GROUPON, INC. 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 Part II, Item 1A, Risk Factors, and elsewhere in this Quarterly Report. See Part I, 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, and operate in three categories, Local, Goods and Travel. See Item 1, Note 13, Segment Information, for additional information. Currently, we generate product and service revenue from the following business operations. Service Revenue from Local, Travel, and Goods Categories: Service revenue primarily represents the net commissions earned from selling goods or services on behalf of third-party merchants. Service revenue is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant. We also earn commissions when customers make purchases with retailers using digital coupons listed on our localized groupon.com sites. Product Revenue from Goods Category: We generate product revenue from sales of our first-party Goods merchandise inventory. For product revenue transactions, we are the primary party responsible for providing the merchandise to the customer, we have inventory risk and we have discretion in establishing prices. As such, product revenue is reported on a gross basis as the purchase price received from the customer. Product revenue, including associated shipping revenue, is recognized when the merchandise is delivered to the customer. We transitioned to a third-party marketplace inNorth America in 2020, and we began to transition to a third-party marketplace in International in the second quarter 2021. In a third-party marketplace model, our merchants generally assume inventory and refund risk, therefore, following the transition, we expect our Goods category to primarily generate revenue on a net basis within service revenue. Strategy Our mission is to be the destination for experiences where consumers discover fun things to do and local businesses thrive. Our strategic priorities are to expand our Local inventory and modernize our marketplace by improving the merchant and customer experiences. To grow Local supply, we are focused on leveraging three types of inventory: Deals with fewer restrictions, a new lower discount inventory product called Offers, and Market Rate supply. We began scaling elements of our inventory strategy throughout our marketplace in 2021. InNorth America , we are scaling the removal of Deal repeat purchase restrictions to all merchants and we have launched Offers to Beauty & Wellness merchants. To support our strategic priority of improving the merchant and customer experience, we are executing on initiatives to reduce friction and make it easier for our customers to find, buy, and redeem a Groupon. In the third quarter 2021, we completed the roll out of our new customer experience to 100% ofNorth America users, which we believe will drive engagement, conversion, and customer purchase frequency over time. On the merchant side, we are continuing to focus on being a better partner to our merchants by offering self-service, advertising products and booking capabilities. COVID-19, Restructuring and Cost Reduction SinceMarch 2020 , the COVID-19 pandemic has led to a significant decrease in consumer demand and active customers, a decrease in customer redemptions, and elevated refund levels due to changes in consumer behavior and protective measures taken to control the spread of COVID-19. The COVID-19 pandemic has had an adverse impact on our financial condition, results of operations and cash flows, which included impairments of our goodwill and long-lived assets. Recovery from the COVID-19 pandemic could be volatile and prolonged given the unprecedented and continuously evolving nature of the situation and the emergence and spread of new variants. 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, the protective measures taken to reduce its spread, and the vaccine supply and demand. We will continue to monitor the impact of COVID-19 on our business, particularly in our International segment where restrictions to date have been more prolonged and stricter than inNorth America . InApril 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 our restructuring plan through the end of 2021. We have incurred cumulative Restructuring and related charges of$99.0 million since the inception of the restructuring plan inApril 2020 . Once fully implemented, we expect to realize$225.0 million in run-rate cost savings from these restructuring actions. During the three and nine months endedSeptember 30, 2021 , we recorded$12.5 million and$34.2 million in pretax charges in connection with our restructuring actions. See Item 1, Note 9, Restructuring and Related Charges, for additional information. InMarch 2021 , we entered into the Amended Credit Agreement to extend covenant relief through the fourth quarter 2021 and we voluntarily elected to early terminate this covenant relief as of the third quarter 2021. See Item 1, Note 5, Financing Arrangements, for additional information. 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. 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 withU.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 underU.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 is 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. 32 -------------------------------------------------------------------------------- •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 or 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. •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. We do not include consumers who solely make purchases with retailers using digital coupons accessed through our websites or mobile applications in our active customer metric, nor do we include consumers who solely make purchases of our inventory through third-party marketplaces with which we partner. Our gross billings and units for the three and nine months endedSeptember 30, 2021 and 2020 were as follows (in thousands): Three Months EndedSeptember 30 ,
Nine Months Ended
2021 2020 2021 2020
Gross billings $ 552,990 $ 597,123 $ 1,714,551 $ 1,986,245
Units 15,746 21,410 50,227 74,208
Our active customers for the trailing twelve months ended
Trailing Twelve Months Ended
2021 2020
TTM Active Customers (in thousands) 24,006 34,154
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 generate product revenue
from our sales of first-party Goods inventory. Our product revenue from these
first-party transactions, which are direct sales of merchandise inventory, is
the purchase price received from the customer. We transitioned to a third-party
marketplace in North America in 2020, and we began to transition to a
third-party marketplace in International in the second quarter 2021 and expect
this transition to be complete at the end of 2021. Following the transition, we
expect our Goods category to primarily generate revenue on a net basis within
service revenue.
•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.
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•Free cash flow is a non-GAAP financial measure that comprises net cash provided
by (used in) operating activities from continuing operations less purchases of
property and equipment and capitalized software. For further information and a
reconciliation to Net cash provided by (used in) operating activities from
continuing operations, refer to our discussion in the Liquidity and Capital
Resources section.
The following table presents the above financial metrics for the three and nine
months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue $ 214,171 $ 304,019 $ 743,946 $ 1,073,815
Gross profit 181,439 160,022 542,365 498,495
Adjusted EBITDA 34,607 30,781 105,942 9,655
Free cash flow (87,581) (6,953) (192,811) (181,166)
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 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 and other facilities-related costs and
professional advisory fees. See Item 1, Note 9, Restructuring and Related
Charges, for additional information about our restructuring plan.
Factors Affecting Our Performance
Impact of COVID-19. During the COVID-19 pandemic, protective measures taken to
control the spread of COVID-19 and changes in consumer behavior have had a
negative impact on our business, which relies on customers' purchases of local
experiences, including events and activities, beauty and wellness, travel and
dining. Recovery from the COVID-19 pandemic could be volatile and prolonged
given the unprecedented and continuously-evolving nature of the situation and
the emergence and spread of variants. We also have been, and may continue to be,
impacted by pandemic-related supply chain issues, staffing shortages, excess
demand and other transient issues that affect our merchants and continue to
evolve during the pandemic recovery period.
We will continue to monitor the impact of COVID-19 on our business, particularly
in our International segment where restrictions to date have been more prolonged
and stricter than in North America .
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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. We are focused on
prioritizing opportunities to help drive demand for our merchants by
highlighting offers that customers want and that they can enjoy right now in
light of any ongoing COVID-related restrictions. As we navigate through the
volatility of the COVID-19 recovery period, we intend to take a market-by-market
approach to attracting and retaining local merchants.
Driving purchase frequency and re-engaging and retaining customers. As the
global economy continues to recover from the pandemic, we are surfacing relevant
inventory in order to drive purchase frequency and retain customers. We also
continue to focus on expanding inventory through our three inventory products -
Deals with fewer restrictions, Offers, and Market Rate. On the customer
experience side, we continue to improve our websites and mobile applications;
launch innovative products that remove friction from the customer journey and
drive awareness to our supply; and grow our high-quality, repeatable inventory.
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Results of Operations
North America
Operating Metrics
North America segment gross billings and units for the three and nine months
ended September 30, 2021 and 2020 were as follows (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % Change 2021 2020 % Change
Gross billings
Service gross billings:
Local $ 318,825 $ 230,422 38.4 % $ 937,313 $ 790,486 18.6 %
Goods 43,096 40,299 6.9 168,881 88,713 90.4
Travel 23,519 23,373 0.6 94,211 68,557 37.4
Total service gross billings 385,440 294,094 31.1 1,200,405 947,756 26.7
Product gross billings - Goods - 68,215 (100.0) 626 293,729 (99.8) Total gross billings$ 385,440 $ 362,309 6.4$ 1,201,031 $ 1,241,485 (3.3) Units Local 8,196 8,148 0.6 % 25,335 28,151 (10.0) % Goods 1,849 4,428 (58.2) 7,260 15,166 (52.1) Travel 128 151 (15.2) 512 542 (5.5) Total units 10,173 12,727 (20.1) 33,107 43,859 (24.5)
North America TTM active customers for the trailing twelve months ended
Trailing Twelve Months Ended September 30,
2021 2020 % Change
TTM Active customers 14,976 20,246 (26.0) %
Comparison of the Three Months Ended September 30, 2021 and 2020:
North America gross billings increased by $23.1 million for the three months
ended September 30, 2021 . Units and TTM active customers declined by 2.6 million
and 5.3 million for the three months ended September 30, 2021 compared with the
prior year period. The increase in gross billings is primarily due to an
increase in consumer demand for higher-priced offerings and lower customer
refunds in the Local category. This was partially offset by a decrease in demand
for our Goods category.
Comparison of the Nine Months Ended September 30, 2021 and 2020:
North America gross billings and units declined by $40.5 million and 10.8
million for the nine months ended September 30, 2021 compared with the prior
year period. These declines were primarily due to a decrease in demand in our
Goods category, partially offset by an increase in demand for higher-priced
Local offerings.
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Financial Metrics
North America segment revenue, cost of revenue and gross profit for the three
and nine months ended September 30, 2021 and 2020 were as follows (dollars in
thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % Change 2021 2020 % Change
Revenue
Service revenue
Local $ 129,131 $ 98,561 31.0 % $ 394,358 $ 322,945 22.1 %
Goods 9,189 8,787 4.6 37,266 18,401 102.5
Travel 4,791 4,748 0.9 18,893 13,722 37.7
Total service revenue 143,111 112,096 27.7 450,517 355,068 26.9
Product revenue - Goods - 68,215 (100.0) 626 293,729 (99.8)
Total revenue $ 143,111 $ 180,311 (20.6) $ 451,143 $ 648,797 (30.5)
Cost of revenue
Service cost of revenue
Local $ 13,947 $ 11,054 26.2 % $ 41,927 $ 39,941 5.0 %
Goods 1,325 1,347 (1.6) 5,577 3,550 57.1
Travel 1,029 874 17.7 3,801 3,996 (4.9)
Total service cost of revenue 16,301 13,275 22.8 51,305 47,487 8.0
Product cost of revenue - Goods - 57,319 (100.0) 458 246,130 (99.8)
Total cost of revenue $ 16,301 $ 70,594 (76.9) $ 51,763 $ 293,617 (82.4)
Gross profit
Service gross profit
Local $ 115,184 $ 87,507 31.6 % $ 352,431 $ 283,004 24.5 %
Goods 7,864 7,440 5.7 31,689 14,851 113.4
Travel 3,762 3,874 (2.9) 15,092 9,726 55.2
Total service gross profit 126,810 98,821 28.3 399,212 307,581 29.8
Product gross profit - Goods - 10,896 (100.0) 168 47,599 (99.6)
Total gross profit $ 126,810 $ 109,717 15.6 $ 399,380 $ 355,180 12.4
Service margin (1) 37.1 % 38.1 % 37.5 % 37.5 %
% of Consolidated revenue 66.8 % 59.3 % 60.6 % 60.4 %
% of Consolidated cost of
revenue 49.8 49.0 25.7 51.0
% of Consolidated gross profit 69.9 68.6 73.6 71.3
(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 September 30, 2021 and 2020:
North America revenue and cost of revenue decreased by $37.2 million and $54.3
million for the three months ended September 30, 2021 compared with the prior
year period, primarily due to lower Goods gross billings, a shift in mix of
consumer purchases to lower-margin offerings, higher promotional activity and
the transition of Goods to a third-party marketplace model. In a third-party
marketplace model, we generate service revenue which is presented on a net
basis. The Goods revenue decline was partially offset by higher Local gross
billings and higher variable consideration from unredeemed vouchers.
North America gross profit increased by $17.1 million for the three months ended
September 30, 2021 compared with the prior year period driven by an increase in
Local gross billings and higher variable consideration from unredeemed vouchers,
partially offset by a decrease in Goods gross billings, a shift in mix of
customer purchases to lower-margin offerings and higher promotional activity.
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Comparison of the Nine Months Ended September 30, 2021 and 2020:
North America revenue and cost of revenue decreased by $197.7 million and $241.9
million for the nine months ended September 30, 2021 compared with the prior
year period, primarily due to lower Goods gross billings, a shift in mix of
consumer purchases to lower-margin offerings and the transition of Goods to a
third-party marketplace model. In a third-party marketplace model, we generate
service revenue which is presented on a net basis. The Goods revenue decline was
partially offset by higher Local gross billings and higher variable
consideration from unredeemed vouchers.
North America gross profit increased by $44.2 million for the nine months ended
September 30, 2021 compared with the prior year period primarily due to higher
Local gross billings and higher variable consideration from unredeemed vouchers,
partially offset by lower Goods gross billings and a shift in mix to
lower-margin offerings.
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Marketing and Contribution Profit
We define contribution profit as gross profit less marketing expense. North
America contribution profit for the three and nine months ended September 30,
2021 and 2020 were as follows (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % Change 2021 2020 % Change
Marketing $ 38,302 $ 19,718 94.2 % $ 94,247 $ 73,203 28.7 %
% of Gross profit: 30.2 % 18.0 % 23.6 % 20.6 %
Contribution profit $ 88,508 $ 89,999 (1.7) % $ 305,133 $ 281,977 8.2 %
Comparison of the Three Months Ended September 30, 2021 and 2020:
North America marketing expense and marketing expense as a percentage of gross
profit increased for the three months ended September 30, 2021 due to the launch
of new brand campaigns in 2021 and increased investment in an effort to drive
consumer demand.
The decrease in our North America contribution profit for the three months ended
September 30, 2021 compared with the prior year period was primarily
attributable to an increase in marketing expense, partially offset by an
increase in gross profit.
Comparison of the Nine Months Ended September 30, 2021 and 2020:
North America marketing expense increased for the nine months ended September
30, 2021 compared with the prior year period due to the launch of new brand
campaigns and increased investment in an effort to drive consumer demand.
The increase in our North America contribution profit for the nine months ended
September 30, 2021 compared with the prior year period was primarily due to an
increase in gross profit, partially offset by higher marketing expense.
International
Operating Metrics
International segment gross billings and units for the three and nine months
ended September 30, 2021 and 2020 were as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % Change 2021 2020 % Change
Gross billings
Service gross billings:
Local $ 103,984 $ 113,105 (8.1) % $ 263,535 $ 332,403 (20.7) %
Goods 28,217 15,151 86.2 44,418 45,322 (2.0)
Travel 20,154 25,827 (22.0) 40,008 61,427 (34.9)
Total service gross billings 152,355 154,083 (1.1) 347,961 439,152 (20.8)
Product gross billings - Goods 15,195 80,731 (81.2) 165,559 305,608 (45.8)
Total gross billings $ 167,550 $ 234,814 (28.6) $ 513,520 $ 744,760 (31.0)
Units
Local 3,683 4,171 (11.7) % 8,357 13,217 (36.8) %
Goods 1,770 4,320 (59.0) 8,489 16,627 (48.9)
Travel 120 192 (37.5) 274 505 (45.7)
Total units 5,573 8,683 (35.8) 17,120 30,349 (43.6)
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International TTM active customers for the trailing twelve months ended
Trailing Twelve Months Ended September 30,
2021 2020 % Change
TTM Active customers 9,030 13,908 (35.1) %
Comparison of the Three Months Ended September 30, 2021 and 2020:
International gross billings, units and TTM active customers decreased by $67.3
million , 3.1 million and 4.9 million for the three months ended September 30,
2021 compared with the prior year period. These declines were primarily
attributable to a decrease in consumer demand in the Goods category, as well as
a decrease in the Local category due to the impact of COVID-19 on our merchants
and to consumer behavior. These declines were partially offset by a $3.3 million
favorable impact from year-over-year changes in foreign currency exchange rates.
Comparison of the Nine Months Ended September 30, 2021 and 2020:
International gross billings and units decreased by $231.2 million and 13.2
million for the nine months ended September 30, 2021 compared with the prior
year period. These declines were primarily attributable to a decrease in
consumer demand in the Goods category, as well as a decrease in the Local
category due to the impact of COVID-19 on our merchants and to consumer
behavior. These declines were partially offset by a $34.8 million favorable
impact from year-over-year changes in foreign currency exchange rates.
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Financial Metrics
International segment revenue, cost of revenue and gross profit for the three
and nine months ended September 30, 2021 and 2020 were as follows (dollars in
thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % Change 2021 2020 % Change
Revenue
Service revenue:
Local $ 46,071 $ 36,528 26.1 % $ 109,589 $ 103,221 6.2 %
Goods 5,879 3,309 77.7 9,429 8,821 6.9
Travel 3,915 3,140 24.7 8,226 7,368 11.6
Total service revenue 55,865 42,977 30.0 127,244 119,410 6.6
Product revenue - Goods 15,195 80,731 (81.2) 165,559 305,608 (45.8)
Total revenue $ 71,060 $ 123,708 (42.6) $ 292,803 $ 425,018 (31.1)
Cost of revenue
Service cost of revenue:
Local $ 2,195 $ 2,841 (22.7) % $ 6,094 $ 10,167 (40.1) %
Goods 292 460 (36.5) 537 1,399 (61.6)
Travel 339 429 (21.0) 783 1,109 (29.4)
Total service cost of revenue 2,826 3,730 (24.2) 7,414 12,675 (41.5)
Product cost of revenue - Goods 13,605 69,673 (80.5) 142,404 269,028 (47.1)
Total cost of revenue $ 16,431 $ 73,403 (77.6) $ 149,818 $ 281,703 (46.8)
Gross profit
Service gross profit:
Local $ 43,876 $ 33,687 30.2 % $ 103,495 $ 93,054 11.2 %
Goods 5,587 2,849 96.1 8,892 7,422 19.8
Travel 3,576 2,711 31.9 7,443 6,259 18.9
Total service gross profit 53,039 39,247 35.1 119,830 106,735 12.3
Product gross profit - Goods 1,590 11,058 (85.6) 23,155 36,580 (36.7)
Total gross profit $ 54,629 $ 50,305 8.6 $ 142,985 $ 143,315 (0.2)
Service margin (1) 36.7 % 27.9 % 36.6 % 27.2 %
% of Consolidated revenue 33.2 % 40.7 % 39.4 % 39.6 %
% of Consolidated cost of revenue 50.2 51.0 74.3 49.0
% of Consolidated gross profit 30.1 31.4 26.4 28.7
(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 September 30, 2021 and 2020
International revenue and cost of revenue decreased by $52.6 million and $57.0
million for the three months ended September 30, 2021 compared with the prior
year period primarily due to lower Local and Goods gross billings and the
transition of Goods to a third-party marketplace model. In a third-party
marketplace model, we generate service revenue which is presented on a net
basis. The decline in revenue was partially offset by an increase in variable
consideration from unredeemed vouchers.
International gross profit increased by $4.3 million for the three months ended
September 30, 2021 compared with the prior year period primarily driven by
increases in variable consideration from unredeemed vouchers. This was partially
offset by declines in Local and Goods gross billings.
Comparison of the Nine Months Ended September 30, 2021 and 2020
International revenue and cost of revenue decreased by $132.2 million and $131.9
million for the nine months ended September 30, 2021 compared with the prior
year period primarily due to lower Local and Goods
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gross billings, partially offset by a favorable impact of $21.1 million on
revenue and an unfavorable impact of $11.8 million on cost of revenue from
year-over-year changes in foreign currency exchange rates, and an increase in
variable consideration from unredeemed vouchers.
International gross profit decreased by $0.3 million for the nine months ended
September 30, 2021 compared with the prior year period primarily due to declines
in Local and Goods gross billings, partially offset by higher variable
consideration from unredeemed vouchers and favorable impacts of $9.2 million
from year-over-year changes in foreign currency exchange rates.
Marketing and Contribution Profit
International marketing and contribution profit for the three and nine months
ended September 30, 2021 and 2020 were as follows (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % Change 2021 2020 % Change
Marketing $ 14,857 $ 11,668 27.3 % $ 36,298 $ 43,555 (16.7) %
% of Gross profit: 27.2 % 23.2 % 25.4 % 30.4 %
Contribution profit $ 39,772 $ 38,637 2.9 % $ 106,687 $ 99,760 6.9 %
Comparison of the Three Months Ended September 30, 2021 and 2020:
International marketing expense and marketing expense as a percentage of gross
profit increased for the three months ended September 30, 2021 compared with the
prior year period primarily due to an increase in investment in an effort to
drive consumer demand as COVID-19 restrictions began to lift.
The increase in International contribution profit for the three months ended
September 30, 2021 compared with the prior year period was primarily
attributable to a $4.3 million increase in gross profit as described above,
partially offset by higher marketing expense.
Comparison of the Nine Months Ended September 30, 2021 and 2020:
International marketing expense and marketing expense as a percentage of gross
profit declined for the nine months ended September 30, 2021 compared with the
prior year period. Marketing expense in the first quarter of 2021 declined
primarily due to accelerated traffic declines, significantly shortened payback
thresholds and lower investment in our offline marketing and brand spend in
light of COVID-19. Beginning in the third quarter 2021, we began to increase our
marketing spend in an effort to drive consumer demand as COVID-19 restrictions
began to lift.
The increase in International contribution profit for the nine months ended
September 30, 2021 compared with the prior year period was primarily due to a
$7.3 million decrease in marketing expense as described above.
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Consolidated Operating Expenses
Operating expenses for the three and nine months ended September 30, 2021 and
2020 were as follows (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % Change 2021 2020 % Change
Marketing $ 53,159 $ 31,386 69.4 % $ 130,545 $ 116,758 11.8 %
Selling, general and
administrative 119,494 124,257 (3.8) 384,606 475,017 (19.0)
Goodwill impairment - - - 109,486 (100.0)
Long-lived asset impairment - - - 22,351 (100.0)
Restructuring and related
charges 12,483 20,559 (39.3) 34,150 61,037 (44.1)
Total operating expenses $ 185,136 $ 176,202 5.1 $ 549,301 $ 784,649 (30.0)
% of Gross profit:
Marketing 29.3 % 19.6 % 24.1 % 23.4 %
Selling, general and
administrative 65.9 % 77.6 % 70.9 % 95.3 %
Comparison of the Three Months Ended September 30, 2021 and 2020:
Marketing expense and marketing expense as a percentage of gross profit
increased for the three months ended September 30, 2021 compared with the prior
year period due to the launch of new brand campaigns in the second quarter 2021
and an increase in investment in an effort to drive consumer demand.
SG&A and SG&A as a percentage of gross profit decreased for the three months
ended September 30, 2021 compared with the prior year period primarily due to
lower payroll-related expense.
Restructuring and related charges decreased for the three months ended September
30, 2021 compared with the prior year period primarily due to lower 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 Item 1, Note 9, Restructuring and Related Charges, for
additional information.
Comparison of the Nine Months Ended September 30, 2021 and 2020:
Marketing expense and marketing expense as a percentage of gross profit
increased for the nine months ended September 30, 2021 compared with the prior
year due to the launch of new brand campaigns and an increase in investment as
consumer demand increased.
SG&A and SG&A as a percentage of gross profit decreased for the nine months
ended September 30, 2021 compared with the prior year period primarily due to
lower consulting expenses and a decline in fixed costs due to restructuring
actions, partially offset by a $9.6 million unfavorable impact from
year-over-year changes in foreign currency exchange rates.
During the first quarter 2020, the significant deterioration in our financial
performance due to the disruption in our operations from COVID-19 and the
sustained decreased in our stock price required us to evaluate our goodwill and
long-lived assets for impairment. As a result, for the nine months ended
September 30, 2020 , we recognized $109.5 million of goodwill impairment and
$22.4 million of long-lived asset impairment within our International segment
related to our EMEA operations. See Item 1, Note 2, Goodwill and Long-Lived
Assets, for additional information.
Restructuring and related charges decreased for the nine months ended September
30, 2021 compared with the prior year period primarily due to lower severance
and benefit costs for workforce reductions, impairments of long-lived assets and
lease terminations and other exit costs resulting from our restructuring
activities. We recognized $7.7 million in impairment charges for leases and
lease-related assets related to our restructuring plan during the three and nine
months ended September 31, 2021 , and $3.3 million and $17.2 million during the
three and nine months ended September 30 2020. See Item 1, Note 9, Restructuring
and Related Charges, for additional information.
43
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Consolidated Other Income (Expense), Net
Other income (expense), net includes interest income, interest expense, gains
and losses on fair value option investments, impairments of investments, loss on
extinguishment of debt 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 nine months ended September 30,
2021 and 2020 were as follows (dollars in thousands):
Three Months Ended September 30,
Nine Months Ended
2021 2020 2021 2020
Interest income $ 1,336 $ 1,268 $ 3,818 $ 5,254
Interest expense (3,534) (9,408) (14,123) (24,375)
Changes in fair value of investments 91,288 - 95,533 (8,089)
Loss on extinguishment of debt - - (5,090) -
Foreign currency gains (losses), net and
other (6,557) 7,273 17,591 5,661
Other income (expense), net $ 82,533 $ (867) $ 97,729 $ (21,549)
Comparison of the Three Months Ended September 30, 2021 and 2020:
The change in Other income (expense), net for the three months ended September
30, 2021 as compared with the prior year period is primarily related to an
unrealized gain of $89.1 million recorded as a result of an upward adjustment
for an observable price change on an other equity investment in a mobile
payments company. The gain is expected to be non-taxable due to local tax laws.
Comparison of the Nine Months Ended September 30, 2021 and 2020:
The change in Other income (expense), net for the nine months ended September
30, 2021 as compared with the prior year period is primarily related to an
unrealized gain of $89.1 million recorded as a result of an upward adjustment
for an observable price change on an other equity investment and a change in
foreign currency gains and losses of $11.9 million , which includes a
$32.3 million cumulative foreign currency translation adjustment gain that was
reclassified into earnings as a result of the substantial liquidation of our
subsidiary in Japan as part of our restructuring actions.
Consolidated Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes for the three and nine months ended
September 30, 2021 and 2020 were as follows (dollars in thousands):
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