Good day, everyone and welcome to Groupon’s Fourth Quarter and Full Year 2021 Financial Results Conference Call. [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 and full year 2021 financial results conference call. On the call today are CEO, Kedar Deshpande and Interim CFO, Damien Schmitz. The following discussion and responses to your questions reflect management’s views as of today, March 1, 2022, only and will include forward-looking statements. Actual results may differ materially from those expressed or implied in our forward-looking statements. Additionally, 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 of the company filed or furnishes with the SEC, corporate governance information and select press releases and social media postings. 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 am happy to turn the call over to Kedar.

Good morning, everyone and thank you for joining us today. This morning, I am going to start by sharing a little bit about myself and why I’m excited about the opportunity to lead Groupon. Then I will provide some early observation and perspective on our strategic assets, my approach to operational excellence and putting our customers and merchant partners first. I will look forward to sharing the details about our go-forward strategy and priorities on our next earnings call in May. So, let me start with a little bit about me, where I came from. I have built my career at the crossroad of retention through customer experience and e-commerce, which is why I’m so excited to be joining the team at this pivotal moment in Groupon’s journey. While I’m software engineer by trade, I have spent the last 10 years at Zappos in various leadership positions across product, tech, marketing, and general manager responsibilities before managing the entire business as COO and most recently as CEO. I led a team that was tasked with not only growing our business but growing profitably. The biggest lesson I learned is that putting customer needs first is the best way to drive long-term success. I believe it is also critical that a company deliver a consistent product experience. This can maximize the impact of marketing, which drives both new customer acquisition through word-of-mouth and long-term loyalty. What drew me to Groupon specifically is the unique marketplace of local experiences. Our marketplace helps people create memories and forge new connections that can last a lifetime. And that is special. With over 23 million active customers, a very familiar brand that drives a lot of organic traffic and a globally scaled platform with advanced capabilities, Groupon is unique. Our two-sided marketplace has the ability…

Thanks, Kedar, and thanks everyone who’s joining us today. Today, I’ll use my time to provide further insights into our fourth quarter operating and financial results and our financial outlook for the first quarter of 2022. I will also provide some perspective on our full year 2022 trajectory. In addition to my prepared remarks, I encourage you to review our slides, press release and 10-K, which contain more detail on our Q4 results and first quarter outlook. Starting with our consolidated fourth quarter results. We delivered $621 million of gross billings, $223 million of revenue, $195 million of gross profit and $37 million of adjusted EBITDA. We ended the year with $499 million in cash, including $100 million drawn on the revolver and generated positive free cash flow. As Kedar mentioned earlier, the team did a great job focusing on what we could control. And as a result, we made significant progress stabilizing our Local category. In the quarter, global local billings grew 36% versus the prior year and 8% versus the prior quarter despite the emergence of the Omicron variant in December, which significantly impacted consumer demand in the latter part of the quarter. We also continue to make progress improving the composition of our customer base. We continue to take actions aimed at building a stronger, healthier marketplace, which we believe will allow us to unlock purchase frequency, capture more customer wallet share and deliver more value to our merchant partners over time. Within our North America customer base, we grew our local active customers for the third consecutive quarter. As a result, we had 11.3 million active local customers in the fourth quarter, up 5% versus the third quarter. This growth in local customers offset the decline in our lower-value goods customers during the quarter. And within…

Thanks, Damien. Let me be clear, we are moving with a sense of urgency. As I did today and going forward, you can expect me to continue to ask the right questions to make sure I’m focusing on what matters most, explain our findings, both good and bad, along with any next steps we will be taking and transparently communicate with you regularly to bring you along for the journey from here to there. Although we have a lot of work ahead of us, Groupon has employees who I know are up to the challenge and are energized by team’s sense of urgency. I couldn’t be more excited about the opportunities we have to accelerate Groupon’s progress towards becoming the destination for Local, and I look forward to providing additional updates next quarter. With that, I will turn it over to the operator, for any questions on our fourth quarter and full year performance.

[Operator Instructions] Your first question is from the line of Trevor Young with Barclays.

Great. Thanks. A few, if I may. So, let’s take them one by one. First, we didn’t quite get the stabilization in users that we expected earlier in the year, but some positive indications on the subset of local customers. That was a new disclosure. That was super helpful. When will overall customers turn the corner? And any sort of positive indication so far that marketing efforts are driving increased app downloads engagement, converting the transactions, that sort of thing?

Good morning Trevor. Thanks for your question. This is Kedar. I would like to provide some commentary on this particular question and then probably Damien, can add more insights to that. So, first and foremost, I think local customers are the most important customers for us, as we have mentioned. And the way I look at the overall customer base is that we can get other customers and get them to experience our local hoppers. That’s the most critical aspect for us. We have grown our local customers every single quarter for past three consecutive quarters in North America and very pleased with that particular performance. Now going forward, we will continue to be focused on how can we grow these local customers and continue to look for the opportunities to get more customers – existing customers engage into local, and that’s what we will be focused on. Damien, do you want to add?

Thanks, Kedar and thanks for the question, Trevor. As you mentioned, one of the key metrics is local customers, which is why we wanted to provide this transparency for you. And obviously, Omicron is impacting us in the first quarter. But as local ramps, we would expect to grow local customers over the course of 2022. Note that in the short-term, we will see some further headwinds from goods in the first half of this year in those total top customer accounts.

That’s really helpful. Thanks. And then Damien, on the 1Q guide, obviously, the continued revenue declines, and I know you gave a little bit of math around the impact from the 1P to 3P shift. How much of this is really a mix of seasonality and the guided step-down in GPs and Omicron versus that business shift? And on the EBITDA, what if any incremental areas of spend are we seeing that’s kind of informing that EBITDA down to something closer to breakeven?

Yes. Sure. And firstly in coming off the backdrop of the positive fourth quarter results, totally get the question here. And so if you can unpack the revenue number a little bit, around one-third of the revenue sequential move is from seasonality and the overall migration from goods third-party. Two-thirds of which is more of the business pull back from Omicron. So, it’s mostly an Omicron story in this first quarter, again, which we continue to believe is a transient on our marketplace. As far as the cost profile overall, we did call out the costs associated with cloud migration, but beyond cloud, which is always part of our planned expenditures, really no other areas of structural investments. And you should assume kind of this OpEx profiles at run rate that we intend to grow and ramp our top line off the lower fixed cost base going forward.

That’s super helpful. And last one, just to kind of get this on the record since we get so many questions. Groupon has liquidated a lot of minority stakes. You have cut your some up-stake in the past. If you could comment on your plans for your some up-stake specifically or if not, broadly, what’s your general philosophy towards these minority stakes? Thank you.

Yes. So philosophically, as we do with our overall broader investment portfolio, and we regularly evaluate how we can leverage our investments to create long-term shareholder value. As you name the SumUp, we do hold it, then you saw in our recent disclosures, we do hold a 2.4% passive stake in SumUp, and that’s been a great investment for Groupon overall. I would just also remind you that there is no public market for shares of SumUp at this time.

Great. Thanks. I will hop back in the queue.

Your next question is from the line of Mike Ng with Goldman Sachs.

Hey, good morning. Thank you for the question. Two, if I could. First, it was encouraging to hear about Groupon’s focus on improving the customer experience, doing things like proactively providing customer refunds and removing restrictions. Kedar, I was just wondering, if you could talk about any areas of the merchant experience that may be suboptimal that might present itself as a similar level of low-hanging fruit to improve the experience. Thank you.

Thanks Mike. I think there are two different things with the merchants. One, we need to better understand the intent why a merchant is coming on Groupon platform. So, for example, I have talked about, we have the ability to understand if the merchant need is marketing management from Groupon, and we are going to acquire more customers for them or they are looking for more yield on their inventory. Unfortunately, some of these particular data points in the value proposition to create that sort of feedback for our merchants, we were not capturing those even at the point that we are making – or working with our merchant partners. So, I will have more information for you in terms of what we are going to offer for our merchant partners as we collect more data. So, right now, I am more focused on collecting and making sure that we have the complete understanding of merchant needs and how we can calibrate what their expectations are to what the information we provide them back. It’s just right now, it’s going to take time for us to go through those value propositions.

Great. Thank you very much. And if I could just ask a quick modeling question, just on the path of local improvement throughout the year, could you just talk a little bit about the drivers of that improvement? Is it simply reopening, or are there some things on the product roadmap that might help that? Thank you very much.

I think there are two different aspects of, I would say, not just recovery, but growth. And so one of the things is for us to make sure that for focused growth to happen, we have to create consistently a customer expectation that we address. So for example, if we are saving the time for customers or if we are saving the money for our customers, we have to consistently do that. And so if you peel back that and say, in a global recovery, what are the features, trust is very important for us. But then there are other aspects as well. There are some trends, some verticals which are coming back very rapidly, and there are some verticals which are lagging. And in general, what we will see is that it’s also based on geographies. But one thing is consistent and those are value props. And that’s why we are making sure that our value prop, understanding and under current within those value props is what will drive the growth for us. So, still going through that particular understanding for myself.

Great. Thanks Kedar and congratulations on the new role.

Thank you.

[Operator Instructions] And your next question is from the line of Ygal Arounian with Wedbush.

Hey, good morning guys And I would also like to echo that, congrats, Kedar. Welcome aboard. Maybe just taking one step back and thinking about the strategy that the team has put in place before you joined and a lot of focus on inventory density on offers, right, growing that out, removing the restrictions and kind of going there market-by-market, developing it. And now we are trying to talk about assessing and refining and kind of feels like we are going back to the drawing board a little bit. Is that strategy changing off the table, is it just evolving, maybe we could talk about bridging from where we did to where you want to get, I guess to start there.

Sure. Thanks for the question, and thank you for the congratulations. So, I think the overall team has done a pretty great job in the last 18 months of building the inventory. I think going back, this particular inventory buildup just doesn’t mean that we will have much more traction. We have to have the consistency in this inventory buildup to make sure that when a customer expects there are x number of providers in this particular marketplace, in this particular location to have that kind of density. Otherwise, the customer expectations are, oh, I look for this particular thing on Groupon, it was not there. That sort of intent capturing requires us to have the right amount of supply density and breadth, both in each vertical. And that’s what we are focused right now to make sure those KPIs are something we should be intentional about as opposed to that is a byproduct of getting just supply density buildup. That is not going to do it. So, we need to have understanding of this demand and supply. That’s one aspect. And we are working on that with a great focus at the moment.

Okay. Understood. Maybe so bigger picture as you kind of come on board and given your previous experience and in line with all the stuff you are talking about, just how you view the competitive landscape? And obviously, those like Google and Facebook have taken real share in local ad dollars over time in a real material way, pretty big competitors in certain ways. Just how do you think about that competitive landscape of competing with those content players as you start your role in this team?

That’s a great question. The way to look at competitors, I think I will first start with what I am excited about Groupon. As I mentioned, three biggest asset on Groupon front are horizontal local marketplace. The data that we have in our network, which frankly we are not leveraging, as I have mentioned before. And then the third is global scale. Now there are a lot of these competitors that you mentioned, none of them are specifically focused on local. There is advertising market, and there is a utility market that is different. But each one of them has a different application. Groupon is actually focused on local transactions. And that’s why I believe that we have the ability to go both work with merchants and customers to go through the local transaction versus other marketplaces are a different utility for our customers for a different application, but it was not meant to be a transaction marketplace.

Got it. And if I could ask one more. Damien, you kind of highlighted or mentioned it in the 1Q EBITDA guide, the cloud investment, but nothing incremental there. And then you guys sound pretty confident that EBITDA for the full year will be at least as good as it was in 2021. You are also at the beginning of this plan to kind of reassess and refine the strategy and see kind of where – what you need to do there to improve the platform, the product. And just what gives you the confidence that there isn’t incremental levels of investment that you need to put in place to get to where you want to go right now? Thanks guys.

Thanks for the question, Ygal. But before I get into kind of investment levels, that initial perspective that we have given here on the full year is really our initial baseline view and that we wanted to communicate out that how we are thinking about the year with top line trajectory, mainly in local in both North America and international ramping throughout the year. The bottom line EBITDA performance is a reflection of that ramping of growth, but as we have said before, and I think we have consistently said that we firmly believe we can grow off of a much lower fixed cost base going forward. And as I shared in one of the earlier Q&A remarks, we don’t – we are kind of running at our SG&A profile that we want right now. You shouldn’t really see any kind of incremental investment in totality. And instead, any of those investments will really be rebalancing within our existing portfolio.

Alright. Great. Thanks for all the color.

We have a follow-up question from the line of Trevor Young with Barclays.

Great. Thanks. Kedar, just back to some comments you made in the prepared remarks about your willingness to lean in on ad spend to the extent there is kind of that organic demand or the spark, if you will, before you add fuel to the fire. What are like the one or two gating factors in your view, at least initially as to what’s keeping that organic demand from coming on? Thanks.

Thanks for the question, Trevor. Organic demand, in general, we can go and look into, hey, which particular vertical is getting the organic demand back and which particular geography is getting organic demand back. And we always look at across verifying these particular demand signals across different geographies, different verticals to see, hey, what is happening. What to me is more important is to find out what are the undercurrent themes, what are we seeing and then can we replicate that on the other marketplace – sorry, other geographies to make sure that, that sort of understanding for customers, that’s sort of context for customers, we are providing that. Today, our technological experience is not there to actually take advantage of that across the board. And that’s why in some particular cases, the organic demand is not – even if the traffic comes back, the things that we are showcasing to our customers might not be there in the best way.

Right. Thank you.

This concludes today’s conference call. You may now disconnect.