Hello, and welcome to Groupon's first quarter 2025 Financial Results Conference Call. On the call today are Chief Executive Officer, Dushan Sankifel, Chief Financial Officer, and Senior Vice President of Finance, Rana Kashat. At this time, all participants are in a listen-only mode. Today's call will be a question-and-answer session only. The company has posted earnings materials, including earnings commentary, on the company's Investor Relations website. at investor.groupon.com. 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 reflect management's views as of today, May 8, 2025 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 reports 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 also 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 Relations 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'd like to turn it over to Dushan to make a few opening remarks before we jump into Q&A.
Hello, and thanks for joining us for our first quarter 2025 earnings call. It's a pleasure to be with all of you. Yesterday, after the market closed, we released our earnings and posted our earnings commentary on our investor relationships website. Today, my plan is to make brief opening remarks and then open up the call for questions, both live from our analysts and several that were pre-submitted in advance. For more details on our quarterly performance, I encourage you to read our earnings commentary in addition i encourage you to review our press release and 10q which contain more detail on our fourth quarter and full year results i am pleased to report a strong start to the year with our q1 results exceeding guidance on both billings and adjusted ebita with a slight beat on revenue global billings grew 1.4 percent year over year marking our continued progress towards sustained growth this performance was powered by north america local which accelerated to 11 percent year over year growth in billings the first time we've seen double digit growth in this segment since 2017 excluding the pandemic recovery period our hyperlocal strategy is delivering strong results with our top 10 cities in north america growing billings by double digits enterprise clients continue to flourish on our platform looking at our vertical performance within north america local things to do grew billings double digits for the fifth straight quarter we believe our things to do franchise is significantly outpacing current industry trends and is poised to continue strong absolute and relative performance as we head into the important summer season our international local business excluding italy also showed impressive improvement with approximately five percent year-over-year billings growth as i start my third year as ceo of groupon i believe the time has come and the team is ready to start playing offense our mission remains clear to transform from a daily deals platform selling everything to everyone into a trusted destination for quality local experiences at unbeatable value our transformation strategy is working across marketplace health platform modernization and financial strength we are seeing success in shifting from chasing volume to building quality make migrating from legacy systems to a modern platform and moving from negative to positive financial performance While our strong billing growth is encouraging, I want to note that our progress in revenue is currently lagging billings due to compression of take rates in North America local. This evolution in take rates is deliberate and a natural consequence of our focus on building a sustainable foundation for long-term growth. For example, higher redemption rates cause a short-term headwind to revenue but are a great sign for the long-term health of our marketplace over time as we make progress on delivering these healthy marketplace fundamentals we expect billings and revenue growth rates will converge on the leadership front we've strengthened our team with key appointments including josef burian our new chief marketing officer and alex drabek our new chief technology officer We've also promoted Barbara Weiss to Chief Revenue Officer and Filip Popovich to Chief Commercial Officer to lead our supply-side commercial strategy and Maria Havlíčková to Chief Product Officer. The business exited Q1 with strong momentum and continues to perform well. Looking ahead to Q2, we expect another quarter of accelerating year-over-year growth in both billings and revenue for the full year we raised our guidance for billings growth rate from two to four percent to three to five percent and kept our revenue and adjusted ebda guidance unchanged i want to emphasize that we maintained our revenue and adjusted ebda guidance despite completing the sale of our wholly owned subsidiary gift cloud in early april which removes approximately 6 million in revenue and 4 million in adjusted EBITDA from our consolidated results for the remainder of the 2025. Effectively, by keeping the overall revenue and adjusted EBITDA target unchanged, we are raising our guidance for the core business, demonstrating our confidence in our core business. It's an exciting time to be at Groupon. We are no longer just stabilizing the business we see several green shoots of growth across our business and we are building the foundation for long-term sustained growth with our platform modernization underway improving customer experience on both sides of the platform continued progress in financial performance and a clear strategic direction i believe we are positioned for success in 2025 and beyond I would like to thank our team for their dedication and hard work that have made this progress possible. This journey has not been easy, and their continued commitment to our mission and to our transformation has been really great. With that, let's open the call for questions.
Thank you, Deshaun. Our first question comes from Bobby Brooks from Northland Capital. Bobby, you can now unmute your line.
Thank you for taking my question.
I guess something that really caught my eye in the prepared remarks that you put out yesterday was the number of North American merchants doing more than 1 million in billings was up 43% year over year. Could you just discuss what is driving that strength?
Is it the new go-to-market strategy and focusing on higher quality merchants and providing them with better tools to track deal performance or is it something different and more in depth so baby i can take the question thank you uh thank you for it uh how i see it in the last i would say over 18 months uh we are improving in what we call hyper geo approach that uh it means we are looking in more detail in what what inventory we need in every single location we are improving our category management in terms of understanding what's the inventory we need and by combination of both and focusing on deals which our customers need in a given location and on the quality of deals we can be a better partner not only to our enterprise partners but across the board also to to local merchants so i believe this is this is the result of uh of our more focused uh switching from number of merchants on the platform to quality of merchants quality of deals quality of service which we are providing to to our customers and i would probably also mention that the current macro environment is uh definitely not hurting us i see it like quite the
was it got it and then just like a clarifying piece on that is the greater than 1 million in billings is that on like a year like a 12 month trailing basis i would guess or is it on like an inter-quarter basis i was just curious on that like definition it's based on a training 12 months basis got it thank you and then just one more for me is it's something i noticed like kind of browsing the website into quarters some some a couple different like professional or one professional sports team that i saw specifically you know was selling tickets through groupon and the checkout process was extremely smooth never having to leave the groupon website and being
able to pick the seat and pay all within the groupon platform this seems like something that might be a new integration based off the new platform is my assumption right and maybe just touch on like that if that's a new ability touch on like how that's helping grow the business so uh bobby i was commenting on several calls that uh with new platform we will be able to iterate in in faster pace and this is one of the results and obviously checkout is one of key components of the website so the team which is maintaining checkout is pretty much everyday day looking what we can improve and there is still a way to go, but comparing where Groupon was two years ago, I believe we made a significant process both in terms of how easy the checkout is, but also in terms of payment methods which our customers can use.
Fair enough. I'll return back to the queue.
Thank you, Bobby. Our next question comes from Eric Sheridan from Goldman Sachs. Eric, you can now unmute your line.
Great. Thank you so much for taking the questions. I did want to follow up on the macro commentary in the prepared remarks. Maybe you could just go a little bit deeper in your own view about how the macro environment could act as a tailwind in the business. And then more specifically, it sounds like the implication is that the merchant pipeline could be increasing as certain brands and merchants want to go deeper on the platform, given the current environment. I want to know if we could get as much detail as we could there about the way you're thinking about the pipeline on the supply side as an output of the macro environment. And then maybe after that, I just have one quick follow up.
Thank you, Eric, for the question. you know very well the macro environment is extremely volatile and it has impact on consumer spending and unfortunately it's also very difficult to predict how customers will believe but what we see in general we see it as a tailwind for our business and we see it specifically on supply side where we see signs of weakening traffic trends from some of our clients and And because Groupon is a great performance-based platform, I believe that in this time, it's simply a great opportunity to work together. And we are just trying to figure out what are the best products for clients, how we can help them, how we can together with merchant partners create products for our clients. So we see in general in enterprise segment, but actually same applies in local, that we are really deepening cooperation with our existing clients and we see also like faster inflow of new brands coming to groupon but at the same time i would like to mention that these are kind of early science and the overall situation in macro but also in our marketplace in this term is quite fluid so uh we need to follow very closely what's going on on the in macro and na mainly but western europe is very similar and just adapt great thank you and maybe just one quick follow-up um you had
a number of comments in the prepared remarks around marketing investments and the roi you're achieving on those marketing investments can you talk a little bit about your own attempts internally to optimize dollars uh against your your return goals for deploying those dollars and or how the overall marketing environment and pricing and auction density might have helped or acted as different sorts of headwinds to the ROI in the quarter. Just want to understand a little bit of the external versus the internal dynamic on marketing ROI.
Yeah, so in general, last two years, our strategy is to be able to acquire our new customers pretty much with ROI 100% in seven-day windows, which pretty much means that the profit margin, which we have on the first order uh is cost of our our acquisition uh we i was commenting in in the script and i see performance of our marketing channels improving which is allowing us to increase volumes because in marketing in general if you want to increase volume very every incremental dollar and click or traffic or eyeball which you are buying is more expensive so If we are claiming that we are growing and increasing marketing with the same ROI, it means that in general we are improving conversion rates in our marketing and we actually see some additional opportunities how to continue in this trend going forward. so i believe that performance marketing for us will be a tailwind uh uh in in near future at the same time as the team is strengthening i was mentioning that the new cmo started we are also exploring new channels in the mid and upper part uh of the of the funnel which is mainly social media influencers and we already have several pilots in place where we can present Groupons to really millions of people on social media and on platforms where Groupon was not active in the past. So this is another opportunity which I'm extremely happy about and I'm looking forward to the results.
Thank you, Eric. Our next question is from Sean McGowan from Roth Capital Partners. Sean, you can now unmute your line.
Thank you. I appreciate that.
A couple of questions. could you give us a little bit more color on international you've talked in the past about Spain you know being one of the markets where you initiated some of these fixes earlier and it was really paying off quite well could you give us an update on some of those markets that have been in in that turnaround process longer okay thank you Sean for the question in general I would say that the trends across all major markets in international continue to improve and we are and I'm personally very happy with performance of international markets the leading market in terms of growth is still Spain which simply has 18 months head start in terms when we started the transformation and the process and the framework which we use for transformation in Spain is simply working working great and we have very strong double digit growth in Spain all other big markets meaning Germany UK France are also performing very well and we see that the trend is is still improving You know, the comp is a little bit different going forward in Q2, because last year we lost Italy as a market. So that's why, although overall we were slightly negative last quarter, it will change because we will not be comparing against Italy. But when I'm looking really on performance of every single country, it's going in the right direction. And the playbook and the stuff which we do wear is pretty similar to what we do in the United States. On every market, we want to have a very strong leader, a strong owner who owns all business. We go hyper-local, meaning we are focusing on the largest cities in international. It's typically the capital city as the first one and then typically second or third largest city in the country. And making sure that we are adding both high-quality local deals. But similar to United States, we see high importance of high quality enterprise deals because these are the deals which are driving traffic to the Groupon and that traffic is converting not only on these enterprise deals, but also converting to local merchants. uh great thanks for that color and then uh if you could just give us a quick update on the international website and mobile app updates you know i think those are things we're expecting in the first half where are we on those so on last earnings call he mentioned that this year we will be taking very cautious approach uh and we quite frankly have slow progress during the quarter we have very good visibility into each step in the conversion of our Mobile Next application versus legacy application. We see there in that conversion funnel, both good and bad guys, meaning that in certain steps, we see that legacy customers are used to something slightly different than what we have in Mobile Next application. So our approach is to make it more similar and closer to legacy because we simply don't want to hurt performance. but at the same time we see in the conversion process several good guys meaning in certain steps the mobile next uh approach is is showing better conversions so in the long run we are committed to the pro project we believe that it will bring an upside opportunity for groupon not only in the website where we have it already implemented but also in the application uh in terms of when and how we need to finish first NA up and once we finish NA up we will continue with international but at this point I don't want to provide a timeline because like our priority is really to make sure that our systems are stable our customers don't have any issues and the performance of the whole company the financial performance is simply delivered that's the priority number one.
Cool. All right. Thank you. I'll get back in the queue as well. Thank you.
Thank you, Sean. We'll now pose written questions to management that came in through our investor relations press line. Investors on the line, please raise your hands if you have follow-up questions. Our first written question. You identified product velocity as a key focus area. What specific metrics are you using to measure improvement in this area?
And what are your targets for increasing the pace of innovation so uh internally we are looking on the velocity of delivery for engineering and product teams uh from from the outside i would say higher level perspective it's simply looking on our ability to deliver small weekly changes on our website platform and our application platform and there were multiple improvements we were touching in previous question today for example the checkout but there are many other parts of the website where we released improvements being it merchant pages being it location or search and we will simply continue and I believe as we will be moving more and more technology to mobile next we will see improvements in in the face and from a shareholder uh and user customer perspective both on the side of merchant and consumer simply we want to make sure that they see that groupon is changing and you will be seeing more and more features uh we are working for example also on new maps because that's the functionality where we believe that we can provide much more value to our customers and there are a few more interesting projects one more which i can actually mention is surge because surge is one of key drivers of revenue and conversion
and we believe that it's possible to do much more with surge versus what we have right now thank you dushan looks like we have a follow-up question from bobby brooks from northland capital bobby you can now unmute your line hey guys thanks for taking uh taking the follow-up question so So in 4Q, kind of a key point was how the top five metros in North America were up double digits on billings. Now in the first quarter, that's expanded to the top 10 metros up double digits. So I was curious, was this an expansion of the number of cities seeing double-digit growth a result of you expanding that grow go to market strategy to the new cities or is that the or is it maybe something where it was already happening in the other cities that new go to market but now it's it's it's just starting to kind of take hold right yeah so bubi this is uh something which is mainly about the timing because when we were deciding where and how we will focus our sales capacities which are unfortunately not unlimited we were simply deciding what percentage of our workforce
will be focusing on top five what percentage will be focusing on top 10 and because on top five we simply had more and more capacity uh we were able to see the growth uh faster and the growth in other 10 cities simply came later but uh in generally we are not limiting uh new deals and our sales just to be stopped in cities we simply target all big cities in in the united states but unfortunately due to lack of capacity it simply takes longer with some cities at the same time we are with our one of key projects which we are running in sales uh we are doubling down uh mainly on the biggest locations because there is that compounding effect when you have enough customers and at the same time good density of high quality deals the pace of improvement is accelerating so I don't expect that we would be kind of covering top 50 cities in the United States with the let's say similar per capita sales force I still expect that we will be pushing these top locations and i would say top 10 is a good number uh more than the rest of the country but we expect and we see performance improvement in all big cities being ahead of performance uh in in smaller cities and smaller locations got it and then just like kind of piggybacking
on that i think it's clear that you're taking you're switching from you know kind of a defense offense to offense. Is it right for me to think on the last call, it was mentioned that like, hey, like we're still kind of tweaking the go to market strategy.
So like taking those two things into account, it seems like you've kind of figured out the you kind of unlocked the right go to market strategy and kind of those your response the last time is it right for me to think now this like I was mentioning in opening remarks also some organizational changes which we did and mainly in this regard this is this is about Barbara Weiss being promoted and Filip Popovich being promoted and this this duo will create very powerful team where Filip is bringing category management and very deep and high analytical skills helping our hypergeo approach to add also not only where we need deals but what exactly are the deals what should be the profit margin structure what should be the pricing structure so uh yeah we are doubling down on this i believe that uh the approach which we took since early last year is the right one but we are improving every quarter and right now the structure which we have is combination of local understanding or hyper geo understanding with also understanding and people who understand categories because uh like the massage is performing differently versus Botox or some some other product and now we have people who understand what are the issues for merchants in this category so that we can prepare a better product which which is a win-win for both Groupon and the merchants got it so so it's fair to say like pedal to the metal now it's it's not kind of just as focusing on a couple different cities obviously the bigger cities are the more focused but it's taking this go-to-market strategy everywhere Groupon is now that's that's true at the same time there is still plenty of work ahead of us so we are definitely not in the finish line, but I believe that we are progressing very well and the trajectory which we are on is a really good one.
I agree with that and congrats on the great quarter and looking forward to continued progress. I'll return to the queue.
Thank you very much. Thank you, Bobby. We'll go back to another written question. Many companies are integrating AI into their operations and product offerings. How is Groupon leveraging AI and what impact do you expect to have on your business over the next 12 to 24 months?
So AI is one of my favorite topics. I see for Groupon many, many opportunities going forward. It can definitely help us in our sales part where going forward, I believe that at least the initial communication with our merchant partners can be done by AI. We are heavily investing also into the AI tool, which is analyzing which deals are working in certain environments and the output of this, which should be coming in next one of two quarters will be a significant improvement of our capability to help merchants to design the right deal, right pricing, which will be working on Groupon for them. then definitely in engineering and technology we can expect with ai and the push into ai we can see significantly improved efficiency and then in terms of business we actually see a move on google and our search engines using what they call ai snippets and we are making sure that our website and platform is ready so that when customers will be searching on whatever location it will be in in the future uh groupon will be able to provide information compatible with with ai driven search uh so that they can uh so that they can directly go to groupon and finalize the transaction or in the future most likely it will be possible that agents will finalize the transaction even in in this we see very interesting trends where uh in some areas as AI is really picking up very quickly, and we see some drop in traffic, but on the other hand, we see dramatic improvement in convergence, meaning that customers who are using AI and who see these AI snippets, presenting the deal features price, if they come to Groupon, it's much highly likely that they will finalize the transaction. And maybe just one last touch over the next 12 to 24 months, we just want to make sure that Groupon will be compatible with all major AI platforms that it will be possible to have some kind of MCP connectors or something like that, whatever technology will be or standard will be in the future. So it will be easy for AI engines to connect to Groupon and provide Groupon inventory to customers who are using AI.
Thank you, Dusan. Let's go back to our queue. We have a follow-up from Sean McGowan. Don, you can now unmute your line.
Thank you. I wanted to ask a couple of questions about the gift cloud sale. Specifically, how did the price that you got compare to what you had expected when you first identified it as a non-core asset that you would look to sell? Should we expect a one-time gain?
Was it significantly higher than the cost basis? and then related to that sale uh does the terms of the of the recent convert offering restrict what you can do with those proceeds or was that restriction limited to sum up yeah I can take the first part I don't give it easy if you can take the second part okay uh on the first part when we were first doing like estimations of uh uh how much we can make uh or gain from from these non-core assets our estimation was in line actually with what we got from gift cloud but uh at the same time i would like to mention that what we got was on the very high end of the range which we had for the sale so uh stating that i am very happy with uh with the deal itself i think it's a good a great deal for gift cloud and gift card employees and i think it's a great deal also for for groupon because the gift card was simply completely different business to what groupon is doing and it will allow uh part of the management to focus on our group opportunities and usually yeah so if i will if uh if i will comment uh uh about our proceeds versus our 2027 bonds uh we are
allow to use up to 20 million of proceeds from any uh non-core asset cell uh so it means uh those money will uh thanks and our position of cash position and of q2 uh okay great and and will would there be a one-time gain then uh booked in the second quarter it's uh yeah it's it's it's it's a discontinued operation so it will not be a bid if you are asking for this this question no i was wondering if there would be you know in the ebitda ad back would there be a one-time gain you know like a couple million bucks or whatever i don't know what the cost basis was of it so i'm just i'm just trying to you know anticipate uh the uh the transaction happens in q2 so uh we will uh still under consideration and we will report it in q2 with screw two earnings sorry all right thank you yeah thank you sean we'll go back to written questions you've highlighted a shift in marketing focus from acquisition to lifetime value can you discuss this shift more and what early results are you seeing from initiatives like your wow deal pilot yeah so uh my view of where we stand with groupon
is that we are extremely successful successful in terms of customer acquisition which is actually uh must have if we want to build a really marketplace which is sustainable and growing in the in the long run at the same time we are simply not happy with uh purchase frequency which we see for customers on on groupon and that's why our internal priority for the whole company number one priority is retention it's retention also on merchant side uh to make a cooperation with groupon sustainable but it's definitely retention also uh for for customers meaning we want to uh find a way how to deliver more value to them and have more more offers and the one of projects which we are running in uh under this like strategy uh umbrella is uh is wow deal pilot where we took a very popular food and drink brand and we were promoting uh gift card from for this food and drink brand to several customer segments within Groupon and in some cases we saw even over 25% take rate of that offer which was extremely encouraging but at the same time it makes complete sense because food and drink is an area where you can expect the highest purchase frequency and based on the results of this initial pilot which started already in q4 2024 right now we are expanding it so that we built a set or a couple of these like wow top grade deals which will we will be offering to to our customers to just create a habit that they will do two or three transactions on on groupon and they will simply start coming to groupon for certain types of services so it will be an initiative which uh will take a long time but the early results which which we are seeing and especially the initial first first pilot is extremely encouraging for me the the results were above what uh at least i was personally
expecting thank you dušan 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.
