Groupon, Inc.
Aug 13, 2012
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Groupon Announces Second Quarter 2012 Results

Consolidated revenue of $568.3 million, up 45% year-over-year

Operating income of $46.5 million versus operating loss of $101.0 million in second quarter 2011

GAAP EPS of $0.04, non-GAAP EPS of $0.08; includes $0.04 per share gain from non-operating items

CHICAGO--(BUSINESS WIRE)-- Groupon, Inc. (NASDAQ: GRPN) today announced financial results for the quarter ended June 30, 2012.

Revenue increased 45% year-over-year to $568.3 million in the second quarter 2012, compared with $392.6 million in the second quarter 2011. Excluding the $32.4 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, revenue growth would have been 53% compared with second quarter 2011.

The second quarter 2012 was the first quarter that direct revenue, or the amount earned from the sale of products for which the Company is the merchant of record, was material to Groupon's overall performance. Accordingly, the Company's consolidated revenue presentation now includes third-party revenue, which is related to sales for which the Company acts as an agent for the merchant, as well as direct revenue. Third-party and direct revenues are recorded on a net and gross basis, respectively. Direct revenue was $65.4 million in the quarter, compared with $19.2 million in the first quarter 2012.

Gross billings, which reflects the total amount collected from customers, excluding any applicable taxes and net of estimated refunds, increased 38% year-over-year to $1.29 billion in the second quarter 2012, compared with $929.2 million in the second quarter 2011. Excluding the $75.1 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, gross billings growth would have been 47% compared with second quarter 2011.

Operating income was $46.5 million in the second quarter 2012, which included non-cash stock-based compensation and acquisition-related expenses of $25.4 million. This compares with a loss from operations of $101.0 million in the second quarter 2011, which included non-cash stock-based compensation expense of $38.7 million. Year-over-year changes in foreign exchange rates throughout the quarter had a $0.2 million unfavorable impact on operating income.

"We had a solid quarter despite challenges in Europe and continued investment in technology and infrastructure," said Andrew Mason, CEO of Groupon. "We've deepened our relationships with a growing base of merchants and customers worldwide, demonstrating progress as we work to unlock the opportunity in local commerce."

Operating cash flow increased 93% year-over-year to $75.3 million, compared with $39.0 million in the second quarter 2011. For the trailing twelve months ended June 30, 2012, operating cash flow was $392.5 million. Free cash flow, a non-GAAP financial measure calculated as operating cash flow less capital expenditures, was $48.6 million for the second quarter 2012, bringing free cash flow for the trailing twelve months ended June 30, 2012 to $330.1 million. This reflects an increase of 243% year-over-year compared to free cash flow in the trailing twelve months ended June 30, 2011 of $96.4 million. At the end of the quarter, Groupon had $1.2 billion in cash and cash equivalents and no long-term debt.

Second quarter 2012 net income attributable to common stockholders improved to $28.4 million, or $0.04 per share. Non-GAAP earnings attributable to common stockholders for the second quarter 2012 improved to $53.8 million, or $0.08 per share, excluding stock-based compensation and acquisition-related expenses of $25.4 million. Second quarter 2012 results included a $33.0 million net gain from non-recurring items, comprised of a $56.0 million non-operating gain and $23.0 million of tax expense. This resulted from a transaction whereby the Company's minority interest in its China operations was exchanged along with an additional cash investment, for a minority interest in Life Media, Limited (also known as F-tuan), a leading competitor. Net income attributable to common stockholders also included a $3.9 million reduction related to the settling of remaining commitments to purchase additional interests in consolidated subsidiaries from minority shareholders. The net positive impact of these two items was $0.04 per share.

Second quarter 2012 net income attributable to common stockholders improved by $135.8 million year-over-year, from a net loss of $107.4 million, or a loss per share of $0.35 in the second quarter 2011. Non-GAAP net income attributable to common stockholders improved by $122.5 million year-over-year, from a net loss of $68.7 million, or a non-GAAP loss per share of $0.23 in the second quarter 2011, excluding non-cash stock-based compensation expenses of $38.7 million.

Groupon, Inc.
Summary Consolidated and Segment Results
               
Three Months Ended Six Months Ended
June 30, Y/Y % June 30, Y/Y %
2011 2012

Y/Y%
Growth

Growth
excluding
FX(1)

2011 2012

Y/Y%
Growth

Growth
excluding
FX(1)

(dollars in thousands, except share and per share data)

(dollars in thousands, except share and per share data)
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue
North America $ 157,205 $ 260,181 65.5 % 66.0 % $ 293,817 $ 498,746 69.7 % 70.3 %
International   235,377     308,154 30.9 % 44.1 %   394,288     628,872 59.5 % 74.5 %
Consolidated revenue $ 392,582   $ 568,335 44.8 % 53.0 % $ 688,105   $ 1,127,618 63.9 % 72.6 %
 
Operating (loss) income $ (101,027 ) $ 46,485 N/A N/A $ (218,175 ) $ 86,124 N/A N/A
 
Net (loss) income attributable to common stockholders $ (107,406 ) $ 28,386 N/A N/A $ (253,886 ) $ 16,691 N/A N/A
Non-GAAP net (loss) income attributable to common stockholders(2) $ (68,688 ) $ 53,835 N/A N/A $ (196,304 ) $ 70,092 N/A N/A
 
Net (loss) earnings per share attributable to common stockholders
Basic $ (0.35 ) $ 0.04 $ (0.83 ) $ 0.03
Diluted $ (0.35 ) $ 0.04 $ (0.83 ) $ 0.03
 
Non-GAAP net (loss) earnings per share attributable to common stockholders (2) $ (0.23 ) $ 0.08 $ (0.64 ) $ 0.11
 
Weighted average basic shares outstanding 303,414,676 647,149,537 305,626,028 645,072,582
Weighted average diluted shares outstanding 303,414,676 663,122,709 305,626,028 663,230,558
Weighted average diluted shares for non-GAAP net (loss) earnings per share (3) 303,414,676 663,122,709 305,626,028 663,230,558
 
(1) Represents change in financial measures that would have resulted had average exchange rates in the reported period been the same as those in effect in the three and six months ended June 30, 2011.
(2) Non-GAAP net (loss) income attributable to common stockholders is a non-GAAP financial measure. This measure excludes stock-based compensation and acquisition-related costs. See ‘‘Non-GAAP Reconciliation Schedule'' for a reconciliation of this measure to the most applicable financial measure under U.S. GAAP.
(3) The weighted-average diluted shares outstanding is calculated using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock units and restricted shares, as calculated using the treasury stock method.
 

Highlights

Third Quarter 2012 Outlook

Revenue for the third quarter 2012 is expected to be between $580 million and $620 million, an increase of between 35% and 44% compared with the third quarter 2011.

Income from operations for the third quarter 2012 is expected to be between $15 million and $35 million, compared with a loss from operations of $0.2 million in the third quarter 2011. This outlook includes approximately $30 million of stock-based compensation. The outlook further assumes no acquisitions or investments, or material changes in foreign exchange rates.

A conference call will be webcast live today at 4:00 p.m. CT / 5:00 p.m. ET, and will be available on Groupon's investor relations website at http://investor.groupon.com. This call will contain forward-looking statements and other material information regarding the Company's financial and operating results.

Non-GAAP Financial Measures

This release includes the following non-GAAP financial measures: non-GAAP net (loss) income attributable to common stockholders and free cash flow. The Supplemental Financial Information Table and Business Metrics also includes operating income and operating margin, in each case excluding stock-based compensation and acquisition-related expenses. Free cash flow and non-GAAP net (loss) income attributable to common stockholders may be different from similar measures used by other companies. Groupon believes that these non-GAAP measures are useful because they provide for more meaningful comparisons of period-to-period results by excluding certain non-cash charges that Groupon believes are not driven by core operating results. However, these non-GAAP measures are not intended to be a substitute for cash flows from operations or net income, and are not intended to represent the total increase or decrease in Groupon's cash balance for the applicable period. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. These non-GAAP measures should only be used to evaluate Groupon's results of operations in conjunction with the corresponding GAAP measures. For a reconciliation of these non-GAAP financial measures to the nearest comparable U.S. GAAP measures, see "Non-GAAP Reconciliation Schedule" included in this release.

Non-GAAP net income excludes from GAAP net income stock-based compensation and acquisition-related expenses. Free cash flow represents operating cash flow less purchases of property and equipment. The non-GAAP measures included in this release are adjusted by excluding the items below:

Stock-based compensation expense: Stock-based compensation is excluded because it is a non-cash expense. It is, however, reflected in earnings per share, as it is incorporated in sharecount.

Acquisition-related expense: Acquisition-related costs that are non-cash in nature are excluded. The timing and nature of these expenses are unpredictable, the benefits of an acquisition may not be realized in the quarter in which the acquisition occurs, and Groupon believes that they do not provide for meaningful period-to-period comparisons.

Property and Equipment: Purchases of property and equipment are subtracted from operating cash flow in the calculation of free cash flow because Groupon believes that this is more aligned with an analysis of ongoing business operations, as purchases of fixed assets, software developed for internal use, and website development costs are necessary components of ongoing operations.

Included in the tables below are reconciliations of each of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

Note on Forward Looking Statements

The statements in this release that refer to plans and expectations for the next quarter or the future are forward-looking statements that involve a number of risks and uncertainties, and actual results could differ materially from those discussed. The risks and uncertainties that could cause results to differ materially from those included in the forward-looking statements include, but are not limited to, Groupon's ability to continue to expand the business and continue revenue growth; risks related to Groupon's business strategy; Groupon's ability to manage the growth of the organization; responding to changes in the markets in which Groupon competes for business; retaining existing merchant partners and adding new merchant partners; competing against smaller competitors and competitors with more financial resources; developing new product and service offerings that are appealing to customers; maintaining a strong brand; effectively dealing with challenges arising from Groupon's international operations; integrating Groupon's technology platforms; managing refund risks; retaining the executive team; litigation; regulations, including the CARD Act and regulation of the Internet; tax liabilities; tax legislation; maintaining Groupon's information technology infrastructure; security breaches; protecting Groupon's intellectual property; handling acquisitions, joint ventures and strategic investments effectively; seasonality; payment-related risks; customer and merchant partner fraud; global economic uncertainty; compliance with rules and regulations associated with being a public company; and Groupon's ability to raise capital if necessary. Groupon urges you to refer to the factors included under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K, and subsequent quarterly reports, copies of which may be obtained by visiting the company's Investor Relations web site at