SEC Company Response from Groupon, Inc. (GRPN) (CIK 0001490281) (GRPN) — Aug 24, 2012
Groupon, Inc. (GRPN) (CIK 0001490281)
Date: Aug. 24, 2012 · CIK: 0001490281 · Accession: 0001490281-12-000024
AI Filing Summary & Sentiment
Referenced dates: August 2, 2012
Letter
Division of Corporation Finance Re: Groupon, Inc. Form 10-K for the Fiscal Year Ended December 31, 2011 Filed on March 30, 2012 File No. 1-35335
Dear Mr. Spirgel:
Set forth below are the responses of Groupon, Inc. (the “Company”) to the comments of the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained in the Staff's letter to the Company, dated August 2, 2012, relating to the Company's Form 10-K for the year ended December 31, 2011, filed with the Commission on March 30, 2012. For convenience of reference, the text of the comments in the Staff's letter has been reproduced in italicized type herein. Where appropriate, the Company has addressed these comments in its Form 10-Q for the quarter ended June 30, 2012 filed on August 14, 2012 (the “Form 10-Q”).
Please note that the Company is requesting confidential treatment pursuant to Rule 83 of the Commission's Rules on Information Requests, 17 C.F.R. Section 200.83 with respect to portions of the response to Comment 4. Such response is being provided to the Staff in its entirety, with redacted portions underlined and italicized, in hard copy under separate cover along with the request for confidential treatment. Please note the version of this letter filed via EDGAR omits confidential information included in the unredacted version delivered to the Staff, and the redactions are denoted in the EDGAR version by identifying numbers [GRPN-01] through [GRPN-03].
Revenue, page 45
North America, page 45
International, page 46
Comment No. 1
Please expand your disclosures to discuss how certain channels which were launched in 2011, including but not limited to Groupon Getaways, Groupon Live, and Groupon Goods, contributed to your revenue growth and impacted your deal margins, loss from operations and refund reserves, if at all, and your
Mr. Larry Spirgel
August 24, 2012
Page 2
CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC.
FILE NO. 1-35335
expectations on their future impact.
Response
The Company advises the Staff that it uses channels principally as a branding and marketing tool to promote deals relating to certain types of services or products. The Company does not consider these channels to be separate or distinct products or services, but rather uses them as guideposts to help consumers more easily navigate the Company's broad array of deal offerings. In addition, the channels referred to above are primarily used in our North America markets, and in our international markets we promote deals under different channels, depending on the market. As a result, the Company does not believe that separate discussion of financial metrics related to these channels is material to an understanding of the Company's business or financial results. Therefore, the Company does not believe that separately disclosing quantitative information about revenues, margins, operating income (loss), and refund reserves for deals attributed to channels would be meaningful to investors.
The Company separately discloses its third party revenue deals where it acts as an agent for its merchants, which are reported on a net basis within revenue, and its direct revenue deals where it is the merchant of record and serves as the principal to the transaction, which are reported on a gross basis in revenues and cost of revenues. Beginning with the Form 10-Q, the Company began separately presenting third party revenue and direct revenue because direct revenue became material to the Company for the first time during the second quarter of 2012. Notably, this new disclosure is driven not by type of deal or category (Groupon Goods), but from the fundamental change in the service being offered by the Company in connection with such deals-acting as merchant of record for the customer.
The Company has included, and will continue to include, in its Management's Discussion and Analysis of Financial Condition and Results of Operations the factors that the Company believes are meaningful to an understanding of its results of operations. The Company will continue to evaluate its disclosures in light of the impact of new or existing channels, particularly the terms of service offered by the Company within such channels, on its financial condition and results of operations and will update its disclosures accordingly.
Non-GAAP Financial Measures, page 50
Comment No. 2
Please include a prominent presentation of the amounts for the three major categories of the statement of cash flows when presenting free cash flow, a non-GAAP liquidity measure. In this regard, refer to the guidance in Question 102.06 of the Compliance and Disclosure Interpretation on Non-GAAP Financial Measures dated July 8, 2011.
Response
In response to the Staff's comment, the Company has included, on page 41 of its Form 10-Q, a prominent presentation of the three major categories of the statement of cash flows in its presentation of free cash flow for the six months ended June 30, 2012. The Company will continue to do so when presenting free cash flow consistent with the guidance in Question 102.06 of the Compliance and Disclosure
Mr. Larry Spirgel
August 24, 2012
Page 3
CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC.
FILE NO. 1-35335
Interpretation on Non-GAAP Financial Measures dated July 8, 2011.
Cash Provided by Operating Activities, page 53
Comment No. 3
We note that you attributed your increase in cash to changes in working capital activities (in part), resulting primarily from a $380.1 million increase in merchant payables due to continued growth in the daily deals business. Please further address the extent to which the increase in merchant payables is attributable to a change in the mix of the daily deals business, in which merchants are obtaining a larger percentage of the proceeds from Groupons sold or where merchants have been subject to longer payment terms.
Response
In response to the Staff's comment, the Company expanded its disclosures on pages 42 and 43 of its Form 10-Q to address how merchant payments terms have impacted its working capital. Furthermore, the Company advises the Staff that the increase in merchant payables during the six months ended June 30, 2012 has not been significantly impacted by the change in the mix of the daily deals business or to scenarios where merchants are obtaining a larger percentage of the proceeds from Groupons sold. For the second quarter of 2012, the primary drivers of the changes in merchant payables were the continued growth of the Company and the changes of merchant payment timing, i.e. accelerated merchant payment terms as disclosed in the Form 10-Q. The Company will continue to evaluate its disclosures and if, in the future, the Company experiences a meaningful increase in merchant payables as a result of merchants obtaining a larger percentage of the proceeds from Groupons sold, the Company will revise its disclosures accordingly.
Critical Accounting Policies and Estimates, page 56
Refunds, page 56
Comment No. 4
We note that during the third quarter you launched several new channels, including travel (Groupon Getaways), live concerts and events (Groupon Live), and consumer products (Groupon Goods). Tell us whether you established a higher refund reserve during the fourth quarter to cover refunds primarily for these newer deals or your standard featured daily deals.
Response
The Company advises the Staff that, although new channels were launched in the third quarter of 2011, the additional refund reserve established in the fourth quarter of 2011 was due primarily to a change in deal mix toward higher price point offerings within its standard featured daily deals. Of the $67.4 million total refund reserve at December 31, 2011, [GRPN-01] was related to these new channels.
In addition, provide us with the following information:
•
Quantify the shift in your deal mix during the fourth quarter and the percentage increase of higher price point offers through your new merchant channels between the third quarter and
Mr. Larry Spirgel
August 24, 2012
Page 4
CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC.
FILE NO. 1-35335
the fourth quarter that required you to establish a higher refund reserve at year-end.
Response
As noted above, only [GRPN-02] of the total refund reserve was related to deals from the new channels, out of a total refund reserve of $67.4 million at December 31, 2011. The additional refund reserve established in the fourth quarter of 2011 was due primarily to a change in deal mix toward higher price point offerings within its standard featured daily deals. Thus, the deal mix and percentage of higher price point offers through new channels between the third and fourth quarter did not significantly contribute to the higher refund reserve at year-end.
•
State whether the higher than anticipated coupon returns were predominantly in the US or in your international operations.
Response
The higher than anticipated coupon returns were predominantly in the Company's US operations.
•
Explain in detail how your original estimate disclosed on February 8, 2012 of the reserve for customer refunds proved to be inadequate after you performed additional analysis. Specifically tell us what additional analysis was performed and when the problem was identified. Explain how it only impacted the fourth quarter of 2011 and did not impact the financial statements for the nine months ended September 30, 2011.
Response
[GRPN-03]
Comment No. 5
Please revise your disclosures to include a more detailed description of the input parameters for your modeled refund behavior, including but not limited to the deal mix and price point of deals.
Response
In response to the Staff's comment, the Company expanded its disclosures on pages 10, 11, 44 and 45 of its Form 10-Q to include a more detailed description of the input parameters for its modeled refund behavior for the six months ended June 30, 2012.
Additionally, tell us:
•
How you considered the relatively long or indefinite period of time in which a Groupon may be refunded pursuant to your Groupon Promise, your lack of historical experience with higher price point offers and/or with new markets, and the absence of a large volume of relatively homogenous transactions.
Response
Mr. Larry Spirgel
August 24, 2012
Page 5
CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC.
FILE NO. 1-35335
The Company's refund model takes into consideration: (i) historical refund experience (including refunds issued pursuant to the Groupon Promise) developed from millions of deals featured by the Company; (ii) the relative risk of refund based on expiration date, price point (or “deal value”), and deal category and (iii) other qualitative factors that could impact the level of future refunds, such as introductions of new deals, discontinuations of legacy deals or general economic trends that might impact customer behavior. With respect to deal category, the Company's refund model distinguishes among six broad categories: food & drink, activities, health & beauty, services, retail, and events. The Company does consider the relatively long or indefinite period of time in which a Groupon may be refunded pursuant to its Groupon Promise within its historical refund experience, as this data includes the customers' historical refund behavior pursuant to the Groupon Promise. In particular, the Company has observed that customers who claim a refund pursuant to the Groupon Promise tend to do so within a very short time period after redeeming the Groupon (for example, a customer who redeems a Groupon at a restaurant and has a poor experience with the merchant is likely to contact the Company's customer service department almost immediately after redemption). This historical refund behavior or experience is then utilized as an input parameter in the Company's refund model, capturing the impact of the Groupon Promise. As discussed above, the Company believes that it has a fully developed refund history.
With respect to higher price point offers, the Company has extensive historical refund experience for deals in a wide spectrum of price points. However, prior to updating its refund model, anticipated refund rates based on historical refund activity were applied equally to recent sales in the Company's waterfall calculation regardless of price point. In the updated model, the Company considered the effects of customer refund behavior at different price points to calculate its estimated refunds.
In addition to considering price point in its refund model, the Company also considers its historical experience with similar geographic markets. The Company has observed that factors other than the market, such as deal category and price point, are the primary drivers behind refund behavior. In addition, to the extent that the Company enters into additional markets in the future, the additional revenue from these new markets is unlikely to initially be material to the refund model given the broad geographic scope of the Company's operations.
Lastly, the Company believes that it does have large pools of homogeneous transactions within its deal categories that support its refund estimates. As noted above, the Company divides its offering into six broad categories, which the Company then disaggregates further based on factors such as price point for purposes of estimating refunds. Within each of these categories and additional sub-categories the Company is able to observe patterns in refund behavior, particularly due to the large volume of Groupons sold. Additionally, the Company performs a retrospective review of its refund model on an ongoing basis to ensure that it remains appropriately calibrated to reflect reliable refund estimates. Accordingly, as a result of the factors discussed above, the Company believes that it has the ability to make reasonable estimates of potential refunds at the time the Groupons are purchased.
•
The maximum amount of future refunds for which you may be liable as of each balance sheet date.
Response
Mr. Larry Spirgel
August 24, 2012
Page 6
CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC.
FILE NO. 1-35335
The Company advises the Staff that the maximum amount of future or potential refunds, or total unredeemed vouchers, is not a metric that the Company currently evaluates. As noted above, and consistent with GAAP requirements, the Company performs rigorous analysis based on historical experience and the specific data inputs discussed above to estimate refund claims. In addition, in North America, the Company does not track the redemption of vouchers, as the Company typically pays the merchant on a fixed schedule based on the number of Groupons sold, regardless of how many Groupons are redeemed. However, while the Groupon Promise may provide for refund claims over an indefinite time period, as discussed above the Company has observed based on historical refund behavior that the refund rate decreases substantially a short time after the Groupon is redeemed. For the reasons discussed in the paragraph above, the Company is able to make reasonable estimates of potential future refunds at the time vouchers are purchased without tracking the amount of total unredeemed vouchers outstanding.
Comment No. 6
In a note to your financial statements, discuss in detail your rebate/refund policy for deals featured in late 2011, including for those higher price point offers and how you concluded that you could reliably estimate those refunds for this new deal mix.
Response
In response to the Staff's comment, the Company disclosed, on pag
Show Raw Text
CORRESP 1 filename1.htm SEC Response Letter CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC. FILE NO. 1-35335 BY EDGAR AND HAND DELIVERY Mr. Larry Spirgel Assistant Director Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, NE Mail Stop 3720 Washington, DC 20549 Re: Groupon, Inc. Form 10-K for the Fiscal Year Ended December 31, 2011 Filed on March 30, 2012 File No. 1-35335 Dear Mr. Spirgel: Set forth below are the responses of Groupon, Inc. (the “Company”) to the comments of the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained in the Staff's letter to the Company, dated August 2, 2012, relating to the Company's Form 10-K for the year ended December 31, 2011, filed with the Commission on March 30, 2012. For convenience of reference, the text of the comments in the Staff's letter has been reproduced in italicized type herein. Where appropriate, the Company has addressed these comments in its Form 10-Q for the quarter ended June 30, 2012 filed on August 14, 2012 (the “Form 10-Q”). Please note that the Company is requesting confidential treatment pursuant to Rule 83 of the Commission's Rules on Information Requests, 17 C.F.R. Section 200.83 with respect to portions of the response to Comment 4. Such response is being provided to the Staff in its entirety, with redacted portions underlined and italicized, in hard copy under separate cover along with the request for confidential treatment. Please note the version of this letter filed via EDGAR omits confidential information included in the unredacted version delivered to the Staff, and the redactions are denoted in the EDGAR version by identifying numbers [GRPN-01] through [GRPN-03]. Revenue, page 45 North America, page 45 International, page 46 Comment No. 1 Please expand your disclosures to discuss how certain channels which were launched in 2011, including but not limited to Groupon Getaways, Groupon Live, and Groupon Goods, contributed to your revenue growth and impacted your deal margins, loss from operations and refund reserves, if at all, and your Mr. Larry Spirgel August 24, 2012 Page 2 CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC. FILE NO. 1-35335 expectations on their future impact. Response The Company advises the Staff that it uses channels principally as a branding and marketing tool to promote deals relating to certain types of services or products. The Company does not consider these channels to be separate or distinct products or services, but rather uses them as guideposts to help consumers more easily navigate the Company's broad array of deal offerings. In addition, the channels referred to above are primarily used in our North America markets, and in our international markets we promote deals under different channels, depending on the market. As a result, the Company does not believe that separate discussion of financial metrics related to these channels is material to an understanding of the Company's business or financial results. Therefore, the Company does not believe that separately disclosing quantitative information about revenues, margins, operating income (loss), and refund reserves for deals attributed to channels would be meaningful to investors. The Company separately discloses its third party revenue deals where it acts as an agent for its merchants, which are reported on a net basis within revenue, and its direct revenue deals where it is the merchant of record and serves as the principal to the transaction, which are reported on a gross basis in revenues and cost of revenues. Beginning with the Form 10-Q, the Company began separately presenting third party revenue and direct revenue because direct revenue became material to the Company for the first time during the second quarter of 2012. Notably, this new disclosure is driven not by type of deal or category (Groupon Goods), but from the fundamental change in the service being offered by the Company in connection with such deals-acting as merchant of record for the customer. The Company has included, and will continue to include, in its Management's Discussion and Analysis of Financial Condition and Results of Operations the factors that the Company believes are meaningful to an understanding of its results of operations. The Company will continue to evaluate its disclosures in light of the impact of new or existing channels, particularly the terms of service offered by the Company within such channels, on its financial condition and results of operations and will update its disclosures accordingly. Non-GAAP Financial Measures, page 50 Comment No. 2 Please include a prominent presentation of the amounts for the three major categories of the statement of cash flows when presenting free cash flow, a non-GAAP liquidity measure. In this regard, refer to the guidance in Question 102.06 of the Compliance and Disclosure Interpretation on Non-GAAP Financial Measures dated July 8, 2011. Response In response to the Staff's comment, the Company has included, on page 41 of its Form 10-Q, a prominent presentation of the three major categories of the statement of cash flows in its presentation of free cash flow for the six months ended June 30, 2012. The Company will continue to do so when presenting free cash flow consistent with the guidance in Question 102.06 of the Compliance and Disclosure Mr. Larry Spirgel August 24, 2012 Page 3 CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC. FILE NO. 1-35335 Interpretation on Non-GAAP Financial Measures dated July 8, 2011. Cash Provided by Operating Activities, page 53 Comment No. 3 We note that you attributed your increase in cash to changes in working capital activities (in part), resulting primarily from a $380.1 million increase in merchant payables due to continued growth in the daily deals business. Please further address the extent to which the increase in merchant payables is attributable to a change in the mix of the daily deals business, in which merchants are obtaining a larger percentage of the proceeds from Groupons sold or where merchants have been subject to longer payment terms. Response In response to the Staff's comment, the Company expanded its disclosures on pages 42 and 43 of its Form 10-Q to address how merchant payments terms have impacted its working capital. Furthermore, the Company advises the Staff that the increase in merchant payables during the six months ended June 30, 2012 has not been significantly impacted by the change in the mix of the daily deals business or to scenarios where merchants are obtaining a larger percentage of the proceeds from Groupons sold. For the second quarter of 2012, the primary drivers of the changes in merchant payables were the continued growth of the Company and the changes of merchant payment timing, i.e. accelerated merchant payment terms as disclosed in the Form 10-Q. The Company will continue to evaluate its disclosures and if, in the future, the Company experiences a meaningful increase in merchant payables as a result of merchants obtaining a larger percentage of the proceeds from Groupons sold, the Company will revise its disclosures accordingly. Critical Accounting Policies and Estimates, page 56 Refunds, page 56 Comment No. 4 We note that during the third quarter you launched several new channels, including travel (Groupon Getaways), live concerts and events (Groupon Live), and consumer products (Groupon Goods). Tell us whether you established a higher refund reserve during the fourth quarter to cover refunds primarily for these newer deals or your standard featured daily deals. Response The Company advises the Staff that, although new channels were launched in the third quarter of 2011, the additional refund reserve established in the fourth quarter of 2011 was due primarily to a change in deal mix toward higher price point offerings within its standard featured daily deals. Of the $67.4 million total refund reserve at December 31, 2011, [GRPN-01] was related to these new channels. In addition, provide us with the following information: • Quantify the shift in your deal mix during the fourth quarter and the percentage increase of higher price point offers through your new merchant channels between the third quarter and Mr. Larry Spirgel August 24, 2012 Page 4 CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC. FILE NO. 1-35335 the fourth quarter that required you to establish a higher refund reserve at year-end. Response As noted above, only [GRPN-02] of the total refund reserve was related to deals from the new channels, out of a total refund reserve of $67.4 million at December 31, 2011. The additional refund reserve established in the fourth quarter of 2011 was due primarily to a change in deal mix toward higher price point offerings within its standard featured daily deals. Thus, the deal mix and percentage of higher price point offers through new channels between the third and fourth quarter did not significantly contribute to the higher refund reserve at year-end. • State whether the higher than anticipated coupon returns were predominantly in the US or in your international operations. Response The higher than anticipated coupon returns were predominantly in the Company's US operations. • Explain in detail how your original estimate disclosed on February 8, 2012 of the reserve for customer refunds proved to be inadequate after you performed additional analysis. Specifically tell us what additional analysis was performed and when the problem was identified. Explain how it only impacted the fourth quarter of 2011 and did not impact the financial statements for the nine months ended September 30, 2011. Response [GRPN-03] Comment No. 5 Please revise your disclosures to include a more detailed description of the input parameters for your modeled refund behavior, including but not limited to the deal mix and price point of deals. Response In response to the Staff's comment, the Company expanded its disclosures on pages 10, 11, 44 and 45 of its Form 10-Q to include a more detailed description of the input parameters for its modeled refund behavior for the six months ended June 30, 2012. Additionally, tell us: • How you considered the relatively long or indefinite period of time in which a Groupon may be refunded pursuant to your Groupon Promise, your lack of historical experience with higher price point offers and/or with new markets, and the absence of a large volume of relatively homogenous transactions. Response Mr. Larry Spirgel August 24, 2012 Page 5 CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC. FILE NO. 1-35335 The Company's refund model takes into consideration: (i) historical refund experience (including refunds issued pursuant to the Groupon Promise) developed from millions of deals featured by the Company; (ii) the relative risk of refund based on expiration date, price point (or “deal value”), and deal category and (iii) other qualitative factors that could impact the level of future refunds, such as introductions of new deals, discontinuations of legacy deals or general economic trends that might impact customer behavior. With respect to deal category, the Company's refund model distinguishes among six broad categories: food & drink, activities, health & beauty, services, retail, and events. The Company does consider the relatively long or indefinite period of time in which a Groupon may be refunded pursuant to its Groupon Promise within its historical refund experience, as this data includes the customers' historical refund behavior pursuant to the Groupon Promise. In particular, the Company has observed that customers who claim a refund pursuant to the Groupon Promise tend to do so within a very short time period after redeeming the Groupon (for example, a customer who redeems a Groupon at a restaurant and has a poor experience with the merchant is likely to contact the Company's customer service department almost immediately after redemption). This historical refund behavior or experience is then utilized as an input parameter in the Company's refund model, capturing the impact of the Groupon Promise. As discussed above, the Company believes that it has a fully developed refund history. With respect to higher price point offers, the Company has extensive historical refund experience for deals in a wide spectrum of price points. However, prior to updating its refund model, anticipated refund rates based on historical refund activity were applied equally to recent sales in the Company's waterfall calculation regardless of price point. In the updated model, the Company considered the effects of customer refund behavior at different price points to calculate its estimated refunds. In addition to considering price point in its refund model, the Company also considers its historical experience with similar geographic markets. The Company has observed that factors other than the market, such as deal category and price point, are the primary drivers behind refund behavior. In addition, to the extent that the Company enters into additional markets in the future, the additional revenue from these new markets is unlikely to initially be material to the refund model given the broad geographic scope of the Company's operations. Lastly, the Company believes that it does have large pools of homogeneous transactions within its deal categories that support its refund estimates. As noted above, the Company divides its offering into six broad categories, which the Company then disaggregates further based on factors such as price point for purposes of estimating refunds. Within each of these categories and additional sub-categories the Company is able to observe patterns in refund behavior, particularly due to the large volume of Groupons sold. Additionally, the Company performs a retrospective review of its refund model on an ongoing basis to ensure that it remains appropriately calibrated to reflect reliable refund estimates. Accordingly, as a result of the factors discussed above, the Company believes that it has the ability to make reasonable estimates of potential refunds at the time the Groupons are purchased. • The maximum amount of future refunds for which you may be liable as of each balance sheet date. Response Mr. Larry Spirgel August 24, 2012 Page 6 CONFIDENTIAL TREATMENT REQUESTED BY GROUPON, INC. FILE NO. 1-35335 The Company advises the Staff that the maximum amount of future or potential refunds, or total unredeemed vouchers, is not a metric that the Company currently evaluates. As noted above, and consistent with GAAP requirements, the Company performs rigorous analysis based on historical experience and the specific data inputs discussed above to estimate refund claims. In addition, in North America, the Company does not track the redemption of vouchers, as the Company typically pays the merchant on a fixed schedule based on the number of Groupons sold, regardless of how many Groupons are redeemed. However, while the Groupon Promise may provide for refund claims over an indefinite time period, as discussed above the Company has observed based on historical refund behavior that the refund rate decreases substantially a short time after the Groupon is redeemed. For the reasons discussed in the paragraph above, the Company is able to make reasonable estimates of potential future refunds at the time vouchers are purchased without tracking the amount of total unredeemed vouchers outstanding. Comment No. 6 In a note to your financial statements, discuss in detail your rebate/refund policy for deals featured in late 2011, including for those higher price point offers and how you concluded that you could reliably estimate those refunds for this new deal mix. Response In response to the Staff's comment, the Company disclosed, on pag