Hello, and welcome to Groupon Second Quarter 2024 Financial Results Conference Call. On the call today are CEO, Dusan Senkypl; CFO Jiri Ponrt, and SVP of Corporate Development and Investor Relations, Rana Kashyap. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the company's formal remarks. Today's conference call is being recorded. Before we begin, Groupon would like to remind listeners that the following discussion and responses to your questions reflects management's views as of today, July 30, 2024 only, and will include forward-looking statements. Actual results may differ materially from those expressed or implied in the company's forward-looking statements. Groupon undertakes no obligation to update these forward-looking statements as a result of new information or future events. Additional information about risks and other factors that could potentially impact the company's financial results are included in its earnings press release and in its filings with the SEC, including its quarterly report on Form 10-Q. We encourage investors to use Groupon's 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, the company will discuss the following non-GAAP financial measures, adjusted EBITDA and free cash flow. In Groupon's press release and their filings with the SEC, each of which is posted on its Investor Relation website, you will find additional disclosures regarding these 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 Dusan.

Hello and thanks for joining us for our second quarter 2024 earnings call. It’s a pleasure to be with all of you. Today’s prepared remarks are posted on our investor relations website along with an investor presentation, which I will refer to during my remarks. In addition, I encourage you to review our press release and 10-Q, which contain more detail on our second quarter results. I will start today’s call on slide five 5 and cover our second quarter numbers. After a weak start to the quarter, where April was significantly impacted related to previously disclosed site performance issues, we finished the quarter with a very good June and ended overall with a decent quarter. Our improving performance continues to be driven by North America Local, where revenues grew year-over-year and active customers grew sequentially, both for the second straight quarter. We generated a fifth straight quarter of positive adjusted EBITDA and a second straight quarter of trailing 12 months adjusted EBITDA of approximately $80 million, cementing our ability to generate strong adjusted EBITDA while investing to inflect the topline to sustained growth. Turning to cash flow, we had positive $11 million in free cash flow, better than we expected. This takes our trailing 12 months free cash flow to positive $30 million. After enduring a three-year period where the business consistently generated negative free cash flow on a trailing 12 month basis, our return to positive cash flow performance strengthens our financial position, builds a more resilient foundation for future growth and is a positive indicator that our transformation plan is working. Overall, our financial results are significantly improved compared to where we were one year ago. Our strong June results demonstrate that when we have the right supply working with proper functioning product & marketing, we can…

Thanks, Dusan, and thank you as well to everyone who is joining us today. I apologize in advance for my voice as I'm a bit under the weather today, but I'm looking forward to our discussion. I’ll use my time today to provide further insights into: our second quarter financial results; progress on our cost savings actions; update on the other business items, and our updated outlook. Turning to slide 10, so let’s jump into our second quarter summary financial results. In the second quarter, we delivered Global Billings of $374 million, a decrease of approximately 5% year-over-year. Revenue was $125 million, a decrease 3% year-over-year, above the high-end of guidance. Revenue as a percentage of Gross Billings was 33%, an increase of 1% year-over-year, as we benefited from favorable variable consideration trends while other factors were relatively stable. Moving on, our gross profit as a percentage of revenue was 90%, consistent with the prior quarter. Going forward, we expect gross profit as a percent of revenue to remain in the 88% to 90% range. Marketing expense for the second quarter was $37 million, or 32% of gross profit. As covered by Dusan, this is higher than our previously communicated range, and given the attractive returns and our focus on accelerating topline growth, we now expect marketing as a percent of gross profit to stay in this new range of 30% to 35%. Adjusted EBITDA was positive $16 million, as we recorded the fifth straight quarter of positive adjusted EBITDA. Our trailing 12 month adjusted EBITDA is $81 million. Turning to cash flow, second quarter operating cash flow was positive $15 million and free cash flow was positive $11 million, a strong improvement versus last year when we reported free cash flow of negative $45 million. As Dusan noted, this…

Thank you, Jiri. Our first question comes from Sean McGowan from Roth Capital. Sean, you can now unmute your line.

There we go. Okay, thank you. Appreciate it. First question is about the guidance at the high-end kind of staying the same, you know, given this the setback in July and the commentary on the third quarter, suggests that the business really did accelerate. So I guess the question is how are you able to keep that guidance at the high-end unchanged given the setback in the third quarter? You're obviously kind of expecting a lot more in the fourth quarter and you think that momentum will continue?

Yes, it's true. On the other side, our first quarter was more positive. So we are building on that. And also we are strengthening our SaaS organization mainly in North America.

Okay and can you comment on kind of what the timing was of this disruption and what your exit rate of business was at the end -- before that disruption started to affect the business? Like, what was it at the end of June?

I don't know if I will answer so I will start maybe Dusan will chime in. We had a -- described in Dusan part of the comments. We were very good and we believe we were close to inflection point in June. We are not disclosing monthly numbers.

Yes, so. Hi, Sean, thanks for the question. We were very happy with the development post fixing the original issue. We can't disclose the exact number, but as we mentioned in the script, we were expecting based on June results that we will be talking about the inflection point. So this is the best guidance, I can provide you right now.

Okay. That's helpful. Last question is, the increase that you saw in June, was that -- had you already started to expand the marketing spending? What is it that's driving you to expand the marketing spending at this point? Is it because you're getting good results? Or do you feel like you need to work harder to get those results?

Like in general, we were very happy with our ability to bring traffic with the reasonable cost, and we were very happy with the performance of our supply. So that was behind it. If -- actually, if -- and as we were guiding the expectations going forward, if we would have the site and platform performing at the same level as June, we would continue in this trend long-term.

Okay, thank you.

All right. Our next question comes from Bobby Brooks from Northland Capital. Bobby, you are free to unmute your microphone.

Hey, guys. Thanks for taking my question. I guess the first thing I kind of want to jump back or go back to the June quarter. So obviously, you talked about June being really strong and leading you to believe that third quarter would be an inflection point, right? So could you maybe discuss what exactly you saw in June that led you to believe that? Was it better conversion? Was it the same type of conversion that you saw in April and May, but more web or just more foot traffic to the site? And prior to the site stability issues that came up in July, what were you thinking that -- what were you thinking third quarter guidance would have looked like?

So I can comment on the first part. Thank you, Bobby, for that question. Like we were fixing the conversion during the April or the issues which we had were reflected in the lower conversion of the website, which means that also buying external traffic, spending on marketing is less efficient. So our output in May, what we were able to fix allowed us to generate higher performance from the website with pretty much same level of marketing. We were scaling up marketing in the first half of Q2. So I just consider that level sustainable. We still -- as I mentioned it in the script, we still believe the there is a room to go, and we were running most of the quarter on legacy web platform. And as we mentioned, we see -- at some point, we were at very high numbers in terms of ramp-up of mobile next new platform. We saw that it's incremental. So it would be another driver of growth going forward.

Got it. Understood.

Yes.

Cool. And so then kind of going back to conversion rate, obviously, that's a major piece of the return to growth story here, right? And while I see how conversion could improve with the better checkout system with far less clicks and easier payment options, I don't think it's been discussed too much about just the rate of improvement that you guys have seen in terms of conversion. So I was just curious if you could talk broadly on how conversion has trended. And obviously, it probably stepped down a little bit in July, but maybe if conversion was a 2 out of 10 when you guys took over, is it now maybe 5 out of 10 with a healthy amount of room to run in terms of conversion? How much more do you think it can improve? And how much has it already improved?

So like my personal rating is that we are at 3 out of 10. And while -- the reason for that number is while we did some like very positive changes in terms of conversion. At the same time last quarter, I was talking about some legacy PCs of the platform, which we still need to replace, which were kind of degrading and performance. So partially, some of our optimizations were offset by lower performance of parts, which we are replacing in the platform. So there is still way to go. We see plenty of opportunities for further improvement in conversion, specifically on the checkout.

Got it. And then I just wanted to make sure I understand this clearly, you mentioned in the prepared remarks about the new web and -- the new website and application roll-out and mentioned how in North America, you wanted to get that rolled out before the fourth quarter holiday season. Is it still the fact that you want to get that rolled out internationally as well before fourth quarter holiday season? And -- or is it maybe just focusing on getting North America rolled out first and then 2025 roll-out -- rolling out globally?

So you know that we are talking about the roll-out of new mobile platform for a long time. So right now, we are very -- I would say, very incremental in North America. At the same time, we are at like 1% of traffic in pretty much every country or -- every country which we have with Groupon. So it's not that we didn't progress also in international, but given the business size and opportunity, the ramp-up in North America is clear focus number one for us. So we will try to be in as many countries as possible as we see a major upside from new platform. But if we will be in North America, it will still be a huge win for us for Q4.

Cool. And then just maybe one last question for me before going back to the queue is just, you mentioned about some exciting new enterprise merchant setups or sign-ups and the revamped merchant -- revamped sales force to target North American local business, right? And so, I was just kind of curious about how do you -- what's kind of the go-to-market strategy in terms of bringing in new business -- bringing in new merchants into the fold? And specifically, maybe if that's different between our local trampoline shop versus a nationwide oil chain shop, does that change? And just any color and insight you could provide there? And maybe just a little curious on just the video aspect that you mentioned. I think that could be interesting. Would that be something where you guys are spending money on creating your own video or it would be something where you ask the merchant to provide a video summarizing their business themselves.

Okay. So I can start with the video part. With videos, we currently have several dozens of videos from merchants in one big location, which we selected for a test. And we are trying different methods from obtaining or creating video with our own resources or resources which we hire. At the same time, we are using micro influencers. So we are looking for the best way, so that we can scale it up, obviously, in the first wave, it will be mainly initiative driven by us, by Groupon, but based on the numbers which we see, we expect that it will help us to improve the conversions, and we will expect that the merchants will be interested to do their own videos, because we will be able to get better positioning on the platform. On the first part of your question, in terms of supply, we have the departments split into local business and enterprise business. So these are two very different product cycles. Enterprise business is targeting our enterprise merchants. And this is the part which we were focusing in the first place when we started the transformation, and we see very positive results growing year-over-year. The local part where we are investing more into sales force, it was regionalized in the last quarter in Q1 actually. And we have -- we call the position market managers. Market managers are pretty much specialized on one location, one region, and we are trying to create a guide or creating a guide how the ideal curated group on marketplace should look like. And then they are asking salespeople go and bring this trampoline park or go and bring the SPA or massages, because we know that there will be the biggest benefits for merchants, for us, for Groupon, if we bring those types of deals.

Awesome. Really appreciate the color and congrats on the progress. I'll return to the queue.

Thank you.

Thank you, Bobby. Our next question comes from Pierre Riopel from Goldman Sachs. Pierre, go ahead and unmute your line.

Hi, everyone and thank you for taking the question. This is Pierre on for Eric Sheridan at Goldman. Maybe just following up on the question on supply. We just wanted to dive deeper on your capital allocation philosophy and just key factors that help you build confidence in accelerating those sales force investments, how you were ultimately able to remove the blockers that limited investment prior? And how investors should ultimately think about your priorities looking ahead and balancing reinvestment and profitability as you look to position the local business for durable growth as you look into next year and beyond? Thank you.

Okay. So Jiri, do you want to take the question or should I take it?

No, I will start, and you can probably add. So certainly our position improved significantly. We are in positive adjusted EBITDA. We don't have going concern. We were able to create next -- in last three quarters -- out of -- last three quarters, two of them were cash positive. So we can also now little bit think about the growth. We were financially stable. We decreased our SG&A costs. So it allows us to not only spend money on marketing, but also building or starting building a long-term future in Northern America, which is our biggest market. And therefore, we are now investing to new additional business development structure in Northern America in the key cities, which we -- and regions where we're operating, because we believe there is a high potential, which can be utilized with positive ROI.

And maybe to add a little bit more picture. We are very cautious and go really step by step. So we just don't expect or don't see this as a project with like eight-digit numbers, like investments into the sales force. We have some model behind it, some basic model. We will be like adding a lot of salespeople in the Q4, but it will not be a major expense for Groupon. And once we validate our numbers, we will be able also to share with our shareholders by the financial model for expansion. If we see that we should accelerate, this will be something which we will be talking about both with you and with few shareholders.

Got it. Extremely helpful. And maybe just one follow-up from us. In terms of your mention of your ability to remove blockers behind your marketing investment and now having an ability to step that up again and maintaining ROIs. Can you just talk about the drivers of what's enabling you to invest deeper into that performance marketing curve, whether that's just the supply position improving, some of the conversion dynamics you talked about, or how we should think about those new levels of investments?

It's complete mix. We need to start with supply, because I really see Groupon in very different position. We had courage, let's say, to remove a lot of low-performing deals, which overall helps performance of the website. We are curating the deals, which in the end of the day, significantly helps the conversion of deals if you have better images, if you have better deal structure, if you're simply selling the deal better. So it was a must have, which we had to do before we were ramping up investment. And as the conversion is improving, we are able to spend more, because simply Google, Facebook and other marketing providers or partners for us are able for the ROI, which we are targeting bring more traffic to us. And I mentioned in terms of on -- when Bobby was asking about the potential, there is still a way to go, we were talking about the video is something which can also help us with conversion. So we expect that this trend will continue.

There are no other questions. This concludes our call for today. Thank you, everyone, for joining. For additional information, please go to investor.groupon.com.