What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-02-28 · 143 added, 198 removed, 342 unchanged (50% of the section changed)

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See Part I, Forward-Looking Statements , for additional information.

For further discussion regarding operating and financial data for the year ended December 31, 2021 as compared to the year ended December 31, 2020, refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Groupon is a global scaled two-sided marketplace that connects consumers to merchants.

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See Item 8, Note 18, 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:

Currently, we generate 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.

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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 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

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.

We fully transitioned to a third-party Goods marketplace in North America in 2020 and in International in 2021.

In prior periods, we generated product revenue from our sales of first-party Goods inventory and product revenue was reported on a gross basis as the purchase price received from the customer.

Our strategy is to be the trusted marketplace where customers go to buy local services and experiences.

We plan to grow our revenue by building long-term relationships with local merchants to improve our inventory selection and improving the customer experience through inventory curation and improved convenience in order to drive customer demand and purchase frequency.

Macroeconomic Conditions

The COVID-19 pandemic has changed the environment that our business operates in, which includes changes in consumer behavior and macroeconomic impacts affecting both us and our merchants.

Certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time.

Impacts to our operations may be caused by macroeconomic trends such as inflationary pressures, higher labor costs, labor shortages and resulting changes in consumer and merchant behavior.

2022 Cost Savings Plan

In August 2022, we initiated a multi-phase cost savings plan designed to reduce our expense structure to align with our go-forward business and financial objectives (the “2022 Cost Savings Plan”).

The 2022 Cost Savings Plan included a restructuring plan, approved by our Board on August 5, 2022 (the “2022 Restructuring Plan”), as well as other planned savings to be achieved through other actions, such as future reductions in our facilities footprint at natural lease terminations (or by exercising existing options in leases) and elective decisions to eliminate vacant positions rather than rehire.

We estimate that the first phase of the 2022 Cost Savings Plan could result in approximately $150.0 million in run-rate cost savings by the end of 2023.

The first phase of the 2022 Restructuring Plan includes an overall reduction of approximately 500 positions globally, with the majority of these reductions completed by the end of 2022 and the remainder in early 2023.

In connection with these actions, we expect to record total pre-tax charges of $10.0 million to $20.0 million.

In January 2023, the Board approved the second phase of the 2022 Restructuring Plan, which includes an overall reduction of approximately 500 positions globally, with the majority of these reductions expected to occur by the end of the second quarter 2023.

In connection with the second phase, we expect to record total pre-tax charges of $10.0 million to $20.0 million.

We estimate that the payroll actions under the second phase of the 2022 Restructuring Plan could result in approximately $70.0 million in annualized cost savings.

We also intend to implement other non-payroll actions outlined within the 2022 Cost Savings Plan, including reducing technology, software, and certain professional services costs.

We estimate that these non payroll actions under the second phase of the 2022 Cost Savings Plan could result in approximately $30.0 million in annualized cost savings.

How We Measure Our Business

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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.

As noted above in Overview , beginning in 2021 for our North America segment and 2022 for our International segment, gross billings from our Goods category is primarily reported on a net basis within service revenue.

Gross billings is an indicator of our growth and business performance as it measures the dollar volume of transactions generated through our marketplaces.

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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.

• Units are the number of purchases during the reporting period, before refunds and cancellations, made either through one of our online marketplaces, a third-party marketplace, or directly with a merchant for which we earn a commission.

We do not include purchases with retailers using digital coupons accessed through our websites or mobile applications in our units metric.

We consider units to be an important indicator of the total volume of business conducted through our marketplaces.

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Year Ended December 31,

2021 2020 2019

Gross billings $ 1,822,902 $ 2,335,148

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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.

• Revenue is currently earned through service revenue transactions which we generate commissions by selling goods or services on behalf of third-party merchants.

Service revenue from those transactions is reported on a net basis as the purchase price collected from the customer for the offering less an agreed upon portion of the purchase price paid to the third-party merchant.

Service revenue also includes commissions we earn when customers make purchases with retailers using digital coupons accessed through our digital properties.

We 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.

In prior periods, we generated product revenue from our sales of first-party Goods inventory.

Our product revenue from these first-party transactions, which were direct sales of merchandise inventory, was the purchase price received from the customer.

As noted above in Overview , beginning in 2021 for our North America segment and 2022 for our International segment, revenue from our Goods category is primarily reported on a net basis within service revenue.

• 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.

In prior periods for our International segment, there is a lack of comparability between product revenue, which was reported on a gross basis, and service revenue, which primarily consists of transactions reported on a net basis.

Due to the lack of comparability of revenue generated from our Goods category in prior periods, 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.

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Year Ended December 31,

2021 2020 2019

Revenue $ 599,085 $ 967,108

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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.

• Marketing expense consists primarily of online marketing costs, such as search engine marketing, advertising on social networking sites and affiliate programs, and offline marketing costs, such as television.

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

each voucher sold exceeds the transaction price paid by the customer.

From time to time, we have offerings from well-known national merchants for customer acquisition and activation purposes, for which the amount we owe the merchant for each voucher sold exceeds the transaction price

paid by the customer.

Our gross billings from those transactions generate no service revenue and our net cost (i.e., the excess of the amount owed to the merchant over the amount paid by the customer) is classified as marketing expense.

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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.

Additional costs in general and administrative include depreciation and amortization, rent, professional fees, litigation costs, travel and entertainment, recruiting, 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.

• Restructuring and related charges represent severance and benefit costs for workforce reductions, impairments and certain facilities-related costs and professional advisory fees.

See Item 8, Note 13, Restructuring and Related Charges , for additional information about our restructuring plans.

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.

Re-engaging and retaining customers to drive purchase frequency .

To re-engage and retain customers to drive purchase frequency, we are focused on strengthening our core marketplace by improving inventory density, the customer experience and trust.

In addition to our efforts to improve our inventory density we are exploring opportunities to differentiate our inventory.

Impact of macroeconomic conditions .

We have been, and may continue to be, impacted by adverse consequences of the macroeconomic environment, including but not limited to, inflationary pressures, higher labor costs, labor shortages, supply chain challenges and resulting changes in consumer and merchant behavior.

We will continue to monitor the impact of macroeconomic conditions on our business.

Results of Operations

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Year Ended December 31, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

2022 2021 2022 vs 2021

Gross billings

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North America gross billings, units and TTM active customers decreased by $375.6 million, 14.0 million and 3.5 million for the year ended December 31, 2022 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.

These declines were primarily attributable to a decline in engagement on our platform that resulted in fewer unit sales and lower gross billings.

Financial Metrics

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Year Ended December 31, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

2022 2021 2022 vs 2021

Service revenue:

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Comparison of the Years Ended December 31, 2022 and 2021:

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.

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

North America revenue, cost of revenue and gross profit decreased by $170.8 million, $9.3 million and $161.5 million for the year ended December 31, 2022 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.

These declines were primarily attributable to a decline in engagement on our platform that resulted in fewer unit sales and lower gross billings.

Marketing and Contribution Profit

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Year Ended December 31, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

2022 2021 2022 vs 2021

Marketing $ 103,862 $ 138,025 (24.8) %

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Comparison of the Years Ended December 31, 2022 and 2021:

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.

North America marketing expense decreased for the year ended December 31, 2022 compared with the prior year primarily driven by accelerated traffic declines and lower spend in our online marketing.

North America marketing expense as a percentage of gross profit increased for the year ended December 31, 2022 compared with the prior year driven primarily by a decrease in gross profit.

North America contribution profit decreased for the year ended December 31, 2022 compared with the prior year primarily due to a decrease in gross profit.

International

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Year Ended December 31, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

2022 2021 2022 vs 2021

Gross billings

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International gross billings, units and TTM active customers decreased by $136.6 million, 4.4 million and 1.0 million for the year ended December 31, 2022 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.

These declines were primarily attributable to a de-emphasis on our Goods category, partially offset by higher demand in our Local category and improved customer refund levels.

In addition, there was a $65.9 million unfavorable impact on gross billings from year-over-year changes in foreign currency exchange rates.

Financial Metrics

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Year Ended December 31, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

2022 2021 2022 vs 2021

Service revenue:

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Comparison of the Years Ended December 31, 2022 and 2021:

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.

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

International revenue, cost of revenue and gross profit decreased by $197.2 million, $144.5 million and $52.8 million for the year ended December 31, 2022 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.

Those decreases were primarily due to the transition of Goods to a third-party marketplace model and lower variable consideration from unredeemed vouchers, partially offset by an increase in Local gross billings and improved customer refund levels.

Revenue and gross profit also had unfavorable impacts of $18.4 million and $16.9 million from year-over-year changes in foreign currency exchange rates.

Marketing and Contribution Profit

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Year Ended December 31, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

2022 2021 2022 vs 2021

Marketing $ 45,369 $ 50,755 (10.6) %

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Comparison of the Years Ended December 31, 2022 and 2021:

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.

International marketing expense decreased for the year ended December 31, 2022 compared with the prior year primarily due to accelerated traffic declines, a lower spend in our online marketing and a favorable impact of $5.6 million from year-over-year changes in foreign currency exchange rates.

Marketing expense as a percentage of gross profit increased for the year ended December 31, 2022 compared with the prior year due to a decrease in gross profit.

International contribution profit decreased for the year ended December 31, 2022 compared with the prior year primarily due to a decrease in gross profit.

Consolidated Operating Expenses

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Year Ended December 31, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

2022 2021 2022 vs 2021

Marketing $ 149,231 $ 188,780 (20.9) %

Selling, general and administrative 481,375 511,096 (5.8)

Goodwill impairment — 109,486 — (100.0) —

Long-lived asset impairment — 22,351 — (100.0) —

Restructuring and related charges 41,895 64,836 31 (35.4) NM

Goodwill impairment 35,424 — NM

Long-lived asset impairment 12,259 — NM

Restructuring and related charges 12,350 41,895 (70.5)

Total Operating expenses $ 690,639 $ 741,771 (6.9)

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Comparison of the Years ended December 31, 2022 and 2021:

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.

Marketing expense decreased for the year ended December 31, 2022 compared with the prior year due to accelerated traffic declines and a lower spend in our online marketing.

Marketing expense as a percentage of gross profit increased for the year ended December 31, 2022 compared to the prior year due to a decrease in consolidated gross profit.

SG&A decreased for the year ended December 31, 2022 compared with the prior year primarily due to lower payroll-related expenses, partially offset by higher cloud costs.

SG&A as a percentage of gross profit increased for the year ended December 31, 2022 compared with the prior year primarily due to a decrease in consolidated gross profit.

During the year ended December 31, 2022, we recognized goodwill and long-lived asset impairment.

See Item 8, Note 4, Goodwill and Other Intangible Assets, Note 3, Property, Equipment and Software, Net and Note 8, Leases for additional information.

We had no similar activity in the prior year period.

Restructuring and related charges decreased for the year ended December 31, 2022 compared with the prior year due to the substantial completion of the actions of our Board approved multi-phase restructuring plan ("2020 Restructuring Plan") in the year 2021, partially offset by the costs incurred on the 2022 Restructuring Plan.

See Item I, Note 13, Restructuring and Related Charges , for additional information.

Consolidated Other Income (Expense), Net

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Year Ended December 31,

2021 2020 2019

Other income (expense), net $ (24,155) $ 92,680

Comparison of the Years Ended December 31, 2022 and 2021:

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.

T he 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.

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

The change in Other income (expense), net for the year ended December 31, 2022 compared with the prior year is primarily related to an unrealized gain of $89.1 million recorded in 2021 as a result of an upward adjustment for an observable price change on an other equity investment and changes in foreign currency gains and losses.

Provision (Benefit) for Income Taxes

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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

2022 2021 2022 vs 2021

Provision (benefit) for income taxes $ 42,410 $ (32,323) NM

Effective tax rate (22.1) % (36.7) %

Federal income tax rate was 21% for the years ended December 31, 2022 and 2021.

The primary factors impacting the effective tax rate for the year ended December 31, 2022 were the pretax losses incurred in jurisdictions that have a valuation allowance against their net deferred tax assets, the reversal of reserves for uncertain tax positions due to closure of applicable statutes of limitations, the non-deductible goodwill impairment, and the valuation allowance recorded against our federal and state deferred tax assets.

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 14, 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.

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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.

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 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.

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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.

For the year ended December 31, 2022, special charges and credits included charges related to our 2022 and 2020 restructuring plans and goodwill and long-lived asset impairments.

For the year ended December 31, 2021, special charges and credits included charges related to our 2020 restructuring plan.

We exclude special charges and credits from Adjusted EBITDA because we believe that excluding those items provides meaningful supplemental information about our core operating performance and facilitates comparisons with our historical results.

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Year Ended December 31,

2021 2020 2019

Income (loss) from continuing operations $ (234,380) $ 120,348

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Depreciation and amortization 62,663 72,819

Acquisition-related expense (benefit), net — 6 39

Restructuring and related charges (1)

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Long-lived asset impairment 12,259 —

Strategic advisor costs — 3,626 —

Other (income) expense, net (2)

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Adjusted EBITDA $ (15,113) $ 143,228

(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.

(1) Includes $3.0 million of right-of-use assets - operating leases impairment for the year ended December 31, 2022 and $7.7 million of right-of-use assets - operating leases and leasehold improvement impairments for the year ended December 31, 2021.

Refer to Item 2, Note 8, Leases and Note 13, Restructuring and Related Charges, for additional information.

Refer to Item 8, Note 13, Restructuring and Related Charges and Note 5, Investments, for additional information.

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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.

Therefore, we believe it is important to view free cash flow as a complement to our Consolidated Statements of Cash Flows.

For a reconciliation of free cash flow to the most comparable U.S.

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Foreign currency exchange rate neutral operating results .

Foreign currency exchange rate neutral operating results show current period operating results as if foreign currency exchange rates had remained the same as those

in effect in the prior year period.

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

Those measures are intended to facilitate comparisons to our historical performance.

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Selling, general and administrative 499,905 (18,530) 481,375 502,697 8,399 511,096

Goodwill impairment 39,518 (4,094) 35,424 — — —

Long-lived asset impairment 13,704 (1,445) 12,259 — — —

Restructuring charges 12,884 (534) 12,350 40,845 1,050 41,895

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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 principal source of liquidity is our cash balance, which includes outstanding borrowings under the Third Amendment Credit Agreement, totaling $281.3 million as of December 31, 2022.

Our net cash flows from operating, investing and financing activities from continuing operations for the years ended December 31, 2022 and 2021 were as follows (in thousands):

Year Ended December 31,

2021 2020 2019

Cash provided by (used in):

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Year Ended December 31,

2021 2020 2019

Net cash provided by (used in) operating activities from continuing operations $ (135,987) $ (123,958)

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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.

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, 2022, our net cash used in operating activities from continuing operations was $136.0 million as compared with the prior year period of $124.0 million.

The change in net cash used in operating activities was primarily due to lower cash inflows from customers, as a result of lower bookings during the year ended December 31, 2022.

The timing of customer purchase to redemption cycles remained relatively consistent year-on-year.

This change in net cash used in operating activities was partially offset by a decrease in Marketing spending, a decrease in Selling, general and administrative costs as a result of the impacts of the 2020 Restructuring Plan and the 2022 Cost Savings Plan, and Restructuring and related charges as the actions and costs of the 2020 Restructuring Plan were substantially completed as of December 31, 2021 and the costs related to the first phase of the 2022 Restructuring Plan were less than the costs of the 2020 Restructuring Plan.

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.

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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, 2022, our net cash used in investing activities from continuing operations was $38.8 million, which included purchases of property and equipment and capitalized software of $36.2 million.

Net cash provided by (used in) financing activities

For the year ended December 31, 2022, our net cash used in financing activities was $34.4 million.

Our net cash used in financing activities included $40.0 million in proceeds under our revolving credit agreement, $65.0 million in payments of borrowings under our revolving credit facility and $6.1 million in taxes paid related to net share settlements of stock-based compensation awards.

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.

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.

In July 2020, we entered into an amendment to the revolving credit agreement (the "First Amendment") which permanently reduced borrowing capacity under our senior secured revolving credit facility from $400.0 million to $225.0 million.

In March 2021, we entered into a second amendment to the revolving credit agreement (the "Second Amendment") to, among other things, permit the issuance of the 2026 Notes and related capped call transactions.

In September 2022, we entered into a third amendment to the Second Amendment Credit Agreement (the "Third Amendment" and the Second Amendment Credit Agreement as amended, the "Third Amendment Credit Agreement") which reduced borrowing capacity under our senior secured revolving credit facility from $225.0 million to $150.0 million.

We remained in compliance with the applicable covenants as of December 31, 2022 under our Third Amendment Credit Agreement.

In March 2023, we entered into a fourth amendment to the Third Amendment Credit Agreement (the "Fourth Amendment" and the Third Amendment Credit Agreement as amended, the "Amended Credit Agreement"), which reduces borrowing capacity under our senior secured revolving credit facility from $150.0 million to $75.0 million.

In connection with the Fourth Amendment, we repaid $25.0 million of

outstanding borrowing.

Prior to entering into the Fourth Amendment, our access to the full capacity of our Third Amendment Credit Agreement was partially restricted and our liquidity impacted accordingly.

There are no assurances that we will be able to continue to have access to the full capacity of our Fourth Amendment Credit Agreement and our liquidity could be impacted accordingly.

Additionally, we have contracts in place with multiple payment processors, which give our payment processors in certain instances discretion to impose receivable holdbacks or reserve requirements based on changes to our business model or material changes in our financial condition.

Any material increase in receivable holdbacks or reserve requirements could have a material impact on our cash flow and available liquidity.

The accompanying Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

In accordance with ASU No.

2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Consolidated Financial Statements are issued.

Our Net cash used in operating activities was $136.0 million and $124.0 million for the years ended December 31, 2022 and December 31, 2021.

Cash and cash equivalents were $281.3 million as of December 31, 2022.

While we were in compliance with the covenants of our Third Amendment Credit Agreement as of December 31, 2022, our borrowing capacity was restricted and downward revisions to our 2023 forecast indicated we may not be in compliance in future periods.

We took steps to amend the credit facility to provide us covenant relief and flexibility in our operations as described in Note 7, Financing Arrangements .

These conditions and events raised substantial doubt about our ability to continue as a going concern.

In January 2023, our Board approved the second phase of the 2022 Restructuring Plan, which includes an overall reduction of approximately 500 positions globally.

A substantial portion of these reductions occurred in January 2023 and the remaining are expected to occur by the end of the second quarter 2023.

We estimate that the second phase of our 2022 Restructuring plan and related costs savings initiatives will result in approximately $100.0 million in annualized cost savings.

Further, following the completion of our cloud migration project in February 2023, we have begun to accelerate our efforts to optimize our technology stack and cloud workloads resulting in additional cost savings and we plan to improve the efficiency of our marketing investment resulting in reductions to marketing expense for the remainder of 2023.

Management will also take steps to minimize the risk certain payment processors will require reserves or holdback receivables.

We believe management's plans as described above are probable of being achieved to alleviate substantial doubt about our ability to continue as a going concern and we will have sufficient liquidity to meet our obligations as they become due over the next twelve months.

We are also currently evaluating several different strategies to enhance our liquidity position.

These strategies may include, but are not limited to, pursuing additional actions under our multi-phase cost-savings plan, seeking additional financing from both the public and private markets through the issuance of equity or debt securities, and monetizing certain assets.

As of December 31, 2022, we had $44.2 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.

subsidiaries in those operations or remit such earnings in a tax-efficient manner.

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.

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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.

Actual results may differ materially from those estimates under different assumptions or conditions.

We believe that the estimates and assumptions related to going concern, revenue recognition, impairment assessments and income taxes have the greatest potential impact on our Consolidated Financial Statements.

Therefore, we consider these to be our critical accounting estimates.

Going Concern

In accordance with ASU No.

Determining the extent to which conditions or events raise substantial doubt about our ability to continue as a going concern and the extent to which mitigating plans sufficiently alleviate any such substantial doubt requires significant judgment and estimation by us.

Our significant estimates related to this analysis may include identifying business factors such as size, growth and profitability used in the forecasted financial results and liquidity.

Further, we make assumptions about the probability that management's plans will be effectively implemented and alleviate substantial doubt and our ability to continue as a going concern.

We believe that the estimated values used in our going concern analysis are based on reasonable assumptions.

However, such assumptions are inherently uncertain and actual results could differ materially from those estimates.

See Item 8, Note 2, Summary of Significant Accounting Policies, for more information about our going concern assessment.

Revenue Recognition

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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.

See Item 8, Note 2, Summary of Significant Accounting Policies and Item 8, Note 12, 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.

Impairment assessment estimates apply 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.

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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.

When determining fair values in impairment tests, we use the income approach (including discounted cash flows).

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.

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rates of long-term growth;

working capital levels;

and income tax rates.

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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.

However, such assumptions are inherently uncertain and actual results could differ materially from those estimates.

See Item 8, Note 3, Property, Equipment and Software, Net, Note 4, Goodwill and Other Intangible Assets, Note 5, Investments and Note 8, Leases for more information about our impairment assessments.

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.

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 those charges could 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.

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See Item 8, Note 2, Summary of Significant Accounting Policies , and Note 14, 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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis