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 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 endedJune 30, 2020 , we derived 60.9% of our revenue from ourNorth 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. InFebruary 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 inMarch 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 inthe 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 inNorth 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. InApril 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, inAugust 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 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 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 32 -------------------------------------------------------------------------------- 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 endedJune 30, 2020 and 2019 were as follows (in thousands, except gross billings per unit amounts): Six Months Ended June Three Months Ended June 30, 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 endedJune 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. 33 -------------------------------------------------------------------------------- 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 endedJune 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 inMarch 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 34 --------------------------------------------------------------------------------
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.
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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
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.
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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 EndedJune 30, 2020 and 2019:North America revenue and gross profit decreased by$91.3 million and$96.9 million for the three months endedJune 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 endedJune 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. 37 -------------------------------------------------------------------------------- Comparison of the Six Months EndedJune 30, 2020 and 2019:North America revenue and gross profit decreased by$213.3 million and$162.9 million for the six months endedJune 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$50.4 million for the six months endedJune 30, 2020 primarily due to the decline of Goods revenue in the first quarter 2020 and lower transaction-based fees due to the decline in volume and gross billings. 38 -------------------------------------------------------------------------------- Operating Expenses and Income (Loss) fromOperations North America segment operating expenses and income (loss) from operations for the three and six months endedJune 30, 2020 and 2019 were as follows (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 % Change 2020 2019 % Change Operating expenses Marketing$ 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 EndedJune 30, 2020 and 2019:North America marketing expense and marketing expense as a percentage of gross profit declined for the three months endedJune 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 endedJune 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 endedJune 30, 2020 due to the decline in demand and traffic as a result of COVID-19. TheNorth America restructuring and related charges for the three months endedJune 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 ourNorth America income (loss) from operations for the three months endedJune 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 EndedJune 30, 2020 and 2019:North America marketing expense and marketing expense as a percentage of gross profit declined for the six months endedJune 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 endedJune 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 endedJune 30, 2020 as we experienced a decrease in demand and traffic as a result of COVID-19. TheNorth America restructuring and related charges for the six months endedJune 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. 39 -------------------------------------------------------------------------------- The decline in ourNorth America income (loss) from operations for the six months endedJune 30, 2020 was primarily attributable to a$162.9 million decrease in gross profit, as discussed above, partially offset by a$82.8 million decrease in operating expenses. International Operating Metrics International segment gross billing and units for the three and six months endedJune 30, 2020 and 2019 were as follows (in thousands, except percentages and gross billings per unit): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 % Change 2020 2019 % Change Gross billings Service gross billings: Local$ 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
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.
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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.
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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
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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):
Six Months Ended June
Three Months Ended June 30, 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.
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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.
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Non-GAAP Financial Measures
In addition to financial results reported in accordance with U.S. GAAP, we have
provided the following non-GAAP financial measures: Adjusted EBITDA, free cash
flow and foreign currency exchange rate neutral operating results. Those
non-GAAP financial measures, which are presented on a continuing operations
basis, are intended to aid investors in better understanding our current
financial performance and prospects for the future as seen through the eyes of
management. We believe that those non-GAAP financial measures facilitate
comparisons with our historical results and with the results of peer companies
who present similar measures (although other companies may define non-GAAP
measures differently than we define them, even when similar terms are used to
identify such measures). However, those non-GAAP financial measures are not
intended to be a substitute for those reported in accordance with U.S. GAAP.
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP performance measure that we
define as net income (loss) from continuing operations excluding income taxes,
interest and other non-operating items, depreciation and amortization,
stock-based compensation, acquisition-related expense (benefit), net and other
special charges and credits, including items that are unusual in nature or
infrequently occurring. Our definition of Adjusted EBITDA may differ from
similar measures used by other companies, even when similar terms are used to
identify such measures. Adjusted EBITDA is a key measure used by our management
and Board of Directors to evaluate operating performance, generate future
operating plans and make strategic decisions for the allocation of capital.
Accordingly, we believe that Adjusted EBITDA provides useful information to
investors and others in understanding and evaluating our operating results in
the same manner as our management and Board of Directors. However, Adjusted
EBITDA is not intended to be a substitute for income (loss) from continuing
operations.
We exclude stock-based compensation expense and depreciation and amortization
because they are primarily non-cash in nature and we believe that non-GAAP
financial measures excluding those items provide meaningful supplemental
information about our operating performance and liquidity. Acquisition-related
expense (benefit), net is comprised of the change in the fair value of
contingent consideration arrangements and external transaction costs related to
business combinations, primarily consisting of legal and advisory fees. The
composition of our contingent consideration arrangements and the impact of those
arrangements on our operating results vary over time based on a number of
factors, including the terms of our business combinations and the timing of
those transactions. For the three and 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.
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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):
Six Months Ended June
Three Months Ended June 30, 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.
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The following table represents the effect on our condensed consolidated
statements of operations from changes in exchange rates versus the
Three Months Ended June 30, 2020
Exchange Rate Effect
At Avg. Q2 2019 Rates (1) (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 Exchange Rate
Rates (1) 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):
Six Months Ended June
Three Months Ended June 30, 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)
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-------------------------------------------------------------------------------- Our free cash flow for the three and six months endedJune 30, 2020 and 2019 and a reconciliation to the most comparableU.S. GAAP financial measure, Net cash provided by (used in) operating activities from continuing operations, for those periods are as follows (in thousands): Six Months Ended June Three Months Ended June 30, 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 inNorth America and upon voucher redemption internationally. In prior periods, we began to increase our use of redemption payment terms with ourNorth 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 endedJune 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 endedJune 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 inMonster 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 endedJune 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 endedJune 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 endedJune 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. 48 -------------------------------------------------------------------------------- For the six months endedJune 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. OnJuly 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 inMay 2024 . As ofJune 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 endedDecember 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 ofJune 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 tothe United States to satisfy domestic liquidity needs arising in the ordinary course of business. InMay 2018 , the Board authorized us to repurchase up to$300.0 million of our common stock under our share repurchase program. As ofJune 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 withSEC 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. 49 -------------------------------------------------------------------------------- Contractual Obligations and Commitments Our contractual obligations and commitments as ofJune 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 ofJune 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 withU.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 endedDecember 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 endedDecember 31, 2019 . 50 -------------------------------------------------------------------------------- Recently Issued Accounting Standards InDecember 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 afterDecember 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. InMarch 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 afterDecember 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. InAugust 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 afterDecember 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.
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