Groupon, Inc. 10-K

ITEM 1. BUSINESS Groupon is a global scaled two-sided marketplace that connects consumers to merchants. Consumers access our marketplace through our mobile applications and our websites, primarily localized groupon.com sites in many countries. We operate in two segments, North America and International, and in three categories, Local, Goods and Travel. See Item 1, 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. Our Strategy Our mission is to be the destination for experiences where consumers discover fun things to do and local businesses thrive. In 2021, our strategic priorities were to expand our Local inventory and modernize our marketplace by improving the merchant and customer experiences. 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. Our Categories Local . Our Local category includes experiences from local and national merchants, and other revenue sources that are primarily generated through our relationships with local and national merchants, including advertising revenue. Our local inventory comprises multiple subcategories of experiences, including: things to do; beauty and wellness; and dining. In addition to local and national offerings, we give consumers the ability to access digital coupons from thousands of retailers through our coupons offerings. Goods . In our Goods category, we earn product revenue from transactions in which we sell merchandise inventory directly to customers, as well as service revenue from transactions in which third-party merchants sell products to customers through our marketplaces. Our transition to a third-party Goods marketplace was completed in the fourth quarter of 2021 and, going forward, we will primarily recognize Goods transaction revenue on a net basis within service revenue. Our Goods category currently includes merchandise across multiple product lines, such as electronics, sporting goods, jewelry, toys, household items and apparel. Travel . Through our Travel category, we feature travel experiences at both discounted and market rates, including hotels, airfare and package deals covering both domestic and international travel. For many of our travel experiences, the customer must contact the merchant directly to make a travel reservation after purchasing a travel voucher from us. However, for some of our hotel offerings, customers make room reservations directly through our websites and mobile applications. 5 Traffic Channels and Platforms Our customers access our online local commerce marketplaces through our mobile applications and our websites. Our applications and mobile websites enable consumers to browse, purchase, manage and redeem deals on their mobile devices. For the year ended December 31, 2021, over 75% of our global transactions were completed on mobile devices. We use a variety of marketing channels to direct customers to the offerings available through these marketplaces, as described in the Marketing section below. Marketing We primarily use marketing to acquire and retain customers and promote awareness of our marketplaces and brand. We use a variety of marketing channels to make customers aware of our offerings, including search engines, email and push notifications, affiliate channels, social and display advertising and offline marketing. Search engines. Customers can access our offerings indirectly through third-party search engines. We use search engine optimization ("SEO") and search engine marketing ("SEM") to increase the visibility of our offerings in web search results. Email and mobile messaging. We communicate offerings through email and by push notifications to our customers based on their locations and personal preferences. A customer who interacts with an email or push notification is directed to our website or mobile application to learn more about the deal and to make a purchase. Additionally, we plan to introduce short message service ("SMS") notifications in 2022. Affiliate channels. We have an affiliate program that uses third parties to promote our offerings online. Affiliates earn commissions when customers access our offerings through links on their websites and make purchases on our platform. We expect to continue to leverage affiliate relationships to extend our deals to a broader base of potential customers. Social and display. We promote and publish our content and offerings through various social networks and adapt our notifications to the particular format of each of these social networking platforms. Our websites and mobile applications enable consumers to share our offerings with their personal social networks. We also promote our offerings via display advertising across various content publishers. Television and other offline. At times, we use other offline marketing channels such as connected television and traditional television advertising, and to a lesser extent, print and radio advertising, to help build awareness of our offerings and brand. Human Capital Management We believe attracting and retaining global talent is key to our success. Our Chief People Officer and Global Head of Diversity, Equity & Inclusion, together with our Chief Executive Officer and Chief Administrative Officer, are responsible for developing and executing our human capital strategy, with oversight from the Company's Board of Directors (the "Board") and relevant Board committees. This includes the recruitment, development and retention of talent to support our operations and execute our strategy and the design of our employee compensation and benefit programs. As of December 31, 2021, we had employees consisting of the following: Sales Corporate, Operational and Customer Support Total Employees North America 529 765 1,294 International 550 1,831 2,381 Total 1,079 2,596 3,675 6 Our sales force consists of merchant sales representatives and sales support staff who acquire and build merchant relationships and provide ongoing consultative expertise. Other key operational functions include engineering, product, marketing and editorial. Within our human capital strategy, there are five core pillars: Diversity, Equity & Inclusion, Workplace Culture & Values, Compensation & Benefits, Social Responsibility and Emerging Employee Needs. Diversity, Equity and Inclusion . Diversity, equity and inclusion ("DEI") is integrated into our business and we are building a resilient, engaged and energized team of collaborative people from all over the world who celebrate diversity. We consider it vital to attract, develop and retain employees from underrepresented groups and build a global team that reflects the diversity of the merchants and customers we serve and the communities in which we live and work. We believe that a global team of employees with diverse experiences, backgrounds, skills and perspectives will allow us to take a more innovative approach to problem solving and lead to better outcomes and higher productivity. Our company-wide DEI program includes a range of initiatives and programs that have the overarching goal of making our employees, merchants and customers feel seen and valued. In 2021, we completed the following: • Implemented an analytics-based approach to provide data-driven insights and increase visibility as we aim to improve workforce diversity, identify inequities and reduce turnover; • Re-launched and expanded our Employee Resource Groups; • Enabled diverse merchant self-identification; • Expanded DEI programming; • Created and offered an inclusive leadership training program for employees; and • Recognized, celebrated and supported multiple merchant-facing campaigns and employee-facing celebrations including Asian American Pacific Islander Month, Pride Month, Juneteenth, National Black Business Month, National Hispanic Heritage Awareness Month, Global Diversity Awareness Month and Women’s Small Business Month. As we look forward to 2022 and beyond, we plan to continue to build upon our existing initiatives to enable a thriving culture through a diverse workforce at a local level. Our global DEI vision and strategy are tied to the same operational goals as the rest of our organization, which help us design, lead and execute on a data-driven strategy, which we believe will ultimately lead to better business outcomes. We are making efforts to improve the representation and harness the diversity of our workforce - in particular, we are focused on increasing the number of women and people of color in leadership roles. Moving forward we plan to focus on the following: • Collecting and measuring the right data to enable us to improve workforce diversity, identify inequities and reduce turnover; • Increasing representation of underrepresented groups through the following: ◦ Establishing more programs focused on the hiring and retention of members of underrepresented populations; ◦ Sourcing and identifying a diverse range of applicants for all of the positions that we advertise, especially at Director and above levels, to specifically target our representation opportunities at more senior levels; ◦ Building relationships with Historically Black Colleges and Universities and other organizations that serve underrepresented communities and populations to increase our pipeline of diverse candidates; • Providing programming and tools that help our employees incorporate DEI strategies and goals into their annual performance goals; • Offering workshops and other forums to allow our employees to become more culturally competent; and • Creating new programming to build and champion our diverse merchant base. Workplace Culture and Values . To ensure we are supporting a thriving and vibrant culture, we conduct frequent Pulse Engagement Surveys throughout the year to help understand our employees’ needs and concerns 7 and uncover insights that will allow us to positively impact our employee experience. This survey covers a wide range of topics including leadership; culture; corporate strategy; DEI and manager support. In 2021, we had strong employee engagement scores. Each of our employees play an important role in ensuring that we maintain a high level of business ethics, safety and integrity. To facilitate this, all employees complete our mandatory ethics training module annually. Additionally, we have established an internal process called Groupon Ethics Reporting Service, which is communicated to employees during the annual ethics training and can be used to bring to management’s attention a wide range of concerns, including violations of our policies. To support talent development, we offer a variety of training and development programs supporting our ethics, workplace culture and managers. For example, we require our employees to complete unconscious bias training and Code of Conduct training. In addition, all managers must complete Respect In the Workplace Training. We also offer various other training programs to employees, such as, Change & Resilience, Managing Through Change, FS90 (a course that reinforces leader habits and manager expectations for new managers) and Authentic Allyship Workshops. Additionally, in 2022 we are launching a customized Director Development Program to support leaders with the tools they need to succeed. We also encourage internal referrals and postings for open roles. Compensation and Benefits. To attract and retain qualified employees, we offer competitive compensation and comprehensive benefits, which are designed to attract, reward, and engage top talent and include standard health, dental, vision, life and disability insurance benefits as well as a 401(k) plan with company matching for our U.S. employees. In addition, Groupon is focused on the health and well-being of employees, and we have significantly expanded our wellness programming to combat burnout and support the overall health of our employees. Our wellness program includes access to mental health support and services, Global Wellness Week, which is an entire week dedicated to personal wellness programming aimed at boosting all of our physical, nutritional and mental well-being, as well as digital detox days. Social Responsibility . Social responsibility is important to us, and we empower our employees to take part in making the communities in which we operate better places to work and live. We believe thriving local communities are good for everyone. Further, our efforts in this area support the success of our core Local business. We provide numerous opportunities for our employees to volunteer with causes they care about throughout the year and support communities through investment in local and national nonprofits focused on global issues like economic opportunity and hunger relief. In 2021, we supported more than 4,000 small businesses and entrepreneurs globally through social responsibility programming and initiatives and more than 30% of our workforce engaged in community activities through the Groupon Volunteers program. Emerging Employee Needs : Since early 2020, our business has been significantly impacted by COVID-19. In response to the pandemic, we implemented changes in our workforce and how we work in response to the pandemic. For example, in response to employee needs and the evolving nature of work, we developed a more flexible, hybrid working approach designed to optimize collaboration across our global employee base and maintain the accountability and productivity of our performance culture. We anticipate the return of employees to the workplace in 2022 utilizing our hybrid working design, and our global Human Resources team will continue to support the efforts for a smooth return to a safe working environment with the health and safety of our employees being a primary consideration. Additionally, in response to challenges created by the COVID-19 pandemic, we developed and launched a program on Building Resilience through Psychological Flexibility, which is available to all employees. Our goal is to nurture a performance driven culture - one that will be led by our values and focused on agility, results and accountability. We believe that this culture is foundational to our ability to drive our organization toward our long-term vision of being the destination for Local experiences. We intend to continue to focus on driving measurable results that will "show up" in our ability to attract and retain talent and build a resilient workforce well positioned to help us reach our long-term goals. Technology Our websites are hosted at two U.S. data centers in California and at an international data center in Ireland. Our data centers host our public-facing websites and applications, as well as our back-end business intelligence systems. We employ security practices to protect and maintain the systems located at our data centers. We are migrating our public-facing websites and applications and our back-end business intelligence systems to the cloud. 8 We have invested in intrusion and anomaly detection tools to try to recognize intrusions to our websites. We engage independent third-party Internet security firms to regularly test the security of our websites and identify vulnerabilities. In financial transactions with customers conducted on our websites and mobile applications, we use data encryption protocols to secure information while in transit. See Risk Factors for additional information relating to potential cyber threats. Competition Our customers and merchants are at the center of our two-sided marketplace. The quality and stability of both our customers and merchants are key to our business model. We face competition on both sides of our marketplace. We compete with other marketplaces, and some of our competitors have longer operating histories, significantly greater financial, technical, marketing and other resources. In addition, we compete with companies who address only specific verticals in the local experiences market, and in our Goods and Travel categories, companies who have greater scale and larger customer bases than we do. These factors may allow our competitors to benefit from their existing customer base with lower acquisition costs or to respond more quickly than we can to new or emerging technologies and changes in customer trends. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build a larger subscriber base or to monetize that subscriber base more effectively than we do. We also compete with companies that can offer alternative services for our merchants. There are companies that offer other types of advertising and promotional services to local businesses. Our merchants could choose to leverage these other platforms to attract customers to their businesses. We believe we can compete due to the access we provide our merchants to our large customer base, our trusted brand, and the investments we are making in self-service tools that will allow merchants to manage demand more effectively and better attract and retain customers. Seasonality Historically, we experienced seasonal buying patterns mirroring that of the larger consumer retail and e-commerce markets, where demand increases during the fourth quarter holiday season. That seasonal pattern has been less pronounced lately due to the de-emphasis on our Goods category and the impacts of COVID-19. Regulation We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet. Additionally, those laws and regulations may be interpreted differently across domestic and foreign jurisdictions. As a company in a relatively new and rapidly innovating industry, we are exposed to the risk that many of those laws may evolve or be interpreted by regulators or in the courts in ways that could materially affect our business. Those laws and regulations may involve taxation, unclaimed property, intellectual property, product liability, travel, distribution, electronic contracts and other communications, competition, consumer protection, the provision of various online payment services, employee, merchant and customer privacy and data security or other areas. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD Act"), as well as the laws of most states, contain provisions governing gift cards, gift certificates, stored value or pre-paid cards or coupons ("gift cards"). Groupon vouchers may be included within the definition of "gift cards" under many laws. In addition, certain foreign jurisdictions have laws that govern disclosure and certain product terms and conditions, including restrictions on expiration dates and fees, that may apply to Groupon vouchers. There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies and foreign governments that could affect us, and our global operations may be constrained by regulatory regimes and laws in Europe and other jurisdictions outside the United States that may be more restrictive and adversely impact our business. Various U.S. laws and regulations, such as the Bank Secrecy Act of 1970 (the "Bank Secrecy Act"), the Dodd-Frank Wall Street Reform and Consumer Protection Act, the USA PATRIOT Act and the CARD Act impose certain anti-money laundering requirements on companies that are financial institutions or that provide financial products and services. Those laws and regulations broadly define financial institutions to include money services 9 businesses such as money transmitters, check cashers and sellers or issuers of stored value. Requirements imposed on financial institutions under those laws include customer identification and verification programs, record retention policies and procedures and transaction reporting. We do not believe that we are a financial institution subject to those laws and regulations. We are subject to a variety of U.S. federal, state and international laws and regulations governing consumer data. The General Data Protection Regulation ("GDPR"), which was adopted by the European Union and became effective in May 2018, the California Consumer Privacy Act (“CCPA”) which became effective January 1, 2020, and the California Privacy Rights Act (the "CPRA"), which expands on the CCPA and will go into effect in 2023, require companies to satisfy specific requirements regarding the handling of personal and sensitive data, including its collection, use, protection and the ability of persons whose data is stored to, among other things, access and/or delete such data about themselves. The Virginia Consumer Data Protection Act (the "CDPA") and the Colorado Privacy Act (the "CPA"), which will also go into effect in 2023 provide new data privacy rights to their respective residents. Our ongoing efforts to comply with these laws and regulations and other relevant privacy and data protection laws and regulations, have required updates to certain business practices and systems. Non-compliance with any privacy and data protection laws and regulations could result in significant monetary fines. For instance, non-compliance with the GDPR could result in proceedings against us by governmental entities or others and fines up to the greater of €20 million or 4% of annual global revenue. We continue to monitor developments in laws and regulations relating to privacy and consumer data, and we expect these evolving laws and regulations will continue to impact our business in the future. Intellectual Property We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. In addition to those contractual arrangements, we also rely on a combination of trade secrets, copyrights, trademarks, service marks, trade dress, domain names and patents to protect our intellectual property. Groupon and its related entities own a number of trademarks and service marks registered or pending in the United States and internationally. In addition, we own a number of issued patents and pending patent applications in the United States and internationally and own and have applied for copyright registrations in the United States. Circumstances outside our control could pose a threat to our intellectual property rights and the efforts we have taken to protect our proprietary rights may not be sufficient or effective or deter independent development of equivalent or superior intellectual property rights by others. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business and harm our operating results. Companies in the Internet, technology and other industries as well as non-practicing entities may own large numbers of patents, copyrights and trademarks or other intellectual property rights and may request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. We are currently subject to, and expect to face in the future, lawsuits and allegations that we have infringed the intellectual property rights of third parties. As our business evolves, we may face more claims of infringement, and may experience an adverse result which could impact our business and/or our operating results. We have received in the past, and we anticipate we will receive in the future, communications alleging that items offered or sold through our website infringe third-party copyrights, trademarks, patents and trade names or other intellectual property rights or that we have otherwise infringed third parties’ past, current or future intellectual property rights. We may be unable to prevent third parties from offering and selling unlawful or infringing goods or goods of disputed authenticity, and we may be subject to allegations of civil or criminal liability for unlawful activities carried out by third parties through our website. We may implement measures in an effort to protect against these potential liabilities that could require us to spend substantial resources and/or to reduce revenue by discontinuing certain service offerings. Any costs incurred as a result of liability or asserted liability relating to the sale of unlawful or infringing goods or goods of disputed authenticity or other infringement related claims could harm our business. 10 Information About Our Executive Officers The following table sets forth information about our executive officers: Name Age Position Kedar Deshpande 43 Chief Executive Officer Damien Schmitz 44 Interim Chief Financial Officer Dane Drobny 54 Chief Administrative Officer, General Counsel and Corporate Secretary Kedar Deshpande was appointed as our Chief Executive Officer in December 2021. He previously served as the Chief Executive Officer of Zappos.com (“Zappos”) and in various positions at Zappos from March 2011 to August 2020, including as Zappos’ Chief Operating Officer from 2019 to 2020 and senior leadership roles in technology and marketing, as well as project management roles. Prior to that, he was a software engineer at General Electric. Damien Schmitz was appointed as our Interim Chief Financial Officer in November 2021. He previously served as our Senior Vice President, Finance since October 2021, and Vice President, Finance since January 2019. Prior to that he served as Vice President, Finance and Chief Financial Officer, International from January 2018 to January 2019 and in various finance leadership roles at the Company since October 2012, including Senior Director, Global FP&A from September 2016 to December 2017. Prior to joining the company, Mr. Schmitz held consulting roles with Price Waterhouse Coopers LLP and 3M Company. Dane Drobny has served as our General Counsel and Corporate Secretary since July 2014 and our Chief Administrative Officer since April 2020. Prior to joining Groupon, Mr. Drobny was Senior Vice President, General Counsel and Corporate Secretary at Sears Holdings Corporation (NASDAQ: SHLD) from May 2010 to June 2014. Prior to joining Sears Holdings, he spent 17 years at the international law firm of Winston & Strawn LLP, most recently as a partner. Available Information We electronically file reports with the SEC. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also available free of charge through our website (www.groupon.com), as soon as reasonably practicable after electronically filing with or otherwise furnishing such information to the SEC, and are available in print to any stockholder who requests them. Our Code of Conduct, Corporate Governance Guidelines and committee charters are also posted on the site. We use our Investor Relations website (investor.groupon.com) and our press site (www.groupon.com/press) as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Information contained on our website and press site is not a part of this Annual Report on Form 10-K. 11