Groupon, Inc.
Oct 30, 2014
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Groupon Announces Third Quarter 2014 Results

CHICAGO--(BUSINESS WIRE)-- Groupon, Inc. (NASDAQ: GRPN) today announced financial results for the quarter ended September 30, 2014.

"We had another record quarter, with worldwide billings increasing 39 percent and reaching their highest level ever," said Eric Lefkofsky, CEO of Groupon. "We also made significant progress in our strategy to become the leading mobile commerce destination, with double-digit growth in our North American Local business, double-digit gross margins in North American Goods and positive Adjusted EBITDA in every segment for the first time in over a year."

Third Quarter 2014 Summary

Definitions and reconciliations of all non-GAAP financial measures are included below in the section titled ''Non-GAAP Financial Measures'' and in the accompanying tables.

Highlights

Share Repurchase Program

During the third quarter 2014, Groupon repurchased 1,349,712 shares of its Class A common stock at an average price of $6.16 per share, for an aggregate purchase price of $8.3 million. Under the existing authorization, Groupon has repurchased a total of 26,087,004 shares at an average price of $7.30 per share, for an aggregate purchase price of $190.4 million. Groupon is authorized to repurchase up to an additional $109.6 million of Class A common stock under the August 2013 share repurchase authorization. The program, which is intended to partially offset dilution from employee stock grants, terminates in August 2015.

2014 Investor and Analyst Day

Groupon will be hosting its first Investor and Analyst Day on Tuesday, November 11, 2014 in Chicago. A live webcast of the event will be available on the company's investor relations website at http://investor.groupon.com.

Outlook

Significant movement in foreign exchange rates, the Euro in particular, has led to an approximately $7 million negative impact on Groupon's Adjusted EBITDA estimate since the company last provided full year guidance.

For the fourth quarter 2014, reflecting current foreign exchange rates, Groupon expects revenue of between $875 million and $925 million, Adjusted EBITDA of between $80 million and $100 million, and non-GAAP earnings per share excluding stock compensation, amortization of acquired intangible assets, and acquisition-related expenses, net of tax, of between $0.02 and $0.04.

Conference Call

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.

Groupon encourages investors to use its investor relations website as a way of easily finding information about the company. Groupon promptly makes available on this website, free of charge, the reports that the company files or furnishes with the SEC, corporate governance information (including Groupon's Global Code of Conduct), and select press releases and social media postings.

Non-GAAP Financial Measures

In addition to financial results reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP), we have provided the following non-GAAP financial measures in this release and the accompanying tables: foreign exchange rate neutral operating results, Adjusted EBITDA, free cash flow and earnings (loss) per share excluding stock-based compensation, amortization of acquired intangible assets, and acquisition-related expense (benefit), net. These non-GAAP financial measures are presented to aid investors in better understanding Groupon's performance and to facilitate comparisons to many of our peers who present similar measures. However, these measures are not intended to be a substitute for those reported in accordance with U.S. GAAP. These measures may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures. For reconciliations of these measures to the most applicable financial measures under U.S. GAAP, see ''Non-GAAP Reconciliation Schedules'' and ''Supplemental Financial Information and Business Metrics'' included in the tables accompanying this release.

We exclude the following items from one or more of our non-GAAP financial measures:

Stock-based compensation. We exclude stock-based compensation because it is primarily non-cash in nature and we believe that non-GAAP financial measures excluding this item provide meaningful supplemental information about our operating performance and liquidity.

Acquisition-related expense (benefit), net. Acquisition-related expense (benefit), net is comprised of the change in the fair value of contingent consideration arrangements and, beginning in the fourth quarter of 2013, also includes external transaction costs related to business combinations, primarily consisting of legal and advisory fees. External transaction costs were not material for periods prior to the fourth quarter of 2013 presented in this release and the accompanying tables. 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. We exclude acquisition-related expense (benefit), net because we believe that non-GAAP financial measures excluding this item provide meaningful supplemental information about our operating performance and facilitate comparisons to our historical operating results.

Depreciation and amortization. We exclude depreciation and amortization expenses because they are non-cash in nature and we believe that non-GAAP financial measures excluding these items provide meaningful supplemental information about our operating performance and liquidity.

Descriptions of the non-GAAP financial measures included in this release and the accompanying tables are as follows:

Foreign exchange rate neutral operating results show our current period operating results as if foreign currency exchange rates had remained the same as those in effect in the comparable prior-year period.

Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, and acquisition-related expense (benefit), net. 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 plans and make strategic decisions regarding 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.

Earnings (loss) per share excluding stock-based compensation, amortization of acquired intangible assets, and acquisition-related expense (benefit), net is a non-GAAP financial measure that adjusts our earnings (loss) per share to exclude the impact of stock-based compensation expense, amortization of acquired intangible assets, and acquisition-related expense (benefit), net, and the income tax effect of those items. We believe that this non-GAAP financial measure provides useful supplemental information for evaluating our operating performance.

We previously changed our non-GAAP earnings (loss) per share measure, effective beginning with the first quarter 2014, to exclude amortization of acquired intangible assets, net of tax, in addition to stock compensation and acquisition-related expenses, which we excluded historically. Due to our significant acquisition activity in January 2014 and potential acquisition activity in the future, we believe that excluding the impact of this item from our non-GAAP earnings (loss) per share measure enables more meaningful comparisons with our historical results.

Free cash flow is a non-GAAP financial measure that comprises net cash provided by (used in) operating activities less purchases of property and equipment and capitalized software. We use free cash flow, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from 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 Groupon's cash balance for the applicable period.

Note on Forward-Looking Statements

The statements contained in this release that refer to plans and expectations for the next quarter, the full year 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 our results to differ materially from those included in the forward-looking statements include, but are not limited to, volatility in our revenue and operating results; risks related to our business strategy; including our marketing strategy and spend; responding to changes in the market; effectively dealing with challenges arising from our international operations; retaining existing customers and adding new customers; retaining and adding new and high quality merchants; cyber security breaches; incurring expenses as we expand our business; competing against smaller competitors and competitors with more financial resources than us; maintaining favorable terms with our business partners; maintaining a strong brand; managing inventory and order fulfillment risks; integrating our technology platforms; managing refund risks; retaining our executive team; litigation; regulations, including the CARD Act and regulation of the Internet; tax liabilities; tax legislation; maintaining our information technology infrastructure; protecting our intellectual property; handling acquisitions, joint ventures and strategic investments effectively; seasonality; payment-related risks; customer and merchant fraud; global economic uncertainty; compliance with rules and regulations associated with being a public company; and our ability to raise capital if necessary. We urge 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 on Form 10-Q, copies of which may be obtained by visiting the company's Investor Relations web site at http://investor.groupon.com or the SEC's web site at www.sec.gov. Groupon's actual results could differ materially from those predicted or implied and reported results should not be considered an indication of future performance.

You should not rely upon forward-looking statements as predictions of future events. Although Groupon believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither the company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements reflect Groupon's expectations as of October 30, 2014. Groupon undertakes no obligation to update publicly any forward-looking statements for any reason after the date of this release to conform these statements to actual results or to changes in its expectations.

About Groupon

Groupon (NASDAQ: GRPN) is a global leader of local commerce and the place you start when you want to buy just about anything, anytime, anywhere. By leveraging the company's global relationships and scale, Groupon offers consumers a vast marketplace of unbeatable deals all over the world. Shoppers discover the best a city has to offer on the web or on mobile with Groupon Local, enjoy vacations with Groupon Getaways, and find a curated selection of electronics, fashion, home furnishings and more with Groupon Goods.

Groupon is redefining how traditional small businesses attract, retain and interact with customers by providing merchants with a suite of products and services, including customizable deal campaigns, credit card payment processing capabilities, and point-of-sale solutions that help businesses grow and operate more effectively. To search for great deals or subscribe to Groupon emails, visit www.Groupon.com. To download Groupon's five-star mobile apps, visit www.groupon.com/mobile. To learn more about the company's merchant solutions and how to work with Groupon, visit www.GrouponWorks.com.

 
Groupon, Inc.
Summary Consolidated and Segment Results
(in thousands, except share and per share amounts)
(unaudited)
                   
Three Months Ended

Y/Y %

Nine Months Ended

Y/Y %

September 30,

Growth

September 30,

Growth

Y/Y %

excluding

Y/Y %

excluding

2014 2013 Growth

FX Effect (2)

FX (2)

2014 2013 Growth

FX Effect (2)

FX (2)

Gross Billings (1):
North America $ 774,286 $ 664,999 16.4 % $ (484 ) 16.5 % $ 2,354,900 $ 2,058,523 14.4 % $ (1,995 ) 14.5 %
EMEA 489,423 443,318 10.4 % 2,156 9.9 % 1,486,266 1,417,886 4.8 % 38,788 2.1 %
Rest of World   597,026     234,331   154.8 %   18,080   147.1 %   1,655,826     687,814   140.7 %   1,949   140.5 %
Consolidated gross billings $ 1,860,735   $ 1,342,648   38.6 % $ 19,752   37.1 % $ 5,496,992   $ 4,164,223   32.0 % $ 38,742   31.1 %
 
Revenue:
North America $ 418,494 $ 360,838 16.0 % $ (109 ) 16.0 % $ 1,273,487 $ 1,077,574 18.2 % $ (601 ) 18.2 %
EMEA 230,072 147,950 55.5 % 881 54.9 % 688,655 491,710 40.1 % 18,079 36.4 %
Rest of World   108,488     86,271   25.8 %   (430 ) 26.3 %   304,125     235,924   28.9 %   (12,854 ) 34.4 %
Consolidated revenue $ 757,054   $ 595,059   27.2 % $ 342   27.2 % $ 2,266,267   $ 1,805,208   25.5 % $ 4,624   25.3 %
 
(Loss) income from operations $ (5,429 ) $ 13,812 (139.3 ) % $ (159 ) (138.2 ) % $ (33,236 ) $ 62,402 (153.3 ) % $ 2,325 (157.0 ) %
 
Net loss attributable to Groupon, Inc. $ (21,208 ) $ (2,580 ) $ (81,878 ) $ (14,146 )
 
Net loss per share
Basic $ (0.03 ) $ (0.00 ) $ (0.12 ) $ (0.02 )
Diluted $ (0.03 ) $ (0.00 ) $ (0.12 ) $ (0.02 )
 
Weighted average number of shares outstanding
Basic 669,526,524 666,432,848 675,814,535 662,531,567
Diluted 669,526,524 666,432,848 675,814,535 662,531,567
 
(1) Represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds.
(2) Represents the change in financial measures that would have resulted had average exchange rates in the reporting periods been the same as those in effect during the three and nine months ended September 30, 2013.
 
Groupon, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
       
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Operating activities
Net loss $ (19,018 ) $ (1,292 ) $ (75,303 ) $ (10,085 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization of property, equipment and software 26,317 17,816 71,476 49,186
Amortization of acquired intangible assets 11,829 5,333 36,068 16,131
Stock-based compensation 34,574 26,870 89,958 89,223
Deferred income taxes (2,472 ) (659 ) (1,956 ) (1,225 )
Excess tax benefits on stock-based compensation (2,641 ) (8,348 ) (12,573 ) (12,116 )
Loss on equity method investments 91 25 459 58
Net gain from changes in fair value of contingent consideration (1,020 ) (1,529 ) (1,059 ) (2,276 )
Impairment of investments 1,448 - 2,036 -
Change in assets and liabilities, net of acquisitions:
Restricted cash 6,040 (3,348 ) 6,961 (81 )
Accounts receivable (2,002 ) 11,940 (29,267 ) 8,999
Prepaid expenses and other current assets (26,499 ) (2,846 ) (32,397 ) 13,146
Accounts payable (3,811 ) (3,036 ) (8,964 ) (25,867 )
Accrued merchant and supplier payables (19,274 ) (34,315 ) (61,219 ) (72,290 )
Accrued expenses and other current liabilities 9,790 (20,553 ) (27,091 ) (27,790 )
Other, net   32,114     2,037     44,873     15,144  
Net cash provided by (used in) operating activities 45,466 (11,905 ) 2,002 40,157
 
Net cash used in investing activities (20,461 ) (26,444 ) (193,567 ) (72,985 )
 
Net cash used in financing activities (16,823 ) (8,970 ) (173,068 ) (26,253 )
 
Effect of exchange rate changes on cash and cash equivalents   (21,102 )   5,165     (20,671 )   (10,351 )
Net decrease in cash and cash equivalents (12,920 ) (42,154 ) (385,304 ) (69,432 )
Cash and cash equivalents, beginning of period   868,088     1,182,011     1,240,472     1,209,289  
Cash and cash equivalents, end of period $ 855,168   $ 1,139,857   $ 855,168   $ 1,139,857  
 
 
Groupon, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
       
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Revenue:
Third party and other $ 399,803 $ 394,987 $ 1,232,173 $ 1,252,966
Direct   357,251     200,072     1,034,094     552,242  
Total revenue   757,054     595,059     2,266,267     1,805,208  
Cost of revenue:
Third party and other 61,497 54,001 182,226 179,524
Direct   315,413     181,436     928,314     502,359  
Total cost of revenue   376,910     235,437     1,110,540     681,883  
Gross profit   380,144     359,622     1,155,727     1,123,325  
Operating expenses:
Marketing 59,935 53,265 203,134 158,319
Selling, general and administrative 325,942 294,074 983,751 904,880
Acquisition-related (benefit) expense, net   (304 )   (1,529 )   2,078     (2,276 )
Total operating expenses   385,573     345,810     1,188,963     1,060,923  
(Loss) income from operations (5,429 ) 13,812 (33,236 ) 62,402
Other (expense) income, net (1)   (20,023 )   832     (21,886 )   (9,830 )
(Loss) income before (benefit) provision for income taxes (25,452 ) 14,644 (55,122 ) 52,572
(Benefit) provision for income taxes   (6,434 )   15,936     20,181     62,657  
Net loss (19,018 ) (1,292 ) (75,303 ) (10,085 )
Net income attributable to noncontrolling interests   (2,190 )   (1,288 )   (6,575 )   (4,061 )
Net loss attributable to Groupon, Inc. $ (21,208 ) $ (2,580 ) $ (81,878 ) $ (14,146 )
 
Net loss per share
Basic $ (0.03 ) $ (0.00 ) $ (0.12 ) $ (0.02 )
Diluted $ (0.03 ) $ (0.00 ) $ (0.12 ) $ (0.02 )
 
Weighted average number of shares outstanding
Basic 669,526,524 666,432,848 675,814,535 662,531,567
Diluted 669,526,524 666,432,848 675,814,535 662,531,567
 
(1) Other (expense) income, net includes foreign currency (losses) gains of ($18,638) and $326 for the three months ended September 30, 2014 and 2013, respectively, and ($20,108) and ($11,156) for the nine months ended September 30, 2014 and 2013, respectively.
 
Groupon, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
   
September 30, 2014 December 31, 2013
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 855,168 $ 1,240,472
Accounts receivable, net 124,598 83,673
Deferred income taxes 26,564 27,938

 

Prepaid expenses and other current assets   243,750     210,415  
Total current assets 1,250,080 1,562,498
Property, equipment and software, net 170,534 134,423
Goodwill 441,290 220,827
Intangible assets, net 119,810 28,443
Investments 23,639 20,652
Deferred income taxes, non-current 44,709 35,941
Other non-current assets   22,103     39,226  
Total Assets $ 2,072,165   $ 2,042,010  

 

Liabilities and Equity
Current liabilities:
Accounts payable $ 25,848 $ 27,573
Accrued merchant and supplier payables 754,628 752,943
Accrued expenses 223,677 226,986
Deferred income taxes 44,787 47,558
Other current liabilities   134,116     132,718  
Total current liabilities 1,183,056 1,187,778
Deferred income taxes, non-current 9,668 10,853
Other non-current liabilities   151,486     131,697  
Total Liabilities   1,344,210     1,330,328  
Commitments and contingencies
Stockholders' Equity
Class A common stock, par value $0.0001 per share, 2,000,000,000 shares authorized, 694,272,530 shares issued and 668,185,526 shares outstanding at September 30, 2014 and 670,149,976 shares issued and 665,717,176 shares outstanding at December 31, 2013 70 67
Class B common stock, par value $0.0001 per share, 10,000,000 shares authorized, 2,399,976 shares issued and outstanding at September 30, 2014 and December 31, 2013 - -
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized, no shares issued and outstanding at September 30, 2014 and December 31, 2013 - -
Additional paid-in capital 1,814,040 1,584,211
Treasury stock, at cost, 26,087,004 shares at September 30, 2014 and 4,432,800 shares at December 31, 2013 (190,355 ) (46,587 )
Accumulated deficit (930,748 ) (848,870 )
Accumulated other comprehensive income   34,948     24,830  
Total Groupon, Inc. Stockholders' Equity 727,955 713,651
Noncontrolling interests   -     (1,969 )
Total Equity   727,955     711,682  
Total Liabilities and Equity $ 2,072,165   $ 2,042,010  
 
Groupon, Inc.
Segment Information
(in thousands)
(unaudited)
 
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
North America
Gross billings (1) $ 774,286 $ 664,999 $ 2,354,900 $ 2,058,523
Revenue $ 418,494 $ 360,838 $ 1,273,487 $ 1,077,574
Segment cost of revenue and operating expenses (2)   405,910     335,670     1,234,973     962,532  
Segment operating income (2) $ 12,584 $ 25,168 $ 38,514 $ 115,042
Segment operating income as a percent of segment gross billings 1.6 % 3.8 % 1.6 % 5.6 %
Segment operating income as a percent of segment revenue 3.0 % 7.0 % 3.0 % 10.7 %
 
EMEA
Gross billings (1) $ 489,423 $ 443,318 $ 1,486,266 $ 1,417,886
Revenue $ 230,072 $ 147,950 $ 688,655 $ 491,710
Segment cost of revenue and operating expenses (2)   207,643     132,346     619,594     417,222  
Segment operating income (2) $ 22,429 $ 15,604 $ 69,061 $ 74,488
Segment operating income as a percent of segment gross billings 4.6 % 3.5 % 4.6 % 5.3 %
Segment operating income as a percent of segment revenue 9.7 % 10.5 % 10.0 % 15.1 %
 
Rest of World
Gross billings (1) $ 597,026 $ 234,331 $ 1,655,826 $ 687,814
Revenue $ 108,488 $ 86,271 $ 304,125 $ 235,924
Segment cost of revenue and operating expenses (2)   114,660     87,890     352,900     276,105  
Segment operating loss (2) $ (6,172 ) $ (1,619 ) $ (48,775 ) $ (40,181 )
Segment operating loss as a percent of segment gross billings (1.0 ) % (0.7 ) % (2.9 ) % (5.8 ) %
Segment operating loss as a percent of segment revenue (5.7 ) % (1.9 ) % (16.0 ) % (17.0 ) %
 
(1) Represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds.
(2) Segment cost of revenue and operating expenses and segment operating income (loss) exclude stock-based compensation and acquisition-related (benefit) expense, net.
 
Groupon, Inc.
Non-GAAP Reconciliation Schedules
(in thousands, except share and per share amounts)
(unaudited)
 

Adjusted EBITDA and earnings per share excluding stock-based compensation, amortization of acquired intangible assets and acquisition-related (benefit) expense, net of tax, are non-GAAP financial measures. The Company reconciles Adjusted EBITDA to the most comparable U.S. GAAP financial measure, ''Net loss,'' for the periods presented and the Company reconciles earnings per share excluding stock-based compensation, amortization of acquired intangible assets and acquisition-related (benefit) expense, net to the most comparable U.S. GAAP financial measure, ''Diluted net loss per share,'' for the periods presented.

 
 

The following is a quarterly reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, ''Net loss.''

 
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Net loss $ (1,292 ) $ (78,861 ) $ (35,363 ) $ (20,922 ) $ (19,018 )
Adjustments:
Stock-based compensation 26,870 32,239 23,729 31,655 34,574
Acquisition-related (benefit) expense, net (1,529 ) 2,265 1,785 597 (304 )
Depreciation and amortization 23,149 24,132 34,740 34,658 38,146
Other (income) expense, net (832 ) 84,833 840 1,023 20,023
Provision (benefit) for income taxes   15,936     7,380     14,570     12,045     (6,434 )
Total adjustments   63,594     150,849     75,664     79,978     86,005  
Adjusted EBITDA $ 62,302   $ 71,988   $ 40,301   $ 59,056   $ 66,987  
 
 
The following is a reconciliation of diluted net loss per share to diluted earnings per share excluding stock-based compensation, amortization of acquired intangible assets and acquisition-related (benefit) expense, net for the three and nine months ended September 30, 2014:
 
Three Months Ended Nine Months Ended
September 30, 2014 September 30, 2014
Net loss attributable to common stockholders $ (21,208 ) $ (81,878 )
Stock-based compensation 34,574 89,958
Amortization of acquired intangible assets 11,829 36,068
Acquisition-related (benefit) expense, net (304 ) 2,078
Income tax effect of adjustments   (7,361 )   (31,090 )
Net earnings attributable to common stockholders excluding stock-based compensation,
amortization of acquired intangible assets and acquisition-related (benefit) expense, net $ 17,530   $ 15,136  
 
Diluted shares 669,526,524 675,814,535
Incremental diluted shares   8,907,050     10,317,632  
Adjusted diluted shares   678,433,574     686,132,167  
 
Diluted net loss per share $ (0.03 ) $ (0.12 )
Impact of stock-based compensation, amortization of acquired intangible assets
and acquisition-related (benefit) expense, net (1)   0.06     0.14  
Diluted earnings per share excluding stock-based compensation, amortization of acquired
intangible assets and acquisition-related (benefit) expense, net (1) $ 0.03   $ 0.02  
 
(1) The sum of per share amounts for quarterly periods may not equal year-to-date amounts due to rounding.
 
 

Foreign exchange rate neutral operating results are non-GAAP financial measures. The Company reconciles foreign exchange rate neutral operating results to the most comparable U.S. GAAP financial measures, ''Gross billings,'' ''Revenue'' and ''(Loss) income from operations,'' respectively, for the periods presented. The Company reconciles ''foreign exchange rate neutral Gross billings growth'' and ''foreign exchange rate neutral Revenue growth'' to year-over-year growth rates for the most comparable U.S. GAAP financial measures, ''Gross billings growth'' and ''Revenue growth,'' respectively, for the periods presented.

 
The effect on the Company's gross billings, revenue and loss from operations from changes in exchange rates versus the U.S. Dollar for the three months ended September 30, 2014 was as follows:
 
Three Months Ended September 30, 2014 Three Months Ended September 30, 2014
At Avg. Exchange At Avg. Exchange
Q3 2013 Rate As Q2 2014 Rate As

Rates (1)

Effect (2)

Reported

Rates (3)

Effect (2)

Reported
Gross billings $ 1,840,983 $ 19,752 $ 1,860,735 $ 1,877,385 $ (16,650 ) $ 1,860,735
Revenue $ 756,712 $ 342 $ 757,054 $ 765,015 $ (7,961 ) $ 757,054
Loss from operations $ (5,270 ) $ (159 ) $ (5,429 ) $ (5,335 ) $ (94 ) $ (5,429 )
 
The effect on the Company's gross billings, revenue and (loss) income from operations from changes in exchange rates versus the U.S. Dollar for the nine months ended September 30, 2014 was as follows:
 
Nine Months Ended September 30, 2014 Nine Months Ended September 30, 2014
At Avg. Exchange At Avg. Exchange
Q3 2013 YTD Rate As Q4'13 - Q2'14 Rate As

Rates (1)

Effect (2)

Reported

Rates (3)

Effect (2)

Reported
Gross billings $ 5,458,250 $ 38,742 $ 5,496,992 $ 5,503,487 $ (6,495 ) $ 5,496,992
Revenue $ 2,261,643 $ 4,624 $ 2,266,267 $ 2,273,122 $ (6,855 ) $ 2,266,267
(Loss) income from operations $ (35,561 ) $ 2,325 $ (33,236 ) $ (33,353 ) $ 117 $ (33,236 )
 
(1) Represents the financial statement balances that would have resulted had average exchange rates in the reporting period been the same as those in effect during the three and nine months ended September 30, 2013.
(2) Represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the comparable period.
(3) Represents the financial statement balances that would have resulted had average exchange rates in the reporting periods been the same as those in effect during the three and nine months ended June 30, 2014.
 
 
The following is a quarterly reconciliation of foreign exchange rate neutral Gross billings growth from the comparable quarterly periods of the prior year to reported Gross billings growth from the comparable quarterly periods of the prior year.
 
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
EMEA Gross billings growth, excluding FX 9 % 3 % 1 % (4 ) % 10 %
FX Effect   3   %   3   %   3   %   4   %   -   %
EMEA Gross billings growth 12 % 6 % 4 % - % 10 %
 
Rest of World Gross billings growth, excluding FX (4 ) % (2 ) % 133 % 141 % 147 %
FX Effect   (9 ) %   (9 ) %   (10 ) %   4   %   8   %
Rest of World Gross billings growth (13 ) % (11 ) % 123 % 145 % 155 %
 
Consolidated Gross billings growth, excluding FX 11 % 5 % 30 % 27 % 37 %
FX Effect   (1 ) %   -   %   (1 ) %   2   %   2   %
Consolidated Gross billings growth 10 % 5 % 29 % 29 % 39 %
 
 
The following is a quarterly reconciliation of foreign exchange rate neutral Revenue growth from the comparable quarterly periods of the prior year to reported Revenue growth from the comparable quarterly periods of the prior year.
 
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
EMEA Revenue growth, excluding FX (23 ) % 38 % 22 % 36 % 55 %
FX Effect   2   %   5   %   4   %   6   %   1   %
EMEA Revenue growth (21 ) % 43 % 26 % 42 % 56 %
 
Rest of World Revenue growth, excluding FX 7 % (6 ) % 35 % 44 % 26 %
FX Effect   (11 ) %   (9 ) %   (12 ) %   (4 ) %   -   %
Rest of World Revenue growth (4 ) % (15 ) % 23 % 40 % 26 %
 
Consolidated Revenue growth, excluding FX 6 % 20 % 26 % 22 % 27 %
FX Effect   (1 ) %   -   %   -   %   2   %   -   %
Consolidated Revenue growth 5 % 20 % 26 % 24 % 27 %
 
Groupon, Inc.
Supplemental Financial Information and Business Metrics (11)
(financial data in thousands; active customers in millions)
(unaudited)
   
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Segments
North America Segment:
Gross Billings (1):
Local (2) Gross Billings $ 405,913 $ 439,131 $ 456,952 $ 461,366 $ 446,573
Goods Gross Billings 194,565 286,039 242,896 247,618 242,893
Travel (2) Gross Billings   64,521     63,551     81,921     89,861     84,820  
Total Gross Billings $ 664,999 $ 788,721 $ 781,769 $ 798,845 $ 774,286
Year-over-year growth 20 % 10 % 15 % 12 % 16 %
% Third Party and Other 72 % 67 % 70 % 70 % 69 %
% Direct 28 % 33 % 30 % 30 % 31 %
Gross Billings Trailing Twelve Months (TTM) $ 2,777,475 $ 2,847,244 $ 2,947,694 $ 3,034,334 $ 3,143,621
 
Revenue (3):
Local Revenue $ 162,346 $ 161,601 $ 177,247 $ 164,500 $ 161,912
Goods Revenue 185,914 268,281 237,435 241,626 238,955
Travel Revenue   12,578     13,902     16,380     17,805     17,627  
Total Revenue $ 360,838 $ 443,784 $ 431,062 $ 423,931 $ 418,494
Year-over-year growth 24 % 18 % 27 % 12 % 16 %
% Third Party and Other 49 % 41 % 45 % 43 % 43 %
% Direct 51 % 59 % 55 % 57 % 57 %
Revenue TTM $ 1,452,925 $ 1,521,358 $ 1,612,866 $ 1,659,615 $ 1,717,271
 
Gross Profit (4):
Local Gross Profit $ 138,890 $ 140,944 $ 152,622 $ 142,674 $ 138,189
% of North America Total Local Gross Billings 34.2 % 32.1 % 33.4 % 30.9 % 30.9 %
Goods Gross Profit 21,609 21,030 12,604 22,961 23,953
% of North America Total Goods Gross Billings 11.1 % 7.4 % 5.2 % 9.3 % 9.9 %
Travel Gross Profit 11,070 12,352 14,442 14,365 14,000
% of North America Total Travel Gross Billings   17.2   %   19.4   %   17.6   %   16.0   %   16.5   %
Total Gross Profit $ 171,569 $ 174,326 $ 179,668 $ 180,000 $ 176,142
Year-over-year growth 7 % 15 % 4 % (7 ) % 3 %
% Third Party and Other 90 % 91 % 94 % 88 % 87 %
% Direct 10 % 9 % 6 % 12 % 13 %
% of North America Total Gross Billings 25.8 % 22.1 % 23.0 % 22.5 % 22.7 %
 
EMEA Segment:
Gross Billings:
Local Gross Billings $ 207,803 $ 277,472 $ 262,141 $ 227,266 $ 218,615
Goods Gross Billings 169,849 219,880 183,013 190,957 191,006
Travel Gross Billings   65,666     68,361     68,434     65,032     79,802  
Total Gross Billings $ 443,318 $ 565,713 $ 513,588 $ 483,255 $ 489,423
Year-over-year growth 12 % 6 % 4 % - % 10 %
Year-over-year growth, excluding FX (5) 9 % 3 % 1 % (4 ) % 10 %
% Third Party and Other 98 % 83 % 83 % 80 % 78 %
% Direct 2 % 17 % 17 % 20 % 22 %
Gross Billings TTM $ 1,950,367 $ 1,983,599 $ 2,004,869 $ 2,005,874 $ 2,051,979
 
Revenue:
Local Revenue $ 92,141 $ 116,061 $ 109,120 $ 96,485 $ 90,002
Goods Revenue 41,279 119,274 106,889 115,413 123,110
Travel Revenue   14,530     15,870     14,884     15,792     16,960  
Total Revenue $ 147,950 $ 251,205 $ 230,893 $ 227,690 $ 230,072
Year-over-year growth (21 ) % 43 % 26 % 42 % 56 %
Year-over-year growth, excluding FX (23 ) % 38 % 22 % 36 % 55 %
% Third Party and Other 94 % 61 % 61 % 57 % 53 %
% Direct 6 % 39 % 39 % 43 % 47 %
Revenue TTM $ 667,988 $ 742,915 $ 790,010 $ 857,738 $ 939,860
 
Gross Profit:
Local Gross Profit $ 81,808 $ 105,210 $ 100,066 $ 90,373 $ 83,956
% of EMEA Total Local Gross Billings 39.4 % 37.9 % 38.2 % 39.8 % 38.4 %
Goods Gross Profit 28,943 33,526 27,302 35,432 32,252
% of EMEA Total Goods Gross Billings 17.0 % 15.2 % 14.9 % 18.6 % 16.9 %
Travel Gross Profit 12,930 14,457 13,669 14,894 15,440
% of EMEA Total Travel Gross Billings   19.7   %   21.1   %   20.0   %   22.9   %   19.3   %
Total Gross Profit $ 123,681 $ 153,193 $ 141,037 $ 140,699 $ 131,648
Year-over-year growth (24 ) % 7 % (8 ) % 1 % 6 %
% Third Party and Other 99 % 91 % 92 % 85 % 85 %
% Direct 1 % 9 % 8 % 15 % 15 %
% of EMEA Total Gross Billings 27.9 % 27.1 % 27.5 % 29.1 % 26.9 %
 
Rest of World Segment:
Gross Billings:
Local Gross Billings $ 118,718 $ 116,824 $ 167,833 $ 170,237 $ 190,254
Goods Gross Billings 78,973 89,451 283,091 281,300 289,210
Travel Gross Billings   36,640     32,398     70,930     85,409     117,562  
Total Gross Billings $ 234,331 $ 238,673 $ 521,854 $ 536,946 $ 597,026
Year-over-year growth (13 ) % (11 ) % 123 % 145 % 155 %
Year-over-year growth, excluding FX (4 ) % (2 ) % 133 % 141 % 147 %
% Third Party and Other 97 % 97 % 99 % 99 % 98 %
% Direct 3 % 3 % 1 % 1 % 2 %
Gross Billings TTM $ 956,833 $ 926,487 $ 1,214,209 $ 1,531,804 $ 1,894,499
 
Revenue:
Local Revenue $ 51,900 $ 40,847 $ 43,814 $ 42,711 $ 45,085
Goods Revenue 25,061 26,158 41,855 45,537 48,889
Travel Revenue   9,310     6,453     10,013     11,707     14,514  
Total Revenue $ 86,271 $ 73,458 $ 95,682 $ 99,955 $ 108,488
Year-over-year growth (4 ) % (15 ) % 23 % 40 % 26 %
Year-over-year growth, excluding FX 7 % (6 ) % 35 % 44 % 26 %
% Third Party and Other 91 % 90 % 94 % 93 % 90 %
% Direct 9 % 10 % 6 % 7 % 10 %
Revenue TTM $ 322,597 $ 309,382 $ 327,014 $ 355,366 $ 377,583
 
Gross Profit:
Local Gross Profit $ 44,435 $ 33,596 $ 34,748 $ 35,618 $ 38,592
% of Rest of World Total Local Gross Billings 37.4 % 28.8 % 20.7 % 20.9 % 20.3 %
Goods Gross Profit 12,016 11,781 22,135 24,623 22,877
% of Rest of World Total Goods Gross Billings 15.2 % 13.2 % 7.8 % 8.8 % 7.9 %
Travel Gross Profit 7,921 5,312 8,133 8,922 10,885
% of Rest of World Total Travel Gross Billings   21.6   %   16.4   %   11.5   %   10.4   %   9.3   %
Total Gross Profit $ 64,372 $ 50,689 $ 65,016 $ 69,163 $ 72,354
Year-over-year growth 1 % (16 ) % 23 % 37 % 12 %
% Third Party and Other 99 % 101 % 102 % 100 % 102 %
% Direct 1 % (1 ) % (2 ) % - % (2 ) %
% of Rest of World Total Gross Billings 27.5 % 21.2 % 12.5 % 12.9 % 12.1 %
 
Consolidated Results of Operations:
Gross Billings:
Local Gross Billings $ 732,434 $ 833,427 $ 886,926 $ 858,869 $ 855,442
Goods Gross Billings 443,387 595,370 709,000 719,875 723,109
Travel Gross Billings   166,827     164,310     221,285     240,302     282,184  
Total Gross Billings $ 1,342,648 $ 1,593,107 $ 1,817,211 $ 1,819,046 $ 1,860,735
Year-over-year growth 10 % 5 % 29 % 29 % 39 %
Year-over-year growth, excluding FX 11 % 5 % 30 % 27 % 37 %
% Third Party and Other 85 % 77 % 82 % 81 % 81 %
% Direct 15 % 23 % 18 % 19 % 19 %
Gross Billings TTM $ 5,684,675 $ 5,757,330 $ 6,166,772 $ 6,572,012 $ 7,090,099
Year-over-year growth 12 % 7 % 14 % 18 % 25 %
 
Revenue:
Local Revenue $ 306,387 $ 318,509 $ 330,181 $ 303,696 $ 296,999
Goods Revenue 252,254 413,713 386,179 402,576 410,954
Travel Revenue   36,418     36,225     41,277     45,304     49,101  
Total Revenue $ 595,059 $ 768,447 $ 757,637 $ 751,576 $ 757,054
Year-over-year growth 5 % 20 % 26 % 23 % 27 %
Year-over-year growth, excluding FX 6 % 20 % 26 % 22 % 27 %
% Third Party and Other 66 % 52 % 56 % 54 % 53 %
% Direct 34 % 48 % 44 % 46 % 47 %
Revenue TTM

 

$ 2,443,510 $ 2,573,655 $ 2,729,890 $ 2,872,719 $ 3,034,714
Year-over-year growth 12 % 10 % 15 % 19 % 24 %
 
Gross Profit:
Local Gross Profit $ 265,133 $ 279,750 $ 287,436 $ 268,665 $ 260,737
% of Total Consolidated Local Gross Billings 36.2 % 33.6 % 32.4 % 31.3 % 30.5 %
Goods Gross Profit 62,568 66,337 62,041 83,016 79,082
% of Total Consolidated Goods Gross Billings 14.1 % 11.1 % 8.8 % 11.5 % 10.9 %
Travel Gross Profit 31,921 32,121 36,244 38,181 40,325
% of Total Consolidated Travel Gross Billings   19.1   %   19.5   %   16.4   %   15.9   %   14.3   %
Total Gross Profit $ 359,622 $ 378,208 $ 385,721 $ 389,862 $ 380,144
Year-over-year growth (7 ) % 6 % 2 % 1 % 6 %
% Third Party and Other 95 % 92 % 94 % 89 % 89 %
% Direct 5 % 8 % 6 % 11 % 11 %
% of Total Consolidated Gross Billings 26.8 % 23.7 % 21.2 % 21.4 % 20.4 %
 
Adjusted EBITDA $ 62,302 $ 71,988 $ 40,301 $ 59,056 $ 66,987
% of Total Consolidated Gross Billings 4.6 % 4.5 % 2.2 % 3.2 % 3.6 %
% of Total Consolidated Revenue 10.5 % 9.4 % 5.3 % 7.9 % 8.8 %
 

Free cash flow is a non-GAAP financial measure. The following is a reconciliation of free cash flow to the most comparable U.S. GAAP financial measure, ''Net cash provided by (used in) operating activities.''

 
Net cash (used in) provided by operating activities $ (11,905 ) $ 178,275 $ (20,717 ) $ (22,747 ) $ 45,466
Purchases of property and equipment and capitalized software   (15,064 )   (19,931 )   (16,355 )   (31,053 )   (20,053 )
Free cash flow $ (26,969 ) $ 158,344 $ (37,072 ) $ (53,800 ) $ 25,413
 
Net cash provided by operating activities (TTM) $ 105,874 $ 218,432 $ 188,955 $ 122,906 $ 180,277
Purchases of property and equipment and capitalized software (TTM)   (83,608 )   (63,505 )   (65,392 )   (82,403 )   (87,392 )
Free cash flow (TTM) $ 22,266 $ 154,927 $ 123,563 $ 40,503 $ 92,885
 
Net cash used in investing activities $ (26,444 ) $ (23,330 ) $ (138,608 ) $ (34,498 ) $ (20,461 )
Net cash used in financing activities $ (8,970 ) $ (55,444 ) $ (41,492 ) $ (114,753 ) $ (16,823 )
 
Net cash used in investing activities (TTM) $ (125,738 ) $ (96,315 ) $ (204,244 ) $ (222,880 ) $ (216,897 )
Net cash used in financing activities (TTM) $ (32,748 ) $ (81,697 ) $ (113,847 ) $ (220,659 ) $ (228,512 )
 
Other Metrics:
Active Customers (6)
North America 19.9 20.8 21.8 22.6 23.5
EMEA 14.0 14.2 14.5 14.5 14.9
Rest of World (7)   8.7     8.7     14.1     14.5     14.3  
Total Active Customers (8) 42.6 43.7 50.4 51.6 52.7
 
TTM Gross Billings / Average Active Customer (9)
North America $ 155 $ 150 $ 147 $ 145 $ 145
EMEA $ 137 $ 139 $ 141 $ 141 $ 142
Rest of World (7) $ 109 $ 104 $ 106 $ 132 $ 165
Consolidated (8) $ 139 $ 137 $ 135 $ 141 $ 149
 
Headcount
Sales (10) 4,801 4,834 5,231 5,057 4,929
% North America 28 % 29 % 27 % 26 % 26 %
% EMEA 37 % 37 % 37 % 39 % 39 %
% Rest of World 35 % 34 % 36 % 35 % 35 %
Other   6,453     6,449     7,099     6,888     6,827  
Total Headcount 11,254 11,283 12,330 11,945 11,756
 
(1) Represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds.
(2) Local represents deals from local merchants, deals with national merchants, and deals through local events. Other revenue transactions, which include advertising, payment processing, point of sale and commission revenue, were previously aggregated with our Travel category. During the three months ended March 31, 2014, the Company updated its presentation of category information to include gross billings, revenue and gross profit from those other revenue sources within the Local category, and prior period category information has been retrospectively adjusted to conform to the current period presentation.
(3) Includes third party revenue, direct revenue and other revenue. Third party revenue is related to sales for which the Company acts as a marketing agent for the merchant. This revenue is recorded on a net basis. Direct revenue is primarily related to the sale of products for which the Company is the merchant of record. These revenues are accounted for on a gross basis, with the cost of inventory included in cost of revenue. Other revenue primarily consists of advertising revenue, payment processing revenue, point of sale revenue and commission revenue.
(4) Represents third party revenue, direct revenue and other revenue reduced by cost of revenue. Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue. Third party cost of revenue includes estimated refunds for which the merchant's share is not recoverable. Direct cost of revenue includes the cost of inventory, shipping and fulfillment costs and inventory markdowns. Other costs incurred to generate revenue are allocated to cost of third party and other revenue and direct revenue for each of our categories (Local, Goods, and Travel) in proportion to gross billings during the period.
(5) Represents the change in financial measures that would have resulted had average exchange rates in the reporting periods been the same as those in effect in the prior year period.
(6) Reflects the total number of unique user accounts who have purchased a voucher or product from us during the trailing twelve months.
(7) Active customers in our Rest of World segment as of September 30, 2013, December 31, 2013, March 31, 2014, and June 30, 2014 have been reduced by 0.9 million, 1.2 million, 1.4 million, and 1.6 million, respectively, from the amounts previously reported to correct that operational information. Those adjustments increased TTM gross billings per average active customer in our Rest of World segment for the 12-month periods ended September 30, 2013, December 31, 2013, March 31, 2014, and June 30, 2014 by $7, $9, $9, and $13, respectively, from the amounts previously reported.
(8) The adjustments of active customers in our Rest of World segment as of September 30, 2013, December 31, 2013, March 31, 2014, and June 30, 2014, described in footnote (7) above, reduced consolidated active customers by the same amounts. Those adjustments increased consolidated TTM gross billings per average active customer for the 12-month periods ended September 30, 2013, December 31, 2013, March 31, 2014, and June 30, 2014 by $2, $3, $3, and $4, respectively, from the amounts previously reported.
(9) Reflects the total gross billings generated in the trailing twelve months per average active customer over that period.
(10) Includes merchant sales representatives, as well as sales support.
(11) The definition, methodology and appropriateness of each of our supplemental metrics is reviewed periodically. As a result, metrics are subject to removal and/or change.
 

Groupon, Inc.
Investor Relations
Genny Konz, 312-999-3098
ir@groupon.com
or
Public Relations
Paul Taaffe, 312-999-3964

Source: Groupon, Inc.

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