Groupon, Inc. - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐ 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

27-0903295

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

600 W Chicago Avenue

60654

Suite 400

(Zip Code)

Chicago

Illinois

(312)

334-1579

(Address of principal executive offices)

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

GRPN

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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 ☐

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 ☒ Accelerated filer ☐

Non-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 August 3, 2020, there were 28,732,990 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS


PART I. Financial Information			Page
Forward-Looking Statements			3
Item 1. Financial Statements and Supplementary Data			4
Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019			4
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019 (unaudited)			5
Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2020 and 2019 (unaudited)			6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)			8
Notes to Condensed Consolidated Financial Statements (unaudited)			10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			37
Item 3. Quantitative and Qualitative Disclosures about Market Risk			58
Item 4. Controls and Procedures			59
PART II. Other Information
Item 1. Legal Proceedings			60
Item 1A. Risk Factors			61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			63
Item 5. Other Information			63
Item 6. Exhibits			64
Signatures			65

______________________________________________________

PART I. FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations. The words "may," "will," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "continue" and other similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, but are not limited to, our ability to execute, and achieve the expected benefits of our go-forward strategy, execution of the phase down of the Goods category; volatility in our operating results; effects of pandemics or disease outbreaks, including COVID-19, on our business; 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 exit from the European Union; retaining and adding high quality merchants; our reliance on email, internet search engines and mobile application marketplaces to drive traffic to our marketplace; cybersecurity breaches; reliance on cloud-based computing platforms; competing successfully in our industry; providing a strong mobile experience for our customers; maintaining and improving our information technology infrastructure; our voucherless offerings; 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 and other qualified personnel; completing and realizing the anticipated benefits from acquisitions, dispositions, joint ventures and strategic investments; lack of control over minority investments; compliance with domestic and foreign laws and regulations, including the CARD Act, GDPR and regulation of the Internet and e-commerce; classification of our independent contractors or employees; tax liabilities; tax legislation; protecting our intellectual property; maintaining a strong brand; customer and merchant fraud; payment-related risks; our ability to raise capital if necessary and our outstanding indebtedness; global economic uncertainty; our common stock, including volatility in our stock price; our convertible senior notes; our ability to realize the anticipated benefits from the hedge and warrant transactions; and those risks and other factors discussed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019, Part II, Item 1A. Risk Factors of our Quarterly Reports on Form 10-Q, for the three months ended March 31, 2020 and June 30, 2020, as well as in our condensed consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission (the "SEC"). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

As used herein, "Groupon," "the Company," "we," "our," "us" and similar terms include Groupon, Inc. and its subsidiaries, unless the context indicates otherwise.

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GROUPON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	June 30, 2020		December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	784,688	$	750,887
Accounts receivable, net	54,583		54,953
Prepaid expenses and other current assets	52,088		82,073
Total current assets	891,359		887,913
Property, equipment and software, net	90,331		124,950
Right-of-use assets - operating leases, net	78,057		108,390
Goodwill	211,718		325,017
Intangible assets, net	31,977		35,292
Investments	34,403		76,576
Other non-current assets	31,474		28,605
Total Assets	$	1,369,319	$	1,586,743
Liabilities and Equity
Current liabilities:
Short-term borrowings	$	200,000	$	—
Accounts payable	45,143		20,415
Accrued merchant and supplier payables	394,835		540,940
Accrued expenses and other current liabilities	246,925		260,192
Total current liabilities	886,903		821,547
Convertible senior notes, net	221,992		214,869
Operating lease obligations	95,192		110,294
Other non-current liabilities	47,748		44,987
Total Liabilities	1,251,835		1,191,697
Commitments and contingencies (see Note 6)
Stockholders' Equity
Common stock, par value $0.0001 per share, 100,500,000 shares authorized; 38,977,677 shares issued and 28,683,560 shares outstanding at June 30, 2020; 38,584,854 shares issued and 28,290,737 shares outstanding at December 31, 2019 ⁽¹⁾	4		4
Additional paid-in capital ⁽¹⁾	2,329,599		2,310,393
Treasury stock, at cost, 10,294,117 and 10,294,117 shares at June 30, 2020 and December 31, 2019 ⁽¹⁾	(922,666)		(922,666)
Accumulated deficit	(1,318,594)		(1,032,876)
Accumulated other comprehensive income (loss)	29,488		39,081
Total Groupon, Inc. Stockholders' Equity	117,831		393,936
Noncontrolling interests	(347)		1,110
Total Equity	117,484		395,046
Total Liabilities and Equity	$	1,369,319	$	1,586,743

(1)Prior period share information and balances have been retroactively adjusted to reflect a reverse stock split. See Note 7, Stockholders' Equity and Compensation Arrangements for additional information.

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 June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenue:
Service	$	112,377	$	277,603	$	319,405	$	563,430
Product	283,269		254,974		450,391		547,557
Total revenue	395,646		532,577		769,796		1,110,987
Cost of revenue:
Service	16,242		28,595		43,157		57,222
Product	242,178		211,850		388,166		455,617
Total cost of revenue	258,420		240,445		431,323		512,839
Gross profit	137,226		292,132		338,473		598,148
Operating expenses:
Marketing	25,242		88,923		85,372		182,320
Selling, general and administrative	143,619		210,395		350,760		420,886
Goodwill impairment	—		—		109,486		—
Long-lived asset impairment	—		—		22,351		—
Restructuring and related charges	40,478		(47)		40,478		(114)
Total operating expenses	209,339		299,271		608,447		603,092
Income (loss) from operations	(72,113)		(7,139)		(269,974)		(4,944)
Other income (expense), net	(1,695)		(28,494)		(20,682)		(75,349)
Income (loss) from continuing operations before provision (benefit) for income taxes	(73,808)		(35,633)		(290,656)		(80,293)
Provision (benefit) for income taxes	(696)		2,012		(6,684)		(1,478)
Income (loss) from continuing operations	(73,112)		(37,645)		(283,972)		(78,815)
Income (loss) from discontinued operations, net of tax	—		—		382		2,162
Net income (loss)	(73,112)		(37,645)		(283,590)		(76,653)
Net (income) loss attributable to noncontrolling interests	995		(2,601)		(2,049)		(6,080)
Net income (loss) attributable to Groupon, Inc.	$	(72,117)	$	(40,246)	$	(285,639)	$	(82,733)

Basic and diluted net income (loss) per share: ⁽¹⁾
Continuing operations	$	(2.53)	$	(1.42)	$	(10.06)	$	(2.98)
Discontinued operations	—		—		0.01		0.08
Basic and diluted net income (loss) per share	$	(2.53)	$	(1.42)	$	(10.05)	$	(2.90)

Weighted average number of shares outstanding⁽¹⁾
Basic	28,493,258		28,398,123		28,426,308		28,450,703
Diluted	28,493,258		28,398,123		28,426,308		28,450,703

Comprehensive income (loss):
Net income (loss)	$	(73,112)	$	(37,645)	$	(283,590)	$	(76,653)
Other comprehensive income (loss):
Other comprehensive income (loss) from continuing operations:
Net change in unrealized gain (loss) on foreign currency translation adjustments	(7,632)		(3,285)		(9,593)		(13)
Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of $0 and $(48) for the three months ended June 30, 2020 and 2019 and $0 and $(35) for the six months ended June 30, 2020 and 2019)	—		(145)		—		(104)
Other comprehensive income (loss) from continuing operations	(7,632)		(3,430)		(9,593)		(117)
Other comprehensive income (loss) from discontinued operations	—		—		—		—
Other comprehensive income (loss)	(7,632)		(3,430)		(9,593)		(117)

Comprehensive income (loss)	(80,744)		(41,075)		(293,183)		(76,770)
Comprehensive (income) loss attributable to noncontrolling interest	995		(2,601)		(2,049)		(6,080)
Comprehensive income (loss) attributable to Groupon, Inc.	$	(79,749)	$	(43,676)	$	(295,232)	$	(82,850)

(1)All share and per share information has been retroactively adjusted to reflect a reverse stock split. See Note 7, Stockholders' Equity and Compensation Arrangements for additional information.

See Notes to Condensed Consolidated Financial Statements.

GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

(unaudited)


	Groupon, Inc. Stockholders' Equity
	Common Stock ⁽¹⁾					Additional Paid-In Capital ⁽¹⁾	Treasury Stock ⁽¹⁾								Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Groupon, Inc. Stockholders' Equity		Non-controlling Interests	Total Equity
	Shares	Amount							Shares			Amount
Balance at December 31, 2019	38,584,854	$	4	$	2,310,393	(10,294,117)	$	(922,666)		$	(1,032,876)		$	39,081	$	393,936	$	1,110	$	395,046
Cumulative effect of change in accounting principle, net of tax	—	—		—		—	—			(79)			—		(79)		—		(79)
Comprehensive income (loss)	—	—		—		—	—			(213,522)			(1,961)		(215,483)		3,044		(212,439)
Vesting of restricted stock units and performance share units	165,705	—		—		—	—			—			—		—		—		—
Shares issued under employee stock purchase plan	28,621	—		1,163		—	—			—			—		1,163		—		1,163
Tax withholdings related to net share settlements of stock-based compensation awards	(67,135)	—		(3,684)		—	—			—			—		(3,684)		—		(3,684)
Stock-based compensation on equity-classified awards	—	—		15,345		—	—			—			—		15,345		—		15,345
Distributions to noncontrolling interest holders	—	—		—		—	—			—			—		—		(3,845)		(3,845)
Balance at March 31, 2020	38,712,045	$	4	2,323,217		(10,294,117)	$	(922,666)		(1,246,477)			$	37,120	191,198		309		191,507
Comprehensive income (loss)	—	—		—		—	—			(72,117)			(7,632)		(79,749)		(995)		(80,744)
Vesting of restricted stock units and performance share units	430,100	—		—		—	—			—			—		—		—		—
Shares issued under employee stock purchase plan	—	—		—		—	—			—			—		—		—		—
Tax withholdings related to net share settlements of stock-based compensation awards	(164,468)	—		(4,554)		—	—			—			—		(4,554)		—		(4,554)
Stock-based compensation on equity-classified awards	—	—		10,936			—			—			—		10,936		—		10,936
Receipts from noncontrolling interest holders	—	—		—		—	—			—			—		—		339		339
Balance at June 30, 2020	38,977,677	$	4	$	2,329,599	(10,294,117)	(922,666)			$	(1,318,594)		$	29,488	$	117,831	$	(347)	$	117,484

(1)All share information and balances have been retroactively adjusted to reflect a reverse stock split. See Note 7, Stockholders' Equity and Compensation Arrangements, for additional information.

See Notes to Condensed Consolidated Financial Statements.

GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

(unaudited)


	Groupon, Inc. Stockholders' Equity
	Common Stock ⁽¹⁾					Additional Paid-In Capital ⁽¹⁾	Treasury Stock ⁽¹⁾								Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Groupon, Inc. Stockholders' Equity		Non-controlling Interests	Total Equity
	Shares	Amount							Shares			Amount
Balance at December 31, 2018	38,046,972	$	4	$	2,234,633	(9,592,756)	$	(877,491)		$	(1,010,499)		$	34,602	$	381,249	$	1,363	$	382,612
Comprehensive income (loss)	—	—		—		—	—			(42,487)			3,313		(39,174)		3,479		(35,695)
Exercise of stock options	625	—		8		—	—			—			—		8		—		8
Vesting of restricted stock units and performance share units	208,020	—		—		—	—			—			—		—		—		—
Shares issued under employee stock purchase plan	35,964	—		1,998		—	—			—			—		1,998		—		1,998
Tax withholdings related to net share settlements of stock-based compensation awards	(79,286)	—		(5,681)		—	—			—			—		(5,681)		—		(5,681)
Payments for repurchases of common stock	—	—		—		(220,399)	(15,055)			—			—		(15,055)				(15,055)
Stock-based compensation on equity-classified awards	—	—		17,731		—	—			—			—		17,731		—		17,731
Distributions to noncontrolling interest holders	—	—		—		—	—			—			—		—		(3,521)		(3,521)
Balance at March 31, 2019	38,212,295	4		2,248,689		(9,813,155)	(892,546)			(1,052,986)			37,915		341,076		1,321		342,397
Comprehensive income (loss)	—	—		—		—	—			(40,246)			(3,430)		(43,676)		2,601		(41,075)
Exercise of stock options	1,500	—		32		—	—			—			—		32		—		32
Vesting of restricted stock units and performance share units	220,211	—		—		—	—			—			—		—		—		—
Shares issued under employee stock purchase plan	—	—		—		—	—			—			—		—		—		—
Tax withholdings related to net share settlements of stock-based compensation awards	(76,220)	—		(5,387)		—	—			—			—		(5,387)		—		(5,387)
Payments for repurchases of common stock	—	—		—		(211,407)	(15,053)			—			—		(15,053)		—		(15,053)
Stock-based compensation on equity-classified awards	—	—		28,339		—	—			—			—		28,339		—		28,339
Distributions to noncontrolling interest holders	—	—		—		—	—			—			—		—		(3,113)		(3,113)
Balance at June 30, 2019	38,357,786	$	4	$	2,271,673	(10,024,562)	$	(907,599)		$	(1,093,232)		$	34,485	$	305,331	$	809	$	306,140

(1)All share information and balances have been retroactively adjusted to reflect a reverse stock split. See Note 7, Stockholders' Equity and Compensation Arrangements, for additional information.

See Notes to Condensed Consolidated Financial Statements.

GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2020		2019
Operating activities
Net income (loss)	$	(283,590)	$	(76,653)
Less: Income (loss) from discontinued operations, net of tax	382		2,162
Income (loss) from continuing operations	(283,972)		(78,815)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property, equipment and software	45,420		47,861
Amortization of acquired intangible assets	4,923		7,671
Impairment of goodwill	109,486		—
Impairment of long-lived assets	22,351		—
Restructuring-related impairment	13,903		—
Stock-based compensation	22,558		42,974
Impairment of investment	6,684		—
Deferred income taxes	—		360
(Gain) loss from changes in fair value of investments	1,405		68,985
Amortization of debt discount on convertible senior notes	7,123		6,431
Change in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable	(418)		(5,311)
Prepaid expenses and other current assets	28,657		(4,021)
Right-of-use assets - operating leases	11,530		13,145
Accounts payable	24,655		(10,890)
Accrued merchant and supplier payables	(143,292)		(186,519)
Accrued expenses and other current liabilities	(7,450)		(44,696)
Operating lease obligations	(15,458)		(13,145)
Other, net	2,599		7,268
Net cash provided by (used in) operating activities from continuing operations	(149,296)		(148,702)
Net cash provided by (used in) operating activities from discontinued operations	—		—
Net cash provided by (used in) operating activities	(149,296)		(148,702)
Investing activities
Purchases of property and equipment and capitalized software	(24,917)		(34,161)
Proceeds from sale of investment	31,605		—
Acquisitions of intangible assets and other investing activities	(2,692)		(1,189)
Net cash provided by (used in) investing activities from continuing operations	3,996		(35,350)
Net cash provided by (used in) investing activities from discontinued operations	1,224		—
Net cash provided by (used in) investing activities	5,220		(35,350)
Financing activities
Proceeds from borrowing under revolving credit agreement	200,000		—
Payment of contingent consideration related to acquisition	(908)		—
Issuance costs for revolving credit agreement	—		(2,334)
Payments for repurchases of common stock	—		(29,569)
Taxes paid related to net share settlements of stock-based compensation awards	(7,274)		(10,231)
Proceeds from stock option exercises and employee stock purchase plan	1,163		2,038
Distributions to noncontrolling interest holders	(3,506)		(6,634)
Payments of finance lease obligations	(5,301)		(12,628)
Net cash provided by (used in) financing activities	184,174		(59,358)
Effect of exchange rate changes on cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations	(5,724)		(1,755)
Net increase (decrease) in cash, cash equivalents and restricted cash, including cash classified within current assets of discontinued operations	34,374		(245,165)
Less: Net increase (decrease) in cash classified within current assets of discontinued operations	1,224		—
Net increase (decrease) in cash, cash equivalents and restricted cash	33,150		(245,165)
Cash, cash equivalents and restricted cash, beginning of period ⁽¹⁾	752,657		844,728
Cash, cash equivalents and restricted cash, end of period ⁽¹⁾	$	785,807	$	599,563

GROUPON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


Non-cash investing and financing activities
Continuing operations:
Liability for repurchases of common stock	$	—	$	(995)
Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software	573		(767)

(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 June 30, 2020, December 31, 2019 and December 31, 2018 and amounts previously reported within the condensed consolidated balance sheet in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 (in thousands):


	June 30, 2020		December 31, 2019		June 30, 2019		December 31, 2018
Cash and cash equivalents	$	784,688	$	750,887	$	596,837	$	841,021
Restricted cash included in prepaid expenses and other current assets	889		1,534		2,340		3,320
Restricted cash included in other non-current assets	230		236		386		387
Cash, cash equivalents and restricted cash	$	785,807	$	752,657	$	599,563	$	844,728

See Notes to Condensed Consolidated Financial Statements.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 connect merchants to consumers by offering goods and services, generally at a discount. Customers access those marketplaces through our mobile applications and our websites, primarily localized groupon.com sites in many countries.

Our operations are organized into two segments: North America and International. See Note 13, Segment Information.

Reverse Stock Split

On June 10, 2020, we effectuated a reverse stock split of our common stock at a ratio of 1-for-20. See Note 7, Stockholders' Equity and Compensation Arrangements, for additional information. As a result, the number of shares and income (loss) per share disclosed throughout this Quarterly Report on Form 10-Q have been retrospectively adjusted to reflect the reverse stock split.

COVID-19 Pandemic

The outbreak of the novel coronavirus ("COVID-19") in the first quarter 2020 and the preventive and protective actions that governments and our merchants and consumers have taken in response to the pandemic have resulted in significant disruption of our operations and have had an adverse impact on our financial condition, results of operations and cash flows. We rely on customers' purchases of vouchers for local experiences, including events and activities, beauty and wellness, travel and dining. The temporary closure of businesses, including restaurants and bars, event venues, and spas, resulted in a significant deterioration in our performance beginning in March 2020. The negative impact of COVID-19 on our business is expected to continue at least as long as customer and merchant behavior remains impacted by COVID-19, including the implementation of governmental measures to control the spread of the virus, including quarantines, travel restrictions, business shutdowns and restrictions on the movement of people in the United States and abroad.

In light of the impact of COVID-19 on our business, we expect a net loss and negative operating cash flows for the year ending December 31, 2020. We plan to continue to actively manage and optimize our cash balances and liquidity, working capital and operating expenses, although there can be no assurances that we will be able to do so. We have taken several steps to reduce costs and preserve cash in the near-term, including, among others: reducing our workforce and furloughing staff; continuing to sell Goods on our platform instead of quickly exiting the category; reducing marketing expense by significantly shortening payback thresholds and delaying brand marketing investments; continuing to transition merchants to redemption payment terms, instead of fixed payment terms; implementing a hiring freeze; eliminating broad-based merit increases for employees; replacing cash compensation with equity compensation in 2020 for all members of our Board of Directors (the "Board"); and amending our Credit Agreement (as defined below) to, among other things, provide covenant relief through the first quarter of 2021. The future impact of COVID-19 on our business, results of operations, financial condition and liquidity is highly uncertain and will ultimately depend on future developments, including the magnitude and duration of the pandemic and the protective measures associated with reducing its spread.

In the first quarter 2020, we determined the significant deterioration in our financial performance due to the disruption in our operations from COVID-19 and the sustained decrease in our stock price required us to evaluate our long-lived assets and goodwill for impairment, which resulted in the impairment of our long-lived assets and goodwill. See Note 2, Goodwill and Long-Lived Assets. Additionally, the economic impacts of COVID-19 resulted in an impairment or a reduction in the fair value of certain of our investments during the first quarter 2020. See Note 3, Investments.

In April 2020, the Board approved multi-phase restructuring actions relating to our previously announced strategic shift and as part of the cost reduction measures we are implementing in response to the impact of

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

COVID-19. We expect to incur total pre-tax charges of up to $105.0 million in connection with these multi-phase restructuring actions. See Note 9, Restructuring and Related Charges, for additional information about restructuring charges incurred during the second quarter 2020, which included employee severance and compensation benefits expenses, facilities-related costs and impairment charges and professional advisory fees.

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, 2019.

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.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") 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.

Adoption of New Accounting Standards

We adopted the guidance in ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses of Financial Instruments ("CECL") on January 1, 2020. This ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses over the lifetime of the asset rather than incurred losses. The adoption of ASU 2016-13 did not have a material impact on the condensed consolidated financial statements. See Note 8, Revenue Recognition, for additional information.

We adopted the guidance in ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment on January 1, 2020. 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. During the first quarter 2020, we determined a triggering event occurred that required us to evaluate our goodwill for impairment, and we recorded an impairment charge as a result of that assessment. See Note 2, Goodwill and Long-Lived Assets, for additional information.

We adopted the guidance in ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2020. This ASU modifies the disclosure requirements in Topic 820, Fair Value Measurements, by removing, modifying, or adding certain disclosures. The adoption of ASU 2018-13 did not have a material impact on the condensed consolidated financial statements.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

2. GOODWILL AND LONG-LIVED ASSETS

In accordance with ASC Topic 350, Intangibles — Goodwill and Other, 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 also review our long-lived assets, such as property, equipment and software, right-of-use assets and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. During the first quarter 2020, we determined the significant deterioration in our financial performance due to the disruption in our operations from COVID-19 and the sustained decrease in our stock price required us to evaluate our goodwill and long-lived assets for impairment. During the second quarter 2020, we determined that the actions taken under our restructuring plan changed how we used certain long-lived assets such that the carrying amount of those long-lived assets may not be recoverable, which required us to evaluate those long-lived assets for impairment.

Future events and changing market conditions due to the impact of COVID-19 may require us to re-evaluate the estimates used in our fair value measurements, which could result in additional impairment of long-lived assets or goodwill in future periods that may have a material effect on our operating results.

Goodwill

In order to evaluate goodwill for impairment in the first quarter 2020, we compared the fair values of our three reporting units (North America, EMEA and Asia Pacific) to their carrying values. In determining fair values for our reporting units, we used the discounted cash flow method and the market multiple valuation approach that use Level 3 inputs. The significant estimates used in the discounted cash flow models are the risk-adjusted discount rates; forecasted revenue, cost of revenue and operating expenses; forecasted capital expenditures and working capital needs; weighted average cost of capital; rates of long-term growth; and income tax rates. These estimates considered the recent deterioration in financial performance of the reporting units as well as the anticipated rate of recovery, and implied risk premiums based on the market prices of our equity and debt as of the assessment date. The significant estimates used in the market multiple valuation approach include identifying business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples. As a result of the interim quantitative assessment of goodwill in the first quarter 2020, we identified a partial impairment of goodwill in our EMEA reporting unit within the International segment and recognized goodwill impairment of $109.5 million. We did not recognize any goodwill impairment in our North America or Asia Pacific reporting units during the three months ended March 31, 2020. We determined that we did not have a triggering event that required us to evaluate goodwill for impairment during the second quarter 2020, and therefore did not recognize goodwill impairment for any of our reporting units during the three months ended June 30, 2020. As of June 30, 2020, the EMEA reporting unit had a negative carrying value and remaining goodwill of $26.6 million.

The following table summarizes goodwill activity by segment for the six months ended June 30, 2020 (in thousands):


	North America		International		Consolidated
Balance as of December 31, 2019	$	178,685	$	146,332	$	325,017
Impairment loss	—		(109,486)		(109,486)
Foreign currency translation	—		(3,813)		(3,813)
Balance as of June 30, 2020	$	178,685	$	33,033	$	211,718

Long-Lived Assets

Following our review of long-lived assets for impairment in the first quarter 2020, we recognized long-lived asset impairment of $22.4 million within our International segment related to our EMEA operations.

During the second quarter 2020, we recognized long-lived asset impairment of $13.5 million and $0.4 million within our North America and International segments for certain asset groups due to actions taken under our restructuring plan. See Note 9, Restructuring and Related Charges, for more information.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The assets that we deemed impaired were written down to fair value based on the discounted cash flow method that uses Level 3 inputs. The significant estimates used in the discounted cash flow models are the risk-adjusted discount rates; forecasted revenue, cost of revenue and operating expenses; forecasted capital expenditures and working capital needs; weighted average cost of capital; rates of long-term growth; and income tax rates.

Impairment charges are presented within the following line items of the condensed consolidated statements of operations for the three and six months ended June 30, 2020 (in thousands):


	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Long-lived asset impairment	$	—	$	22,351
Restructuring and related charges	13,903		13,903
Total impairment	$	13,903	$	36,254

The following table summarizes impairment for long-lived assets and restructuring and related charges by asset type as of June 30, 2020 (in thousands):


Long-Lived Asset Category	Impairment
Property, equipment and software, net
Warehouse equipment	$	—
Furniture and fixtures	413
Leasehold improvements ⁽¹⁾	7,558
Office equipment	198
Purchased software	14
Computer hardware	2,842
Right-of-use assets - finance leases, net	1,318
Capitalized software	304
Internally-developed software	2,988
Total Property, equipment and software, net	$	15,635
Right-of-use assets - operating leases, net ⁽²⁾	19,645
Intangible assets, net	103
Other non-current assets	871
Total long-lived assets	$	36,254

(1)Includes long-lived asset impairment of $4.8 million presented within Restructuring and related charges during the three and six months ended June 30, 2020. See Note 9, Restructuring and Related Charges, for more information.

(2)Includes right-of-use asset impairment of $9.2 million during the three and six months ended June 30, 2020. See Note 9, Restructuring and Related Charges, for more information.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes intangible assets as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020										December 31, 2019
Intangible Asset Category	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Customer relationships	$	16,200	$	16,200	$	—	$	16,200	$	16,200	$	—
Merchant relationships	20,857		9,443		11,414		22,193		8,268		13,925
Trade names	9,387		7,604		1,783		9,558		7,369		2,189
Developed technology	2,297		1,729		568		3,651		2,685		966
Patents	24,965		19,243		5,722		23,021		18,167		4,854
Other intangible assets	26,708		14,218		12,490		26,115		12,757		13,358
Total	$	100,414	$	68,437	$	31,977	$	100,738	$	65,446	$	35,292

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 $2.4 million and $3.8 million for the three months ended June 30, 2020 and 2019 and $4.9 million and $7.7 million for the six months ended June 30, 2020 and 2019. As of June 30, 2020, estimated future amortization expense related to intangible assets is as follows (in thousands):


Remaining amounts in 2020	$	4,628
2021	7,852
2022	7,256
2023	6,120
2024	2,620
Thereafter	3,501
Total	$	31,977

3. INVESTMENTS

The following table summarizes investments as of June 30, 2020 and December 31, 2019 (dollars in thousands):


	June 30, 2020		Percent Ownership of Voting Stock					December 31, 2019		Percent Ownership of Voting Stock
Available-for-sale securities - redeemable preferred shares	$	—	19%	to	25%	$	—	19%	to	25%
Fair value option investments	—		10%	to	19%	1,405		10%	to	19%
Other equity investments	34,403		1%	to	19%	75,171		1%	to	19%
Total investments	$	34,403				$	76,576

Fair Value Option Investments

In connection with the dispositions of controlling stakes in TMON Inc. ("TMON"), an entity based in the Republic of Korea and Groupon India in prior periods, we obtained minority investments in Monster Holdings LP ("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. Our election to apply fair value accounting to those investments has and may continue to cause fluctuations in our earnings from period to period.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes gains and losses due to changes in fair value of those investments for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Monster LP	$	—	$	(27,949)	$	—	$	(69,408)
Nearbuy	—		372		(1,405)		423
Total	$	—	$	(27,577)	$	(1,405)	$	(68,985)

During the first quarter 2020, we recognized a $1.4 million loss from changes in the fair value of our investment in Nearbuy due to revised cash flow projections and an increase in the discount rate applied to those forecasts, which increased to 30% as of March 31, 2020, as compared with 20% as of December 31, 2019. The revisions to the financial projections and the increase in the discount rate applied as of March 31, 2020 were due to the deterioration in the financial condition of Nearbuy as a result of COVID-19, which resulted in underperformance as compared with prior projections and an increase to financial projection risk.

During the first quarter 2019, we recognized a $41.5 million loss from changes in the fair value of our investment in Monster LP due to the revised cash flow projections provided by TMON in March 2019 and an increase in the discount rate applied to those forecasts, which increased to 26.0% as of March 31, 2019, as compared with 21.0% as of December 31, 2018. The increase in the discount rate applied as of March 31, 2019 was due to the deterioration in the financial condition of TMON and the competitive environment in the Korean e-commerce industry, which resulted in an increase to financial projection risk. During the second quarter 2019, we recognized an additional loss of $27.9 million from changes in the fair value of our investment in Monster LP due to revised financial projections provided by TMON in June 2019. The revisions to the financial projections were made as a result of TMON’s continued underperformance as compared with prior projections along with adjustments to their business model.

We determined that the fair value of our investment in Monster LP and Nearbuy was $0.0 million and $0.0 million as of June 30, 2020 and $0.0 million and $1.4 million as of December 31, 2019.

Other Equity Investments

Other equity investments represent equity investments without readily determinable fair values recorded at cost adjusted for observable price changes and impairments. During the first quarter 2020, we sold 50% of our shares in an other equity investment for total cash consideration of $34.0 million, which approximated cost adjusted for observable price changes as of December 31, 2019.

In addition, we recorded a $6.7 million impairment during the first quarter 2020 to an other equity method investment as a result of revised cash flow projections and a deterioration in financial condition due to COVID-19.

4. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION

The following table summarizes other income (expense), net for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Interest income	$	1,430	$	1,915	$	3,986	$	3,851
Interest expense	(8,009)		(5,442)		(14,967)		(11,133)
Changes in fair value of investments	—		(27,577)		(1,405)		(68,985)
Foreign currency gains (losses), net	4,884		2,610		(1,612)		918
Impairment of investment	—		—		(6,684)		—
Other income (expense), net	$	(1,695)	$	(28,494)	$	(20,682)	$	(75,349)

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes prepaid expenses and other current assets as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Merchandise inventories	$	9,101	$	25,426
Prepaid expenses	18,497		27,077
Income taxes receivable	11,345		4,791
Other	13,145		24,779
Total prepaid expenses and other current assets	$	52,088	$	82,073

The following table summarizes other non-current assets as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Deferred income tax	$	4,728	$	4,829
Debt issue costs, net	1,910		2,156
Deferred commissions expense	6,079		10,133
Deferred cloud implementation costs	14,301		7,372
Other	4,456		4,115
Total other non-current assets	$	31,474	$	28,605

The following table summarizes accrued merchant and supplier payables as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Accrued merchant payables	$	259,447	$	366,573
Accrued supplier payables ⁽¹⁾	135,388		174,367
Total accrued merchant and supplier payables	$	394,835	$	540,940

(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 June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Refund reserve	$	22,297	$	22,002
Compensation and benefits	41,550		49,009
Accrued marketing	7,844		41,110
Restructuring-related liabilities	10,938		—
Customer credits	43,811		13,764
Income taxes payable	1,382		5,044
Deferred revenue	17,641		17,951
Operating and finance lease obligations	42,443		40,768
Deferred cloud computing contract incentive	3,000		—
Other	56,019		70,544
Total accrued expenses and other current liabilities	$	246,925	$	260,192

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes other non-current liabilities as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Contingent income tax liabilities	$	27,736	$	30,121
Finance lease obligations	1,953		5,831
Restructuring-related liabilities	558		—
Deferred income taxes	3,686		3,903
Deferred cloud computing contract incentive	5,750		—
Other	8,065		5,132
Total other non-current liabilities	$	47,748	$	44,987

5. 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 (the "Board") 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 9.25926 shares of common stock, which is equivalent to an initial conversion price of $108.00 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 $18.12 as of June 30, 2020, 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 condensed consolidated balance sheets. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability

component from the principal amount of the Notes. The difference between the principal amount of the Notes and the liability component (the "debt discount") is amortized to interest expense at an effective interest rate of 9.75% over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

We incurred transaction costs of approximately $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 condensed consolidated balance sheet and are being amortized to interest expense over the term of the Notes. Transaction costs attributable to the equity component of $2.0 million were recorded in stockholders' equity as a reduction of the equity component.

The carrying amount of the Notes consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Liability component:
Principal amount	$	250,000	$	250,000
Less: debt discount	(28,008)		(35,131)
Net carrying amount of liability component	$	221,992	$	214,869

Net carrying amount of equity component	$	67,014	$	67,014

The estimated fair value of the Notes as of June 30, 2020 and December 31, 2019 was $242.4 million and $262.7 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 June 30, 2020, the remaining term of the Notes is approximately 1 years and 9 months. During the three and six months ended June 30, 2020 and 2019, we recognized interest costs on the Notes as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Contractual interest (3.25% of the principal amount per annum)	$	2,032	$	2,032	$	4,064	$	4,064
Amortization of debt discount	3,607		3,256		7,123		6,431
Total	$	5,639	$	5,288	$	11,187	$	10,495

Note Hedges and Warrants

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 2.3 million shares of our common stock at an initial strike price of $108.00 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 2.3 million shares of our common stock at a strike price of $170.00 per share. The warrants expire on various dates between July 1, 2022 and August 26, 2022 and are exercisable on their expiration dates. The warrants are separate transactions and are not part of the terms of the Notes or convertible note hedges. Holders of the Notes and convertible note hedges do not have any rights with respect to the warrants.

The amounts paid and received for the convertible note hedges and warrants were recorded in additional paid-in capital in the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. The convertible note hedges and warrants are not remeasured as long as they continue to meet the conditions for equity classification. The amounts paid for the convertible note hedges are tax deductible over the term of the Notes, while the proceeds received from the warrants are not taxable.

Under the if-converted method, the shares of common stock underlying the conversion option in the Notes are included in the diluted earnings per share denominator and the interest expense on the Notes, net of tax, is added to the numerator. However, upon conversion, there will be no economic dilution from the Notes, as exercise of the convertible note hedges eliminates any dilution from the Notes that would have otherwise occurred when the price of our common stock exceeds the conversion price. Taken together, the purchase of the convertible note hedges and sale of warrants are intended to offset any actual dilution from the conversion of the Notes and to effectively increase the overall conversion price from $108.00 to $170.00 per share.

Revolving Credit Agreement

In May 2019, we entered into a second amended and restated senior secured revolving credit agreement (the "Credit Agreement") which provided for aggregate principal borrowings of up to $400.0 million (prior to the Amendment described below) and matures in May 2024. We deferred debt issuance costs of $2.4 million related to the Credit Agreement. Those deferred costs are included within Other non-current assets on the condensed consolidated balance sheet as of June 30, 2020 and will be amortized to interest expense over the term of the agreement.

On July 17, 2020, we entered into an amendment to the Credit Agreement (the "Amendment" and the Credit Agreement as amended, the "Amended Credit Agreement") in order to provide us with operational flexibility and covenant relief through the end of the first quarter of 2021 (the "Suspension Period") in light of the ongoing impacts of COVID-19 on our business. In addition to the covenant relief described below, the Amendment permanently reduces borrowing capacity under our senior secured revolving credit facility from $400.0 million to $225.0 million.

Pursuant to the Amendment, during the Suspension Period, the Company will be exempt from certain covenant restrictions under the Credit Agreement, namely the requirements in the Credit Agreement to maintain a maximum funded indebtedness to EBITDA ratio, a maximum senior secured indebtedness to EBITDA ratio, a minimum fixed charge coverage ratio, unrestricted cash of not less than $250.0 million and a minimum liquidity balance (including any undrawn amounts under the credit facility) of at least 70% of our accrued merchant and supplier payables balance (collectively, the "Existing Financial Covenants"). Additionally, the Amendment provides that, during the Suspension Period, we will be required to maintain specified minimum quarterly EBITDA levels and to maintain a monthly minimum liquidity balance (including any undrawn amounts under the credit facility) of at least 100% of our accrued merchant and supplier payables balance for such month plus $50.0 million. Following the Suspension Period, we will be subject to the Existing Financial Covenants.

In addition, under the Amended Credit Agreement, we are subject to various covenants, including customary restrictive covenants that limit our ability to, among other things: incur additional indebtedness; make dividend and other restricted payments, including limiting the amount of our 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 related parties and other affiliates. The Amendment further restricts certain of these negative covenants during the Suspension Period, including our ability to make share repurchases, acquisitions, investments and to incur additional indebtedness and liens.

Non-compliance with the covenants under the Amended Credit Agreement may result in termination of the commitments thereunder and any then outstanding borrowings may be declared due and payable immediately. We have the right to terminate the Amended Credit Agreement or reduce the available commitments at any time.

The Amendment also increases interest rates through the end of the first quarter of 2021, raising the alternative base rate and Canadian prime spreads to 1.50%, the fixed rate spreads to 2.50% and the commitment fee to 0.4% on the daily amount of the unused commitments under the Amended Credit Agreement. Following the Suspension Period, the applicable spread and commitment fee will revert to the levels previously set in the Credit Agreement, which provides for (a) interest at a rate per annum equal to (i) an adjusted LIBO rate or (ii) a customary base rate (with loans denominated in certain currencies bearing interest at rates specific to such currencies) plus an additional margin ranging between 0.50% and 2.00% and (b) commitment fees ranging from 0.25% to 0.35% on the daily amount of unused commitments. The Amended Credit Agreement also 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 $225.0 million.

The Amended 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 and foreign subsidiaries are guarantors under the Amended Credit Agreement.

We had $200.0 million of borrowings and $19.2 million of outstanding letters of credit under the Credit Agreement as of June 30, 2020. We had $18.1 million of outstanding letters of credit under the Credit Agreement as of December 31, 2019. We did not repay any outstanding borrowings under the Credit Agreement in connection with the Amendment. See Item 2. Management's Discussion of Financial Condition and Results of Operations - Liquidity and Capital Resources, for additional information.

6. COMMITMENTS AND CONTINGENCIES

Our contractual obligations and commitments and future operating income under our operating subleases as of June 30, 2020 and through the date of this report, did not materially change from the amounts set forth in our 2019 Annual Report on Form 10-K, except as disclosed below.

Purchase Obligations

During the six months ended June 30, 2020 and through the date of this report, we entered into non-cancellable arrangements for cloud computing services and software. Future payments under these new contractual obligations are as follows (in thousands):


2020	$	4,382
2021	14,061
2022	15,189
2023 ⁽¹⁾	21,377
Total	$	55,009

(1)Includes $8.0 million in cloud computing arrangement costs for which the timing of settlement is based on usage. We expect to incur those costs over the three-year contract period ending in 2023.

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, 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.

On April 28, 2020, a plaintiff filed a securities fraud class action complaint in the United States District Court for the Northern District of Illinois covering the time period November 4, 2019 through February 18, 2020. The plaintiff alleges 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. We intend to vigorously defend against these allegations, which we believe to be without merit.

In addition, third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to intellectual property disputes, including patent infringement claims, and expect that we will continue to be subject to intellectual property infringement claims as our services expand in scope and complexity. In the past, we have litigated such claims, and we are presently involved in several patent infringement and other intellectual property-related claims, including pending litigation or trademark disputes relating to, for example, our Goods category, some of which could involve potentially substantial claims for damages or injunctive relief. We may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act are interpreted by the courts, and we become subject to laws in jurisdictions where the underlying laws with respect to the potential liability of online intermediaries are either unclear or less favorable. We believe that additional lawsuits alleging that we have violated patent, copyright or trademark laws will be filed against us. Intellectual property claims, whether meritorious or not, are time consuming and often costly to resolve, could require expensive changes in our methods of doing business or the goods we sell, or could require us to enter into costly royalty or licensing agreements.

We also are subject to consumer claims or lawsuits relating to alleged violations of consumer protection or privacy rights and statutes, some of which could involve potentially substantial claims for damages, including statutory or punitive damages. Consumer and privacy related claims or lawsuits, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, or require us to change our business practices, sometimes in expensive ways.

We are also subject to, or in the future may become subject to, a variety of regulatory inquiries, audits, and investigations across the jurisdictions where we conduct our business, including, for example, inquiries related to consumer protection, employment matters and/or hiring practices, marketing practices, tax, unclaimed property and privacy rules and regulations. Any regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm our business.

We establish an accrued liability for loss contingencies related to legal and regulatory matters when the loss is both probable and reasonably estimable. Those accruals represent management's best estimate of probable losses and, in such cases, there may be an exposure to loss in excess of the amounts accrued. For certain of the matters described above, there are inherent and significant uncertainties based on, among other factors, the stage of the proceedings, developments in the applicable facts of law, or the lack of a specific damage claim. However, we believe that the amount of reasonably possible losses in excess of the amounts accrued for those matters would not have a material adverse effect on our business, condensed consolidated financial position, results of operations or cash flows. Our accrued liabilities for loss contingencies related to legal and regulatory matters may change in the future as a result of new developments, including, but not limited to, the occurrence of new legal matters, changes in the law or regulatory environment, adverse or favorable rulings, newly discovered facts relevant to the matter, or changes in the strategy for the matter. Regardless of the outcome, litigation and other regulatory matters can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Indemnifications

In connection with the disposition of our operations in Latin America in 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. During the first quarter of 2020, we

decreased our indemnification liabilities due to the expiration of certain indemnification obligations. The resulting benefit of $0.4 million is recorded within Income (loss) from discontinued operations on the condensed consolidated statement of operations for the six months ended June 30, 2020. Our remaining indemnification liabilities were $2.8 million as of June 30, 2020. We estimate that the total amount of obligations that are reasonably possible to arise under the indemnifications in excess of amounts accrued as of June 30, 2020 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.

7. STOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS

Reverse Stock Split

On June 9, 2020, our stockholders approved amendments to our Restated Certificate of Incorporation to effect a reverse stock split of our shares of common stock, and our Board approved a final reverse stock split ratio of 1-for-20 and a corresponding reduction in the number of authorized shares of our common stock. The reverse stock split became effective on June 10, 2020. On the effective date, every 20 shares of issued and outstanding common stock were combined and converted into one issued and outstanding share of common stock. The number of authorized shares of Common Stock was reduced proportionately. Fractional shares were cancelled and stockholders received cash in lieu thereof and the par value per share of common stock remains unchanged. A proportionate adjustment was also made to the maximum number of shares of common stock issuable under the Groupon, Inc. Stock Plans (the "Plans"), and the Groupon, Inc. 2012 Employee Stock Purchase Plan, as amended ("ESPP").

As a result, the number of shares and income (loss) per share disclosed throughout this Quarterly Report on Form 10-Q have been retrospectively adjusted to reflect the reverse stock split.

Common Stock

Pursuant to our restated certificate of incorporation, as of June 30, 2020, the Board had the authority to issue up to a total of 100,500,000 shares of common stock. Each holder of common stock is entitled to one vote per share on any matter that is submitted to a vote of stockholders. In addition, holders of our common stock will vote as a single class of stock on any matter that is submitted to a vote of stockholders.

Share Repurchase Program

In May 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. During the three and six months ended June 30, 2020, we did not purchase any shares under the program. As of June 30, 2020, up to $245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

market conditions, limitations under the Amended Credit Agreement, share price and other factors, and the share repurchase program may be terminated at any time.

Groupon, Inc. Stock Plans

The Plans are administered by the Compensation Committee of the Board (the "Compensation Committee"). As of June 30, 2020, 3,399,506 shares of common stock were available for future issuance under the Plans.

The stock-based compensation expense related to stock awards issued under the Plans and acquisition-related awards are presented within the following line items of the condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Cost of revenue	$	81	$	380	$	340	$	758
Marketing	(33)		1,490		841		2,915
Selling, general and administrative	8,495		24,693		21,377		39,301
Restructuring and related charges	1,424		—		1,424		—
Total stock-based compensation expense	$	9,967	$	26,563	$	23,982	$	42,974

We capitalized $1.2 million and $2.2 million of stock-based compensation for the three months ended June 30, 2020 and 2019, and $2.3 million and $3.5 million for the six months ended June 30, 2020 and 2019 in connection with internally-developed software and cloud computing arrangements.

Employee Stock Purchase Plan

The ESPP authorizes us to grant up to 1,000,000 shares of common stock under that plan as of June 30, 2020. For the six months ended June 30, 2020 and 2019, 28,621 and 35,964 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.

The table below summarizes restricted stock unit activity under the Plans for the six months ended June 30, 2020:


	Restricted Stock Units	Weighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 2019	1,527,014	$	74.80
Granted	1,046,656	30.69
Vested	(493,114)	79.81
Forfeited	(566,981)	70.90
Unvested at June 30, 2020	1,513,575	43.95

As of June 30, 2020, $55.2 million of unrecognized compensation costs related to unvested restricted stock units are expected to be recognized over a remaining weighted-average period of 1.29 years.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Performance Share Units

We grant performance share units under the Plans that vest in shares of our common stock upon the achievement of financial and operational targets specified in the respective award agreement ("Performance Share Units"). During the six months ended June 30, 2019, we also granted performance share units subject to a market condition ("Market-based Performance Share Units").

The Market-based Performance Share Units will vest if our average daily closing stock price is equal to or greater than $120.00 per share over a period of 30 consecutive trading days prior to December 31, 2022 or if a change in control occurs during the performance period at the specified stock price (and on a proportional basis for a change in control price between the grant date price and the specified stock price). We used a Monte Carlo simulation to calculate the grant date fair value of the awards and the related derived service period over which we recognized the expense. The key inputs used in the Monte Carlo simulation were the risk-free rate, our volatility of 49.8% and our cost of equity of 12.8%. We did not recognize any compensation costs related to our Market-based Performance Share Units during the three months ended June 30, 2020 as the derived service period ended during the first quarter 2020, at which time these awards were fully expensed.

Our Performance Share Units and Market-based Performance Share Units are subject to continued employment through the performance period dictated by the award and certification by the Compensation Committee that the specified performance conditions have been achieved.

The table below summarizes Performance Share Unit activity under the Plans for the six months ended June 30, 2020:


	Performance Share Units	Weighted-Average Grant Date Fair Value (per unit)		Market-based Performance Share Units	Weighted-Average Grant Date Fair Value (per unit)
Unvested at December 31, 2019	203,853	$	79.76	341,002	$	60.60
Granted	—	—		—	—
Vested	(102,692)	80.77		—	—
Forfeited	(64,862)	79.92		—	—
Unvested at June 30, 2020	36,299	79.10		341,002	60.60

Maximum shares issuable upon vesting at June 30, 2020	36,299			341,002

As of June 30, 2020, $1.3 million of unrecognized compensation costs related to unvested Performance Share Units are expected to be recognized over a remaining weighted-average period of 1.60 years. We have recognized all compensation costs related to our unvested Market-Based Performance Share Units.

For the six months ended June 30, 2020 we recognized $0.6 million of stock-based compensation expense for Performance Share Units for which the service inception date occurred in the first quarter of 2020 and preceded the grant date, as the awards' performance targets were not yet defined due to the impact of COVID-19. The unrecognized compensation costs related to those performance share units was $1.4 million to be recognized over a remaining weighted-average period of 1.58 years.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

8. REVENUE RECOGNITION

Refer to Note 13, Segment Information, for revenue summarized by reportable segment and category for the three and six months ended June 30, 2020 and 2019.

Contract Balances

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 $17.6 million and $18.0 million as of June 30, 2020 and December 31, 2019. The amount of revenue recognized for the six months ended June 30, 2020 that was included in the deferred revenue balance at the beginning of the period was $17.8 million.

Customer Credits

The following table summarizes the activity in the liability for customer credits for the six months ended June 30, 2020 (in thousands):


	Customer Credits
Balance as of December 31, 2019	$	13,764
Credits issued	98,768
Credits redeemed ⁽¹⁾	(59,583)
Breakage revenue recognized	(9,183)
Foreign currency translation	45
Balance as of June 30, 2020	$	43,811

(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.

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 within the following line items of the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Prepaid expenses and other current assets	$	1,847	$	2,501
Other non-current assets	6,079		10,133

The amortization of deferred contract acquisition costs is classified within Selling, general and administrative expense in the condensed consolidated statements of operations. We amortized $4.0 million and $5.1 million of deferred contract acquisition costs during the three months ended June 30, 2020 and 2019, and $8.7 million and $10.5 million for the six months ended June 30, 2020 and 2019. We did not recognize any impairments in relation to the deferred contract acquisition costs during the three and six months ended June 30, 2020 and 2019.

Allowance for Expected Credit Losses on Accounts Receivable

We establish an allowance for expected credit losses on accounts receivables 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.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes the activity in the allowance for expected credit losses on accounts receivables for the six months ended June 30, 2020 (in thousands):


	Allowance for Expected Credit Losses
Balance as of January 1, 2020	$	3,693
Change in Provision	6,869
Write-offs	(1,247)
Foreign currency translation	147
Balance as of June 30, 2020	$	9,462

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 condensed consolidated financial statements. As of June 30, 2020 and December 31, 2019, we constrained $22.2 million and $14.6 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.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

9. RESTRUCTURING AND RELATED CHARGES

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. We expect to incur total pretax charges of up to $105.0 million in connection with these restructuring actions through the end of 2021. The first phase of the restructuring actions includes an overall reduction of approximately 1,300 positions globally and the exit or discontinuation of the use of certain leases and other assets by the end of 2020. The majority of the first phase of headcount reductions and impairments of our right-of-use and other long-lived assets occurred during the second quarter 2020. In August 2020, we intend to initiate the second phase of our restructuring plan, which will include additional workforce reductions and a rationalization of our country footprint. We expect to incur pretax charges of $30.0 million to $38.0 million in connection with the second phase of our restructuring plan, primarily in our International segment. The majority of these charges are expected to be paid in cash and primarily relate to employee severance and compensation benefits expenses, facilities-related costs and impairment charges and professional advisory fees. We will continue to evaluate our cost structure, including additional workforce reductions, as part of the second phase of our restructuring plan. Costs incurred related to the restructuring plan are classified as Restructuring and related charges on the condensed consolidated statements of operations.

The following table summarizes costs incurred by segment related to the restructuring plans for both the three and six months ended June 30, 2020 (in thousands):


	Three and Six Months Ended June 30, 2020
	Employee Severance and Benefit Costs ⁽¹⁾		Legal and Advisory Costs		Property, Equipment and Software Impairments		Right-of-Use Asset Impairments and Lease-related Charges (Credits)		Total Restructuring Charges (Credits)
North America	$	16,059	$	8	$	4,720	$	9,311	$	30,098
International	8,641		741		32		966		10,380
Consolidated	$	24,700	$	749	$	4,752	$	10,277	$	40,478

(1)The employee severance and benefits costs for both the three and six months ended June 30, 2020 are related to the termination of approximately 700 employees and planned termination of 600 additional employees for which legally-required severance and benefit costs have been recognized as of June 30, 2020. Additional severance and benefits costs related to the remaining 600 employees may be incurred in future periods. Substantially all of the remaining cash payments for the costs accrued as of June 30, 2020 are expected to be disbursed by the end of 2020.

As a part of our restructuring plan, we vacated several of our leased facilities, and many of those facilities are being actively marketed for sublease or we are in negotiations with the landlord to potentially terminate or modify those leases. We recognized $13.9 million in restructuring charges related to the impairment of right-of-use assets and leasehold improvements related to those leases as we reduced the carrying value of the those assets to their respective fair value. See Note 2, Goodwill and Long-Lived Assets for more information. Rent expense, including amortization of the right-of-use asset and accretion of the operating lease liability, sublease income and other variable lease costs related to these leases are presented within Restructuring and related charges in the condensed consolidated statements of operations.

The following table summarizes restructuring liability activity for the six months ended June 30, 2020 (in thousands):


	Employee Severance and Benefit Costs		Legal and Advisory Costs		Total
Balance as of December 31, 2019 ⁽¹⁾	$	699	$	—	$	699
Charges payable in cash ⁽²⁾	23,276		749		24,025
Cash payments	(13,404)		—		(13,404)
Foreign currency translation	190		(14)		176
Balance as of June 30, 2020	$	10,761	$	735	$	11,496

(1)Amounts included in the beginning balance are related to prior restructuring plans and the liabilities under those plans have been substantially settled.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(2)Excludes stock-based compensation of $1.4 million related to accelerated vesting of stock-based compensation awards for certain employees terminated as a result of our restructuring activities during the six months ended June 30, 2020.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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 continuing operations before provision (benefit) for income taxes for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Provision (benefit) for income taxes	$	(696)	$	2,012	$	(6,684)	$	(1,478)
Income (loss) from continuing operations before provision (benefit) for income taxes	(73,808)		(35,633)		(290,656)		(80,293)

Our U.S. Federal income tax rate is 21%. The primary factors impacting the effective tax rate for the three and six months ended June 30, 2020 and 2019 were the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. The six months ended June 30, 2020 and 2019 were impacted by the reversals of reserves for uncertain tax positions due to the closure of tax audits. The six months ended June 30, 2020 were also impacted by the carryback of federal net operating losses due to the income tax relief provided by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. 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 $113.7 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. 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 $21.2 million in unrecognized tax benefits may occur within the 12 months following June 30, 2020 upon closing of income tax audits or the expiration of applicable statutes of limitations.

In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. Additionally, while we did not incur the deemed repatriation tax, an actual repatriation from our non-U.S. subsidiaries could be subject to foreign and U.S. state income taxes. Aside from limited exceptions for which the related deferred tax liabilities recognized as of June 30, 2020 and December 31, 2019 are immaterial, we do not intend to distribute earnings of foreign subsidiaries for which we have an excess of the financial reporting basis over the tax basis of our investments and therefore have not recorded any deferred taxes related to such amounts. The actual tax cost resulting from a distribution would depend on income tax laws and circumstances at the time of distribution. Determination of the amount of unrecognized deferred tax liability related to the excess of the financial reporting basis over the tax basis of our foreign subsidiaries is not practical due to the complexities associated with the calculation.

Groupon uses a cost-sharing arrangement under which controlled members agree to share the costs and risks of developing intangible properties in accordance with their reasonably anticipated share of benefits from the intangibles. In 2019, the Ninth Circuit Court of Appeals entered a decision in Altera Corp. v. Commissioner requiring related parties in an intercompany cost-sharing arrangement to share expenses related to stock-based compensation. Altera then petitioned the United States Supreme Court to review the Ninth Circuit's decision. In June 2020, the Supreme Court denied this petition, and accordingly, the Ninth Circuit's Altera decision stands. The Altera decision did not have a material impact on our provision for income taxes for the year ended December 31, 2019, and will not have an impact for the year ended December 31, 2020.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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.

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 and cash equivalents. Cash equivalents primarily consist 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. We 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. 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.

We also have investments in redeemable preferred shares. 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.

Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred in the related business combination and subsequent changes in fair value recorded in earnings within Selling, general and administrative expense on the condensed consolidated statements of operations.

We use an income approach to value contingent consideration obligations based on the present value of probability-weighted future cash flows. We classify the contingent consideration liabilities as Level 3 due to the lack of relevant observable market data over fair value inputs such as probability-weighting of payment outcomes.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following tables summarize assets that are measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands):


			Fair Value Measurement at Reporting Date Using
	June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	120,066	$	120,066	$	—	$	—
Fair value option investments	—		—		—		—

Liabilities:
Contingent consideration	278		—		—		278


			Fair Value Measurement at Reporting Date Using
	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Fair value option investments	$	1,405	$	—	$	—	$	1,405

Liabilities:
Contingent consideration	1,298		—		—		1,298

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table provides a rollforward of the fair value of recurring Level 3 fair value measurements for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Assets
Fair value option investments:
Beginning Balance	$	—	$	32,494	$	1,405	$	73,902
Total gains (losses) included in earnings	—		(27,577)		(1,405)		(68,985)
Ending Balance	$	—	$	4,917	$	—	$	4,917
Unrealized gains (losses) still held⁽¹⁾	$	—	$	(27,577)	$	(1,405)	$	(68,985)
Available-for-sale securities - Redeemable preferred shares:
Beginning Balance	$	—	$	10,394	$	—	$	10,340
Total gains (losses) included in other comprehensive income (loss)	—		(193)		—		(139)
Ending Balance	$	—	$	10,201	$	—	$	10,201
Unrealized gains (losses) still held⁽¹⁾	$	—	$	(193)	$	—	$	(139)
Liabilities
Contingent Consideration:
Beginning Balance	$	1,219	$	1,586	$	1,298	1,529
Settlements of contingent consideration liabilities	(908)		(312)		(908)		(312)
Total losses (gains) included in earnings	2		5		6		27
Foreign currency translation	(35)		(40)		(118)		(5)
Ending Balance	$	278	$	1,239	$	278	1,239
Unrealized gains (losses) still held ⁽¹⁾	$	2	$	5	$	6	27

(1)Represents the unrealized gains or losses recorded in earnings and/or other comprehensive income (loss) during the period for assets and liabilities classified as Level 3 that are still held (or outstanding) at the end of the period.

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 increased due to an observable price change in an orderly transaction.

We recognized $109.5 million in non-cash impairment charges related to goodwill and $36.3 million in non-cash impairment charges related to long-lived assets during the six months ended June 30, 2020, of which $13.9 million is included in Restructuring and related charges on our condensed consolidated statement of operations. See Note 2, Goodwill and Long-Lived Assets, and Note 9, Restructuring and Related Charges, for additional information.

We recognized $6.7 million in impairment charges related to an other equity method investment during the six months ended June 30, 2020. See Note 3, Investments, for additional information.

We did not record any other significant nonrecurring fair value measurements after initial recognition for the three and six months ended June 30, 2020 and 2019.

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 June 30, 2020 and December 31, 2019 due to their short-term nature.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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 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 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 and six months ended June 30, 2020 and 2019 (in thousands, except share amounts and per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Basic and diluted net income (loss) per share:
Numerator
Net income (loss) - continuing operations	$	(73,112)	$	(37,645)	(283,972)		(78,815)
Less: Net income (loss) attributable to noncontrolling interests	(995)		2,601		2,049		6,080
Net income (loss) attributable to common stockholders - continuing operations	(72,117)		(40,246)		(286,021)		(84,895)
Net income (loss) attributable to common stockholders - discontinued operations	—		—		382		2,162
Net income (loss) attributable to common stockholders	$	(72,117)	$	(40,246)	(285,639)		(82,733)
Denominator
Weighted-average common shares outstanding	28,493,258		28,398,123		28,426,308		28,450,703

Basic and diluted net income (loss) per share:
Continuing operations	$	(2.53)	$	(1.42)	$	(10.06)	$	(2.98)
Discontinued operations	—		—		0.01		0.08
Basic and diluted net income (loss) per share	$	(2.53)	$	(1.42)	$	(10.05)	$	(2.90)

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:


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Restricted stock units	1,431,857	1,851,597	1,509,472	1,603,019
Other stock-based compensation awards	118,603	79,062	221,284	83,350
Convertible senior notes	2,314,815	2,314,815	2,314,815	2,314,815
Warrants	2,314,815	2,314,815	2,314,815	2,314,815
Total	6,180,090	6,560,289	6,360,386	6,315,999

We had outstanding Market-based Performance Share Units as of June 30, 2020 and 2019 that were eligible to vest into shares of common stock subject to the achievement of specified performance or market conditions. Contingently issuable shares are excluded from the computation of diluted earnings per share if, based on current period results, the shares would not be issuable if the end of the reporting period were the end of the contingency period. As of June 30, 2020, there were up to 341,002 shares of common stock issuable upon vesting of outstanding Market-based Performance Share Units that were excluded from the table above as the performance or market conditions were not satisfied as of the end of the period.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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.

The following table summarizes revenue by reportable segment and category for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
North America
Service revenue:
Local	$	81,724	$	177,082	$	224,384	$	357,459
Goods	5,869		3,714		9,614		6,841
Travel	2,525		16,125		8,974		35,066
Total service revenue	90,118		196,921		242,972		399,366
Product revenue - Goods	143,239		127,739		225,514		282,459
Total North America revenue ⁽¹⁾	233,357		324,660		468,486		681,825

International
Service revenue:
Local	18,025		69,995		66,693		143,185
Goods	3,279		2,610		5,512		4,065
Travel	955		8,077		4,228		16,814
Total service revenue	22,259		80,682		76,433		164,064
Product revenue - Goods	140,030		127,235		224,877		265,098
Total International revenue ⁽¹⁾	$	162,289	$	207,917	$	301,310	$	429,162

(1)North America includes revenue from the United States of $232.2 million and $319.2 million for the three months ended June 30, 2020 and 2019, and $463.1 million and $668.0 million for the six months ended June 30, 2020 and 2019. International includes revenue from the United Kingdom of $58.7 million and $71.3 million for the three months ended June 30, 2020 and 2019, and $108.2 million and $152.4 million for the six months ended June 30, 2020 and 2019. There were no other individual countries that represented more than 10% of consolidated total revenue for the three and six months ended June 30, 2020 and 2019. Revenue is attributed to individual countries based on the location of the customer.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following table summarizes gross profit by reportable segment and category for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
North America
Service gross profit:
Local	$	71,638	$	157,673	$	195,497	$	318,755
Goods	4,403		2,995		7,411		5,558
Travel	1,890		12,806		5,852		28,074
Total service gross profit	77,931		173,474		208,760		352,387
Product gross profit - Goods	23,761		25,110		36,703		55,999
Total North America gross profit	101,692		198,584		245,463		408,386

International
Service gross profit:
Local	14,843		65,780		59,367		134,758
Goods	2,557		2,384		4,573		3,652
Travel	804		7,370		3,548		15,411
Total service gross profit	18,204		75,534		67,488		153,821
Product gross profit - Goods	17,330		18,014		25,522		35,941
Total International gross profit	$	35,534	$	93,548	$	93,010	$	189,762

The following table summarizes income (loss) from operations by reportable segment for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Income (loss) from operations ⁽¹⁾:
North America	$	(44,018)	$	(372)	$	(75,179)	$	4,964
International	(28,095)		(6,767)		(194,795)		(9,908)
Total income (loss) from operations	$	(72,113)	$	(7,139)	$	(269,974)	$	(4,944)

(1)Includes goodwill and long-lived asset impairments and restructuring charges (credits). See Note 2, Goodwill and Long-Lived Assets, for impairments by segment. See Note 9, Restructuring and Related Charges, for restructuring charges by segment.

The following table summarizes total assets by reportable segment as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Total assets:
North America ⁽¹⁾	$	1,061,939	$	1,045,500
International⁽¹⁾	307,380		541,243
Consolidated total assets	$	1,369,319	$	1,586,743

(1)North America contains assets from the United States of $1,042.0 million and $1,020.0 million as of June 30, 2020 and December 31, 2019. International contains assets from Switzerland of $143.1 million and $175.2 million as of June 30, 2020 and December 31, 2019. There were no other individual countries that represented more than 10% of consolidated total assets as of June 30, 2020 and December 31, 2019.

GROUPON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

14. SUBSEQUENT EVENTS

On July 17, 2020, we entered into the Amendment to the Credit Agreement. See Note 5, Financing Arrangements, for additional information.

In early August 2020, we intend to initiate the second phase of our restructuring plan, which includes additional workforce reductions and a rationalization of our country footprint. See Note 9, Restructuring and Related Charges, for additional information.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under Item 1A, Risk Factors and elsewhere in this Quarterly Report. See Part I, Financial Information, Forward-Looking Statements, for additional information.

Overview

Groupon is a global scaled two-sided marketplace that connects consumers to merchants. Consumers access our marketplace through our mobile applications and our websites, primarily localized groupon.com sites in many countries. We operate in two segments: North America and International. For the six months ended June 30, 2020, we derived 60.9% of our revenue from our North America segment and 39.1% of our revenue from our International segment. See Item 1, Note 13, Segment Information, for additional information. We operate in three categories: Local, Goods and Travel.

We generate product and service revenue from our current business operations. We earn service revenue from transactions in which we earn commissions by selling goods or services on behalf of third-party merchants. Service revenue from those transactions is reported on a net basis and equals the purchase price received from the customer for the offering less an agreed upon portion of the purchase price paid to the merchant. Service revenue also includes commissions that we earn when customers make purchases with retailers using digital coupons accessed through our digital properties. We earn product revenue from direct sales of merchandise inventory through our Goods category. Our product revenue from those transactions is the purchase price received from the customer. Following our shift toward a third-party marketplace model in the Goods category (as described below), we will primarily generate service revenue from our Goods category.

In February 2020 we announced a strategic plan to focus on our local experiences marketplace, which included exiting our Goods category. However, the subsequent outbreak of COVID-19 and the preventive or protective actions that governments or our merchants and consumers have taken in response to the pandemic have resulted in significant disruption to our operations. We rely on customers' purchases of vouchers for local experiences, including events and activities, beauty and wellness, travel and dining. The temporary closure of businesses, including restaurants and bars, event venues, and spas, resulted in a significant deterioration in our performance beginning in March 2020. The negative impact of COVID-19 on our business is expected to continue at least as long as customer and merchant behavior remains impacted by COVID-19, including the implementation of governmental measures to control the spread of the virus, including quarantines, travel restrictions, business shutdowns and restrictions on the movement of people in the United States and abroad.

The impact of COVID-19 has required that we re-prioritize and adjust our strategy. We prioritized actions to stabilize our business and strengthen our balance sheet. In particular, given the significant declines we have seen in consumer demand for Local and Travel services due to COVID-19, we decided to leverage our Goods category in the near term instead of exiting the category as quickly as possible. We now intend to phase down the Goods category and shift toward a third-party marketplace model instead of fully exiting the Goods category. In this third-party marketplace model, merchants assume the responsibility for fulfillment and returns. Following this transition, Goods revenue is expected to be presented on a net basis consistent with the Local and Travel categories. We expect this transition to be completed in North America by the end of the third quarter 2020 and on a global basis in 2021.

In addition to the actions described above, during the second quarter we took additional, significant actions to improve our cash position and materially reduce our cost structure. In April 2020, the Board approved multi-phase restructuring actions relating to our previously announced strategic shift and as part of the cost cutting measures implemented in response to the COVID-19 pandemic. We expect to incur total pre-tax charges of up to $105.0 million in connection with these multi-phase restructuring actions. In the second quarter 2020, we recorded approximately $40.5 million in pre-tax charges in connection with the first phase of our restructuring actions.

The first phase of our restructuring actions includes an overall reduction of approximately 1,300 positions globally, and exiting or discontinuing the use of certain leases and other assets by the end of 2020. The majority of the first phase of headcount reductions and impairments of our right-of-use and other assets occurred during the second quarter 2020. In addition, in August 2020, we intend to initiate the second phase of our restructuring plan, which will include additional workforce reductions and a rationalization of our country footprint. Once fully implemented, we expect our multi-phase restructuring plan to result in $225.0 million in annualized cost savings. See Note 9, Restructuring and Related Charges, for more information.

We have also taken several other steps to reduce costs, preserve cash in the near-term and improve liquidity, including, but not limited to: furloughing staff; reducing marketing expense by significantly shortening payback thresholds and delaying brand marketing investments; continuing to sell Goods on our platform instead of quickly exiting the category; continuing to transition merchants to redemption payment terms, instead of fixed payment terms; implementing a hiring freeze; eliminating broad-based merit increases for employees; replacing cash compensation with equity compensation in 2020 for all Board members; and amending our Credit Agreement to, among other things, provide covenant relief through the first quarter of 2021.

During the second quarter, we also finalized our strategy and execution plan to return Groupon to growth over time. This strategy and plan will prioritize expanding inventory and modernizing our marketplace by improving the merchant and customer experiences. While both of these are important to building a successful marketplace, we believe the most critical of these is expanding inventory and, in the near term, we intend to dedicate a majority of our efforts and resources to inventory growth.

How We Measure Our Business

We use several operating and financial metrics to assess the progress of our business and make decisions on where to allocate capital, time and technology investments. Certain of the financial metrics are reported in accordance with U.S. GAAP and certain of those metrics are considered non-GAAP financial measures. As our business evolves, we may make changes to the key financial and operating metrics that we use to measure our business. For further information and reconciliations to the most applicable financial measures under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.

Operating Metrics

•Gross billings is the total dollar value of customer purchases of goods and services. Gross billings is presented net of customer refunds, order discounts and sales and related taxes. The substantial majority of our service revenue transactions are comprised of sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of the transaction price to the third-party merchant who will provide the related goods or services. For these transactions, gross billings differs from revenue reported in our condensed consolidated statements of operations, which is presented net of the merchant's share of the transaction price. For product revenue transactions, gross billings are equivalent to product revenue reported in our condensed consolidated statements of operations. Gross billings is an indicator of our growth and business performance as it measures the dollar volume of transactions generated through our marketplaces. Tracking gross billings on service revenue transactions also allows us to monitor the percentage of gross billings that we are able to retain after payments to merchants. However, we are focused on achieving long-term gross profit and Adjusted EBITDA growth.

•Active customers are 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, nor do we include consumers who solely make purchases of our inventory through third-party marketplaces with which we partner.

•Units are the number of purchases during the reporting period, before refunds and cancellations, made either through one of our online marketplaces, a third-party marketplace, or directly with a merchant for which we earn a commission. We do not include purchases with retailers using digital coupons accessed through our websites and mobile applications in our units metric. We consider units to be an important indicator of the total volume of business conducted through our marketplaces. We report units on a gross basis prior to the consideration of customer refunds and therefore units are not always a good proxy for gross billings.

•Gross billings per unit are the gross billings generated per unit. We use this metric to evaluate trends in units and in the average contribution to gross billings on a per-unit basis.

Our gross billings, units and gross billings per unit for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except gross billings per unit amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Gross billings	$	582,723	$	1,120,945	$	1,389,122	$	2,296,953
Units	23,031		35,324		52,798		72,516
Gross billings per unit	$	25.30	$	31.73	$	26.31	$	31.68

Our active customers for the TTM period ended June 30, 2020 and 2019 were as follows (in thousands):


	Trailing Twelve Months Ended June 30,
	2020	2019
TTM Active Customers (in thousands)	38,025	46,175

Financial Metrics

•Revenue is currently earned through product and service revenue transactions. We earn service revenue from transactions in which we generate commissions by selling goods or services on behalf of third-party merchants. Service revenue from those transactions is reported on a net basis as the purchase price collected from the customer for the offering less an agreed upon portion of the purchase price paid to the third-party merchant. Service revenue also includes commissions we earn when customers make purchases with retailers using digital coupons accessed through our digital properties. We earn product revenue from direct sales of merchandise inventory in our Goods category and report product revenue on a gross basis as the purchase price received from the customer. Following our shift to a third-party marketplace model in the Goods category, we will primarily generate service revenue from our Goods category.

•Gross profit reflects the net margin we earn after deducting our cost of revenue from our revenue. Due to the lack of comparability between product revenue, which is reported on a gross basis, and service revenue, which primarily consists of transactions reported on a net basis, we believe that gross profit is an important measure for evaluating our performance.

•Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) from continuing operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net and other special charges and credits, including items that are unusual in nature or infrequently occurring. For further information and a reconciliation to net income (loss) from continuing operations, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.

•Free cash flow is a non-GAAP financial measure that comprises net cash provided by (used in) operating activities from continuing operations less purchases of property and equipment and capitalized software.

For further information and a reconciliation to Net cash provided by (used in) operating activities from continuing operations, refer to our discussion in the Liquidity and Capital Resources section.

The following table presents the above financial metrics for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenue	$	395,646	$	532,577	$	769,796	1,110,987
Gross profit	137,226		292,132		338,473		598,148
Adjusted EBITDA	1,344		46,521		(21,126)		93,476
Free cash flow	72,791		(17,903)		(174,213)		(182,863)

Operating Expenses

•Marketing expense consists primarily of online marketing costs, such as search engine marketing, advertising on social networking sites and affiliate programs, and offline marketing costs, such as television and radio advertising. Additionally, compensation expense for marketing employees is classified within marketing expense. We record these costs within Marketing on the condensed consolidated statements of operations when incurred. From time to time, we have offerings from 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.

•Selling, general and administrative ("SG&A") expenses include selling expenses such as sales commissions and other compensation expenses for sales representatives, as well as costs associated with supporting the sales function such as technology, telecommunications and travel. General and administrative expenses include compensation expense for employees involved in customer service, operations, technology and product development, as well as general corporate functions, such as finance, legal and human resources. Additional costs included in general and administrative include depreciation and amortization, rent, professional fees, litigation costs, travel and entertainment, recruiting, office supplies, maintenance, certain technology costs and other general corporate costs. We evaluate SG&A expense as a percentage of gross profit because it gives us an indication of our operating efficiency.

•Restructuring and related charges represent severance and benefit costs for workforce reductions, impairments of long-lived assets and other exit costs resulting from our restructuring activities. See Note 9, Restructuring and Related Charges, for information about our restructuring plan.

Factors Affecting Our Performance

Attracting and retaining local merchants. As we focus on our local experiences marketplace, we depend on our ability to attract and retain merchants who are willing to offer their experiences on our platform. Merchants can generally withdraw their offerings from our marketplace at any time, and their willingness to continue offering services through our marketplace depends on the effectiveness of our marketing and promotional services. Since the widespread economic impacts of COVID-19 began in March 2020, we are prioritizing opportunities to help drive demand for our merchants and highlighting offers that customers can enjoy right now. In addition to offerings that we can highlight during strict shelter-in-place mandates, we have been able to drive demand to certain local merchants that are beginning to open again. As we continue to navigate through the volatility of the COVID-19 recovery period, we intend to take a market by market approach to attract and retain local merchants.

Driving purchase frequency and retaining customers. In light of significant declines in consumer demand for local and travel services due to COVID-19, we must highlight offers that customers can enjoy right now in order to drive purchase frequency and retain customers. This includes continuing to leverage our Goods category in the near-term and surfacing the relevant local inventory in each market depending on the government restrictions currently in place. We must also continue to improve the customer experience on our websites and

mobile applications, launch innovative products that remove friction from the customer journey, and grow our high-quality, bookable inventory.

Increasing traffic to our websites and mobile applications. The traffic to our websites and mobile applications, including from consumers responding to our emails and search engine optimization ("SEO"), has declined in recent years, and we have experienced further declines in traffic due to the impacts of COVID-19. As such, we must focus on improving the effectiveness of our emails, as well as developing sources of traffic in addition to email and SEO and optimizing the efficiency of our marketing spending, which has historically been guided by return on investment thresholds based on expected months-to-payback targets ranging from 12 to 18 months. In light of COVID-19, we significantly shortened our payback thresholds.

Results of Operations

North America

Operating Metrics

North America segment gross billings and units for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except percentages and gross billings per unit):


	Three Months Ended June 30,									Six Months Ended June 30,
	2020		2019		% Change		2020	2019		% Change
Gross billings
Service gross billings:
Local	$	167,455	$	503,830	(66.8)	%	560,064	$	1,006,139	(44.3)	%
Goods	30,295		19,615		54.4		48,414	39,533		22.5
Travel	11,524		84,029		(86.3)		45,184	176,112		(74.3)
Total service gross billings	209,274		607,474		(65.6)		653,662	1,221,784		(46.5)
Product gross billings - Goods	143,239		127,739		12.1		225,514	282,459		(20.2)
Total gross billings	$	352,513	$	735,213	(52.1)		879,176	$	1,504,243	(41.6)

Units
Local	5,871		16,146		(63.6)	%	20,003	32,438		(38.3)	%
Goods	6,996		5,322		31.5		10,738	11,770		(8.8)
Travel	78		391		(80.1)		391	832		(53.0)
Total units	12,945		21,859		(40.8)		31,132	45,040		(30.9)

Gross billings per unit	$27.23		$33.63		(19.0)	%	$28.24	$33.40		(15.4)	%

North America TTM active customers for the trailing twelve months ended June 30, 2020 were as follows (in thousands):


	Trailing Twelve Months Ended June 30,
	2020	2019	% Change
TTM Active customers	22,758	28,620	(21)	%

Comparison of the Three Months Ended June 30, 2020 and 2019:

North America gross billings, units and TTM active customers declined by $382.7 million, 8.9 million and 5.9 million for the three months ended June 30, 2020. These declines were primarily due to the significant decrease in consumer demand as governmental measures were in place to control the spread of COVID-19, including quarantines, travel restrictions and business shutdowns. Gross billings per unit were adversely impacted by shift in mix of offerings sold.

Comparison of the Six Months Ended June 30, 2020 and 2019:

North America gross billings and units declined by $625.1 million and 13.9 million for the six months ended June 30, 2020. These declines were primarily due to the significant decrease in consumer demand as governmental measures were implemented to control the spread of COVID-19, including quarantines, travel restrictions and business shutdowns. Gross billings per unit were adversely impacted by shift in mix of offerings sold.

Financial Metrics

North America segment revenue, cost of revenue and gross profit for the three and six months ended June 30, 2020 and 2019 were as follows (dollars in thousands):


	Three Months Ended June 30,														Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Revenue
Service revenue
Local	$	81,724		$	177,082		(53.8)	%	$	224,384		$	357,459		(37.2)	%
Goods	5,869			3,714			58.0		9,614			6,841			40.5
Travel	2,525			16,125			(84.3)		8,974			35,066			(74.4)
Total service revenue	90,118			196,921			(54.2)		242,972			399,366			(39.2)
Product revenue - Goods	143,239			127,739			12.1		225,514			282,459			(20.2)
Total revenue	$	233,357		$	324,660		(28.1)		$	468,486		$	681,825		(31.3)

Cost of revenue
Service cost of revenue
Local	$	10,086		$	19,409		(48.0)	%	$	28,887		$	38,704		(25.4)	%
Goods	1,466			719			103.9		2,203			1,283			71.7
Travel	635			3,319			(80.9)		3,122			6,992			(55.3)
Total service cost of revenue	12,187			23,447			(48.0)		34,212			46,979			(27.2)
Product cost of revenue - Goods	119,478			102,629			16.4		188,811			226,460			(16.6)
Total cost of revenue	$	131,665		$	126,076		4.4		$	223,023		$	273,439		(18.4)

Gross profit
Service gross profit
Local	$	71,638		$	157,673		(54.6)	%	$	195,497		$	318,755		(38.7)	%
Goods	4,403			2,995			47.0		7,411			5,558			33.3
Travel	1,890			12,806			(85.2)		5,852			28,074			(79.2)
Total service gross profit	77,931			173,474			(55.1)		208,760			352,387			(40.8)
Product gross profit - Goods	23,761			25,110			(5.4)		36,703			55,999			(34.5)
Total gross profit	$	101,692		$	198,584		(48.8)		$	245,463		$	408,386		(39.9)

Service margin ⁽¹⁾	43.1		%	32.4		%			37.2		%	32.7		%

% of Consolidated revenue	59.0		%	61.0		%			60.9		%	61.4		%
% of Consolidated cost of revenue	51.0			52.4					51.7			53.3
% of Consolidated gross profit	74.1			68.0					72.5			68.3

(1) Represents the percentage service gross billings that we retained after deducting the merchant's share from revenue.

Comparison of the Three Months Ended June 30, 2020 and 2019:

North America revenue and gross profit decreased by $91.3 million and $96.9 million for the three months ended June 30, 2020. Those decreases were primarily driven by a decline in gross billings and transaction volume due to the impacts of COVID-19, partially offset by an increase in service margin due to a shift in mix of offerings sold.

Cost of revenue increased by $5.6 million for the three months ended June 30, 2020 primarily due to the increase in Goods revenue, partially offset by lower transaction-based fees due to the decline in Local and Travel volume and gross billings.

Comparison of the Six Months Ended June 30, 2020 and 2019:

North America revenue and gross profit decreased by $213.3 million and $162.9 million for the six months ended June 30, 2020. Those decreases were primarily driven by a decline in gross billings and transaction volume due to the impacts of COVID-19.

Cost of revenue decreased by $50.4 million for the six months ended June 30, 2020 primarily due to the decline of Goods revenue in the first quarter 2020 and lower transaction-based fees due to the decline in volume and gross billings.

Operating Expenses and Income (Loss) from Operations

North America segment operating expenses and income (loss) from operations for the three and six months ended June 30, 2020 and 2019 were as follows (dollars in thousands):


	Three Months Ended June 30,														Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Operating expenses
Marketing	$	14,076		$	57,110		(75.4)	%	$	53,485		$	116,909		(54.3)	%
Selling, general and administrative	101,536			141,846			(28.4)		237,059			286,513			(17.3)
Restructuring and related charges	30,098			—			—		30,098			—			—
Total operating expenses	$	145,710		$	198,956		(26.8)		$	320,642		$	403,422		(20.5)

Income (loss) from operations	$	(44,018)		$	(372)		NM		$	(75,179)		$	4,964		NM

% of Gross profit:
Marketing	13.8		%	28.8		%			21.8		%	28.6		%
Selling, general and administrative	99.8			71.4					96.6			70.2

Comparison of the Three Months Ended June 30, 2020 and 2019:

North America marketing expense and marketing expense as a percentage of gross profit declined for the three months ended June 30, 2020 due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our offline marketing and brand spend in light of COVID-19.

The decrease in North America SG&A for the three months ended June 30, 2020 was primarily due to lower payroll-related expenses due to furloughs and restructuring actions. SG&A as a percentage of gross profit increased for three months ended June 30, 2020 due to the decline in demand and traffic as a result of COVID-19.

The North America restructuring and related charges for the three months ended June 30, 2020 represent severance and benefit costs for workforce reductions, impairments of long-lived assets and lease terminations and other exit costs resulting from our restructuring activities. See Note 9, Restructuring and Related Charges, for more information.

The decline in our North America income (loss) from operations for the three months ended June 30, 2020 was primarily attributable to a $96.9 million decrease in gross profit, as discussed above, partially offset by a $53.2 million decrease in operating expenses.

Comparison of the Six Months Ended June 30, 2020 and 2019:

North America marketing expense and marketing expense as a percentage of gross profit declined for the six months ended June 30, 2020 due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our offline marketing and brand spend in light of COVID-19.

The decrease in North America SG&A for the six months ended June 30, 2020 was primarily due to lower payroll-related expenses due to furloughs and restructuring actions. SG&A as a percentage of gross profit increased for the six months ended June 30, 2020 as we experienced a decrease in demand and traffic as a result of COVID-19.

The North America restructuring and related charges for the six months ended June 30, 2020 represents severance and benefit costs for workforce reductions, impairments of long-lived assets, and lease terminations and other exit costs resulting from our restructuring activities. See Note 9, Restructuring and Related Charges, for more information.

The decline in our North America income (loss) from operations for the six months ended June 30, 2020 was primarily attributable to a $162.9 million decrease in gross profit, as discussed above, partially offset by a $82.8 million decrease in operating expenses.

International

Operating Metrics

International segment gross billing and units for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except percentages and gross billings per unit):


	Three Months Ended June 30,										Six Months Ended June 30,
	2020		2019		% Change		2020		2019		% Change
Gross billings
Service gross billings:
Local	$	61,897	$	203,450	(69.6)	%	$	219,298	$	410,846	(46.6)	%
Goods	19,514		11,699		66.8		30,171		21,479		40.5
Travel	8,769		43,348		(79.8)		35,600		95,287		(62.6)
Total service gross billings	90,180		258,497		(65.1)		285,069		527,612		(46.0)
Product gross billings - Goods	140,030		127,235		10.1		224,877		265,098		(15.2)
Total gross billings	$	230,210	$	385,732	(40.3)		$	509,946	$	792,710	(35.7)

Units
Local	2,202		7,733		(71.5)	%	9,046		15,573		(41.9)	%
Goods	7,820		5,413		44.5		12,307		11,202		9.9
Travel	64		319		(79.9)		313		701		(55.3)
Total units	10,086		13,465		(25.1)		21,666		27,476		(21.1)

Gross billings per unit	$22.82		$28.65		(20.3)	%	$23.54		$28.85		(18.4)	%

International TTM active customers for the trailing twelve months ended June 30, 2020 were as followings (in thousands):


	Trailing Twelve Months Ended June 30,
	2020	2019	% Change
TTM Active customers	15,267	17,555	(13.0)	%

Comparison of the Three Months Ended June 30, 2020 and 2019:

International gross billings, units and TTM active customers decreased by $155.5 million, 3.4 million and 2.3 million for the three months ended June 30, 2020. These declines were primarily due to the significant decrease in consumer demand as governmental measures were implemented to control the spread of COVID-19, including quarantines, travel restrictions and business shutdowns. The decline in gross billings was also attributable to a $5.9 million unfavorable impact from year-over-year changes in foreign currency rates and a decline in gross billings per unit due to a shift in mix of offerings sold.

Comparison of the Six Months Ended June 30, 2020 and 2019:

International gross billings and units decreased by $282.8 million and 5.8 million for the six months ended June 30, 2020. These declines were primarily due to the significant decrease in consumer demand as governmental measures were implemented to control the spread of COVID-19, including quarantines, travel restrictions and business shutdowns. The decline in gross billings was also attributable to a $13.9 million unfavorable impact from year-over-year changes in foreign currency rates and a decline in gross billings per unit due to a shift in mix of offerings sold.

Financial Metrics

International segment revenue, cost of revenue and gross profit for the three and six months ended June 30, 2020 and 2019 were as follows (dollars in thousands):


	Three Months Ended June 30,														Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Revenue
Service revenue:
Local	$	18,025		$	69,995		(74.2)	%	$	66,693		$	143,185		(53.4)	%
Goods	3,279			2,610			25.6		5,512			4,065			35.6
Travel	955			8,077			(88.2)		4,228			16,814			(74.9)
Total service revenue	22,259			80,682			(72.4)		76,433			164,064			(53.4)
Product revenue - Goods	140,030			127,235			10.1		224,877			265,098			(15.2)
Total revenue	$	162,289		$	207,917		(21.9)		$	301,310		$	429,162		(29.8)

Cost of revenue
Service cost of revenue:
Local	$	3,182		$	4,215		(24.5)	%	$	7,326		$	8,427		(13.1)	%
Goods	722			226			219.5		939			413			127.4
Travel	151			707			(78.6)		680			1,403			(51.5)
Total service revenue	4,055			5,148			(21.2)		8,945			10,243			(12.7)
Product cost of revenue - Goods	122,700			109,221			12.3		199,355			229,157			(13.0)
Total cost of revenue	$	126,755		$	114,369		10.8		$	208,300		$	239,400		(13.0)

Gross profit
Service gross profit:
Local	$	14,843		$	65,780		(77.4)	%	$	59,367		$	134,758		(55.9)	%
Goods	2,557			2,384			7.3		4,573			3,652			25.2
Travel	804			7,370			(89.1)		3,548			15,411			(77.0)
Total service gross profit	18,204			75,534			(75.9)		67,488			153,821			(56.1)
Product gross profit - Goods	17,330			18,014			(3.8)		25,522			35,941			(29.0)
Total gross profit	$	35,534		$	93,548		(62.0)		$	93,010		$	189,762		(51.0)

Service margin ⁽¹⁾	24.7		%	31.2		%			26.8		%	31.1		%

% of Consolidated revenue	41.0		%	39.0		%			39.1		%	38.6		%
% of Consolidated cost of revenue	49.0			47.6					48.3			46.7
% of Consolidated gross profit	25.9			32.0					27.5			31.7

(1) Represents the percentage of service gross billings that we retained after deducting the merchant's share from revenue.

Comparison of the Three Months Ended June 30, 2020 and 2019

International revenue and gross profit decreased by $45.6 million and $58.0 million for the three months ended June 30, 2020. Those decreases were primarily driven by a decline in gross billings due to the impacts of COVID-19 as discussed above, a decrease in service margin due to a reduction in variable consideration for unredeemed vouchers and unfavorable impacts on revenue and gross profit of $4.0 million and $1.0 million from year-over-year changes in foreign currency rates. See Note 8, Revenue Recognition for additional information on variable consideration for unredeemed vouchers.

Cost of revenue increased by $12.4 million for the three months ended June 30, 2020 primarily due to an increase in Goods revenue, partially offset by lower transaction-based fees due to the decline in volume and gross billings and a $3.0 million favorable impact from year-over-year changes in foreign currency rates.

Comparison of the Six Months Ended June 30, 2020 and 2019:

International revenue and gross profit decreased by $127.9 million and $96.8 million for the six months ended June 30, 2020. Those decreases were primarily driven by a decline in gross billings due to the impacts of COVID-19 as discussed above and unfavorable impacts on revenue and gross profit of $7.9 million and $2.4 million from year-over-year changes in foreign currency rates.

Cost of revenue decreased by $31.1 million for the six months ended June 30, 2020 primarily due to a decrease in Goods revenue in the first quarter 2020, lower transaction-based fees due to the decline in volume and gross billings and a $5.5 million favorable impact from year-over-year changes in foreign currency rates.

Operating Expenses and Income (Loss) from Operations

International segment operating expenses and income (loss) from operations for the three and six months ended June 30, 2020 and 2019 were as follows (dollars in thousands):


	Three Months Ended June 30,														Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Operating expenses
Marketing	$	11,166		$	31,813		(64.9)	%	$	31,887		$	65,411		(51.3)	%
Selling, general and administrative	42,083			68,549			(38.6)		113,701			134,373			(15.4)
Goodwill impairment	—			—			—		109,486			—			—
Long-lived asset impairment	—			—			—		22,351			—			—
Restructuring and related charges	10,380			(47)			NM		10,380			(114)			NM
Total operating expenses	$	63,629		$	100,315		(36.6)	%	$	287,805		$	199,670		44.1	%

Income (loss) from operations	$	(28,095)		$	(6,767)		(315.2)	%	$	(194,795)		$	(9,908)		NM

% of Gross profit:
Marketing	31.4		%	34.0		%			34.3		%	34.5		%
Selling, general and administrative	118.4			73.3					122.2			70.8

Comparison of the Three Months Ended June 30, 2020 and 2019:

International marketing expense and marketing expense as a percentage of gross profit declined for the three months ended June 30, 2020 due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our offline marketing and brand spend in light of COVID-19 and a $0.3 million favorable impact from year-over-year changes in foreign currency rates.

International SG&A decreased for the three months ended June 30, 2020 primarily due to lower payroll-related expenses due to furloughs and restructuring actions and a $2.5 million favorable impact from year-over-year changes in foreign currency rates. SG&A as a percentage of gross profit increased for three months ended June 30, 2020 due to the decline in demand and traffic as a result of COVID-19.

International restructuring and related charges for the three months ended June 30, 2020 represent severance and benefit costs for workforce reductions, impairments of long-lived assets and lease terminations and other exit costs resulting from our restructuring activities. See Note 9, Restructuring and Related Charges, for more information.

The decrease in International income (loss) from operations for the three months ended June 30, 2020 was primarily attributable to a $58.0 million decrease in gross profit, partially offset by a $36.7 million decrease in operating expenses.

Comparison of the Six Months Ended June 30, 2020 and 2019:

International marketing expense and marketing expense as a percentage of gross profit declined for the six months ended June 30, 2020 due to accelerated traffic declines, significantly shortened payback thresholds

and lower investment in our offline marketing and brand spend in light of COVID-19 and a $0.8 million favorable impact from year-over-year change in foreign currency rates.

International SG&A decreased for the six months ended June 30, 2020 primarily due to lower payroll-related expenses due to furloughs and restructuring actions and a $3.1 million favorable impact from year-over-year changes in foreign currency exchange rates. SG&A as a percentage of gross profit increased for the six months ended June 30, 2020 due to the decline in demand and traffic as a result of COVID-19.

As a result of the first quarter interim quantitative assessment of goodwill and long-lived assets, we recognized goodwill impairment of $109.5 million for the six months ended June 30, 2020 that represented the excess of the EMEA reporting unit's carrying value over its fair value. We also recognized long-lived asset impairment of $22.4 million as a result of the significant deterioration of our financial performance due to the impact of COVID-19. See Note 2, Goodwill and Long-Lived Assets, for additional information about goodwill and long-lived asset impairment.

International restructuring and related charges for the six months ended June 30, 2020 represent severance and benefit costs for workforce reductions, impairments of long-lived assets and lease terminations and other exit costs resulting from our restructuring activities. See Note 9, Restructuring and Related Charges, for more information.

Other Income (Expense), Net

Other income (expense), net includes interest income, interest expense, gains and losses on fair value option investments, adjustments for observable price changes of investments, impairments of investments and foreign currency gains and losses, primarily resulting from intercompany balances with our subsidiaries that are denominated in foreign currencies.

Other income (expense), net for the three and six months ended June 30, 2020 and 2019 was as follows (dollars in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Interest income	$	1,430	$	1,915	$	3,986	$	3,851
Interest expense	(8,009)		(5,442)		(14,967)		(11,133)
Changes in fair value of investments	—		(27,577)		(1,405)		(68,985)
Foreign currency gains (losses), net	4,884		2,610		(1,612)		918
Impairment of investment	—		—		(6,684)		—
Other income (expense), net	$	(1,695)	$	(28,494)	$	(20,682)	$	(75,349)

Comparison of the Three Months Ended June 30, 2020 and 2019:

The change in Other income (expense), net for the three months ended June 30, 2020 as compared with the prior year period is primarily related to a $27.6 million decrease in losses from changes in our fair value investments.

Comparison of the Six Months Ended June 30, 2020 and 2019:

The change in Other income (expense), net for the six months ended June 30, 2020 as compared with the prior year period is primarily related to a $67.6 million decrease in losses from changes in our fair value of investments, partially offset by a $6.7 million impairment of an other equity investment.

Provision (Benefit) for Income Taxes

Provision (benefit) for income taxes for the three and six months ended June 30, 2020 and 2019 was as follows (dollars in thousands):


	Three Months Ended June 30,														Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Provision (benefit) for income taxes	$	(696)		$	2,012		(134.6)	%	$	(6,684)		$	(1,478)		352.2	%
Effective tax rate	0.9		%	(5.6)		%			2.3		%	1.8		%

Comparison of the Three Months Ended June 30, 2020 and 2019:

Our U.S. federal income tax rate is 21%. The primary factors impacting the effective tax rate for the three months ended June 30, 2020 and 2019 were the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets. We expect that our consolidated effective tax rate in future periods will continue to differ significantly from the U.S. federal income tax rate as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. See Note 10, Income Taxes, for additional information relating to tax audits and assessments and regulatory and legal developments that may impact our business and results of operations in the future.

Comparison of the Six Months Ended June 30, 2020 and 2019:

The primary factors impacting the effective tax rate for the six months ended June 30, 2020 and 2019 were the pretax losses incurred in jurisdictions that have valuation allowances against their net deferred tax assets and the reversals of reserves for uncertain tax positions due to the closure of tax audits. The six months ended June 30, 2020 were also impacted by the carryback of federal net operating losses due to the income tax relief provided by the CARES Act. We expect that our consolidated effective tax rate in future periods will continue to differ significant from the U.S. federal income tax rates as a result of our tax obligations in jurisdictions with profits and valuation allowances in jurisdictions with losses. See Note 10, Income Taxes, for additional information relating to tax audits and assessments and regulatory and legal developments that may impact our business and result of operations in the future.

Non-GAAP Financial Measures

In addition to financial results reported in accordance with U.S. GAAP, we have provided the following non-GAAP financial measures: Adjusted EBITDA, free cash flow and foreign currency exchange rate neutral operating results. Those non-GAAP financial measures, which are presented on a continuing operations basis, are intended to aid investors in better understanding our current financial performance and prospects for the future as seen through the eyes of management. We believe that those non-GAAP financial measures facilitate comparisons with our historical results and with the results of peer companies who present similar measures (although other companies may define non-GAAP measures differently than we define them, even when similar terms are used to identify such measures). However, those non-GAAP financial measures are not intended to be a substitute for those reported in accordance with U.S. GAAP.

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) from continuing operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense (benefit), net and other special charges and credits, including items that are unusual in nature or infrequently occurring. Our definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key measure used by our management and Board of Directors to evaluate operating performance, generate future operating plans and make strategic decisions for the allocation of capital. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors. However, Adjusted EBITDA is not intended to be a substitute for income (loss) from continuing operations.

We exclude stock-based compensation expense and depreciation and amortization because they are primarily non-cash in nature and we believe that non-GAAP financial measures excluding those items provide meaningful supplemental information about our operating performance and liquidity. Acquisition-related expense (benefit), net is comprised of the change in the fair value of contingent consideration arrangements and external transaction costs related to business combinations, primarily consisting of legal and advisory fees. The composition of our contingent consideration arrangements and the impact of those arrangements on our operating results vary over time based on a number of factors, including the terms of our business combinations and the timing of those transactions. For the three and six months ended June 30, 2020 and 2019, special charges and credits included charges related to our restructuring plan, goodwill and long-lived asset impairments, and strategic advisor costs. We exclude special charges and credits from Adjusted EBITDA because we believe that excluding those items provides meaningful supplemental information about our core operating performance and facilitates comparisons with our historical results.

The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, Income (loss) from continuing operations for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Income (loss) from continuing operations	$	(73,112)	$	(37,645)	$	(283,972)	$	(78,815)
Adjustments:
Stock-based compensation	8,543		26,563		22,558		42,974
Depreciation and amortization	24,434		27,116		50,343		55,532
Acquisition-related expense (benefit), net	2		28		6		28
Restructuring and related charges ⁽¹⁾	40,478		(47)		40,478		(114)
Goodwill impairment	—		—		109,486		—
Long-lived asset impairment	—		—		22,351		—
Strategic advisor costs	—		—		3,626		—
Other (income) expense, net	1,695		28,494		20,682		75,349
Provision (benefit) for income taxes	(696)		2,012		(6,684)		(1,478)
Total adjustments	74,456		84,166		262,846		172,291
Adjusted EBITDA	$	1,344	$	46,521	$	(21,126)	$	93,476

(1)Restructuring and related charges includes $13.9 million of long-lived asset impairments for both the three months ended June 30, 2020 and six months ended June 30, 2020 and $1.4 million of additional stock-based compensation for both the three and six months ended June 30, 2020.

Free cash flow. Free cash flow is a non-GAAP liquidity measure that comprises net cash provided by operating activities from continuing operations less purchases of property and equipment and capitalized software. We use free cash flow to conduct and evaluate our business because, although it is similar to cash flow from continuing operations, we believe that it typically represents a more useful measure of cash flows because purchases of fixed assets, software developed for internal use and website development costs are necessary components of our ongoing operations. Free cash flow is not intended to represent the total increase or decrease in our cash balance for the applicable period.

Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not include cash payments for business acquisitions. In addition, free cash flow reflects the impact of the timing difference between when we are paid by customers and when we pay merchants and suppliers. Therefore, we believe it is important to view free cash flow as a complement to our entire condensed consolidated statements of cash flows. For a reconciliation of free cash flow to the most comparable U.S. GAAP financial measure, see Liquidity and Capital Resources below.

Foreign currency exchange rate neutral operating results. Foreign currency exchange rate neutral operating results show current period operating results as if foreign currency exchange rates had remained the same as those in effect in the prior year period. Those measures are intended to facilitate comparisons to our historical performance.

The following table represents the effect on our condensed consolidated statements of operations from changes in exchange rates versus the U.S. dollar for the three and six months ended June 30, 2020 (in thousands):


	Three Months Ended June 30, 2020
	At Avg. Q2 2019 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾		As Reported
Gross billings	$	588,617	$	(5,894)	$	582,723
Revenue	399,618		(3,972)		395,646
Cost of revenue	261,411		(2,991)		258,420
Gross profit	138,207		(981)		137,226
Marketing	25,512		(270)		25,242
Selling, general and administrative	144,925		(1,306)		143,619
Income (loss) from operations	(72,719)		606		(72,113)


	Six Months Ended June 30, 2020
	At Avg. Q2 2019 Rates ⁽¹⁾		Exchange Rate Effect ⁽²⁾		As Reported
Gross billings	$	1,403,073	$	(13,951)	$	1,389,122
Revenue	777,693		(7,897)		769,796
Cost of revenue	436,774		(5,451)		431,323
Gross profit	340,919		(2,446)		338,473
Marketing	86,187		(815)		85,372
Selling, general and administrative	354,271		(3,511)		350,760
Income (loss) from operations	(276,330)		6,356		(269,974)

(1) Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period.

(2) Represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flows from operations, cash balances, which primarily consisted of bank deposits and government money market funds. As of June 30, 2020, cash balances, including outstanding borrowings under the Credit Agreement, were $784.7 million.

Our net cash flows from operating, investing and financing activities from continuing operations for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Cash provided by (used in):
Operating activities	$	87,112	$	(1,219)	$	(149,296)	$	(148,702)
Investing activities	(15,568)		(17,235)		3,996		(35,350)
Financing activities	42,862		(31,581)		184,174		(59,358)

Our free cash flow for the three and six months ended June 30, 2020 and 2019 and a reconciliation 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):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net cash provided by (used in) operating activities from continuing operations	$	87,112	$	(1,219)	$	(149,296)	$	(148,702)
Purchases of property and equipment and capitalized software from continuing operations	(14,321)		(16,684)		(24,917)		(34,161)
Free cash flow	$	72,791	$	(17,903)	$	(174,213)	$	(182,863)

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 prior periods, we began to increase our use of redemption payment terms with our North America merchants and we expect that trend to accelerate in the second half of 2020.

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 have historically generated 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.

For the six months ended June 30, 2020, our net cash used in operating activities from continuing operations was $149.3 million, as compared with a $284.0 million net loss from continuing operations. That difference is primarily due to a $99.2 million net decrease from changes in working capital and other assets and liabilities. The working capital impact was related to the seasonal timing of payments to inventory suppliers and the impact of COVID-19. The difference between our net cash used in operating activities and our net loss from continuing operations due to changes in working capital was partially offset by $233.9 million of non-cash items, including $109.5 million of goodwill impairment, $22.4 million of long-lived asset impairments, $13.9 million of restructuring-related impairments, depreciation and amortization and stock-based compensation.

For the six months ended June 30, 2019, our net cash used in operating activities from continuing operations was $148.7 million, as compared with a $78.8 million net loss from continuing operations. That difference was primarily due to $174.3 million of non-cash items, including depreciation and amortization, stock-based compensation and a $69.4 million loss from changes in fair value of our investment in Monster LP, partially offset by a $244.2 million decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the seasonal timing of payments to inventory suppliers and to a lesser extent a reduction in gross billings.

For the six months ended June 30, 2020, our net cash provided by investing activities from continuing operations was $4.0 million. Our net cash provided by investing activities from continuing operations included the proceeds from the sale of an investment of $31.6 million, which was partially offset by purchases of property and equipment and capitalized software of $24.9 million.

For the six months ended June 30, 2019, our net cash used in investing activities from continuing operations was $35.4 million. Our net cash used in investing activities included purchases of property and equipment and capitalized software of $34.2 million.

For the six months ended June 30, 2020, our net cash provided by financing activities was $184.2 million. Our net cash provided by financing activities included $200.0 million of borrowings under our revolving credit facility offset by $7.3 million in taxes paid related to net share settlements of stock-based compensation awards,$5.3 million in payments of finance lease obligations and $3.5 million of distributions to noncontrolling interest holders.

For the six months ended June 30, 2019, our net cash used in financing activities was $59.4 million. Our net cash used in financing activities included $29.6 million in repurchases of common stock under our share repurchase program, $12.6 million in payments of finance lease obligations and $10.2 million in taxes paid related to net share settlements of stock-based compensation awards.

On July 17, 2020, we entered into an amendment of our Credit Agreement in order to, among other things, provide us operational flexibility and covenant relief through the end of the first quarter 2021 in light of the ongoing impacts of COVID-19 on our business. The Amended Credit Agreement provides for aggregate principal borrowings of up to $225.0 million and matures in May 2024. As of June 30, 2020, we had $200.0 million of borrowings and $19.2 million of letters of credit outstanding under the Credit Agreement. We did not repay any outstanding borrowings under the Credit Agreement in connection with the Amendment. See Note 5, Financing Arrangements, for additional information.

We believe that our cash balances, excluding borrowings under the Amended Credit Agreement, and cash generated from operations will be sufficient to meet our working capital requirements and capital expenditures for at least the next 12 months. However, we expect a net loss and negative operating cash flows for the year ended December 31, 2020. We plan to continue to actively manage and optimize our cash balances and liquidity, working capital and operating expenses, although there can be no assurances that we will be able to do so. We have taken several steps to reduce costs and preserve cash in the near-term as described above in Overview.

As of June 30, 2020, we had $151.5 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 authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. As of June 30, 2020, up to $245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the Amended Credit Agreement, share price, available cash 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.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of June 30, 2020 did not materially change from the amounts set forth in our 2019 Annual Report on Form 10-K, except as disclosed in Note 6, Commitments and Contingencies.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2020.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and related disclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting policies are discussed in Item 2, Note 2, Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2019. In addition, refer to the critical accounting policies and estimates under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019.

Recently Issued Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The ASU will be effective for annual reporting periods beginning after December 15, 2020 and interim periods within those annual periods and early adoption is permitted. We believe that the adoption of this guidance will not have a material impact on our condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU amends a wide variety of Topics in the Codification, including Fair Value Option measurement and disclosures, revolving-debt arrangements and allowance for credit losses related to leases. The ASU will be effective for annual reporting periods beginning after December 15, 2020 and interim periods within those annual periods and early adoption is permitted. We are still assessing the impact of ASU 2020-03 on our condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted. We are still assessing the impact of ASU 2020-06 on our condensed consolidated financial statements.

There are no other accounting standards that have been issued but not yet adopted that are expected to have a material impact on our condensed consolidated financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effect of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about 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 three and six months ended June 30, 2020, we derived approximately 41.0% and 39.1% 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 June 30, 2020 and December 31, 2019.

As of June 30, 2020, our net working capital deficit (defined as current assets less current liabilities) from subsidiaries that are subject to foreign currency translation risk was $80.1 million. The potential increase in this working capital deficit from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be $8.0 million. This compares with a $69.2 million working capital deficit subject to foreign currency exposure as of December 31, 2019, for which a 10% adverse change would have resulted in a potential increase in this working capital deficit of $6.9 million.

Interest Rate Risk

Our cash balance as of June 30, 2020 consists of bank deposits and government money market funds, so exposure to market risk for changes in interest rates is limited. In April 2016, we issued convertible notes with an aggregate principal amount of $250.0 million (see Item 1, Note 5, Financing Arrangements). The convertible notes bear interest at a fixed rate, so we have no financial statement impact from changes in interest rates. However, changes in market interest rates impact the fair value of the convertible notes along with other variables such as our credit spreads and the market price and volatility of our common stock. In June 2020, we entered into the Amended Credit Agreement which provides for aggregate principal borrowings of up to $225.0 million. As of June 30, 2020, we had $200.0 million of borrowings outstanding and $19.2 million of outstanding letters of credit under the Amended Credit Agreement. See Item 2, Liquidity and Capital Resources for additional information. Because borrowings under the Amended 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 Credit Agreement. We also had $92.1 million of lease obligations as of June 30, 2020. Interest rates on existing leases typically do not change unless there is a modification to a lease agreement and as such, we do not believe that the interest rate risk on the lease obligations is significant.

Impact of Inflation

We believe that our results of operations are not materially impacted by moderate changes in the inflation rate. Inflation and changing prices did not have a material effect on our business, financial condition or results of operations for the three and six months ended June 30, 2020.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our management concluded that, as of June 30, 2020, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting as a result of COVID-19 and related restrictions. We are continually monitoring and assessing the impact COVID-19 pandemic and related restrictions has on our internal controls to minimize the effect on their design and operating effectiveness.

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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, please see Item 1, Note 6, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 except to supplement and amend those risk factors as follows:

Our strategy may be unsuccessful and may expose us to additional risks. If our strategy does not achieve its expected benefits, there could be negative impacts to our business, financial condition and results of operations.

We are implementing a strategy to create a leading local experiences marketplace and return the Company to growth. We intend to execute our strategy by focusing on our priorities: (i) expanding inventory and (ii) modernizing our marketplace by improving the merchant and customer experiences.

There are no assurances that our actions will be successful in building out a local experiences marketplace and return the Company to growth. Our efforts to execute our strategy may prove more difficult than we currently anticipate. Further, we may not succeed in realizing the benefits of these efforts on our anticipated timeline or at all. Even if fully implemented, our strategy may not result in a return to growth or the other anticipated benefits to our business, financial condition and results of operations. If we are unable to effectively execute our strategy and realize its anticipated benefits, it could negatively impact our business, financial condition and results of operations.

Our phase down of the Goods category and transition to a third-party marketplace model may not be successful.

We plan to phase down our Goods category and shift toward a third-party marketplace model. We expect this transition to be completed in North America by the end of the third quarter 2020 and in International in 2021. As part of this transition and our International restructuring actions, we have an obligation to inform, negotiate and consult with our international workers' councils, which may impact the timing, cost and execution of our planned actions. In particular, the consultation and negotiation process with workers' councils could be protracted and delay our anticipated timeline for transitioning the Goods category and making headcount reductions in International. We also may incur greater than expected costs in connection with the phase down and transition of the Goods category. In addition, we expect to experience internal disruption in the organization that could negatively impact our operations and financial results, including decreased productivity, employee morale and employee retention. Such disruption could be higher than expected and negatively impact our ability to realize the full benefits of our strategy and increases the costs associated with any phased down and transition of the Goods category. Our planned actions also may adversely impact our Goods-Local cross-shoppers.

Further, given the significant declines we have seen in consumer demand for Local and Travel services due to COVID-19, we decided to leverage our Goods category in the near term instead of exiting the category as quickly as possible. This decision to phase down, rather than exit, the Goods category may not provide the anticipated financial benefits. In particular, the impact of COVID-19 continues to rapidly evolve and varies by region and city, and consumer preferences and demand may change rapidly in these circumstances.

We are involved in pending litigation and other claims and an adverse resolution of such matters may adversely affect our business, financial condition, results of operations and cash flows.

We are involved from time to time in litigation and other claims regarding, among other matters, patent, consumer, privacy, employment issues and securities laws. Litigation, dispute resolution proceedings and investigations 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 or claims could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Although we maintain insurance, we cannot be certain our coverage will apply to the claims at issue, be adequate for any liability incurred or continue to be available to us on economically reasonable terms, or at all. The cost of insurance, including directors and officer insurance, errors and omission insurance, product liability, general liability insurance and other types of policies, could increase at any time or become more limited based on market conditions or other circumstances outside of our control. Furthermore, certain insurance coverages may

not be available for specific risks faced by us. Insurance premium increases and increased risk due to lack of availability, reduced coverage or increased deductibles could have a material adverse effect on our business, financial condition, results of operations and cash flows.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

During the three months ended June 30, 2020, we did not issue any unregistered equity securities.

Issuer Purchases of Equity Securities

On May 7, 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. As of June 30, 2020, up to $245.0 million of common stock remained available for purchase under our program. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under the Amended Credit Agreement and the Amendment, share price, available cash and other factors, and the share repurchase program may be terminated at any time. We will fund the repurchases, if any, through cash on hand, future cash flows and borrowings under our credit facility. Repurchases will be made in compliance with SEC rules and other legal requirements and may be made in part under a Rule 10b5-1 plan, which permits stock repurchases when we might otherwise be precluded from doing so. See Item 1, Note 7, Stockholders' Equity and Compensation Arrangements, for information regarding our share repurchase program.

The following table provides information about purchases of shares of our common stock during the three months ended June 30, 2020 related to shares withheld upon vesting of restricted stock units for minimum tax withholding obligations:


Date	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
April 1-30, 2020	5,878	$	21.10	—	—
May 1-31, 2020	3,529	24.09		—	—
June 1-30, 2020	155,061	28.02		—	—
Total	164,468	$	27.69	—	—

(1)Total number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-based compensation awards.

ITEM 5. OTHER INFORMATION

On August 5, 2020, Ann Ziegler notified the Company of her intention to resign as a director, effective October 15, 2020. The departure of Ms. Ziegler was not the result of any disagreement with the Company, and we thank her for her dedicated service to Groupon.

ITEM 6. EXHIBITS


Exhibit Number						Description
10.1*						First Amendment, dated as of July 17, 2020, among the Company, the subsidiaries of the Company party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto, to the Second Amended and Restated Credit Agreement, dated as of May 14, 2019, among the Company, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto
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
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104 **						Cover Page Interactive Data File

_____________________________________

* This exhibit was initially filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 20, 2020 and is being re-filed in its entirety with this Quarterly Report solely to update the formatting of the agreement.

** The XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 6th day of August 2020.

GROUPON, INC.

By:

/s/ Melissa Thomas

Name:

Melissa Thomas

Title:

Chief Financial Officer