 2018, requires companies to satisfy new requirements regarding the handling of personal and sensitive
data, including its collection, use, protection and the ability of persons whose data is stored to correct or delete such
data about themselves. Complying with the GDPR caused us to update certain business practices and systems. Non-
compliance with GDPR could result in proceedings against us by governmental entities or others and fines up to the
greater of €20 million or 4% of annual global revenue. In addition, the State of California adopted the California
Consumer Protection Act of 2018 (“CCPA”), which will become effective in 2020 and also will regulate the collection
and use of consumers’ data. Compliance with the CCPA is expected to cause us to make additional updates to certain
business practices and systems.
Intellectual Property
We protect our intellectual property rights by relying on federal, state and common law rights, as well as
contractual restrictions. We control access to our proprietary technology by entering into confidentiality and invention
assignment agreements with our employees and contractors, and confidentiality agreements with third parties.
In addition to those contractual arrangements, we also rely on a combination of trade secrets, copyrights,
trademarks, service marks, trade dress, domain names and patents to protect our intellectual property. Groupon and
its related entities own a number of trademarks and service marks registered or pending in the United States and
internationally. In addition, we own a number of issued patents and pending patent applications in the United States
and internationally and own and have applied for copyright registrations in the United States.
Circumstances outside our control could pose a threat to our intellectual property rights and the efforts we
have taken to protect our proprietary rights may not be sufficient or effective or deter independent development of
equivalent or superior intellectual property rights by others. Any significant impairment of our intellectual property rights
could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time-
consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business
and harm our operating results.
Companies in the Internet, technology and other industries as well as non-practicing entities may own large
numbers of patents, copyrights and trademarks or other intellectual property rights and may request license agreements,
threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property
rights. We are currently subject to, and expect to face in the future, lawsuits and allegations that we have infringed the
intellectual property rights of third parties. As our business grows, we will likely face more claims of infringement, and
may experience an adverse result which could impact our business and/or our operating results.
We have received in the past, and we anticipate we will receive in the future, communications alleging that
items offered or sold through our website infringe third-party copyrights, trademarks, patents and trade names or other
intellectual property rights or that we have otherwise infringed third parties’ past, current or future intellectual property
rights. We may be unable to prevent third parties from offering and selling unlawful or infringing goods or goods of
disputed authenticity, and we may be subject to allegations of civil or criminal liability for unlawful activities carried out
by third parties through our website. We may implement measures in an effort to protect against these potential liabilities
that could require us to spend substantial resources and/or to reduce revenue by discontinuing certain service offerings.
Any costs incurred as a result of liability or asserted liability relating to the sale of unlawful goods or the unlawful sale
of goods could harm our business.
10
Employees
As of December 31, 2018, there were 2,522 employees in our North America segment, consisting of 934 sales
representatives and 1,588 corporate, operational and customer service representatives, and 4,054 employees in our
International segment, consisting of 1,334 sales representatives and 2,721 corporate, operational and customer service
representatives.
Executive Officers
The following table sets forth information about our executive officers:
Name
Rich Williams
Michael Randolfi
Steve Krenzer
Dane Drobny
Melissa Thomas
Age Position
44
46
60
51
39
Chief Executive Officer and Director
Chief Financial Officer
Chief Operating Officer
General Counsel and Corporate Secretary
Chief Accounting Officer and Treasurer
Rich Williams has served as our Chief Executive Officer and a member of our Board of Directors since November
2015. Prior to this role, Mr. Williams served as our Chief Operating Officer since June 2015 and President of North
America since October 2014. He joined the Company in June 2011 as Senior Vice President of Marketing. Prior to
joining Groupon, Mr. Williams served in a variety of marketing leadership roles at Amazon.com, Inc. (NASDAQ: AMZN)
from January 2008 to June 2011, most recently as the Director, Paid Traffic leading global advertising. Prior to joining
Amazon, he spent nearly seven years in sales and marketing leadership roles at Experian plc (LSE: EXPN), a global
information services company.
Michael Randolfi has served as our Chief Financial Officer since April 2016. Prior to joining Groupon, Mr.
Randolfi served as the Chief Financial Officer of Orbitz Worldwide, Inc. (NYSE: OWW) from March 2013 until November
2015 (when he departed following its acquisition by Expedia, Inc.). Prior to joining Orbitz, Mr. Randolfi served as Vice
President and then as Senior Vice President and Controller at Delta Air Lines (NYSE: DAL) from February 2008 to
February 2013. From June 1999 to February 2008, he held various executive positions at Delta Air Lines in financial
planning and analysis, controllership and treasury. Prior to his 14-year career at Delta, Mr. Randolfi held positions with
Continental Airlines (NYSE: UAL) and Raymond James and Associates (NYSE: RJF). Mr. Randolfi is a CPA and a
certified management accountant.
Steve Krenzer has served as our Chief Operating Officer since November 2017. Prior to joining Groupon, Mr.
Krenzer was the Chief Executive Officer of Core Digital Media, Inc. from October 2012 to November 2017. From
November 1996 to October 2012, Mr. Krenzer held a variety of senior executive positions at Experian (LSE: EXPN),
ultimately serving as President of Interactive Media.
Dane Drobny has served as our General Counsel and Corporate Secretary since July 2014. Prior to joining
Groupon, Mr. Drobny was Senior Vice President, General Counsel and Corporate Secretary at Sears Holdings
Corporation (NASDAQ: SHLD) from May 2010 to June 2014. Prior to joining Sears Holdings, he spent 17 years at the
international law firm of Winston & Strawn LLP, most recently as a partner.
Melissa Thomas has served as our Chief Accounting Officer and Treasurer since November 2018. Prior to
this role, Ms. Thomas served as our Vice President of Commercial Finance since May 2017. Prior to joining Groupon,
Ms. Thomas served as Vice President of Finance at Surgical Care Affiliates from June 2016 to May 2017. From August
2007 to May 2016, Ms. Thomas served in a variety of finance and accounting leadership roles at Orbitz Worldwide
(NYSE: OWW), most recently as Vice President of Finance. Prior to Orbitz, Ms. Thomas held accounting positions at
Equity Office Properties and began her career at PricewaterhouseCoopers.
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Available Information
We electronically file reports with the SEC. The SEC maintains an Internet site (www.sec.gov) that contains
reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are also available free of charge through our website (www.groupon.com), as soon as reasonably practicable
after electronically filing with or otherwise furnishing such information to the SEC, and are available in print to any
stockholder who requests them. Our Code of Conduct, Corporate Governance Guidelines and committee charters are
also posted on the site. We use our Investor Relations website (investor.groupon.com) and our blog (www.groupon.com/
blog) as a means of disclosing material non-public information and for complying with our disclosure obligations under
Regulation FD. Information contained on our website and blog is not a part of this Annual Report on Form 10-K.
12
ITEM 1A. RISK FACTORS
Our business, prospects, financial condition, operating results and the trading price of our common stock could
be materially adversely affected by the risks described below. In assessing those risks, you should also refer to the
other information contained in this Annual Report on Form 10-K, including Part II, Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations (MD&A) and the consolidated financial statements and
the related notes in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-
K.
Risks Related to Our Business
Our operating results may vary significantly from quarter to quarter.
Our operating results may vary significantly from quarter to quarter due to seasonality and other reasons such
as the rapidly evolving nature of our business. We believe that our ability to achieve and maintain profitability will
depend, among other factors, on our ability to:
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acquire new customers and retain existing customers;
attract and retain quality merchants;
effectively address and respond to challenges in international markets;
expand the number, variety and relevance of products and deals we offer, including through third party
business partners and technology integrations, as we attempt to build a more complete local marketplace;
our ability to leverage other platforms to display our offerings;
achieve additional mobile adoption to capitalize on customers' continued shift toward mobile device usage;
increase the awareness of our brand;
successfully achieve the anticipated benefits of business combinations or acquisitions, strategic
investments, divestitures and restructuring activities;
provide a superior customer service experience for our customers;
avoid interruptions to our services, including as a result of attempted or successful cybersecurity attacks
or breaches;
respond to continuous changes in consumer and merchant use of technology;
offset declines in email, search engine optimization ("SEO") and other free traffic and further diversify our
traffic channels;
react to challenges from existing and new competitors;
respond to seasonal changes in supply and demand; and
address challenges from existing and new laws and regulations.
In addition, our margins and profitability may depend on our product sales mix, our geographic revenue mix
and merchant and third-party business partner pricing terms. In recent years, we have shifted the focus on our websites
and mobile applications toward offerings with higher gross profit in connection with our efforts to drive long-term gross
profit growth. If we are not successful in achieving this objective, our business, financial position and results of operations
could be harmed. Further, sales in our Goods category may constitute a greater percentage of our sales in certain
periods relative to other categories, which may result in lower margins and profitability during those periods. Accordingly,
our profitability may vary significantly from quarter to quarter.
Our strategy to grow our business may not be successful and may expose us to additional risks.
Our strategy to grow our business focuses on several key priorities including enhancing the customer
experience, establishing Groupon as an open platform, realizing the potential of our international business and
maintaining a culture of operational rigor. We have undertaken several initiatives as we execute this strategy.
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We have prioritized building great products and customer experience. To this end, we have continued to invest
in improving the customer experience, from search to purchase to redemption, in removing friction from our websites
and mobile applications and in product development (for example through card-linked offerings and booking
capabilities). There are no assurances that our actions or product offerings will be successful in improving the customer
experience, increasing our customer base, or improving customer purchase frequency in the short term or at all. If we
are unable to realize expected outcomes from the execution of our strategy, our business and operating results may
be harmed.
In addition, as we focus on building out a more extensive local commerce marketplace platform, we have also
devoted significant resources to increasing the number of offers on our platform, attracting new merchants, retaining
merchants who are willing to run deals on a continuous basis with us and engaging with third-party business partners
via technology integrations in order to build a significant inventory for our customers. We have accepted, and expect
to continue to accept, a lower portion of the gross billings from some of our merchants and business partners as we
expand our marketplaces and introduce new products. In addition, we are continuously refining our process for
presenting the most relevant deals to our customers based on their personal preferences and location. We are also
continuing our efforts to optimize the mix of products that we offer. If we are not successful in achieving these objectives,
our business, financial position and results of operations could be harmed. Further, we have implemented technology
integrations with a number of third party business partners that we rely on to support various products and augment
inventory across all categories of our business. Significant disruption in these services, or breakdown of these
relationships, could negatively impact our ability to grow.
With respect to our international markets, we expect to continue to focus on improving our products and
customer experience and applying our North American playbook to our International business. If we are unable to
successfully execute these initiatives and realize the potential of our international markets, our business and operating
results may be harmed.
Our efforts to execute our strategy may prove more difficult than we currently anticipate, and we may not
succeed in realizing the benefits of these efforts, including increasing gross profit, unit growth or gross profit per
customer, in a short time frame or at all.
Our financial results may be adversely affected if we are unable to execute on our marketing
strategy.
Our marketing strategy is focused on acquiring and retaining customers who we believe will have higher long-
term value, activation and conversion, purchase frequency and mobile application downloads, as well as increasing
awareness of our brand and online marketplaces and introducing consumers and merchants to new products. We
expect to continue to focus on maintaining a payback period on our global marketing spend of approximately 12 to 18
months; however, there are no assurances that we will be able to achieve this result. If any of our assumptions regarding
our marketing activities and strategies prove incorrect, including with respect to payback periods and the efficiency of
our marketing spend, our ability to generate gross profit from our investments may be less than we anticipated. In such
case, we may need to increase marketing expenditures or otherwise alter our strategy and our results of operations
could be negatively impacted.
If we fail to retain our existing customers or acquire new customers, our operating results and
business will be harmed.
We must continue to retain and acquire customers who make purchases on our platform in order to increase
profitability. Further, as our customer base evolves, the composition of our customers may change in a manner that
makes it more difficult to generate revenue to offset the loss of existing customers and the costs associated with
acquiring and retaining customers and to maintain or increase our customers’ purchase frequency. If customers do
not perceive our offerings to be attractive or if we fail to introduce new and more relevant deals or increase awareness
and understanding of the offerings on our marketplace platform, we may not be able to retain or acquire customers at
levels necessary to grow our business and profitability. Further, the organic traffic to our websites and mobile
applications, including traffic from consumers responding to our emails, has declined in recent years, such that an
increasing proportion of our traffic is generated from paid marketing channels, such as search engine marketing. In
addition, changes to search engine algorithms or similar actions are not within our control and could adversely affect
traffic to our websites and mobile applications. If we are unable to acquire new customers in numbers sufficient to
grow our business and offset the number of existing active customers that have ceased to make purchases, or if new
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customers do not make purchases at expected levels, our profitability may decrease and our operating results may
be adversely affected.
Our international operations are subject to varied and evolving commercial and regulatory
challenges, and our inability to adapt to the diverse and changing landscapes of our international
markets may adversely affect our business.
Our international operations require management attention and resources and also require us to localize our
services to conform to a wide variety of local cultures, business practices, laws and policies. Our international operations
are subject to numerous risks, including the following:
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our ability to maintain merchant and customer satisfaction such that our marketplace will continue to attract
high quality merchants;
our ability to successfully respond to macroeconomic challenges, including by optimizing our deal mix to
take into account consumer preferences at a particular point in time;
political, economic and civil instability and uncertainty (including acts of terrorism, civil unrest, labor unrest,
violence and outbreaks of war);
currency exchange rate fluctuations;
strong local competitors, who may better understand the local market and/or have greater resources in
the local market;
different regulatory or other legal requirements, including regulation of gift cards and coupon terms, Internet
services, professional selling, distance selling, bulk emailing, privacy and data protection (including GDPR,
which became effective in May 2018), cybersecurity, business licenses and certifications, taxation
(including the European Union's voucher directive, digital service tax and similar regulations), consumer
protection laws including those restricting the types of services we may offer (e.g., medical-related
services), banking and money transmitting, that may limit or prevent the offering of our services in some
jurisdictions, cause unanticipated compliance expenses or limit our ability to enforce contractual
obligations;
our ability to use a common technology platform in our North America and International segments to
operate our business without significant business interruptions or delays;
difficulties in integrating with local payment providers, including banks, credit and debit card networks and
electronic funds transfer systems;
different employee and employer relationships and the existence and actions of workers' councils and
labor unions;
difficulty in staffing, developing and managing foreign operations, including through centralized shared
service centers, as a result of distance, language barriers and cultural differences;
seasonal reductions in business activity;
expenses associated with localizing our products; and
differing intellectual property laws.
We are subject to complex foreign and U.S. laws and regulations that apply to our international operations,
such as data privacy and protection requirements, including GDPR, the Foreign Corrupt Practices Act, the UK Anti-
Bribery Act and similar local laws prohibiting certain payments to government officials, banking and payment processing
regulations and anti-competition regulations, among others. The cost of complying with these various, and sometimes
conflicting, laws and regulations is substantial. We have implemented and continue to implement policies and
procedures to ensure compliance with these laws and regulations, however, we cannot ensure that our employees,
contractors, or agents will not violate our policies. Changing laws, regulations and enforcement actions in the United
States and throughout the world could harm our business. If commercial and regulatory constraints in our international
markets restrict our ability to conduct our operations or execute our strategic plan, our business may be adversely
affected.
In addition, we are subject to risks associated with the withdrawal of the United Kingdom from the European
Union (“Brexit”). In March 2017, the United Kingdom formally notified the European Union of its intention to withdraw,
15
and withdrawal negotiations began in June 2017. European Union rules provide for a two-year negotiation period,
ending on March 29, 2019, unless an extension is agreed to by the parties. There remains significant uncertainty about
the future relationship between the United Kingdom and the European Union, including the possibility of the United
Kingdom leaving the European Union without a negotiated and bilaterally approved withdrawal plan. We have significant
operations in both the United Kingdom and the European Union. Our operations and that of our merchants are highly
integrated across the United Kingdom and the European Union, and we are highly dependent on the free flow of labor
and goods in those regions. The ongoing uncertainty and potential re-imposition of border controls and customs duties
on trade between the United Kingdom and European Union nations could negatively impact our competitive position,
merchant and customer relationships and financial performance. The ultimate effects of Brexit on us will depend on
the specific terms of any agreement the United Kingdom and the European Union reach to provide access to each
other’s respective markets.
Our future success depends upon our ability to attract and retain high quality merchants and third-
party business partners.
We must continue to attract and retain high quality merchants in order to increase profitability. We depend on
our ability to attract and retain merchants that are prepared to offer products or services on compelling terms through
our marketplaces and provide our customers with a good experience. In most instances, we do not have long-term
arrangements to guarantee the availability of deals that offer attractive quality, value and variety to customers or
favorable payment terms to us. If merchants decide that utilizing our services no longer provides an effective means
of attracting new customers or selling their goods and services, they may stop working with us or negotiate to pay us
lower margins or fees. In addition, current or future competitors may accept lower margins, or negative margins, to
secure merchants offers that attract attention and acquire new customers. If competitors engage in group buying
initiatives in which merchants receive a higher portion of the purchase price than we currently offer, or if we target
merchants who will only agree to run deals if they receive a higher portion of the proceeds, we may receive a lower
portion of the gross billings on deals offered through our marketplaces. In addition, we may experience attrition in our
merchants due to shifts in our business model and the way we pay merchants, and in the ordinary course of business
resulting from several factors, including losses to competitors and merchant closures or merchant bankruptcies. If we
are unable to attract and retain high quality merchants in numbers sufficient to grow our business, or if merchants are
unwilling to offer products or services with compelling terms through our marketplaces or offer favorable payment
terms to us, our operating results may be adversely affected.
Our business is exposed to risks associated with our voucherless offerings.
We are developing and scaling voucherless offerings, including offers that are linked to customer credit cards.
Although we believe that voucherless offerings have the potential to increase customer purchase frequency and
generate gross profit growth over the long term, there are no assurances that we will be able to scale our voucherless
products or that our voucherless products will be successful in increasing customer purchase frequency or gross profit
growth, if and when scaled. If we are unable to grow the number of and scale voucherless products in our marketplaces,
our results of operations may be adversely affected. In addition, as we scale card-linked offerings, we may experience
a short term negative impact to our financial performance.
In addition, we currently depend on third party business partners and technology integrations for many of our
voucherless offerings. If we are unable to increase our third-party offerings or successfully complete the associated
technology integrations, the quality of our supply and customer experience may be negatively impacted and decrease
which could adversely affect our business operations and financial condition. Furthermore, our ability to offer card-
linked offerings currently depends on our arrangements with card brand networks. In the event any card brand network
no longer supports our card-linked offerings, imposes significant restrictions on our offerings or deal structures or
significantly changes their fees, we may not be able to grow our card-linked offerings or such offerings may otherwise
be unsuccessful, and our results of operations and financial condition could be adversely affected.
Further, most of our current card-linked offerings involve collecting fees from the merchant, rather than collecting
payment from the customer and then remitting a portion of the proceeds to the merchant (as with the sale of vouchers).
Accordingly, our gross billings are expected to be reduced if and when these card-linked offerings (or similarly structured
products) become a larger portion of our overall product mix.
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We may be subject to breaches of our information technology systems, which could harm our
relationships with our customers, merchants and third-party business partners, subject us to
negative publicity and litigation, and cause substantial harm to our business or brand.
In operating a global online business, we and our third-party service providers maintain significant proprietary
information and manage large amounts of personal data and confidential information about our employees, customers
and merchants. We and such service providers are at constant risk of cyber-attacks or cyber intrusions via the Internet,
computer viruses, break-ins, malware, phishing attacks, hacking, denial-of-service attacks or other attacks and similar
disruptions from the unauthorized use of or access to computer systems (including from internal and external sources).
These types of incidents have become more prevalent and pervasive across industries, including in our industry, and
such attacks on our systems have occurred in the past and are expected to occur in the future. Further, we believe
that we are a compelling target for such attacks as a result of the high profile of our brand and the amount and type
of information we maintain relating to our customers and merchants. Any such incident could lead to interruptions,
delays or website outages, causing loss of critical data or the unauthorized disclosure or use of personally identifiable
or other confidential information.
Any failure to prevent or mitigate cybersecurity breaches or other improper access to, or disclosure of, our
data or confidential information, including non-public financial information, could result in the loss or misuse of such
data or information, negatively impacting customers’, merchants’ and third-party business partners' confidence in the
security of our services and potentially resulting in significant customer or merchant attrition, a decline in customer
purchase frequency, litigation and/or regulatory investigations, and/or damage to our brand and reputation.
Our risk and exposure to these matters remains heightened because of, among other things, the evolving
nature of these threats, our prominent size and scale, the large number of transactions that we process, our geographic
footprint and international presence, our use of open source software, the complexity of our systems, the maturity of
our systems, processes and risk management framework, our number of employees, the location of our businesses
and data storage facilities, the jurisdictions in which we operate and the various and evolving laws and regulatory
schemes governing data and data protection applicable to us, the extent to which our current systems, controls,
processes and practices permit us to detect, log and monitor security events, our use of cloud based technologies and
the outsourcing of some of our business operations.
Although cybersecurity and the continued development and enhancement of our controls, processes and
practices designed to protect our systems, computers, software, data and networks from attack, damage or
unauthorized access are a high priority for us, our activities and investment may not be deployed quickly enough or
successfully protect our systems against all vulnerabilities, including technologies developed to bypass our security
measures or zero day vulnerabilities. In addition, outside parties may attempt to fraudulently induce employees,
merchants or customers to disclose access credentials or other sensitive information in order to gain access to our
systems and networks. We also may be subject to additional vulnerabilities as we integrate the systems, computers,
software and data of acquired businesses and third-party business partners into our networks and separate the systems,
computers, software and data of disposed businesses from our networks.
We maintain a cybersecurity risk management program that is overseen by our Vice President, Information
Security, who reports directly to our Chief Technology Officer. Our Vice President, Information Security regularly reports
to the Audit Committee on the state of our cybersecurity program and provides updates on cybersecurity matters. We
also conduct an annual cybersecurity review with our Board of Directors. As part of our cybersecurity risk management
program, we employ security practices to protect and maintain the systems located at our data centers and hosting
providers, invest in intrusion, anomaly, and vulnerability detection tools and engage third-party security firms to test
the security of our websites and systems. In addition, we regularly evaluate and assess our systems and the controls,
processes and practices to protect those systems and also conduct penetration testing against our own system. The
evaluations, assessments and testing identify areas of potential weakness in, and suggested improvements to, the
maturity of our systems, processes, and risk management framework as well as vulnerabilities in those systems,
processes, and risk management framework that could be attacked and exploited to access and acquire proprietary
and confidential information, including information about our customers and merchants. There are no assurances that
our cybersecurity risk mitigation program or actions and investments to improve the maturity of our systems, processes
and risk management framework or remediate vulnerabilities will be sufficient or completed quickly enough to prevent
or limit the impact of any cyber intrusion. In addition, in the future we may be required to expend significant additional
resources to modify or enhance our protective measures, controls and systems or to improve the maturity of our
systems, processes and risk management framework, or investigate or remediate any information security
vulnerabilities. These improvements, modifications and enhancements may take significant time to implement. Further,
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the sophistication of potential attacks or the capabilities of our systems and processes may not permit us to detect the
occurrence of cyber incidents until significant data loss has occurred. Moreover, because the techniques used to gain
access to or sabotage systems often are not recognized until launched against a target, we may be unable to anticipate
the methods necessary to defend against these types of attacks and we cannot predict the extent, frequency or impact
these problems may have on us. Any actual breach, the perceived threat of a breach or a perceived breach, could
cause our customers, merchants, card brands and payment card processors to cease doing business with us or do
business with us less frequently, subject us to lawsuits (including claims for damages), investigations, regulatory fines
or other action or liability or damage to our brand and reputation, which would harm our business, financial condition
and results of operations.
We operate in a highly competitive industry with relatively low barriers to entry and must compete
successfully in order to grow our business.
Competition in our industry may increase in future periods. A number of e-commerce sites that attempt to
replicate our business model operate around the world. We also compete against companies that offer other types of
advertising and promotional services to local businesses. In addition to such competitors, we may experience increased
competition from other large businesses who offer deals similar to ours as an add-on to their core business. We also
compete with other companies that offer digital coupons and/or card-linking services through their websites or mobile
applications. Further, we compete against other e-commerce companies that serve niche markets and interests. In
some of our categories, such as Goods and Travel, we compete against much larger companies who have more
resources and significantly greater scale. In addition, we compete with traditional offline coupon and discount services,
as well as newspapers, magazines and other traditional media companies who provide coupons and discounts on
products and services.
We believe that our ability to compete successfully depends upon many factors both within and beyond our
control, including the following:
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the size, composition and retention of our customer base and the number of merchants we feature;
• mobile penetration;
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understanding local business trends;
ability to structure deals to generate positive return on investment for merchants;
the timing and market acceptance of deals we offer, including the developments and enhancements to those
deals offered by us or our competitors;
customer and merchant service and support efforts;
selling and marketing efforts;
ease of use, performance, price and reliability of services offered either by us or our competitors;
our ability to improve customer purchase frequency and customer lifetime value;
our ability to drive organic traffic to our marketplaces;
the number, quality and reliability of the digital coupons that can be accessed through our platform;
the quality and performance of our merchants;
our ability to cost-effectively manage our operations; and
our reputation and brand strength relative to our competitors.
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Many of our current and potential competitors have longer operating histories, greater financial, marketing
and other resources and larger customer bases than we do. These factors may allow our competitors to benefit from
their existing customer base with lower customer acquisition costs or to respond more quickly than we can to new or
emerging technologies and changes in consumer habits. In addition, our competitors may engage in more extensive
research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive
pricing policies, which may allow them to build larger customer and/or merchant bases or generate revenue from their
customer bases more effectively than we do. Our competitors may offer deals that are similar to the deals we offer or
that achieve greater market acceptance than the deals we offer. This could attract customers away from our websites
and mobile applications, reduce our market share and adversely impact our gross profit. In addition, we are dependent
on some of our existing or potential competitors for display advertisements and other marketing initiatives to acquire
new customers. Our ability to utilize their platforms to acquire new customers may be adversely affected if they choose
to compete more directly with us or prevent us from using their services.
Our operating cash flow could be adversely impacted if we change our merchant payment terms.
Our merchant payment terms and revenue growth have historically provided us with operating cash flow to
fund our working capital needs. Our merchant arrangements are generally structured such that we collect cash up
front when our customers purchase vouchers or products on our website or mobile application and we make payments
to merchants or suppliers at a subsequent date, either on a fixed schedule or upon redemption by customers. For our
current card-linked offerings, we offer cash back on customers' credit card statements based on qualifying purchases
with participating merchants. For those offerings, we remit payment to a card brand network at the time of the qualifying
purchase for the customer’s cash back incentive and then we collect from the merchant both our commission and
reimbursement for the customer’s cash back incentive, generally on a bi-weekly basis. The working capital impact of
card-linked offerings is less favorable to us than traditional voucher transactions, for which we collect payment from
customers at the time of sale and remit payment to merchants at a later date. We have used the operating cash flow
provided by our merchant payment terms and revenue growth to fund our working capital needs. If we offer merchants
more favorable or accelerated payment terms and/or significantly grow our card-linked offerings, our operating cash
flow could be adversely impacted and we may have to seek alternative financing to fund our working capital needs.
Our success is dependent upon our ability to provide a superior mobile experience for our
customers and our customers' continued ability to access our offerings through mobile devices.
In the year ended December 31, 2018, over 70% of our global transactions were completed on mobile devices.
Additionally, our mobile application has been downloaded over 195 million times as of December 31, 2018. While the
focus on mobile is key to our long-term strategy, currently average purchase prices and conversion rates on mobile
tend to be significantly lower than desktop. In order to continue to grow our mobile transactions and improve mobile
conversion rates, it is critical that our applications are compatible with a range of mobile technologies, systems, networks
and standards and that we provide a good customer experience. Further, as part of our strategy, we have been
developing and testing a number of product enhancements that are intended to make our offerings easier to use for
both customers and merchants, including voucherless offerings. We also are working on a next-generation mobile
application that we expect to test during 2019. Our business may be adversely affected if our customers choose not
to access our offerings on their mobile devices or use mobile devices that do not offer access to our mobile applications,
we are not successful in increasing mobile conversion rates or if we fail to develop applications and product
enhancements with adequate functionality and a positive customer experience on a wide range of mobile devices.
Our business depends on our ability to maintain and improve the technology infrastructure
necessary to send our emails and operate our websites, mobile applications and transaction
processing systems, and any significant disruption in service on our email network infrastructure,
websites, mobile applications or transaction processing systems could result in a loss of
customers or merchants.
Customers access our marketplaces through our websites and mobile applications, as well as via emails that
are often targeted by location, purchase history and personal preferences. Customers can also access our deal offerings
indirectly through third-party search engines. Our reputation and ability to acquire, retain and serve our current and
potential customers are dependent upon the reliable performance of our websites, mobile applications, email delivery
and transaction processing systems and the underlying network infrastructure. Our systems may not be adequately
designed with the necessary reliability and redundancy to avoid performance delays or outages that could be prolonged
and harmful to our business. If our websites or mobile applications are unavailable when users attempt to access
them, or if they do not load as quickly as expected, users may not return as often in the future, or at all. As our customer
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base and the amount of information shared on our websites and mobile applications continue to grow, we will need
an increasing amount of network capacity and computing power. We have spent and expect to continue to spend
substantial amounts on data centers and equipment, cloud-based technology and related network infrastructure and
services to handle the traffic on our websites and mobile applications and to help shorten the time of or prevent system
interruptions. The operation of these systems is expensive and complex and could result in operational failures. While
resiliency and redundancy are considerations in the design and operation of Groupon's systems, interruptions, delays
or failures in these systems, whether due to earthquakes, adverse weather conditions, other natural disasters, power
loss, computer viruses, cybersecurity attacks, physical break-ins, terrorism, errors in our software or otherwise, could
be prolonged and could affect the security or availability of our websites and applications, and prevent our customers
from accessing our services. If we do not maintain or expand our network infrastructure successfully or if we experience
operational failures or prolonged disruptions or delays in the availability of our systems or a significant search engine,
we could lose current and potential customers and merchants, which could harm our operating results and financial
condition.
In addition, a portion of our network infrastructure is hosted by third-party providers. We also rely on a variety
of tools and third-party commercial partners to provide certain services and offerings (e.g., booking and ticketing tools).
Any disruption or failure of these providers, tools and/or other third parties to handle existing or increased traffic and
transactions could significantly harm our business. Any financial or other difficulties these providers face may adversely
affect our business, and we exercise little control over these providers, which increases our vulnerability to problems
with the services they provide.
If our emails are not delivered and accepted, or are routed by email providers less favorably than
other emails, or our sites or mobile applications are not accessible, or are treated
disadvantageously by Internet service providers or other third-parties, our business may be
substantially harmed.
If email providers or Internet service providers ("ISPs") implement new or more restrictive email or content
delivery or accessibility policies, including with respect to net neutrality, it may become more difficult to deliver emails
to our customers or for customers to access our site and services. For example, certain email providers, including
Google, categorize our emails as "promotional," and these emails are directed to an alternate, and less readily
accessible, section of a customer's inbox. If email providers materially limit or halt the delivery of our emails, or if we
fail to deliver emails to customers in a manner compatible with email providers’ email handling or authentication
technologies, our ability to contact customers through email could be significantly restricted. In addition, if we are
placed on "spam" lists or lists of entities that have been involved in sending unwanted, unsolicited emails, our operating
results and financial condition could be substantially harmed. Further, if ISPs prioritize or provide superior access to
our competitors' content or if there are changes to search engine algorithms or similar actions that adversely affect
traffic to our websites and mobile applications, our business and results of operations may be negatively impacted.
We purchase and sell some products from indirect suppliers and allow third parties to sell products
via our site and services, which increase our risk of litigation and other losses.
We source merchandise both directly from brand owners and indirectly from retailers and third-party distributors,
and we often take title to the goods before we offer them for sale to our customers. Further, some brand owners,
retailers and third- party distributors may be unwilling to offer products for sale on the Internet or through Groupon in
particular, which could have an adverse impact on our ability to source and offer popular products. We also allow third
party merchants to sell products to our customers via our marketplace platform. By selling merchandise sourced from
parties other than the brand owners, and allowing the sale of merchandise by third parties, we are subject to an
increased risk that the merchandise may be damaged or of disputed authenticity, which could result in potential liability
under applicable laws, regulations, agreements and orders, and increase the amount of returned merchandise or
customer refunds. In addition, brand owners or regulators may take legal action against us. Even if we prevail, any
such legal action could result in costly litigation, generate adverse publicity for us, and have a material adverse impact
on our business, financial condition, results of operations, brand and reputation. Further, in any such matter, we may
not be entitled to indemnification from our supplier or merchant, or able to effectively enforce the supplier’s or merchant’s
contractual indemnification obligations.
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We may be subject to substantial liability claims and damage to our brand and reputation if people
or property are harmed by the products or services offered through our marketplace.
Some of the products and services offered through our marketplace may expose us to liability claims relating
to personal injury, death, negligence, intentional misconduct, assault, abuse or environmental or property damage.
Certain merchants and third parties sell products and offer services using our marketplace that based on the type of
product or service, may increase our exposure to substantial claims and litigation, especially if these merchants or
third-party sellers do not have sufficient protection from such claims. Although we believe we are not liable for the
goods or services that merchants or third-parties offer through our marketplace, there is no assurance that a court
would rule in our favor on such issues. Further, while we maintain liability insurance, we cannot be certain our coverage
will apply to the claims at issue, be adequate for liabilities actually incurred or that insurance will continue to be available
to us on economically reasonable terms, or at all. In addition, some of our agreements with vendors, merchants and
third-party sellers do not indemnify us from certain liability and costs or we may not be able to effectively enforce our
contractual indemnification rights. Claims relating to products or services offered through our marketplace also could
result in significant damage to our brand and reputation regardless of whether we are ultimately liable for any such
claims.
Our processes and procedures for onboarding merchants and third-party sellers also may expose us to liability
claims or damage to our brand and reputation if the processes or procedures are deemed inadequate. Additionally,
while we maintain multiple channels through which our customers can submit feedback or complaints about their
experiences with merchants and other third-party sellers on our platform, because our customers often deal directly
with the sellers, pertinent feedback may not be provided to us. Moreover, our evaluation of any customer feedback or
complaints we receive is subjective based on the information, which is sometimes very limited, that our customers
provide, and we may not take action in response to feedback or complaints. If our systems and procedures with respect
to any such feedback or complaints are determined to be inadequate or any action or inaction is found to be inadequate,
including, by way of example, not discontinuing on a timely basis offers of deals with merchants or sellers that have
been the subject of material complaints, we could face substantial additional liability and damage to our brand and
reputation for the misconduct of such merchants or third-party sellers.
We are subject to inventory management and order fulfillment risks as a result of our Goods
category.
We purchase a portion of the merchandise that we offer for sale to our customers. The demand for products
can change for a variety of reasons, including customer preference, quality, seasonality, and customers' perception
of the value of purchasing the product through us. If we or our third-party suppliers are unable to adequately predict
customer demand and efficiently manage inventory, we could have either an excess or a shortage of inventory, either
of which would adversely impact our business.
It is important that we fulfill orders on a timely, efficient and cost-effective basis. Many other online retailers
have significantly larger inventory balances and therefore are able to rely on past experience and economies of scale
to optimize their order fulfillment. Because we rely on third-party logistics providers and third-party sellers for much of
our order fulfillment and delivery, many parts of the supply chain are outside our control. Delays or inefficiencies in our
processes, or those of our third-party logistics providers or third-party sellers, could subject us to additional costs, as
well as customer dissatisfaction, which would adversely affect our business. Additionally, in some cases we assume
the risks of inventory damage, theft and obsolescence, as well as risks of price erosion for these products. These risks
are especially significant because some of the merchandise we sell is characterized by seasonal trends, fashion trends,
obsolescence and price erosion and because we sometimes make large purchases of particular types of inventory.
Our success will depend on our ability to sell our inventory rapidly, the ability of our buying staff to purchase inventory
at attractive prices relative to its resale value and our ability to manage customer returns and other costs. If we are
unsuccessful in any of these areas, we may be forced to sell our inventory at a discount or loss.
We are involved in pending litigation and an adverse resolution of such litigation may adversely
affect our business, financial condition, results of operations and cash flows.
We are involved from time to time in litigation regarding, among other matters, patent, consumer, privacy and
employment issues. Litigation can be expensive, time-consuming and disruptive to normal business operations. The
results of complex legal proceedings are often uncertain and difficult to predict. An unfavorable outcome with respect
to any of these lawsuits could have a material adverse effect on our business, financial condition, results of operations
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and cash flows. For additional information regarding these and other lawsuits in which we are involved, see Item 8,
Note 10, Commitments and Contingencies, to the consolidated financial statements.
An increase in our refund rates or estimated liabilities with respect to unredeemed vouchers could
adversely affect our profitability or net income.
As we expand our product offerings, our customer refund rates may exceed historical levels. A downturn in
general economic conditions may also increase our refund rates. An increase in our refund rates could significantly
reduce our liquidity and profitability. We estimate future refunds utilizing a statistical model that incorporates historical
refund experience, including the relative risk of refunds based on deal category. Our actual level of refund claims could
prove to be greater than the level of refund claims we estimate. If our refund reserves are not adequate to cover future
refund claims, this inadequacy could have a material adverse effect on our profitability. In addition, we may not be able
to obtain reimbursement from merchants for refunds that we issue, which could have an adverse effect on our liquidity
and profitability.
In recent periods, we have increased our use of redemption payment terms with our North America merchants.
In addition, the revenue recognition standard that we adopted in 2018 requires us to estimate variable consideration
from unredeemed vouchers. As a result, a greater percentage of our transactions in North America than in prior periods
will require us to use projections in order to estimate revenue and liabilities associated with unredeemed vouchers. If
the estimates that we use in projecting the likelihood of vouchers being redeemed prove to be inaccurate, our liabilities
with respect to unredeemed vouchers may be materially higher than the amounts shown in our financial statements,
and our net income could be materially and adversely affected.
The loss of one or more key members of our management team, or our failure to attract and retain
other highly qualified personnel in the future could harm our business.
In order to be successful, we must attract, retain and motivate executives and other key employees, including
those in managerial, technical and sales positions. Hiring and retaining qualified executives, engineers and qualified
sales representatives are critical to our success, and competition for experienced and well qualified employees can
be intense. In order to attract and retain executives and other key employees in a competitive marketplace, we must
provide a competitive compensation package, including cash and share-based compensation. We currently utilize
restricted stock units and performance share units as our forms of share-based incentive compensation. If the
anticipated value of such share-based incentive awards does not materialize, if our share-based compensation
otherwise ceases to be viewed as a valuable benefit or if our total compensation package is not viewed as competitive,
our ability to attract, retain and motivate executives and key employees could be weakened. The failure to successfully
hire executives and key employees or the loss of any executives and key employees could have a significant impact
on our operations.
Acquisitions, dispositions, joint ventures and strategic investments could result in operating
difficulties, dilution and other consequences.
We routinely evaluate and consider a wide array of potential strategic transactions, including acquisitions and
dispositions of businesses, joint ventures, technologies, services, products and other assets and minority investments.
The pursuit and consummation of such transactions can result in operating difficulties, dilution, management distraction
and other potentially adverse consequences. In the past, we have acquired and divested a number of companies and
may complete additional transactions in the future.
Acquisitions involve significant risks and uncertainties, including uncertainties as to the future financial
performance of the acquired business and the performance of acquired customers, valuation of the acquired business
and integration risks such as difficulties integrating acquired personnel into our business, the potential loss of key
employees, customers or suppliers, difficulties in integrating different computer, payment and accounting systems and
exposure to unknown or unforeseen liabilities of acquired companies. In addition, the integration of an acquisition
could divert management's time and our resources. If we pay for an acquisition or a minority investment in cash, it
would reduce our cash available for operations or cause us to incur debt, and if we pay with our stock it could be
dilutive to our stockholders. Additionally, we do not have the ability to exert control over our minority investments, and
therefore we are dependent on others in order to realize their potential benefits. Dispositions and attempted dispositions
also involve significant risks and uncertainties, such as the risk of destabilizing the applicable operations, the loss of
key personnel, the terms and timing of any dispositions, the ability to obtain necessary governmental or regulatory
approvals, post-disposal disputes and indemnification obligations and risks and uncertainties with respect to the
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separation of disposed operations, including, for example, transition services, access by purchasers to certain of our
systems and tools during transition periods, the migration of data and separation of systems, data privacy matters and
misuse of trademarks and intellectual property. We may be unable to successfully complete potential strategic
transactions or dispositions on a timely basis or at all, or we may not realize the anticipated benefits of any of our
strategic transactions in the time frame expected or at all.
We do not have the ability to exert control over our minority investments, and therefore we are
dependent on others in order to realize their potential benefits.
We currently hold non-controlling minority investments in Monster Holdings LP ("Monster LP") and other entities
and we may make additional strategic minority investments in the future. Such minority investments inherently involve
a lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational and/
or compliance risks associated with the investments. Other investors in these entities may have business goals and
interests that are not aligned with ours, or may exercise their rights in a manner in which we do not approve. These
circumstances could lead to delayed decisions or disputes and litigation with those other investors, all of which could
have a material adverse impact on our reputation, business, financial condition and results of operations.
If Monster LP or other investees seek additional financing in order to fund their growth strategies, such financing
transactions may result in further dilution of our ownership stakes and such transactions have and in the future may
occur at lower valuations than the investment transactions through which we acquired such interests, which could
significantly decrease the fair values of our investments in those entities. Additionally, if Monster LP or other investees
are unable to obtain any such financing, those entities could need to significantly reduce their spending in order to
fund their operations. Such actions likely would result in reduced growth forecasts, which also could significantly
decrease the fair values of our investments in those entities.
The application of certain laws and regulations, including, among other laws, the CARD Act and
similar state and foreign laws, may harm our business and results of operations.
The application of certain laws and regulations to vouchers is uncertain. Vouchers may be considered gift
cards, gift certificates, stored value cards or prepaid cards and therefore governed by, among other laws, the CARD
Act, and state laws governing gift cards, stored value cards and coupons, and, in certain instances, potentially subject
to unclaimed and abandoned property laws. Other foreign jurisdictions have similar laws in place, in particular European
jurisdictions where the European E-Money Directive regulates the business of electronic money institutions. Many of
these laws contain provisions governing the use of gift cards, gift certificates, stored value cards or prepaid cards,
including specific disclosure requirements and prohibitions or limitations on the use of expiration dates and the
imposition of certain fees. For example, if vouchers are subject to the CARD Act and are not included in the exemption
for promotional programs, it is possible that the purchase value, which is the amount equal to the price paid for the
voucher, or the promotional value, which is the add-on value of the voucher in excess of the price paid, or both, may
not expire before the later of (i) five years after the date on which the voucher was issued; (ii) the voucher’s stated
expiration date (if any); or (iii) a later date provided by applicable state law. In the event that it is determined that
vouchers sold through our platform are subject to the CARD Act or any similar state or foreign law or regulation, and
are not within various exemptions that may be available under the CARD Act or under some of the various state or
foreign jurisdictions, our liabilities with respect to unredeemed vouchers may be materially higher than the amounts
shown in our financial statements and we may be subject to additional fines and penalties.
In addition, from time to time, we may be notified of additional laws, or developments in existing, laws and
regulations that governmental organizations or others may claim should be applicable to our business, or that otherwise
affect our operations. If we are required to alter our business practices, or there are other market changes, as a result
of any laws and regulations, our revenue could decrease, our costs could increase and our business could otherwise
be harmed. In addition, the costs and expenses associated with defending any actions related to, or otherwise reacting
to, such legal or regulatory developments, and any related payments (including penalties, judgments, settlements or
fees) could adversely impact our profitability. To the extent that we expand into new lines of business and new
geographies, we will become subject to additional laws and regulations.
We may have exposure to greater than anticipated tax liabilities.
We are subject to income taxes in the United States (federal and state) and numerous foreign jurisdictions.
Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change due to
economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision
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and accruals for these taxes. Our income tax obligations are based on our corporate operating structure, including the
manner in which we develop, value and use our intellectual property and the scope of our international operations.
The tax laws applicable to our domestic and international business activities, including the laws of the United
States and other jurisdictions, are subject to interpretation. The taxing authorities of the jurisdictions in which we operate
may challenge our methodologies for valuing developed technology or intercompany arrangements, which could
potentially increase our worldwide effective tax rate and harm our financial position and results of operations. In addition,
there are many transactions that occur during the ordinary course of business for which the ultimate tax determination
is uncertain. Our effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions
where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates,
losses incurred in jurisdictions for which we are not able to realize the related tax benefits, changes in foreign currency
exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions and
investments, changes in our deferred tax assets and liabilities and their valuation and changes in the relevant tax,
accounting and other laws, regulations, administrative practices, principles and interpretations, including fundamental
changes to the tax laws applicable to corporate multinationals. Developments in an audit, litigation or the relevant
laws, regulations, administrative practices, principles and interpretations could have a material effect on our financial
position, operating results and cash flows in the period or periods for which that development occurs, as well as for
prior and subsequent periods.
We also are subject to regular review and audit by both U.S. federal and state and foreign tax authorities. In
particular, we currently are, and expect to continue to be, subject to numerous federal, state and international tax audits
relating to income, transfer pricing, sales, VAT and other tax liabilities. Some of these pending and future audits could
involve significant liabilities and/or penalties. We are subject to claims for tax assessments by foreign jurisdictions,
including a proposed assessment for $109.6 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.
See Item 8, Note 15, Income Taxes, for additional information. Any adverse outcome of such a review or audit could
have a significant negative effect on our financial position and results of operations. In addition, the determination of
our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and
there are many transactions where the ultimate tax determination is uncertain. Although we believe that our estimates
are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may
materially affect our financial results in the period or periods for which such determination is made.
The adoption of tax reform policies, including the enactment of legislation or regulations
implementing changes in the tax treatment of companies engaged in Internet commerce or the U.S.
taxation of international business activities could materially affect our financial position and results
of operations.
Further, due to the global nature of the Internet, it is possible that various states or foreign countries might
attempt to regulate our transmissions or levy sales, income or other taxes relating to our activities. Tax authorities at
the international, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged
in Internet commerce. New or revised international, federal, state or local tax regulations may subject us or our customers
to additional sales, income and other taxes. We cannot predict the effect of current attempts to impose sales, income
or other taxes on commerce over the Internet. New or revised taxes and, in particular, sales taxes, VAT and similar
taxes, including digital service taxes, would likely increase the cost of doing business online and decrease the
attractiveness of advertising and selling goods and services over the Internet. For example, the voucher directive
recently adopted by the European Union or similar regulations could adversely affect our financial results. New taxes
could also create significant increases in internal costs necessary to capture data, and collect and remit taxes. Any of
these events could have an adverse effect on our business and results of operations.
On December 22, 2017, new legislation was signed into law that revises the Internal Revenue Code of 1986,
as amended. The newly enacted federal income tax law contains significant changes to corporate taxation. Although
we currently do not expect the new federal tax law to have a significant impact on us, the overall impact over time is
uncertain as the law is interpreted and implemented. In addition, it is uncertain if and to what extent various states will
conform to the newly enacted federal tax law.
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If we are required to materially increase the liability recorded in our financial statements with
respect to unredeemed vouchers our results of operations could be materially and adversely
affected.
In certain states and foreign jurisdictions, vouchers may be considered a gift card. Some of these states and
foreign jurisdictions include gift cards under their unclaimed and abandoned property laws which require companies
to remit to the government the full value or a portion of the value of the unredeemed balance on the gift cards after a
specified period of time (generally between one and five years) and impose certain reporting and record-keeping
obligations. We do not remit any amounts relating to unredeemed vouchers based on our assessment of applicable
laws. The analysis of the potential application of the unclaimed and abandoned property laws to vouchers is complex,
involving an analysis of constitutional and statutory provisions and factual issues, including our contractual relationship
with customers and merchants. In recent periods, we increased our use of redemption payment terms with our North
America merchants, and we expect that trend to continue. The determinations we make with respect to variable
consideration that we earn on those transactions may be subject to the laws described above, and we expect the
amount of that variable consideration to increase as our use of redemption payment terms increases. In the event that
one or more states or foreign jurisdictions successfully challenges our position on the application of its unclaimed and
abandoned property laws to vouchers, our liabilities with respect to unredeemed vouchers, including any resulting
penalties and interest, may be materially higher than the amounts shown in our financial statements which could have
a material adverse impact on our results of operations.
Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or
failure by us to comply with these regulations could substantially harm our business and results of
operations.
We are subject to general business regulations and laws as well as regulations and laws specifically governing
the Internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet or other
online services. These regulations and laws may involve taxation, tariffs, subscriber privacy, anti-spam, data protection,
content, reference pricing, copyrights, distribution, electronic contracts and other communications, consumer
protection, the provision of online payment services and the characteristics and quality of services. The application of
existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy to the
Internet is not clear as the vast majority of these laws were adopted prior to the advent and do not contemplate or
address the unique issues raised by the Internet or e-commerce. In addition, it is possible that governments of one or
more countries may seek to censor content available on our websites and mobile applications or may even attempt
to completely block our emails or access to our websites. Adverse legal or regulatory developments could substantially
harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more
countries, our ability to retain or increase our customer base may be adversely affected and we may not be able to
maintain or grow our gross profit as anticipated.
Failure to comply with federal, state and international privacy laws and regulations, or the
expansion of current or the enactment of new privacy laws or regulations, could adversely affect
our business.
A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing
and security of consumer data. The existing privacy-related laws and regulations are evolving and subject to potentially
differing interpretations. In addition, various federal, state and foreign legislative and regulatory bodies may expand
current or enact new laws regarding privacy matters. For example, the European Union adopted the GDPR, which
became effective in May 2018, and requires companies to satisfy new requirements regarding the handling of personal
and sensitive data, including its collection, use, protection and the ability of persons whose data is stored to correct
or delete such data about themselves. In addition, the State of California adopted the California Consumer Protection
Act of 2018 ("CCPA"), which will become effective in 2020 and also will regulate the collection and use of consumers'
data. Complying with the GDPR, CCPA and similar laws and regulations may cause us to incur substantial operational
costs or require us to change our business practices. Further, despite our diligent efforts to comply with these laws
and regulations, we may not be successful either due to internal or external factors such as resource allocation
limitations or a lack of vendor cooperation. Noncompliance could result in proceedings against us by governmental
entities or others and fines. For example, fines under GDPR could be up to the greater of €20 million or 4% of annual
global revenue and damage our reputation and brand. As a result of GDPR, in particular, we may also experience
difficulty retaining or obtaining new European or multi-national customers due to the compliance cost, potential risk
exposure, portability of customer data and uncertainty for these entities. We also may find it necessary to establish
systems to maintain personal data originating from the European Union in the European Economic Area as a result
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of changes or restrictions to currently legitimate methods of effectuating cross-border personal data transfers to
countries outside of the European Economic Area, which may involve substantial expense and distraction from other
aspects of our business. Additionally, there could be uncertainty as to how to comply with privacy laws, in various
jurisdictions such as country or state-specific laws that may conflict with or deviate from privacy directives, such as
GDPR, CCPA or future laws and regulations.
We have posted privacy policies and practices concerning the collection, use and disclosure of subscriber
data on our websites and applications. Several Internet companies have incurred substantial penalties for failing to
abide by the representations made in their privacy policies and practices. In addition, several states have adopted
legislation that requires businesses to implement and maintain reasonable security procedures and practices to protect
sensitive personal information and to provide notice to consumers in the event of a security breach resulting in a loss
or likely loss of personal information. Any failure, or perceived failure, by us to comply with our posted privacy policies
or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or
international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result
in claims, proceedings or actions against us by governmental entities or other third-parties or other liabilities, which
could adversely affect our business. In addition, a failure or perceived failure to comply with industry standards or with
our own privacy policies and practices could result in a loss of subscribers or merchants and adversely affect our
business. Federal, state and international governmental authorities continue to evaluate the privacy implications
inherent in the use of third-party web "cookies" for tracking and behavioral advertising. The regulation of these cookies
and other current online advertising practices could adversely affect our business.
Misclassification or reclassification of our independent contractors or employees could increase
our costs and adversely impact our business.
Our workers are classified as either employees or independent contractors, and if employees, as either exempt
from overtime or non-exempt (and therefore overtime eligible). Regulatory authorities and private parties have recently
asserted within several industries that some independent contractors should be classified as employees and that some
exempt employees, including those in sales-related positions, should be classified as non-exempt based upon the
applicable facts and circumstances and their interpretations of existing rules and regulations. If we are found to have
misclassified employees as independent contractors or non-exempt employees as exempt, we could face penalties
and have additional exposure under federal and state tax, workers’ compensation, unemployment benefits, labor,
employment and tort laws, including for prior periods, as well as potential liability for employee overtime and benefits
and tax withholdings. Legislative, judicial, or regulatory (including tax) authorities could also introduce proposals or
assert interpretations of existing rules and regulations that would change the classification of a significant number of
independent contractors doing business with us from independent contractor to employee and a significant number
of exempt employees to non-exempt. A reclassification in either case could result in a significant increase in employment-
related costs such as wages, benefits and taxes. The costs associated with employee classification, including any
related regulatory action or litigation, could have a material adverse effect on our results of operations and our financial
position.
We may suffer liability as a result of information or content retrieved from or transmitted over the
Internet and claims related to our service offerings.
We may be, and in certain cases have been, sued for defamation, civil rights infringement, negligence, patent,
copyright or trademark infringement, invasion of privacy, personal injury, product liability, breach of contract, unfair
competition, discrimination, antitrust reference pricing or other legal claims relating to information or content that is
published or made available on our websites or service offerings we make available (including provision of an application
programming interface platform for third parties to access our website, mobile device services and geolocation
applications). This risk is enhanced in certain jurisdictions outside the United States, where our liability for such third-
party actions may be less clear and we may be less protected. In addition, we could incur significant costs in investigating
and defending such claims, even if we ultimately are not found liable. If any of these events occurs, our business could
be materially and adversely affected.
We are subject to risks associated with information disseminated through our websites and mobile applications,
including consumer data, content that is produced by our editorial staff and errors or omissions related to the offerings
on our marketplaces. Such information, whether accurate or inaccurate, may result in our being sued by our merchants,
subscribers or third parties and as a result our results of operations and our financial position could be materially and
adversely affected.
26
We may not be able to adequately protect our intellectual property rights or may be accused of
infringing intellectual property rights of third parties.
We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary
technology, merchant lists, subscriber lists, sales methodology and similar intellectual property as critical to our success,
and we rely on trademark, copyright and patent law, trade secret protection and confidentiality and/or license
agreements with our employees and others to protect our proprietary rights. Effective intellectual property protection
may not be available in every country in which our deals are made available. We also may not be able to acquire or
maintain appropriate domain names or trademarks in all countries in which we do business. Furthermore, regulations
governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent
third parties from acquiring and using domain names or trade names that are similar to, infringe upon or diminish the
value of our trademarks and other proprietary rights. We may be unable to prevent third parties from using and registering
our trademarks, or trademarks that are similar to, or diminish the value of, our trademarks in some countries.
We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights.
Third parties that license our intellectual property rights also may take actions that diminish the value of our proprietary
rights or reputation. The protection of our intellectual property may require the expenditure of significant financial and
managerial resources. Moreover, the steps we take to protect our intellectual property may not adequately protect our
rights or prevent third parties from infringing or misappropriating our proprietary rights. We are currently subject to
multiple lawsuits and disputes related to our intellectual property and service offerings. We may in the future be subject
to additional litigation and disputes. The costs of engaging in such litigation and disputes are considerable, and there
can be no assurances that favorable outcomes will be obtained.
We are currently subject to third-party claims that we infringe upon proprietary rights or trademarks and expect
to be subject to additional claims in the future. Such claims, whether or not meritorious, may result in the expenditure
of significant financial and managerial resources, injunctions against us or the payment of damages by us. We may
need to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be
available on terms acceptable to us or at all. These risks have been amplified by the increase in third parties whose
sole or primary business is to assert such claims.
Our business depends on a strong brand, and if we are not able to maintain and enhance our brand,
our ability to expand our base of customers and merchants could be impaired and our business
and operating results could be harmed.
We believe that the brand identity that we have developed has significantly contributed to the success of our
business. We also believe that maintaining and enhancing the "Groupon" brand is critical to expanding our base of
customers and merchants. Maintaining and enhancing our brand may require us to make substantial investments and
these investments may not be successful. If we fail to promote, maintain and protect the "Groupon" brand, or if we
incur excessive expenses in this effort, our business, operating results and financial condition will be materially and
adversely affected. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing
our brand may become increasingly difficult and expensive. Maintaining and enhancing our brand will depend largely
on our ability to continue to provide reliable, trustworthy and high quality offerings on our online marketplaces, which
we may not do successfully.
We receive a high degree of media coverage around the world. Unfavorable publicity or consumer perception
of our websites, mobile applications, practices or service offerings, or the offerings of our merchants or their products,
could adversely affect our reputation, resulting in difficulties in recruiting, decreased revenue and a negative impact
on the number of merchants we feature and the size of our customer base, the loyalty of our customers and the number
and variety of deals we offer each day. As a result, our business, financial condition and results of operations could
be materially and adversely affected.
Failure to deal effectively with fraudulent transactions and customer disputes would increase our
loss rate and harm our business.
Groupon vouchers are issued in the form of redeemable vouchers with unique identifiers. It is possible that
consumers or other third parties will seek to create counterfeit vouchers in order to fraudulently purchase discounted
goods and services from merchants. While we use advanced anti-fraud technologies, criminals may attempt to
circumvent our anti-fraud systems using increasingly sophisticated methods. In addition, our service could be subject
to employee fraud or other internal security breaches, and we may be required to reimburse customers and/or merchants
27
for any funds stolen or revenue lost as a result of such breaches. If merchants are affected by buyer fraud or other
types of fraud, they could also request reimbursement, or stop offering goods or services on our marketplaces.
Although we have not incurred significant losses from fraud and counterfeit vouchers in the past, we could
incur significant losses from such activities in future periods. Additionally, we may incur losses from claims that the
customer did not authorize a purchase, from credit card fraud, from merchant fraud, from erroneous transmissions,
and from customers who have closed bank accounts or have insufficient funds in them to satisfy payments. We also
may incur losses as a result of purchases made with fraudulent credit card information, even if the associated financial
institution approved payment of the transaction. In addition to the direct costs of any such losses, if the losses are
related to credit card transactions and become excessive, they could potentially result in our losing the right to accept
credit cards for payment. If we were unable to accept credit cards for payment, we would suffer substantial reductions
in revenue, which would cause our business to suffer. While we have taken measures to detect and reduce the risk
of fraud, these measures need continual improvement and may not be effective against new and continually evolving
forms of fraud or in connection with new product offerings. If we are unable to effectively combat the use of fraudulent
credit cards on our websites or if we otherwise experience increased levels of fraud or disputed credit card payments,
our business could materially suffer.
We are subject to payments-related risks.
We accept payments using a variety of methods, including credit cards, debit cards and gift certificates. As
we offer new payment options to customers, we may be subject to additional regulations, compliance requirements
and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which
may increase over time and raise our operating costs and lower profitability. In addition, our credit card and other
payment processors could impose receivable holdback or reserve requirements in the future, which could have a
material impact on our cash flow and available liquidity. We rely on third parties to provide payment processing services,
including the processing of credit cards and debit cards, and it could disrupt our business if these companies become
unwilling or unable to provide these services to us. We are also subject to payment card association operating rules,
certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to
make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject
to fines and higher transaction fees and lose our ability to accept credit and debit card payments from customers or
facilitate other types of online payments, and our business and operating results could be adversely affected.
We are also subject to or voluntarily comply with a number of other laws and regulations relating to money
laundering, international money transfers, privacy and information security and electronic fund transfers. If we were
found to be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties. In addition,
events affecting our third-party payment processors or our integration with them, including cyber-attacks, Internet or
other infrastructure or communications impairment or other events that could interrupt the normal operation of our
payment processors or our integration with them, or result in unauthorized access to customer information, could have
a material adverse effect on our business.
Federal laws and regulations, such as the Bank Secrecy Act and the USA PATRIOT Act and similar
foreign laws, could be expanded to include Groupon vouchers or other offerings.
Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act and foreign laws and regulations,
such as the European Directive on the prevention of the use of the financial system for the purpose of money laundering
and terrorist financing, impose certain anti-money laundering requirements on companies that are financial institutions
or that provide financial products and services. For these purposes, financial institutions are broadly defined to include
money services businesses such as money transmitters, check cashers and sellers or issuers of stored value cards.
Examples of anti-money laundering requirements imposed on financial institutions include subscriber identification
and verification programs, record retention policies and procedures and transaction reporting. We do not believe that
we are a financial institution subject to these laws and regulations based, in part, upon the characteristics of Groupon
vouchers and our role with respect to the distribution of Groupon vouchers to customers. For example, the Financial
Crimes Enforcement Network ("FinCEN"), a division of the U.S. Treasury Department tasked with implementing the
requirements of the Bank Secrecy Act (the "BSA"), has adopted regulations expanding the scope of the BSA and
requirements for parties involved in stored value or prepaid access cards, including a proposed expansion of financial
institutions to include sellers or issuers of prepaid access cards. While we believe Groupon vouchers are not subject
to these regulations, it is possible that FinCEN or a court of law could consider Groupon vouchers (or other Groupon
products) a financial product and that we could be a financial institution. In the event that we become subject to the
requirements of the Bank Secrecy Act or any other anti-money laundering law or regulation imposing obligations on
28
us as a money services business, our regulatory compliance costs to meet these obligations would likely increase
which could adversely impact our operating results.
State and foreign laws regulating money transmission could be expanded to include Groupon
vouchers or other Groupon products or services.
Many states and certain foreign jurisdictions impose license and registration obligations on those companies
engaged in the business of money transmission, with varying definitions of what constitutes money transmission. We
currently believe that we are not a money transmitter given our role and the product terms of Groupon vouchers or
other Groupon products or services. However, a successful challenge to our position or expansion of state or foreign
laws could subject us to increased compliance costs and delay our ability to offer Groupon vouchers or other products
or services in certain jurisdictions pending receipt of any necessary licenses or registrations.
Our ability to raise capital in the future may be limited, which could prevent us from growing, and
our existing credit agreement could restrict our business activities.
We may in the future be required to raise capital through public or private financing or other arrangements.
Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could
harm our business. In addition, we are party to a $250.0 million amended and restated credit agreement with JPMorgan
Chase Bank, N.A., as Administrative Agent, dated as of June 29, 2016, as amended (the "Credit Agreement"), which
matures in June 2019. We intend to refinance our Credit Agreement during the first half of 2019. Our Credit Agreement
contains financial and other covenants that may restrict our business activities or our ability to execute our strategic
objectives, and our failure to comply with these covenants could result in a default under our Credit Agreement.
Furthermore, additional equity financing may dilute the interests of our common stockholders, and debt financing, if
available, may involve restrictive covenants that could further restrict our business activities or our ability to execute
our strategic objectives and could reduce our profitability. If we cannot refinance our Credit Agreement or raise or
borrow funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.
In addition, advances under our revolving credit facility generally bear interest based on (i) the Alternate Base
Rate (as defined in our Credit Agreement) or (ii) the Adjusted LIBO Rate (as defined in our Credit Agreement) and
calculated using the London Inter-bank Offered Rate (“LIBOR”)). Although our Credit Agreement matures on June 28,
2019, we would expect that any extended or refinanced indebtedness would bear interest on similar terms. On July
27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop
compelling banks to submit rates for the calculation of LIBOR after 2021, and it is unclear whether new methods of
calculating LIBOR will be established. If LIBOR ceases to exist after 2021, any calculation of interest based upon the
Alternate Base Rate (or any comparable or replacement formulation), may result in higher interest rates. To the extent
that these interest rates increase, our interest expense will increase, which could adversely affect our financial condition,
operating results and cash flows.
We may not have the ability to use cash to settle the principal amount of our 3.25% convertible
notes due 2022 (the "Notes") upon conversion or to repurchase the Notes upon a fundamental
change, which could result in dilution and could adversely affect our financial condition.
The Notes are convertible any time prior to their maturity on April 1, 2022 into cash, stock or a combination of
cash and stock at an initial conversion rate set forth in the indenture governing the Notes (the "Indenture"). Notes that
are converted in connection with a make-whole fundamental change (as defined in the Indenture) may be entitled to
an increase in the conversation rate for such Notes. Upon a conversion event, if we do not have adequate cash available
or cannot obtain additional financing, or our use of cash is restricted by applicable law, regulations or agreements
governing our current or future indebtedness, we may not be able to use cash to settle the principal amount of the
Notes upon conversion. If we settle any portion of the principal amount of the Notes upon conversion in stock, it will
result in immediate dilution to the ownership interests of existing stockholders and such dilution could be material.
In addition, holders of the Notes have the right to require us to repurchase their Notes upon the occurrence
of a fundamental change (as defined in the Indenture) at a repurchase price equal to 100% of the principal amount of
the Notes to be repurchased, plus accrued and unpaid interest, if any. If we do not have adequate cash available or
cannot obtain additional financing, or our use of cash is restricted by applicable law, regulations or agreements governing
our current or future indebtedness, we may not be able repurchase the Notes when required under the Indenture,
which would constitute an event of default under the Indenture. An event of default under the Indenture could also
lead to a default under other agreements governing our current and future indebtedness, and if the repayment of such
29
other indebtedness were accelerated, we may not have sufficient funds to repay the indebtedness and repurchase
the Notes or make cash payments upon conversion of the Notes.
The terms of the Notes could delay or prevent an attempt to take over our Company.
The terms of the Notes require us to repurchase the Notes in the event of a fundamental change. A takeover
of our Company would constitute a fundamental change. This could have the effect of delaying or preventing a takeover
of our Company that may otherwise be beneficial to our stockholders.
Risks Related to Ownership of Our Common Stock
The trading price of our common stock is highly volatile.
The trading price of our common stock has fluctuated significantly since our initial listing on NASDAQ. We
expect that the trading price of our stock will continue to be volatile due to variations in our operating results and also
may change in response to other factors, including factors specific to technology and Internet commerce companies,
many of which are beyond our control. Among the factors that could affect our stock price are:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our financial results;
any financial projections that we provide to the public, any changes in these projections or our
failure for any reason to meet these projections or projections made by research analysts;
the number of shares of our common stock that are available for sale;
the relative success of competitive products or services;
the public's response to press releases or other public announcements by us or others, including our filings
with the SEC and announcements relating to litigation;
speculation about our business in the press or the investment community;
future sales of our common stock by our significant stockholders, officers and directors;
announcements about our share repurchase program and purchases under the program;
changes in our capital structure, such as future issuances of debt or equity securities;
our entry into new markets or exits from existing markets;
regulatory developments in the United States or foreign countries;
strategic acquisitions, joint ventures or restructurings announced or consummated by us or our competitors;
strategic dispositions of businesses or other assets announced or consummated by us; and
changes in accounting principles.
We expect the stock price volatility to continue for the foreseeable future as a result of these and other factors.
If securities or industry analysts do not publish research or reports about our business, or publish
inaccurate or unfavorable research reports about our business, our share price and trading volume
could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or
industry analysts publish about us or our business. We do not have any control over these analysts, and in the past,
we have had changes in analyst ratings that have affected our stock price. If one or more of the analysts who cover
us should downgrade our shares or change their opinion of our shares, industry sector or products, our share price
would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish
reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to
decline.
30
The concentration of our common stock ownership may limit stockholders' ability to influence
corporate matters.
On October 31, 2016, each share of our Class A common stock and Class B common stock automatically
converted (the "Conversion") into a single class of common stock. As a result of the Conversion, each holder of our
common stock is entitled to one vote per share on any matter that is submitted to a vote of stockholders. Although the
voting power of our founders was more concentrated prior to the Conversion, Eric Lefkofsky and his affiliates own
approximately 15% of our common stock as of December 31, 2018. He, therefore, may have significant influence over
matters requiring stockholder approval, including the election of directors and significant corporate transactions, such
as a merger or other sale of our company or its assets. This concentrated ownership could limit stockholders' ability
to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial.
As a result, the market price of our common stock could be adversely affected.
We do not intend to pay dividends for the foreseeable future.
We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our
business and do not anticipate paying cash dividends. As a result, stockholders can expect to receive a return on their
investment in our common stock only if the market price of the stock increases.
Provisions in our charter documents and under Delaware law could discourage a takeover that
stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change
of control or changes in our management. These provisions include the following:
• Our Board of Directors has the right to elect directors to fill a vacancy created by the expansion of the Board
of Directors or the resignation, death or removal of a director, which prevents stockholders from being able to
fill vacancies on our Board of Directors.
• Special meetings of our stockholders may be called only by our Chairman of the Board, our Chief Executive
Officer, our Board of Directors or holders of not less than the majority of our issued and outstanding common
stock. This limits the ability of minority stockholders to take certain actions without an annual meeting of
stockholders.
• Our stockholders may not act by written consent unless the action to be effected and the taking of such action
by written consent is approved in advance by our Board of Directors. As a result, a holder, or holders, controlling
a majority of our common stock would generally not be able to take certain actions without holding a
stockholders' meeting.
• Our certificate of incorporation prohibits cumulative voting in the election of directors. This limits the ability of
minority stockholders to elect director candidates.
• Stockholders must provide timely notice to nominate individuals for election to the Board of Directors or to
propose matters that can be acted upon at an annual meeting of stockholders. These provisions may discourage
or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror's own slate of directors
or otherwise attempting to obtain control of our company.
• Our Board of Directors may issue, without stockholder approval, shares of undesignated preferred stock. The
ability to authorize undesignated preferred stock makes it possible for our Board of Directors to issue preferred
stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
The convertible note hedge and warrant transactions may affect the value of our common stock.
On May 9, 2016, we purchased convertible note hedges from certain bank counterparties. The convertible
note hedges are intended to reduce the potential economic dilution upon conversion of the Notes. On May 9, 2016,
we also sold warrants to certain bank counterparties. The warrant transactions would separately have a dilutive effect
to the extent that the market price per share of our common stock exceeds the applicable strike price of the warrants.
The bank counterparties or their respective affiliates may modify their initial hedge positions by entering into
or unwinding various derivatives contracts with respect to our common stock and/or purchasing or selling our common
stock or other securities of ours in secondary market transactions prior to the maturity of the Notes (and are likely to
do so during any observation period related to a conversion of Notes or following any repurchase of Notes by us on
31
any fundamental change repurchase date or otherwise). This activity could cause or avoid a significant change in the
market price of our common stock.
In addition, in some circumstances, such as an early termination of the convertible note hedge and warrant
transactions, including in connection with certain change of control transactions or other extraordinary events, the
bank counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock,
which could adversely affect the value of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2018, we owned no property and had leases for approximately 1.3 million square feet of
space. Our corporate headquarters and principal executive offices are located in Chicago, Illinois. Other properties
are located throughout the world and largely represent local operating facilities. We believe that our properties are in
good condition and meet the needs of our business, and that suitable additional or alternative space will be available
as needed to accommodate our business operations and future growth.
Description of Use
Corporate offices
Corporate offices
Fulfillment and data centers
Fulfillment and data centers
Segment
North America
International
North America
International
ITEM 3. LEGAL PROCEEDINGS
Square Feet
Various lease expirations through
555,000
371,000
360,000
9,000
January 2026
June 2025
August 2023
March 2024
For a description of our material pending legal proceedings, please see Item 8, Note 10, Commitments and
Contingencies, to the consolidated financial statements of this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
32
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock has been listed on the NASDAQ Global Select Market under the symbol "GRPN" since
PART II
November 4, 2011.
Holders
As of February 8, 2019, there were 160 holders of record of our common stock. Each holder of our common
stock is entitled to one vote per share on any matter that is submitted to a vote of stockholders.
Equity Compensation Plan Information
Information about the securities authorized for issuance under our compensation plans is incorporated by
reference from the Proxy Statement for our 2019 Annual Meeting of Stockholders.
Recent Sales of Unregistered Securities
During the year ended December 31, 2018, we did not issue any unregistered equity securities.
Issuer Purchases of Equity Securities
In May 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under a new
share repurchase program. The prior share repurchase program, which authorized repurchases up to $700.0 million,
expired in April 2018. The timing and amount of share repurchases, if any, will be determined based on market conditions,
limitations under the Amended and Restated Credit Agreement, share price and other factors, and the share repurchase
program may be terminated at any time. We will fund the repurchases 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 may
otherwise be precluded from doing so.
During the three months ended December 31, 2018, we repurchased 3,252,886 shares for an aggregate
purchase price of $10.0 million (including fees and commissions) under the new repurchase program. As of December
31, 2018, up to $290.0 million of common stock remained available for purchase under that program. A summary of
our common stock repurchases during the three months ended December 31, 2018 is set forth in the following table:
Date
October 1-31, 2018
November 1-30, 2018
December 1-31, 2018
Total
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
— $
638,685
2,614,201
3,252,886
$
—
3.09
3.09
3.09
— $
638,685
2,614,201
3,252,886
$
300,000,000
298,035,664
290,000,000
290,000,000
From the inception of our share repurchase programs in August 2013 through December 31, 2018, we have
repurchased 191,855,128 shares of our common stock (or Class A common stock prior to the conversion of our Class
A common stock and Class B common stock to a single class of common stock on October 31, 2016) for an aggregate
purchase price of $877.5 million (including fees and commissions).
33
The following table provides information about purchases of shares of our common stock during the three
months ended December 31, 2018 related to shares withheld upon vesting of restricted stock units for minimum tax
withholding obligations:
Date
October 1-31, 2018
November 1-30, 2018
December 1-31, 2018
Total
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
333,406
$
177,235
610,565
1,121,206
$
3.47
3.19
3.20
3.28
—
—
—
—
—
—
—
—
(1)
Total number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-
based compensation awards.
34
Stock Performance Graph
This performance graph shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the Exchange Act), or incorporated by reference into any filing of Groupon, Inc. under the
Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference
in such filing. Our stock price performance shown in the graph below is not indicative of our future stock price
performance.
The graph set forth below compares the cumulative total return on our common stock (or Class A common
stock prior to the conversion of our Class A common stock and Class B common stock to a single class of common
stock on October 31, 2016) with the cumulative total return of the Nasdaq Composite Index and the Nasdaq 100 Index,
resulting from an initial investment of $100 in each and assuming the reinvestment of any dividends, based on closing
prices on the last trading day of each year end period for 2014, 2015, 2016, 2017 and 2018.
35
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with our consolidated financial
statements and the accompanying notes thereto in Item 8 of this Annual Report on Form 10-K, and the information
contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this
Annual Report on Form 10-K. Historical results are not necessarily indicative of future results.
Year Ended December 31,
Consolidated Statements of Operations Data (1):
Revenue:
2018
2017
2016
(in thousands, except share and per share amounts)
2015
2014
Service
Product
Total revenue
Cost of revenue:
Service
Product
Total cost of revenue
Gross profit
Operating expenses:
Marketing
Selling, general and administrative (2)
Restructuring charges
Gain on sale of intangible assets
Gains on business dispositions
Total operating expenses
Income (loss) from operations
Other income (expense), net
Income (loss) from continuing operations before
provision (benefit) for income taxes
Provision (benefit) for income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to Groupon, Inc.
Basic net income (loss) per share (3):
Continuing operations
Discontinued operations
Basic net income (loss) per share
Diluted net income (loss) per share(3):
Continuing operations
Discontinued operations
Diluted net income (loss) per share
$ 1,205,487
1,431,259
$ 1,266,452
1,577,425
$ 1,206,441
1,807,174
$ 1,250,149
1,704,667
$ 1,353,948
1,504,698
2,636,746
2,843,877
3,013,615
2,954,816
2,858,646
120,077
1,196,068
1,316,145
1,320,601
395,737
870,961
(136)
—
—
1,266,562
54,039
(53,008)
1,031
(957)
1,988
—
1,988
(13,067)
(11,079) $
160,810
1,349,206
1,510,016
1,333,861
400,918
901,829
18,828
(17,149)
—
1,304,426
29,435
6,710
36,145
7,544
28,601
(1,974)
26,627
(12,587)
14,040
(0.02) $
0.00
(0.02) $
0.03
(0.00)
0.03
(0.02)
0.00
(0.02)
$
$
0.03
(0.01)
0.02
$
$
$
$
$
$
$
$
$
$
150,031
1,582,931
1,732,962
1,280,653
352,175
999,677
40,438
—
(11,399)
1,380,891
(100,238)
(71,289)
(171,527)
(5,318)
(166,209)
(17,114)
(183,323)
(11,264)
(194,587) $
158,095
1,508,911
1,667,006
1,287,810
241,342
1,102,385
28,464
—
(13,710)
1,358,481
(70,671)
(25,586)
(96,257)
(23,010)
(73,247)
106,926
33,679
(13,011)
20,668
$
(0.31) $
(0.03)
(0.34) $
(0.13) $
0.16
0.03
$
(0.31)
(0.03)
(0.34)
$
$
(0.13) $
0.16
0.03
$
173,204
1,339,881
1,513,085
1,345,561
227,855
1,081,468
—
—
—
1,309,323
36,238
(31,655)
4,583
15,308
(10,725)
(53,194)
(63,919)
(9,171)
(73,090)
(0.03)
(0.08)
(0.11)
(0.03)
(0.08)
(0.11)
Weighted average number of shares outstanding (2)
Basic
Diluted
(1)
(2)
(3)
566,511,108
559,367,075
576,354,258
650,106,225
674,832,393
566,511,108
568,418,371
576,354,258
650,106,225
674,832,393
The consolidated statements of operations data for prior years has been retrospectively adjusted to reflect discontinued operations. Refer
to Item 8, Note 3, Discontinued Operations and Other Business Dispositions, for additional information.
Includes $0.7 million, $5.7 million, $1.9 million and $1.3 million of acquisition-related expenses for the years ended December 31, 2018,
December 31, 2016, December 31, 2015 and December 31, 2014. Refer to Item 8, Note 4, Business Combinations, for additional
information.
The structure of our common stock changed during the year ended December 31, 2016. Refer to Item 8, Note 11, Stockholders' Equity,
and Note 18, Income (Loss) Per Share, for additional information.
36
As of December 31,
2018
2017
2016
2015
2014
Consolidated Balance Sheet Data:
(in thousands)
Cash and cash equivalents
Working capital (deficit)
Total assets
Total long-term liabilities
Total Groupon, Inc. Stockholders' Equity
$
841,021
$
880,129
$
862,977
$
824,307
$
982,862
41,455
(61,051)
(121,115)
(128,283)
91,460
1,642,142
1,677,505
1,761,377
1,796,264
2,227,597
302,357
381,248
292,161
250,973
283,264
264,420
122,152
469,398
169,055
762,826
37
ITEM 7. 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 consolidated financial statements and related notes included under Item 8 of this Annual Report on
Form 10-K. 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 Annual Report. See Part I, Forward-Looking Statements, for additional information.
Overview
Groupon operates online local commerce marketplaces throughout the world 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 and buy and
where to travel.
Our operations are organized into two segments: North America and International. For the year ended
December 31, 2018, we derived 62.2% of our revenue from our North America segment and 37.8% of our revenue
from our International segment. See Item 8, Note 19, 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.
Since early 2017, we have shifted our focus towards long-term gross profit growth. As part of our growth
strategy, we have focused on 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 to make our offerings easier to use for both customers and
merchants, including cash back offers linked to customer credit cards and booking capabilities. We have also entered
into commercial agreements with third parties that enable us to feature additional merchant offerings through our
marketplaces. We have driven efficiency in our marketing spend by focusing that spend on customers who we believe
will have higher long-term value.
In April 2018, we expanded our International segment offerings through the acquisition of 80% of the outstanding
shares of Cloud Savings Company, Ltd. ("Cloud Savings"), a UK-based business that operates online discount code
and digital gift card platforms. In December 2018, we exercised our right to acquire the remaining outstanding shares
of Cloud Savings. See Item 8, Note 4, Business Combinations, for further information.
In October 2016, we completed a strategic review of our international markets in connection with our efforts
to optimize our global footprint and focus on the markets that we believe to have the greatest potential to benefit our
long-term financial performance. Based on that review, we decided to focus our business on 15 core countries, which
are primarily based in North America and EMEA, and to pursue strategic alternatives for our operations in the remaining
11 countries, which were primarily based in Asia and Latin America. Between November 2016 and March 2017, we
exited our operations in the 11 non-core countries and their results have been presented as discontinued operations.
See Item 8, Note 3, Discontinued Operations and Other Business Dispositions, for additional information about the
dispositions.
38
How We Measure Our Business
We measure our business with several financial and operating metrics. We use those 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 in future periods 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.
Financial Metrics
• Revenue. Product revenue is earned from direct sales of merchandise inventory through our Goods
category and is reported on a gross basis as the purchase price received from the customer. Service
revenue is earned from transactions in which we earn 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. Service revenue from those transactions is
reported 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. Gross profit reflects the net margin earned 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. 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. 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 from continuing operations. 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 years ended December 31, 2018, 2017 and
2016 (in thousands):
Revenue
Gross profit
Adjusted EBITDA
Free cash flow
Year Ended December 31,
2018
2017 (1)
2016 (1)
$
2,636,746
$
2,843,877
$
3,013,615
1,320,601
1,333,861
1,280,653
269,807
121,160
249,939
71,387
179,883
61,958
(1)
Prior period free cash flow information has been updated from $78.3 million and $60.6 million previously reported for the years ended
December 31, 2017 and 2016 to reflect the adoption of ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash, on January
1, 2018. See Item 8, Note 2, Summary of Significant Accounting Policies, for additional information on the adoption of ASU 2016-18.
Operating Metrics
• Gross Billings. This metric represents the total dollar value of customer purchases of goods and services.
The substantial majority of our service revenue transactions is comprised of sales of vouchers and similar
39
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 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 consolidated statements of operations. This metric 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, rather than gross billings or revenue growth.
• Active customers. We define active customers as unique 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 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, and accordingly, the acquisition of Cloud Savings
in April 2018 did not impact that metric.
Our active customer metric for the year ended December 31, 2018 declined from the year ended December
31, 2017. For the year ended December 31, 2017, our active customers increased compared with the
year ended December 31, 2016. The decline in the current year is primarily attributable to a decline in
traffic to our websites and mobile applications, as well as our efforts to improve the efficiency of our
marketing spend by focusing that spend on customers who we believe will have higher long-term value.
That strategy has resulted in lower marketing spend on less valuable customers, particularly in North
America, which has adversely impacted our active customer metric. We expect the trend of declining active
customers in North America to continue in 2019 due to ongoing traffic declines and our continued focus
on attracting and retaining high-quality customers.
• Gross billings and gross profit per active customer. These metrics represent 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. We updated
the calculation of these metrics in the current year to reflect active customers as of the end of the period,
rather than the average of active customers as of the beginning and end of the period, in the denominator
of the calculations. Because our active customer metrics are based on purchases over a TTM period, we
believe that this change improves the usefulness of these metrics. The prior period metrics presented
below have been updated to reflect this change.
• Units. This metric represents the number of purchases during the reporting period, before refunds and
cancellations, made either through one of our online marketplaces or directly with a merchant for which
we earned a commission. We consider unit growth to be an important indicator of the total volume of
business conducted through our marketplaces.
For the year ended December 31, 2018, our total units sold declined by 8.8%, as compared with the prior
year, reflecting unit declines in our North America segment, partially offset by unit growth in our International
segment. For the year ended December 31, 2017, our total units sold declined by 3.4%, as compared
with the year ended December 31, 2016. The decline in total units sold in the current year was attributable
to fewer active customers and lower frequency of purchases by these customers. We expect that trend
to continue into 2019.
40
Our gross billings for the years ended December 31, 2018, 2017 and 2016 were as follows (in thousands):
Gross Billings
$
5,202,814
$
5,645,898
$
5,687,714
Our active customers, gross billings per active customer and gross profit per active customer for the TTM
ended December 31, 2018, 2017 and 2016 were as follows:
Year Ended December 31,
2018
2017
2016
TTM Active customers (in thousands)
TTM Gross billings per active customer
TTM Gross profit per active customer
Year Ended December 31,
2017 (1)
2016 (1)
2018
$
$
48,159
108.03
27.42
$
$
49,536
113.98
26.93
$
$
47,881
118.79
26.75
(1)
TTM Gross billings per active customer have been updated from $115.91 and $124.26 previously reported for the TTM ended December
31, 2017 and 2016, and TTM Gross profit per active customer has been updated from $27.38 and $27.98 previously reported for the year
ended December 31, 2017 and 2016 due to the change in the calculation discussed above.
Our units for the years ended December 31, 2018, 2017 and 2016 were as follows (in thousands):
Units
Factors Affecting Our Performance
Year Ended December 31,
2018
2017
2016
172,305
188,905
195,646
Attracting and Retaining Local Merchants. As we seek 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 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 our Active Customer Base and Customer Value. We must acquire and retain customers that we
expect to have long-term value, and increase gross profit per customer in order to grow our business. Our marketing
spending is intended to attract and retain active customers and to promote increased purchase frequency. We have
made enhancements to our customer segmentation in recent periods that are intended to better focus our marketing
efforts on customers that we believe have a greater potential for long-term gross profit generation. In addition to online
marketing, such as search engine marketing ("SEM"), our marketing spending includes investments in offline campaigns
intended to increase customer awareness and understanding of the Groupon brand and our product and service
offerings. Additionally, we consider order discounts and certain other initiatives to drive customer acquisition and
activation to be marketing-related activities, even though such activities may not be presented as marketing expenses
in our consolidated statements of operations. The organic traffic to our websites and mobile applications from consumers
responding to our emails has declined in recent years, such that an increasing proportion of our traffic is generated
from SEM and other paid marketing channels. More recently, we have also experienced declines from other sources
of organic traffic, such as search engine optimization ("SEO"). As such, we are focused on developing sources of
organic traffic other than email and optimizing the efficiency of our marketing spending, which is primarily guided by
return on investment thresholds that are currently based on expected months-to-payback targets ranging from 12 to
18 months. Additionally, our product and supply initiatives are intended to increase the rates at which visitors to our
websites and mobile applications complete a purchase.
41
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, including voucherless cash back offers linked to customer credit cards and
functionality enabling appointment booking at the time an offering is purchased. 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 of our
marketing initiatives and related efforts on early stage voucherless cash back offerings. Additionally, 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 in future periods could adversely impact our gross
billings trends. 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 redirecting mobile web consumers to our mobile applications.
Managing Operating Efficiency. We are focused on effectively managing our cost structure as we seek to
generate and grow our profitability in future periods. From 2015 through 2017, we reduced the global footprint of our
operations from 47 countries to 15 countries. Additionally, we significantly reduced our global workforce over that period
as a result of our restructuring actions. Those 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 expenses in recent periods. We have primarily used
those savings to invest in marketing and product enhancements intended to drive the long-term growth of our business.
We intend to continue to focus on maintaining operating efficiency.
Results of Operations
Gross Billings
Gross billings is an operating metric that represents the total dollar value of customer purchases of products
and services. Gross billings is presented net of customer refunds, order discounts and sales and related taxes. In our
Goods category, we generate gross billings from product revenue transactions in which we sell merchandise inventory
directly to customers, as well as service revenue transactions in which we sell products on behalf of third-party
merchants.
Comparison of the Years Ended December 31, 2018 and 2017:
Gross billings for the years ended December 31, 2018 and 2017 were as follows (dollars in thousands):
Gross billings:
Service
Product
Total gross billings
Year Ended December 31,
2018
2017
$ Change
% Change
$
$
3,771,555
$
4,068,473
$
(296,918)
(7.3)%
1,431,259
1,577,425
(146,166)
5,202,814
$
5,645,898
$
(443,084)
(9.3)
(7.8)
42
The effect on our gross billings for the year ended December 31, 2018 from changes in exchange rates versus
the U.S. dollar was as follows (in thousands):
Year Ended December 31, 2018
At Avg. 2017
Rates (1)
Exchange Rate
Effect (2)
As Reported
Gross billings
$
5,147,297
$
55,517
$
5,202,814
(1)
(2)
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.
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year
period.
Gross Billings by Segment
Gross billings by segment for the years ended December 31, 2018 and 2017 were as follows (dollars in
thousands):
North America
Service gross billings:
Local
Travel
Goods
Product gross billings - Goods
Total North America gross billings
International
Service gross billings:
Local
Travel
Goods
Product gross billings - Goods
Total International gross billings
Total gross billings
Year Ended December 31,
2018
2017
$ Change
% Change
$
2,161,192
$
2,415,243
$
(254,051)
(10.5)%
352,247
113,863
796,393
404,523
114,638
993,326
3,423,695
3,927,730
(52,276)
(775)
(196,933)
(504,035)
865,271
207,490
71,492
634,866
812,785
208,645
112,639
584,099
1,779,119
1,718,168
52,486
(1,155)
(41,147)
50,767
60,951
$
5,202,814
$
5,645,898
$
(443,084)
(12.9)
(0.7)
(19.8)
(12.8)
6.5
(0.6)
(36.5)
8.7
3.5
(7.8)
The percentages of gross billings by segment for the years ended December 31, 2018 and 2017 were as
follows:
2018
2017
North America
International
43
North America
North America gross billings for the year ended December 31, 2018 decreased $504.0 million from the prior
year due to a decline in each of our Local, Goods and Travel categories. The primary drivers of the decline included
the following:
•
Lower customer traffic, primarily from organic traffic sources;
• Our shift of customer impressions from traditional voucher offerings with food and drink merchants towards
voucherless cash-back offerings as we seek to enhance convenience for our customers. While we believe
that voucherless cash-back offerings have the potential to ultimately drive long-term gross profit growth,
the shift away from traditional food and drink vouchers is adversely impacting our gross billings in the near
term;
• Our ongoing focus on optimizing for long-term gross profit generation rather than gross billings growth
has resulted in merchandising and product mix decisions that have adversely impacted transaction volume
and gross billings from our Goods category;
• We ceased most of our food delivery operations in the third quarter 2017, which resulted in a $45.9 million
decrease in Local gross billings as compared with the prior year period; and
• A $25.5 million unfavorable impact on gross billings for the year ended December 31, 2018 as a result of
adopting Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("Topic
606") as compared with previous accounting guidance. See Item 8, Note 2, Summary of Significant
Accounting Policies, and Note 13, Revenue Recognition, for additional information on the impact of
adopting Topic 606 and its related amendments on our accounting policies.
The above drivers adversely impacted gross billings per active customer, which was $111.96 for the year ended
December 31, 2018, as compared with $120.04 in the prior year period, and total units sold, which decreased to 111.4
million for the year ended December 31, 2018, as compared with 129.2 million units in the prior year period.
International
International gross billings increased $61.0 million in 2018, primarily due to a $55.5 million benefit from year-
over-year changes in foreign currency rates, higher transaction volume driven in part by our customer acquisition and
the expansion of our digital coupons offerings through our acquisition of Cloud Savings. These increases were partially
offset by the impact of pricing and promotional strategies on our international gross billings per unit.
In addition, there was a $2.0 million unfavorable impact on gross billings for the year ended December 31,
2018 as a result of adopting Topic 606 as compared with previous accounting guidance. See Item 8, Note 2, Summary
of Significant Accounting Policies, and Note 13, Revenue Recognition, for additional information on the impact of
adopting Topic 606 and its related amendments on our accounting policies.
Comparison of the Years Ended December 31, 2017 and 2016
Gross billings for the years ended December 31, 2017 and 2016 were as follows (dollars in thousands):
Gross billings:
Service
Product
Total gross billings
Year Ended December 31,
2017
2016
$ Change
% Change
$
$
4,068,473
$
3,880,540
$
187,933
1,577,425
1,807,174
(229,749)
5,645,898
$
5,687,714
$
(41,816)
4.8%
(12.7)
(0.7)
44
The effect on our gross billings for the year ended December 31, 2017 from changes in exchange rates versus
the U.S. dollar was as follows (in thousands):
Year Ended December 31, 2017
At Avg. 2016
Rates (1)
Exchange Rate
Effect (2)
As Reported
Gross billings
$
5,619,119
$
26,779
$
5,645,898
(1)
(2)
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.
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year
period.
Gross Billings by Segment
Gross billings by segment for the years ended December 31, 2017 and 2016 were as follows (dollars in
thousands):
North America
Service gross billings:
Local
Travel
Goods
Product gross billings - Goods
Total North America gross billings
International
Service gross billings:
Local
Travel
Goods
Product gross billings - Goods
Total International gross billings
Total gross billings
Year Ended December 31,
2017
2016
$ Change
% Change
$
2,415,243
$
2,203,514
$
211,729
404,523
114,638
392,401
42,696
12,122
71,942
993,326
1,297,810
(304,484)
3,927,730
3,936,421
(8,691)
812,785
208,645
112,639
584,099
802,403
239,195
200,331
509,364
1,718,168
1,751,293
10,382
(30,550)
(87,692)
74,735
(33,125)
$
5,645,898
$
5,687,714
$
(41,816)
9.6%
3.1
168.5
(23.5)
(0.2)
1.3
(12.8)
(43.8)
14.7
(1.9)
(0.7)
45
The percentages of gross billings by segment for the years ended December 31, 2017 and 2016 were as
follows:
2017
2016
North America
International
North America
North America gross billings for the year ended December 31, 2017 were relatively flat with the prior year, as
the decrease in our Goods category was largely offset by increases in our Local category and, to a lesser extent, our
Travel category. The primary drivers of the fluctuations included the following:
• We shifted the focus on our websites and mobile applications toward offerings with higher gross profit in
connection with our efforts to drive gross profit growth, which contributed to a decrease in Goods gross
billings and an increase in Local gross billings; and
•
LivingSocial, which we acquired during the fourth quarter of 2016, generated incremental gross billings of
$75.7 million in Local, $12.8 million in Goods and $11.7 million in Travel for the full year ended December
31, 2017, as compared with the gross billings generated during the two-month period following its
acquisition in the prior year.
Gross billings per active customer decreased to $120.04 for the year ended December 31, 2017, as compared
with $126.47 in the corresponding prior year period. Additionally, the total number of units sold decreased to 129.2
million units for the year ended December 31, 2017, as compared with 132.6 million units in the prior year period.
International
International gross billings decreased $33.1 million during the year ended December 31, 2017, due to a decline
in our Travel and Goods categories, partially offset by an increase in our Local category. The primary drivers of the
decline included the following:
• We shifted the focus on our websites and mobile applications toward higher gross profit offerings in
connection with our efforts to drive gross profit growth, which contributed to a decrease in Goods and
Travel gross billings and an increase in Local gross billings; and
• We substantially eliminated Goods offerings from our marketplaces in Japan and Poland in connection
with our efforts to de-emphasize lower margin product offerings, which resulted in a $13.0 million year-
over-year reduction in Goods gross billings.
There was a $26.4 million favorable impact on international gross billings from year-over-year changes in
foreign currency rates that partially offset the decline.
Revenue
We earn product revenue from direct sales of merchandise inventory through our Goods category. Product
revenue is reported on a gross basis as the purchase price received from the customer. Service revenue is earned
from transactions in which we earn commissions by selling goods or services on behalf of third-party merchants,
46
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.
Service revenue from those transactions is reported 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.
Comparison of the Years Ended December 31, 2018 and 2017:
Revenue for the years ended December 31, 2018 and 2017 was as follows (dollars in thousands):
Revenue:
Service
Product
Total revenue
Year Ended December 31,
2018
2017
$ Change
% Change
$
$
1,205,487
$
1,266,452
$
(60,965)
1,431,259
1,577,425
(146,166)
2,636,746
$
2,843,877
$
(207,131)
(4.8)%
(9.3)
(7.3)
The effect on revenue for the year ended December 31, 2018 from changes in exchange rates versus the
U.S. dollar was as follows (in thousands):
Revenue
Year Ended December 31, 2018
At Avg. 2017
Rates (1)
Exchange
Rate Effect (2)
As Reported
$
2,603,611
$
33,135
$
2,636,746
(1)
(2)
Represents the financial statement balance that would have resulted had exchange rates in the reporting period been the same as those
in effect in the prior year period.
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year
period.
47
Revenue by Segment
Revenue by category and segment for the years ended December 31, 2018 and 2017 was as follows (dollars
in thousands):
North America
Service revenue:
Local
Travel
Goods
Product revenue - Goods
Total North America revenue
International
Service revenue:
Local
Travel
Goods
Product revenue - Goods
Total International revenue
Total revenue
Year Ended December 31,
2018
2017
$ Change
% Change
$
752,863
$
825,579
$
(72,716)
(8.8)%
71,856
18,283
78,495
16,768
(6,639)
1,515
796,393
993,326
(196,933)
1,639,395
1,914,168
(274,773)
306,700
281,466
25,234
41,183
14,602
634,866
997,351
43,786
20,358
584,099
929,709
(2,603)
(5,756)
50,767
67,642
$ 2,636,746
$ 2,843,877
$
(207,131)
(8.5)
9.0
(19.8)
(14.4)
9.0
(5.9)
(28.3)
8.7
7.3
(7.3)
The percentages of revenue by segment for the years ended December 31, 2018 and 2017 were as follows:
2018
2017
North America
International
48
The percentages of service gross billings that we retained after deducting the merchant's share for the years
ended December 31, 2018 and 2017 were as follows:
North America
International
North America
North America revenue decreased $274.8 million for the year ended December 31, 2018 due primarily to
decreases of $72.7 million and $195.4 million in our Local and Goods categories, respectively. The decreases were
driven primarily by the decline in transaction volume and gross billings, as discussed above.
In addition, for the year ended December 31, 2018, there was a $2.4 million favorable impact on revenue as
a result of adopting Topic 606 as compared with previous accounting guidance. See Item 8, Note 2, Summary of
Significant Accounting Policies, and Note 13, Revenue Recognition, for additional information on the impact of adopting
the ASU and its related amendments on our accounting policies.
International
International revenue increased $67.6 million for the year ended December 31, 2018 driven primarily by the
following:
•
•
•
•
a $33.1 million favorable impact from year-over-year changes in foreign exchange rates;
a shift in our Goods category mix from service revenue transactions, which are reported on a net basis,
toward product revenue transactions, which are reported on a gross basis;
higher transaction volume driven in part by our customer acquisition; and
the expansion of our digital coupons offerings primarily through our acquisition of Cloud Savings; partially
offset by
•
the impact of pricing and promotional strategies and shift in mix of offerings sold.
In addition, there was a $2.9 million unfavorable impact on revenue for the year ended December 31, 2018
as a result of adopting Topic 606 as compared with previous accounting guidance. See Item 8, Note 2, Summary of
Significant Accounting Policies, and Note 13, Revenue Recognition, for additional information on the impact of adopting
the ASU and its related amendments on our accounting policies.
49
Comparison of the Years Ended December 31, 2017 and 2016:
Revenue for the years ended December 31, 2017 and 2016 was as follows (dollars in thousands):
Revenue:
Service
Product
Total revenue
Year Ended December 31,
2017
2016
$ Change
% Change
$
$
1,266,452
$
1,206,441
$
60,011
1,577,425
1,807,174
(229,749)
2,843,877
$
3,013,615
$
(169,738)
5.0%
(12.7)
(5.6)
The effect on revenue for the year ended December 31, 2017 from changes in exchange rates versus the
U.S. dollar was as follows (dollars in thousands):
Revenue
Year Ended December 31, 2017
At Avg. 2016
Rates (1)
Exchange
Rate Effect (2)
As Reported
$
2,825,004
$
18,873
$
2,843,877
(1)
(2)
Represents the financial statement balance that would have resulted had exchange rates in the reporting period been the same as those
in effect in the prior year period.
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year
period.
Revenue by Segment
Revenue by category and segment for the years ended December 31, 2017 and 2016 was as follows (dollars
in thousands):
North America
Service revenue:
Local
Travel
Goods
Product revenue - Goods
Total North America revenue
International
Service revenue:
Local
Travel
Goods
Product revenue - Goods
Total International revenue
Total revenue
Year Ended December 31,
2017
2016
$ Change
% Change
$
825,579
$
762,314
$
63,265
8.3%
78,495
16,768
82,577
9,068
993,326
1,297,810
1,914,168
2,151,769
(4,082)
7,700
(304,484)
(237,601)
281,466
270,045
43,786
20,358
584,099
929,709
49,756
32,681
509,364
861,846
11,421
(5,970)
(12,323)
74,735
67,863
$
2,843,877
$
3,013,615
$
(169,738)
(4.9)
84.9
(23.5)
(11.0)
4.2
(12.0)
(37.7)
14.7
7.9
(5.6)
50
The percentages of revenue by segment for the years ended December 31, 2017 and 2016 were as follows:
2017
2016
North America
International
The percentages of service gross billings that we retained after deducting the merchant's share for the years
ended December 31, 2017 and 2016 were as follows:
North America
International
North America
The decrease in North America segment revenue for the year ended December 31, 2017 reflects a $296.8
million decrease in our Goods category. As discussed above, we were increasingly focusing the business on initiatives
that were intended to optimize for gross profit to a greater extent than revenue, particularly in our North America
segment, including shifting more of the focus on our websites and mobile applications toward offerings in our Local
category.
The decrease in revenue in our Goods category was partially offset by a $63.3 million increase in our Local
category, which was primarily attributable to the increases in Local gross billings, as discussed above. Additionally,
there was a $5.5 million increase in breakage revenue from customer credits and gift cards for the year ended December
31, 2017, as compared with the prior year.
The percentage of gross billings that we retained after deducting the merchant’s share on service revenue
transactions was 31.4%, as compared with 32.4% in the prior year period. The percentage of gross billings that we
retain after deducting the merchant's share reflects the overall results of individual deal-by-deal negotiations with
merchants and can vary significantly from period-to-period.
LivingSocial, which we acquired during the fourth quarter 2016, generated incremental revenue of $32.0 million
in Local, $10.9 million in Goods and $1.0 million in Travel for the full year ended December 31, 2017, as compared
with the revenue generated during the two-month period following its acquisition in the prior year.
51
International
International segment revenue increased $67.9 million for the year ended December 31, 2017, with a $62.4
million increase in our Goods category and an $11.4 million increase in our Local category, partially offset by a $6.0
million decrease in our Travel category. The primary drivers are the following:
•
•
•
•
a shift in our Goods category mix from service revenue transactions, which are reported on a net basis,
toward product revenue transactions, which are reported on a gross basis;
a $19.0 million favorable impact from year-over-year changes in foreign exchange rates;
an increase in our Local category due to growth in revenue from our digital coupons offerings; and
changes in Local and Travel gross billings, as discussed above.
Cost of Revenue
Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue. Costs incurred
to generate revenue, which include 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 are attributed to the cost of
product and service revenue in proportion to gross billings during the period. 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.
Comparison of the Years Ended December 31, 2018 and 2017:
Cost of revenue for the years ended December 31, 2018 and 2017 was as follows (dollars in thousands):
Cost of revenue:
Service
Product
Total cost of revenue
Year Ended December 31,
2018
2017
$ Change
% Change
$
$
120,077
$
160,810
$
(40,733)
1,196,068
1,349,206
(153,138)
1,316,145
$
1,510,016
$
(193,871)
(25.3)%
(11.4)
(12.8)
The effect on cost of revenue for the year ended December 31, 2018 from changes in exchange rates versus
the U.S. dollar was as follows (in thousands):
Cost of revenue
Year Ended December 31, 2018
At Avg. 2017
Rates (1)
Exchange
Rate Effect (2)
As Reported
$
1,296,296
$
19,849
$
1,316,145
(1)
(2)
Represents the financial statement balance that would have resulted had exchange rates in the reporting period been the same as those
in effect in the prior year period.
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year
period.
52
Cost of Revenue by Segment
Cost of revenue by category and segment for the years ended December 31, 2018 and 2017 was as follows
(dollars in thousands):
North America
Service cost of revenue:
Local
Travel
Goods
Product cost of revenue - Goods
Total North America cost of revenue
International
Service cost of revenue:
Local
Travel
Goods
Product cost of revenue - Goods
Total International cost of revenue
Total cost of revenue
Year Ended December 31,
2018
2017
$ Change
% Change
$
81,511
$ 117,006
$
(35,495)
(30.3)%
13,911
2,981
17,901
3,839
(3,990)
(858)
650,308
847,744
(197,436)
748,711
986,490
(237,779)
17,273
16,118
3,051
1,350
3,498
2,448
545,760
501,462
567,434
523,526
1,155
(447)
(1,098)
44,298
43,908
(22.3)
(22.3)
(23.3)
(24.1)
7.2
(12.8)
(44.9)
8.8
8.4
$ 1,316,145
$ 1,510,016
$ (193,871)
(12.8)
The percentages of cost of revenue by segment for the years ended December 31, 2018 and 2017 were as
follows:
2018
2017
North America
International
North America
North America cost of revenue decreased $237.8 million for the year ended December 31, 2018 due primarily
to the decrease in transaction volume and gross billings for our Local and Goods categories as described above, our
optimization of shipping and fulfillment costs, and a favorable impact of $25.4 million as a result of adopting Topic 606.
See Item 8, Note 2, Summary of Significant Accounting Policies, and Note 13, Revenue Recognition, for additional
information on the impact of adopting Topic 606 and its related amendments on our accounting policies.
53
International
International cost of revenue increased $43.9 million for the year ended December 31, 2018 due primarily to
a shift in our Goods category mix from service revenue transactions, which are reported on a net basis, toward product
revenue transactions, which are reported on a gross basis, and a $19.9 million unfavorable impact from year-over-
year changes in foreign exchange rates.
Comparison of the Years Ended December 31, 2017 and 2016:
Cost of revenue for the years ended December 31, 2017 and 2016 was as follows (dollars in thousands):
Cost of revenue:
Service
Product
Total cost of revenue
Year Ended December 31,
2017
2016
$ Change
% Change
$
$
160,810
$
150,031
$
10,779
1,349,206
1,582,931
(233,725)
1,510,016
$
1,732,962
$
(222,946)
7.2
(14.8)
(12.9)
The effect on cost of revenue for the year ended December 31, 2017 from changes in exchange rates versus
the U.S. dollar was as follows (in thousands):
Cost of revenue
Year Ended December 31, 2017
At Avg. 2016
Rates (1)
Exchange
Rate Effect (2)
As Reported
$
1,496,302
$
13,714
$
1,510,016
(1)
(2)
Represents the financial statement balance that would have resulted had exchange rates in the reporting period been the same as those
in effect in the prior year period.
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year
period.
Cost of Revenue by Segment
Cost of revenue by category and segment for the years ended December 31, 2017 and 2016 was as follows
(dollars in thousands):
North America
Service cost of revenue:
Local
Travel
Goods
Product cost of revenue - Goods
Total North America cost of revenue
International
Service cost of revenue:
Local
Travel
Goods
Product cost of revenue - Goods
Total International cost of revenue
Total cost of revenue
Year Ended December 31,
2017
2016
$ Change
% Change
$
117,006
$
101,331
$
15,675
17,901
3,839
18,222
1,598
(321)
2,241
847,744
1,145,071
(297,327)
986,490
1,266,222
(279,732)
16,118
19,610
3,498
2,448
4,565
4,705
501,462
437,860
523,526
466,740
(3,492)
(1,067)
(2,257)
63,602
56,786
15.5%
(1.8)
140.2
(26.0)
(22.1)
(17.8)
(23.4)
(48.0)
14.5
12.2
$ 1,510,016
$ 1,732,962
$ (222,946)
(12.9)
54
The percentages of cost of revenue by segment for the years ended December 31, 2017 and 2016 were as
follows:
2017
2016
North America
International
North America
The decrease in North America cost of revenue for the year ended December 31, 2017 was primarily attributable
to the decrease in product revenue and an increase in margins in that category.
International
International cost of revenue increased $56.8 million for the year ended December 31, 2017 due primarily to
the growth in product revenue and a $13.7 million unfavorable impact from year-over-year changes in foreign exchange
rates.
Gross Profit
Comparison of the Years Ended December 31, 2018 and 2017:
Gross profit for the years ended December 31, 2018 and 2017 was as follows (dollars in thousands):
Gross profit:
Service
Product
Total gross profit
Year Ended December 31,
2018
2017
$ Change
% Change
$
$
1,085,410
$
1,105,642
$
(20,232)
235,191
228,219
6,972
1,320,601
$
1,333,861
$
(13,260)
(1.8)%
3.1
(1.0)
The effect on gross profit for the year ended December 31, 2018 from changes in exchange rates versus the
U.S. dollar was as follows (in thousands):
Year Ended December 31, 2018
At Avg. 2017
Rates (1)
Exchange
Rate Effect (2)
As Reported
1,307,315
13,286
$
1,320,601
Represents the financial statement balance that would have resulted had exchange rates in the reporting period been the same
as those in effect in the prior year period.
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the
prior year period.
Gross profit
(1)
(2)
55
Gross Profit by Segment
Gross profit by category and segment for the years ended December 31, 2018 and 2017 was as follows (dollars
in thousands):
North America
Service gross profit:
Local
Travel
Goods
Product gross profit - Goods
Total North America gross profit
International
Service gross profit:
Local
Travel
Goods
Product gross profit - Goods
Total International gross profit
Total gross profit
Year Ended December 31,
2018
2017
$ Change
% Change
$
671,352
$
708,573
$
(37,221)
(5.3)%
57,945
15,302
146,085
890,684
60,594
12,929
145,582
927,678
289,427
265,348
38,132
13,252
89,106
40,288
17,910
82,637
429,917
406,183
(2,649)
2,373
503
(36,994)
24,079
(2,156)
(4,658)
6,469
23,734
$ 1,320,601
$ 1,333,861
$
(13,260)
(4.4)
18.4
0.3
(4.0)
9.1
(5.4)
(26.0)
7.8
5.8
(1.0)
The percentages of gross profit by segment for the years ended December 31, 2018 and 2017 were as follows:
2018
2017
North America
International
North America
The decrease in North America gross profit for the year ended December 31, 2018 reflects a decline in revenue,
as discussed above, which was partially offset by cost of revenue leverage driven by our optimization of shipping and
fulfillment costs.
In addition, for the year ended December 31, 2018, there was a $27.8 million favorable impact on gross profit
as a result of adopting Topic 606 as compared with previous accounting guidance. This favorability was primarily driven
by the change in the timing of recognition of variable consideration for unredeemed vouchers. Beginning in the third
quarter of 2017, we began to increasingly use pay-on-redemption terms for merchants in North America. As we expect
to continue to shift toward pay-on-redemption terms going forward, we expect that the change to recognize estimated
variable consideration at the time of sale under Topic 606 will drive further increases to North America gross profit in
56
2019. See Item 8, Note 2, Summary of Significant Accounting Policies, and Note 13, Revenue Recognition, for additional
information on the impact of adopting Topic 606 and its related amendments on our accounting policies.
International
The increase in International gross profit for the year ended December 31, 2018 was primarily attributable to
the following:
•
•
•
•
•
a $13.3 million favorable impact from year-over-year changes in foreign exchange rates;
higher transaction volume driven in part by our customer acquisition; and
the expansion of our digital coupons offerings primarily through our acquisition of Cloud Savings; partially
offset by
the impact of pricing and promotional strategies; and
a $2.9 million unfavorable impact on gross profit for the year ended December 31, 2018 as a result of
adopting Topic 606. See Item 8, Note 2, Summary of Significant Accounting Policies, and Note 13, Revenue
Recognition, for additional information on the impact of adopting Topic 606 and its related amendments
on our accounting policies.
Comparison of the Years Ended December 31, 2017 and 2016:
Gross profit for the years ended December 31, 2017 and 2016 was as follows (dollars in thousands):
Gross profit:
Service
Product
Total gross profit
Year Ended December 31,
2017
2016
$ Change
% Change
$
$
1,105,642
$
1,056,410
$
228,219
224,243
1,333,861
$
1,280,653
$
49,232
3,976
53,208
4.7%
1.8
4.2
The effect on gross profit for the year ended December 31, 2017 from changes in exchange rates versus the
U.S. dollar was as follows (in thousands):
Year Ended December 31, 2017
At Avg. 2016
Rates (1)
Exchange Rate
Effect (2)
As Reported
Gross profit
$
1,328,702
$
5,159
$
1,333,861
(1)
(2)
Represents the financial statement balance that would have resulted had exchange rates in the reporting period been the same as those
in effect in the prior year period.
Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year
period.
57
Gross Profit by Segment
Gross profit by category and segment for the years ended December 31, 2017 and 2016 was as follows (dollars
in thousands):
North America
Service gross profit:
Local
Travel
Goods
Product gross profit - Goods
Total North America gross profit
International
Service gross profit:
Local
Travel
Goods
Product gross profit - Goods
Total International gross profit
Total gross profit
Year Ended December 31,
2017
2016
$ Change
% Change
$
708,573
$
660,983
$
60,594
12,929
145,582
927,678
64,355
7,470
152,739
885,547
265,348
250,435
40,288
17,910
82,637
45,191
27,976
71,504
406,183
$ 1,333,861
395,106
$ 1,280,653
$
47,590
(3,761)
5,459
(7,157)
42,131
14,913
(4,903)
(10,066)
11,133
11,077
53,208
7.2%
(5.8)
73.1
(4.7)
4.8
6.0
(10.8)
(36.0)
15.6
2.8
4.2
The percentages of gross profit by segment for the years ended December 31, 2017 and 2016 were as follows:
2017
2016
North America
North America
International
The increase in North America gross profit for the year ended December 31, 2017 reflects a $47.6 million
increase in gross profit from our Local category, which was attributable to the increase in service revenue from our
Local category, as discussed above.
Gross profit from product revenue transactions declined by 4.7%, as compared with the 23.5% decrease in
revenue from those transactions. That difference was attributable to increased gross margins on product revenue
transactions, which were 14.7% in 2017 as compared with 11.8% in the prior year. That improvement resulted from
our ongoing efforts to de-emphasize lower gross profit product offerings and reduce our shipping and fulfillment costs.
58
International
The increase in International gross profit for the year ended December 31, 2017 reflects an increase in service
revenue transactions from our Local category, as discussed above, and a $5.3 million favorable 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 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.
Comparison of the Years Ended December 31, 2018 and 2017:
Marketing expense by segment as a percentage of gross profit for the years ended December 31, 2018 and
2017 was as follows (dollars in thousands):
North America
International
Total marketing
Year Ended December 31,
2018
% of
Gross
Profit
2017
% of
Gross
Profit
$ Change
% Change
$
273,787
30.7% $ 299,454
32.3% $
(25,667)
(8.6)%
121,950
$
395,737
28.4
30.0
101,464
$ 400,918
25.0
30.1
20,486
$
(5,181)
20.2
(1.3)
The percentages of marketing expense by segment for the years ended December 31, 2018 and 2017
were as follows:
2018
2017
North America
North America
International
North America marketing expense and marketing expense as a percentage of gross profit for the year ended
December 31, 2018 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.
59
International
International marketing expense and marketing expense as a percentage of gross profit for the year ended
December 31, 2018 increased year-over-year, driven primarily by our ongoing marketing investments to drive customer
acquisition in our international markets. In addition, marketing expense increased $4.2 million due to an unfavorable
impact from year-over-year changes in foreign exchange rates.
Comparison of the Years Ended December 31, 2017 and 2016:
Marketing expense by segment as a percentage of gross profit for the years ended December 31, 2017 and
2016 was as follows (dollars in thousands):
North America
International
Total marketing
Year Ended December 31,
% of Gross
Profit
2016
% of Gross
Profit
$ Change
% Change
32.3% $
263,206
29.7% $
36,248
13.8%
25.0
30.1
88,969
$
352,175
22.5
27.5
12,495
$
48,743
14.0
13.8
2017
299,454
101,464
400,918
$
$
The percentages of marketing expense by segment for the years ended December 31, 2017 and 2016
were as follows:
2017
2016
North America
International
North America
The increases in North America segment marketing expense and marketing expense as a percentage of gross
profit for the year ended December 31, 2017 were primarily attributable to an increase in investments in offline marketing
to drive customer growth and awareness of the Groupon brand and our product and service offerings.
International
The increase in International segment marketing expense and marketing expense as a percentage of gross
profit for the year ended December 31, 2017 was primarily attributable to our ongoing strategic initiative to drive
customer growth. In addition, marketing expense increased $2.2 million due to an unfavorable 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 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,
60
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.
Comparison of the Years Ended December 31, 2018 and 2017:
SG&A as a percentage of gross profit for the years ended December 31, 2018 and 2017 was as follows (in
thousands):
Selling, general and administrative
$
870,961
66.0% $
901,829
67.6% $
(30,868)
(3.4)%
Year Ended December 31,
2018
% of Gross
Profit
2017
% of Gross
Profit
$ Change
% Change
The decrease in SG&A and SG&A as a percentage of gross profit for the year ended December 31, 2018 as
compared with the prior year period was primarily due to the following:
•
•
•
a $31.4 million decrease in compensation-related costs, including variable compensation; and
decreases in facilities costs, systems costs, and other general expenses; partially offset by
the expense related to our patent litigation with IBM of $34.6 million, as described in Item 8, Note 10,
Commitments and Contingencies; and
•
a $9.7 million unfavorable impact from year-over-year changes in foreign currency exchange rates.
Comparison of the Years Ended December 31, 2017 and 2016:
SG&A as a percentage of gross profit for the years ended December 31, 2017 and 2016 was as follows (dollars
in thousands):
Year Ended December 31,
Selling, general and administrative
$
901,829
67.6% $
999,677
78.1% $
(97,848)
(9.8)%
2017
% of Gross
Profit
2016
% of Gross
Profit
$ Change
% Change
The decrease in SG&A and SG&A as a percentage of gross profit was primarily attributable to our efforts to
improve our cost structure, including a $62.8 million decrease in compensation-related costs, primarily due to headcount
reductions as part of our restructuring plan, as well as decreases in facilities costs, systems costs, and other general
expenses and a $0.2 million favorable impact from year-over-year changes in foreign currency exchange rates.
Restructuring Charges
Restructuring charges represent severance and benefit costs for workforce reductions, impairments of long-
lived assets and other exit costs resulting from our restructuring activities. See Item 8, Note 14, Restructuring, for
information about our restructuring plan.
Gain on Sale of Intangible Assets
During the third quarter of 2017, we sold customer lists and other intangible assets in certain food delivery
markets to Grubhub Inc., resulting in a gain of $17.1 million. See Item 8, Note 6, Goodwill and Other Intangible Assets,
for additional information.
Gains on Business Dispositions
During the year ended December 31, 2016, we sold our subsidiaries in Russia and Indonesia, and our point
of sale business, Breadcrumb, resulting in a gain of $11.4 million. See Item 8, Note 3, Discontinued Operations and
Other Business Dispositions, for additional information.
61
The financial results of those entities are presented within income from continuing operations in the
accompanying consolidated financial statements through their respective disposition dates. Those financial results
were not material for the year ended December 31, 2016.
Income (Loss) from Operations
Comparison of the Years Ended December 31, 2018 and 2017:
Income (loss) from operations for the years ended December 31, 2018 and 2017 was as follows (dollars in
thousands):
North America
International
Income (loss) from operations
North America
Year Ended December 31,
2018
2017
$ Change
% Change
$
$
19,909
$
34,130
(45) $
29,480
54,039
$
29,435
$
19,954
4,650
24,604
NM
15.8
83.6
The improvement in our income (loss) from operations was attributable to a $36.6 million decrease in SG&A
costs, a $25.7 million decrease in marketing expense, and an $11.8 million decrease in restructuring costs, partially
offset by a $37.0 million decrease in gross profit and a $17.1 million decrease in gains from the sale of intangible
assets.
Income (loss) from operations includes stock-based compensation of $59.7 million and $76.1 million for the
years ended December 31, 2018 and 2017.
For the year ended December 31, 2018, there was a $27.0 million favorable impact on income (loss) from
operations as a result of adopting Topic 606 as compared with previous accounting guidance. See Item 8, Note 2,
Summary of Significant Accounting Policies, and Note 13, Revenue Recognition, for additional information on the
impact of adopting Topic 606 and its related amendments on our accounting policies.
International
The increase in our income from operations was primarily attributable to a $23.7 million increase in gross profit
and a $7.1 million decrease in restructuring costs, partially offset by a $20.5 million increase in marketing expense
and a $5.7 million increase in SG&A.
Income (loss) from operations includes stock-based compensation of $5.0 million and $5.7 million for the years
ended December 31, 2018 and 2017.
For the year ended December 31, 2018, there was a $2.7 million favorable impact on income (loss) from
operations as a result of adopting Topic 606 as compared with previous accounting guidance. See Item 8, Note 2,
Summary of Significant Accounting Policies, and Note 13, Revenue Recognition, for additional information on the
impact of adopting Topic 606 and its related amendments on our accounting policies.
Comparison of the Years Ended December 31, 2017 and 2016:
Income (loss) from operations for the years ended December 31, 2017 and 2016 was as follows (dollars in
thousands):
North America
International
Income (loss) from operations
Year Ended December 31,
2017
2016
$ Change
% Change
$
$
(45) $
(85,423) $
29,480
(14,815)
85,378
44,295
29,435
$
(100,238) $
129,673
99.9%
299.0
129.4
62
North America
The improvement in our income (loss) from operations was attributable to a $62.0 million decrease in SG&A,
a $42.1 million increase in gross profit and a $17.1 million gain from the sale of customer lists and other intangible
assets in certain food delivery markets. See Item 8, Note 6, Goodwill and Other Intangible Assets, for additional
information. The reduction in our loss from operations was partially offset by a $36.2 million increase in marketing
expense.
Income (loss) from operations includes $76.1 million and $104.7 million of stock-based compensation for the
years ended December 31, 2017 and 2016.
International
The improvement in our income (loss) from operations was primarily attributable to a $35.8 million decrease
in SG&A, a $21.6 million decrease in restructuring charges and an $11.1 million increase in gross profit. Those items
were partially offset by a $12.5 million increase in marketing expense and an $11.4 million decrease in gains on
business dispositions.
Income (loss) from operations includes $5.7 million and $9.5 million of stock-based compensation for the years
ended December 31, 2017 and 2016.
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.
Comparison of the Years Ended December 31, 2018 and 2017:
Other income (expense), net for the years ended December 31, 2018 and 2017 was as follows (dollars in
thousands):
Other income (expense), net
$
(53,008) $
6,710
$
(59,718)
(890.0)%
Year Ended December 31,
2018
2017
$ Change
% Change
Other income (expense), net for the year ended December 31, 2018 primarily consisted of the following:
•
•
•
•
$21.9 million of interest expense primarily related to interest on our convertible notes;
$20.3 million in foreign currency losses, which primarily resulted from intercompany balances with our
subsidiaries that are denominated in foreign currencies. Those losses were driven by the depreciation of
the Euro against the U.S. dollar from December 31, 2017 to December 31, 2018;
$10.2 million of impairments of minority investments. See Item 8, Note 7, Investments, for additional
information; and
$9.1 million of losses on fair value option investments. See Item 8, Note 7, Investments, for additional
information.
Those items were partially offset by $6.4 million in interest income and a $2.4 million gain on an embedded
derivative related to an available-for-sale security.
Other income (expense), net for the year ended December 31, 2017 primarily consisted of the following:
•
$18.6 million in net foreign currency gains, which primarily resulted from intercompany balances with our
subsidiaries that are denominated in foreign currencies. Those gains were driven by the appreciation of
the Euro against the U.S. dollar from December 31, 2016 to December 31, 2017; and
•
a $7.6 million gain on the sale of an investment. See Item 8, Note 7, Investments, for additional information.
63
Those items were partially offset by $20.7 million of interest expense primarily related to interest on our
convertible notes.
Comparison of the Years Ended December 31, 2017 and 2016:
Other income (expense), net for the years ended December 31, 2017 and 2016 was as follows (dollars in
thousands):
Other income (expense), net
$
6,710
$
(71,289) $
77,999
109.4%
Year Ended December 31,
2017
2016
$ Change
% Change
Other income (expense), net for the year ended December 31, 2017 primarily consisted of the following:
•
$18.6 million in net foreign currency gains, which primarily resulted from intercompany balances with our
subsidiaries that are denominated in foreign currencies; and
•
$7.6 million gain on the sale of an investment. See Item 8, Note 7, Investments, for additional information.
Those items were partially offset by $20.7 million of interest expense primarily related to interest on our
convertible notes.
Other income (expense), net for the year ended December 31, 2016 primarily consisted of the following:
•
•
•
$48.1 million of losses on fair value option investments;
$15.9 million of interest expense primarily related to interest on our convertible notes; and
$6.9 million in foreign currency losses.
The losses on fair value option investments consisted of a $35.4 million loss from our investment in Monster
Holdings LP and a $12.8 million loss from our investment in Nearbuy Pte Ltd. ("Nearbuy,"). See Item 8, Note 7,
Investments, for additional information.
Provision (Benefit) for Income Taxes
Comparison of the Years Ended December 31, 2018 and 2017:
Provision (benefit) for income taxes for the years ended December 31, 2018 and 2017 was as follows (dollars
in thousands):
Provision (benefit) for income taxes
Effective tax rate
Year Ended December 31,
2018
2017
$ Change
% Change
$
(957)
$
7,544
$
(8,501)
(112.7)%
(92.8)%
20.9%
Our U.S. Federal income tax rate was 21% for the year ended December 31, 2018 and was 35% for the year
ended December 31, 2017. The primary factor impacting the effective tax rate for the year ended December 31, 2018
and 2017 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 year ended December 31, 2018 also reflected a $6.4 million income
tax benefit resulting from the impact of adopting Topic 606 on intercompany activity in certain foreign jurisdictions. See
Item 8, Note 15, Income Taxes, for additional information relating to tax audits and assessments and regulatory and
legal developments that my impact our business and results of operations in the future.
64
Comparison of the Years Ended December 31, 2017 and 2016:
Provision (benefit) for income taxes for the years ended December 31, 2017 and 2016 was as follows (dollars
in thousands):
Provision (benefit) for income taxes
$
7,544
$
(5,316)
$
12,862
241.9%
Effective tax rate
20.9%
3.1%
Year Ended December 31,
2017
2016
$ Change
% Change
The pretax losses incurred by our operations in jurisdictions that have valuation allowances against their net
deferred tax assets, including the United States, was the primary factor impacting our effective tax rate for the years
ended December 31, 2017 and 2016. See Item 8, Note 15, Income Taxes, for additional information.
Income (Loss) from Discontinued Operations
From November 2016 through March 2017, we exited our operations in 11 non-core countries and their results
have been presented as discontinued operations for the years ended December 31, 2018, 2017 and 2016. See Item
8, Note 3, Discontinued Operations and Other Business Dispositions, for additional information about the dispositions
and see Item 8, Note 10, Commitments and Contingencies, for information about indemnification obligations related
to discontinued operations.
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
years ended December 31, 2018, 2017 and 2016, special charges and credits included charges related to our
restructuring plan. For the year ended December 31, 2018, special charges and credits also included a $34.6 million
charge related to our patent litigation with IBM (see Item 8, Note 10, Commitments and Contingencies). For the year
ended December 31, 2017, special charges and credits also included a $17.1 million credit related to the sale of
intangible assets (see Item 8, Note 6, Goodwill and Other Intangible Assets). For the year ended December 31, 2016,
special charges and credits also included gains from business dispositions of $11.4 million (see Item 8, Note 3,
65
Discontinued Operations and Other Business Dispositions). 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 years ended December 31, 2018, 2017 and 2016 (dollars in thousands):
Income (loss) from continuing operations
$
1,988
$
28,601
$
(166,209)
Year Ended December 31,
2018
2017
2016
Adjustments:
Stock-based compensation (1)
Depreciation and amortization
Acquisition-related expense (benefit), net
Restructuring charges (1)
IBM patent litigation
Gain on sale of intangible assets
Gain on business dispositions
Other (income) expense, net (1)
Provision (benefit) for income taxes
Total adjustments
Adjusted EBITDA
64,821
115,828
655
(136)
34,600
—
—
53,008
(957)
267,819
80,950
137,827
48
18,828
—
(17,149)
—
(6,710)
7,544
221,338
$
269,807
$
249,939
$
109,523
135,909
5,650
40,438
—
—
(11,399)
71,289
(5,318)
346,092
179,883
(1)
Represents stock-based compensation expense recorded within Selling, general and administrative, Cost of revenue and Marketing.
Restructuring charges includes $0.8 million and $4.7 million of additional stock-based compensation for the years ended December 31,
2017 and 2016. Stock-based compensation recorded within Restructuring for the year ended December 31, 2018 was not material. Other
income (expense), net includes $0.1 million, $0.2 million and $0.9 million of additional stock-based compensation for the year ended
December 31, 2018, 2017 and 2016.
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 from continuing
operations. 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 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 $841.0 million
as of December 31, 2018, and available borrowing capacity under our Amended and Restated Credit Agreement.
66
Our net cash flows from operating, investing and financing activities from continuing operations for the years
ended December 31, 2018, 2017 and 2016 were as follows (in thousands):
Cash provided by (used in):
Operating activities (1)
Investing activities
Financing activities
Year Ended December 31,
2018
2017
2016
$
190,855
$
130,545
$
(135,982)
(84,417)
(25,323)
(138,046)
130,245
(55,586)
(14,665)
(1)
Prior period net cash provided by operating activities from continuing operations has been updated from $137.5 million and $128.9 million
previously reported for the years ended December 31, 2017 and 2016, to reflect the adoption of ASU 2016-18 on January 1, 2018. See
Item 8, Note 2, Summary of Significant Accounting Policies, for additional information on the adoption of ASU 2016-18.
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 from continuing operations.
Our free cash flow for the years ended December 31, 2018, 2017 and 2016 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 (1)
Purchases of property and equipment and capitalized software from continuing operations
Free cash flow
Year Ended December 31,
2018
2017
2016
$
$
190,855
$
130,545
$
130,245
(69,695)
(59,158)
(68,287)
121,160
$
71,387
$
61,958
(1)
Net cash provided by operating activities from continuing operations and free cash flow have been updated from $137.5 million and $78.3
million previously reported, for the year ended December 31, 2017, and from $128.9 million and $60.6 million previously reported, for the
year ended December 31, 2016 to reflect the adoption of ASU 2016-18 on January 1, 2018. See Item 8, Note 2, Summary of Significant
Accounting Policies, for additional information on the adoption of ASU 2016-18.
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 the third quarter 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 are linked to
customer credit cards. For our card-linked offerings, we offer cash back on customers' credit card statements based
on qualifying purchases with participating merchants. For those offerings, we typically remit payment to a card brand
network within two weeks of the qualifying purchase for the customer's cash back incentive and then we collect from
the merchant both our commission and reimbursement for the customer's cash back incentive, usually on a monthly
basis. The working capital impact of card-linked offerings 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. As such, we
expect that our cash flows will initially be adversely impacted to the extent that card-linked offerings begin to scale in
future periods.
For the year ended December 31, 2018, our net cash provided by operating activities from continuing operations
was $190.9 million, as compared with our $2.0 million income from continuing operations. That difference was primarily
attributable to $206.8 million of non-cash items, including depreciation and amortization and stock-based compensation.
The difference between our net cash provided by operating activities and our income from continuing operations due
to non-cash items was partially offset by an $17.9 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
67
suppliers and also includes $42.1 million of the payment to IBM related to the settlement of our patent litigation as
described in Item 8, Note 10, Commitments and Contingencies.
For the year ended December 31, 2017, our net cash provided by operating activities from continuing operations
was $130.5 million, as compared with a $28.6 million income from continuing operations. That difference was primarily
attributable to $209.1 million of non-cash items, including depreciation and amortization, and stock-based
compensation, and the gain on sale of intangible assets. The difference between net cash provided by operating
activities and our income from continuing operations due to non-cash items was partially offset by an $107.1 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 payments related to our restructuring activities.
For the year ended December 31, 2016, our net cash provided by operating activities from continuing operations
was $130.2 million, as compared with a $166.2 million loss from continuing operations. That difference was primarily
due to $289.1 million of non-cash items, including depreciation and amortization, stock-based compensation and losses
from minority investments carried at fair value.
Our net cash used in investing activities from continuing operations was $136.0 million, $25.3 million and $55.6
million for the years ended December 31, 2018, 2017 and 2016. For the year ended December 31, 2018, our net cash
used in investing activities from continuing operations included net cash paid for a business acquisition of $58.1 million,
purchases of property and equipment and capitalized software of $69.7 million and net cash paid of $18.3 million for
acquisitions of intangible assets, including $15.4 million related to the settlement of our IBM patent litigation as described
in Item 8, Note 10, Commitments and Contingencies. For the year ended December 31, 2017, our net cash used in
investing activities from continuing operations included purchases of property and equipment and capitalized software
of $59.2 million, proceeds of $18.3 million from the sale of intangible assets and proceeds of $16.6 million from sales
and maturities of investments. For the year ended December 31, 2016, our net cash used in investing activities from
continuing operations included purchases of property and equipment and capitalized software of $68.3 million and net
cash acquired from business combinations of $14.5 million.
Our net cash used in financing activities was $84.4 million, $138.0 million and $14.7 million for the years ended
December 31, 2018, 2017 and 2016. For the year ended December 31, 2018, net cash used in financing activities
included $33.0 million in payments of capital lease obligations, $24.1 million in taxes paid related to net share settlements
of stock-based compensation awards, $9.6 million in purchases of treasury stock under our share repurchase program,
and an $8.4 million payment of a financing obligation related to a business acquisition. For the year ended December
31, 2017, net cash used in financing activities included $61.2 million in purchases of common stock under our share
repurchase program, $34.0 million in payments of capital lease obligations and $27.7 million in taxes paid related to
net share settlements of stock-based compensation awards. For the year ended December 31, 2016, net cash used
in financing activities included $165.4 million in purchases of common stock under our share repurchase program,
$59.2 million for the purchase of convertible note hedges, $30.6 million in payments of capital lease obligations and
$29.8 million in taxes paid related to net share settlements of stock-based compensation awards, partially offset by
$250.0 million in proceeds from issuance of our senior convertible notes described below and $35.5 million of proceeds
from the issuance of warrants.
Our Amended and Restated Credit Agreement provides for aggregate principal borrowings of up to $250.0
million and matures in June 2019. We intend to refinance our Amended and Restated Credit Agreement in the first
half of 2019. As of December 31, 2018, we had no borrowings under our Amended and Restated Credit Agreement
and were in compliance with all covenants. See Item 8, Note 9, Financing Arrangements, for additional information.
As of December 31, 2018, we had $332.9 million in cash held by our international subsidiaries, which is
primarily denominated in Euros, British 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 of Directors authorized us to repurchase up to $300.0 million of our common stock
under a new share repurchase program. Our prior share repurchase program expired in April 2018. Upon its expiration,
up to $135.2 million of our common stock remained available for purchase under that prior share repurchase program.
During the year ended December 31, 2018, we repurchased 3,252,886 shares for an aggregate purchase price of
$10.0 million (including fees and commissions) under the new repurchase program. As of December 31, 2018, up to
$290.0 million of common stock remained available for purchase under the new program. The timing and amount of
68
share repurchases, if any, will be determined based on market conditions, limitations under our Amended and Restated
Credit Agreement, share price and other factors, and the program may be terminated at any time. 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 share repurchases when we might otherwise be precluded from doing so.
In April 2016, we issued convertible notes with an aggregate principal amount of $250.0 million. We received
net proceeds of $243.2 million from the issuance of the Notes. We have used the proceeds from the Notes for general
corporate purposes, including repurchases of shares of our common stock. Additionally, we entered into note hedge
and warrant transactions with certain bank counterparties that are designed to offset, in part, the potential dilution from
conversion of the Notes. See Item 8, Note 9, Financing Arrangements, for additional information.
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 our Amended and Restated 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
The following table summarizes (in thousands) our future contractual obligations and commitments as of
December 31, 2018. The table below excludes $39.9 million of non-current liabilities for unrecognized tax benefits,
including interest and penalties, as of December 31, 2018. We cannot make a reasonable estimate of the period of
cash settlement for the tax positions classified as non-current liabilities.
Capital lease obligations (1)
Operating lease obligations (2)
Convertible senior notes (3)
Purchase obligations (4)
Total
2019
Payments due by period
2021
2022
2020
2023
Thereafter
$
31,274
$
18,169
$
7,634
$
4,784
$
687
$
— $
—
170,199
282,500
27,366
32,533
8,125
13,266
31,116
26,876
8,125
7,300
8,125
3,400
26,097
258,125
3,400
21,944
31,633
—
—
—
—
$
511,339
$
72,093
$
54,175
$
43,185
$
288,309
$
21,944
$
31,633
Capital lease obligations include both principal and interest components of future minimum capital lease payments.
Operating lease obligations are primarily for office facilities and are noncancelable. Certain leases contain periodic rent escalation adjustments
and renewal and expansion options. Operating lease obligations expire at various dates with the latest maturity in 2026.
Represents the principal amount and related interest on our convertible senior notes.
Purchase obligations primarily represent noncancelable contractual obligations related to information technology products and services.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2018.
Critical Accounting Policies and Estimates
Total
(1)
(2)
(3)
(4)
Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our
consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting
policies are discussed in Item 8, Note 2, Summary of Significant Accounting Policies, in the notes to the consolidated
financial statements.
The preparation of 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 those estimates under different assumptions or conditions.
69
We believe that the estimates and assumptions related to revenue recognition, impairment assessments of
goodwill and long-lived assets, income taxes and fair value option investments have the greatest potential impact on
our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Revenue Recognition
Refer to Item 8, Note 2, Summary of Significant Accounting Policies, and Note 13, Revenue Recognition, for
information about our revenue recognition accounting policies, including estimates of our refund liabilities.
Impairment Assessments of Goodwill and Long-Lived Assets
Refer to Item 8, Note 2, Summary of Significant Accounting Policies, and Note 6, Goodwill and Other Intangible
Assets, for information about our accounting policies relating to goodwill and impairment of long-lived assets. Additional
information about those accounting policies and estimates is set forth in the following paragraphs.
When determining fair values in impairment tests, we use one of the following recognized valuation methods:
the income approach (including discounted cash flows), the market approach and the cost approach. Our significant
estimates in those fair value measurements include identifying business factors such as size, growth, profitability, risk
and return on investment and assessing comparable revenue and earnings multiples. Further, when measuring fair
value based on discounted cash flows, we make assumptions about risk-adjusted discount rates; rates of increase in
revenue, cost of revenue and operating expenses; weighted average cost of capital; rates of long-term growth; and
income tax rates. Valuations are performed by management or third-party valuation specialists under management's
supervision, where appropriate. We believe that the estimated fair values used in impairment tests are based on
reasonable assumptions that marketplace participants would use. However, such assumptions are inherently uncertain
and actual results could differ from those estimates.
Our three reporting units as of October 1, 2018 were North America, EMEA and Asia Pacific. There was no
impairment of goodwill for any reporting unit because the fair values of the reporting units exceeded their carrying
values.
We updated our reporting segments in the first quarter of 2017. As a result of the change in segments, we
combined our Northern EMEA, Southern EMEA and Central EMEA reporting units into a single EMEA reporting unit,
which is one level below the International segment. As a result of the change in reporting units, we performed a
qualitative assessment of potential goodwill impairment for the new EMEA reporting unit and performed separate
qualitative assessments of potential goodwill impairment for the Northern EMEA, Southern EMEA and Central EMEA
previous reporting units immediately prior to the change. We also performed a qualitative assessment of potential
goodwill impairment for the remainder of our Asia Pacific reporting unit following the dispositions of businesses in that
reporting unit during the first quarter of 2017. Based on those assessments, which considered current market conditions,
recent business performance and the amounts by which fair values exceeded carrying values in quantitative impairment
tests performed as of October 1, 2016, we determined that the likelihood of a goodwill impairment did not reach the
more-likely-than not threshold specified in U.S. GAAP for any of the reporting units that were evaluated. Accordingly,
we concluded that goodwill related to those reporting units was not impaired and further quantitative testing was not
required to be performed. In addition, we sold all of the operations of our Latin America reporting unit in the first quarter
of 2017 and the goodwill of that reporting unit was included in the net book value that was derecognized. See Item 8,
Note 19, Segment Information, for information on our change in reporting segments and Item 8, Note 3, Discontinued
Operations and Other Business Dispositions, for information about the dispositions of operations in Asia and Latin
America.
Future changes in our assumptions or the interrelationship of the assumptions described above may negatively
impact future valuations. In future measurements of fair value, adverse changes in assumptions could result in
impairments of goodwill or long-lived assets that would require non-cash charges to the consolidated statements of
operations and may have a material effect on our financial condition and operating results.
Income Taxes
Refer to Item 8, Note 2, Summary of Significant Accounting Policies, and Note 15, Income Taxes, for information
about our income tax accounting policies.
70
Fair Value Option Investments
Refer to Item 8, Note 7, Investments, for information about the fair value measurements of our fair value option
investments. Additional information about those fair value measurements is set forth in the following paragraphs.
If Monster LP or Nearbuy seek additional financing in order to fund their growth strategies, such financing
transactions may result in dilution of our ownership stakes and they may occur at lower valuations, which could
significantly decrease the fair values of our investments in those entities. For example, in December 2016, Monster
LP issued a new class of partnership units (Class A-1) to its controlling investor group and a new investor for total
proceeds of $65.0 million. The fair value of Monster LP implied by the terms of that transaction was lower than its
estimated fair value in previous periods, which resulted in a significant decrease in the fair value of our investment for
the year ended December 31, 2016. Additionally, if Monster LP or Nearbuy are unable to obtain any such financing,
those entities could need to significantly reduce their spending in order to fund their operations. Such actions likely
would result in reduced growth forecasts, which also could significantly decrease the fair values of our investments in
those entities.
Estimating the fair values of our investments requires significant judgment regarding the assumptions that
market participants would use in pricing those assets. As the fair value measurements involve significant unobservable
inputs, such as cash flow projections and discount rates, they are classified as Level 3 within the fair value hierarchy.
Future changes in judgment about the related fair value inputs, including changes that may result from any subsequent
financing transactions undertaken by those investees, could result in significant increases or decreases in fair value
that would be recognized in earnings.
Recently Issued Accounting Standards
For a description of recently issued accounting standards, please see Item 8, Note 2, Summary of Significant
Accounting Policies, to the consolidated financial statements of this Annual Report on Form 10-K.
71
ITEM 7A. 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 these 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 the year ended December
31, 2018, we derived approximately 37.8% 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 these 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 December 31, 2018 and
2017.
As of December 31, 2018, our net working capital deficit (defined as current assets less current liabilities) from
subsidiaries that are subject to foreign currency translation risk was $20.8 million. The potential increase in this working
capital deficit from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be $2.1
million. This compares to a $21.5 million working capital deficit subject to foreign currency exposure as of December
31, 2017, for which a 10% adverse change would have resulted in a potential increase in this working capital deficit
of $2.2 million.
Interest Rate Risk
Our cash balance as of December 31, 2018 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 8, Note 9, 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 June 2016, we entered into the Amended and Restated Credit Agreement that
provides for aggregate principal borrowings of up to $250.0 million. As of December 31, 2018, there were no borrowings
outstanding under the Amended and Restated Credit Agreement. Because the Amended and Restated 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 Amended and Restated Credit Agreement. We also have $29.7 million of capital lease obligations.
We do not believe that the interest rate risk on the capital 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 year ended December 31, 2018.
72
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Table of Contents
Groupon, Inc.
Consolidated Financial Statements
As of December 31, 2018 and 2017 and for the Years Ended December 31, 2018, 2017 and 2016
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
74
76
77
78
79
81
83
73
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Groupon, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Groupon, Inc. and subsidiaries (the
"Company") as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive
income (loss), stockholders' equity, and cash flows for each of the two years in the period ended December 31,
2018, and the related notes and the schedule listed in the Index at Item 15(2) (collectively referred to as the
"financial statements"). In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations
and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based
on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 12, 2019, expressed an unqualified
opinion on the Company's internal control over financial reporting.
Adoption of New Revenue Recognition Accounting Standard
As discussed in Note 13 to the financial statements, the Company has changed its method of accounting for
revenue transactions in 2018 due to the adoption of the guidance in ASC Topic 606, Revenue from Contracts with
Customers.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures to
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 12, 2019
We have served as the Company's auditor since 2017.
74
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Groupon, Inc.
We have audited the accompanying consolidated statements of operations, comprehensive income (loss),
stockholders' equity, and cash flows for the year ended December 31, 2016. Our audit also included the financial
statement schedule listed in Item 15(2) for 2016. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements and schedule based
on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Groupon, Inc. at December 31, 2016, and the consolidated results of its operations, and its cash
flows for the year ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, on January 1, 2016, the Company adopted
the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No.
2016-09, "Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment
Accounting."
/s/ Ernst & Young LLP
Chicago, Illinois
February 15, 2017
except for Notes 1, 3 and 19, as to which the date is May 17, 2017, and Note 2, as to which the date is February 12,
2019
75
GROUPON, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Property, equipment and software, net
Goodwill
Intangible assets, net
Investments (including $84,242 and $109,751 at December 31, 2018 and December 31, 2017
at fair value)
Other non-current assets
Total Assets
Liabilities and Equity
Current liabilities:
Accounts payable
Accrued merchant and supplier payables
Accrued expenses and other current liabilities
Total current liabilities
Convertible senior notes, net
Other non-current liabilities
Total Liabilities
Commitments and contingencies (see Note 10)
Stockholders' Equity
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized; 760,939,440
shares issued and 569,084,312 shares outstanding at December 31, 2018; 748,541,862 shares
issued and 559,939,620 shares outstanding at December 31, 2017
Additional paid-in capital
Treasury stock, at cost, 191,855,128 and 188,602,242 shares at December 31, 2018 and
December 31, 2017
Accumulated deficit
Accumulated other comprehensive income
Total Groupon, Inc. Stockholders' Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
December 31,
2018
2017
$
841,021
$
69,493
88,115
998,629
143,117
325,491
45,401
108,515
20,989
880,129
98,294
94,025
1,072,448
151,145
286,989
19,196
135,189
12,538
$
$
1,642,142
$
1,677,505
38,359
$
651,781
267,034
957,174
201,669
100,688
1,259,531
31,968
770,335
331,196
1,133,499
189,753
102,408
1,425,660
76
75
2,234,560
2,174,708
(877,491)
(1,010,499)
34,602
381,248
1,363
382,611
(867,450)
(1,088,204)
31,844
250,973
872
251,845
$
1,642,142
$
1,677,505
See Notes to Consolidated Financial Statements.
76
GROUPON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Revenue:
Service
Product
Total revenue
Cost of revenue:
Service
Product
Total cost of revenue
Gross profit
Operating expenses:
Marketing
Selling, general and administrative
Restructuring charges
Gain on sale of intangible assets
Gain on business dispositions
Total operating expenses
Income (loss) from operations
Other income (expense), net
Income (loss) from continuing operations before provision (benefit) for
income taxes
Provision (benefit) for income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to Groupon, Inc.
Basic net income (loss) per share (1):
Continuing operations
Discontinued operations
Basic net income (loss) per share
Diluted net income (loss) per share (1):
Continuing operations
Discontinued operations
Diluted net income (loss) per share
Year Ended December 31,
2018
2017
2016
$
1,205,487
$
1,266,452
$
1,206,441
1,431,259
2,636,746
120,077
1,196,068
1,316,145
1,320,601
395,737
870,961
(136)
—
—
1,577,425
2,843,877
160,810
1,349,206
1,510,016
1,333,861
400,918
901,829
18,828
(17,149)
—
1,807,174
3,013,615
150,031
1,582,931
1,732,962
1,280,653
352,175
999,677
40,438
—
(11,399)
1,266,562
1,304,426
1,380,891
54,039
(53,008)
1,031
(957)
1,988
—
1,988
(13,067)
29,435
6,710
36,145
7,544
28,601
(1,974)
26,627
(12,587)
(100,238)
(71,289)
(171,527)
(5,318)
(166,209)
(17,114)
(183,323)
(11,264)
(11,079) $
14,040
$
(194,587)
(0.02) $
0.00
(0.02) $
(0.02) $
0.00
(0.02) $
0.03
$
(0.00)
0.03
$
0.03
$
(0.01)
0.02
$
(0.31)
(0.03)
(0.34)
(0.31)
(0.03)
(0.34)
$
$
$
$
$
Weighted average number of shares outstanding (1):
Basic
Diluted
566,511,108
559,367,075
576,354,258
566,511,108
568,418,371
576,354,258
(1)
The structure of our common stock changed during the year ended December 31, 2016. Refer to Note 11, Stockholders' Equity, and Note
18, Income (Loss) Per Share, for additional information.
See Notes to Consolidated Financial Statements.
77
GROUPON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Income (loss) from continuing operations
$
1,988
$
28,601
$
(166,209)
Year Ended December 31,
2018
2017
2016
Other comprehensive income (loss) from continuing operations:
Net change in unrealized gain (loss) on foreign currency translation
adjustment
Net change in unrealized gain (loss) on defined benefit pension plan
Available-for-sale securities:
Net unrealized gain (loss) during the period
Reclassification adjustment for realized (gain) loss on investment included
in income (loss) from continuing operations
Net change in unrealized gain (loss) on available-for-sale securities (net of tax
effect of $34, $0 and $43 for the years ended December 31, 2018, 2017 and
2016)
Other comprehensive income (loss) from continuing operations
Comprehensive income (loss) from continuing operations
Income (loss) from discontinued operations
Other comprehensive income (loss) from discontinued operations - Foreign
currency translation adjustments:
Net unrealized gain (loss) during the period
Reclassification adjustment included in income (loss) from discontinued
operations
Net change in unrealized gain (loss)
Comprehensive income (loss) from discontinued operations
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interests
3,332
—
(841)
106
(735)
2,597
4,585
—
—
—
—
—
4,585
(13,067)
(10,776)
585
(1,109)
1,603
494
(9,697)
18,904
8,361
928
(70)
—
(70)
9,219
(156,990)
(1,974)
(17,114)
(1,793)
(9,305)
(14,718)
(16,511)
(18,485)
419
(12,587)
6,932
(2,373)
(19,487)
(176,477)
(11,264)
Comprehensive income (loss) attributable to Groupon, Inc.
$
(8,482) $
(12,168) $
(187,741)
See Notes to Consolidated Financial Statements.
78
GROUPON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
Balance at December 31, 2015
719,787,422
$
72
$ 1,964,453
(128,468,165) $(645,041) $
(901,292) $
51,206
$
469,398
$
1,189
$ 470,587
Groupon, Inc. Stockholders' Equity
Common Stock (1)
Shares
Amount
Additional
Paid-In
Capital
Treasury Stock
Shares
Amount
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total Groupon,
Inc.
Stockholders'
Equity
Non-
controlling
Interests
Total
Equity
Cumulative effect of change in accounting principle
Net income (loss)
Foreign currency translation
Pension liability adjustment, net of tax
Unrealized gain (loss) on available-for-sale securities, net of tax
Forfeitures of unvested restricted stock
Exercise of stock options
Vesting of restricted stock units
Shares issued under employee stock purchase plan
—
—
—
—
—
(196,968)
491,483
22,698,324
1,669,782
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
620
(3)
4,358
Tax withholdings related to net share settlements of stock-based
compensation awards
(7,918,272)
(1)
(31,160)
Stock-based compensation on equity-classified awards
Equity component of the convertible senior notes, net of tax and
issuance costs
Purchase of convertible note hedges
Issuance of warrants
Purchases of treasury stock
Distributions to noncontrolling interest holders
—
—
—
—
—
—
—
—
—
—
—
—
131,114
67,014
(59,163)
35,495
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(43,227,743)
(162,383)
—
—
(3,131)
(194,587)
—
—
(3,131)
—
(3,131)
(194,587)
11,264
(183,323)
5,988
5,988
—
—
—
—
—
—
—
—
—
—
—
—
—
—
928
(70)
—
620
—
4,358
(31,161)
131,114
67,014
(59,163)
35,495
—
—
—
—
—
—
—
—
—
—
—
—
5,988
928
(70)
—
620
—
4,358
(31,161)
131,114
67,014
(59,163)
35,495
(162,383)
— (162,383)
—
(11,811)
(11,811)
928
(70)
—
—
—
—
—
—
—
—
—
—
—
Balance at December 31, 2016
736,531,771
$
74
$ 2,112,728
(171,695,908) $(807,424) $ (1,099,010) $
58,052
$
264,420
$
642
$ 265,062
Cumulative effect of change in accounting principle
Net income (loss)
Foreign currency translation
Pension liability adjustment, net of tax
Unrealized gain (loss) on available-for-sale securities, net of tax
—
—
—
—
—
Exercise of stock options
102,803
Vesting of restricted stock units and performance share units
16,596,562
Shares issued under employee stock purchase plan
1,879,656
Tax withholdings related to net share settlements of stock-based
compensation awards
Stock-based compensation on equity-classified awards
(6,568,930)
—
—
—
—
—
—
—
2
—
(1)
—
—
—
—
—
—
230
(2)
5,283
(27,187)
83,656
79
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,234)
14,040
—
—
(3,234)
—
(3,234)
14,040
12,587
26,627
—
—
—
—
—
—
—
—
(27,287)
(27,287)
585
494
—
—
—
—
—
585
494
230
—
5,283
(27,188)
83,656
—
—
—
—
—
—
—
—
(27,287)
585
494
230
—
5,283
(27,188)
83,656
Groupon, Inc. Stockholders' Equity
Common Stock (1)
Shares
Amount
Additional
Paid-In
Capital
Treasury Stock
Shares
Amount
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total Groupon,
Inc.
Stockholders'
Equity
Non-
controlling
Interests
Total
Equity
Purchases of treasury stock
Distributions to noncontrolling interest holders
—
—
—
—
—
—
(16,906,334)
(60,026)
—
—
—
—
—
—
(60,026)
—
(60,026)
—
(12,357)
(12,357)
Balance at December 31, 2017
748,541,862
$
75
$ 2,174,708
(188,602,242) $(867,450) $ (1,088,204) $
31,844
$
250,973
$
872
$ 251,845
Cumulative effect of change in accounting principle, net of tax
Reclassification for impact of U.S. tax rate change
Net income (loss)
Foreign currency translation
Unrealized gain (loss) on available-for-sale securities, net of tax
—
—
—
—
—
Exercise of stock options
672,793
Vesting of restricted stock units and performance share units
14,264,895
Shares issued under employee stock purchase plan
Shares issued to settle liability-classified awards
Tax withholdings related to net share settlements of stock-based
compensation awards
Stock-based compensation on equity-classified awards
Purchases of treasury stock
Distributions to noncontrolling interest holders
1,621,061
1,240,379
(5,401,550)
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
81
(1)
5,634
6,436
(22,709)
70,411
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,252,886)
(10,041)
—
—
88,945
(161)
(11,079)
—
—
—
—
—
—
—
—
—
—
—
161
—
3,332
(735)
—
—
—
—
—
—
—
—
88,945
—
—
—
(11,079)
13,067
3,332
(735)
81
—
5,634
6,436
(22,709)
70,411
(10,041)
—
—
—
—
—
—
—
—
—
88,945
—
1,988
3,332
(735)
81
—
5,634
6,436
(22,709)
70,411
(10,041)
—
(12,576)
(12,576)
Balance at December 31, 2018
760,939,440
$
76
$ 2,234,560
(191,855,128) $(877,491) $ (1,010,499) $
34,602
$
381,248
$
1,363
$ 382,611
(1)
The structure of our common stock changed during the year ended December 31, 2016. Refer to Note 11, Stockholders' Equity, and Note 18, Income (Loss) Per Share, for additional information.
See Notes to Consolidated Financial Statements.
80
GROUPON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities
Net income (loss)
Less: Income (loss) from discontinued operations, net of tax
Income (loss) from continuing operations
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property, equipment and software
Amortization of acquired intangible assets
Stock-based compensation
Gain on business dispositions
Gain on sale of intangible assets
Gain on sale of investment
Restructuring-related long-lived asset impairment
Impairments of investments
Deferred income taxes
(Gain) loss, net from changes in fair value of contingent consideration
(Gain) loss from changes in fair value of investments
Amortization of debt discount on convertible senior notes
Change in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable
Prepaid expenses and other current assets
Accounts payable
Accrued merchant and supplier payables
Accrued expenses and other current liabilities
Other, net
Net cash provided by (used in) operating activities from continuing operations
Net cash provided by (used in) operating activities from discontinued operations
Net cash provided by (used in) operating activities
Investing activities
Purchases of property and equipment and capitalized software
Cash derecognized upon dispositions of subsidiaries
Proceeds from sale of intangible assets
Proceeds from sales and maturities of investments
Acquisitions of businesses, net of acquired cash
Acquisitions of intangible assets and other investing activities
Net cash provided by (used in) investing activities from continuing operations
Net cash provided by (used in) investing activities from discontinued operations
Net cash provided by (used in) investing activities
Financing activities
Proceeds from issuance of convertible senior notes
Issuance costs for convertible senior notes and revolving credit agreement
Purchase of convertible note hedges
Proceeds from issuance of warrants
Payments for purchases of treasury stock
Taxes paid related to net share settlements of stock-based compensation awards
Proceeds from stock option exercises and employee stock purchase plan
Distributions to noncontrolling interest holders
Payments of capital lease obligations
Payments of contingent consideration related to acquisitions
Payment of financing obligation related to acquisition
Other financing activities
Net cash provided by (used in) financing activities
Year Ended December 31,
2017
2016
2018
$
$
1,988
—
1,988
$
26,627
(1,974)
28,601
(183,323)
(17,114)
(166,209)
101,330
14,498
64,821
—
—
—
—
10,156
(5,000)
—
9,064
11,916
32,057
7,166
5,805
(45,268)
(31,430)
13,752
190,855
—
190,855
(69,695)
—
1,500
8,594
(58,119)
(18,262)
(135,982)
—
(135,982)
—
—
—
—
(9,585)
(24,105)
5,715
(12,576)
(33,023)
(1,815)
(8,391)
(637)
(84,417)
114,795
23,032
82,044
—
(17,149)
(7,624)
—
2,944
603
—
(382)
10,758
(18,793)
4,074
(199)
(29,823)
(40,361)
(21,975)
130,545
(2,418)
128,127
(59,158)
—
18,333
16,561
—
(1,059)
(25,323)
(9,548)
(34,871)
—
—
—
—
(61,233)
(27,681)
5,513
(12,357)
(34,025)
(7,790)
—
(473)
(138,046)
116,961
18,948
115,123
(11,399)
—
—
328
—
(10,448)
4,092
48,141
7,376
(16,584)
35,043
5,121
26,729
(32,124)
(10,853)
130,245
(11,823)
118,422
(68,287)
(1,128)
—
1,685
14,539
(2,395)
(55,586)
(1,900)
(57,486)
250,000
(8,147)
(59,163)
35,495
(165,357)
(29,777)
4,978
(11,811)
(30,598)
(285)
—
—
(14,665)
Effect of exchange rate changes on cash, cash equivalents and restricted cash, including cash
classified within current assets of discontinued operations
Net increase (decrease) in cash, cash equivalents and restricted cash, including cash classified
within current assets of discontinued operations
Less: Net increase (decrease) in cash classified within current assets of discontinued operations
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
(11,209)
26,499
(6,718)
(40,753)
—
(40,753)
885,481
844,728
$
(18,291)
(28,866)
10,575
874,906
885,481
$
39,553
(186)
39,739
835,167
874,906
$
See Notes to Consolidated Financial Statements.
81
Supplemental disclosure of cash flow information
Income tax payments (refunds) for continuing operations
Income tax payments (refunds) for discontinued operations
Cash paid for interest
Non-cash investing and financing activities
Continuing operations:
Equipment acquired under capital lease obligations
Leasehold improvements funded by lessor
Liability for purchases of treasury stock
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software
Investments acquired in connection with business dispositions
Contingent consideration liability incurred in connection with acquisition of business
Year Ended December 31,
2017
2016
2018
$
2,781
$
8,646
$
—
9,556
(56)
9,425
18,064
28,271
557
456
(482)
—
1,529
402
—
972
2,022
—
(7,208)
2,953
1,185
21,611
4,990
1,207
3,855
13,507
—
See Notes to Consolidated Financial Statements.
82
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Company Information
Groupon, Inc. and subsidiaries, which commenced operations in October 2008, operates 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 two segments: North America and International. See Note 19, Segment
Information.
In connection with a strategic initiative to optimize our global footprint, we sold our operations in 11 countries
and ceased operations in another country between November 2016 and March 2017. The financial results of those
operations have been presented as discontinued operations in the consolidated financial statements for the years
ended December 31, 2017 and 2016. See Note 3, Discontinued Operations and Other Business Dispositions, for
additional information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Groupon, Inc. and its subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation. The 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 variable interest entities for
which we have determined that we are the primary beneficiary. Outside stockholders' interests in subsidiaries are
shown on the 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.
Adoption of New Accounting Standards
We adopted the guidance in ASC Topic 606, Revenue from Contracts with Customers, on January 1, 2018.
Topic 606 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict
the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in
exchange for those goods or services. See Note 13, Revenue Recognition, for information on the impact of adopting
Topic 606 on our accounting policies.
We adopted the guidance in ASU 2016-01, Financial Instruments (Topic 825-10) - Recognition and
Measurement of Financial Assets and Financial Liabilities, as amended, on January 1, 2018. This ASU generally
requires equity investments to be measured at fair value with changes in fair value recognized through net income
and eliminates the cost method for equity securities. However, for equity investments without readily determinable fair
values, the ASU permits entities to elect to measure the investments at cost adjusted for observable price changes
and impairments, with changes in the measurement recognized through net income. We applied that measurement
alternative to our equity investments that were previously accounted for under the cost method. The adoption of ASU
2016-01 did not have a material impact on the consolidated financial statements.
We adopted the guidance in ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash, on January
1, 2018. This ASU requires companies to include amounts generally described as restricted cash and restricted cash
equivalents, along with cash and cash equivalents, when reconciling the beginning-of-period and end-of-period amounts
shown on the statement of cash flows. Previously, changes in restricted cash were reported within cash flows from
operating activities. We applied that change in cash flow classification on a retrospective basis, which resulted in a
$7.0 million decrease and a $1.3 million increase to net cash provided by operating activities for the years ended
December 31, 2017 and 2016.
83
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the
consolidated balance sheets to amounts shown in the consolidated statements of cash flows, as of December 31,
2018, 2017 and 2016 (in thousands):
Cash and cash equivalents
Restricted cash included in prepaid expenses and other current assets
Restricted cash included in other non-current assets
Cash, cash equivalents and restricted cash
December 31, 2018
December 31, 2017
December 31, 2016
$
$
841,021
$
880,129
$
862,977
3,320
387
4,932
420
5,769
6,160
844,728
$
885,481
$
874,906
We adopted the guidance in ASU 2017-05, Other Income-Gains and Losses from the Derecognition of
Nonfinancial Assets (Subtopic 610-20) - Clarifying the Scope of Asset Derecognition Guidance and Accounting for
Partial Sales of Nonfinancial Assets, on January 1, 2018. This ASU is meant to clarify the scope of ASC Subtopic
610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial
sales of nonfinancial assets. The adoption of ASU 2017-05 did not have a material impact on the consolidated financial
statements.
We adopted the guidance in ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on January 1, 2018. This
ASU requires employers to include only the service cost component of net periodic pension cost in operating expenses,
together with other employee compensation costs. The other components of net periodic pension cost, including interest
cost, expected return on plan assets, amortization of prior service cost and settlement and curtailment effects, are to
be included in non-operating expenses. The adoption of ASU 2017-07 did not have a material impact on the consolidated
financial statements.
We adopted the guidance in ASU 2017-09, Compensation - Stock Compensation (Topic 718) - Scope of
Modification Accounting, on January 1, 2018. This ASU clarifies the changes to terms or conditions of a share-based
payment award that require an entity to apply modification accounting. The adoption of ASU 2017-09 did not have a
material impact on the consolidated financial statements.
We adopted the guidance in ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)
- Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, as of January 1, 2018. This
ASU permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax
effects resulting from the Tax Cuts and Jobs Act (the "Jobs Act"). As a result of the adoption of ASU 2018-02, we
reclassified $0.2 million from accumulated other comprehensive income to accumulated deficit.
We adopted the guidance in ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a
Business, on July 1, 2017. This ASU provides clarification on the definition of a business and provides guidance on
whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance in
ASU 2017-01 was applied in determining that the sale of customer lists and other intangible assets in certain food
delivery markets, as described in Note 6, Goodwill and Other Intangible Assets, did not meet the definition of a business.
The adoption of ASU 2017-01 did not otherwise impact the accompanying consolidated financial statements.
We adopted the guidance in ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (Topic 740),
on January 1, 2017. This ASU requires immediate recognition of the income tax consequences of intercompany asset
transfers other than inventory. We recorded a $3.2 million cumulative effect adjustment to increase our accumulated
deficit as of January 1, 2017 to recognize the impact of that change in accounting policy.
We adopted the guidance in ASU 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory,
on January 1, 2017. This ASU requires inventory to be measured at the lower of cost or net realizable value, rather
than the lower of cost or market. The adoption of ASU 2015-11 did not have a material impact on the accompanying
consolidated financial statements.
84
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We adopted the guidance in ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic
205-40) - Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, as of December 31,
2016. This ASU requires management to assess a company's ability to continue as a going concern and to provide
related disclosures in certain circumstances. Based on the results of our analysis, no additional disclosures were
required.
We adopted the guidance in ASU 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements
to Employee Share-Based Payment Accounting, on January 1, 2016. Under this ASU, entities are permitted to make
an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required,
or to recognize forfeitures as they occur. We elected to recognize forfeitures as they occur and the impact of that
change in accounting policy was recorded as a $3.1 million cumulative effect adjustment to increase accumulated
deficit as of January 1, 2016. Additionally, ASU 2016-09 requires that all income tax effects related to settlements of
share-based payment awards be reported in earnings as an increase or decrease to provision (benefit) for income
taxes. Previously, income tax benefits at settlement of an award were reported as an increase (or decrease) to additional
paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits reported in
earnings during the award's vesting period. The requirement to report those income tax effects in earnings was applied
on a prospective basis to settlements occurring on or after January 1, 2016. ASU 2016-09 also requires that all income
tax-related cash flows resulting from share-based payment awards be reported as operating activities in the consolidated
statement of cash flows. Previously, income tax benefits at settlement of an award were reported as a reduction to
operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income
tax benefits reported in earnings during the award's vesting period. The Company elected to apply that change in cash
flow classification on a retrospective basis, which resulted in an increase of $7.6 million to net cash provided by operating
activities and a corresponding increase to net cash used in financing activities for the year ended December 31, 2015.
The remaining provisions of ASU 2016-09 did not have a material impact on the accompanying consolidated financial
statements.
We adopted the guidance in ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation
Analysis, on January 1, 2016. This ASU expands the variable interest entity ("VIE") criteria to specifically include limited
partnerships in certain circumstances. The adoption of ASU 2015-02 did not have a material impact on the accompanying
consolidated financial statements. We determined that Monster Holdings LP ("Monster LP") is not a VIE under ASU
2015-02, which is consistent with its conclusion prior to adoption of the ASU. That investment is evaluated as a
corporation, rather than a limited partnership, for purposes of making consolidation determinations because its
governance structure is akin to a corporation. Under the terms of Monster LP’s amended and restated agreement of
limited partnership, all of the objectives and purposes of Monster LP are carried out by a board of directors, rather than
a general partner.
Reclassifications and Terminology Changes
Certain reclassifications have been made to the consolidated financial statements of prior periods and the
accompanying notes to conform to the current period presentation, including the change in presentation of restricted
cash in the consolidated statements of cash flows upon adoption of ASU 2016-18 as described above. Additionally, in
prior years, we referred to our product revenue and service revenue as "direct revenue" and "third-party and other
revenue," respectively. This terminology change did not impact the amounts presented in the consolidated financial
statements.
Use of Estimates
The preparation of 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 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.
85
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of three months or less from the date of
purchase to be cash equivalents. Restricted cash represents amounts that we are unable to access for operational
purposes. These amounts primarily relate to withholdings from employee paychecks under our employee stock
purchase plan ("ESPP").
Accounts Receivable, Net
Accounts receivable primarily represents the net cash due from credit card and other payment processors and
from merchants and performance marketing networks for commissions earned on consumer purchases. The carrying
amount of receivables is reduced by an allowance for doubtful accounts that reflects management's best estimate of
amounts that will not be collected. The allowance is based on historical loss experience and any specific risks identified
in collection matters. Accounts receivable are charged off against the allowance for doubtful accounts when it is
determined that the receivable is uncollectible.
Inventories
Inventories, consisting of merchandise purchased for resale, are accounted for using the first-in, first-out
method of accounting and are valued at the lower of cost or net realizable value. We write down our inventory to the
lower of cost or net realizable value based upon assumptions about future demand and market conditions. If actual
market conditions are less favorable than those projected, additional inventory write-downs may be required. Once
established, the original cost of the inventory less the related inventory write-down represents a new cost basis.
Property and Equipment
Property and equipment are stated at cost and assets under capital leases are stated at the lesser of the
present value of minimum lease payments or their fair market value. Depreciation and amortization of property and
equipment is recorded on a straight-line basis over the estimated useful lives of the assets. Generally, the useful lives
are three to five years for computer hardware and office equipment, five to ten years for furniture and fixtures and
warehouse equipment and the shorter of the term of the lease or the asset’s useful life for leasehold improvements
and assets under capital leases.
Internal-Use Software
We incur costs related to internal-use software and website development, including purchased software and
internally-developed software. Costs incurred in the planning and evaluation stage of internally-developed software
and website development are expensed as incurred. Costs incurred and accumulated during the application
development stage are capitalized and included within Property, equipment and software, net on the consolidated
balance sheets. Amortization of internal-use software is recorded on a straight-line basis over the two-year estimated
useful life of the assets.
Impairment of Long-Lived Assets
Long-lived assets, such as property, equipment and software and intangible assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not
be recoverable. If circumstances require that a long-lived asset or asset group to be held and used be tested for possible
impairment, we first compare the undiscounted cash flows expected to be generated by that long-lived asset or asset
group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an
undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.
Long-lived assets or disposal groups classified as held for sale are recorded at the lower of their carrying
amount or fair value less estimated selling costs. Long-lived assets are not depreciated or amortized while classified
as held for sale.
86
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill
Goodwill is allocated to our reporting units at the date the goodwill is initially recorded. Once goodwill has been
allocated to the reporting units, it no longer retains its identification with a particular acquisition and becomes identified
with the reporting unit in its entirety. Accordingly, the fair value of the reporting unit as a whole is available to support
the recoverability of its goodwill.
We evaluate goodwill for impairment annually on October 1 or more frequently when an event occurs or
circumstances change that indicates the carrying value may not be recoverable. We have the option to assess goodwill
for impairment by first performing a qualitative assessment to determine whether it is more-likely-than-not that the fair
value of a reporting unit is less than its carrying amount. If we determine that it is not more-likely-than-not that the fair
value of a reporting unit is less than its carrying amount, then the two-step goodwill impairment test is not required to
be performed. If we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying
amount, or if we do not elect the option to perform an initial qualitative assessment, we perform the two-step goodwill
impairment test. In the first step, the fair value of the reporting unit is compared with its book value including goodwill.
If the fair value of the reporting unit is in excess of its book value, the related goodwill is not impaired and no further
analysis is necessary. If the fair value of the reporting unit is less than its book value, there is an indication of potential
impairment and a second step is performed. When required, the second step of testing involves calculating the implied
fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in the same manner as
goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit determined
in step one over the fair value of its net assets, including identifiable intangible assets, as if the reporting unit had been
acquired. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment
loss is recognized in an amount equal to that excess. For reporting units with a negative book value (i.e., excess of
liabilities over assets), we evaluate qualitative factors to determine whether it is necessary to perform the second step
of the goodwill impairment test.
Investments
Investments in equity shares without a readily determinable fair value and for which we do not have the ability
to exercise significant influence are accounted for at cost adjusted for observable price changes and impairments, with
changes in the measurement recognized through net income. Those investments are classified within Investments on
the consolidated balance sheets.
Investments in common stock or in-substance common stock for which we have the ability to exercise significant
influence are accounted for under the equity method, except where we have made an irrevocable election to account
for the investments at fair value. Those investments are classified within Investments on the consolidated balance
sheets. The proportionate share of income or loss on equity method investments and changes in the fair values of
investments for which the fair value option has been elected are presented within Other income (expense), net on the
consolidated statements of operations.
Investments in convertible debt securities and convertible redeemable preferred shares are accounted for as
available-for-sale securities, which are classified within Investments on the consolidated balance sheets. Available-
for-sale securities are recorded at fair value each reporting period. Unrealized gains and losses, net of the related tax
effects, are excluded from earnings and recorded as a separate component within Accumulated other comprehensive
income on the consolidated balance sheets until realized. Interest income from available-for-sale securities is reported
within Other income (expense), net on the consolidated statements of operations.
87
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other-than-Temporary Impairment of Investments
An unrealized loss exists when the current fair value of an investment is less than its cost basis. We conduct
reviews of our investments with unrealized losses on a quarterly basis to evaluate whether those impairments are
other-than-temporary. This evaluation, which is performed at the individual investment level, considers qualitative and
quantitative factors regarding the severity and duration of the unrealized loss, as well as our intent and ability to hold
the investment for a period of time that is sufficient to allow for an anticipated recovery in value. Evidence considered
in this evaluation includes the amount of the impairment, the length of time that the investment has been impaired, the
factors contributing to the impairment, the financial condition and near-term prospects of the investee, recent operating
trends and forecasted performance of the investee, market conditions in the geographic area or industry in which the
investee operates and our strategic plans for holding the investment in relation to the period of time expected for an
anticipated recovery in value. Additionally, we consider whether we intend to sell the investment or whether it is more
likely than not that it will be required to sell the investment before recovery of its amortized cost basis. Investments
with unrealized losses that are determined to be other-than-temporary are written down to fair value with a charge to
earnings. Unrealized losses that are determined to be temporary in nature are not recorded for equity method
investments, while such losses are recorded, net of tax, in accumulated other comprehensive income for available-
for-sale securities.
Income Taxes
We account for income taxes using the asset and liability method, under which deferred income tax assets
and liabilities are recognized based upon anticipated future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their respective tax bases. We regularly review
deferred tax assets to assess whether it is more likely than not that the deferred tax assets will be realized and, if
necessary, establish a valuation allowance for portions of such assets to reduce the carrying value.
For purposes of assessing whether it is more likely than not that deferred tax assets will be realized, we consider
the following four sources of taxable income for each tax jurisdiction: (a) future reversals of existing taxable temporary
differences, (b) projected future earnings, (c) taxable income in carryback years, to the extent that carrybacks are
permitted under the tax laws of the applicable jurisdiction, and (d) tax planning strategies, which represent prudent
and feasible actions that a company ordinarily might not take, but would take to prevent an operating loss or tax credit
carryforward from expiring unused. To the extent that evidence about one or more of these sources of taxable income
is sufficient to support a conclusion that a valuation allowance is not necessary, other sources need not be considered.
Otherwise, evidence about each of the sources of taxable income is considered in arriving at a conclusion about the
need for and amount of a valuation allowance. See Note 15, Income Taxes, for further information about our valuation
allowance assessments.
We are subject to taxation in the United States, various states and foreign jurisdictions. Significant judgment
is required in determining the worldwide provision for income taxes and recording the related income tax assets and
liabilities. During the ordinary course of business, there are many transactions and calculations for which the ultimate
tax determination is uncertain. For example, our effective tax rate could be adversely affected by earnings being lower
than anticipated in countries where it has lower statutory rates and higher than anticipated in countries where it has
higher statutory rates, by changes in foreign currency exchange rates, by changes in the valuation of deferred tax
assets and liabilities, by changes in the measurement of uncertain tax positions or by changes in the relevant laws,
regulations, principles and interpretations. We account for uncertainty in income taxes by recognizing the financial
statement benefit of a tax position only after determining that the relevant tax authority would more likely than not
sustain the position following an audit. For tax positions meeting the more-likely-than-not criteria, the amount recognized
in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being
realized upon ultimate settlement with the relevant tax authority.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lease and Asset Retirement Obligations
We classify leases at their inception as either operating or capital leases and may receive renewal or expansion
options, rent holidays and leasehold improvement or other incentives on certain lease agreements. We recognize
operating lease costs on a straight-line basis, taking into account adjustments for escalating payments and lease
incentives. Rent expense associated with operating lease obligations is primarily classified within Selling, general and
administrative on the consolidated statements of operations. Minimum lease payments made under capital leases are
apportioned between interest expense, which is presented within Other income (expense), net on the consolidated
statements of operations, and a reduction of the related capital lease obligations, which are classified within Accrued
expenses and other current liabilities and Other non-current liabilities on the consolidated balance sheets.
We establish assets and liabilities for the present value of estimated future costs to retire long-lived assets at
the termination or expiration of a lease. Such assets are amortized over the lease term, and the recorded liabilities are
accreted to the future value of the estimated retirement costs. The related amortization and accretion expenses are
presented within Selling, general and administrative on the consolidated statements of operations.
Revenue Recognition
On January 1, 2018, we adopted Topic 606 using the modified retrospective method. Beginning on January 1,
2018, results 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. See Note 13, Revenue Recognition, for additional
information.
We recognize revenue when we satisfy a performance obligation by transferring a promised good or service
to a customer. Substantially all of our performance obligations are satisfied at a point in time rather than over time.
Service revenue
Service revenue is primarily earned from transactions in which we earn commissions by selling goods or
services on behalf of third-party merchants. Those transactions generally involve a customer's purchase of a voucher
through one of our online marketplaces that can be redeemed with a third-party merchant for specified goods or services
(or for discounts on specified goods or services). Service revenue from those transactions is reported 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. We recognize revenue from those transactions when our commission has been earned, which occurs
when a sale through one of our online marketplaces is completed and the related voucher has been made available
to the customer. We believe that our remaining obligations to remit payment to the merchant and to provide information
about vouchers sold are administrative activities that are immaterial in the context of the contract with the merchant.
Revenue from hotel reservation offerings is recognized at the time the reservation is made, net of an allowance for
estimated cancellations.
We also earn commissions 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. We recognize those commissions
as revenue in the period in which the underlying transactions between the customer and the third-party merchant are
completed. Additionally, we earn advertising revenue when the advertiser's logo or website link has been included on
our websites or in specified email distributions for the requisite period of time as set forth in the agreement with the
advertiser.
Product revenue
We generate product revenue from direct sales of merchandise inventory through our Goods category. For
product revenue transactions, we are the primary party responsible for providing the good to the customer, we have
inventory risk and we have discretion in establishing prices. As such, product revenue is reported on a gross basis as
the purchase price received from the customer. Product revenue, including associated shipping revenue, is recognized
when title passes to the customer upon delivery of the product.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Variable Consideration for Unredeemed Vouchers
For merchant agreements with redemption payment terms, 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 consolidated financial statements.
As of December 31, 2018, we constrained $13.7 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.
Refunds
Refunds are recorded as a reduction of revenue. The liability for estimated refunds is included within Accrued
expenses and other current liabilities on the consolidated balance sheets.
We estimate our refund reserve using historical refund experience by deal category. We assess the trends
that could affect our estimates on an ongoing basis and make adjustments to the refund reserve calculations if it
appears that changes in circumstances, including changes to our refund policies or general economic conditions, may
cause future refunds to differ from our initial estimates. If actual refunds differ from our estimates, the effects could be
material to the consolidated financial statements.
Discounts, Customer Credits and Other Consideration Payable to Customers
We provide discount offers to encourage purchases of goods and services through our online marketplaces.
We record discounts as a reduction of revenue.
Additionally, we issue credits to customers that can be applied to future purchases through our online
marketplaces. Credits are primarily issued as consideration for refunds. To a lesser extent, credits are issued for
customer relationship purposes. Credits issued to satisfy refund requests are applied as a reduction to the refunds
reserve and customer credits issued for relationship purposes are classified as a reduction of revenue. Breakage
income from customer credits that are not expected to be used is estimated and recognized as revenue in proportion
to the pattern of redemption for customer credits that are used.
Sales and related taxes
Sales, use, value-added and related taxes that are imposed on specific revenue-generating transactions are
presented on a net basis and excluded from revenue.
Costs of Obtaining Contracts
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. Those costs are
classified within Selling, general and administrative expenses in the consolidated statements of operations.
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GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cost of Revenue
Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue. Costs incurred
to generate revenue, which include 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 are attributed to the cost of
service and product revenue in proportion to gross billings during the period. 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.
Stock-Based Compensation
We measure stock-based compensation cost at fair value. Expense is generally recognized on a straight-line
basis over the service period during which awards are expected to vest, except for awards with both performance
conditions and a graded vesting schedule, which are recognized using the accelerated method. We present stock-
based compensation expense within the consolidated statements of operations based on the classification of the
respective employees' cash compensation. See Note 12, Compensation Arrangements.
Foreign Currency
Balance sheet accounts of our operations outside of the United States are translated from foreign currencies
into U.S. dollars at exchange rates as of the consolidated balance sheet dates. Revenue and expenses are translated
at average exchange rates during the period. Foreign currency translation adjustments and foreign currency gains and
losses on intercompany balances that are of a long-term investment nature are included within Accumulated other
comprehensive income on the consolidated balance sheets. Foreign currency gains and losses resulting from
transactions that are denominated in currencies other than the entity's functional currency, including foreign currency
gains and losses on intercompany balances that are not of a long-term investment nature, are included within Other
income (expense), net on the consolidated statements of operations.
Business Combinations
The results of businesses acquired are included in the consolidated financial statements beginning on the
respective acquisition dates. The fair value of consideration transferred in business combinations is allocated to the
tangible and intangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated
amount recorded as goodwill. Acquired goodwill represents the premium paid over the fair value of the net tangible
and intangible assets acquired. We may pay a premium for a number of reasons, including growing our merchant base
and acquiring an assembled workforce. The goodwill from business combinations is generally not deductible for tax
purposes.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU will require the recognition
of lease assets and liabilities for operating leases with terms of more than 12 months, in addition to the capital lease
assets and liabilities currently recorded on our consolidated balance sheets. Presentation of leases within the
consolidated statements of operations and cash flows will be substantially consistent with current accounting guidance.
The ASU, which is effective for annual reporting periods beginning after December 15, 2018, and interim periods within
those annual periods, will have a material impact on our consolidated balance sheets. We have completed the
implementation of a lease accounting system. We plan to adopt the ASU effective January 1, 2019 using the modified
retrospective transition method and will not restate comparative periods. The modified retrospective transition method
requires the cumulative effect, if any, of initially applying the guidance to be recognized as an adjustment to our
accumulated deficit as of that adoption date. We plan to elect the package of practical expedients permitted under the
transition guidance within the ASU, which allows 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 plan to not
separate lease and non-lease components for all of our leases. For leases with a term of 12 months or less, we plan
to elect the short-term lease exemption, which allows us to not recognize right-of-use assets or lease liabilities for
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GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
qualifying leases existing at transition and new leases we may enter into in the future. While we continue to assess all
impacts of adoption, we currently expect to recognize additional lease liabilities of $100.0 million to $115.0 million
representing the present value of the remaining minimum lease payments at January 1, 2019 and corresponding right-
of-use assets of the same amount. See Note 10, Commitments and Contingencies, for information about our lease
commitments.
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. While we are still assessing the impact of ASU 2016-13, we currently believe that the adoption of this
guidance will not have a material impact on our 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 and early adoption is permitted. We believe that the adoption of this
guidance will not have a material impact on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements
to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to make the guidance
to share-based payment awards to nonemployees consistent with the guidance for share-based payment awards to
employees. The ASU will be effective for annual reporting periods beginning after December 15, 2018 and interim
periods within those annual periods. We believe that the adoption of this guidance will not have a material impact on
our consolidated financial statements.
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 consolidated
financial statements.
In August 2018, the FASB issued 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. 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 ASU will be effective
for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Early
adoption is permitted, including in interim periods. We currently plan to early adopt the guidance on January 1, 2019
and will prospectively apply that guidance to all implementation costs incurred after that adoption date. We may incur
substantial costs within the scope of this guidance.
There are no other accounting standards that have been issued but not yet adopted that we believe could
have a material impact on our consolidated financial statements.
3. DISCONTINUED OPERATIONS AND OTHER BUSINESS DISPOSITIONS
Discontinued Operations
In October 2016, we completed a strategic review of our international markets in connection with our efforts
to optimize our global footprint and focus on the markets that we believe have the greatest potential to benefit our long-
term financial performance. Based on that review, we decided to focus our business on 15 core countries and to pursue
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
strategic alternatives for our operations in the remaining 11 countries, which were primarily based in Asia and Latin
America. The dispositions of our operations in those 11 countries were completed between November 2016 and March
2017.
A business disposition that represents a strategic shift and has (or will have) a major effect on our operations
and financial results is reported as a discontinued operation. We determined that the decision reached by management
and our Board of Directors to exit those 11 non-core countries, which comprised a substantial majority of the operations
outside of North America and EMEA, represented a strategic shift in our business. Additionally, based on our review
of quantitative and qualitative factors relevant to the dispositions, we determined that the disposition of the businesses
in those countries would have a major effect on our operations and financial results. As such, the results of operations
and cash flows for the operations in those countries, including the gains and losses on the dispositions and related
income tax effects, are presented as discontinued operations in the accompanying consolidated financial statements
for the years ended December 31, 2017 and 2016.
In connection with our strategic initiative to exit non-core countries as discussed above, we sold an 83%
controlling stake in our subsidiary in Israel and sold our subsidiaries in Argentina, Chile, Colombia, Peru, Mexico, Brazil,
Singapore and Hong Kong during the first quarter 2017. Additionally, we sold our subsidiary in Malaysia and ceased
our operations in South Africa during the fourth quarter 2016. For the years ended December 31, 2017 and 2016, we
recognized a net pretax loss of $1.6 million and a net pretax gain of $0.3 million, respectively, on those dispositions,
which consisted of the following (in thousands):
Net consideration received:
Fair value of minority investments retained or acquired
$
2,021
$
2,457
Year Ended December 31,
2017
2016
Cash proceeds received
Cash proceeds receivable
Less: transaction costs
Total net consideration received
Cumulative translation gain (loss) reclassified to earnings
Less: Net book value upon closing of the transactions
Less: Indemnification liabilities (1)
Less: Unfavorable contract liability for transition services
3,462
2,000
1,394
6,089
14,718
14,958
5,365
2,114
Gain (loss) on dispositions
$
(1,630) $
(1)
See Note 10, Commitments and Contingencies, for additional information about the indemnification liabilities.
—
—
190
2,267
(1,201)
754
—
—
312
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GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the major classes of line items included in loss from discontinued operations,
net of tax, for the years ended December 31, 2017 and 2016 (in thousands):
Year Ended December 31,
2017 (1) (2)
2016 (1)
Service revenue
Product revenue
Service cost of revenue
Product cost of revenue
Marketing expense
Selling, general and administrative expense
Restructuring
Other income (expense), net
Loss from discontinued operations before gain (loss) on dispositions and provision for
income taxes
Gain (loss) on dispositions
Provision for income taxes
$
12,602
$
2,962
(2,557)
(3,098)
(1,239)
(12,007)
(778)
3,852
(263)
(1,630)
(81)
Loss from discontinued operations, net of tax
$
(1,974) $
97,105
32,634
(21,697)
(31,792)
(10,776)
(72,141)
(3,170)
(4,818)
(14,655)
312
(2,771)
(17,114)
(1)
(2)
The loss from discontinued operations before gain (loss) on dispositions and provision for income taxes for the years ended December 31,
2017 and 2016 includes the results of each business through its respective disposition date.
Selling, general and administrative expense from discontinued operations for the year ended December 31, 2017 includes increases to
contingent liabilities under indemnification agreements. See Note 10, Commitments and Contingencies, for additional information about the
indemnification liabilities.
Other Dispositions
During the year ended December 31, 2016, we sold our subsidiaries in Russia and Indonesia, and our point
of sale business, Breadcrumb. The consideration received in exchange for Indonesia and Breadcrumb included minority
investments in their respective acquirers. We recognized a pretax gain of $11.4 million in connection with those
transactions, which is presented within Gains on business dispositions in the accompanying consolidated statements
of operations, and consisted of the following (in thousands):
Net consideration received:
Fair value of minority investments acquired
Less: transaction costs
Total net consideration received
Cumulative translation gain reclassified to earnings
Less: Net book value upon closing of the transactions
Gain on business dispositions
Year Ended
December 31, 2016
$
$
11,029
849
10,180
7,468
6,249
11,399
The financial results of the disposed entities are presented within income from continuing operations in the
accompanying consolidated financial statements through their respective disposition dates. Those financial results
were not material for the year ended December 31, 2016.
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GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. BUSINESS COMBINATIONS
We acquired one business during the year ended December 31, 2018 and three businesses during the year
ended December 31, 2016. For the years ended December 31, 2018 and 2016, $0.7 million and $1.6 million, of external
transaction costs related to business combinations, primarily consisting of legal and advisory fees, are classified within
Selling, general and administrative on the consolidated statements of operations. The results of businesses acquired
are included in the consolidated financial statements beginning on the respective acquisition dates. Acquired goodwill
represents the premium paid over the fair value of the net tangible and intangible assets acquired. We may pay a
premium for a number of reasons, including growing our merchant base and acquiring an assembled workforce.
2018 Acquisition Activity
On April 30, 2018, we acquired 80% of the outstanding shares of Cloud Savings Company, Ltd. ("Cloud
Savings"), a UK-based business that operates online discount code and digital gift card platforms. The primary purpose
of this acquisition was to expand digital coupon offerings in our International segment. The transaction included a
contingent consideration arrangement with an acquisition-date fair value of $1.6 million. In additional, concurrent with
the acquisition, we entered into an agreement with the noncontrolling shareholder that gave us the right to acquire and
the noncontrolling shareholder's right to put to us the remaining outstanding shares of Cloud Savings in December
2018. The acquisition-date fair value of the right and obligation to acquire the remaining outstanding shares of $8.6
million was initially recorded as a financing obligation and classified within Accrued expenses and other current liabilities
on the consolidated balance sheets. We paid $8.4 million to exercise that right in December 2018. The aggregate
acquisition-date fair value of the consideration transferred for the Cloud Savings acquisition totaled $74.6 million, which
consisted of the following (in thousands):
Cash
Financing obligation
Contingent consideration
Total
$
$
64,363
8,604
1,589
74,556
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GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the allocation of the aggregate acquisition price of the Cloud Savings acquisition
(in thousands). The allocation of the acquisition price has been prepared on a preliminary basis, and changes to that
allocation may occur as a result of final working capital adjustments and tax return filings.
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Property, equipment and software
Goodwill
Intangible assets (1) :
Merchant relationships
Trade names
Developed technology
Other intangible assets
Total assets acquired
Accounts payable
Accrued merchant and supplier payables
Accrued expenses and other current liabilities
Other non-current liabilities
Total liabilities assumed
Total acquisition price
$
$
$
$
$
6,244
5,885
804
226
46,515
20,322
2,609
549
687
83,841
693
386
6,130
2,076
9,285
74,556
(1)
The estimated useful lives of the acquired intangible assets are 6 years for merchant relationships, 8 years for trade names, 2
years for developed technology, and 1 year for other intangible assets.
The results of the Cloud Savings acquisition are included in our consolidated financial statements from the
date of acquisition through December 31, 2018. The revenue and net income of Cloud Savings included in our
consolidated statements of operations were $12.9 million and $1.1 million, for the period from April 30, 2018 through
December 31, 2018. Pro forma results of operations for the Cloud Savings acquisition are not presented because the
pro forma effects of that acquisition were not material to our consolidated results of operations.
2016 Acquisition Activity
LivingSocial, Inc.
On October 31, 2016, we acquired all of the outstanding equity interests of LivingSocial, Inc. ("LivingSocial"),
an e-commerce company that connects merchants to consumers by offering goods and services, generally at a discount.
The primary purpose of this acquisition was to grow our customer base. We acquired LivingSocial for no consideration.
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GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the assets acquired and liabilities assumed from the LivingSocial acquisition
(in thousands):
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Property, equipment and software
Goodwill
Intangible assets: (1)
Customer relationships
Merchant relationships
Trade name
Developed technology
Other non-current assets
Total assets acquired
Accounts payable
Accrued merchant and supplier payables
Accrued expenses and other current liabilities
Other non-current liabilities
Total liabilities assumed
Total acquisition price
$
15,479
3,652
2,399
1,075
528
16,200
2,700
1,000
2,500
5,495
51,028
2,184
18,498
25,854
4,492
51,028
—
$
$
$
$
(1)
The estimated useful lives of the acquired intangible assets are 1 year for developed technology, 4 years for trade name and 3
years for merchant relationships and customer relationships.
The following pro forma information presents the combined operating results for the year ended December 31,
2016 as if we had acquired LivingSocial as of January 1, 2016 (in thousands). The underlying pro forma results include
the historical financial results of us and this acquired business adjusted for depreciation and amortization expense
associated with the assets acquired. The pro forma results do not reflect any operating efficiencies or potential cost
savings which may result from the consolidation of the operations of us and the acquired entity. Accordingly, these pro
forma results are not necessarily indicative of what the actual combined results of operations would have been if the
acquisition had occurred as of January 1, 2016, nor are they indicative of future results of operations.
Revenue
Loss from continuing operations
Year Ended
December 31, 2016
$
3,070,431
(182,781)
The revenue and net loss of LivingSocial included in our consolidated statements of operations were $9.3
million and $4.3 million, for the period from October 31, 2016 through December 31, 2016.
Other Acquisitions
We acquired two other businesses during the year ended December 31, 2016. The acquisition price of those
businesses and the assets acquired and liabilities assumed were not material.
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GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. PROPERTY, EQUIPMENT AND SOFTWARE, NET
The following summarizes property, equipment and software, net as of December 31, 2018 and 2017 (in
thousands):
Warehouse equipment
Furniture and fixtures
Leasehold improvements
Office equipment
Purchased software
Computer hardware (1)
Internally-developed software (2)
Total property, equipment and software, gross
Less: accumulated depreciation and amortization
Property, equipment and software, net
December 31,
2018
2017
$
5,265
$
9,677
50,314
2,261
8,523
174,700
196,807
447,547
(304,430)
$
143,117
$
4,989
11,700
49,605
2,690
32,090
208,659
249,207
558,940
(407,795)
151,145
(1)
Includes computer hardware acquired under capital leases of $120.5 million and $132.3 million as of December 31, 2018 and
2017.
(2)
The net carrying amount of internally-developed software was $70.9 million and $64.5 million as of December 31, 2018 and 2017.
As of December 31, 2018, we removed $75.9 million of certain fully depreciated property and equipment and
$105.0 million of certain fully amortized internally-developed software from gross property, equipment and software
and accumulated depreciation and amortization.
Depreciation and amortization expense on property, equipment and software is classified as follows in the
accompanying consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016 (in
thousands):
Service cost of revenue
Product cost of revenue
Selling, general and administrative
Total
Year Ended December 31,
2018
2017
2016
$
$
28,102
$
26,738
$
8,467
64,761
9,900
78,157
21,277
10,616
85,068
101,330
$
114,795
$
116,961
The above amounts include amortization of internally-developed software of $53.9 million, $57.0 million and
$55.0 million, and amortization expense on assets under capital leases of $30.2 million, $35.2 million and $29.8 million,
for the years ended December 31, 2018, 2017 and 2016.
98
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes goodwill activity by segment for the years ended December 31, 2018 and
2017 (in thousands):
North America
EMEA
Rest of
World
International
Consolidated
Balance as of December 31, 2016
Reallocation to new segment (1)
Foreign currency translation
Balance as of December 31, 2017
Goodwill related to acquisition
Foreign currency translation
Balance as of December 31, 2018
$
$
$
178,685
$
89,747
$
6,119
$
— $
274,551
—
—
178,685
$
—
—
(89,747)
(6,119)
—
— $
—
—
95,866
12,438
—
12,438
—
— $
108,304
$
286,989
—
—
46,515
(8,013)
46,515
(8,013)
178,685
$
— $
— $
146,806
$
325,491
(1) We updated our segments in the first quarter of 2017 to report two operating segments: North America and International. Refer to Note
19, Segment Information, for additional information on our change in reporting segments.
We evaluate goodwill for impairment annually on October 1 or more frequently when an event occurs or
circumstances change that indicates the carrying value may not be recoverable. There was no goodwill impairment
for the years ended December 31, 2018, 2017 and 2016.
The following table summarizes intangible assets as of December 31, 2018 and 2017 (in thousands):
December 31, 2018
December 31, 2017
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Customer relationships
$
16,200
$
11,700
$
4,500
$
56,749
$
46,513
$
10,236
Merchant relationships
Trade names
Developed technology
Patents
Other intangible assets
21,554
9,476
13,825
20,508
26,007
4,105
6,799
13,485
16,451
9,629
17,449
2,677
340
4,057
16,378
11,598
12,077
36,864
19,031
10,875
9,853
10,469
36,864
15,204
9,095
1,745
1,608
—
3,827
1,780
Total
$
107,570
$
62,169
$
45,401
$
147,194
$
127,998
$
19,196
As of December 31, 2018, we removed $77.4 million of certain fully amortized intangible assets from gross
intangible assets and accumulated amortization.
Amortization of intangible assets is computed using the straight-line method over their estimated useful lives,
which range from 1 to 10 years. Amortization expense from continuing operations related to intangible assets was
$14.5 million, $23.0 million and $18.9 million for the years ended December 31, 2018, 2017 and 2016. As of December
31, 2018, our estimated future amortization expense related to intangible assets is as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
$
$
13,807
7,535
6,811
6,495
5,346
5,407
45,401
99
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Sale of Intangible Assets
On September 15, 2017, we sold customer lists and other intangible assets in certain food delivery markets
to a subsidiary of Grubhub Inc. ("Grubhub"). We recognized a pretax gain on the sale of assets of $17.1 million, which
represents the excess of the $19.8 million in net proceeds received, consisting of $20.0 million in cash less $0.2 million
in transaction costs, over the $2.7 million net book value of the assets upon closing of the transaction. See Note
14, Restructuring, for additional information.
7. INVESTMENTS
The following table summarizes investments as of December 31, 2018 and 2017 (dollars in thousands):
December 31,
2018
Percent Ownership
of Voting Stock
December 31,
2017
Percent Ownership
of Voting Stock
Available-for-sale securities:
Convertible debt securities
$
—
$
11,354
Redeemable preferred shares
10,340
19% to
25%
15,431
19% to
25%
Total available-for-sale securities
10,340
26,785
Fair value option investments
Other equity investments (1)
73,902
10% to
19%
82,966
10% to
19%
24,273
1% to
19%
25,438
1% to
19%
Total investments
$
108,515
$
135,189
(1)
Represents equity investments without readily determinable fair values. Those investments were previously accounted for using
the cost method of accounting. Under the cost method, investments were carried at cost and adjusted only for other-than-temporary
declines in fair value, certain distributions and additional investments. We adopted the guidance in ASU 2016-01 on January 1,
2018. Under that guidance, we have elected to record equity investments without readily determinable fair values at cost adjusted
for observable price changes and impairments. There were no adjustments for observable price changes related to these
investments for the year ended December 31, 2018. See further discussion under Other Equity Investments below.
Available-for-sale securities
The following table summarizes amortized cost, gross unrealized gain, gross unrealized loss and fair value of
available-for-sale securities as of December 31, 2018 and 2017 (in thousands):
December 31, 2018
December 31, 2017
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss (1)
Fair
Value
Available-for-sale securities:
Convertible debt securities
Redeemable preferred shares
Total available-for-sale
securities
$
$
— $
— $
— $
— $
10,205
$
1,653
$
(504) $ 11,354
9,961
379
—
10,340
15,431
—
—
15,431
9,961
$
379
$
— $ 10,340
$
25,636
$
1,653
$
(504) $ 26,785
(1)
Gross unrealized loss is related to one security that was in a loss position for greater than 12 months as of December 31, 2017.
In September 2018, we sold an available-for-sale security for total consideration of $8.6 million, which
approximated its carrying amount and amortized cost as of the closing date.
We recorded $5.6 million and $2.9 million of other-than-temporary impairments of available-for-sale
investments for the years ended December 31, 2018 and 2017, respectively. Those impairments are classified within
Other income (expense), net on the consolidated statement of operations.
Fair Value Option Investments
In connection with the dispositions of controlling stakes in Ticket Monster, 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
100
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
("Monster LP") and in Nearbuy Pte Ltd. ("Nearbuy"). 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,
as well as to reduce operational and accounting complexity. We determined that the fair value of our investments in
Monster LP and Nearbuy were $69.4 million and $4.5 million as of December 31, 2018, and $78.9 million and $4.0
million as of December 31, 2017.
The following table summarizes gains and losses due to changes in fair value of those investments for the
years ended December 31, 2018, 2017 and 2016 (in thousands):
Monster LP
Nearbuy
Total
Monster LP
Year Ended December 31,
2018
2017
2016
$
$
(9,509) $
445
(9,064) $
249
$
133
382
$
(35,350)
(12,791)
(48,141)
In May 2015, we completed the sale of a controlling stake in Ticket Monster to an investor group, whereby (a)
the investor group contributed $350.0 million in cash to Monster LP, a newly-formed limited partnership, in exchange
for 70,000,000 Class A units of Monster LP and (b) we contributed all of the issued and outstanding share capital of
Ticket Monster to Monster LP in exchange for (i) 64,000,000 Class B units of Monster LP and (ii) $285.0 million in cash
consideration. Mr. Daniel Shin, the chief executive officer and founder of Ticket Monster, contributed $10.0 million of
cash consideration to Monster LP shortly after the closing date in exchange for 2,000,000 Class A units of Monster LP.
Additionally, Monster LP was authorized to issue 20,321,839 Class C units to its management, subject to vesting
conditions. Under the terms of the Partnership’s amended and restated agreement of limited partnership, its general
partner established a Board of Directors and irrevocably assigned the rights to carry out any and all of the objectives
and purposes of the partnership to its Board. The general partner is not entitled to receive any distributions.
During the fourth quarter of 2015, the Company sold 2,515,461 Class B units for $4.8 million to Mr. Daniel
Shin and other employees of Ticket Monster, which resulted in a gain of $0.1 million.
In January 2016, all 20,321,839 of the authorized Class C units were granted to Monster LP’s employees.
Those share-based payment awards are subject to time-based vesting conditions and, for a portion of the Class C
units, a performance-based vesting condition.
In December 2016, Monster LP issued a new class of partnership units (Class A-1) to its controlling investor
group and a new investor for total proceeds of $65.0 million. The fair value of Monster LP implied by the terms of the
$65.0 million equity financing transaction in December 2016 was lower than its estimated fair value in previous periods,
which resulted in a significant decrease in the fair value of our investment for the year ended December 31, 2016.
In February 2017, we participated in a recapitalization transaction with Monster LP whereby it exchanged all
61,484,539 of its Class B units for 16,609,195 newly issued Class A-1 units. The Class B units previously held were
then distributed from Monster LP to its controlling investor group and certain other existing unit holders. Upon closing
of the transaction, we own 57% of the outstanding Class A-1 units, which represents 9% of the total outstanding
partnership units.
Following the February 2017 recapitalization transaction, the Class A-1 units are entitled to an $150.0 million
liquidation preference, including an $85.0 million liquidation preference attributable to the Class A-1 units held by us,
which must be paid prior to any distributions to the holders of the Class A-2, Class B and Class C units. Class A-1 unit
holders are also entitled to share in distributions between $950.0 million and $1,494.0 million in accordance with the
terms of Monster LP's distribution waterfall and in distributions in excess of $1,494.0 million based on their pro rata
ownership of total outstanding partnership units. As a result of the February 2017 recapitalization transaction, we
currently hold an investment in the most senior equity units in Monster LP’s capital structure. However, while providing
101
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
more downside protection, those Class A-1 units provide less opportunity for appreciation than the Class B units
previously held by us.
The following tables summarize the condensed financial information for Monster LP as of December 31, 2018
and 2017 and for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Revenue
Gross profit
Loss before income taxes
Net loss
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Nearbuy
Year Ended December 31,
2018
2017
2016
$
416,042
$
280,612
$
27,838
(132,276)
(132,276)
37,773
(124,873)
(124,873)
216,119
24,774
(153,882)
(153,882)
December 31,
2018
2017
$
85,844
$
482,505
432,133
78,434
174,051
520,105
438,988
60,977
In August 2015, Groupon India completed an equity financing transaction with a third-party investor that obtained
a majority voting interest in the entity, whereby (a) the investor contributed $17.0 million in cash to Nearbuy, a newly
formed Singapore-based entity, in exchange for Series A Preference Shares and (b) we contributed the shares of
Groupon India to Nearbuy in exchange for seed preference shares of Nearbuy. In January 2017, Nearbuy issued
additional Series A Preference Shares to its controlling investor for total proceeds of $3.0 million. Upon closing of that
transaction, the Series A Preference Shares are entitled to a $20.0 million liquidation preference, which must be paid
prior to any distributions to other equity holders.
In December 2017, Nearbuy sold its subsidiary Nearbuy India Pte Ltd., which represented substantially all of
its business operations, to a third-party investor in exchange for a minority investment in the acquirer.
The following tables summarize the condensed financial information for Nearbuy as of December 31, 2018
and 2017 and for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Year Ended December 31,
2018
2017
2016
Revenue
Gross profit
Income (loss) before income taxes (1)
Net income (loss) (1)
$
6,016
$
3,839
$
5,857
(13,594)
(13,594)
3,405
15,122
15,122
Current assets
Non-current assets
Current liabilities
Non-current liabilities
December 31,
2018
2017
$
5,286
$
46,940
4,015
144
3,024
2,570
(15,701)
(15,701)
41
18,362
—
—
(1)
Nearbuy's income before income taxes and net income for the year ended December 31, 2017 includes a $22.6 million gain from the sale
of its subsidiary Nearbuy India Pte Ltd.
102
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Equity Investments
In March 2017, in connection with the disposition of Groupon Israel, we retained a minority investment in the
entity. The investment was recorded at its $0.4 million fair value at initial recognition and is accounted for as an other
equity investment.
In May 2016, we acquired a 13% minority investment in the preferred stock of a restaurant software provider
as consideration for the sale of Breadcrumb. The preferred stock was recorded at its $8.3 million acquisition date fair
value and was accounted for as an other equity investment. In July 2017, we sold that investment for total consideration
of $16.0 million, consisting of $14.7 million received in cash and $1.3 million that the acquirer paid into an escrow
account that will be settled within 18 months of closing. We recognized a pretax gain on the disposition of $7.6 million,
which is classified within Other income (expense), net on the consolidated statement of operations.
We recorded a $4.6 million impairment of an other equity investment for the year ended December 31, 2018.
That impairment is classified within Other income (expense), net on the consolidated statements of operations.
8. SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS
INFORMATION
The following table summarizes other income (expense), net for the years ended December 31, 2018, 2017
and 2016 (in thousands):
Interest income
Interest expense
Changes in fair value of investments
Gain on sale of investment
Foreign currency gains (losses), net
Impairments of investments
Other
Other income (expense), net
Year Ended December 31,
2018
2017
2016
$
6,420
$
3,287
$
(21,909)
(9,064)
—
(20,325)
(10,156)
2,026
(20,680)
382
7,624
18,634
(2,944)
407
$
(53,008) $
6,710
$
1,808
(15,912)
(48,141)
—
(6,927)
—
(2,117)
(71,289)
The following table summarizes prepaid expenses and other current assets as of December 31, 2018 and
2017 (in thousands):
Merchandise inventories
Prepaid expenses
Income taxes receivable
Other
Total prepaid expenses and other current assets
December 31,
2018
2017
$
$
33,739
$
28,209
6,717
19,450
88,115
$
25,528
40,399
10,299
17,799
94,025
103
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes accrued merchant and supplier payables as of December 31, 2018 and 2017
(in thousands):
Accrued merchant payables
Accrued supplier payables (1)
Total accrued merchant and supplier payables
December 31,
2018
2017
$
$
371,279
$
280,502
651,781
$
459,662
310,673
770,335
(1)
Amounts include payables to suppliers of inventories and providers of shipping and fulfillment services.
The following table summarizes accrued expenses and other current liabilities as of December 31, 2018 and
2017 (in thousands):
Refund reserve
Compensation and benefits
Accrued marketing
Customer credits
Income taxes payable
Deferred revenue
Current portion of capital lease obligations
Other
December 31,
2018
2017
$
27,957
$
56,173
39,094
15,118
8,987
25,452
17,207
77,046
Total accrued expenses and other current liabilities
$
267,034
$
31,275
73,096
32,912
28,487
9,645
29,539
25,958
100,284
331,196
The following table summarizes other non-current liabilities as of December 31, 2018 and 2017 (in thousands):
Contingent income tax liabilities
Deferred rent
Capital lease obligations
Deferred income taxes
Other
Total other non-current liabilities
December 31,
2018
2017
$
$
39,858
$
32,186
12,481
6,619
9,544
100,688
$
43,699
29,032
18,500
811
10,366
102,408
104
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the components of accumulated other comprehensive income as of December
31, 2018 and 2017 (in thousands):
Balance as of December 31, 2015
$
52,261
$
458
$
(1,513) $
51,206
Foreign
currency
translation
adjustments
Unrealized
gain (loss) on
available-for-
sale securities
Pension
adjustments
Total
Other comprehensive income (loss) before reclassification
adjustments
Reclassification adjustments included in net income (loss)
Other comprehensive income (loss)
Balance as of December 31, 2016
Other comprehensive income (loss) before reclassification
adjustments
Reclassification adjustments included in net income (loss)
Other comprehensive income (loss)
Balance as of December 31, 2017
Other comprehensive income (loss) before reclassification
adjustments
Reclassification adjustments included in net income (loss)
Other comprehensive income (loss)
Reclassification for impact of U.S. tax rate change
6,579
(591)
5,988
58,249
(12,382)
(14,905)
(27,287)
30,962
3,332
—
3,332
—
(70)
—
(70)
388
(1,109)
1,603
494
882
(841)
106
(735)
161
830
98
928
(585)
—
585
585
—
—
—
—
—
7,339
(493)
6,846
58,052
(13,491)
(12,717)
(26,208)
31,844
2,491
106
2,597
161
Balance as of December 31, 2018
$
34,294
$
308
$
— $
34,602
The effects of amounts reclassified from accumulated other comprehensive income to net income (loss) for
the years ended December 31, 2018, 2017 and 2016 are presented within the following line items in the consolidated
statements of operations (in thousands):
Year Ended December 31,
2018
2017
2016
Consolidated Statements of
Operations Line Item
Foreign currency translation adjustments
Loss (gain) on dispositions - continuing operations
$
— $
— $
(7,468) Gains on business dispositions
Loss (gain) on country exits - continuing operations
Loss (gain) on dispositions - discontinued operations
Reclassification adjustments
Unrealized gain (loss) on available-for-sale securities
Other-than-temporary impairment of available-for-sale
security
Realized gain on investment
Less: Tax effect
Reclassification adjustment
Pension adjustments
Curtailment gain
Amortization of net actuarial loss (gain)
Less: Tax effect
Reclassification adjustment
Total reclassification adjustments
—
—
—
—
106
—
106
—
—
—
—
(187)
(55) Other income (expense), net
(14,718)
(14,905)
6,932
(591)
Income (loss) from discontinued
operations, net of tax
2,944
(1,341)
—
1,603
583
2
—
585
Other income (expense), net
—
— Other income (expense), net
— Provision (benefit) for income taxes
—
— Selling, general and administrative
116 Selling, general and administrative
(18) Provision (benefit) for income taxes
98
$
106
$
(12,717) $
(493)
105
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. FINANCING ARRANGEMENTS
Convertible Senior Notes
On April 4, 2016, we issued $250.0 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 in connection with the issuance of the Notes.
Atairos controls the voting power of AGH. The net proceeds from this offering were $243.2 million after deducting
issuance costs. The Notes bear interest at a rate of 3.25% 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 $1,000 of principal amount of the Notes initially is convertible into 185.1852 shares of common stock,
which is equivalent to an initial conversion price of $5.40 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 $3.20 as of December 31, 2018, 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 150% of the then-current conversion price for 20 or more trading days in the 30 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 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 9.75% over the term of the Notes. The equity component
of the Notes is included in additional paid-in capital in the 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 $6.8 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 $4.8 million were recorded as a
debt discount in the consolidated balance sheet and are being amortized to interest expense over the term of the
Notes. Transaction costs attributable to the equity component of $2.0 million were recorded in stockholders' equity as
a reduction of the equity component.
106
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The carrying amount of the Notes consisted of the following as of December 31, 2018 and 2017 (in thousands):
Liability component:
Principal amount
Less: debt discount
Net carrying amount of liability component
Net carrying amount of equity component
December 31,
2018
2017
$
$
$
250,000
$
(48,331)
201,669
$
250,000
(60,247)
189,753
67,014
$
67,014
The estimated fair value of the Notes as of December 31, 2018 and 2017 was $257.1 million and $285.6
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 December 31, 2018, the remaining term of the Notes is approximately 3 years and 3 months. During the
years ended December 31, 2018, 2017 and 2016, we recognized interest costs on the Notes as follows (in thousands):
Contractual interest (3.25% of the principal amount per annum)
Amortization of debt discount
Total
Note Hedges and Warrants
Year Ended December 31,
2018
2017
2016
$
$
8,128
$
8,128
$
11,916
10,758
6,095
7,376
20,044
$
18,886
$
13,471
In May 2016, we purchased convertible note hedges with respect to our common stock for a cost of $59.1
million from certain bank counterparties. The convertible note hedges provide us with the right to purchase up to 46.3
million shares of our common stock at an initial strike price of $5.40 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 $35.5 million to certain bank counterparties.
The warrants provide the counterparties with the right to purchase up to 46.3 million shares of our common stock at
a strike price of $8.50 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 consolidated balance sheets as of December 31, 2018 and 2017. 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
107
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $5.40 to $8.50 per share.
Revolving Credit Agreement
The amended and restated senior secured revolving credit agreement entered into in June 2016 (the "Amended
and Restated Credit Agreement") provides for aggregate principal borrowings of up to $250.0 million and matures in
June 2019. Borrowings under the Amended and Restated Credit Agreement bear interest, at our option, at a rate per
annum equal to the Alternate Base Rate or Adjusted LIBO Rate (each as defined in the Amended and Restated Credit
Agreement) plus an additional margin ranging between 0.50% and 2.25%. We are required to pay quarterly commitment
fees ranging from 0.25% to 0.40% per annum of the average daily amount of unused commitments available under
the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement also provides for the
issuance of up to $45.0 million in letters of credit, provided that the sum of outstanding borrowings and letters of credit
do not exceed the maximum funding commitment of $250.0 million.
The Amended and Restated Credit Agreement is secured by substantially all of our tangible and intangible
assets, including a pledge of 100% of the outstanding capital stock of substantially all of our direct and indirect domestic
subsidiaries and 65% 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 Amended and Restated Credit
Agreement.
The Amended and Restated 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 Amended and Restated 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
indebtedness ratio and a minimum liquidity ratio, each as set forth in the Amended and Restated Credit Agreement.
We are also required to maintain, as of the last day of each fiscal quarter, unrestricted cash of at least $400.0 million,
including $200.0 million in accounts held with lenders under the Amended and Restated Credit Agreement or their
affiliates. Non-compliance with these covenants may result in termination of the commitments under the Amended and
Restated Credit Agreement and any then outstanding borrowings may be declared due and payable immediately. We
have the right to terminate the Amended and Restated Credit Agreement or reduce the available commitments at any
time.
As of December 31, 2018 and 2017, we have no borrowings and have outstanding letters of credit of $19.2
million and $22.7 million, under the Amended and Restated Credit Agreement.
10. COMMITMENTS AND CONTINGENCIES
Leases
We have entered into various non-cancelable operating lease agreements for our offices and data centers
throughout the world with lease expirations between 2019 and 2026. Rent expense under operating leases was $40.1
million, $42.5 million and $45.4 million for the years ended December 31, 2018, 2017 and 2016. Sublease income was
$6.5 million, $7.1 million and $2.7 million for the years ended December 31, 2018, 2017 and 2016.
We lease our headquarters located in Chicago, Illinois ("600 West Chicago"). Our lease agreement for 600
West Chicago extends through January 31, 2026 and includes rent escalations that range from one to two percent per
year, as well as expansion options and a five-year renewal option. The 600 West Chicago lease represents $87.5
million of the estimated future payments under operating leases shown in the table below. We account for the 600
West Chicago lease as an operating lease and recognize rent expense on a straight-line basis, taking into account
rent escalations and lease incentives.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Certain of our computer hardware has been acquired under capital lease agreements, with expirations between
2019 and 2022.
We are responsible for paying our proportionate share of specified operating expenses and real estate, personal
property and lease taxes under certain of our operating and capital leases agreements.
As of December 31, 2018, the future payments under operating leases and capital leases for each of the next
five years and thereafter are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
Less: Amount representing interest
Present value of net minimum capital lease payments
Less: Current portion of capital lease obligations
Total long-term capital lease obligations
Capital Leases
Operating Leases
$
18,169
$
7,634
4,784
687
—
—
32,533
31,116
26,876
26,097
21,944
31,633
31,274
$
170,199
(1,586)
29,688
(17,207)
12,481
$
As of December 31, 2018, the future amounts due under subleases for each of the next five years and thereafter
are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total future sublease income
Purchase Obligations
Subleases
5,206
5,027
5,065
5,103
4,385
4,891
29,677
$
$
We have entered into non-cancelable arrangements with third-parties, primarily related to cloud computing
and other information technology services. As of December 31, 2018, future payments under these contractual
obligations were as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total purchase obligations
$
$
13,266
7,300
3,400
3,400
—
—
27,366
109
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. The following is a brief description of significant legal proceedings.
On March 2, 2016, International Business Machines Corporation ("IBM") filed a complaint in the United States
District Court for the District of Delaware against us (the "Delaware Action"). In the Delaware Action, IBM alleged that
we infringed certain IBM patents that IBM claimed relate to the presentation of applications and advertising in an
interactive service, preserving state information in online transactions and single sign-on processes in a computing
environment and sought damages (including a request that the amount of compensatory damages be trebled), injunctive
relief and costs and reasonable attorneys’ fees. On July 27, 2018, a jury in this matter returned a verdict finding we
willfully infringed each of these patents and awarded damages of $82.5 million to IBM.
On May 9, 2016, we filed a complaint in the United States District Court for the Northern District of Illinois
against IBM (the "Illinois Action"). We alleged that IBM infringed one of our patents relating to location-based services.
On September 28, 2018, we entered into settlement and license agreements with IBM fully resolving the
Delaware Action, the Illinois Action and related proceedings with IBM. The settlement terms provide for the payment
of $57.5 million to IBM, a cross-license to the parties’ respective patent portfolios, mutual releases of claims and the
dismissal with prejudice of the Delaware Action and the Illinois Action. On October 1, 2018, the court in the Illinois
Action entered an order dismissing the Illinois Action with prejudice. On October 2, 2018, the court in the Delaware
Action entered an order dismissing the Delaware Action with prejudice.
We allocated the settlement amount between the litigation settlement component and the license for future
use of the patented technology based on their relative fair values, which resulted in a $34.6 million charge recorded
within Selling, general and administrative expense in our consolidated statements of operations to increase our
contingent liability and $15.4 million that was capitalized for the license to use the patented technology in future periods
under the terms of the settlement and license agreements.
In addition, other 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
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GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 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 dispositions of our operations in Latin America (see Note 3, Discontinued Operations
and Other Business Dispositions), we agreed to indemnify the buyer for certain tax and other matters. The
indemnification liabilities were initially recorded at their fair value, estimated to be $5.4 million using a probability-
weighted expected cash flow approach, upon closing of the transactions as an adjustment to the net loss on the
dispositions within discontinued operations. We estimate that the total amount of obligations that are reasonably
possible to arise under the indemnifications in excess of amounts accrued as of December 31, 2018 is approximately
$18.0 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.
11. STOCKHOLDERS' EQUITY
Preferred Stock
Our Board of Directors (the "Board") has the authority, without approval by the stockholders, to issue up to a
total of 50,000,000 shares of preferred stock in one or more series. The Board may establish the number of shares to
be included in each such series and may fix the designations, preferences, powers and other rights of the shares of
a series of preferred stock. The Board could authorize the issuance of preferred stock with voting or conversion rights
that could dilute the voting power or rights of the holders of our common stock. As of December 31, 2018 and 2017,
there were no shares of preferred stock outstanding.
111
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Common Stock
Prior to October 31, 2016, our certificate of incorporation, as amended and restated, authorized three classes
of common stock: Class A common stock, Class B common stock and common stock. On October 31, 2016, each
share of our Class A common stock and Class B common stock automatically converted into a single class of common
stock pursuant to the terms of our sixth amended and restated certificate of incorporation. Upon conversion, all shares
of Class A common stock and Class B common stock were retired.
Pursuant to our restated certificate of incorporation, the Board has the authority to issue up to a total of
2,010,000,000 shares of common stock. Each holder of common stock shall be entitled to one vote for each such
share on any matter that is submitted to a vote of stockholders. In addition, holders of the common stock will vote as
a single class of stock on any matter that is submitted to a vote of stockholders.
Prior to October 31, 2016, holders of Class A common stock and Class B common stock had identical rights,
except that holders of Class A common stock were entitled to one vote per share and holders of Class B common stock
were entitled to 150 votes per share.
Share Repurchase Program
In May 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under a new
share repurchase program. The prior share repurchase program, which authorized repurchases up to $700.0 million,
expired in April 2018. During the year ended December 31, 2018, we repurchased 3,252,886 shares for an aggregate
purchase price of $10.0 million (including fees and commissions) under the new repurchase program. No amounts
were repurchased under the prior share repurchase program during the year ended December 31, 2018. As of
December 31, 2018, up to $290.0 million of common stock remained available for purchase under the new program.
The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under
the Amended and Restated Credit Agreement, share price and other factors, and the share repurchase program may
be terminated at any time.
12. COMPENSATION ARRANGEMENTS
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 64,618,500 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 20,000,000
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 Stock Plan (the "2011 Plan"), as amended in November 2013, May 2014 and June 2016, under
which options, RSUs and performance stock units for up to 150,000,000 shares of common stock were authorized for
future issuance to employees, consultants and directors.
The Groupon, Inc. Stock Plans described above (the "Plans") are administered by the Compensation Committee
of the Board (the "Compensation Committee"). As of December 31, 2018, 54,927,088 shares of common stock were
available for future issuance under the Plans.
112
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 consolidated statements of operations for the years
ended December 31, 2018, 2017 and 2016 (in thousands):
Cost of revenue
Marketing
Selling, general and administrative
Restructuring charges
Other income (expense), net
Year Ended December 31,
2018
2017
2016
$
1,485
$
2,658
$
6,948
56,288
—
100
7,949
70,343
849
245
3,940
8,929
96,654
4,749
851
Total stock-based compensation expense
$
64,821
$
82,044
$
115,123
We recognized stock-based compensation from discontinued operations of $0.2 million and $3.1 million for
the years ended December 31, 2017 and 2016. We also capitalized $7.4 million, $6.2 million, and $9.3 million of stock-
based compensation for the years ended December 31, 2018, 2017 and 2016, in connection with internally-developed
software. As of December 31, 2018, $95.2 million of unrecognized compensation costs related to unvested employee
stock awards are expected to be recognized over a remaining weighted-average period of 1.35 years.
Employee Stock Purchase Plan
We are authorized to grant up to 10,000,000 shares of common stock under our employee stock purchase
plan. For the years ended December 31, 2018, 2017 and 2016, 1,621,061, 1,879,656 and 1,669,782 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 four 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 as a liability-classified award with performance conditions. The table below summarizes restricted
stock unit activity under the Plans for the year ended December 31, 2018:
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2018
Restricted Stock
Units
Weighted- Average
Grant Date Fair
Value (per share)
$
$
28,939,110
$
19,376,465
(15,226,639)
(6,465,504)
26,623,432
$
4.32
4.59
4.46
4.31
4.47
The weighted-average grant date fair value of restricted stock units granted in 2017 and 2016 was $4.10 and
$3.93. The fair value of restricted stock units that vested during each of the three years ended December 31, 2018,
2017 and 2016 was $64.1 million, $67.0 million and $88.2 million.
Performance Share Units
The performance share units granted under the Plans vest in shares of our common stock upon the achievement
of financial and operational targets specified in the respective award. The awards are subject to both continued
employment through the performance period dictated by the award and certification by the Compensation Committee
that the specified financial and operational targets have been achieved.
113
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the year ended December 31, 2018, we granted performance share units for which the maximum
number of common shares issuable upon vesting was 7,972,780 shares and the weighted-average grant date fair
value was $4.88 per unit. Based on our financial and operational results for the year ended December 31, 2018,
1,261,730 shares with a total grant date fair value of $6.2 million became issuable upon vesting of the performance
share units following the Compensation Committee's approval in February 2019.
During the year ended December 31, 2018, 278,635 shares of our common stock were issued related to
performance share units granted in the previous year following the Compensation Committee's certification of the
financial and operational metrics for the year ended December 31, 2017. The weighted-average grant date fair value
of those units was $3.78 per share. The fair value of the performance share units that vested during the year ended
December 31, 2018 was $1.3 million.
Restricted Stock Awards
We previously granted restricted stock awards in connection with business combinations. Compensation
expense on those awards was recognized on a straight-line basis over the requisite service periods of the awards.
During the year ended December 31, 2017, 1.2 million restricted shares with a fair value of $5.2 million vested. The
fair value of restricted stock that vested during the year ended December 31, 2016 was $2.2 million. There were no
restricted shares outstanding as of December 31, 2017.
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 ten years from the grant date. Stock options generally vested
over a three- or four-year period, with 25% of the awards vesting after one year and the remainder of the awards
vesting on a monthly or quarterly basis thereafter.
The table below summarizes the stock option activity for the year ended December 31, 2018:
Outstanding and exercisable at December 31, 2017
Exercised
Forfeited
Outstanding and exercisable at December 31, 2018
Weighted-
Average
Exercise Price
Weighted- Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
(in thousands) (1)
Options
$
$
885,580
$
(672,793)
—
212,787
0.62
0.12
—
1.80
1.76
$
3,967
1.37
$
298
(1) 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 December 31, 2018
and 2017, respectively.
We did not grant any stock options during the years ended December 31, 2018, 2017 and 2016. The total
intrinsic value of options that were exercised during the years ended December 31, 2018, 2017 and 2016 was $3.2
million, $4.0 million and $1.2 million.
13. REVENUE RECOGNITION
Product and service revenue are generated from sales transactions through our online marketplaces in three
primary categories: Local, Goods and Travel.
Product revenue is earned from direct sales of merchandise inventory to customers and includes any related
shipping fees. Service revenue primarily represents the net commissions earned from selling goods and services
provided by third-party merchants. Those marketplace transactions generally involve the online delivery of a voucher
that can be redeemed by the purchaser with the third-party merchant for goods or services (or for discounts on goods
or services). To a lesser extent, service revenue also includes commissions earned when customers make purchases
114
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
with retailers using digital coupons accessed through our websites and mobile applications. Additionally, in the United
States we have recently been developing and testing voucherless offerings that are linked to customer credit cards.
Customers claim those voucherless merchant offerings through our online marketplaces and earn cash back on their
credit card statements when they transact with the related merchants, who pay us commissions for such transactions.
In connection with most of our product and service revenue transactions, we collect cash from credit card
payment processors shortly after a sale occurs. For transactions in which we earn commissions when customers make
purchases with retailers using digital coupons accessed through our websites and mobile applications, we generally
collect payment from affiliate networks on terms ranging from 30 to 150 days.
As discussed in Note 2, Summary of Significant Accounting Policies, we previously referred to our product
revenue and service revenue as "direct revenue" and "third-party and other revenue," respectively.
Adoption of ASC Topic 606, Revenue from Contracts with Customers
On January 1, 2018, we adopted Accounting Standards Codification Topic 606 using the modified retrospective
method. Beginning on January 1, 2018, results 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 adoption of Topic
606 did not significantly impact our presentation of revenue on a gross or net basis. The following changes resulted
from the adoption of Topic 606:
• For merchant agreements with redemption payment terms, 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. Prior to our adoption of Topic 606, we recognized
that variable consideration from unredeemed vouchers and derecognized the related accrued merchant
payables when our legal obligation to the merchant expired, which we believe is shortly after the voucher
expiration date in most jurisdictions. Following our adoption of Topic 606, we estimate the variable consideration
from vouchers that will not ultimately be redeemed and recognize that amount as revenue at the time of sale,
rather than when our legal obligation expires. We estimate variable consideration from unredeemed vouchers
using our historical voucher redemption experience. Most vouchers sold through the marketplace in the United
States do not have expiration dates and redemption payment terms were not widely used in that jurisdiction
before 2017, so the North America segment did not have variable consideration from unredeemed vouchers
in prior periods.
• Prior to our adoption of Topic 606, we expensed the incremental costs to obtain contracts with third-party
merchants, such as sales commissions, as incurred. Following our adoption of Topic 606, those costs are
deferred and recognized over the expected period of the merchant arrangement, generally from 12 to 18
months. As of December 31, 2018, we had $2.9 million and $11.3 million of deferred contract acquisition costs
recorded within Prepaid expenses and other current assets and Other non-current assets, respectively. For
the year ended December 31, 2018, we amortized $25.2 million of deferred contract acquisition costs and did
not recognize any impairment losses in relation to the deferred costs.
• Prior to our adoption of Topic 606, we recognized breakage income for unused customer credits when they
expired or were forfeited. Following our adoption of Topic 606, breakage income from customer credits that
are not expected to be used is estimated and recognized as revenue in proportion to the pattern of redemption
for customer credits that are used.
• Prior to our adoption of Topic 606, we deferred the revenue from hotel reservation offerings until the customer's
stay commenced. Following our adoption of Topic 606, revenue from hotel reservation offerings is recognized
at the time the reservation is made, net of an allowance for estimated cancellations.
• Prior to our adoption of Topic 606, we classified refunds on service revenue transactions for which the merchant's
share of the refund amount is not recoverable as a cost of revenue. Following our adoption of Topic 606, those
refunds are classified as a reduction of revenue.
• Prior to our adoption of Topic 606, we classified credits issued to consumers for relationship purposes as a
marketing expense. Following our adoption of Topic 606, those credits are classified as a reduction of revenue.
115
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We recorded a net reduction to our opening accumulated deficit of $88.9 million, which is net of a $6.7 million
income tax effect, as of January 1, 2018 due to the cumulative impact of adopting Topic 606. The following table
summarizes balance sheet accounts impacted by the cumulative effect of adopting Topic 606 (in thousands):
Account
Increase (decrease) to
beginning accumulated deficit
Prepaid expenses and other current assets
Other non-current assets
Accrued merchant and supplier payables
Accrued expenses and other current liabilities
Other non-current liabilities
Effect on beginning accumulated deficit
$
$
(4,007)
(10,223)
(64,970)
(13,188)
3,443
(88,945)
See Note 2, Summary of Significant Accounting Policies, for additional information about our revenue
recognition policies after the adoption of Topic 606.
116
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Impacts on Consolidated Financial Statements
The following tables summarize the impacts of adopting Topic 606 on our consolidated financial statements
as of and for the year ended December 31, 2018 (in thousands):
Consolidated Balance Sheet
Total assets
Total liabilities
Total equity
Consolidated Statements of Operations
Revenue:
Service revenue (1)
Product revenue
Total revenue
Cost of revenue:
Service cost of revenue (2)
Product cost of revenue
Cost of revenue (2)
Gross profit
Operating expenses:
Marketing (3)
Selling, general and administrative (4)
Restructuring charges
Total operating expenses
Income (loss) from operations
Other income (expense), net
Income (loss) before provision (benefit) for income taxes
Provision (benefit) for income taxes (5)
Net income (loss)
December 31, 2018
As reported
Effects of Topic
606
Balances
without
adoption of
Topic 606
$
1,642,142
$
(10,948) $
1,631,194
1,259,531
382,611
103,878
(114,826)
1,363,409
267,785
Year Ended December 31, 2018
As reported
Effects of Topic
606
Balances
without
adoption of
Topic 606
$
1,205,487
$
522
$
1,206,009
1,431,259
2,636,746
120,077
1,196,068
1,316,145
1,320,601
395,737
870,961
(136)
1,266,562
54,039
(53,008)
1,031
(957)
—
522
25,436
—
25,436
(24,914)
7,867
(3,092)
—
4,775
(29,689)
—
(29,689)
(803)
$
1,988
$
(28,886) $
1,431,259
2,637,268
145,513
1,196,068
1,341,581
1,295,687
403,604
867,869
(136)
1,271,337
24,350
(53,008)
(28,658)
(1,760)
(26,898)
(1)
For the year ended December 31, 2018, the adoption of Topic 606 resulted in a $33.3 million decrease to Revenue for refunds
on service revenue transactions for which the merchant's share is not recoverable and customer credits issued for relationship
purposes, partially offset by increases of $27.2 million related to the timing of recognition of variable consideration from unredeemed
vouchers, $2.6 million related to the timing of recognition of revenue from hotel reservation offerings and $3.0 million related to
the timing of recognition of breakage revenue from customer credits that are not expected to be used.
(2)
Reflects decreases to Cost of revenue following the adoption of Topic 606 for refunds on service revenue transactions for which
the merchant's share is not recoverable.
(3)
Reflects decreases to Marketing expense following the adoption of Topic 606 for customer credits issued for relationship purposes.
117
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4)
(5)
Reflects increases to Selling, general and administrative expense for the amortization of deferred contract acquisition costs in
excess of amounts capitalized.
For the year ended December 31, 2018, we recognized an income tax benefit of $6.4 million resulting from the impact of adopting
Topic 606 on intercompany activity in certain foreign jurisdictions. That income tax benefit is not reflected in this table, which
presents the direct impacts of adopting Topic 606.
Segment and Category Information
North America
Service revenue:
Local
Travel
Goods
Product revenue - Goods
Total North America revenue
International
Service revenue:
Local
Travel
Goods
Product revenue - Goods
Total International revenue
Consolidated
Service revenue:
Local
Travel
Goods
Product revenue - Goods
Total Consolidated Revenue
Contract Balances
Year Ended December 31, 2018
As reported
Effects of Topic
606
Balances
without
adoption of
Topic 606
$
752,863
$
(1,050) $
751,813
71,856
18,283
796,393
1,639,395
306,700
41,183
14,602
634,866
997,351
1,059,563
113,039
32,885
1,431,259
(1,460)
113
—
70,396
18,396
796,393
(2,397)
1,636,998
2,286
(262)
895
—
2,919
308,986
40,921
15,497
634,866
1,000,270
1,236
(1,722)
1,008
1,060,799
111,317
33,893
—
1,431,259
$
2,636,746
$
522
$
2,637,268
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 $25.8 million and $25.5 million as of January 1, 2018 and December 31, 2018. The amount of revenue
recognized for the year ended December 31, 2018 that was included in the deferred revenue balance at the beginning
of the period was $25.1 million.
118
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the activity in the liability for customer credits for the year ended December
31, 2018 (in thousands):
Balance as of January 1, 2018
Credits issued
Credits redeemed (1)
Breakage revenue recognized
Foreign currency translation
Balance as of December 31, 2018
Customer Credits
19,414
126,874
(112,161)
(18,802)
(207)
15,118
$
$
(1)
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 primarily used within one year of issuance.
14. RESTRUCTURING
In September 2015, we commenced a restructuring plan relating primarily to workforce reductions in our
international operations. We have also undertaken workforce reductions in our North America segment. In addition to
workforce reductions in our ongoing markets, we ceased operations in 17 countries within our International segment
as part of the restructuring plan between September 2015 and March 2016. Those country exits, which generally
comprised our smallest international markets, resulted from a series of separate decisions made at different times
during that period that were not part of an overall strategic shift. Costs related to the restructuring plan are classified
as Restructuring charges on the consolidated statements of operations. The actions under our restructuring plan were
completed as of September 30, 2017 and substantially all of the cash payments for actions under that plan were
disbursed as of December 31, 2018.
During the third quarter of 2017, we reached a decision to cease most of our food delivery operations and
entered into a long-term commercial agreement with a subsidiary of Grubhub that will allow us to provide customers
with the ability to order food delivery through our websites and mobile applications in the United States from Grubhub's
network of restaurant merchants. See Note 6, Goodwill and Other Intangible Assets, for additional information. For the
year ended December 31, 2017, our restructuring costs associated with ceasing those food delivery operations
were $2.6 million, primarily related to employee severance. Additionally, we entered into an agreement to sell customer
lists and other intangible assets in certain food delivery markets to Grubhub.
We incurred cumulative costs for employee severance and benefits and other exit costs of $80.1 million under
the plan since its inception in September 2015. In addition to those costs, we incurred cumulative long-lived asset
impairment charges of $7.5 million resulting from our restructuring activities. The amounts presented in Restructuring
charges for the year ended December 31, 2018 reflect changes in estimates related to prior actions.
The following tables summarize costs incurred by segment related to the restructuring plan for the years ended
December 31, 2018, 2017 and 2016 (in thousands):
North America
International
Consolidated
Year Ended December 31, 2018
Employee Severance
and Benefit Costs
Asset Impairments
Other Exit Costs
Total Restructuring
Charges
$
$
— $
(353)
(353) $
— $
—
— $
177
$
40
217
$
177
(313)
(136)
119
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
North America
International
Consolidated
North America
International
Consolidated
Year Ended December 31, 2017
Employee Severance
and Benefit Costs (1)
Asset Impairments
Other Exit Costs
Total Restructuring
Charges
$
$
8,172
$
4,814
12,986
$
— $
—
— $
3,826
$
2,016
5,842
$
11,998
6,830
18,828
Year Ended December 31, 2016
Employee Severance
and Benefit Costs (1)
Asset Impairments (2)
Other Exit Costs
Total Restructuring
Charges
$
$
8,548
$
25,499
34,047
$
45
$
283
328
$
3,304
$
2,759
6,063
$
11,897
28,541
40,438
(1)
The employee severance and benefit costs for the years ended December 31, 2017 and 2016 related to the termination of approximately
750 and 900 employees.
(2)
Asset impairments related to property, equipment and software that were determined to be impaired as a result of our restructuring activities.
The following table summarizes restructuring liability activity for the years ended December 31, 2018 and 2017
(in thousands):
Balance as of December 31, 2016
Charges payable in cash (1)
Cash payments
Foreign currency translation
Balance as of December 31, 2017
Charges payable in cash
Cash payments
Foreign currency translation
Balance as of December 31, 2018
Employee
Severance and
Benefit Costs
Other Exit Costs
Total
$
$
$
14,135
$
2,260
$
12,140
(23,117)
659
5,842
(7,826)
28
3,817
$
304
$
(353)
(2,256)
(89)
217
(521)
—
1,119
$
— $
16,395
17,982
(30,943)
687
4,121
(136)
(2,777)
(89)
1,119
(1)
Excludes stock-based compensation of $0.8 million related to accelerated vesting of stock-based compensation awards for certain
employees terminated as a result of our restructuring activities.
15. INCOME TAXES
The components of pretax income (loss) from continuing operations for the years ended December 31, 2018,
2017 and 2016 were as follows (in thousands):
United States
International
Income (loss) before provision (benefit) for income taxes
Year Ended December 31,
2018
2017
2016
$
$
23,349
$
30,095
$
(119,095)
(22,318)
6,050
(52,432)
1,031
$
36,145
$
(171,527)
120
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The provision (benefit) for income taxes for the years ended December 31, 2018, 2017 and 2016 was allocated
between continuing operations and discontinued operations as follows (in thousands):
Continuing Operations
Discontinued Operations
Total
Year Ended December 31,
2018
2017
2016
$
$
(957) $
7,544
$
—
—
(957) $
7,544
$
(5,318)
2,771
(2,547)
The provision (benefit) for income taxes from continuing operations for the years ended December 31, 2018,
2017 and 2016 consisted of the following components (in thousands):
Current taxes:
U.S. federal
State
International
Total current taxes
Deferred taxes:
U.S. federal
State
International
Total deferred taxes
Year Ended December 31,
2018
2017
2016
$
768
$
(120) $
(1,093)
57
3,218
4,043
(319)
—
(4,681)
(5,000)
191
6,870
6,941
(1,335)
50
1,888
603
912
5,311
5,130
(4,262)
(11)
(6,175)
(10,448)
(5,318)
Provision (benefit) for income taxes
$
(957) $
7,544
$
121
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The items accounting for differences between the income tax provision (benefit) from continuing operations
computed at the U.S. federal statutory rate and the provision (benefit) for income taxes for the years ended December
31, 2018, 2017 and 2016 were as follows (in thousands):
U.S. federal income tax provision (benefit) at statutory rate
$
216
$
12,651
$
(60,035)
Year Ended December 31,
2018
2017
2016
Foreign income and losses taxed at different rates (1)
State income taxes, net of federal benefits, and state tax credits
Change in valuation allowances
Effect of income tax rate changes on deferred items (2)
Tax effects of intercompany transactions
Adjustments related to uncertain tax positions
Non-deductible stock-based compensation expense
Tax shortfalls on stock-based compensation awards
Non-deductible (or non-taxable) change in fair value of investment
Federal research and development credits
Forgiveness of intercompany liabilities
Deductions for investments in subsidiaries that have ceased operations
Ordinary stock loss
Non-taxable gains on business dispositions
Non-deductible or non-taxable items
Provision (benefit) for income taxes
2,113
1,966
3,829
1,544
607
18
3,239
(335)
—
(8,331)
(1,340)
—
(11,815)
—
7,332
$
(957) $
4,524
(4,980)
(36,057)
20,466
3,332
1,824
5,002
4,290
—
(7,862)
(2,494)
—
—
—
6,848
7,544
$
9,410
(4,694)
13,797
7,135
853
(4,899)
6,724
12,585
4,484
(8,547)
15,187
(645)
—
(3,481)
6,808
(5,318)
(1)
(2)
Tax rates in foreign jurisdictions were generally lower than the U.S. federal statutory rate through December 31, 2018. This results in an
adverse impact to the provision (benefit) for income taxes in this rate reconciliation for the years ended December 31, 2018, 2017 and 2016,
prior to the impact of valuation allowances, due to the net pretax losses from continuing operations in certain foreign jurisdictions with lower
tax rates.
The effect of income tax rate changes on deferred items for the year ended December 31, 2017 is primarily related to the U.S. tax reform
legislation that was signed into law on December 22, 2017, which included a reduction of the U.S. Federal income tax rate to 21 percent.
That rate reduction did not impact our provision for income taxes for the year ended December 31, 2017 due to the valuation allowance
against our U.S. net deferred tax assets.
122
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The deferred income tax assets and liabilities consisted of the following components as of December 31, 2018
and 2017 (in thousands):
Deferred tax assets:
Accrued expenses and other liabilities
Stock-based compensation
Net operating loss and tax credit carryforwards
Intangible assets, net
Investments
Unrealized foreign currency exchange losses
Other
Total deferred tax assets
Less: Valuation allowances
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Prepaid expenses and other assets
Property, equipment and software, net
Convertible senior notes
Deferred revenue
Total deferred tax liabilities
Net deferred tax asset (liability)
December 31,
2018
2017
$
25,694
$
5,167
206,328
16,482
5,916
1,882
1,021
262,490
(228,023)
34,467
(12,737)
(12,576)
(2,457)
(7,255)
(35,025)
$
(558) $
36,786
3,720
208,040
23,722
814
2,771
687
276,540
(238,702)
37,838
(10,011)
(11,315)
(2,773)
(10,436)
(34,535)
3,303
We have incurred significant losses in recent periods and had an accumulated deficit of $1,010.5 million as
of December 31, 2018. As a result, we maintained valuation allowances against our domestic deferred tax assets and
substantially all of our foreign deferred tax assets as of December 31, 2018 and 2017 to reduce their carrying values
to amounts that are realizable either through future reversals of existing taxable temporary differences or through
taxable income in carryback years for the applicable jurisdictions.
We had $233.1 million of federal and $1,057.5 million of state net operating loss carryforwards as of December
31, 2018, which will begin expiring in 2027 and 2019. As of December 31, 2018, we had $462.2 million of foreign net
operating loss carryforwards, a significant portion of which carry forward for an indefinite period.
We are subject to taxation in the United States, state jurisdictions and foreign jurisdictions. Significant judgment
is required in determining the worldwide provision for income taxes and recording the related income tax assets and
liabilities. We recognize the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-
than-not criterion, the amount recognized in the financial statements is the largest benefit that has a greater than 50
percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
123
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes activity related to our gross unrecognized tax benefits, excluding interest and
penalties, for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Year Ended December 31,
2018
2017
2016
Beginning Balance
$
87,359
$
80,081
$
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Decreases based on settlements with taxing authorities
Decreases due to lapse of statute limitations
Foreign currency translation
Ending Balance
1,500
(21)
7,533
—
(9,447)
713
960
(1,196)
9,571
—
(3,777)
1,720
$
87,637
$
87,359
$
79,637
1,708
(3,154)
11,443
(3,176)
(4,906)
(1,471)
80,081
The total amount of unrecognized tax benefits as of December 31, 2018, 2017 and 2016 that, if recognized,
would affect the effective tax rate are $33.3 million, $37.6 million and $34.5 million, respectively.
We recognized $1.6 million, $0.2 million and $1.2 million of interest and penalties within Provision (benefit) for
income taxes on our consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016.
Total accrued interest and penalties as of December 31, 2018, 2017 and 2016 were $5.4 million, $4.8 million and $4.6
million, and are included within Other non-current liabilities in our consolidated balance sheets.
We are currently under IRS audit for the 2013 and 2014 tax years. Additionally, we are currently under audit
by several foreign 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 recognized income tax benefits of $7.9 million, $3.0 million and $8.4 million for the years ended
December 31, 2018, 2017 and 2016, as a result of new information that impacted our estimates of the amounts that
are more-likely-than not of being realized upon settlement of the related tax positions and due to expirations of the
applicable statutes of limitations. We are subject to claims for tax assessments by foreign jurisdictions, including a
proposed assessment for $109.6 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 $49.7 million in unrecognized tax benefits
may occur within the 12 months following December 31, 2018 upon closing of income tax audits or the expiration of
applicable statutes of limitations.
The Jobs Act was signed into law on December 22, 2017. In December 2017, the SEC staff issued Staff
Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP to situations in which an entity does
not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting
for certain income tax effects of the Jobs Act. That guidance specifies that, for income tax effects of the Jobs Act that
can be reasonably estimated but for which the accounting and measurement analysis is not yet complete, entities
should report provisional amounts in the reporting period that includes the enactment date and those provisional
amounts can be adjusted for a measurement period not to exceed one year from the enactment date. Additionally, for
income tax effects of the Jobs Act that cannot be reasonably estimated, entities should report provisional amounts for
those income tax effects in the first reporting period in which a reasonable estimate can be determined, not to exceed
one year from the enactment date.
We previously made provisional estimates for the impact of the Jobs Act as of and for the year ended December
31, 2017 related to the re-measurement of deferred income taxes, valuation allowances, uncertain tax positions, and
our assessment of permanently reinvested earnings. Additionally, while we did not expect to incur the deemed
repatriation tax established by the Jobs Act due to the aggregate cumulative losses of our foreign operations, we had
not previously finalized the related calculations. As of December 31, 2018, we have completed our accounting and
measurement analyses related to the income tax effects of the Jobs Act and no significant adjustments to the provisional
amounts were recorded during the year ended December 31, 2018.
124
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Jobs Act also establishes global intangible low-taxed income ("GILTI") provisions that impose a tax on
foreign income in excess of a deemed return on tangible assets of foreign corporations. Our accounting policy for the
income tax effects of GILTI will be to recognize those taxes as expenses in the period incurred.
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 established by the Jobs Act, 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 December 31, 2018 and 2017 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.
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. We are continuing to monitor the status of the case; however, we currently
do not expect that it 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.
16. VARIABLE INTEREST ENTITY
Variable interest entities ("VIEs") are entities that have either a total equity investment that is insufficient to
permit the entity to finance its activities without additional subordinated financial support, or whose equity investors
lack the characteristics of a controlling financial interest (i.e., the ability to make significant decisions through voting
rights and the right to receive the expected residual returns of the entity or the obligation to absorb the expected losses
of the entity). A variable interest holder that has both (a) the power to direct the activities of the VIE that most significantly
impact its economic performance and (b) either an obligation to absorb losses or a right to receive benefits that could
potentially be significant to the VIE is referred to as the primary beneficiary and must consolidate the VIE.
In 2011, we entered into an arrangement with a strategic partner to offer deals related to live events, and a
limited liability company ("LLC") was established to administer that arrangement. Groupon and the strategic partner
each own 50% of the outstanding LLC interests and income and cash flows of the LLC are allocated based on agreed
upon percentages specified in the related LLC agreement.
Our obligations associated with our interests in the LLC are primarily administering transactions, contributing
intellectual property, identifying deals and promoting the sale of deal offerings, coordinating the distribution of deal
offerings and providing the record keeping.
Under the LLC agreement, as amended, the LLC shall be dissolved upon the occurrence of any of the following
events: (1) either party becoming a majority owner; (2) July 11, 2019; (3) certain elections of Groupon or the strategic
partner based on the operational performance of the LLC or other changes to certain terms in the agreement; (4)
election of either Groupon or the strategic partner in the event of bankruptcy by the other party; (5) sale of the LLC; or
(6) a court's dissolution of the LLC. We intend to negotiate an extension to this agreement.
We have determined that the LLC is a VIE and that we are its primary beneficiary. We consolidate the LLC
because we have the power to direct the activities of the LLC that most significantly impact the LLC's economic
performance. In particular, we identify and promote the deal offerings, provide all of the operational and back office
support, present the LLC's deal offerings via our websites and mobile applications and provide the editorial resources
that create the verbiage for the related deal offers.
125
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. FAIR 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:
Cash equivalents. Cash equivalents primarily consisted of AAA-rated money market funds. We classified cash
equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based
on quoted prices in active markets for identical assets.
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 investees.
The key inputs to determining fair values under that approach are cash flow forecasts and discount rates. As
of December 31, 2018 and 2017, we applied discount rates of 21% and 22%, in our discounted cash flow
valuations for Monster LP. 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 investee’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 $2.5 million to the former owners of a business acquired on April 30, 2018. See Note 4,
Business Combinations, for further discussion of that acquisition. Additionally, we had contingent obligations
in prior periods to transfer cash to the former owners of a previous business acquisition if specified financial
results were met (i.e. an earnout).
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
126
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
subsequent changes in fair value recorded in earnings within Selling, general and administrative expense on
the 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.
The following tables summarize assets that are measured at fair value on a recurring basis as of December
31, 2018 and 2017 (in thousands):
Fair Value Measurement at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31, 2018
Assets:
Fair value option investments
$
73,902
$
— $
— $
73,902
Available-for-sale securities:
Redeemable preferred shares
Liabilities:
Contingent consideration
10,340
1,529
—
—
—
—
10,340
1,529
Fair Value Measurement at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31, 2017
Cash equivalents
$
137,975
$
137,975
$
— $
Fair value option investments
Available-for-sale securities:
Convertible debt securities
Redeemable preferred shares
82,966
11,354
15,431
—
—
—
—
—
—
—
82,966
11,354
15,431
127
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for
the years ended December 31, 2018, 2017 and 2016 (in thousands):
Year Ended December 31,
2018
2017
2016
Assets
Fair value option investments:
Beginning Balance
Total gains (losses) included in earnings
Ending Balance
Unrealized (losses) gains still held (1)
Available-for-sale securities
Convertible debt securities:
Beginning Balance
Purchases and acquisition of convertible debt securities
Proceeds from sales and maturities of convertible debt securities
Transfer to other equity method investment upon conversion of convertible
debt security
Total gains (losses) included in other comprehensive income (loss)
Total gains (losses) included in earnings(2)
Ending Balance
Unrealized gains (losses) still held (1)
Redeemable preferred shares:
Beginning Balance
Total gains (losses) included in other comprehensive income (loss)
Other-than-temporary impairment included in earnings
Transfer to cost method investment classification upon elimination of
redemption feature
Ending Balance
Unrealized gains (losses) still held (1)
Liabilities
Contingent Consideration:
Beginning Balance
Issuance of contingent consideration in connection with acquisitions
Settlements of contingent consideration liabilities
Reclass to non-fair value liabilities when no longer contingent
Total losses (gains) included in earnings
Foreign currency translation
Ending Balance
Unrealized losses (gains) still held (1)
$
$
$
$
$
$
$
$
$
$
$
$
82,966
$
(9,064)
73,902
$
(9,064) $
82,584
$
382
82,966
382
$
$
11,354
$
10,038
$
—
(8,594)
(4,008)
(1,148)
2,396
— $
— $
1,612
(1,843)
—
(437)
1,984
11,354
1,303
$
$
130,725
(48,141)
82,584
(48,141)
10,116
—
(1,685)
—
703
904
10,038
1,607
15,431
$
17,444
$
22,834
379
(5,470)
—
10,340
$
(5,091) $
931
(2,944)
—
15,431
$
(2,013) $
(816)
—
(4,574)
17,444
(816)
— $
14,588
$
10,781
1,589
—
—
56
(116)
1,529
56
$
$
—
(7,858)
(6,778)
48
—
— $
— $
—
—
(285)
4,092
—
14,588
3,966
(1)
(2)
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.
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. For the year ended December 31, 2018, we recorded a $4.6
million impairment of an other equity investment. To determine the fair value of the investment, we considered the
financial condition of the investee and applied a market approach. We have classified the fair value measurement of
that other equity investment as Level 3 because it involves significant unobservable inputs. For the year ended
December 31, 2016, we recorded a $0.3 million impairment charge related to property, equipment and software as a
128
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
result of our restructuring activities (refer to Note 14, Restructuring). Those long lived assets were written down to their
estimated fair values of zero as of December 31, 2016.
Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value
The following table presents the carrying amount and fair value of equity securities that were classified as cost
method investments as of December 31, 2017 (in thousands):
Cost method investments (1)
December 31, 2017
Carrying Amount
Fair Value
$
25,438
$
32,792
(1)
See Note 2, Summary of Significant Accounting Policies, and Note 7, Investments, for information about our adoption of ASU
2016-01 on January 1, 2018 and its impact on accounting for equity investments without readily determinable fair values that were
previously subject to the cost method of accounting.
The fair values of our cost method investments were determined using the market approach or the income
approach, depending on the availability of fair value inputs such as financial projections for the investees and market
multiples for comparable companies. We classified the fair value measurements of our cost method investments as
Level 3 measurements within the fair value hierarchy as of December 31, 2017 because they involve significant
unobservable inputs such as cash flow projections and discount rates.
Our other 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 December 31, 2018 and 2017 due to their short-
term nature.
18. INCOME (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, performance bonus awards, 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.
Each share of our Class A and Class B common stock automatically converted into a single class of common
stock on October 31, 2016. Refer to Note 11, Stockholders' Equity, for additional information. Prior to the conversion,
we computed net income (loss) per share of Class A and Class B common stock using the two class method. Under
the two-class method, the undistributed earnings for each period were allocated based on the contractual participation
rights of the Class A and Class B common shares as if the earnings for the period had been distributed. As the liquidation
and dividend rights were identical for Class A and Class B common shares, the undistributed earnings were allocated
on a proportionate basis. Under the two-class method, the computation of diluted net income (loss) per share of Class
A common stock would reflect the conversion of Class B common stock, if dilutive, while the computation of diluted
net income (loss) per share of Class B common stock would not reflect the conversion of those shares.
129
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the computation of basic and diluted net income (loss) per share of common
stock for the years ended December 31, 2018 and 2017 (in thousands, except share amounts and per share amounts):
Basic and diluted net income (loss) per share:
Numerator
Net income (loss) - continuing operations
Less: Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to common stockholders - continuing operations
Net income (loss) attributable to common stockholders - discontinued operations
Net income (loss) attributable to common stockholders
Denominator
Shares used in computation of basic net income (loss) per share
Weighted-average effect of diluted securities:
Stock Options
Restricted Stock
Restricted Stock Units
Employee Stock Purchase Plan
Performance Share Units and Performance Bonus Awards
Shares used in computation of diluted net income (loss) per share
Basic net income (loss) per share:
Continuing operations
Discontinued operations
Basic net income (loss) per share
Diluted net income (loss) per share:
Continuing operations
Discontinued operations
Diluted net income (loss) per share
Year Ended December 31,
2018
2017
1,988
$
13,067
(11,079) $
—
(11,079) $
28,601
12,587
16,014
(1,974)
14,040
566,511,108
559,367,075
—
—
—
—
—
842,047
488,773
7,153,674
201,504
365,298
566,511,108
568,418,371
(0.02) $
0.00
(0.02) $
(0.02) $
0.00
(0.02) $
0.03
(0.00)
0.03
0.03
(0.01)
0.02
$
$
$
$
$
$
$
The following table sets forth the computation of basic and diluted loss per share of the common stock and
the Class A and Class B common stock for the year ended December 31, 2016 (in thousands, except share amounts
and per share amounts):
130
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Period from January 1, 2016
through October 31, 2016
(pre-conversion)
Period from November
1, 2016 through
December 31, 2016
(post-conversion)
Year Ended
December 31, 2016 (2)
Class A
Class B
Common
Total
Basic and diluted net income (loss) per share:
Numerator
Allocation of net income (loss) - continuing operations
$
(151,284) $
(632) $
(14,293) $
(166,209)
Less: Allocation of net income (loss) attributable to
noncontrolling interests
Allocation of net income (loss) attributable to common
stockholders - continuing operations
Allocation of net income (loss) attributable to common
stockholders - discontinued operations
Allocation of net income (loss) attributable to common
stockholders
Denominator
9,559
40
1,665
11,264
$
(160,843) $
(672) $
(15,958) $
(177,473)
(7,152)
(30)
(9,932)
(17,114)
$
(167,995) $
(702) $
(25,890) $
(194,587)
Weighted-average common shares outstanding
574,755,214
2,399,976
574,884,987
576,354,258
Basic and diluted net income (loss) per share (1):
Continuing operations
Discontinued operations
Basic and diluted net income (loss) per share
$
$
(0.28) $
(0.28) $
(0.01)
(0.01)
(0.29) $
(0.29) $
(0.03) $
(0.02)
(0.05) $
(0.31)
(0.03)
(0.34)
(1)
(2)
The potentially dilutive impacts of a conversion of Class B to Class A shares, outstanding equity awards, warrants and convertible senior
notes have been excluded from the calculation of dilutive net income (loss) per share for the years ended December 31, 2016 as their effect
on net income (loss) per share from continuing operations was antidilutive.
The shares of Class A and Class B common stock had equal dividend rights and converted into shares of common stock on a one-for-one
basis on October 31, 2016. This full year column reflects the weighted average Class A and Class B common shares outstanding for the
period from January 1, 2016 through the October 31, 2016 conversion date and the weighted average common shares outstanding for the
period from November 1, 2016 through December 31, 2016 in the denominator of the basic and diluted loss per share calculations for the
year ended December 31, 2016.
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:
Restricted stock units
Other stock-based compensation awards
Convertible senior notes
Warrants
Total
Year Ended December 31,
2018
2017
2016
30,552,028
2,041,099
46,296,300
46,296,300
8,087,545
33,480,458
13,000
46,296,300
46,296,300
3,850,389
34,213,474
29,761,907
125,185,727
100,693,145
101,306,228
131
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. SEGMENT 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. Prior to the first
quarter 2017, we organized our operations into three operating segments: North America, EMEA and Rest of World.
As a result of the dispositions discussed in Note 3, Discontinued Operations and Other Business Dispositions, which
represented a substantial majority of our international operations outside of EMEA and resulted in changes to our
internal reporting and leadership structure, we updated our segments in the first quarter of 2017 to report two operating
segments: North America and International. Our operating segments continue to be the same as our reportable
segments. In addition, we changed our measure of segment profitability in the first quarter of 2017. Historically, segment
operating results reflected operating income (loss) excluding stock-based compensation and acquisition-related
expense (benefit), net. In connection with the internal reporting changes in the first quarter of 2017, the measure of
segment profitability has been changed to operating income (loss), unadjusted. Prior period segment information has
been retrospectively adjusted to reflect those changes.
The following table summarizes revenue by reportable segment and category for the years ended December
31, 2018, 2017 and 2016 (in thousands):
North America
Service revenue:
Local
Travel
Goods
Product revenue - Goods
Total North America revenue (1)
International
Service revenue:
Local
Travel
Goods
Product revenue - Goods
Total International revenue (1)
Year Ended December 31,
2018
2017
2016
$
752,863
$
825,579
$
762,314
71,856
18,283
796,393
1,639,395
306,700
41,183
14,602
634,866
78,495
16,768
993,326
1,914,168
281,466
43,786
20,358
584,099
$
997,351
$
929,709
$
82,577
9,068
1,297,810
2,151,769
270,045
49,756
32,681
509,364
861,846
(1) North America includes revenue from the United States of $1,600.2 million, $1,884.7 million and $2,120.3 million for the years ended December
31, 2018, 2017 and 2016. International includes revenue from the United Kingdom of $390.4 million, $343.9 million and $321.9 million for the
years ended December 31, 2018, 2017 and 2016. There were no other individual countries that represented more than 10% of consolidated
total revenue for the years ended December 31, 2018, 2017 and 2016. Revenue is attributed to individual countries based on the location of
the customer. In prior periods, revenue was attributed to individual countries based on the domicile of the legal entities within our consolidated
group that undertook those transactions. Beginning in the second quarter of 2017, we updated our attribution of revenue by country to be
based on the location of the customer. Prior period revenue amounts by country have been retrospectively adjusted to reflect that change in
attribution.
132
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes gross profit by reportable segment and category for the years ended December
31, 2018, 2017 and 2016 (in thousands):
North America
Service gross profit:
Local
Travel
Goods
Product gross profit - Goods
Total North America gross profit
International
Service gross profit:
Local
Travel
Goods
Product gross profit - Goods
Total International gross profit
Year Ended December 31,
2018
2017
2016
$
671,352
$
708,573
$
660,983
57,945
15,302
146,085
890,684
289,427
38,132
13,252
89,106
60,594
12,929
145,582
927,678
265,348
40,288
17,910
82,637
64,355
7,470
152,739
885,547
250,435
45,191
27,976
71,504
$
429,917
$
406,183
$
395,106
The following table summarizes operating income by reportable segment for the years ended December 31,
2018, 2017 and 2016 (in thousands):
Operating income (loss) (1) (2) (3) (4) :
North America
International
Total operating income (loss)
Year Ended December 31,
2018
2017
2016
$
$
19,909
$
34,130
(45) $
29,480
(85,423)
(14,815)
54,039
$
29,435
$
(100,238)
(1)
(2)
Includes stock-based compensation of $59.7 million, $76.1 million and $104.7 million for North America and $5.0 million, $5.7 million and
$9.5 million for International for the years ended December 31, 2018, 2017 and 2016, respectively.
Includes acquisition-related (benefit) expense, net of $0.7 million for International for the year ended December 31, 2018 and $5.7 million for
North America for the year ended December 31, 2016.
(3)
Includes restructuring charges for North America and International. See Note 14, Restructuring, for restructuring charges by segment.
(4)
Includes a $34.6 million charge related to the IBM patent litigation matter for North America for the year ended December 31, 2018. See Note
10, Commitments and Contingencies, for additional information.
133
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes total assets by reportable segment as of December 31, 2018 and 2017 (in
thousands):
Total assets:
North America (1)
International (1)
Consolidated total assets
December 31,
2018
2017
$
$
958,412
$
1,045,072
683,730
632,433
1,642,142
$
1,677,505
(1) North America contains assets from the United States of $940.5 million and $1,006.2 million as of December 31, 2018 and 2017. International
contains assets from Ireland of $204.6 million and $219.7 million as of December 31, 2018 and 2017. There were no other individual countries
that represented more than 10% of consolidated total assets as of December 31, 2018 and 2017.
The following table summarizes tangible property and equipment, net of accumulated depreciation and
amortization, by reportable segment as of December 31, 2018 and 2017 (in thousands):
North America (1)
International (2)
Consolidated total
December 31,
2018
2017
$
$
51,032
$
20,773
71,805
$
63,402
21,850
85,252
(1) Substantially all tangible property and equipment within North America is located in the United States.
(2)
Tangible property and equipment, net located within Ireland represented approximately 12% of our consolidated tangible property and
equipment, net as of December 31, 2017. There were no other individual countries located outside of the United States that represented
more than 10% of consolidated tangible property and equipment, net as of December 31, 2018 and 2017.
The following table summarizes depreciation and amortization of property, equipment and software and
intangible assets by reportable segment for the years ended December 31, 2018, 2017 and 2016 (in thousands):
North America
International
Consolidated total
Year Ended December 31,
2018
2017
2016
$
$
101,419
$
121,616
$
14,409
16,211
115,828
$
137,827
$
116,865
19,044
135,909
The following table summarizes expenditures for additions to tangible long-lived assets by reportable segment
for the years ended December 31, 2018, 2017 and 2016 (in thousands):
North America
International
Consolidated total
20. RELATED PARTY TRANSACTION
Year Ended December 31,
2018
2017
2016
$
$
6,194
$
10,393
5,917
$
5,106
16,587
$
11,023
$
9,770
5,255
15,025
On December 28, 2016, we entered into a sublease for portions of our office space in Chicago, Illinois to Uptake,
Inc. ("Uptake"), a Lightbank LLC ("Lightbank") portfolio company. Eric Lefkofsky, our Chairman of the Board, is a co-
founder and owns a significant equity interest in Lightbank. The sublease was negotiated on an arm’s-length basis
and is 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 that term total
approximately $18.2 million. Pursuant to our related party transaction policy, our Audit Committee approved us entering
134
GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
into the sublease. For the years ended December 31, 2018 and 2017, we recognized $2.1 million and $1.9 million, in
income from the sublease.
21. QUARTERLY RESULTS (UNAUDITED)
The following table represents data from our unaudited consolidated statements of operations for the most
recent eight quarters. This quarterly information has been prepared on the same basis as the consolidated financial
statements and includes all normal recurring adjustments necessary to fairly state the information for the periods
presented. The results of operations of any quarter are not necessarily indicative of the results that may be expected
for any future period (in thousands, except share and per share amounts).
Dec. 31,
2018
Sept. 30,
2018 (2)
June 30,
2018 (2)
Mar. 31,
Dec. 31,
Sept. 30,
June 30,
Mar. 31,
2018
2017
2017
2017
2017
Quarter Ended
Consolidated Statements of Operations Data:
Revenue
Cost of revenue
Gross profit
$ 799,927
$ 592,883
$ 617,396
$ 626,540
$ 873,166
$ 634,466
$ 662,619
$ 673,626
433,858
286,894
293,738
301,655
486,248
325,041
334,552
364,175
366,069
305,989
323,658
324,885
386,918
309,425
328,067
309,451
Income (loss) from operations
61,876
53,023
(64,245)
3,385
49,726
(1,213)
(7,398)
(11,680)
Income (loss) from continuing operations (1)
49,862
47,175
(92,254)
(2,795)
51,071
3,802
(5,403)
(20,869)
Income (loss) from discontinued operations, net of
tax
—
—
—
—
(223)
(862)
(1,376)
487
Net income (loss) attributable to Groupon, Inc.
46,228
44,615
(95,034)
(6,888)
47,721
59
(9,326)
(24,414)
Basic net income (loss) per share (3) :
Continuing operations
Discontinued operations
Basic net income (loss) per share
Diluted net income (loss) per share (3):
Continuing operations
Discontinued operations
Diluted net income (loss) per share
$
$
$
$
0.08
$
0.08
$
(0.17) $
(0.01) $
0.09
$
0.00
$
(0.01) $
(0.04)
0.00
0.00
0.00
0.00
(0.00)
(0.00)
(0.01)
0.00
0.08
$
0.08
$
(0.17) $
(0.01) $
0.09
$
0.00
$
(0.02) $
(0.04)
0.08
$
0.08
$
(0.17) $
(0.01) $
0.08
$
0.00
$
(0.01) $
(0.04)
0.00
0.00
0.00
0.00
(0.00)
(0.00)
(0.01)
0.00
0.08
$
0.08
$
(0.17) $
(0.01) $
0.08
$
0.00
$
(0.02) $
(0.04)
(1)
(2)
Income (loss) from continuing operations includes restructuring charges of $11.5 million, $4.6 million and $2.7 million for the three months
ended September 30, 2017, June 30, 2017 and March 31, 2017. Restructuring charges were not material for any quarterly period during
the year ended December 31, 2018 or for the three months ended December 31, 2017.
Income (loss) from continuing operations includes a $40.4 million benefit and $75.0 million charge for the three months ended September
30, 2018 and June 30, 2018, related to our patent litigation with IBM. See Note10, Commitments and Contingencies, for additional information.
(3)
The sum of per share amounts for quarterly periods may not equal year-to-date amounts due to rounding.
135
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. 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 Annual Report on Form 10-K.
Based on this evaluation, our management concluded that, as of December 31, 2018, 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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Our internal control over financial reporting includes policies and procedures that provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes
in accordance with U.S. generally accepted accounting principles. Based on this evaluation, management concluded
that our internal control over financial reporting was effective as of December 31, 2018. Management reviewed the
results of its assessment with our Audit Committee. The effectiveness of our internal control over financial reporting
as of December 31, 2018 has been audited by Deloitte & Touche LLP, an independent registered public accounting
firm, as stated in its report which is included below.
Changes in Internal Control over Financial Reporting
There was no change 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 quarter ended December 31,
2018 that has materially affected, or is 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.
136
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Groupon, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Groupon, Inc. and subsidiaries (the “Company”) as
of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018,
of the Company and our report dated February 12, 2019, expressed an unqualified opinion on those financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 12, 2019
137
ITEM 9B. OTHER INFORMATION
On February 9, 2019, the Compensation Committee (the “Compensation Committee”) of the Board of Directors
in connection with its annual compensation review process approved a change in the allocation between base salary
and target bonus of each named executive officer’s compensation. Specifically, the Compensation Committee approved
an increase in the 2019 annual base salary of each named executive officer and a corresponding reduction of the
same amount in each executive’s 2019 target annual incentive amount, so that each executive’s 2019 total target cash
compensation remains the same as in 2018. The resulting 2019 base salary and target annual incentive amounts for
the named executive officers are as follows:
Name and Position
Rich Williams, Chief Executive Officer
Michael Randolfi, Chief Financial Officer
Stephen Krenzer, Chief Operating Officer
Dane Drobny, General Counsel and Corporate Secretary
2019 Base Salary
2019 Target Bonus
$850,000
$600,000
$725,000
$550,000
$650,000
$400,000
$525,000
$350,000
On February 12, 2019, in addition to the regular annual equity awards of restricted stock units and performance
stock units consistent with prior practice, we granted to each named executive officer a special retention award of
performance stock units (“Supplemental PSUs”) that will vest if our average daily closing stock price is equal to or
greater than a specified stock price over a period of 30 consecutive trading days prior to December 31, 2022, as follows
(with number of Supplemental PSUs indicated per executive): Mr. Williams, 3,000,000; Mr. Randolfi, 1,000,000; Mr.
Krenzer, 1,333,333; and Mr. Drobny, 666,667. The Supplemental PSUs will also vest 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) or if the executive’s employment is terminated without
cause or by the executive for good reason (as defined in the executive’s severance benefit agreement) within 120
days prior to vesting, subject to certain other limitations.
In addition, as part of our review of the terms of our severance benefits agreements, on February 9, 2019, the
Compensation Committee authorized amendments to the severance benefit agreements with the named executive
officers to extend the change in control protection period for certain terminations of employment (which would trigger
change in control severance benefits) from 12 months following a change in control to 24 months following a change
in control.
138
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information regarding our Directors is incorporated by reference from the information under the captions "Board
of Directors" and "Corporate Governance at Groupon" in our Proxy Statement for our 2019 Annual Meeting of
Stockholders, which will be filed with the SEC within 120 days of December 31, 2018 ("2019 Proxy
Statement"). Information regarding our Audit Committee and its Financial Experts is incorporated by reference from
the information under the captions "Board Committees" and "Audit Committee Report" in our 2019 Proxy
Statement. Information regarding our Executive Officers can be found in Part I of this Annual Report on Form 10-
K. Information regarding compliance with Section 16(a) of the Exchange Act is incorporated by reference from the
information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in our 2019 Proxy Statement.
Code of Ethics
We have adopted a Code of Conduct, which is applicable to our chief executive officer, chief financial officer
and other principal executive and senior financial officers. Our Code of Conduct is available through our website
(www.groupon.com). Information about the Code of Conduct is incorporated by reference from the information under
the caption "Corporate Governance at Groupon" in our 2019 Proxy Statement. We will post any amendment to or
waiver from the provisions of the Code of Conduct that applies to the above executive officers on our investor relations
website (investor.groupon.com) under the caption "Corporate Governance."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the captions "Named Executive Officer Compensation,"
"Director Compensation," "Compensation Discussion and Analysis," "Compensation Committee Interlocks and Insider
Participation" and "Compensation Committee Report" in our 2019 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference from the information under the captions "Information Regarding Beneficial
Ownership of Principal Stockholders, Directors and Management" and "Equity Compensation Plan Information" in our
2019 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference from the information under the captions "Corporate Governance at Groupon," "Board
Independence and Expertise" and "Certain Relationships and Related Party Transactions" in our 2019 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference from the information under the caption "Independent Registered Public Accounting
Firm" in our 2019 Proxy Statement.
139
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(1) We have filed the following documents as part of the Annual Report on Form 10-K
Groupon, Inc.
Consolidated Financial Statements
As of December 31, 2018 and 2017 and for the Years Ended December 31, 2018, 2017 and 2016
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules - Groupon, Inc.
Schedule II-Valuation and Qualifying Accounts
TAX VALUATION ALLOWANCE:
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
Balance at
Beginning of
Year
Charged to
Expense(1)
Acquisitions
and Other
Balance at End
of Year
(in thousands)
238,702
220,611
205,152
3,829
10,476
13,797
(14,508)
7,615
1,662
228,023
238,702
220,611
(1)
The amount charged to expense related to the income tax valuation allowance for the year ended December 31, 2017 reflects a
$46.5 million expense from discontinued operations, partially offset by a $36.1 million benefit from continuing operations. The
$46.5 million discontinued operations expense reflects the valuation allowance recognized against loss carryforwards relating to
tax losses on the stock of subsidiaries that were divested in 2017.
All other schedules have been omitted because they are either inapplicable or the required information has
been provided in the consolidated financial statements or in the notes thereto.
(3) Exhibits
140
Exhibit
Number
2.1
Investment Agreement, dated as of April 19, 2015, among Groupon Trailblazer, Inc., Monster Partners LP and Monster Holdings
LP (incorporated by reference to the Company's Current Report on Form 8-K filed April 20, 2015).
Description
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to the Company's Registration Statement
on Form 8-A/A filed on October 31, 2016).
3.2* Amended and Restated By-Laws.
3.3 Amendment to the Amended and Restated By-Laws of the Company, dated as of June 10, 2016 (incorporated by reference
to the Company’s Current Report on Form 8-K filed on June 14, 2016).
4.1 Specimen Stock Certificate of Common Stock (incorporated by reference to the Company's Registration Statement on Form
8-A/A filed on October 31, 2016).
4.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
Indenture, dated as of April 4, 2016, between the Company and U.S. Bank, National Association, as trustee (incorporated by
reference to the Company’s Current Report on Form 8-K filed on April 4, 2016).
2008 Stock Option Plan.**
Form of Notice of Grant of Stock Option under 2008 Stock Option Plan.**
2010 Stock Plan.**
Form of Notice of Grant of Stock Option under 2010 Stock Plan.**
Form of Notice of Restricted Stock Unit Award under 2010 Stock Plan.**
Form of Indemnification Agreement.**
10.7 Form of Severance Benefit Agreement as entered into between Groupon, Inc. and its executive officers (incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017).**
10.8
2011 Incentive Plan, as amended and restated effective as of October 31, 2016 (incorporated by reference to the Company's
Current Report on Form 8-K filed on October 31, 2016).**
10.9 Non-Employee Directors’ Compensation Plan **
10.10 Form of Notice of Restricted Stock Award under 2011 Incentive Plan (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 2012).**
10.11 Form of Notice of Performance Share Unit Award and Form of Performance Share Unit Award Agreement under 2011 Incentive
Plan (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2015).
10.12 Form of Notice of Performance Share Unit Award and Form of performance Share Unit Award Agreement under 2011
Incentive Plan (incorporate by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2018)
10.13
Investment Agreement, dated as of April 3, 2016, between the Company and A-G Holdings, L.P. (incorporated by reference
to the Company’s Current Report on Form 8-K filed on April 4, 2016).
10.14 Voting Agreement, dated as of April 4, 2016, among the Company, A-G Holdings, L.P. and the stockholders party thereto
(incorporated by reference to the Company’s Current Report on Form 8-K filed on April 4, 2016).
10.15 Amendment No. 1 to Voting Agreement, dated as of February 13, 2018, by and among Eric Lefkofsky, Green Media, LLC,
Bradley Keywell, Rugger Ventures LLC, A-G Holdings, L.P., and Groupon, Inc. (incorporated by reference to the Company’s
Annual Report on Form 10-K filed on February 14, 2018)
10.16 Form of Note Hedge Confirmation, dated as of May 9, 2016, between the Company and each of the counterparties thereto
(incorporated by reference to the Company’s Current Report on Form 8-K filed on May 9, 2016).
10.17 Form of Warrant Confirmation, dated as of May 9, 2016, between the Company and each of the counterparties thereto
(incorporated by reference to the Company’s Current Report on Form 8-K filed on May 9, 2016).
10.18
Amended and Restated Credit Agreement, dated as of June 29, 2016, among the Company, JPMorgan Chase Bank, N.A.,
as Administrative Agent, and the lenders party thereto (incorporated by reference to the Company’s Current Report on Form
8-K filed on July 1, 2016).
21.1 Subsidiaries of Groupon, Inc.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Ernst & Young LLP
31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
141
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
_____________________________________
*
**
Incorporated by reference to the Company's registration statement on Form S-1 (registration number 333-174661)
Management contract or compensatory plan or arrangement.
142
Item 16. Form 10-K Summary (optional)
None.
143
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 12th day of February
2019.
SIGNATURES
GROUPON, INC.
By:
/s/ RICH WILLIAMS
Name:
Title:
Rich Williams
Chief Executive Officer
POWER OF ATTORNEY
KNOWN BY ALL PERSONS BY THESE PRESENTS, that the individuals whose signatures appear below
hereby constitute and appoint Rich Williams, Michael Randolfi and Melissa Thomas, and each of them severally, as
his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him or her
and in his or her name, place and stead in any and all capacities to sign any and all amendments to this Annual Report
on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do
or perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or of his substitute or substitutes, may lawfully do to cause to be done by virtue
hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by
the following persons on behalf of the registrant and in the capacities indicated as of February 12, 2019.
144
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 12th day of February
2019.
Signature
Title
/s/ Rich Williams
Rich Williams
/s/ Michael Randolfi
Michael Randolfi
/s/ Melissa Thomas
Melissa Thomas
/s/ Eric Lefkofsky
Eric Lefkofsky
/s/ Michael Angelakis
Michael Angelakis
/s/ Peter J. Barris
Peter J. Barris
/s/ Robert J. Bass
Robert J. Bass
/s/ Theodore J. Leonsis
Theodore J. Leonsis
/s/ Joseph Levin
Joseph Levin
/s/ Deborah Wahl
Deborah Wahl
/s/ Ann E. Ziegler
Ann E. Ziegler
Chief Executive Officer and Director (Principal Executive Officer)
Chief Financial Officer (Principal Financial Officer)
Chief Accounting Officer and Treasurer (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
145
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