Good day, everyone, and welcome to Groupon's Fourth Quarter 2020 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 Chief Communications Officer, Jennifer Beugelmans. Please go ahead.

Good morning, and welcome to Groupon's fourth quarter 2020 financial results conference call. On the call today are our Interim CEO, Aaron Cooper; and CFO, Melissa Thomas. The following discussion and responses to your questions reflect management's views as of today, February 26, 2021, 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 our earnings press release and in our filings with the SEC, including our annual report on Form 10-K. We encourage investors to use our Investor Relations website at investor.groupon.com as a way of easily finding information about the company. Groupon promptly makes available on this website the reports that the company files or furnishes with the SEC, corporate governance information and select press releases and social media posting. On the call today, we will also discuss the following non-GAAP financial measures, adjusted EBITDA, free cash flow and FX neutral results. In our press release and our filings with the SEC, each of which is posted on our Investor Relations website, you will find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. And with that, I'm happy to turn the call over to Aaron.

Thanks, Jennifer. And thanks to you all for taking the time to join us today. I'm excited to update you on how we finished 2020 and our plans for 2021. As a reflect on this past year, I like so many others I'm sure go immediately to the challenges we all faced. But it's also very important for me to acknowledge the resilience that our merchants, customers and employees had shown during these unprecedented times. When I think about Groupon and how far we've come over the past year, I'm so proud of the hard work our team has poured into creating a path to growth. We've gone from local units being down nearly 80% in generating negative adjusted EBITDA to delivering $50 million of adjusted EBITDA for the full year 2020, taking significant fixed costs out and strengthening our balance sheet. On top of improving our financial results, we also transitioned our North American goods category to a third-party marketplace and developed and began executing on a strategy that fundamentally addresses our merchant and customer value propositions. We're building muscle in 2020. We're moving faster, empowering our teams and focusing on the most important opportunities. In short, we believe we're on a path to growth. As we move into 2021, we're excited about our path, which we believe will include a second half organic recovery tailwind. This tailwind coupled with a meaningfully lower fixed cost base should allow us to drive sequentially improving gross profit and adjusted EBITDA as we progress throughout 2021. We believe this anticipated recovery scenario provides a framework for how to think about the base case for Groupon, which would suggest meaningful progress from where we are today. At just 80% of our 2019 gross profit level, we believe we can deliver $250 million in…

Thanks, Aaron, and thanks again to everyone for joining us today. As I reflect on 2020 while it's certainly been a challenging year, I'm so impressed with the resilience our business has shown and how we continue to deliver sequentially improving results in 2020. I'm also so energized by how the Groupon team has stepped up and accomplished so much to position Groupon to recovery and growth. Today, I'll use my time to provide you with a few updates on our financial and operating progress, including a review of the fourth quarter results, business drivers and trends, the status of our restructuring plan, and lastly insights on our expectations for the first quarter and full year 2021. Starting with our consolidated fourth quarter results, we delivered $633 million of gross billing, $343 million of revenue, $179 million of gross profits and $40 million of adjusted EBITDA. In the midst of rising COVID cases around the world, we delivered another quarter of sequential improvement in gross profit and maintain discipline around our costs, proving the resilience of our business. We ended the year with a solid balance sheet and liquidity. In the fourth quarter, we generated nearly $70 million of free cash flow and ended the quarter with approximately $850 million in cash, including $200 million of outstanding revolver borrowings. Next, I'll provide more insights into our fourth quarter results, business drivers and trends. We ended the quarter with 30 million active customers. I want to once again remind everyone that since active customers is a trailing 12-month metric, we expect this number to decline as it reflects the ongoing impact of COVID-19. During the fourth quarter, we sold a total of 25 million units; the most since the onset of the pandemic. Global local units were $12 million, and while…

Thanks, Melissa. And as I mentioned in my opening comments in so many ways 2020 was a challenging year for everyone. I can't end my prepared remarks without a heartfelt thank you to our team here at Groupon. We call them our entire team to focus, push through walls and make the progress we believe we needed to position Groupon for success, and the team, they answered this call and I couldn't be proud of. In 2021, we believe we will make substantial progress towards our mission to be the destination for experiences where customers discover fun things to do and local businesses thrive. Thank you for your time today. And with that I'll open up the call to questions.

[Operator Instructions] Your first question comes from Trevor Young from Barclays. Your line is open.

Hi. Thanks for the question. The color on the 1Q, Q2 be local billings were pretty helpful. It seems like their trend seem to be generally consistent with the 4Q results. Was there any change in cadence in like January and February in North America or abroad? Was January improved in the U.S. before we had heavy winter weather in some states? And then can you remind us how 1Q 2020 [indiscernible] this year sharp fall off in March as we started to get into the COVID situation? Thanks.

Thanks, Trevor. Sure. I'll provide some additional color on our Q1 performance quarter-to-date. So thus far in 2021, we are seeing year-over-year billings performance for North America, local, it's kind of few points better than Q4 levels. And North America local billings are tracking at around 51% of 2019. So as you would expect we are performing better in markets with fewer restrictions and whether weather is warmer. And we are seeing our Beauty & Wellness and things to do volumes are increasing sequentially from January to February, which is encouraging. And then with respect to international, local performance there continued to be impacted by government mandated restrictions that are in place across Europe with some of the tightest restrictions in place in our largest international markets like the UK and Germany. From a quarter-to-date perspective international local billings are down about 63% year-over-year and tracking at around 37% of 2019 levels. So while we continue to see near-term volatility we remain confident in our ability to capitalize on the recovery, which we expect to be weighted to the second half of the year. In terms of Q1 2020 and when we started to question around – when we started to see the impacts of COVID hit in March of 2020 is really where we started to see the impact. So what you'll want to do from a modeling perspective, the way that you want to start thinking about it kind of marching forward is looking as a percentage of 2019 year-over-year comps won't be as meaningful.

That's really helpful. And just – I guess, bigger picture are you starting to see merchants set up campaigns for like spring and summer to be prepared for what seems to be this expectation of like pent-up demand coming to market, particularly here in the U.S., it seems like there's a potential tailwind for both local and travel. But that what you're hearing from merchants and how are you guys preparing for that?

Hi. Thanks for the question. So as we look to recovery we're looking at both the customer and merchant side, and we're really confident based on what we're seeing. So let me give you a couple of examples that I think will, will help you understand. As Melissa mentioned, some of our categories such as home and auto and beauty and wellness and breathing rather reliable throughout the pandemic, once merchants settled in. Now, the ones you mentioned such as live events and leisure, where we know those injuries industries will be on the later side of recovery. The way that we're working with those merchants is really special and I think important, when we're talking to some of these merchants, we're hearing some of the complexities they're facing in opening backup. So, let me give you a couple of examples. [Indiscernible] merchant I was speaking runs into our things to do all over the nation. And in some States, they're still completely almost shutdown and in others they've been opened. What they're finding is that Groupon is one of the most resilient channels they have performing way above average for their business. And the reason is, is that we have our core inspiration model that we've been known for where we can inspire demand. We can tell customers that these merchants are open. We can tell customers that they've adopted and added in your services, and we can let them know before customers are already searching for those things, before the demand has already passed. So we're really being able to be helpful to merchants in that type of case. Another one to call out it struck me as being very interesting was the way that destinations are – would be using Groupon. So if you look at national destinations, another one in the leisure space they're looking and saying we might not get a lot of demand from overseas. We might not get a lot of demand traveling from across the country. We need to invent things to happen locally. And so that's another way that merchants are getting creative and using Groupon to take advantage of the way that they're going to be marketing and running their business into recovery. So across the board, we feel really good about recovery. It's certainly just a matter of when and working with our merchants category by category to bring them back online. And I completely agree with your assessment of pent-up demand across all our categories. Thanks for the question.

That's really helpful. Thank you so much.

[Operator Instructions] Your next question comes from Eric Sheridan from UBS. Your line is open.

Thank you so much for taking the questions. Maybe two if I can or two parter. Going back to the inventory test and what you learned in the four markets, what surprised you to the upside in terms of the test that produced sort of the rate of change versus what's your initial goals have been going in, in terms of measuring your sort of confidence interval in the test itself and taking it now wider if you go through the year. And then maybe the second part would be when you think about the output or the yields measured against the investments you need to make, can you give us a little bit better sense of sort of the investments that have to go in to widening the inventory expansion initiative as we move through 2021? And how investors should think about the yields or the return on the revenue side that comes on the other side of it? Thanks so much.

Thanks, Eric. I'm happy to hit both parts of your question here, and I appreciate you're asking about our strategy. This is where our focus has been. While you're looking at our business overall, we see these two important horizons. One recovery, at our low cost space, just the recovery to 80% source out more EBITDA in 2019 and at 90% source out record EBITDA. And what you're asking about is the second part of that inflection, which is our business growth plan on top of it. So as we rolled out our test, we were really excited by the significance of the reaction from customers and merchants. And let me ground you in the broader context here. We are opening up our marketplace. We're going from an inspiration marketplace to add a destination component. There's one component, our CX component. What you saw in – our merchants with a 65%, 70% improvement in inventory. You then with very little change to our customer experience saw engagement from customers both on the billings and units side. So I would say we were actually surprised to the upside because a lot of times when you're rolling out new products, you're looking for quarter point improvements, one percentage point improvement and in the middle of COVID, we have – we saw a very significant reaction. So if you take that reaction that we saw, we believe that we are walking down a proven path of marketplace dynamics, where we're opening up supply and opening up the customer merchant experience, really open up both parts of the funnel. Now – and we think that recovery itself will actually be a huge marketing event for us to introduce everything that we're scaling to our customers and merchants. So let's talk about the things that we're scaling, because you asked about the investment there. We're going to go ahead and we're going to scale removal of restrictions. We're going to go ahead and we're going to scale rolling out offers, and we're going to go ahead and we're going to scale changing our customer experience to really open up our marketplace adding destination features. This is an addition to the other leverage work we're doing, where we're scaling our self-service on the merchant side and we're scaling sponsored listings as well on the merchant side, so merchants can do more. So all of these proven marketplace tactics and features are what we're scaling. And to punctuate the point, we feel really good about our cost structure. We feel really good about the investment, just a matter of focus and prioritization and increased throughput and that's all muscle this team has built over the last year. So I'm really proud of your energy and focus. And I really appreciate your questions on the strategy.

Great. Thanks guys.

Your next question comes from Michael Ng from Goldman Sachs. Your line is open.

Hi, good morning. Thank you very much for the time and the question. I'm just wondering if you could talk a little bit more about the removal of deal restrictions. Specifically you talked a little bit about how the value proposition for both the merchant and the consumer might change a little bit as a result of that. How are merchants thinking about the removal of deal restrictions? Does it change your view of Groupon as a channel to help with user acquisition and eventually buy more market rate goods to looking at Groupon as more of a kind of revenue and profit driver. Any kind of color there would be very helpful. Thank you.

Thank you. So in our suite of inventory products, we have deals, offers and market, market rate. And you were specifically asking about removal of deal restrictions, which is one lever that merchants have. We found that our merchants are very willing to remove the restrictions and that they're excited to be able to win customers back multiple times. And the customer is going back a lot multiple times. It gives merchants confidence that they will turn into loyal customers. Of course, merchants have the option to also add an offer where a deal converts to an offer over time, so that the actual overall all-in costs can come down for that repeat purchaser. So we'd given merchants all of the tools for them to be able to take advantage of an always on interaction, always on interaction with Groupon where they can take advantage of our unique inspiration components, which is what deals, and they can also take advantage of engaging with high intent customers which is offers in market rate.

Is there another question?

Yes. Your next question comes from Douglas Anmuth from J.P. Morgan. Your line is open.

Great, thanks. Can you talk about rolling out a new customer experience in 2Q to all North America users. I just want to hear a little bit more about what you're seeing in terms of the early testing there. And then secondly, just as you think about trying to make the business more kind of always on basically and getting towards more repeat purchases, can you just give us a sense of how merchants are – maybe what percentage of merchants you're seeing that kind of activity from and then I guess also within the test markets some of those results as well. Thanks.

Thanks. So as we put this into context again we're opening up the marketplace on both sides. So your first question you asked about the customer side. And so we'll point out the fact we got the results that we got in our test without any changes to our CX. In fact when you look at our homepage, it hasn't been substantially updated in five years. So the CX changes that we're making make this business more moderate and research that we see with our customers it's intuitive and it helps them to search and browse and engage more and more deeply, which that homepage, that's our brand, that's what we want to be known for. So if we steer reputation from being episodic and inspiration only to more of a destination, the effectiveness of the CX rollout is really important, which is why we're spending so much time researching and engaging with customers as we develop this. So the components to look for will be live in Q2 is a redesigned home page, more category buttons and easier to search, better relevance in our search, so the results are better, and we're very excited to have core repeat purchase features, which drafted off of the evolved inventory and the improved inventory that our merchants are now putting up. This isn't something that was a focus of Groupon before, but as we were so focused on inspiration, but as we set ourselves up to be more on always on sales channel for our merchants and a site that our customers can use more frequently, repeat purchase features are critical. Your other question talked about the merchant side of the marketplace. What are we seeing there? And what saw pretty quickly when we rolled out offers was we started to saw…

Great. Thank you.

Thanks for your question.

There are no further questions today. So this concludes today's conference call. Thank you for participating. You may now disconnect.