Good day everyone, and welcome to Groupon’s fourth quarter and full year 2013 financial results conference call. [Operator instructions.] For opening remarks, I would like to turn the call over to VP of FP&A and Investor Relations, Genny Konz. Please go ahead.

Thanks, Genny. In the fourth quarter, we delivered record billings and revenue, consolidated segment operating income of $48 million, and non-GAAP EPS of positive $0.04. Gross billings increased 5% to $1.6 billion for the quarter, and increased 7% to $5.8 billion for the full year. Revenue increased 20% to $768 million for the quarter, and increased 10% to $2.6 billion for the full year. Adjusted EBITDA was $72 million for the quarter, and $287 million for the full year. And finally, for the full year, we delivered consolidated segment operating income of $197 million, and non-GAAP EPS of $0.11. Jason will cover the numbers in further detail. Let me start by reviewing the highlights. First, North America posted a number of strong quarter. Billings in North America grew 10% to $789 million, revenue grew 18% to $444 million, and segment operating income improved from $17 million in Q4 of 2012 to $26 million this quarter. The main takeaway here is how significantly our take rate improved on a year over year basis. Late in 2012, as you may recall, we tested a campaign where we dramatically reduced margins to drive billing. We overshot those efforts, which drove significant short term billings, but reduced our operating income too aggressively. This effect was most acutely felt in local, where billings were up 2% year over year, compared with 13% last quarter. So why did local growth in North America decelerate? After two quarters in a row of accelerating growth, the deceleration we saw in Q4 was directly related to the tough comp, as we stabilized margins in 2013 versus Q4 of 2012, when we were chasing billings growth without restraint. Growth in North America was also compressed by our transformation to Pull, our marketplace of deals, which has cannibalized part of our…

Thanks, Eric. With the details available in this afternoon’s press release, I’m going to run through the highlights of our performance and then provide our outlook. Note that all comparisons, unless otherwise stated, refer to year over year growth. Eric covered the full year; let me go deep on the quarter. Gross billings increased 5% to $1.6 billion. North America growth of 10% and EMEA growth of 6%, or 3% excluding FX, were offset in part by an 11% decline in rest of world, or a 2% decline excluding FX. Sequentially, gross billings increased $250 million, related to growth in both good and local due to the holiday season. Revenue increased 20% to $768 million. North America growth of 18% and EMEA growth of 43% were offset by a 15% decline in rest of world. Revenues in all regions were impacted by continued take rate investment, albeit not to the levels that we saw in last year’s fourth quarter, as we focused on attracting high volume merchants. Sequentially, global revenues increased $173 million, again reflecting seasonal strength. Keep in mind also that as the direct portion of our goods business continues to ramp internationally, as it did in Q4 in EMEA, this will have an impact on our revenue. Gross profit increased by 6% compared with prior year, and 5% compared with prior quarter, to $378 million. Within EMEA, gross profit increased 7% relative to 43% revenue growth, again due to a greater mix of direct revenue. Adjusted EBITDA was $72 million in the quarter, increasing year over year by $42 million and sequentially by $10 million. Consolidated segment operating income, which, as a reminder, is operating income excluding stock based compensation and acquisition related costs, was $48 million, increasing $34 million year over year. Sequentially, the increase in segment…

Thanks, Jason. 2013 was a foundational year for Groupon. In summary, we transformed our mobile business and added over 33 million app downloads this past year alone, increasing our mobile business to nearly 50% of our total transactions. We made good progress in stabilizing our international business, and returned EMEA to growth. We drove growth in North America while shifting to a more sustainable marketplace model as we expanded to over 140,000 deals worldwide. We added 4 million new customers, exceeded 650,000 merchants featured to date, and delivered record billings and revenue. We launched a new site, and made important technology improvements across mobile, web, and email. Five years ago, Groupon was a one-dimensional tool for merchants to use as a means of attracting new customers. We had one tool in our toolbox, the daily deal email. Today, we are a radically different company, having built a foundation for Groupon to become a true local commerce platform, an ambition we believe we can achieve by virtue of our local roots. We allow our customers to interact with their surroundings in ways others don’t, or can’t, making purchasing more relevant, more personalized, more immediate, and more efficient. In 2014, we will double down on our progress over the past year, across four key areas, by investing in growing our mobile customer base, accelerating activation and making Groupon a mobile-first company, delivering a better local commerce experience by getting the very best merchants onto our platform and improving the redemption experience for our customers, continuing to build out our marketplace and get more of our customers using Pull, and building on One Playbook so that every merchant and customer has the same experience working with Groupon globally. If we’re successful on those fronts, we have laid the foundation for Groupon to become an integral part of mobile commerce, and the place our customers start when they want to do or buy just about anything, anywhere, anytime. And with that, let’s take some questions.

[Operator instructions.] The first question is from Ralph Schackart with William Blair.

… $25 million in increased marketing spend. Curious, will this only be focused in Q1? Or will this be sort of incremental marketing spend that you’ll reassess in Q2 as well as through 2014? And then as a follow up, is there any associated revenue upside in your Q1 guidance as a result of the increased spend?

If you look at our guidance for Q1, what you basically see at the midpoint of revenues is about a 22% year over year growth, which is fairly dramatic. We’re making that investment and growing by essentially investing money both in marketing, in the core business, as well as in acquisition. We have about $20 million that’s being invested from the acquisitions we made, and about $25 million from marketing in the core business. When you look at kind of the total marketing we spend relative to other companies, it’s still pretty light. So we look at it as a pretty strong result, and we can only make that investment by virtue of the work we’ve done in 2013 to build the foundation we’ve built. In terms of how long that investment is going to last, as we said, our 2014 guidance calls for EBITDA equal to or slightly above what we delivered in 2013. So I would expect you’ll see EBITDA ramp pretty dramatically in the back half of the year.

Your next question is from Ross Sandler with Deutsche Bank.

First, just a high level question, what’s going on with overall demand? We all see the tough comp from the take rate reductions from last year, but if you just look at North America local, and you use a two-year growth rate, it’s still pretty much declining precipitously. So how do you turn that back up/what’s the plan? Second question is somewhat related to the first one. Do you think that there’s a permanent inverse correlation between take rate and your ability to generate demand? Can you grow at faster growth rates only by cutting take rate? And then last question, Mindstorm, what was the timing for the rollout of the new email platform?

Our local growth rate in North America was about 2%. When you look at the revenue growth rate, it was actually 12%. And if you look at local globally, we had about 15% growth in EMEA, which is fairly dramatic. So the local growth rates have decelerated from Q3 in large part due to the fact that we had a tough comp. We invested pretty heavily in Q4 of 2012 to drive short term billings, and we invested without constraint, so we tried to take a more balanced approach this quarter. We also dedicated quite a bit of real estate to goods, and on top of that, there’s a macro trend which we discussed in the call, which is we’ve invested pretty heavily in building a marketplace and that marketplace reduces the inherent sense of urgency that used to exist in our email business. People can now wait and buy a deal just in time, so that has a short term impact on those local growth rates. But in general, the local business has been pretty healthy. Certainly if you look at it from a revenue perspective, it’s been pretty healthy, and we view these take rates as more indicative of healthy long term take rates. So yes, we can flex take rates, and if we do bring them down, you do drive some short term billings growth. You have to find that balance. In terms of Mindstorm, this is a new initiative that we’re unveiling, because we believe there’s huge opportunity in our push business, our email business, and our emails have to be more relevant. One of the ways you do that is you have essentially this widgetized email system where you can start to market categories of deals instead of just one deal. And we think this is also critical for us, because ultimately, many email businesses, you’re limited by the distribution pipe. You can only send so many emails, and people can only receive so many deals. And you have to get through that, and the biggest way you get through it is you build a marketplace which we’ve built, going from 1,000 deals at the time of our IPO to 140,000 deals now. The other way you get through that is you build advancement into the actual email delivery system, and Mindstorm is one of those advancements.

Our next question is from Paul Bieber of Bank of America.

How should we think about the gross margins in the good segments in North America and EMEA in 2014, especially as you gain leverage from the fulfillment center and the international mix goes direct? And secondly, just how should we think about the international goods mix, both in Q1 and for the year, as it goes more direct?

In terms of how to think about margins overall in the goods business, we did see a decrease quarter on quarter. A lot of that is due to seasonal effects that we did expect. We did have to, with our first fulfillment center online for not even half the quarter, finally start making some investments in inventory, which has some cost. And also, a little bit of an increase in refunds, which is also typically related to Q4 demand. But as I said in the prepared remarks, you should focus on the fact that really one, in a business that’s barely over two years old, we’ve created an almost $2 billion business. And two years in, we feel great about the demand side. The supply side, however, is at two years old, and really we’ve only been focused on the infrastructure side, really for a couple of months. And so 2014 you should expect us to focus a lot on the increased orders per unit and then also orders per shipment, but then you should also expect us to just do a better job of managing our network, which will allow us to significantly reduce shipping costs. As I said in the prepared remarks, we have take rates that are well into the 30% range, and so it’s the shipping costs that are really kind of the anomaly, if you want to look at us versus some of the more mature ecommerce companies. And so you should expect to see gross margins effectively improve over time.

And then just a quick follow up on Ticket Monster and Ideeli? How should we think about that billings contribution for those for the full year?

You can see from the recent regulatory filings that the run rate on a combination of those two is somewhere in the billion dollar annual run rate, and roughly $200 million in revenue on an annual run rate as of Q1.

And just to jump in for a second, when you look at the guidance that we gave, of $710 million to $760 million, we tried to call out that roughly $50 million of that comes from these acquisitions, which cost us about $20 million of EBITDA. The rest is us kind of using marketing to ramp up our organic revenues, which again are pretty healthy at the 22% midpoint range.

Our next question is from Mark Mahaney from RBC Capital.

You talked about one of the reasons for that drag factor on the local billings kind of being the use of space to promote goods. And then I guess just broadly, how do you think about that, and how much the tradeoffs are, or how far are you willing to make that tradeoff and not sacrifice too much growth in local? I guess overall, how do you balance that limited space you have between those two categories?

Our goal is to become the starting point of mobile commerce, right? And some of the advancements we’ve had this quarter, we’re at 70 million app downloads to date, now 50% of our worldwide business is mobile. It’s been some significant growth. And in order to get that, you have to kind of take a very broad view of local commerce. And we do all the stuff that’s connected. We don’t view goods as being distinct from our local commerce strategy. I use this umbrella analogy, where you’re walking outside, and you realize you need an umbrella, and you go to Groupon, you check it first, you go to Groupon, type in umbrella. We show you five umbrellas, and at that moment, you can make a decision, because we’re giving you fantastic deals. Do you want to have that umbrella delivered to your door or pick it up a block away? And that’s the power of mobile commerce. That’s ultimately what we’re trying to deliver. So we don’t think about shelf space as necessarily a tradeoff. We think about all these categories - goods, getaways, live - as being part and parcel of the overall local commerce experience.

Your next question is from Brian Pitz with Jefferies. Brian Pitz - Jefferies & Company : You briefly mentioned early success at Groupon Freebies. Are these mostly from local merchants, or really the national retailers? Is there any more color you could give us on this strategy? And just with respect to weather impact in Q4 and Q1 to date, can you just give us any more color on the industry and macro dynamics at play there?

Most of the current brands, roughly 25,000 deals on Freebies, most of them are national coupons, as you can see. But again, I’d use that same Groupon goods analogy with the umbrella, where right now you might not think that goods has a local element, but over time you’ll see it. Same thing on the Freebies side. We’ll, over time, introduce all kinds of geospecific targeted deals inside our Freebies offering. So you’ll have national coupons, but also be able to see where you can redeem that coupon, and where’s the nearest store, and even store-specific coupons. So we feel pretty good about our Freebies strategy in light of the fact that we have so much organic traffic, and we believe over time we can build a huge business in this space. As for weather, I’m sure it had some impact, but we haven’t called it out.

Our next question is from Heath Terry from Goldman Sachs.

I was wondering if you could give us a sense of, as you’ve rolled out additional services to merchants and gone beyond just sort of that one offering that you mentioned, whether it’s beginning to integrate payments, and rewards, scheduling, what kind of impact have you seen those have in terms of merchant retention and engagement? And then I guess sort of a related question, as you’ve done the same thing in terms of providing more technology to your sales force, what kind of impact have you seen it have on productivity, particularly to the extent that it’s driving local merchants onto the platform?

I’ll take the first, then Kal can take the second. Our operating system, the products we’ve brought to market, both on the POS side and the payment side, are significant and necessary components of what we believe ultimately is the local commerce platform, which allows us to connect merchants and consumers in real time and actually build a network. And when you think about our current local experience, it’s still missing something. It still isn’t as easy to redeem a Groupon as it should be. It should be as frictionless as walking into a store, you don’t even pull your phone out, we know you’re there and you can redeem your Groupon. Ad in order to do that, we have to connect merchants to the network. And so we’ve been building a series of tools for the last several years that do that. We certainly know that the lifetime value of a customer who remembers to use their Groupon and has a good experience is dramatically higher. And we’re building those hooks. And for merchants, it’s the same thing. They want that connectivity. It allows them to ultimately get into true yield management, and not just have Groupon customers coming in, but coming in at the exact right time. So we’re very focused on building that, and we expect to make great strides this year.

On the sales tools and technology, it’s all about getting high-quality merchants at the right time, at the right margin and discount, which will be profitable for them and it will be [unintelligible] on our customers. As we have noted, we have got more than 85,000 deals in the U.S., and we have a couple hundred thousand deals across the world. And year over year, the number of merchants we have done business with has grown 33%. Now we are dealing with more than 650,000 merchants worldwide, and retention of those merchants is also continually improving. And those are a true reflection of the tools in terms of the way we target the merchant and the way we structure the deal, which will be profitable and sustainably profitable for them.

Your next question is from Douglas Anmuth from JPMorgan.

Just wanted to ask about rest of world profitability. It’s been improving the last few quarters. A little bit slower and worse in Q4. Just wondering if you can talk about any specific markets that you’re seeing more investments in, and how we should think about that segment for 2014?

As I told you in the payer part, [unintelligible], rolling out One Playbook and stimulating the business in EMEA and rest of the world is a multiquarter effort. As you can see, EMEA has not only turned around, it has grown in a very profitable way, because of the attention to detail we’ve put on the basics. And we are doing the same thing in rest of the world as we talk, even though the billings growth looks too negative. If you do it without foreign exchange, the billings deceleration has come down, and it’s only 2% negative year over year. And the business has become a lot healthier. As a matter of fact, our customer satisfaction, merchant satisfaction, is going up. Our net customer adds, so the active customers in rest of the world, is going up. And as we told you, it is a multiquarter effort, and we are slightly lagging behind EMEA, but EMEA has improved from what has happened with the rest of the world. In terms of investments in [unintelligible] markets, like Eric mentioned on the call, we had the investment in China. And we also announced that we are consolidating Korea. In the meantime, we are also regionalizing the markets in a way to grow the business. And we will continue to make the investment, because 2013 is a year of sticking to fundamentals, 2014 is a year for growth. And we’ll continue to do that all throughout the world.

Our next question is from Chris [unintelligible] of Telsey Advisory.

Hi, it’s Tom Forte, Telsey. So can you talk about the long term margin opportunity from adding the cross stocking facility for Groupon goods? And you talked about potentially having multiple geographies to better service the consumer? How would you determine when you would add a second facility?

On the when you add a second facility, first we’ve launched one that we’ve now had for a few months. We’re implementing some of the basic WMS as well as trying to connect that with the rest of our network, which is really three PLs and [unintelligible] today. And so once we feel like we have that understood, then it’s likely going to be that it makes sense to put a fulfillment center in either western or even eastern seaboard, or even over time, probably both, because right now we’re paying a lot of inbound shipping and outbound shipping by not putting things any closer to where our customers are ordering and having it being shipped to. So I think really that’s why I mentioned earlier that it’s really about learning and focusing on getting the execution done on fulfillment center, one, and then basically figuring out how to build the infrastructure around to make sure that we’re putting inventory in the right place so it can minimize inbound and outbound shipping, as well as making sure that we’re picking the right balance of when do we want to drop ship, or when do we want to use our own facility. So that’s kind of the math that goes into it. The good news is it’s not an invention challenge. This is something that’s been done by many other companies. It just takes some time. If you were to compare us to where any other ecommerce company is at two years, I feel like we’re in a very good place. So it’s something that you should expect to see a lot of progress on this year.

Our next question is from Arvind Bhatia of Sterne Agee.

Just had one broad question. The trends throughout the fourth quarter, I was wondering if you might be able to provide some color on how things progressed from October to December, and then perhaps also so far this quarter, particularly as it relates to, I know there were some underlying [unintelligible] that were healthier than what the numbers implied. So just curious how you see Local progressing.

When you say local trends from October to December, are you referring to North America or international? Or billings? Or what?

I think North America billings primarily is what I was kind of focused on.

As I said before, obviously quarter over quarter we saw some significant growth in the local sequentially. The business got larger in Q4 in local than it was in Q3. And demand is still healthy. The issue is when you compare the year over year growth rate, you saw some deceleration in large part because, as I mentioned earlier, Q4 of 2012 was a particularly tough comp. Back in that quarter, we reduced take rates pretty dramatically to try to drive short term billings. We over-reduced those margins, and it hurt profitability pretty dramatically, but it did drive some short term billings in Q4 of 2012. This year, we didn’t want to repeat that. We wanted to grow in a much more controlled way, so when you compare year over year, you see some deceleration, as opposed to previous quarters. But again, you see pretty strong revenue growth at 12%, you see even stronger growth in EMEA at 15% year over year. So the local business remains intact, and doing pretty well, especially in light of the fact that Q4 is a quarter when we do tend to drive a lot of traffic to goods, and you’re also dealing with this short term headwind related to our transition to a marketplace. And over time, as more and more people pull, and we provided this statistic in the script, people who come and search or use our marketplace spend about 50% more. So they’re worth quite a bit to us. And they now represent about 8% of our business, which is up 25% in just the last quarter. So we’re seeing great signs, and pullers are worth a ton to us, we just need more of them. And as that grows, you’ll see it start to make up and eventually offset any headwinds in our local business as we migrate from this push email daily deal business to this largely mobile marketplace.

Our next question is from Darren Aftahi of Northland Securities.

Just on your comments about increased marketing spend, can you talk about how you kind of plan to reeducate your push users to pull? And then the increased $25 million, and perhaps more so in fiscal 2014, what channels specifically are you going to be using that money on?

The good news, again, is that we’re fortunate that we do have an email channel that we can use to try and drive some awareness. But it’s not going to drive as much awareness as we need, and so ultimately we have to make some investments in marketing. When you look at our marketing investment relative to our billings, as I mentioned earlier, it’s roughly, I think, 3%, which is far below where many of our peers are. And so we have to dial that up a bit. And when we make those investments, we’re basically investing in awareness, general advertising, display advertising. We’re also trying to make significant investments in SEO and SEM. Historically, we said that our total search effort between SEO and SEM represented in the high single-digits for us. It’s now in the low double-digits. So we’ve made some significant improvement, and all these improvements are driving less reliance on email. And the good news is, when we invest in marketing, we do so in an ROI positive way. We’re constantly looking at what’s the lifetime value of the people we’re acquiring and what’s the months to pay back, and we’re trying to invest intelligently. It just so happens that you make the investment today, it might yield a benefit a quarter or two or three from now, and so a lot of those investments are hitting us, especially those related to the acquisition, in Q1, and it’s going to take us a few quarters to feel the EBITDA benefit of that, which is why, overall, in the aggregate, we expect to deliver some pretty strong EBITDA this year. But we’ll make some big investments in Q1.

Our final question is from Tom White of Macquarie.

I apologize if I missed this in the prepared remarks, but I was hoping maybe you guys could just talk a bit about the near to intermediate term trajectory for local take rates in EMEA and the rest of the world. In the past, you guys have talked about maybe needing to make some concessions there. But how content are you generally with the quality and quantity of the merchants participating in those markets?

As you saw, the local growth in the EMEA this year was a negative 19% in Q1, negative 11% in Q2, and it’s a positive 13% in Q3, and it is a record 15% positive in Q4. And this has been done by literally focusing on the basics, which includes attracting great merchants and flexing the take rates, but more importantly, focusing on what we have been telling you all along, is One Playbook, of getting the standard practices which would improve customer experience and merchandise experience. With respect to long term take rates, the guidance Jason, Eric, and I have given all along, there is no change in that. We believe the long term take rates will be in the 30% to 40% range, and we believe we will be able to attract and retain high quality merchants in that range, while activating the growth.