Good day, everyone, and welcome to Groupon’s Fourth Quarter and Full Year 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the company’s formal remarks. (Operator Instructions) Today’s conference call is being recorded. For opening remarks, I would like to turn the call over to the VP of FP&A and Investor Relations, Genny Konz. Please go ahead.

Hello, and welcome to our fourth quarter and full year 2014 financial results conference call. On the call today are Eric Lefkofsky, CEO; and Jason Child, CFO. Rich Williams, President of North America, will be available for questions during the Q&A portion of the call. The following discussion and responses to your questions reflect management’s views as of today, February 12, 2015 only, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today’s press release and in our filings with the SEC, including our Form 10-K. We encourage investors to use our Investor Relations Web site as a way of easily finding information about the Company. Groupon promptly makes available on this Web site, free of charge, the reports that the company files or furnishes with the SEC, corporate governance information, and select press releases and social media postings. Our results for the fourth quarter and full year reflect the acquisitions of TMON and Ideeli since their respective closing dates in January 2014. We will at times, discuss performance, including and excluding the impact of these acquisitions for comparison purposes. Additional detail regarding the contribution of each to the year will be included in our 10-K. On the call today, we will also discuss the following non-GAAP financial measures: adjusted EBITDA, non-GAAP earnings per share and free cash flow, as well as FX-neutral results. In our press release and our filings with the SEC, each of which is posted on our Investor Relations Web site, you will find additional disclosures regarding non-GAAP measures, including reconciliations of these measures with U.S. GAAP. Unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2013. And now, I will turn the call over to Eric.

Thanks, Genny. Q4 was a record quarter on almost all fronts, units, billings, revenue and adjusted EBITDA. And one that cap the year of strong progress on our main operating objectives. Gross billings increased 31% to $2.1 billion for the quarter and revenues increased 20% to $925 million. Gross profit grew 4% to $393 million in Q4, adjusted EBITDA came in at $87 million and we delivered $0.06 of non-GAAP EPS, demand was saw strong in fact, having broken all time record, selling more than a 100 million units in the quarter. Our results were particularly strong despite a couple of factors that worked against us. First, changes in FX rates, the euro in particular negatively impacted the quarter. Had they remain neutral to last year, it would have delivered 82 million more of billings, 33 million more of revenue, bringing revenue to $958 million for the quarter, 17 million more of gross profit and 2 million more of adjusted EBITDA. Second, our results reflect continued investment in TMON and an effort to gain market share we chose to invest more heavily in that market in Q4. As a result, TMON drove the substantial majority of the sequential increase in rest of world segment operating loss contributing $13 million of the overall $60 million Q4 loss. Without TMON we would have delivered an additional $6 million in adjusted EBITDA in Q4. Even with these factors it's been a fantastic quarter, as both revenue and EPS were above expectation. Let me run through the highlights. In North America, gross billings increased at the fastest rate we've seen in over year growing 20% and $949 million driven by double digit increases in all three categories, local, goods and gateways. North America revenue increased 24% to $551 million and segment operating income reaches…

Thanks Eric. With the detail available in this afternoon’s press release I am 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. Gross billings increased 31% to $2.1 billion for the quarter and 32% to $7.6 billion for the full year. Excluding an $82 million negative impact from changes in currency, billings would have been $2.2 billion in Q4 growing 36%. On this basis, North America grew 20%, EMEA increased 8% and Rest of World increased to 154%, further excluding TMON and taking the exit of Groupon’s legacy Korea business into consideration, Rest of World grew for the fourth quarter in a row increasing 6%. Revenue increased 20%, to $925 million for the quarter and 24% to $3.2 billion for the full year excluding $33 million impact from FX revenue would have been $958 million in Q4 growing 25%. On an FX neutral basis, North America grew 24%, EMEA grew 18% and Rest of World grew 50% lower than the 154% billings growth as a result of the substantial addition of lower margin TMON billings to the mix. Gross profit was $393 million in the quarter compared to $378 last year without a $17 million drag from FX gross profit would have been $410 million up 9% year-over-year which is the highest gross profit dollars we’ve seen in over two years. Gross profit growth lagged billings growth due to a greater mix of direct revenues as well as the addition of lower margin TMON billings. Gross profit was also impacted by $17 million sequential increase in order discounts in North America and the Rest of World in particular which you recall reported as a reduction to billings rather than as marketing expense. While dilutive…

Thanks Jason. Our progress in the past year was essentially to the repositioning of the company. We began the year with 3 big goals to get local and North America growing in double digits again to improve our goods margins and to stem our losses in the rest of the world ex-TMON. Thanks for the tremendous effort of our team, North America local billings reached the highest growth we have seen in the couple of years coming in at 14% for the quarter. Our goods direct margins in North America remained above 9% in Q4 despite normal seasonal pressure which is up almost 50% from Q4 of last year and in rest of the world, we reduced our full year losses in our legacy business by more than half. Our goals is to one day have millions of merchants plugged into Groupon and connected to our hundreds of millions of subscribers, thereby creating the first real time local commerce marketplace. It's a big ambition, one we believe we can achieve given that 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. Playing in simple, we believe we're well positioned to take advantage of the offline to online conversion that is occurring in local commerce. As we now turn our attention to 2015 we look forward to keeping you posted on our progress in year to come and delivering on the opportunity in front of us. With that, let's take some questions.

Thank you. (Operator Instructions) And your first question comes from Ross Sandler from Deutsche Bank. Your line is now open. Please go ahead.

Thanks guys, just a couple of questions. First, big part of the barricades is that you’re North America goods margin is never going to go up and from what I see here it looks like it went up 200 basis points year-on-year, first time it's been up ever. So, is that basically is that a reflection of the efficiency gains from the distribution centers or is that product mix or something else? Little color there would be helpful. And then second question is just, any update on what's happening with TMON and if we look at the 15 million or so quarter investment from TMON is the right way to think about full year 2015 if we deconsolidate the TMON closer to 365 or 375 for the core business? Thanks.

Yes, thanks Ross. So, before we talk about TMON maybe I'll take it in reversal, cover TMON a bit and then Jason can cover North American goods margins but I thought it may be good to give some context on 2014 which for us is obviously a transformational year. We set out to build the first real time local commerce marketplace connecting nearly a 1 million merchants who would have done business with us to our community which is grown pretty dramatically, we now have 260 million subs, 110 million people download our app, 54 million customers, 160 million visitors. So we made great progress in building this marketplace, we still have a long way to go. We also made good progress operationally in 2014 reducing our reliance on email which used to account for the vast majority of our business and it is now down to about 20%. Increasing our search business 19% a year ago, 26% in Q4 and when you add an SEO it now represents about a third of our business which is a sign that our marketplace is really starting to take hold, getting our local business growing again it was 1% to 2% growth a year ago, finished a 14% growth this quarter, improving our goods margin as you just mentioned, they were what half what they were at the end of the year and stabilizing rest of world. But we still have quite a bit of room. As it relates to TMON, let me start by just covering the process for a second. We believe that Korea is an essential market for us and we believe in the opportunity. It happens to be very competitive market. As a result we've been exploring a bunch of financing and strategic alternatives for TMON and our Asian business more broadly. As part of that process we now have multiple parties that have expressed an interest in TMON and although it's too soon to comment on structure or price or the likelihood of a deal happening, things are underway and we feel very good about the process. That said there has been some pressure at the end of Q4, that competitive gap particularly -- that market got particularly competitive, and so we mean that order discount is a bit more at the end of Q4. That cost us about $6 million of EBITDA in Q4. So without that, the $87 million we delivered would have been about $93 million. That continued into January, which is why we’ve called out that there could be up to $15 million of EBITA investment in Q1. But we've been able to drive growth. That business was growing about 44% in January. So we feel good that if we make the investments we're still driving growth on a business that's very large. But to give you some additional colors that relates to guidance and also talk about the goods margins, I will toss it over to Jason.

So on the goods margin improvement, so yes, we had a very good quarter in terms of really just kind of execution. A year ago you saw margins go down 400 or 500 basis points from Q3 to Q4, mostly due to fulfillment challenges. This quarter you saw us go down from about 9.9% in North America down to about 9.3%. So down 60 basis points. That’s really just kind of seasonality relating more to pure product margin. So of kind of holiday promotional stuff, and we're having more around Black Friday and Cyber Monday. And so as you said year on year up 100 basis points. So we're right on track. We talked a little bit back at Analyst Day. We are still at the relatively early stages of increase and the biggest driver to improving margins which is really getting more units in a box. So units per order and ultimately units per shipment. And so that’s still kind of in early stages, but we're very much on track for this three year goal that we set out back at Analyst Day, which is to get to mid-teen gross margin range. And then actually in terms of guidance, I guess as Eric alluded to, just a little more context overall. So our guidance overall is right in line with what we provided last November. For the full year we're reiterating expectations for more than 25% growth EBITDA, which translates to at least $315 million. The quarterly trajectory for both revenue and EBITDA will follow similar trends of last year, in other words growing throughout the year and being more back end of the year weighted. For the quarter, the midpoint of our EBITDA guidance is drawing 38%, and which is well above the 25% target for the year. Excluding the incremental $15 million in investments on TMON that Eric just alluded to, it actually would be growing about 75%. The midpoint of our range implies really core earnings growth, despite the fact that we’re still investing heavily in marketing and order discounts and of course we have FX pressure. The midpoint of our revenue guidance is about $815 million, which is solid growth given at the FX impact was roughly $25 million negative since we launch reported. So this implies a 13% growth on FX neutral basis. The chart we laid out at Investor Day was at least 15% growth on an FX neutral basis for the full year. So we believe we're very much on track. Also keep in mind that we're lapping a TMON and Ideeli acquisitions from January over a year ago.

And just a kind of maybe adds some additional color on the TMON side, now though now -- Jason it's been a quite long answer to a short question. We've got $15 million invested in Q1 and we expect those losses to taper off. As I mentioned a minute ago the discounting in that environment was pretty heavy leading in Q4 and to early Q1. But we've already begun to dial back some of those discounts on our end and so we don’t expect these kind of investments – kind of material investments beyond Q1. So the EBITA impact on a consolidated or non-consolidated basis would be much less because we're factoring in those investments tapering off beyond Q1.

And our next question comes from Paul Bieber from Bank of America. Your line is now open. Please go ahead.

A quick follow up to Ross's question. When we think about the sales process, I know you're not commenting specifically but how much of rest of world is in Asia and will that be included in the sale of Ticket Monster?

So if you look at the rest of world segment in Q4, it was about $2.2 billion and about $400 million -- little over $400 million of revenue. And TMON represents about 60% of the billings and a little over a quarter -- actually a little over -- more like a third of the total revenue. And the transaction, that’s kind of in process, or the process in general is at this point really focusing on TMON, and that’s kind of the -- about the only thing that we've really contemplated at this point.

Okay, and a quick follow up on the gross margins. Are the product gross margins stable?

Yes, so as I alluded to a moment ago, there is always a little bit of holiday kind of promotional, and this was a kind of proactive pricing action that we'll take specifically around the big kick off to the holiday timeframe, in kind of Black Friday, Cyber Monday, which is where a large bulk of the sales -- the biggest days of the year occur. And so we were right in line with the expectations that we expected and the business again is kind of right on target with what we shared with you guys back at the Analyst Day in November.

And just to add on one comment, which is even though as Jason mentioned the focus of our strategic and financing targets are aimed in Korea at the present moment, we are looking at Asia more broadly, and as we said last quarter, we’re focused on unlocking shareholder value in either emerging or kind of evolving markets, where we feel like if we brought in a partner, we would enhance kind of the long term prospects of that business because 145 plus countries is very hard for us to at one time make equal investments in all of them. So we do kind of think about Asia a bit more broadly.

Thank you. And our next question comes from Arvind Bhatia from Sterne Agee. Your line is now open please go ahead.

I just wanted to go back to a topic that you had discussed on your Analyst Day, the email versus non-email trends. Wonder if you could maybe quantify those for the quarter. And just wanted to get some more clarity on free cash flow expectations for this year that's corresponding your EBITDA guidance?

So before I kind of talk about email -- not email, I also want to pass it over to Rich because, I think it’s particularly acute as it relates to our North America local growth. But what I will just say broadly is we’ve seen the email by as a percent of our total business go down precipitously over the past several years, and for a period of time it created some headwind, which is one of the reasons that those local growth rates decelerated so dramatically. We’ve been working on returning that and stabilizing that business so that at least the dollars we generate from our email business are no longer going down. And one of our goals as we called out a few minutes ago is to get those dollars going up. But it's part of a broad campaign more generally to get local growing. And I’ll toss you over to Rich to maybe provide some commentary.

Thanks Eric. Yes. I think it’s key to look at the North American business overall and our progress maybe from a high level and then we’ll work a little bit down. But in general we feel really good about that progress. We set out a goal early in the year to start hitting double digit growth by year end. We hit 10% in Q3, we accelerated to 14% in Q4, and more importantly that momentum continued into January. And as Eric’s alluding to, we good about how we built that momentum. As we talked about in November email, redemption headwinds, we feel are largely behind us, and the local marketplace is starting to really gain traction and that traction is coming out of four key areas. First is really just active deals. If you look at the marketplace now, you had active deals at $135,000 and growing which is just more and better merchants on the platform. Second we’re actually seeing improved operating leverage in sales. We closed the year down in headcount while we increased that active deal count by almost 70% over the course of the year. And that’s a big piece feeding into the third part which is continued traction and search. We gained 700 basis points versus last year in search and that’s now 26% of our transactions. When you add things like FDO to the mix, it goes up well north of a third. And last, we’re continuing to focus and make progress in mobile, where a 4.5 star app now has 110 million downloads. In net, we like that recipe, we like that combination of less focus on, and less reliance on email with a rich and healthy marketplace, and that’s the kind of thing that we believe that leads us believing that focus on efficiency mobile marketplace can continue to deliver continued growth in local.

So regarding the free cash flow expectation, so you saw that we have the strongest quarter in our history at $266 million generated TTM over $200 million. The way you should think about it going forward is Q1 like last year will be negative because of the payments related to the seasonal growth of the business in Q4. So you should expect to see some negative, certainly nowhere close to the amount that we generated of course in Q4. And I think the best number to focus on is TTM, which kind of will neutralize some of the seasonal effects. As we think about full year, you should think that cash flow will generally kind of trend with the EBITDA increase. And so we have a 25% growth in EBITDA that we guided to and you should think of free cash flow going very much in a similar trend.

Thank you. And your next question comes from Tom Forte from Brean Capital. Your line is now open. Please go ahead.

So two quick questions. One, you may have quantified it, but if you just quantify it, can you talk about your planned investment spend, the combination of marketing and discounting for both first quarter and full year 2015? And then when we think about your coupons business, should we still think about it is a way for you to offset any margin pressure from investing in higher quality merchants? Thank you.

So I’ll start with coupons and turn it over to Jason to talk about marketing and order discounts and kind of how they're going to trend throughout the year or first half. We’re pleased with the progress of our coupon initiative. Both our previous business, kind of the main coupon as well as the snap business that we discussed last quarter, both are continuing to grow at really strong clips and we're excited about the progress. And yes that business in particular does produce a higher margin in that we basically are collecting a commission and that commission is effective in a very high margin. So over time as that business gets bigger, it will offset some of the pressure that we naturally put on our margins through order discount, especially as we get more sophisticated about order discounts, it's become a very efficient form of marketing for us and so we've been able to lean on it to drive some short-term lift and one of the offsets to that is either high take rates and/or growing businesses like coupons that produce higher margin. And as a result of that we've called out that we expect margins to be relatively stable, although depending on the mix they maybe around the low end of that range, but certainly relatively stable for the foreseeable future. The question in terms of marketing and order discounts and how big that's going to be, you want to.

Yes. So, in terms of marketing order discounts you should think about on a combined basis. You've seen us spend somewhere kind of around a $100 million on a combined basis. We're going to flex the ratio between what we're seeing from an ROI basis. Certainly in Q4 you saw the -- an increase in the order discount side versus marketing, which was up a little bit. Going forward we're going to continue to flex based on the returns that we're seeing within that quarter. On a combined basis you should expect to see it grow, similar kind of with I'd say the rate of revenue, which again was at a 15% FX neutral basis plus or minus depending again on what efficiencies we see.

Thank you. And your next question comes from Ken Sena from Evercore ISI. Your line is now open, please go ahead.

So just on the transition to pages and the efforts around SEO and SEM, now we're hearing from some partners that they're having to sort of reengineer their platforms here in order to wire more structured data into Google. Is there an opportunity for Groupon to do that in terms of maybe offering some discounts within that? I know one because we look at how my business listings are being presented. It's in a much more sort of controlled fashion. So just wondering your thoughts there as far as the how the discounts could be conveyed in that new experience?

So let me start in that Pages are big initiative for us in building out our marketplace. As I've said earlier, one of our main goals is to build up that marketplace and one of the things you need is more inventory. Better inventory, more inventory that's a key element to get this marketplace where we want to get it to. And what Pages basically allow us to do is do business with and interact with the millions of merchants that aren't currently running a deal with us in North America. So I mentioned when we have 135,000 merchants running a deal and yet there are millions of merchants that could be a running a deal. And so Pages help us extend that reach by creating an informational site for these merchants and hopefully allowing them to access new customers by tapping into our community which is quite large. The progress in the past quarter has been good. We've now released about 800,000 pages to be indexed on Google. That's up from 500,000 a quarter ago. We have about 800,000 people that have now hit request a deal or follow a merchant. That's doubled in the past quarter from 400,000. We've collected nearly an additional 5 million tips and reviews and ratings. We were at 20 million. We're now at nearly 25 million and we've got millions of visitors coming to these pages. So they are absolutely performing as we would have hoped and I'll let Rich jump in on the data side on what the opportunities are.

Thanks, Eric. I think it's important to think about one piece here with us when you move in to SEO and SEM. One is reengineering is less of a concern for us. We started out as a company dealing in email. SEO wasn't part of the core strategy, it wasn't part of how a website was architected originally anyway. So really a lot of our SEO efforts, SEM efforts are keying around first and foremost building a great content experience for customers and a great customer acquisition experience for merchants and a great transactional experience for merchants. So it's less about reengineering than it is about engineering for those great customer experiences, and then engineering for the direction that the marketplace is headed on that front. So as we continue to see more and more moves into feed based integrations, whether it's in search and otherwise, we're in a bit of different spot there where we can quickly move into these spaces and take advantage of those opportunities where they make sense for us. And I would expect for us to be doing more and more of that as time goes on.

(Operator Instructions) Your next question comes from Sameet Sinha from B Riley. Your line is now open. Please go ahead.

A couple of questions here. You spoke about beacons and you can see the opportunity there, but we're dealing with small businesses. How are you thinking about the education process of how that would work and would that be manual -- would that require you to have people in the store with the process? Secondly, Jason, if you could update us on the consolidation of Europe into one headquarters to simplify the cost structure?

Yes so I'll start with beacons. We've had a very consistent OS strategy, which -- our operating system strategy, which is all about putting hardware into merchants and connecting them to our platform. Again connecting them, so they can upload inventory into our marketplace so we can fulfill on this promise of building this real time local commerce marketplace and ultimately help merchants get the right customers coming in at the right time, which is most what they want. So as to pull that off, we began -- we had a project called Gnome which we're the midst of renaming, sort of just tablets in the script and this is all about putting a tablet inside merchants where they can have a redemption system, a lightweight point of sale system that you'd full payment capability obviously to get access to all that review data the so rollout of that's going well. We had about 6,000 in market in Q3. We're at about 10,000 Q4. So we're happy with the progress. We refocused that rollout a bit aiming it at our biggest merchants that have the greatest use because asking merchants to put this tablet on their countertop is a big deal and we want to make sure there is enough -- there's a steady flow of customers coming so warrant it. As a result of that we launched a second project aimed really at the long tail of merchants. It's a lighter weight solution called Beacon. It only costs a few dollars. So it's a much easier product -- piece of hardware to deploy and it's really aimed at making the redemption process easy and also giving us proximity signal, so that these merchants can again tap into our marketplace to drive new customers to come in. It's just launching now. It's too soon but the good news on the educational front as you mentioned is that, that's what Groupon does. We sold over 100 million Groupons in Q1. So we're sending an enormous number of new customers into these merchants all the time. We -- in many instances we're their largest source of new customer acquisition. So they want to take the tools that we can make available to them, be it a Beacon or a tablet or an app that helps them in any which way, shape or form because we're just driving new customer acquisition. So it's much easier to engage.

Regarding taxes, so we have a handful of countries that are in the structure today. We will be moving the remainder of all of the international -- the bulk of the international countries, not just Europe into the structure over the next year or so. So tax on an effective rate basis will still look a little strange, probably about this year a little bit into next year. So as a result you should really focus on kind of the absolute tax dollars which should be relatively similar as a percentage of EBITDA that you saw in 2014 kind of by quarter.

Thank you and your next question comes from Daniel Ernst from Hudson Square. Your line is now open. Please go ahead.

Two questions if I may. Your push to be the daily habit as you say and to have merchants have offers up virtually all the time, certainly I can understand how the consumer would be interested in that process, but can you talk to us about the reception and the longevity of merchants on platforms like that and in other words don't they fear that that becomes their all the time price, the prices up on Groupon and sort of how that works and how long you can expect to keep a merchant in that category? Do you have higher churn with that? And then second, a just financial question. You had obviously FX drag in the quarter on the top line, but on the cash flow line, wouldn't there have been also a benefit on the merchants payable and accounts payable line?

So let me start with the daily habit merchant question. So first and the best way to think about this is, if you look at for example -- one -- many investors are familiar with it. If you look at booking.com as a good corollary, they went out in Europe and other international markets and they aggregated a bunch of inventory, typically smaller boutique hotels that couldn't really -- didn’t have the scale to access the internet and they created a nice searchable infrastructure that customers could come to and allowed those boutique hotels to basically put inventory on the platform at a discount when they wanted to and take it off the platform when they wanted to. And so I think the way to think about our marketplace in North America is very similar. We're allowing merchants en masse the ability to put inventory up and take it down and really dial up or down the level of discount to drive new customer acquisition, and net-net, because we help them manage yield better, they can afford to discount their services and still generate more dollars at the end of the day. Merchants think about dollars and percentages the same way we do when we look at our local business. We want more dollars. We're not just focused on more percentages. So it's very similar. And if you look at the resilience of our marketplace and kind of how merchants are behaving over a long period of time, first of all last quarter, the statistics, I think it was something like 80% of merchants are opting to be perpetually on Groupon. So the vast majority of merchants that we sign up want to be on Groupon all the time. It's one of the reasons that our number of merchants has gone from a thousand at the IPO to 135,000 in North America and 370,000 globally, and it's because these merchants typically want new customers and they just can't find it. They're more than happy to give a discount if it means giving them the opportunity to engage with a new customer that hopefully they can win and create a loyal relationship. So, it tends to be great for merchants, which is one of the reasons that our merchant satisfaction is so high and our retention is so high and our repeat behavior is so high, and all those things are moving well.

And on the question about the merchant payable capital cycle, I didn’t catch all of that. Can you please ask that again?

Yes sure. I was just wondering what the FX benefit actually would have been on the payables line for cash flows.

Well, it was a 500 basis points impact globally on growth. So you can think of it being -- I think in Europe when you look at the numbers, you can see it's more like 10% impact on payables. That would translate to somewhere in the teens of millions of dollars of benefits. And yes, I think at the end of the day it's a working capital benefit, which is great. I think the way you should think about cash flow going forward is the working capital aspects being kind of slowly replaced more by the EBITDA aspect, especially because the growth of the business, especially in Europe where you're seeing, I think was 8% FX neutral growth, which is nice growth, but the working capital aspect of cash flow is not huge.