Good day, everyone and welcome to Groupon’s First Quarter 2015 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 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 first quarter financial results conference call. On the call today are Eric Lefkofsky, CEO; Rich Williams, President of North America; and Jason Child, CFO. The following discussion and responses to your questions reflect management’s views as of today, May 05, 2015 only, and will include forward-looking statements. Actual results may differ materially from those expressed or implied in our forward-looking statements. Additional information about risks and other 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. We previously announced that we’ve entered into an agreement to sell a controlling stake in Ticket Monster or TMON our South Korean e-commerce business. As such historical results have been recapped to reflect TMON as a discontinued operation in the tables accompanying this afternoon’s Press Release. And all financial information and operational metrics discussed on this call pertain to continuing operations, unless otherwise noted. 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 2014 and are excluding year-over-year changes in foreign exchange rates throughout the quarter. Now, I will turn the call over to Eric.

Thanks Genny. Q1 was an important quarter for Groupon as we are now fully in the midst of the second stage of our Company’s lifecycle, having involved from our daily-deal email routes into a full scale local commerce marketplace. There is a lot to cover today. So let me start with a quick financial overview of our progress in the quarter. As noted in our release every number and metric we provide now excludes TMON as we have entered into an agreement to sell a majority of that business and as such now present TMON as a discontinued operation for financial reporting purposes affected in the first quarter. In addition all year-over-year comparisons are FX-neutral. On this basis gross billings increased 10% year-over-year to $1.6 billion for the quarter and revenues increased 10% to $750 million. Gross profit was $347 million, adjusted EBITDA came in at $72 million and we delivered $0.03 of non-GAAP EPS. Changes in FX rates, the euro in particularly negatively impacted the quarter. Had they remained neutral to last year we would have delivered $180 million more of billings, 51 million more of revenue, bringing revenue to $802 million, 28 million more of gross profit and 3 million more of adjusted EBITDA. We still delivered a very strong quarter as adjusted EBITDA grew about 58% year-over-year or 65% on an FX-neutral basis with us still investing heavily in marketing in order discounts. Let me run through the highlights. In North America gross billings increased 14% to $894 million driven by our third straight quarter of double-digit increases in all three categories, local, goods and getaways. North America revenue increased 11% to $480 million and segment operating income improved by over 115% to $25 million. I am particularly proud of our results in local in North America…

Thanks Eric. Our primarily strategic objective is, building on our marketplace and building a world-class experience for our users are served by the broader areas of focus for 2015 that we’ve highlighted previously, push, pull and platform. Our progress in these areas is at the root of our continued momentum in North America, which is evident in our strong marketplace fundamentals. Active deals increased by over 50% year-over-year to about 145,000 or over 200,000 with the addition of coupons which contributed nearly 60,000 deals. We are also seeing more and more of the type of behavior we want to see from our customers with search now representing 27% of our total transactions in North America up from 20% a year ago. We’re of course proud of the performance in North America particularly in local where Q1 marked a third quarter in a row of double-digit billings growth. But we’re even more proud of the foundational work we’ve completed so far that’s driving those results. It’s a foundation we believe in, that we’re excited about and that continues to show signs that we are on the right track. But our work on push, pull and platform is far from done. For push, we are innovating on both email and push notifications. Email maybe a smaller portion of our business but it’s still an important daily engagement channel with 10s of millions of Groupon users. We’ve worked hard to stabilize email and now are focused on increasing the dollars that it generates annually. To do that we’re capturing the essence of the early Groupon push experience that helped made Groupon so viral, a sense of spontaneity and great offer content. Today that means more intelligent customer and item level promotions, mobile-only deals, site wide events and limited time pricing to give customers…

Thanks Rich. 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, are FX-neutral and do not include TMON. Gross billings increased 10% to $1.6 billion in the quarter. North America grew 14%, EMEA grew 7% and rest of world declined 1%. Revenue increased 10% to $750 million in the quarter. North America grew 11%, EMEA grew 13% and rest of the world declined 8%. Gross profit was $347 million in the quarter compared with $366 million last year. Without a $28 million drag from FX gross profit would have increased to $375 million. Gross profit was also impacted by an $18 million increase in order discount as compared with Q1, 2014 as order discounts are reported as a reduction to billings rather than as marketing expense. Adjusted EBITDA was $72 million in the quarter included a $3 million negative impact from FX compared to $46 million last year. Lower gross profit was more than offset by lower operating expenses both reflecting the impact of year-over-year changes in foreign exchange rates. We remain on-track to hit our track for at least 25% FX-neutral annual growth in adjusted EBITDA in 2015 and beyond. GAAP loss per share was $0.02 and non-GAAP earnings per share was $0.03. Free cash flow for the first quarter was $22 million bringing free cash flow for the trailing 12 months to $222 million. With TMON now excluded positive cash flow is primarily driven by changes in our business mix, from decelerating growth in goods towards accelerating growth in local. And as of March 31st we had $976 million in cash and cash equivalents. Turning to a few notable highlights of our…

Thanks, Jason. In 2014, we learned that there is a correlation between the strength of our marketplace and growth in billings. Yet despite Groupon’s evolution over the past six years, our marketplace today has penetrated less than 5% of the merchants that should be in our site. The natural question given this connection is why is it taking us so long to get more merchants on Groupon? The answer is because it's hard, if cracking the code on local commerce were easy, it would have been done long before Groupon. The fact is it's so difficult and the number of advantages we have by virtue of our size and scale is precisely what gives me confidence that one day, we will have millions of merchants plugged into Groupon, connected to our large mobile audience thereby creating a real-time local commerce to marketplace. We believe we’re well positioned to take advantage of the offline to online conversion that is occurring in local. We believe as we aggregate more inventory conversion will rise and we’ll be able to invest more heavily in driving traffic and transactions unlocking new pools of growth, especially in our core local business. We look forward to keeping you posted on our progress and with that let's take some questions.

Thank you. [Operator Instructions] And our first question comes from Paul Bieber from Bank of America Merrill Lynch. Your line is now open. Please go ahead.

Now that TMON is no longer part of the rest of the world business, can you give us some color on what’s left in rest of the world, what countries are comprised of bookings there? And maybe you can just give your assessment of execution and performance in those countries? And then secondly, I was hoping you give some sort of a color on the progress on the goods gross margins, what are some of the tactical things that you hope to accomplish before the end of the year to drive gross margins higher?

So I’ll probably take the first question on ROW and then either Rich or Jason could the second question on gross margins. But before we get to TMON, I want to just say some context to the quarter, I have been in this job for about two years and the single biggest inflection point over that time has been this transition to building a local commerce marketplace. And no longer being reliant on daily deals and emails, not just in North America, but all throughout the world and if you look at all reference today, they are completely focused on that transition, growing the number of deals we have on our platforms, from a thousand we went public to 400,000 today growing traffic we now have 160 million monthly new visitors, growing engagement, getting people to search, search now represents 27% of more business up from 20% a year ago, getting more people to engage with us via mobile, we now have 105 million people that have downloaded our app in mobile is the majority of our business. And trying to connect to our customers when they are on the go, which is obviously essential for anybody in local commerce, and while we’ve made the kind of progress, we have room to go, but we’re seeing sign, the kind of signs we want to see that lead us to believe we’re on the right path, and when demand and supply are in sync our business thrives. Here in North America and in rest of the world and Europe and what I would say as finally maybe most importantly for a company in the midst of transition, we’ve been delivering very solid results which is a testament to the team. We said last quarter there are goal, our mid-term goal was…

So on good margins, so we improved about 320 basis points year-on-year specifically in North America. We're making headway with continued improvement in the infrastructure areas where we are putting inventory in the right locations getting multiple units in a box and the niches we talked a bunch about at the Analyst Day and last quarter but then we also have an ongoing focused on increasing inventory primarily through third-parties, which we believe we're still on-track to deliver and this will get us towards our mid-teens target over the next few years. Similar to our goods business that's already is at that level today in Europe. In Q2, we do expect to see goods margins return to double-digits, just like we said last quarter and at Analyst Day.

Thank you. And your next question comes from Ross Sandler from Deutsche Bank. Your line is now open. Please go ahead.

So, just a question I guess for Jason on the cadence of EBITDA throughout this year, so you just put up 72 million to the midpoint for 2Q 65 and then the full year kind of above 315 so the implied second half assumes you won't see the same kind of uptick in profit or EBITDA flow through that you saw last year despite having some drag from Q1 in the fourth quarter so, is there some planned investments that are going to hit in the second half or is that just conservatism? And then on the order discount thanks for breaking that out, can you just talk about that technique in terms of driving better retention or better life time value versus other marketing options and I think we cycled through some of that in the second quarter, it looks like you actually had some in the first quarter a year ago but when should we start to see the gross profit in billings growth rate start to level out? Thanks.

Thanks, Ross. So, and first just kind of high level when it comes to the outlook and guidance. So overall, we're right on-track with the targets that we have laid out previously, we feel very good about our outlook. However, there is a lot of moving pieces this year but there is two pieces that can't be ignored, I’d say first there is the removal of TMON and then there is a downward pressure on 2015 from FX. So when you look at our reported growth as a result of these two factors, you need to add about 13 percentage points or 1,300 basis points to make it comparable to prior year with TMON. So, going a little deeper, first on top-line I want to make sure you are using the right growth base line for comparison, on an FX-neutral basis and more recently excluding TMON revenues grew 11% in 2013 and 19% in 2014, growth in 2014 was heavily impacted by the shift towards direct revenue in goods which is recorded of course on a gross basis. So, as such I'd say that the better proxy for demand is really -- and that is what neutralizes revenue recognition as gross billings. So over the same timeframe, we grew FX-neutral gross billings from about 8% in '13 to about 10% in '14. As such the 11% to 16% FX-neutral growth guidance represents an acceleration in both our original target and versus prior year. Our previous guidance have about 15% or greater FX-neutral growth when adjusting to remove the contribution from TMON translates to the low-end of our range of about 11% FX-neutral growth or 3.15 billion. So by maintaining the high-end at about 16% FX-neutral growth or 3.3 billion, we've actually raised our expectations versus our last guide. Kind of…

On order discounts Ross, I mean there is a -- as you mentioned there, there was a couple of ways that we invest marketing dollars order discounts is just one of them, the spend in the quarter continued to shift towards order discounts for a couple of reasons, first is because they're working we like the ROE we’re seeing on them their ability to drive transactions but there is also another piece of them that I think is often overlooked and that’s their ability to train marketplace behavior I mean every time we send an offer to a customer we’re seeing that, we’re seeing more of that kind of search behavior, browse behavior where customers are diving deeper into our catalog we like what that stands for long-term. So we’re happy with the overall investment in them now and we continue to refine them and we’ll keep doing that going forward. A big of piece of that is of course is focusing on the who, the what and of course the timing of them so that we’re continuing to hit against that and of course the transaction pieces, the overall growth of the marketplace as well as their behavioral pieces and training that long-term behavior of using Groupon as a daily habit.

Thank you. And your next question comes from Heath Terry from Goldman Sachs. Your line is now open. Please go ahead.

Just a couple of questions, on the EMEA side of the business, can you give us a sense of what you’re seeing in take rates within EMEA what are your perceptions sort of where they are from a maturity standpoint what are your general expectation is for sort of like-for-like or a mix shift within take rate changes in the future. And then on pages for the businesses where you the 900,000 businesses where you have established pages, can you give us a sense of what sort of being like to those pages or what sort of initial benefit that you’re seeing from having those showing up in the search index?

Well I’ll take the EMEA piece and then Rich can take the pages piece. Take rates have been similar because if you look at the trend in Europe versus North America you’ve seen a similar trend which is a little bit of pressure but relatively in line with historic rates down 200, 300, 400 basis points over the last four or five quarters. And there is a slight difference between Europe and North America today they are around 300 basis points higher in Europe but that’s predominately slightly different model where we pay merchants when a voucher is actually used and so there is a little bit of breakage, that breakage used to be a much bigger part of our business, it’s come way down. Part of building this really healthy marketplace has been to improve the core dynamics of that marketplace and two of those are getting people to use their Groupons more often and getting them to use them faster. And we’ve seen that trend in both Europe and we’ve seen it in North America where the average time to use a Groupon has come way down. As it relates to mix I mean the mix in Europe the good news about our margin profile of goods and getaways in Europe is that they are much healthier margins and so we tend to be more agnostic as to where the growth comes from. Our main emphasis in Europe, which is getting that growth to be higher, right now that European business is growing about 7% FX-neutral and generating really healthy segment operating income but we want to see that growth rate double. We’d like to see that get to 15% over the next -- over the medium-term and so we’re very focused on that.

And so with respect to pages, the first and foremost the page is still very early in its development cycle but we’re very much excited about its progress. As we mentioned before in the prepared remarks, pages are at the tenure of our platform initiatives on the merchant side and they are a big piece of the marketplace customer experience of the future on the consumer side. With merchants they are very much that start of the transactional relationship with merchants whether or not they are working with Groupon in a deal format today. As we mentioned we’re making steady progress on releasing them on the indexing front we’re now at about 900,000 pages to be indexed in search engines. That indexing has ultimately resulted in millions of users finding and engaging with them monthly. And we know users hit those pages they are finding increasingly valuable content including things like 27 million or so tips and ratings from other Groupon customers. So primarily what we are seeing from them today is that engagement piece with merchants and an ability to start a new conversation with merchants and move them through our inventory pipeline and they are in engagement piece with consumers, I mean you now have over 1 million people hitting the requested a deal button or following a local merchant. So all great traction, and it’s a steady rollout. So we’re expecting them to continue to play a key role and to play an even bigger role in the future especially when it comes to increasing our offer content so I’d say watch for continued updates on that roll out as move ahead.

Thank you. And your next question comes from Gene Munster from Piper Jaffray. Your line is now open. Please go ahead.

I apologize if I missed this, but can you update us on the deal count for due to the last few quarters excluding TMON?

Hi Gene this is Jason. So yes, the deal count excluding TMON, let me just give them to you going back to first quarter of ’14 so on a global basis 180,000 then in Q2 we went to 220,000 Q3 of ’14 260, Q4 of ’14 330 and then Q1 of ’15 was 425 which includes 58,000 of coupons. So if you exclude that call it roughly 370ish.

This is just to be clear that the goal is doubling deals you’d be basically talking about 850,000 deals within a year, is that just -- I on the same page?

Yes I mean we haven’t -- look our goal is to increase the inventory and increase that deal content and you can’t just look at it and say once we double or hit this number we win and we can stop. If anytime you are building a marketplace you’re going to be trying to increase inventory market-by-market, city-by-city, category-by-category so you get the results you want which is people coming and converting at a higher rate. And so you should expect us to make progress every quarter at adding inventory.

Thank you. And your next question comes from Dean Prissman from Morgan Stanley. Your line is now open. Please go ahead.

So it seems like your sales headcounts in North America declined year-on-year, can you share some of the underlying dynamics? And then can you comment on the percentage of North American local gross billing that had order discounts associated with transactions? Thank you.

So there is a couple of things in there and we’ll kind of work through both of them, I think because it was -- they are intersecting where we are with the North America local marketplace, maybe I’ll just step back for a second and talk about some context there, and let me just assess the foundation for how we’re thinking about building supply and thinking about scaling inventory of your sales and otherwise as well as how it plays into order discount. So the important thing to keep in mind there is it we’re not the first to build a marketplace online. We’re really just the first to do it in local at scale, within that -- the marketplace model is a relatively well understood formula and it's a classic marketplace challenge. As Eric mentioned, it's about connecting supply, and demand at scale. Now local it has some unique aspects for sure, but with many what I would say the hardest to build piece is already in place, the customer and mobile scale, the products that work for customers and merchants and geographic reach only instead of a packing things like electronic and books or hotels alone we have to do it really for combinations of geography and services like Chicago Thai food or Seattle yoga. In keeping with that marketplace formula the first critical piece for us is to build supply. I mean we knew early on and that we needed to do dramatically scale the quantity and quality of merchants on our platform. Now we’re at 200,000 or so active deals on the platform, I’d say that puts us well on our way and we’ll continue to build off that inventory. And again as Eric in parallel, we have to start solving that second piece as connecting…

Thank you. And your next question comes from Brian Pitz from Jefferies. Your line is now open. Please go ahead.

This is Stan Velikov for Brian. Can you give us some color on your coupons offerings what types of merchants are participating in coupons, how is the in storage usage of coupons tracking to-date? And lastly do you see any cross-sell opportunities with the merchants that don't generally offer deals on Groupon?

So I’ll take the first piece, our coupons business is about a year old give or take and we’ve been very pleased with the progress we have made to-date. As Jason mentioned a minute ago we have over 60,000 coupons on the platform that business continues to grow and grow quite dramatically. But it's still a relatively young business, it's still relatively small and one of the primary advantages we believe we have long-term is that we have a significant amount of traffic on our platform over 160 million monthly new visitors that want to take advantage of this kind of inventory because they have come to Groupon, looking for a deal, looking to save money, looking to explore and find new things to do and these coupons are an invaluable part. So our first order of business was to get the scale, again get more inventory on the platform, expose it in the right ways within our app and on our site and then take advantage of that local element which I’ll let Rich cover because I think that’s the second part of your question.

Yes, and second part, there is a couple of things to keep in mind on this one as well I mean your question around what types of merchants are on that platform there is roughly 9,500 merchants representing those 60,000 offers on the platform, which is it's been consistently moving up those merchants range from the largest global brands to more localized retailers. There is of course an opportunity that to cross-sell into that space and many of those existing brands are on our platform for coupons has been Groupon merchants in the past and we'd expect to see more of those merchants coming on to Groupon and other products whether that is deal product, in store or otherwise as we continue to rollout the marketplace in the future. And the other thing that I'd say there is we also have other informs of in store couponing in the form of our Snap app that we've rolled out now, like four to five months ago, which really attracts that in store piece of the marketplace specifically with consumer package goods retailers head on that is still early in the process and we're excited about the traction we've seen there and it's continue to gain momentum quarter over quarter, we're now with over 1.4 million app downloads that we know there is opportunity in that space, we know consumers are excited about the products as well in coupons and Snap and we will keep working on them and update you on our progress.

Thank you. And our last question comes from Ken Sena from Evercore. Your line is now open. Please go ahead.

I just had a question on the unit growth versus the active user growth, I'm looking at North America, it looks like the 8% unit growth versus the 13% user growth, suggests some lag so maybe you can just discuss it, is there may be a change in marketing channel or some mix that could be driving that lag? Thank you.

So I will start on that this is Rich. There is a couple of things there, one is I'd say, you have some big components of mix involved in there just what people are buying but from a marketing point you did see more marketing spending overall shift to order discounts in that front but there are some various pieces and category mix that inevitably impacts the units and units per customer overtime. The thing that we're focused on more looking longer term and as I mentioned more in the prepared remarks, we're focused on increasing that units per customer and the unit piece, unit growth, increasingly overtime, and that's mostly by focusing our energies on those high frequency used cases, things like lunch and dinner and the food and drink space and on beauty maintenance like manicures, pedicures, blowouts and hair care et cetera. So that continues to be in our minds, in the back of our minds and in front of many of our actions in local as we start, as we continue to develop the marketplace so it is top of mind and we're making I think progress on it, but you will see some of that shift with the units and customer growth quarter-over-quarter depending on mixing and wherever we're in rolling out those pieces at any given point.