Good day, everyone, and welcome to Groupon's Third Quarter 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the Company's formal remarks. [Operator Instructions] And just a reminder, today's call is being recorded. And now at this time for opening remarks, I would like to turn the call over to the Chief Communications Officer, Jennifer Beugelmans. Please go ahead, Ms. Beugelmans.

Hello, and welcome to Groupon's third quarter 2022 financial results conference call. On the call today are CEO, Kedar Deshpande; and CFO, Damien Schmitz. The following discussion and responses to your questions reflect management's views as of today, November 7, 2022 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 postings. On the call today, we will also discuss the following non-GAAP financial measures, adjusted EBITDA, adjusted EBITDA margin, 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. Unless otherwise noted, all comparisons to 2019 are provided on an FX mutual basis. And with that, I'm happy to turn the call over to Kedar.

Hello, and thanks for joining us. Throughout this past year, we have talked a lot about the fundamentals of our turnaround strategy, reduce our cost structure, and at the same time, improve our core marketplace experience. Let's talk about the progress we have made on both fronts. We are significantly streamlining our cost structure and allowing it to grow our business is today, we are well on the way to achieve our Phase 1 goal to take out 150 million of annual costs and expect to hit this run rate by the end of 2023. We complete a big majority of headcount actions only in the fourth quarter, and expect to begin, to realize the benefits of all right sizing starting in 2023. Our new cost structure should provide us with significant operating leverage and ability to sustainably generate positive free cash flow as we execute on our turnaround strategy. Moving forward, we will continue to look for opportunities to optimize our cost footprint to ensure it remains aligned with current business while still giving us room to grow. And for 2023, we have a goal to identify an additional $50 million of savings and related cost actions by the end of the year. We are also executing on initiatives to improve our core marketplace. And during third quarter, our local category was stable, with global local billings that came in at 49% of 2019. This was in line with our expectation and consistent with our performance levels over the last six months. We are orienting our marketplace around solving everyday customer problems. And to do this, we need to deliver on two strategic priorities; improve our customer experience to ensure customer interactions on our marketplace are relevant, credible and actionable every time they want to come to our marketplace;…

Thanks, Kedar I'm really pleased to step into this role on a permanent basis. Thank you as well to everyone who is joining us today. I'll use my time today to provide further insights into our third quarter operating financial results and factors to consider for the fourth quarter. In addition to my prepared remarks, I encourage you to review our slides, press release and 10-Q, which contain more detail on our Q3 results. Taking a step back, before we go into our third quarter financial results, our performance this quarter underscored the stability we are seeing within our core local category. While we haven't seen the impact yet from the initiatives we've launched to support our strategic priorities, we are taking steps to drive engagement on the platform and unlock growth. So let's jump into our consolidated third quarter results. We delivered 434 million of gross billings, 144 million of revenue, 126 million of gross profit, negative 9 million of adjusted EBITDA. We ended the quarter with 308 million in cash, including 110 million drawn on the revolver, and we had approximately 20 million active customers worldwide. Turning to our local category, consolidated local billings were at 49% of 2019 levels. This compares with 52% of 2019 during the second quarter. In October, we begin to pick up some momentum and have seen North America local billings recovered to 52% of 2019 levels. Within our North America customer base, we had 9.9 million active local customers in the third quarter, down 9% year-over-year. And within our international markets, we had 5 million active local customers in the third quarter, which represented growth of 22% year-over-year. Moving to our goods category. In the third quarter, billings were 54 million and in line with our expectations. As a reminder, we completed…

Thanks, Damien. Our team has been hard at work, executing on our cost action plan and on initiatives to improve our marketplace. And over the past few months, we have taken important steps forward. We are executing on a multi phase cost saving plan and expect to achieve 150 million in run rate savings by the end of 2023. We made progress reorienting our marketplace around solving everyday customer problems. We have a number of initiatives in flight is that delivering a better customer experience, and improving our inventory density so that we can better satisfy customer intent and drive purchasing higher. We have a plan to launch our new beauty experience platform in Charleston market by the end of the year. And now with our improved marketplace, we have begun testing into marketing to help us by customer engagement and purchase frequency. While this progress is not yet reflected in our financial results this quarter, we have begun to see reshoots of progress. And I'm confident that there are brighter days ahead for Groupon. Based on this, we are reiterating our point policy goals to generate 100 million in annual free cash flow and deliver a 15% to 20% adjusted EBITDA margin. All of this word should position us to begin capturing new growth opportunities as we exit 2022 and to do so, profitably in a variety of economic cycles. With that, I will turn it over to the operator for your questions.

Thank you, Mr. Deshpande. [Operator Instructions] And we'll take our first question this afternoon from Trevor Young of Barclays.

First question, on the 23 guide of the 15% to 20% EBITDA margin and 100 million free cash flow. It looks like the underlying assumption is now local billings to be around 60% of 2019 levels. That assumes a pretty healthy ramp versus as you pointed out Kedar kind of treading water around that 50%-ish level. Can you help us understand what's embedded in your framework there in terms of like macro recovery versus inventory ramp or versus stabilizing, or even growing the local customer count versus the current run rate versus purchase frequency? Just help us understand some of the puts and takes that inform that view of getting to that 60% threshold?

Thank you, Trevor. Damien's here. You're right that in our 2023 numbers sets assuming higher local billings around 60% of 2019 levels. So you heard from Kedar's remarks today around how we've improved a number of the fundamentals of the marketplace and are seeing some degree of stability. A lot of the initiatives he touched on, really in the early stages and hadn't fully manifest into the P&L to enhance the core marketplace experience, whether that's adding inventory and putting a CX, search relevance, Groupon incentives, and calibrating our marketing investment. And so when you think about where we're at today, to where we need to go, is really around driving purchase frequency, and we can get to those numbers that we've cited on our existing customer base with just a little bit more purchase frequency. So, that's really what's underlying the 2023 number set.

And then just by extension, we're trending around this 50%-ish level versus 2019, and I think you commented that in North America here in October, we're picking up a little bit. Can you talk through what the cadence was, one, throughout 3Q, and then two, what's kind of informing that uptick here so far in 4Q?

So Damian, here again, and let me unpack and reconcile a little bit around the third quarter for you. So we did say, we see we're seeing stability in the little category in both North American International for small little additional color really went looking at all the various puts and takes within the quarter operationally. There were a few smaller headwinds, namely a timing shift, or one of our major retailers, Hurricane Ian at the end of the quarter, and some other miscellaneous items. So, net-net normalized trends are relatively studies. So and that's why we were encouraged to give the October number for North America as well. And those few points of tick that got a really broad base, it's not one vertical versus the other, we're really kind of seeing that list across the board.

Got it. So sounds a little bit more broad based but that makes sense. Last one, Kedar just on the new beauty marketplace, just shared a little bit of color there on timing by year-end. Any details you can share on branding? And then I think you mentioned trying it out in Charleston first, any color on why that market versus other potential, geographic markets? And then lastly, is there any embedded contribution in that 60% of 2019 level threshold for next year?

Thanks for the question Trevor. I think the geographical market or what we are trying to do with, particularly in the beauty. Charleston area represents one of those ideal demographics for us, in terms of the customer composition, that they use these particular services, we have seen that particular behavior in the past. But stepping back, this particular beauty offering is mostly to make sure that the customer starts with customer problem and trust first, as opposed to starting with a price. And I think that's one of the reasons we are starting to make sure that we get the first and foremost customer problems, right, we be able to establish this trust. And then from there, if we believe that we have solved the customer problem, so hey, how do I find the trusted provider, because it's not five star reviews, a three star reviews, or it's not some text reviews, you actually want to go to the problem and somebody actually verifying that for you how they went through this particular process in a different i.e. video or imaging format. That's what we are trying to test it out. That's what we are trying to launch it out in the Charleston market. As far as the point for increased concern, we are not considering the recovery percentages, as part of this political initiative is not going to materially impact that 60% recovery.

[Operator Instructions] We'll take our next question now from Eric Sheridan of Goldman Sachs.

Thanks so much for taking the questions. Maybe two if I can. Can you give us a little bit of color, what you're continuing to monitor with respect to the Atlanta test and how elements of that might fit into growth versus rationalizing for costs looking forward to next year? Thanks.

So at last is what we're trying to do in Atlanta is specifically focused on two aspects. We are trying to make sure that we can sell the inventory where customers come to Groupon platform and they are like, they -- as you see, in some of our numbers, you have seen us talk about one and the customers are coming in, they go for a specific deal and then they don't come back to Groupon platform as such. To address the specific problem, we have this incentive called G-Bucks, which is launched, where we give an incentive to customers, they come back, they browse our catalog, understand better understanding of what Groupon has to offer. And then in parallel to that, we are also trying to make sure that, we have the better search experience, we have the better overall inventory experience by having the everyday inventory of them in terms of CLO. These particular inventory compositions give us the confidence that, customers are finding our platform much more useful than they have seen in the past. And so, we are monitoring Atlanta cohort of the customers with, what we call the control cohorts of Dallas and Houston and few other cities to make sure that, the retention on this particular cohort is actually a growing retention. And we have seen that particular trend. It's not up to the level that we would like it to be, but it's much bigger than our control cohorts. And so, just to summarize what we are doing here and what we are monitoring, better inventory density, with the better incentive structure that aligns with customers coming back and improving our purchase sequencing in that specific market, that's what we are very focused on in Atlanta.

And Mr. Sheridan, did you have anything further?

If I can take an opportunity, I'd love to ask maybe just one. You talked a little bit realigning marketing towards the middle of the funnel? How should we be thinking about that in terms of both the pace of marketing dollars in the next year and some of what you need to do to realign those dollars with the way you want to be in the purchasing funnel? Thanks.

Yes. So, I'm going to use this opportunity to give you my part, which I have in actually trying to get across in our presentations, and so it's again reiterating some of this particular project. So look at the beginning of the year, when I started as CEO, one of the things we did is, we stepped -- reduced our marketing spend, performance marketing spend. And the reason we reduced our performance marketing spend was, because our customer experience was not so great. There are a lot of refunds. There are a lot of customer contact challenges. And so by reducing, we focused in Q2 on improving those operational elements. In Q3, we leaned into performance marketing and we believe that, once we fix all these particular challenges, which is now we have a systematic mechanism for refunds. We have reduced, hit some of the merchants out of the platform, actually made the behavior better by improving and working with a lot of merchants, partners. And so, we have now a much better, healthier customer experience. So, we will lean into Q3 on performance marketing. Some of that performance marketing spend is coming back later down the line. But as we are launching this particular experiment to increase the purchase frequency, and we are trying to make sure that, we have this inventory density with every day inventory in terms of dining or whether it's inventory that is in the beauty marketplace. We are creating this particular slide is that customers can now engage with Groupon much better with the bugs and all these incentives. So marketing is just a part of that experiment where we are trying to say mid funnel span, we are trying to optimize that. But as the core retention improves, we will be able to spend more and more on the specific part of the marketing which is acquiring the customers more as opposed to trying to get them to retain. And that's why we are trying to make sure that the marketing spend is much more focus to all these optimization as opposed to only in the performance marketing.

[Operator Instructions] And it appears we have no further questions this afternoon. So that will conclude our call. Ladies and gentlemen, I'd like to thank you all so much for joining the Groupon's third quarter of 2022 financial results call. Again, thank you so much for joining us, and we wish you all a great remainder of your day.