# Groupon, Inc. (GRPN) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Groupon, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1490281/000149028122000027/grpn-20211231.htm
Accession: 0001490281-22-000027
Filing date: 2022-02-28
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/GRPN/
All MD&A years: /company/GRPN/mda/
Next year: /company/GRPN/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. 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 Annual Report. See Part I, Forward-Looking Statements, for additional information.

Overview

Groupon is a global scaled two-sided marketplace that connects consumers to merchants. Consumers access our marketplace through our mobile applications and our websites. We operate in two segments, North America and International, and in three categories, Local, Goods and Travel. See Item 8, Note 19, Segment Information, for additional information.

Currently, we generate service and product revenue from the following business operations.

Service Revenue from Local, Travel, and Goods Categories: Service revenue primarily represents the net commissions earned from selling goods or services on behalf of third-party merchants. Service revenue is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant. We also earn commissions when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications.

Product Revenue from Goods Category: We generate product revenue from sales of our first-party Goods merchandise inventory. For product revenue transactions, we are the primary party responsible for providing the merchandise to the customer, we have inventory risk and we have discretion in establishing prices. As such, product revenue is reported on a gross basis as the purchase price received from the customer. Product revenue, including associated shipping revenue, is recognized when the merchandise is delivered to the customer. We fully transitioned to a third-party marketplace in North America in 2020 and in International in the fourth quarter of 2021. In a third-party marketplace model, our merchants generally assume inventory and refund risk; therefore, we expect our Goods category to primarily generate revenue on a net basis within service revenue in future periods.

Strategy

Our mission is to be the destination for experiences where consumers discover fun things to do and local businesses thrive. Our strategic priorities are to expand our Local inventory and modernize our marketplace by improving the merchant and customer experiences.

To grow Local supply, we are focused on leveraging three types of inventory: deals with fewer restrictions, a lower discount inventory product called offers, and market rate supply. We began scaling elements of our inventory strategy throughout our marketplace in 2021. In North America, we scaled the removal of Deal repeat purchase restrictions to all merchants and as of December 31, 2021 over 80% of our Deal inventory is now repeatable. We have also successfully launched offers to beauty and wellness merchants.

To support our strategic priority of improving the merchant and customer experience, we are focused on reducing marketplace friction by making it easier for our customers to find, buy, and redeem a Groupon. To do this, we are exploring and launching new initiatives that we believe will improve engagement, conversion and customer purchase frequency over time. For merchants, we are continuing to focus on being a better partner by offering self-service options, advertising products and booking capabilities.

Moving forward, we plan to build an even better understanding of the critical value propositions we must provide for our customers and merchants.

COVID-19, Restructuring and Cost Reduction

Since March 2020, the COVID-19 pandemic has led to a significant disruption in our business due to changes in consumer behavior and impacts on our merchants. Recovery from the COVID-19 pandemic has been

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and could continue to be volatile and prolonged given the unprecedented and continuously evolving nature of the situation and the emergence and spread of new variants. See Item 8, Note 3, COVID-19 Pandemic, for more information about the impacts of COVID-19 on our business.

In response to the impact of COVID-19 on our business, during the year ended December 31, 2020 we took significant actions to improve our cash position and materially reduce our cost structure, including the Board approved multi-phase restructuring plan. See Item 8, Note 14, Restructuring and Related Charges, for more information.

How We Measure Our Business

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

Operating Metrics

•Gross billings is the total dollar value of customer purchases of goods and services. Gross billings is presented net of customer refunds, order discounts and sales and related taxes. The substantial majority of our service revenue transactions are comprised of sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of the transaction price to the third-party merchant who will provide the related goods or services. For these transactions, gross billings differs from revenue reported in our consolidated statements of operations, which is presented net of the merchant's share of the transaction price. For product revenue transactions, gross billings is equivalent to product revenue reported in our 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 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") growth.

•Units are the number of purchases during the reporting period, before refunds and cancellations, made either through one of our online marketplaces or directly with a merchant for which we earn a commission. We do not include purchases with retailers using digital coupons accessed through our websites or mobile applications in our units metric, nor do we include units purchased through third-party marketplaces with which we partner. We consider units to be an important indicator of the total volume of business conducted through our marketplaces. We report units on a gross basis prior to the consideration of customer refunds and therefore units are not always a good proxy for gross billings.

•Active customers are unique user accounts that have made a purchase during the trailing twelve months ("TTM") either through one of our online marketplaces or directly with a merchant for which we earned a commission. We consider this metric to be an important indicator of our business performance as it helps us to understand how the number of customers actively purchasing our offerings is trending. Some customers could establish and make purchases from more than one account, so it is possible that our active customer metric may count certain customers more than once in a given period. We do not include consumers who solely make purchases with retailers using digital coupons accessed through our websites or mobile applications in our active customer metric, nor do we include consumers who solely make purchases of our inventory through third-party marketplaces with which we partner.

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Our gross billings, units and TTM active customers for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Gross billings","$","2,335,148","","","$","2,619,058","","","$","4,613,531"],["Units","69,040","","","99,219","","","150,879"],["TTM Active customers","23,259","","","29,577","","","43,620"]]
[[/GREPCENT_TABLE]]

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 is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant. Service revenue also includes commissions we earn when customers make purchases with retailers using digital coupons accessed through our digital properties. We generate product revenue from our sales of first-party Goods merchandise inventory. Our product revenue from these first-party transactions, which are direct sales of merchandise inventory, is the purchase price received from the customer. We fully transitioned to a third-party marketplace in North America in 2020 and in International in the fourth quarter of 2021. In a third-party marketplace model, our merchants generally assume inventory and refund risk; therefore, we expect our Goods category to primarily generate revenue on a net basis within service revenue in future periods.

•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 Income (loss) from continuing operations, refer to our discussion under Non-GAAP Financial Measures in the Results of Operations section.

•Free cash flow is a non-GAAP financial measure that comprises net cash provided by (used in) operating activities from continuing operations less purchases of property and equipment and capitalized software. For further information and a reconciliation to Net cash provided by (used in) operating activities from continuing operations, refer to our discussion in the Liquidity and Capital Resources section.

The following table presents the above financial metrics for the years ended December 31, 2021, 2020 and 2019 (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Revenue","$","967,108","","","$","1,416,868","","","$","2,218,915"],["Gross profit","737,116","","","677,294","","","1,186,129"],["Adjusted EBITDA","143,228","","","49,739","","","227,248"],["Free cash flow","(173,588)","","","(112,309)","","","3,955"]]
[[/GREPCENT_TABLE]]

Operating Expenses

•Marketing expense consists primarily of online marketing costs, such as search engine marketing, advertising on social networking sites and affiliate programs, and to a lesser extent 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 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

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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 and other facilities-related costs and professional advisory fees. See Item 8, Note 14, Restructuring and Related Charges, for information about our restructuring plan.

Factors Affecting Our Performance

Impact of COVID-19. During the COVID-19 pandemic, protective measures taken to control the spread of COVID-19 and changes in consumer behavior have had and continue to have a negative impact on our business, which relies on customers' purchases of local experiences, including events and activities, beauty and wellness, travel and dining. Recovery from the COVID-19 pandemic has been and could continue to be volatile and prolonged given the unprecedented and continuously-evolving nature of the situation and the emergence and spread of variants. We also have been, and may continue to be, impacted by pandemic-related supply chain issues, staffing shortages and other transient issues that affect our merchants and continue to evolve during the pandemic recovery period.

We will continue to monitor the impact of COVID-19 on our business, particularly in our International segment where restrictions to date have been more prolonged and stricter than in North America.

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 withdraw their offerings from our marketplace at any time, and their willingness to continue offering services through our marketplace depends on the effectiveness of our marketing and promotional services. We are focused on prioritizing opportunities to help drive demand for our merchants by highlighting offers that customers want and that they can enjoy right now in light of any ongoing COVID-related restrictions. As we navigate through the volatility of the COVID-19 recovery period, we intend to take a market-by-market approach to attracting and retaining local merchants.

Driving purchase frequency and re-engaging and retaining customers. As the global economy continues to recover from the pandemic, we are surfacing relevant inventory in order to drive purchase frequency and retain customers. We also continue to focus on expanding inventory through our three inventory products: deals with fewer restrictions, a lower discount inventory product called offers, and market rate supply. On the customer experience side, we continue to improve our websites and mobile applications; launch innovative products that remove friction from the customer journey and drive awareness to our supply; and grow our high-quality, repeatable inventory.

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Results of Operations

North America

Operating Metrics

North America segment gross billings, units and TTM active customers for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change"],["","2021","","2020","","2019","","2021 vs 2020","","2020 vs 2019"],["Gross billings"],["Service gross billings:"],["Local","$","1,264,581","","","$","1,038,542","","","$","2,021,052","","","21.8","%","","(48.6)","%"],["Goods","230,129","","","167,617","","","95,855","","","37.3","","","74.9"],["Travel","118,515","","","86,551","","","306,012","","","36.9","","","(71.7)"],["Total service gross billings","1,613,225","","","1,292,710","","","2,422,919","","","24.8","","","(46.6)"],["Product gross billings - Goods","626","","","333,479","","","563,694","","","(99.8)","","","(40.8)"],["Total gross billings","$","1,613,851","","","$","1,626,189","","","$","2,986,613","","","(0.8)","","","(45.6)"],["Units"],["Local","34,146","","","36,896","","","64,976","","","(7.5)","%","","(43.2)","%"],["Goods","9,891","","","20,797","","","25,632","","","(52.4)","","","(18.9)"],["Travel","642","","","676","","","1,514","","","(5.0)","","","(55.4)"],["Total units","44,679","","","58,369","","","92,122","","","(23.5)","","","(36.6)"],["TTM Active customers","14,785","","","17,494","","","26,505","","","(15.5)","%","","(34.0)","%"]]
[[/GREPCENT_TABLE]]

Comparison of the Years Ended December 31, 2021 and 2020:

North America gross billings, units and TTM active customers decreased by $12.3 million, 13.7 million and 2.7 million for the year ended December 31, 2021 compared with the prior year. These declines were primarily attributable to a decrease in consumer demand for our Goods category, partially offset by an increase in consumer demand for higher-priced offerings and lower customer refunds in the Local category.

Comparison of the Years Ended December 31, 2020 and 2019:

North America gross billings, units and TTM active customers declined by $1,360.4 million, 33.8 million and 9.0 million for the year ended December 31, 2020 compared with the prior year. These declines were primarily due to the significant decrease in consumer demand due to changes in consumer behavior and protective measures taken to control the spread of COVID-19.

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Financial Metrics

North America segment revenue, cost of revenue and gross profit for the years ended December 31, 2021, 2020 and 2019 were as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change"],["","2021","","2020","","2019","","2021 vs 2020","","2020 vs 2019"],["Revenue"],["Service revenue:"],["Local","$","530,468","","","$","432,183","","","$","721,038","","","22.7","%","","(40.1)","%"],["Goods","51,568","","","35,276","","","16,236","","","46.2","","","117.3"],["Travel","24,393","","","17,686","","","57,939","","","37.9","","","(69.5)"],["Total service revenue","606,429","","","485,145","","","795,213","","","25.0","","","(39.0)"],["Product revenue - Goods","626","","","333,479","","","563,694","","","(99.8)","","","(40.8)"],["Total revenue","$","607,055","","","$","818,624","","","$","1,358,907","","","(25.8)","","","(39.8)"],["Cost of revenue"],["Service cost of revenue:"],["Local","$","58,192","","","$","53,143","","","$","77,539","","","9.5","%","","(31.5)","%"],["Goods","7,790","","","6,424","","","3,071","","","21.3","","","109.2"],["Travel","4,952","","","4,779","","","12,200","","","3.6","","","(60.8)"],["Total service cost of revenue","70,934","","","64,346","","","92,810","","","10.2","","","(30.7)"],["Product cost of revenue - Goods","458","","","278,647","","","458,352","","","(99.8)","","","(39.2)"],["Total cost of revenue","$","71,392","","","$","342,993","","","$","551,162","","","(79.2)","","","(37.8)"],["Gross profit"],["Service gross profit:"],["Local","$","472,276","","","$","379,040","","","$","643,499","","","24.6","%","","(41.1)","%"],["Goods","43,778","","","28,852","","","13,165","","","51.7","","","119.2"],["Travel","19,441","","","12,907","","","45,739","","","50.6","","","(71.8)"],["Total service gross profit","535,495","","","420,799","","","702,403","","","27.3","","","(40.1)"],["Product gross profit - Goods","168","","","54,832","","","105,342","","","(99.7)","","","(47.9)"],["Total gross profit","$","535,663","","","$","475,631","","","$","807,745","","","12.6","","","(41.1)"],["Service margin (1)","37.6","%","","37.5","%","","32.8","%"],["% of Consolidated revenue","62.8","","","57.8","","","61.2"],["% of Consolidated cost of revenue","31.0","","","46.4","","","53.4"],["% of Consolidated gross profit","72.7","","","70.2","","","68.1"]]
[[/GREPCENT_TABLE]]

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

Comparison of the Years Ended December 31, 2021 and 2020:

North America revenue and cost of revenue decreased by $211.6 million and $271.6 million for the year ended December 31, 2021 compared with the prior year. The decrease in revenue was primarily due to lower Goods gross billings, a shift in mix of consumer purchases to lower-margin offerings and the transition of Goods to a third-party marketplace model. In a third-party marketplace model, we generate service revenue which is presented on a net basis. These declines were partially offset by higher Local gross billings and higher variable consideration from unredeemed vouchers.

North America gross profit increased by $60.0 million for the year ended December 31, 2021 compared with the prior year, primarily due to higher Local gross billings and higher variable consideration from unredeemed vouchers, partially offset by lower Goods gross billings and a shift in mix to lower-margin offerings in the Local category.

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Comparison of the Years Ended December 31, 2020 and 2019:

North America revenue, cost of revenue and gross profit decreased by $540.3 million, $208.2 million and $332.1 million for the year ended December 31, 2020 compared with the prior year. Those declines were primarily driven by a decline in gross billings and transaction volume due to the impacts of COVID-19. Additionally, these also declined due to the transition of our Goods category to a third-party marketplace model. In a third-party marketplace model, we generate service revenue which is presented on a net basis. The increase in service margin was due to a shift in mix of offerings sold and higher variable consideration from unredeemed vouchers due to our shift towards payment on redemption terms in North America.

Marketing and Contribution Profit

We define contribution profit as gross profit less marketing expense. North America contribution profit for the years ended December 31, 2021, 2020 and 2019 was as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change"],["","2021","","2020","","2019","","2021 vs 2020","","2020 vs 2019"],["Marketing","$","138,025","","","$","96,039","","","$","214,069","","","43.7","%","","(55.1)","%"],["% of Gross Profit","25.8","%","","20.2","%","","26.5","%"],["Contribution Profit","$","397,638","","","$","379,592","","","$","593,676","","","4.8","%","","(36.1)","%"]]
[[/GREPCENT_TABLE]]

Comparison of the Years Ended December 31, 2021 and 2020:

North America marketing expense and marketing expense as a percentage of gross profit increased for the year ended December 31, 2021 compared with the prior year due to the launch of new brand campaigns in 2021 and increased marketing investment in an effort to capture consumer demand.

North America contribution profit increased for the year ended December 31, 2021 compared with the prior year primarily due to an increase in gross profit, partially offset by higher marketing expense.

Comparison of the Years Ended December 31, 2020 and 2019:

North America marketing expense and marketing expense as a percentage of gross profit declined for the year ended December 31, 2020 compared with the prior year due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our offline marketing and brand spend in light of COVID-19.

North America contribution profit decreased for the year ended December 31, 2020 compared with the prior year primarily due to a $332.1 million decrease in gross profit, partially offset by a $118.0 million decrease in marketing.

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International

Operating Metrics

International segment gross billings, units and TTM active customers for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands, except percentages and gross billings per unit):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change"],["","2021","","2020","","2019","","2021 vs 2020","","2020 vs 2019"],["Gross billings"],["Service gross billings:"],["Local","$","393,495","","","$","421,845","","","$","855,820","","","(6.7)","%","","(50.7)","%"],["Goods","96,524","","","61,860","","","51,663","","","56.0","","","19.7"],["Travel","59,591","","","69,428","","","190,571","","","(14.2)","","","(63.6)"],["Total service gross billings","549,610","","","553,133","","","1,098,054","","","(0.6)","","","(49.6)"],["Product gross billings - Goods","171,687","","","439,736","","","528,864","","","(61.0)","","","(16.9)"],["Total gross billings","$","721,297","","","$","992,869","","","$","1,626,918","","","(27.4)","","","(39.0)"],["Units"],["Local","12,640","","","16,567","","","33,069","","","(23.7)","%","","(49.9)","%"],["Goods","11,332","","","23,685","","","24,269","","","(52.2)","","","(2.4)"],["Travel","389","","","598","","","1,419","","","(34.9)","","","(57.9)"],["Total units","24,361","","","40,850","","","58,757","","","(40.4)","","","(30.5)"],["TTM Active customers","8,474","","","12,083","","","17,115","","","(29.9)","%","","(29.4)","%"]]
[[/GREPCENT_TABLE]]

Comparison of the Years Ended December 31, 2021 and 2020:

International gross billings, units and TTM active customers decreased by $271.6 million, 16.5 million and 3.6 million for the year ended December 31, 2021 compared with the prior year. These declines were primarily attributable to a decrease in consumer demand in the Goods category, as well as a decrease in the Local category due to the impact of COVID-19 on our merchants and consumer behavior. These declines were partially offset by a $28.6 million favorable impact from year-over-year changes in foreign currency exchange rates.

Comparison of the Years Ended December 31, 2020 and 2019:

International gross billings, units, and TTM active customers declined by $634.0 million, 17.9 million and 5.0 million for the year ended December 31, 2020 compared with the prior year. Those decreases were primarily due to the significant decrease in consumer demand due to changes in consumer behavior and protective measures taken to control the spread of COVID-19. The decline in gross billings was partially offset by a $11.9 million favorable impact from year-over-year changes in foreign currency exchange rates.

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Financial Metrics

International segment revenue, cost of revenue and gross profit for the years ended December 31, 2021, 2020 and 2019 were as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change"],["","2021","","2020","","2019","","2021 vs 2020","","2020 vs 2019"],["Revenue"],["Service revenue:"],["Local","$","155,866","","","$","138,274","","","$","287,611","","","12.7","%","","(51.9)","%"],["Goods","19,477","","","11,757","","","9,441","","","65.7","","","24.5"],["Travel","13,023","","","8,477","","","34,092","","","53.6","","","(75.1)"],["Total service revenue","188,366","","","158,508","","","331,144","","","18.8","","","(52.1)"],["Product revenue - Goods","171,687","","","439,736","","","528,864","","","(61.0)","","","(16.9)"],["Total revenue","$","360,053","","","$","598,244","","","$","860,008","","","(39.8)","","","(30.4)"],["Cost of revenue"],["Service cost of revenue:"],["Local","$","8,962","","","$","12,362","","","$","17,945","","","(27.5)","%","","(31.1)","%"],["Goods","986","","","1,261","","","932","","","(21.8)","","","35.3"],["Travel","1,138","","","1,327","","","2,775","","","(14.2)","","","(52.2)"],["Total service cost of revenue","11,086","","","14,950","","","21,652","","","(25.8)","","","(31.0)"],["Product cost of revenue - Goods","147,514","","","381,631","","","459,972","","","(61.3)","","","(17.0)"],["Total cost of revenue","$","158,600","","","$","396,581","","","$","481,624","","","(60.0)","","","(17.7)"],["Gross profit"],["Service gross profit:"],["Local","$","146,904","","","$","125,912","","","$","269,666","","","16.7","%","","(53.3)","%"],["Goods","18,491","","","10,496","","","8,509","","","76.2","","","23.4"],["Travel","11,885","","","7,150","","","31,317","","","66.2","","","(77.2)"],["Total service gross profit","177,280","","","143,558","","","309,492","","","23.5","","","(53.6)"],["Product gross profit - Goods","24,173","","","58,105","","","68,892","","","(58.4)","","","(15.7)"],["Total gross profit","$","201,453","","","$","201,663","","","$","378,384","","","(0.1)","","","(46.7)"],["Service margin (1)","34.3","%","","28.7","%","","30.2","%"],["% of Consolidated revenue","37.2","%","","42.2","%","","38.8","%"],["% of Consolidated cost of revenue","69.0","","","53.6","","","46.6"],["% of Consolidated gross profit","27.3","","","29.8","","","31.9"]]
[[/GREPCENT_TABLE]]

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

Comparison of the Years Ended December 31, 2021 and 2020:

International revenue and cost of revenue decreased by $238.2 million and $238.0 million for the year ended December 31, 2021 compared with the prior year. Those decreases were primarily due to lower Local and Goods gross billings and the transition of Goods to a third-party marketplace model. In a third-party marketplace model, we generate service revenue which is presented on a net basis. These declines were partially offset by higher variable consideration from unredeemed vouchers. Revenue had a favorable impact of $19.0 million and cost of revenue had an unfavorable impact of $11.5 million from year-over-year changes in foreign currency exchange rates.

International gross profit remained largely flat for the year ended December 31, 2021 compared with the prior year. International gross profit increased primarily due to higher variable consideration from unredeemed vouchers and a favorable impact of $7.4 million from year-over-year changes in foreign currency exchange rates. Those increases were offset by lower Local and Goods gross billings.

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Comparison of the Years Ended December 31, 2020 and 2019:

International revenue, cost of revenue and gross profit decreased by $261.8 million, $85.0 million and $176.7 million for the year ended December 31, 2020 compared with the prior year. Those decreases were primarily driven by a decline in transaction volume and gross billings due to the impacts of COVID-19. Additionally, the decrease in cost of revenue had a $6.3 million unfavorable impact from year-over-year changes in foreign currency exchange rates. The decreases in revenue and gross profit were partially offset by favorable impacts of $9.5 million and $3.2 million from year-over-year changes in foreign currency exchange rates.

Marketing and Contribution Profit

International contribution profit for the years ended December 31, 2021, 2020 and 2019 were as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change"],["","2021","","2020","","2019","","2021 vs 2020","","2020 vs 2019"],["Marketing","$","50,755","","","$","58,495","","","$","125,286","","","(13.2)","%","","(53.3)","%"],["% of Gross Profit","25.2","%","","29.0","%","","33.1","%"],["Contribution Profit","$","150,698","","","$","143,168","","","$","253,098","","","5.3","%","","(43.4)","%"]]
[[/GREPCENT_TABLE]]

Comparison of the Years Ended December 31, 2021 and 2020:

International marketing expense and marketing expense as a percentage of gross profit decreased for the year ended December 31, 2021 compared with the prior year due to accelerated traffic declines and lower investments in our offline marketing and brand spend in light of COVID-19 in the first half of 2021. Beginning in the third quarter 2021, we increased our marketing spend across various channels in an effort to capture consumer demand as COVID-19 restrictions began to lift. The increase in our marketing spend during the second half of 2021 did not offset the lower spend from the first half of 2021.

International contribution profit increased for the year ended December 31, 2021 compared with the prior year primarily due to a $7.7 million decrease in marketing expense as described above.

Comparison of the Years Ended December 31, 2020 and 2019:

International marketing expense and marketing expense as a percentage of gross profit decreased for the year ended December 31, 2020 compared with the prior year due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our offline marketing and brand spend in light of COVID-19.

International contribution profit decreased for the year ended December 31, 2020 compared with the prior year primarily due to a $176.7 million decrease in gross profit, partially offset by a $66.8 million decrease in marketing.

Consolidated Operating Expenses

Operating expenses for the years ended December 31, 2021, 2020 and 2019 were as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change"],["","2021","","2020","","2019","","2021 vs 2020","","2020 vs 2019"],["Marketing","$","188,780","","","$","154,534","","","$","339,355","","","22.2","%","","(54.5)","%"],["Selling, general and administrative","511,096","","","603,185","","","806,945","","","(15.3)","","","(25.3)"],["Goodwill impairment","\u2014","","","109,486","","","\u2014","","","(100.0)","","","\u2014"],["Long-lived asset impairment","\u2014","","","22,351","","","\u2014","","","(100.0)","","","\u2014"],["Restructuring and related charges","41,895","","","64,836","","","31","","","(35.4)","","","NM"],["Total Operating expenses","$","741,771","","","$","954,392","","","$","1,146,331","","","(22.3)","","","(16.7)"],["% of Gross profit:"],["Marketing","25.6","%","","22.8","%","","28.6","%"],["Selling, general and administrative","69.3","%","","89.1","%","","68.0","%"]]
[[/GREPCENT_TABLE]]

49

Comparison of the Years ended December 31, 2021 and 2020:

Marketing expense and marketing expense as a percentage of gross profit increased for the year ended December 31, 2021 compared with the prior year due to the launch of new brand campaigns and an increase in marketing investment in an effort to capture consumer demand.

SG&A and SG&A as a percentage of gross profit decreased for the year ended December 31, 2021 compared with the prior year primarily due to lower payroll-related expenses, partially offset by a $8.4 million unfavorable impact from year-over-year changes in foreign currency rates.

Restructuring and related charges decreased for the year ended December 31, 2021 compared with the prior year, as we completed our actions under the plan. We recognized $7.7 million in impairment charges for leases and lease-related assets related to our restructuring plan for the year ended December 31, 2021 and $21.6 million during the year ended December 31, 2020. See Item 8, Note 14, Restructuring and Related Charges, for more information.

Comparison of the Years ended December 31, 2020 and 2019:

Marketing expense and marketing expense as a percentage of gross profit declined for the year ended December 31, 2020 compared with the prior year due to accelerated traffic declines, significantly shortened payback thresholds and lower investment in our offline marketing and brand spend in light of COVID-19.

SG&A decreased for the year ended December 31, 2020 compared with the prior year primarily due to lower payroll-related expenses due to furloughs and restructuring actions. SG&A as a percentage of gross profit increased for the year ended December 31, 2020 due to the decline in demand and traffic as a result of COVID-19.

During the first quarter 2020, the significant deterioration in our financial performance due to the disruption in our operations from COVID-19 and the sustained decrease in our stock price required us to evaluate our goodwill and long-lived assets for impairment. As a result, for the year ended December 31, 2020, we recognized $109.5 million of goodwill impairment and $22.4 million of long-lived asset impairment within our International segment related to our EMEA operations. See Item 8, Note 3, COVID-19 Pandemic, for additional information about goodwill and long-lived asset impairments.

Consolidated Other Income (Expense), Net

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

Other income (expense), net for the years ended December 31, 2021, 2020 and 2019 was as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Other income (expense), net","$","92,680","","","$","(16,968)","","","$","(53,329)"]]
[[/GREPCENT_TABLE]]

Comparison of the Years Ended December 31, 2021, 2020, and 2019:

The change in Other income (expense), net for the year ended December 31, 2021 compared with the prior year is primarily related to an unrealized gain of $89.1 million recorded as a result of an upward adjustment for an observable price change on an other equity investment and a change in foreign currency gains and losses, which includes a $32.3 million cumulative foreign currency translation adjustment gain that was reclassified into earnings as a result of the substantial liquidation of our subsidiary in Japan as part of our restructuring actions.

The change in Other income (expense), net for the year ended December 31, 2020 compared with the prior year is primarily related to an increase in foreign currency gains in the year ended December 31, 2020 and a net loss from changes in fair value of investments for the year ended December 31, 2019.

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See Note 7. Supplemental Consolidated Balance Sheets and Statements of Operations Information, for more information.

Provision (Benefit) for Income Taxes

Comparison of the Years Ended December 31, 2021, 2020, and 2019:

Provision (benefit) for income taxes for the years ended December 31, 2021, 2020 and 2019 was as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","% Change"],["","","2021","","2020","","2019","","2021 vs 2020","","2020 vs 2019"],["Provision (benefit) for income taxes","","$","(32,323)","","","$","(7,504)","","","$","761","","","NM","","NM"],["Effective tax rate","","(36.7)","%","","2.6","%","","(5.6)","%"]]
[[/GREPCENT_TABLE]]

Our U.S. Federal income tax rate was 21% for the years ended December 31, 2021, 2020 and 2019.

The primary factors impacting the effective tax rate for the year ended December 31, 2021 were the release of a portion of the U.S. valuation allowance against our federal and state deferred tax assets, pretax losses incurred in jurisdictions that have a valuation allowance against their net deferred tax assets, and the non-taxable unrealized gain on the observable price change recorded on an other equity investment.

The effective tax rate for the years ended December 31, 2020 and 2019 were impacted by pretax losses incurred in jurisdictions that have a valuation allowance against their net deferred tax assets and the reversal of reserves for uncertain tax positions due to the closure of applicable statutes of limitations and closure of tax audits. The year ended December 31, 2020 was also impacted by the carryback of federal net operating losses due to the income tax relief provided by the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The year ended December 31, 2019 was also impacted by the non-taxable unrealized gain on the observable price change recorded on an other equity investment. 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 Item 8, Note 15, 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.

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 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.

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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 year ended December 31, 2021, special charges and credits included charges related to our restructuring plan and long-lived asset impairments. For the year ended December 31, 2020, special charges and credits included charges related to our restructuring plan, goodwill and long-lived asset impairments and strategic advisor costs. We exclude special charges and credits from Adjusted EBITDA because we believe that excluding those items provides meaningful supplemental information about our core operating performance and facilitates comparisons with our historical results.

The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, Income (loss) from continuing operations for the years ended December 31, 2021, 2020, and 2019 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Income (loss) from continuing operations","$","120,348","","","$","(286,562)","","","$","(14,292)"],["Adjustments:"],["Stock-based compensation","33,169","","","39,010","","","81,615"],["Depreciation and amortization","72,819","","","87,522","","","105,765"],["Acquisition-related expense (benefit), net","\u2014","","","6","","","39"],["Restructuring and related charges (1)","41,895","","","64,836","","","31"],["Goodwill impairment","\u2014","","","109,486","","","\u2014"],["Long-lived asset impairment","\u2014","","","22,351","","","\u2014"],["Strategic advisor costs","\u2014","","","3,626","","","\u2014"],["Other (income) expense, net (2)","(92,680)","","","16,968","","","53,329"],["Provision (benefit) for income taxes","(32,323)","","","(7,504)","","","761"],["Total adjustments","22,880","","","336,301","","","241,540"],["Adjusted EBITDA","$","143,228","","","$","49,739","","","$","227,248"]]
[[/GREPCENT_TABLE]]

(1)Includes $7.7 million of right-of-use assets - operating leases and leasehold improvement impairments for the year ended December 31, 2021 and $21.6 million and $1.7 million of long-lived asset impairments and additional stock compensation for the year ended December 31, 2020.

(2)Includes a $32.3 million cumulative foreign currency translation adjustment gain that was reclassified into earnings for the year ended December 31, 2021 as a result of the substantial liquidation of our subsidiary in Japan as part of our restructuring actions and an $89.1 million unrealized gain due to an upward adjustment for an observable price change of an other equity investment. Refer to Item 8, Note 14, Restructuring and Related Charges and Note 6, Investments, for additional information.

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. 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 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

52

in effect in the prior year period. Those measures are intended to facilitate comparisons to our historical performance.

The following table represents the effect on our consolidated statements of operations from changes in exchange rates versus the U.S. dollar for the years ended December 31, 2021 and 2020 (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2021","","Year Ended December 31, 2020"],["","At Avg. 2020 Rates (1)","","Exchange Rate Effect (2)","","As Reported","","At Avg. 2019 Rates (1)","","Exchange Rate Effect (2)","","As Reported"],["Gross billings","$","2,306,416","","","$","28,732","","","$","2,335,148","","","$","2,607,185","","","$","11,873","","","$","2,619,058"],["Revenue","948,096","","","19,012","","","967,108","","","1,407,327","","","9,541","","","1,416,868"],["Cost of revenue","218,439","","","11,553","","","229,992","","","733,270","","","6,304","","","739,574"],["Gross profit","729,657","","","7,459","","","737,116","","","674,057","","","3,237","","","677,294"],["Marketing","187,293","","","1,487","","","188,780","","","153,865","","","669","","","154,534"],["Selling, general and administrative","502,697","","","8,399","","","511,096","","","602,162","","","1,023","","","603,185"],["Restructuring charges","40,845","","","1,050","","","41,895","","","64,859","","","(23)","","","64,836"],["Income (loss) from operations","$","(1,178)","","","$","(3,477)","","","$","(4,655)","","","$","(282,683)","","","$","5,585","","","$","(277,098)"]]
[[/GREPCENT_TABLE]]

(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 and cash balances, which primarily consist of bank deposits and government money market funds. As of December 31, 2021, cash and cash equivalents, including outstanding borrowings under the Amended Credit Agreement, were $498.7 million.

Our net cash flows from operating, investing and financing activities from continuing operations for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Cash provided by (used in):"],["Operating activities","$","(123,958)","","","$","(63,598)","","","$","71,283"],["Investing activities","(45,811)","","","(21,346)","","","(67,591)"],["Financing activities","$","(183,850)","","","$","176,798","","","$","(92,619)"]]
[[/GREPCENT_TABLE]]

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 from continuing operations. Our free cash flow for the years ended December 31, 2021, 2020 and 2019 and reconciliations to the most comparable U.S. GAAP financial measure, Net cash provided by (used in) operating activities from continuing operations, for those periods are as follows (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Net cash provided by (used in) operating activities from continuing operations","$","(123,958)","","","$","(63,598)","","","$","71,283"],["Purchases of property and equipment and capitalized software from continuing operations","(49,630)","","","(48,711)","","","(67,328)"],["Free cash flow","$","(173,588)","","","$","(112,309)","","","$","3,955"]]
[[/GREPCENT_TABLE]]

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 upon the customer's redemption of the related voucher or fixed payment terms, which are generally biweekly, throughout the term of the merchant's offering. Historically, we have primarily paid merchants on fixed payment terms in North America and upon voucher redemption internationally. We largely completed a transition to redemption payment terms in North America in the third quarter 2020.

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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 and the mix of transactions between Goods and Local.

Net cash provided by (used in) operating activities

For the year ended December 31, 2021, our net cash used in operating activities from continuing operations was $124.0 million, as compared with our $120.3 million income from continuing operations. That difference was primarily attributable to a $197.7 million net decrease from changes in working capital and other non-current assets and liabilities. The working capital impact was largely related to a shortening of the customer purchase to redemption cycle relative to year-end 2020 when redemption patterns were more heavily impacted by COVID-19, resulting in higher merchant payment outflows for the year. The difference between our net cash used in operating activities and our net income from continuing operations is also due to $46.6 million of non-cash items, including $95.6 million of changes in fair value of our investments, $50.7 million of changes in our valuation allowance and a $32.3 million foreign currency translation adjustment gain that was reclassified into earnings as a result of the substantial liquidation of our subsidiary in Japan, partially offset by depreciation and amortization and stock-based compensation.

For the year ended December 31, 2020, our net cash used in operating activities from continuing operations was $63.6 million, as compared with our $286.6 million loss from continuing operations. That difference was primarily attributable to $295.6 million of non-cash items, including $109.5 million of goodwill impairment, $22.4 million of long-lived asset impairments, $21.6 million of restructuring-related impairments, depreciation and amortization and stock-based compensation, partially offset by a $72.6 million net decrease from changes in working capital and other assets and liabilities. The working capital decrease was due to the impacts of COVID-19, partially offset by the transition to a third-party goods marketplace in North America.

For the year ended December 31, 2019, our net cash provided by operating activities from continuing operations was $71.3 million, as compared with our $14.3 million loss from continuing operations. That difference was primarily attributable to $230.2 million of non-cash items, including depreciation and amortization, stock-based compensation, a $69.4 million loss from changes in fair value of our investment in Monster LP and a $51.4 million upward adjustment to another equity investment for observable price changes in an orderly transaction. The difference between our net cash provided by operating activities and our income from continuing operations due to non-cash items was partially offset by a $145.0 million net decrease from changes in working capital and other assets and liabilities. The working capital impact was primarily related to the decline of billings, and to a lesser extent seasonal timing of payments to inventory suppliers.

Net cash provided by (used in) investing activities

For the year ended December 31, 2021, our net cash used in investing activities from continuing operations was $45.8 million, which included purchases of property and equipment and capitalized software of $49.6 million, partially offset by proceeds from the sale of an other equity investment of $7.0 million.

For the year ended December 31, 2020, our net cash used in investing activities from continuing operations was $21.3 million, which included purchases of property and equipment and capitalized software of $48.7 million, partially offset by proceeds from the sale of an investment of $31.6 million.

For the year ended December 31, 2019, our net cash used in investing activities from continuing operations was $67.6 million, which included purchases of property and equipment and capitalized software of $67.3 million.

Net cash provided by (used in) financing activities

For the year ended December 31, 2021, our net cash used in financing activities was $183.9 million. Our net cash used in financing activities included payments of $254.0 million for the repurchase of the Atairos Notes, $100.0 million of repayments of borrowings under our revolving credit facility, $27.4 million related to the purchase of capped call transactions, $19.8 million in taxes paid related to net share settlements of stock-based compensation awards and $7.7 million in cash paid for issuance costs for the 2026 Notes, as discussed below, partially offset by $230.0 million of proceeds received from the issuance of the 2026 Notes.

54

For the year ended December 31, 2020, our net cash provided by financing activities was $176.8 million, which included $200.0 million of borrowings under our revolving credit facility, partially offset by $10.6 million in taxes paid related to net share settlements of stock-based compensation awards and $8.9 million in payments of finance lease obligations.

For the year ended December 31, 2019, our net cash used in financing activities was $92.6 million, which included $45.6 million in repurchases of common stock under our share repurchase program, $19.7 million in payments of finance lease obligations and $18.1 million in taxes paid related to net share settlements of stock-based compensation awards.

The amendment to the revolving credit agreement (the "First Amendment" and the revolving credit agreement as amended, the "Amended Credit Agreement") provides for aggregate principal borrowings of up to $225.0 million. As of December 31, 2021, we had $100.0 million of borrowings and $25.8 million of letters of credit outstanding under the Amended Credit Agreement and were in compliance with all covenants.

In July 2020, we entered into the First Amendment of our Credit Agreement in order to, among other things, provide us operational flexibility and covenant relief in light of the ongoing impacts of COVID-19 on our business. In March 2021, we entered into the Second Amendment to, among other things, extend the covenant relief through the fourth quarter 2021. We voluntarily elected to early terminate this covenant relief as of the third quarter 2021 and are subject to the ordinary course covenants under the Amended Credit Agreement as of the third quarter 2021. We were in compliance with the applicable covenants as of December 31, 2021. In the future, these covenants could restrict our ability to access the full capacity of our credit facility or require us to repay amounts borrowed. In addition, if we are not able to comply with these covenants, we may need to seek additional covenant relief in the future.

In March and April 2021, we also issued convertible senior notes due 2026 (the "2026 Notes") and used a portion of the net proceeds from the 2026 Notes to purchase the capped call transactions and, together with cash on hand, we repurchased the Atairos Notes in May 2021. See Item 1, Risk Factors and Item 8, Note 8, 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. 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.

As of December 31, 2021, we had $66.6 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. In general, it is our practice and intention to re-invest the earnings of our non-U.S. subsidiaries in those operations. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business.

In May 2018, the Board authorized us to repurchase up to $300.0 million of our common stock under our share repurchase program. As of December 31, 2021, 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 share repurchase program may be terminated at any time. Repurchases will be made in compliance with SEC rules and other legal requirements and may be made, in part, under a Rule 10b5-1 plan, which permits share repurchases when we might otherwise be precluded from doing so.

Contractual Obligations and Commitments

For additional information on our commitments for other financing arrangements, future lease payments and purchase obligations, see Item 8, Note 8, Financing Arrangements, Note 9, Leases and Note 10, Commitments and Contingencies for additional information.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2021.

55

Critical Accounting Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting policies are discussed in Item 8, Note 2, Summary of Significant Accounting Policies, in the notes to the consolidated financial statements.

The preparation of 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 those estimates under different assumptions or conditions.

We believe that the estimates and assumptions related to revenue recognition, impairment assessments, income taxes and fair value option investments have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting estimates.

Revenue Recognition

We make significant estimates related to revenue recognition including estimates for refund reserve, variable consideration from vouchers that will not ultimately be redeemed, and breakage income from customer credits that are not expected to be used. We estimate future refunds, voucher redemptions, and customer credit redemptions using historical refund and redemption experience. We also consider trends, such as changes to our policies or in general economic conditions that may impact customer behavior, when making those estimates. We reevaluate our estimate as facts and circumstances change.

These estimates rely on judgments regarding future expectations of customer behavior. While the basis of our estimates is historical data, customer behavior may not always be predictable. If actual refunds or redemptions differ from our estimates, the effects could be material to the consolidated financial statements.

See Item 8, Note 2, Summary of Significant Accounting Policies and Item 8, Note 13, Revenue Recognition, for information about our revenue recognition accounting policies.

Impairment Assessments

Impairment assessment estimates applies to goodwill, long-lived assets, right-of-use assets and investments.

Goodwill is allocated to our reporting units at the date the goodwill is initially recorded. We evaluate goodwill for impairment annually on October 1 or more frequently when an event occurs or circumstances change that indicates the carrying value may not be recoverable. We review our long-lived assets, such as property, equipment and software, intangible assets, right-of-use assets and investments for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Significant judgment and estimates are required when determining the fair value of these assets for impairment tests.

When determining fair values in impairment tests, we use one of the following recognized valuation methods: the income approach (including discounted cash flows), the market approach or the cost approach. Our significant estimates in those fair value measurements may include identifying business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples. Further, when measuring fair value based on discounted cash flows, we make assumptions about risk-adjusted discount rates; rates of increase in revenue, cost of revenue and operating expenses; weighted average cost of capital; rates of long-term growth; and income tax rates. Valuations are performed by management or third-party valuation specialists under management's supervision, where appropriate. We believe that the estimated fair values used in impairment tests are based on reasonable assumptions that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates. See Item 8, Note 4, Property, Equipment and Software, Net, Note 5, Goodwill and Other Intangible Assets, Note 6, Investments and Note 9, Leases for more information about our impairment assessments.

56

Future changes in our assumptions or the interrelationship of the assumptions described above may negatively impact future valuations. In future measurements of fair value, adverse changes in assumptions could result in impairments of goodwill or long-lived assets that would require non-cash charges to the consolidated statements of operations and may have a material effect on our financial condition and operating results.

See Item 8, Note 2, Summary of Significant Accounting Policies for information about our accounting policies relating to impairment of goodwill and long-lived assets.

Income Taxes

We account for income taxes using the asset and liability method and assess whether it is more likely than not that the deferred tax assets will be realized. We are also subject to taxation in the United States, various states and foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities.

To assess whether it is more likely than not that deferred tax assets will be realized and whether a valuation allowance needs to be recorded against them, we consider the following four sources of taxable income for each tax jurisdiction: (a) future reversals of existing taxable temporary differences, (b) projected future earnings, (c) taxable income in carryback years, and (d) tax planning strategies.

During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rate could be adversely affected by earnings being lower than anticipated in countries where it has lower statutory rates and higher than anticipated in countries where it has higher statutory rates, by changes in foreign currency exchange rates, by changes in the valuation of deferred tax assets and liabilities, by changes in the measurement of uncertain tax positions, by changes affecting transfer pricing or by changes in the relevant laws, regulations, principles and interpretations.

See Item 8, Note 2, Summary of Significant Accounting Policies, and Note 15, Income Taxes, for information about our income tax accounting policies.

Fair Value Option Investments

We have investments in common stock or in-substance common stock for which we have the ability to exercise significant influence and we have made an irrevocable election to account for those investments at fair value. Estimating the fair values of our investments requires significant judgment regarding of the assumptions that market participants would use in pricing those assets.

As the fair value measurements involve significant unobservable inputs, such as cash flow projections and discount rates, they are classified as Level 3 within the fair value hierarchy. Future changes in judgment about the related fair value inputs, including changes that may result from any subsequent financing transactions undertaken by those investees, could result in significant increases or decreases in fair value that would be recognized in earnings. Our election to apply fair value accounting to those investments has and may continue to cause fluctuations in our earnings from period to period.

See Item 8, Note 6, Investments, for information about the fair value measurements of our fair value option investments.

Recently Issued Accounting Standards

For a description of recently issued accounting standards, please see Item 8, Note 2, Summary of Significant Accounting Policies.

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