GROUPON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 163,757 | | | $ | 281,279 | |
| Accounts receivable, net | 37,263 | | | 44,971 | |
| Prepaid expenses and other current assets | 40,717 | | | 41,101 | |
| Total current assets | 241,737 | | | 367,351 | |
| Property, equipment and software, net | 49,373 | | | 56,731 | |
| Right-of-use assets - operating leases, net | 8,157 | | | 12,127 | |
| Goodwill | 178,685 | | | 178,685 | |
| Intangible assets, net | 16,237 | | | 17,641 | |
| Investments | 119,541 | | | 119,541 | |
| Deferred income taxes | 13,756 | | | 13,550 | |
| Other non-current assets | 23,157 | | | 27,491 | |
| Total assets | $ | 650,643 | | | $ | 793,117 | |
| Liabilities and equity | | | |
| Current liabilities: | | | |
| Short-term borrowings | $ | 47,700 | | | $ | 75,000 | |
| Accounts payable | 27,537 | | | 59,568 | |
| Accrued merchant and supplier payables | 196,890 | | | 225,420 | |
| Accrued expenses and other current liabilities | 153,678 | | | 171,452 | |
| Total current liabilities | 425,805 | | | 531,440 | |
| Convertible senior notes, net | 225,307 | | | 224,923 | |
| Operating lease obligations | 6,527 | | | 9,310 | |
| Other non-current liabilities | 17,482 | | | 18,586 | |
| Total liabilities | 675,121 | | | 784,259 | |
Commitments and contingencies (see Note 6) | | | |
| Stockholders' equity (deficit) | | | |
Common stock, par value $0.0001 per share, 100,500,000 shares authorized; 41,100,451 shares issued and 30,806,334 shares outstanding at March 31, 2023; 40,786,996 shares issued and 30,492,879 shares outstanding at December 31, 2022 | 4 | | | 4 | |
| Additional paid-in capital | 2,324,434 | | | 2,322,672 | |
Treasury stock, at cost, 10,294,117 shares at March 31, 2023 and December 31, 2022 | (922,666) | | | (922,666) | |
| Accumulated deficit | (1,423,624) | | | (1,394,477) | |
| Accumulated other comprehensive income (loss) | (2,906) | | | 2,942 | |
| Total Groupon, Inc. stockholders' equity (deficit) | (24,758) | | | 8,475 | |
| Noncontrolling interests | 280 | | | 383 | |
| Total equity (deficit) | (24,478) | | | 8,858 | |
| Total liabilities and equity (deficit) | $ | 650,643 | | | $ | 793,117 | |
See Notes to Condensed Consolidated Financial Statements.
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share amounts)
(unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Revenue | $ | 121,611 | | | $ | 153,320 | |
| Cost of revenue | 16,900 | | | 19,319 | |
| Gross profit | 104,711 | | | 134,001 | |
| Operating expenses: | | | |
| Marketing | 24,848 | | | 39,416 | |
| Selling, general and administrative | 101,634 | | | 126,420 | |
| Restructuring and related charges | 8,794 | | | 312 | |
| Total operating expenses | 135,276 | | | 166,148 | |
| Income (loss) from operations | (30,565) | | | (32,147) | |
| Other income (expense), net | 3,070 | | | (4,880) | |
| Income (loss) before provision (benefit) for income taxes | (27,495) | | | (37,027) | |
| Provision (benefit) for income taxes | 1,118 | | | (2,675) | |
| Net income (loss) | (28,613) | | | (34,352) | |
| Net (income) loss attributable to noncontrolling interests | (534) | | | (500) | |
| Net income (loss) attributable to Groupon, Inc. | $ | (29,147) | | | $ | (34,852) | |
| | | |
| Basic and diluted net income (loss) per share: | $ | (0.95) | | | $ | (1.17) | |
| | | |
| Basic and diluted weighted average number of shares outstanding: | 30,676,145 | | | 29,862,879 | |
| | | |
| Comprehensive income (loss): | | | |
| Net income (loss) | $ | (28,613) | | | $ | (34,352) | |
| Other comprehensive income (loss): | | | |
| Net change in unrealized gain (loss) on foreign currency translation adjustments | (5,848) | | | 3,369 | |
| Other comprehensive income (loss) | (5,848) | | | 3,369 | |
| | | |
| Comprehensive income (loss) | (34,461) | | | (30,983) | |
| Comprehensive (income) loss attributable to noncontrolling interest | (534) | | | (500) | |
| Comprehensive income (loss) attributable to Groupon, Inc. | $ | (34,995) | | | $ | (31,483) | |
See Notes to Condensed Consolidated Financial Statements.
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Groupon, Inc. Stockholders' Equity (Deficit) | | | | |
| | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Total Groupon, Inc. Stockholders' Equity (Deficit) | | Non-controlling Interests | | Total Equity (Deficit) |
| Shares | | Amount | Shares | | Amount | |
| Balance at December 31, 2022 | 40,786,996 | | | $ | 4 | | | $ | 2,322,672 | | | (10,294,117) | | | $ | (922,666) | | | $ | (1,394,477) | | | $ | 2,942 | | | $ | 8,475 | | | $ | 383 | | | $ | 8,858 | |
| Comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (29,147) | | | (5,848) | | | (34,995) | | | 534 | | | (34,461) | |
| Vesting of restricted stock units and performance share units | 420,471 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Shares issued under employee stock purchase plan | 33,803 | | | — | | | 246 | | | — | | | — | | | — | | | — | | | 246 | | | — | | | 246 | |
| Tax withholdings related to net share settlements of stock-based compensation awards | (140,819) | | | — | | | (1,031) | | | — | | | — | | | — | | | — | | | (1,031) | | | — | | | (1,031) | |
| Stock-based compensation on equity-classified awards | — | | | — | | | 2,547 | | | — | | | — | | | — | | | — | | | 2,547 | | | — | | | 2,547 | |
| Distributions to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (637) | | | (637) | |
| Balance at March 31, 2023 | 41,100,451 | | | $ | 4 | | | $ | 2,324,434 | | | (10,294,117) | | | $ | (922,666) | | | $ | (1,423,624) | | | $ | (2,906) | | | $ | (24,758) | | | $ | 280 | | | $ | (24,478) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Groupon, Inc. Stockholders' Equity (Deficit) | | | | |
| Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Total Groupon, Inc. Stockholders' Equity (Deficit) | | Non-controlling Interests | | Total Equity (Deficit) |
| Shares | | Amount | Shares | | Amount | |
| Balance at December 31, 2021 | 40,007,255 | | | $ | 4 | | | $ | 2,294,215 | | | (10,294,117) | | | $ | (922,666) | | | $ | (1,156,868) | | | $ | (4,813) | | | $ | 209,872 | | | $ | 424 | | | $ | 210,296 | |
| Comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (34,852) | | | 3,369 | | | (31,483) | | | 500 | | | (30,983) | |
| Vesting of restricted stock units and performance share units | 308,152 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Shares issued under employee stock purchase plan | 30,022 | | | — | | | 591 | | | — | | | — | | | — | | | — | | | 591 | | | — | | | 591 | |
| Tax withholdings related to net share settlements of stock-based compensation awards | (118,589) | | | — | | | (2,597) | | | — | | | — | | | — | | | — | | | (2,597) | | | — | | | (2,597) | |
| Stock-based compensation on equity-classified awards | — | | | — | | | 8,349 | | | — | | | — | | | — | | | — | | | 8,349 | | | — | | | 8,349 | |
| Distributions to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (814) | | | (814) | |
| Balance at March 31, 2022 | 40,226,840 | | | $ | 4 | | | $ | 2,300,558 | | | (10,294,117) | | | $ | (922,666) | | | $ | (1,191,720) | | | $ | (1,444) | | | $ | 184,732 | | | $ | 110 | | | $ | 184,842 | |
See Notes to Condensed Consolidated Financial Statements.
GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2023 | | 2022 |
| Operating activities | | | |
| Net income (loss) | $ | (28,613) | | | $ | (34,352) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
| Depreciation and amortization of property, equipment and software | 12,387 | | | 15,200 | |
| Amortization of acquired intangible assets | 2,118 | | | 2,169 | |
| Stock-based compensation | 2,363 | | | 7,506 | |
| Foreign currency (gains) losses, net | (4,087) | | | 3,358 | |
| Change in assets and liabilities: | | | |
| Accounts receivable | 8,319 | | | (15,963) | |
| Prepaid expenses and other current assets | 3,493 | | | (2,092) | |
| Right-of-use assets - operating leases | 4,008 | | | 4,609 | |
| Accounts payable | (32,073) | | | 7,088 | |
| Accrued merchant and supplier payables | (29,467) | | | (35,904) | |
| Accrued expenses and other current liabilities | 782 | | | (18,366) | |
| Operating lease obligations | (8,239) | | | (7,648) | |
| Payment for early lease termination | (9,601) | | | — | |
| Other, net | 2,290 | | | (3,769) | |
| Net cash provided by (used in) operating activities | (76,320) | | | (78,164) | |
| Investing activities | | | |
| Purchases of property and equipment and capitalized software | (9,544) | | | (13,001) | |
| Proceeds from sale of assets | 1,088 | | | — | |
| Acquisitions of intangible assets and other investing activities | (557) | | | (915) | |
| Net cash provided by (used in) investing activities | (9,013) | | | (13,916) | |
| Financing activities | | | |
| Payments of borrowings under revolving credit agreement | (27,300) | | | — | |
| Taxes paid related to net share settlements of stock-based compensation awards | (1,007) | | | (2,523) | |
| Other financing activities | (890) | | | (441) | |
| Net cash provided by (used in) financing activities | (29,197) | | | (2,964) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (148) | | | (771) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | (114,678) | | | (95,815) | |
Cash, cash equivalents and restricted cash, beginning of period (1) | 281,696 | | | 499,483 | |
Cash, cash equivalents and restricted cash, end of period (1) | $ | 167,018 | | | $ | 403,668 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Supplemental disclosure of cash flow information: | | | |
| Cash paid for interest | $ | 2,578 | | | $ | 1,721 | |
| Income tax payments | 1,526 | | | 1,597 | |
| Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software | (4,552) | | | (1,352) | |
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 18,145 | | | $ | 7,936 | |
(1)The following table provides a reconciliation of Cash, cash equivalents and restricted cash shown above to amounts reported within the Condensed Consolidated Balance Sheets as of March 31, 2023, December 31, 2022, March 31, 2022 and December 31, 2021 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | March 31, 2022 | | December 31, 2021 |
| Cash and cash equivalents | $ | 163,757 | | | $ | 281,279 | | | $ | 403,006 | | | $ | 498,726 | |
| Restricted cash included in prepaid expenses and other current assets | 3,261 | | | 417 | | | 662 | | | 757 | |
| Cash, cash equivalents and restricted cash | $ | 167,018 | | | $ | 281,696 | | | $ | 403,668 | | | $ | 499,483 | |
See Notes to Condensed Consolidated Financial Statements.
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Company Information
Groupon, Inc. and its subsidiaries, which commenced operations in October 2008, is a global scaled two-sided marketplace that connects consumers to merchants by offering goods and services, generally at a discount. Consumers access those marketplaces through our mobile applications and our websites.
Our operations are organized into two segments: North America and International. See Note 13, Segment Information.
Unaudited Interim Financial Information
We have prepared the accompanying Condensed Consolidated Financial Statements pursuant to the rules and regulations of the SEC for interim financial reporting. These Condensed Consolidated Financial Statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the Condensed Consolidated Balance Sheets, Statements of Operations and Comprehensive Income (Loss), Cash Flows and Stockholders' Equity for the periods presented. These Condensed Consolidated Financial Statements and notes should be read in conjunction with the audited Consolidated Financial Statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of Groupon, Inc. and its wholly-owned subsidiaries, majority-owned subsidiaries over which we exercise control and variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation. Outside stockholders' interests in subsidiaries are shown on the Condensed Consolidated Financial Statements as Noncontrolling interests. Investments in entities in which we do not have a controlling financial interest are accounted for at fair value as available-for-sale securities or at cost adjusted for observable price changes and impairments, as appropriate.
Going Concern
The accompanying Condensed Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued.
Our Net cash used in operating activities was $136.0 million and $124.0 million for the years ended December 31, 2022 and December 31, 2021. Net cash used in operating activities was $76.3 million and $78.2 million for the three months ended March 31, 2023 and 2022. Cash and cash equivalents were $163.8 million as of March 31, 2023. We entered into a fourth amendment to the revolving credit agreement in March 2023, which reduced our borrowing capacity and modified certain financial covenants as described in Note 5, Financing Arrangements. The fourth amendment to the revolving credit agreement matures on May 14, 2024. Continued cash outflows and operating losses indicate that we may not be able to meet our obligations over the next twelve months. These conditions and events, when considered in the aggregate, raised substantial doubt about our ability to continue as a going concern.
In January 2023, our Board approved the second phase of the 2022 Restructuring Plan which we estimate will result in approximately $100.0 million in annualized cost savings as described in Note 9, Restructuring and Related Charges. The 2022 Restructuring Plan is expected to include an overall reduction of
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
approximately 1,000 positions globally, of which the majority have been completed with the remaining expected to occur by the end of 2023. Management will also take steps to minimize the risk certain payment processors will require reserves or holdback receivables. We believe management's plans are probable of being achieved to alleviate substantial doubt about our ability to continue as a going concern and we will have sufficient liquidity to meet our obligations as they become due over the next twelve months.
We are also currently evaluating several different strategies to enhance our liquidity position. These strategies may include, but are not limited to, pursuing additional actions under our multi-phase cost savings plan, seeking additional financing from both the public and private markets through the issuance of equity or debt securities, and monetizing certain assets.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Estimates in our financial statements include, but are not limited to, the following: variable consideration from unredeemed vouchers; income taxes; leases; initial valuation and subsequent impairment testing of goodwill, other intangible assets and long-lived assets; investments; receivables; customer refunds and other reserves; contingent liabilities; and the useful lives of property, equipment and software and intangible assets. Actual results could differ materially from those estimates.
Reclassifications
Certain reclassifications have been made to the Condensed Consolidated Financial Statements of prior periods to conform to the current period presentation.
Adoption of New Accounting Standards
There were no new accounting standards adopted during the three months ended March 31, 2023.
NOTE 2. GOODWILL AND LONG-LIVED ASSETS
We performed an assessment in the first quarter of 2023 and did not identify a triggering event that would have required us to test for impairment for the period. During the three months ended March 31, 2022, we determined the impact to our business from the new variant of COVID-19 required us to evaluate our goodwill and long-lived assets for impairment. Our interim quantitative assessment for the first quarter of 2022 did not identify any goodwill or long-lived asset impairment.
In order to evaluate goodwill and long-lived assets for impairment, we compared the fair value of our two reporting units, North America and International, and our asset groups to their carrying values. In determining the fair values of our reporting units and asset groups, we used the discounted cash flow method under the income approach that uses Level 3 inputs.
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Goodwill
As of March 31, 2023 and December 31, 2022, the balance of our goodwill was $178.7 million. There was no goodwill activity during the first quarter 2023. All goodwill is within our North America segment and both North America and International segments had a negative carrying value as of March 31, 2023 and the International segment had a negative carrying value as of December 31, 2022.
Long-Lived Assets
The following table summarizes intangible assets as of March 31, 2023 and December 31, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| Merchant relationships | $ | 18,305 | | | $ | 15,426 | | | $ | 2,879 | | | $ | 17,912 | | | $ | 14,327 | | | $ | 3,585 | |
| Trade names | 9,390 | | | 8,484 | | | 906 | | | 9,340 | | | 8,382 | | | 958 | |
| Patents | 13,304 | | | 6,737 | | | 6,567 | | | 13,341 | | | 6,701 | | | 6,640 | |
| Other intangible assets | 17,528 | | | 11,643 | | | 5,885 | | | 17,517 | | | 11,059 | | | 6,458 | |
| Total | $ | 58,527 | | | $ | 42,290 | | | $ | 16,237 | | | $ | 58,110 | | | $ | 40,469 | | | $ | 17,641 | |
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 related to intangible assets was $2.1 million and $2.2 million for the three months ended March 31, 2023 and 2022. As of March 31, 2023, estimated future amortization expense related to intangible assets is as follows (in thousands):
| | | | | |
| Remaining amounts in 2023 | $ | 5,587 | |
| 2024 | 4,226 | |
| 2025 | 2,733 | |
| 2026 | 1,867 | |
| 2027 | 1,191 | |
| Thereafter | 633 | |
| Total | $ | 16,237 | |
NOTE 3. INVESTMENTS
As of March 31, 2023 and December 31, 2022, our carrying value in other equity investments was $119.5 million and our available-for-sale securities and fair value option investments had a carrying value of zero. There were no changes in fair value of our investments for the three months ended March 31, 2023.
The following table summarizes our percentage ownership in our investments as of the dates noted below:
| | | | | | | | | | | |
| March 31, 2023 and December 31, 2022 |
| Other equity investments | 1% | to | 19% |
| Available-for-sale securities | 1% | to | 19% |
| Fair value option investments | 10% | to | 19% |
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 4. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION
The following table summarizes Other income (expense), net for the three months ended March 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Interest income | $ | 4,471 | | | $ | 1,315 | |
| Interest expense | (5,621) | | | (2,883) | |
| Foreign currency gains (losses), net and other | 4,220 | | | (3,312) | |
| Other income (expense), net | $ | 3,070 | | | $ | (4,880) | |
The following table summarizes Prepaid expenses and other current assets as of March 31, 2023 and December 31, 2022 (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Prepaid expenses | $ | 10,471 | | | $ | 16,048 | |
| Income taxes receivable | 7,045 | | | 6,691 | |
| Deferred cloud implementation cost, net | 10,820 | | | 9,362 | |
| Other | 12,381 | | | 9,000 | |
| Total prepaid expenses and other current assets | $ | 40,717 | | | $ | 41,101 | |
The following table summarizes Other non-current assets as of March 31, 2023 and December 31, 2022 (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Deferred contract acquisition costs, net | $ | 4,347 | | | $ | 4,815 | |
| Deferred cloud implementation costs, net | 14,337 | | | 17,684 | |
| Other | 4,473 | | | 4,992 | |
| Total other non-current assets | $ | 23,157 | | | $ | 27,491 | |
The following table summarizes Accrued expenses and other current liabilities as of March 31, 2023 and December 31, 2022 (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Refund reserve | $ | 10,745 | | | $ | 11,072 | |
| Compensation and benefits | 13,113 | | | 15,005 | |
| Accrued marketing | 11,387 | | | 19,596 | |
| Restructuring-related liabilities | 6,808 | | | 4,782 | |
| Customer credits | 34,370 | | | 36,220 | |
| Operating lease obligations | 22,482 | | | 37,525 | |
Other (1) | 54,773 | | | 47,252 | |
| Total accrued expenses and other current liabilities | $ | 153,678 | | | $ | 171,452 | |
(1)Includes certain payroll taxes deferred under the Coronavirus Aid, Relief and Economic Security ("CARES") Act of $2.7 million as of December 31, 2022. This balance was paid in January 2023.
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes Other non-current liabilities as of March 31, 2023 and December 31, 2022 (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Contingent income tax liabilities | $ | 11,030 | | | $ | 11,213 | |
| Deferred income taxes | 3,128 | | | 3,100 | |
| Other | 3,324 | | | 4,273 | |
| Total other non-current liabilities | $ | 17,482 | | | $ | 18,586 | |
NOTE 5. FINANCING ARRANGEMENTS
Convertible Senior Notes due 2026
The convertible senior notes due 2026 (the “2026 Notes”) bear interest at a rate of 1.125% per annum, payable semiannually in arrears on March 15 and September 15 of each year, with an annual effective interest rate of 1.83%. The 2026 Notes will mature on March 15, 2026, subject to earlier repurchase, redemption or conversion.
The carrying amount of the 2026 Notes consisted of the following as of March 31, 2023 and December 31, 2022 (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Principal amount | $ | 230,000 | | | $ | 230,000 | |
| Less: debt discount | (4,693) | | | (5,077) | |
| Net carrying amount of liability | $ | 225,307 | | | $ | 224,923 | |
We classified the fair value of the 2026 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 2026 Notes and our cost of debt. The estimated fair value of the 2026 Notes as of March 31, 2023 and December 31, 2022 was $94.0 million and $133.1 million and was determined using a lattice model.
During the three months ended March 31, 2023 and 2022, we recognized interest costs on the 2026 Notes as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Contractual interest | $ | 647 | | | $ | 647 | |
| Amortization of debt discount | 384 | | | 378 | |
| Total | $ | 1,031 | | | $ | 1,025 | |
Capped Call Transactions
In connection with the 2026 Notes, we entered into privately-negotiated capped call transactions. The capped call transactions cover, subject to customary adjustments, the number of shares of common stock initially underlying the 2026 Notes. The capped call transactions are expected generally to reduce potential dilution to our common stock upon any conversion of the 2026 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, with such reduction and/or offset subject to a cap initially equal to $104.80 (which represents a premium of 100% over the last reported sale price of our common stock on The Nasdaq Global Select Market on March 22, 2021), subject to certain adjustments under the terms of the capped call transactions.
Revolving Credit Agreement
In May 2019, we entered into a second amended and restated senior secured revolving credit agreement, which matures on May 14, 2024, as amended from time to time (the "Amended Credit Agreement"). Most recently, in March 2023, we entered into a fourth amendment to the revolving credit agreement (the "Fourth Amendment"
and together with the Amended Credit Agreement the "Existing Credit Agreement") to modify certain financial covenants and provide for additional flexibility in our operations, among other changes, including certain modifications to (i) our requirements to maintain monthly minimum liquidity balance (including any undrawn amounts under the revolving credit facility) of at least $50.0 million, (ii) the calculation of EBITDA under the Existing Credit Agreement, (iii) mandatory prepayment requirements and (iv) certain affirmative covenants. In addition, the Fourth Amendment reduced our borrowing capacity under our senior secured revolving credit facility from $150.0 million to $75.0 million, which provides for the issuance of up to $75.0 million in letters of credit, provided that the sum of outstanding borrowings and letters of credit do not exceed the maximum funding commitment of $75.0 million.
We deferred debt issuance costs of $4.6 million in aggregate in connection with the Existing Credit Agreement. Deferred debt issuance costs are included within Other non-current assets on the Condensed Consolidated Balance Sheet as of March 31, 2023 and are amortized to interest expense over the term of the respective agreement.
As of March 31, 2023, we were in compliance with the covenants under our Existing Credit Agreement. Non-compliance with the covenants under the Existing Credit Agreement may result in termination of the commitments thereunder and then any outstanding borrowings may be declared due and payable immediately. We have the right to terminate the Existing Credit Agreement or reduce the available commitments at any time.
Amounts committed to outstanding borrowings and letters of credit under our Existing Credit Agreement as of March 31, 2023 and our Amended Credit Agreement as of December 31, 2022 were as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Borrowings | $ | 47,700 | | | $ | 75,000 | |
| Letters of credit | 24,809 | | | 24,900 | |
NOTE 6. COMMITMENTS AND CONTINGENCIES
Our contractual obligations and commitments and future sublease income under our contractually obligated operating subleases as of March 31, 2023 and through the date of this report, did not materially change from the amounts set forth in our 2022 Annual Report on Form 10-K.
We sublease a portion of 600 West Chicago to Uptake, Inc. "Uptake." In the first quarter of 2023, we initiated a lawsuit against Uptake in the Circuit Court of Cook County for breach of the lease agreement and that lawsuit remains pending.
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 merchants, employment and related matters, intellectual property infringement suits, customer lawsuits, stockholder claims relating to U.S. securities law, consumer class actions and suits alleging, among other things, violations of state consumer protection or privacy laws.
Four shareholders have filed separate shareholder derivative lawsuits (collectively, the "Derivative Lawsuits") in relation to a previously settled lawsuit that alleged that Groupon and certain of its officers made materially false and/or misleading statements or omissions regarding its business, operations and prospects, specifically as it relates to reiterating its full year guidance on November 4, 2019 and the Groupon Select program (the "Securities Lawsuit"). First, on September 9, 2021, a shareholder named Jonathan Frankel filed a federal derivative lawsuit in the United States District Court for District of Delaware. Second, on January 19, 2022, a shareholder named Alyssa Estreen filed a derivative lawsuit in the Court of Chancery in the State of Delaware. Third, on January 24, 2022, a shareholder named Saman Khoury filed a derivative lawsuit, also in the Court of Chancery in the State of Delaware. Finally, on May 9, 2022, a shareholder named Moriah Anders filed a lawsuit, also in the Court of Chancery in the State of Delaware. All four lawsuits name Groupon and certain of the Company's former and current officers and directors. The allegations in all four Derivative Lawsuits relate to the same time period and events that are the subject of the Securities Lawsuit and allege that the Company and its shareholders have sustained damages as a result of the conduct of certain current and former officers and directors. The Plaintiffs in each of these Derivative Lawsuits seek unspecified damages they allege were sustained by the Company, injunctive and equitable relief and attorneys’ fees. All four matters have been stayed pending settlement discussions. On February 2, 2023, the Parties to all four Derivative Lawsuits executed a Stipulation of Settlement that was filed in Delaware Chancery Court. Under the settlement, Groupon has agreed to undertake certain corporate reforms. The Settlement requires notice to shareholders and Court approval. Counsel for the Plaintiffs will submit a petition to the Court to be awarded attorneys' fees, the amount of which is at the discretion of the Court. Any attorney fee award will be covered under Groupon's directors and officers insurance policies.
In addition, third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to intellectual property disputes, including patent infringement claims, and expect that we will continue to be subject to intellectual property infringement claims as our services expand in scope and complexity. In the past, we have litigated such claims, and we are presently involved in several patent infringement and other intellectual property-related claims, including pending litigation or trademark disputes relating to, for example, our Goods category, some of which could involve potentially substantial claims for damages or injunctive relief. We may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act are interpreted by the courts, and we become subject to laws in jurisdictions where the underlying laws with respect to the potential liability of online intermediaries are either unclear or less favorable. We believe that additional lawsuits alleging that we have violated patent, copyright or trademark laws may be filed against us. Intellectual property claims, whether meritorious or not, are time consuming and often costly to resolve, could require expensive changes in our methods of doing business or the goods we sell, or could require us to enter into costly royalty or licensing agreements.
We also are subject to consumer claims or lawsuits relating to alleged violations of consumer protection or privacy rights and statutes, some of which could involve potentially substantial claims for damages, including statutory or punitive damages. Consumer and privacy-related claims or lawsuits, whether meritorious or not, could
be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, or require us to change our business practices, sometimes in expensive ways.
We are also subject to, or in the future may become subject to, a variety of regulatory inquiries, audits, and investigations across the jurisdictions where we conduct our business, including, for example, inquiries related to consumer protection, employment matters and/or hiring practices, marketing practices, tax, unclaimed property and privacy rules and regulations. Any regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources, materially damage our brand or reputation, or otherwise harm our business.
We establish an accrued liability for loss contingencies related to legal and regulatory matters when the loss is both probable and reasonably estimable. Those accruals represent management's best estimate of probable losses and, in such cases, there may be an exposure to loss in excess of the amounts accrued. For certain of the matters described above, there are inherent and significant uncertainties based on, among other factors, the stage of the proceedings, developments in the applicable facts of law, or the lack of a specific damage claim. However, we believe that the amount of reasonably possible losses in excess of the amounts accrued for those matters would not have a material adverse effect on our business, Condensed Consolidated Financial Statements, results of operations or cash flows. Our accrued liabilities for loss contingencies related to legal and regulatory matters may change in the future as a result of new developments, including, but not limited to, the occurrence of new legal matters, changes in the law or regulatory environment, adverse or favorable rulings, newly discovered facts relevant to the matter, or changes in the strategy for the matter. Regardless of the outcome, litigation and other regulatory matters can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Indemnifications
In connection with the disposition of our operations in Latin America in 2017, we recorded $5.4 million in indemnification liabilities for certain tax and other matters upon the closing of the transactions as an adjustment to the net loss on the dispositions within discontinued operations at their fair value. We estimated the indemnification liabilities using a probability-weighted expected cash flow approach. Our remaining indemnification liabilities were $2.8 million as of March 31, 2023. We estimate that the total amount of obligations that are reasonably possible to arise under the indemnifications in excess of amounts accrued as of March 31, 2023 is approximately $11.7 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 our operating results, financial position or cash flows.
NOTE 7. STOCKHOLDERS' EQUITY (DEFICIT) AND COMPENSATION ARRANGEMENTS
Groupon, Inc. Incentive Plan
In August 2011, we established the Groupon, Inc. 2011 Incentive Plan, as amended and restated (the "2011 Plan"), under which options, restricted stock units and performance stock units for up to 11,875,000 shares of common stock are authorized for future issuance to employees, consultants and directors. The 2011 Plan is administered by the Compensation Committee of the Board. As of March 31, 2023, 464,968 shares of common stock were available for future issuance under the 2011 Plan.
Restricted Stock Units
The restricted stock units granted under the 2011 Plan generally have vesting periods between one and four years and are amortized on a straight-line basis over their requisite service period.
The table below summarizes restricted stock unit activity for employees and nonemployees under the 2011 Plan for the three months ended March 31, 2023:
| | | | | | | | | | | |
| Restricted Stock Units | | Weighted-Average Grant Date Fair Value (per unit) |
| Unvested at December 31, 2022 | 2,876,089 | | | $ | 19.33 | |
| Granted | 125,486 | | | 8.74 | |
| Vested | (403,202) | | | 18.09 | |
| Forfeited | (683,337) | | | 14.70 | |
| Unvested at March 31, 2023 | 1,915,036 | | | $ | 18.64 | |
As of March 31, 2023, $22.6 million of unrecognized compensation costs related to unvested restricted stock units, excluding any impact of forfeitures, are expected to be recognized over a remaining weighted-average period of 0.91 years.
Stock Options
On March 30, 2023, we issued 3,500,000 units of stock options with a per share value of $0.95, a strike price of $6.00 and vesting over two years. The exercise price of stock options granted is equal to the fair market value of the underlying stock on the date of grant. The contractual term for these stock options expires 3 years from the grant date. The fair value of stock options on the grant date is amortized on a straight-line basis over the requisite service period.
The fair value of stock options granted is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Expected volatility is based on Groupon's historical volatility over the estimated expected life of the stock options. The expected term that represents the period of time the stock options are expected to be outstanding. The risk-free interest rate is based on yields on U.S. Treasury STRIPS with maturity similar to the estimated expected life of the stock options. The weighted-average assumptions for stock options granted during the three months ended March 31, 2023 are outlined in the following table:
| | | | | |
| Three Months Ended March 31, 2023 |
| Dividend yield | 0.0 | % |
| Risk-free interest rate | 4.1 | % |
| Expected term (in years) | 2 |
| Expected volatility | 78.2 | % |
Performance Shares Units
We have previously granted performance share units under the 2011 Plan that vest in shares of our common stock upon the achievement of financial and operational targets specified in the respective award agreement ("Performance Share Units"). Our existing Performance Share Units are subject to continued employment through the performance period dictated by the award and certification by the Compensation Committee of the Board that the specified performance conditions have been achieved.
The table below summarizes Performance Share Unit activity under the 2011 Plan for the three months ended March 31, 2023:
| | | | | | | | | | | |
| Performance Share Units | | Weighted-Average Grant Date Fair Value (per unit) |
| Unvested at December 31, 2022 | 17,269 | | | $ | 24.13 | |
| Granted | — | | | — | |
| Vested | (17,269) | | | 24.13 | |
| Forfeited | — | | | — | |
| Unvested at March 31, 2023 | — | | | $ | — | |
NOTE 8. REVENUE RECOGNITION
Refer to Note 13, Segment Information, for revenue summarized by reportable segment and category for the three months ended March 31, 2023 and 2022.
Customer Credits
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. The following table summarizes the activity in the liability for customer credits for the three months ended March 31, 2023 (in thousands):
| | | | | |
| Customer Credits |
| Balance as of December 31, 2022 | $ | 36,220 | |
| Credits issued | 26,921 | |
Credits redeemed (1) | (25,856) | |
| Breakage revenue recognized | (2,995) | |
| Foreign currency translation | 80 | |
| Balance as of March 31, 2023 | $ | 34,370 | |
(1)Customer credits can be redeemed through our online marketplaces for goods or services provided by a third-party merchant and 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. Customer credits are typically used within one year of issuance.
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. Deferred contract acquisition costs are presented in Prepaid expenses and other current assets and Other non-current assets on the Condensed Consolidated Balance Sheets. As of March 31, 2023 and December 31, 2022, deferred contract acquisition costs were $5.3 million and $5.9 million.
The amortization of deferred contract acquisition costs is classified within Selling, general and administrative expense in the Condensed Consolidated Statements of Operations. We amortized $2.3 million and $2.9 million of deferred contract acquisition costs for the three months ended March 31, 2023 and 2022.
Allowance for Expected Credit Losses on Accounts Receivable
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. We establish an allowance for expected credit losses on accounts receivable based on identifying the following customer risk characteristics: size, type of customer, and payment terms offered in the normal course of business. Receivables with similar risk characteristics are grouped into pools. For each pool, we consider the historical credit loss experience, current economic conditions, bankruptcy filings, published or estimated credit default rates, age of the receivable and any recoveries in assessing the lifetime expected credit losses.
The following table summarizes the activity in the allowance for expected credit losses on accounts receivable for the three months ended March 31, 2023 (in thousands):
| | | | | |
| Allowance for Expected Credit Losses |
| Balance as of December 31, 2022 | $ | 4,538 | |
| Change in provision | (639) | |
| Write-offs | (115) | |
| Foreign currency translation | 34 | |
| Balance as of March 31, 2023 | $ | 3,818 | |
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 apply a constraint to ensure it is probable that a significant reversal of revenue will not occur in future periods. When actual redemptions differ from our estimates, the effects could be material to the Condensed Consolidated Financial Statements. During the three months ended March 31, 2023 and 2022, we recognized an immaterial amount of variable consideration from unredeemed vouchers that were sold in a prior period.
NOTE 9. RESTRUCTURING AND RELATED CHARGES
In August 2022 and April 2020, we initiated Board-approved restructuring plans. Costs incurred related to the restructuring plans are classified as Restructuring and related charges on the Condensed Consolidated Statements of Operations. The restructuring activities are summarized by plan in the sections below.
2022 Restructuring Plan
In August 2022, we initiated a multi-phase cost savings plan designed to reduce our expense structure to align with our go-forward business and financial objectives (the “2022 Cost Savings Plan”). The 2022 Cost Savings Plan included a restructuring plan, approved by our Board on August 5, 2022 (the “2022 Restructuring Plan”). The 2022 Restructuring Plan, including the first phase initiated August 2022 and second phase initiated January 2023, is expected to include an overall reduction of approximately 1,000 positions globally, with the majority of these reductions completed as of March 31, 2023 and the remainder expected to occur by the end of 2023. In connection with these actions, we expect to record total pre-tax charges of $20.0 million to $27.0 million. A majority of the pre-tax charges are expected to be paid in cash and relate to employee severance and compensation benefits, with an immaterial amount of charges related to other exit costs. We have incurred total pretax charges of $18.6 million since the inception of the 2022 Restructuring Plan.
The following table summarizes costs incurred by segment related to the 2022 Restructuring Plan for the three months ended March 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 |
| | Employee Severance and Benefit Costs (Credits) (1) | | Other Exit Costs | | Total Restructuring Charges (Credits) |
| North America | | $ | 4,440 | | | $ | 808 | | | $ | 5,248 | |
| International | | 3,733 | | | — | | | 3,733 | |
| Consolidated | | $ | 8,173 | | | $ | 808 | | | $ | 8,981 | |
(1)The employee severance and benefits costs for the three months ended March 31, 2023 are related to the termination of approximately 700 employees, of which 8 are still completing their notice period and legally-required severance and benefits have been recognized as of March 31, 2023. Additional severance and benefits costs related to the remaining 8 employees may be incurred in future periods.
The following table summarizes restructuring liability activity for the 2022 Restructuring Plan (in thousands):
| | | | | | | | | | | | | | | | | |
| Employee Severance and Benefit Costs | | Other Exit Costs | | Total |
Balance as of December 31, 2022 | $ | 175 | | | $ | — | | | $ | 175 | |
| Charges payable in cash | 8,173 | | | 808 | | | 8,981 | |
| Cash payments | (5,114) | | | (206) | | | (5,320) | |
| Foreign currency translation | 47 | | | — | | | 47 | |
Balance as of March 31, 2023 (1) | $ | 3,281 | | | $ | 602 | | | $ | 3,883 | |
(1)Substantially all of the remaining cash payments for the 2022 Restructuring Plan costs are expected to be disbursed through 2023.
2020 Restructuring Plan
In April 2020, the Board approved a multi-phase restructuring plan related to our previously-announced strategic shift and as part of the cost cutting measures implemented in response to the impact of COVID-19 on our business (the "2020 Restructuring Plan"). We have incurred total pretax charges of $109.2 million since the inception of the 2020 Restructuring Plan. Our actions under this plan were substantially completed by December 31, 2021, and our current and future charges or credits will be from changes in estimates. Our 2020 Restructuring Plan included workforce reductions of approximately 1,600 positions globally, the exit or discontinuation of the use of certain leases and other assets, impairments of our right-of-use and other long-lived assets, and the exit of our operations in New Zealand and Japan.
The following tables summarize costs incurred by segment related to the 2020 Restructuring Plan for the three months ended March 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 |
| | Employee Severance and Benefit Costs (Credits) | | Legal and Advisory Costs | | Lease-related Charges (Credits) | | Total Restructuring Charges (Credits) |
| North America | | $ | — | | | $ | 1 | | | $ | 607 | | | $ | 608 | |
| International | | (1,046) | | | (56) | | | 307 | | | (795) | |
| Consolidated | | $ | (1,046) | | | $ | (55) | | | $ | 914 | | | $ | (187) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 |
| | Employee Severance and Benefit Costs (Credits) | | Legal and Advisory Costs | | Lease-related Charges (Credits) | | Total Restructuring Charges (Credits) |
| North America | | $ | 1 | | | $ | 44 | | | $ | 356 | | | $ | 401 | |
| International | | (289) | | | 37 | | | 163 | | | (89) | |
| Consolidated | | $ | (288) | | | $ | 81 | | | $ | 519 | | | $ | 312 | |
As a part of our 2020 Restructuring Plan, we terminated or modified several of our leases. In other cases we vacated our leased facilities, and some of those facilities are being actively marketed for sublease or we are in negotiations with the landlord to potentially terminate or modify those leases. In January 2023, we exercised our option to early terminate our lease at 600 West Chicago, now expiring on January 31, 2024, which required us to pay a penalty of $9.6 million with our early termination notice. Prior to exercising our option to early terminate, the expiration of 600 West Chicago was January 31, 2026. Rent expense, including amortization of the right-of-use asset and accretion of the operating lease liability, sublease income, termination and modification gains and losses, and other variable lease costs related to the leased facilities vacated as part of our restructuring plan are presented within Restructuring and related charges in the Condensed Consolidated Statements of Operations. The current and non-current liabilities associated with these leases continue to be presented within Accrued expenses and other current liabilities and Operating lease obligations in the Condensed Consolidated Balance Sheets.
The following table summarizes restructuring liability activity for the 2020 Restructuring Plan (in thousands):
| | | | | | | | | | | | | | | | | |
| Employee Severance and Benefit Costs | | Other Exit Costs | | Total |
Balance as of December 31, 2022 | $ | 4,306 | | | $ | 301 | | | $ | 4,607 | |
| Charges payable in cash and changes in estimate | (1,046) | | | (55) | | | (1,101) | |
| Cash payments | (529) | | | (95) | | | (624) | |
| Foreign currency translation | 41 | | | 2 | | | 43 | |
Balance as of March 31, 2023 (1) | $ | 2,772 | | | $ | 153 | | | $ | 2,925 | |
(1)Substantially all of the remaining cash payments for the 2020 Restructuring Plan costs are expected to be disbursed by the end of 2023.
NOTE 10. INCOME TAXES
Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items.
Provision (benefit) for income taxes and Income (loss) from operations before provision (benefit) for income taxes for the three months ended March 31, 2023 and 2022 were as follows (in thousands): | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Provision (benefit) for income taxes | $ | 1,118 | | | $ | (2,675) | |
| Income (loss) before provision (benefit) for income taxes | (27,495) | | | (37,027) | |
Our U.S. Federal income tax rate is 21%. The primary factor impacting the effective tax rate for the three months ended March 31, 2023 and 2022 was the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. For the three months ended March 31, 2022, we had a valuation allowance in the U.S. against capital losses, deferred tax assets that will convert into capital losses upon reversal, and state credits that we were not expecting to be able to realize. We recorded a valuation allowance against the remaining U.S. federal and state deferred tax assets in Q4 2022. For the three months ended March 31, 2023, we continue to maintain a full valuation allowance against all U.S. federal and state 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.
We are currently undergoing income tax audits in multiple jurisdictions. It is likely that the examination phase of some of those audits will conclude in the next 12 months. There are many factors, including factors outside of our control, which influence the progress and completion of those audits. We are subject to claims for tax assessments by foreign jurisdictions, including a proposed assessment for $115.3 million, inclusive of estimated incremental interest from the original assessment. 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. There could be potential increases in our liabilities for uncertain tax positions from the ultimate resolution of that assessment. We believe it is reasonably possible that reductions of up to $7.1 million in unrecognized tax benefits may occur within the 12 months following March 31, 2023 upon closing of income tax audits or the expiration of applicable statutes of limitations.
In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations or remit such earnings in a tax-efficient manner. 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 March 31, 2023 and December 31, 2022 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.
NOTE 11. 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.
In determining fair value, we use valuation approaches within the fair value measurement framework. We have fair value option investments and available-for-sale securities that we measure using the income approach. We have classified these investments as Level 3 due to the lack of observable market data over fair value inputs such as cash flow projections and discount rates.
There was no material activity in the fair value of recurring Level 3 fair value measurements for the three months ended March 31, 2023 and 2022.
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 or modified due to an observable price change in an orderly transaction.
We did not record any significant nonrecurring fair value measurements for the three months ended March 31, 2023 and 2022.
Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value
Our financial instruments not carried at fair value consist primarily of accounts receivable, restricted cash, short-term borrowings, 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 March 31, 2023 and December 31, 2022 due to their short-term nature.
NOTE 12. 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 restricted stock units, performance share units, ESPP shares, warrants, capped call transactions and convertible senior notes. If dilutive, those potentially dilutive securities are reflected in diluted net income (loss) per share using the treasury stock method, except for the convertible senior notes, which are subject to the if-converted method.
The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the three months ended March 31, 2023 and 2022 (in thousands, except share amounts and per share amounts):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Basic and diluted net income (loss) per share: | | | |
| | | |
| Numerator | | | |
| Net income (loss) | $ | (28,613) | | | $ | (34,352) | |
| Less: Net income (loss) attributable to noncontrolling interests | 534 | | | 500 | |
| Net income (loss) attributable to common stockholders | (29,147) | | | (34,852) | |
| | | |
| Denominator | | | |
| Weighted-average common shares outstanding | 30,676,145 | | | 29,862,879 | |
| | | |
| Basic and diluted net income (loss) per share: | $ | (0.95) | | | $ | (1.17) | |
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:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Restricted stock units | 2,353,393 | | | 2,047,783 | |
| Other stock-based compensation awards | 101,118 | | | 54,182 | |
Convertible Senior notes due 2026 (1) | 3,376,400 | | | 3,376,400 | |
| Capped call transactions | 3,376,400 | | | 3,376,400 | |
| Total | 9,207,311 | | | 8,854,765 | |
(1)We apply the if-converted method in computing the effect of our convertible senior notes on diluted net income (loss) per share, whereby the numerator of our diluted net income (loss) per share computations is adjusted for interest expense, net of tax, and the denominator is adjusted for the number of shares into which the convertible senior notes could be converted. The effect is only included in the calculation of income (loss) per share for those instruments for which it would reduce income (loss) per share. See Note 5, Financing Arrangements, for additional information.
NOTE 13. 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. Our operations are organized into two segments: North America and International. Our measure of segment profitability is contribution profit, defined as gross profit less marketing expense, which is consistent with how management reviews the operating results of the segments. Contribution profit measures the amount of marketing investment needed to generate gross profit. Other operating expenses are excluded from contribution profit as management does not review those expenses by segment.
The following table summarizes revenue by reportable segment and category for the three months ended March 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| North America revenue: | | | |
| Local | $ | 81,379 | | | $ | 96,921 | |
| Goods | 5,065 | | | 8,294 | |
| Travel | 2,815 | | | 4,949 | |
Total North America revenue (1) | 89,259 | | | 110,164 | |
| | | |
| International revenue: | | | |
| Local | 25,265 | | | 33,150 | |
| Goods | 4,246 | | | 6,779 | |
| Travel | 2,841 | | | 3,227 | |
Total International revenue (1) | $ | 32,352 | | | $ | 43,156 | |
(1)North America includes revenue from the United States of $87.7 million and $108.8 million for the three months ended March 31, 2023 and 2022. There were no other individual countries that represented more than 10% of consolidated total revenue for the three months ended March 31, 2023 and 2022. Revenue is attributed to individual countries based on the location of the customer.
The following table summarizes cost of revenue by reportable segment and category for the three months ended March 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| North America cost of revenue: | | | |
| Local | $ | 11,387 | | | $ | 13,163 | |
| Goods | 945 | | | 1,459 | |
| Travel | 985 | | | 1,295 | |
| Total North America cost of revenue | 13,317 | | | 15,917 | |
| | | |
| International cost of revenue: | | | |
| Local | 2,623 | | | 2,596 | |
| Goods | 588 | | | 396 | |
| Travel | 372 | | | 410 | |
| Total International cost of revenue | $ | 3,583 | | | $ | 3,402 | |
The following table summarizes contribution profit by reportable segment for the three months ended March 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| North America | | | |
| Revenue | $ | 89,259 | | | $ | 110,164 | |
| Cost of revenue | 13,317 | | | 15,917 | |
| Marketing | 15,303 | | | 27,991 | |
| Contribution profit | 60,639 | | | 66,256 | |
| | | |
| International | | | |
| Revenue | 32,352 | | | 43,156 | |
| Cost of revenue | 3,583 | | | 3,402 | |
| Marketing | 9,545 | | | 11,425 | |
| Contribution profit | 19,224 | | | 28,329 | |
| | | |
| Consolidated | | | |
| Revenue | 121,611 | | | 153,320 | |
| Cost of revenue | 16,900 | | | 19,319 | |
| Marketing | 24,848 | | | 39,416 | |
| Contribution profit | 79,863 | | | 94,585 | |
| Selling, general and administrative | 101,634 | | | 126,420 | |
| Restructuring and related charges | 8,794 | | | 312 | |
| Income (loss) from operations | $ | (30,565) | | | $ | (32,147) | |
The following table summarizes total assets by reportable segment as of March 31, 2023 and December 31, 2022 (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Total assets: | | | |
North America (1) | $ | 526,953 | | | $ | 669,336 | |
International (1) | 123,690 | | | 123,781 | |
| Consolidated total assets | $ | 650,643 | | | $ | 793,117 | |
(1)North America contains assets from the United States of $520.9 million and $661.3 million as of March 31, 2023 and December 31, 2022. International contains assets from the Netherlands of $65.1 million as of March 31, 2023. There were no other individual countries that represented more than 10% of consolidated total assets as of March 31, 2023 and December 31, 2022.