Hello, and welcome to Groupon's third quarter 2025 Financial Results Conference Call. On the call today are Chief Executive Officer, Dushan Sankful, and Chief Financial Officer, Rana Kishap. 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 questions reflect management's views as of today, November 7, 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 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. In 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 Dusan to make a few opening remarks before we jump into Q&A. Dusan?

Hello, and thanks for joining us for our third quarter 2025 earnings call. It's great to be with all of you today. Yesterday, after the market closed, we released our earnings and posted our earnings commentary on our investor relations website today i will make brief opening remarks and then open up the call for your questions for more details on our quarterly performance i encourage you to read our full earnings commentary press release and thank you i am pleased to report another strong quarter that demonstrates continued momentum in our transformation journey global buildings grew 11 year over year making our second straight quarter of double digit growth. Our core local category continues to be the engine driving this growth, with North America local up 18% and international local, excluding GIF Cloud, up 15% year-over-year. Combined, our core local category now represents 89% of billings and grew 18%, reinforcing the scalability of our hyperlocal marketplace playbook. We delivered adjusted EBITDA of $18 million ahead of our expectations, and our trailing 12-month free cash flow reached $60 million. This demonstrates our ability to generate strong profitability and cash flow while continuing to invest strategically to accelerate our supply. On the demand side, Q3 reflects the compounding benefits of systematic improvements across our marketing engine. We drove healthy growth in our paid mark performance channels, supported by a modest increase in marketing spend and improving ROI. We added nearly 300k net new active customers quarter over quarter and 1 million plus over the last four quarters, excluding Italy, a strong signal for the overall health of our marketplace. On the supply side, our hyper-local focus is working. All four major international markets delivered a second consecutive quarter of double-digit growth. In North America, our focused hyperlocal city strategy is paying off. Chicago is now our biggest city and growing at nearly double the rate of North America local overall. Things to Do had an exceptional summer season with its seven consecutive quarters of strong double-digit growth. On the technology front, our platform velocity is accelerating meaningfully. Deal page conversion rates improved 13% year-over-year in North America, and we are seeing faster development cycles and higher quality releases as our modernization efforts translate into tangible business capabilities. Looking ahead, our strategic priorities remain clear. Accelerate supply growth toward our goal of over 20% billings growth while generating strong adjusted EBITDA and free cash flow. The momentum we are seeing across customer growth, category performance, and platform capability gives me confidence that we are building the foundation to become the trusted destination for quality local experiences at unbeatable value. We are still in the early innings of a large opportunity to build a hyper-local experience marketplace that combines trust, curation, quality, and unbeatable value with the network effects and unit economics of modern marketplaces. I would like to thank our team. This is not an easy journey, and their continued commitment to our mission and to our transformation has been really great. With that, let's open the call for questions.

Thanks, Toussaint. Our first question comes from Bobby Brooks from Northland Capital. Bobby, you may now unmute your line.

Hey, good morning, guys. Thank you for taking my question. Something that really caught my attention was the commentary that after allocating the focus sales resources to Chicago at the start of the year, it's now growing double the rate of North American local. So just a few questions on that. But first, it's right for me to then think that Chicago local buildings was growing in the high 30s and a follow up. Could you just discuss a bit more in detail what those focused sales resources look like and the notable actions they took?

Yeah, thanks, Bobby, for the question. I can take it. So our Chicago efforts started already last year, where we reallocated this proportionally higher share of our sales resources and sales team to Chicago. And at the same time, as we are developing our, what's how we call it, marketplace understanding and deal books and curation for sales, which means that we are more prescriptive in the terms of what we are asking our sales to come with. Chicago is always the first in the pipeline. So we are really focusing on it so that we understand the inventory, we understand what's missing, we understand how our customers are behaving in Chicago, we understand what we are searching on Groupon, and then we are asking ourselves to come specifically and close the gap and obviously it takes several quarters before the results are visible in the numbers but with the compounding effect we need a very strong we see very strong impact on Chicago results and obviously this is a big learning for us it's not really a surprised result we were expecting that this will come so we are expanding our focus on more cities which we already did two quarters ago, and we are also expanding our marketplace understanding across the board so that this becomes the new golden standard across the board for all sales processes within Groupon.

Got it. That's super helpful, Collar. And then, so it seems like this is a playbook that you're already in the process of expanding to other metros. I guess just for context, you mentioned how it the you initially put those sales increased sales resources in chicago last year was so is it is it like maybe was that like four quarters ago five quarters ago i'm just trying to get a sense of then maybe when we see the impact of those other metros that now you're using that playbook with uh start to kind of flow through results because i get that it's it's a it's a lag lag Yeah, we were iterating the process, but you can think about it that we started approximately four quarters ago.

With all new metros, we would like to see results faster because we have learnings and it was also a process where we were improving pretty much every quarter and changing and fine-tuning the approach. So it should be faster with other metros.

Got it. That makes sense. And then one more for me is just, you know, clearly got the sense of you guys' focus of making the customer journey kind of match a customer in the prepared remarks last night. You guys used the example of someone wanting to take their kids to a water park is going to be different than someone looking for an oil change. And so I was just curious, like, how do you plan on having Groupon kind of provide a different customer journey? And I'm just curious kind of what that different customer journey would look like.

So, I would split it into two parts. One is a mindset shift, which was happening in Groupon in the last six to 12 months, because in the past we were looking on the marketplace as one product, running plenty of tests across the board, and then quite often being surprised that we don't see results. Now, especially in the product department with new leadership, we change the approach and we are looking really on the results and tests per category so for example we have our new map feature but simply the map is relevant only some categories and completely irrelevant in some other categories in the past if we would release new app we would say it's not bringing the results as expected so let's forget it and let's jump to something else because the overall impact would be probably zero or around zero now we can see that for example when you are looking for oil exchange then the map is very relevant and we can show it and there are some other categories where actually we should not be showing the map so we we have this very category specific approach in product development which is changing the customer journeys across the board and then there is second very important technological enablement project for us this is cdp or let's say crm for customers We are building, and we already have a live pilot in the UK, a new technology which will be able to customize the messaging. Because the old Groupon tech stack is very limiting in terms of how we can target customers, how we can do personalization. So this is something which we are changing, and we want to be pretty much optimizing based on the behavior of every single customer on the website. And every user journey will be pretty much fitting the profile of that user. When we were doing some internal demos and showing it, it should end up with Groupon looking completely different for each customer simply based on the profile.

Super helpful, Caller. And great, great quarter. I'll return to the queue.

Thank you, Bobby.

Our next question comes from Eric Sheridan from Goldman Sachs. Eric, you can now unmute your line.

Thanks so much for the questions. Maybe two if I could. Building on parts of the last answer, when you think about purchase frequency, which you call out the difference in behavior between newer cohorts versus older cohorts, can you go a little bit deeper in some of the initiatives aimed at improving frequency among the newer cohorts against the type of user growth you've seen over the last 12 months? That'd be number one. And then number two, when you think about the next 12 to 18 months and the intensity around marketing, how do you think about striking a balance between more direct response marketing aimed at either user acquisition or behavior against scaling some of the brand advertising you talked about in the shareholder materials, just so we better understand the combined effort on marketing intensity over the next 12 to 18 months? Thanks so much.

Thank you very much for both questions, Eric. We are kind of interconnected, and I will start with purchase frequency and will be building on the last answer. We were talking about purchase frequency as a focus for the company probably last three or four quarters, yet we are reporting that we don't see material improvements. Internally, we see improvements in the repurchase rate of the cohort of new customers. When we compare customers which we were acquiring last year versus customers which we acquire right now and look at what percentage of them is doing the second purchase, typically within 30 days from the first one, we see improvement. So we know that the activities and plans which we have are directionally right. What's holding us back is really the tech limitation of our platform. And that's why I was talking about the CDP project implementation, which we have up and running in the UK, and we will be expanding it very soon, mainly to North America, but pretty much the rest of the Groupon, which would really allow us to design the specific journeys based on what customer did. Because we see that there are simply category-specific rules Our customers are buying the stuff which can be predicted, meaning that if you buy all exchange now, we know that most likely you will need it in like next nine months and similar. Right now, we don't have the targeting capability. So this technology and labor is, I would say, the last major big missing piece in the marketing stack, which we have so that we can accelerate on a purchase frequency. and the second part on the brand advertising in general, it's very hard to predict how exactly we will be running it but we simply have based on our experience we know that that brand is part of the marketing mix and especially nowadays when the world is moving towards like social media influencers this is a channel which can drive business significantly we were piloting and we have some great influencers promoting Groupon, I would say, last four or five quarters and we are successfully growing it. But now we are adding into it like the video advertising, YouTube and other channels where we will be pushing brand. It's very hard to say how it will be impacting ROIs. Overall, we don't plan to change our strategy that we want to grow contribution profit in the company. At the same time, if we see that the brand is delivering more than we were expecting, we would be adjusting the budgets between performance and brand advertising. But we will come back with more data in next earnings call because our brand campaign starts in two weeks.

Great. Thank you.

Our next question comes from Bobby Brooks from Northland Capital Partners. Bobby, you can unmute your line.

Hey, thanks. I just wanted to circle back on, you know, it was great to hear the shift in tone on how you're kind of looking at the buyback comparative from the prepared remarks last night, comparatively from the second quarter call. So I was just curious if you could maybe give us a look or a bit more color on the factors you guys will be considering when of making the decision of when to be stepping in the buyback or just any more general color on how to be thinking about it or modeling it going forward.

Yeah, Bobby. Hey, this is Ron. I can take this. um so i think you you you rightfully noticed uh our commentary in the script which you know i i think you commented on was a little what was different than what we said in the past you know uh what we said in the past was fairly non-committal and and i think this what we've said here is we expect to be opportunistic um and so we we are uh evaluating and uh the factors to consider here you asked about we were looking at our cash generation our investment priorities uh what the market conditions are like and and of course the trading prices of our shares uh so we will be opportunistic on the buyback and um those are the factors that that we'll be considering in evaluating uh how to allocate our capital with respect to this this channel got it that's helpful and then i just want to follow up do sean i think the with the customer frequency of the new cohort, I just want to make sure I've understood it right.

You mentioned that the new cohorts added in 2024, or I should say the new cohorts added in 2025, their purchase frequency is higher than the cohorts added in 2024, albeit that 2025 new customers is still below the legacy customers. And am I understanding that correctly?

Probably on the operational level, so that we can drive these projects in a very agile way, we are pretty much following the, let's say, repurchase rate in the next 30 days, meaning when a new customer makes an order, we are looking what percentage of these customers is doing the second order within the 30-day interval, because it's a leading indicator for the purchase frequency and we can see based on the changes and projects which we started already in q4 last year that there is improvement in in this group so this makes me strongly convinced that like the the projects which we have in place are the right ones that they will be working it's uh it's by adding right inventory we were talking about the wow deals but it's also about the communication at the right moment right time which is typically when the customer is redeeming and using the service which typically means very good experience with groupon we are more open to next purchase so this is this is confirmed uh to ramp it up and so it's converted into overall user base uh we simply need to also step up with better technology so that we can target and personalize in a more advanced way.

Got it. I'll return to the queue.

Thank you.

Thanks, Bobby. Our next question comes from Sean McGowan from Roth Capital Partners. Sean, you can now unmute your line.

Thank you. Kind of following up on some of the things you've talked about there, you've been now doing for quite a while the reminding consumers of of expiring coupons and you know encouraging them to redeem them can you talk a little bit about what impact you've noticed on their purchase patterns you know how likely they are to to you know purchase an additional group on uh i've thank you sean for the for the question i am not able to share the exact numbers but our analyses are showing that when the customer redeems we simply have a much higher rate of the of the second purchase and one this is a project which we were talking about since since

last year uh it takes a little bit more time versus what we were expecting because of the way how some groupons are redeemed because with some merchants we don't even have a redemption signal So we have to do plenty of background work to improve the system and collect more inputs and signals from our merchant partners. But this is one of the priority projects. We will be also improving and expanding our review section, which is very highly related to the overall topic. And we will expect that it will translate into repurchase rate overall for all Groupon customers.

Okay, thank you. And, Ron, a quick kind of housekeeping question. I think you mentioned in the prepared remarks that XGIF Cloud international billings were up 15%. Can you translate that into what the revenue growth would have been at XGIF Cloud?

So, XGIF Cloud and XWR revenue growth in Q2 was up 7.6%, so I think about 8%. okay thank you very much um then back to you just on the quite a bit in the in the prepared remarks about ai you know can you give a little bit more color on on what some of the the benefits you're you're expecting to see from greater use of ai uh so where will be and there are benefits both on the like how we are running the company but at the same time we see opportunities with with customers so i can start with uh like let's call it as gna opportunities ai is and will be increasingly more one of the factors which will be improving conversion of our sales team we are doubling down and expanding our lead generation capabilities we have the system now which is connected with our i talk about it as marketplace understanding so that we are feeding our legion engine with information which businesses which deals we need in what area so we will be sending to our sales team better quality leads which when will be converted will generate higher revenue versus just some code leads in general uh which we had in the past we we have ai included in the i call it warm-up communication with merchants to present uh the group on and overall we are adding AI tools to the whole sales process. For example, we were talking about the AI deal creation where we see that when we can present merchants during the sales call, how the deal will be looking on Groupon. It's not only speeds up the whole process, but it's also increasing conversion. We already have AI used in supply monitoring where AI is giving deal insights and guiding salespeople what should be changed on the deal to improve it and generate more for the merchant and more sales for Groupon and for customers. Obviously, engineering, it's pretty much everywhere, higher efficiency, higher quality of outputs, finance, also higher efficiency, and marketing is scale and conversions. Going forward, I expect that we will be able to drive growth of performance marketing and social and influencer marketing the same or smaller team and recently also we introduced the chatbot for our customer service where we expect that until now the chatbot was or the customer service of Groupon was more really like a service but going forward we want to look at customer service as an advertising marketing channel because it's a touch point with customers and we already have AI driven chatbot which is handling the initial part of the communication and then advanced system where our agents are pretty much guiding AI how we should treat the conversation with customer and taking over just part of the communication with heavy help of AI. So this is on SG&A side and then on the customer side, I expect that and it will be slower than everyone probably predicts now like always with new technologies that there will be a change in behavior how customers are looking for for services so we are closely uh monitoring and working with partners uh and with our teams how to be ready for ai apps how to have the website easy to read and communicate with uh with ai engines so that we can find it we are analyzing what are the really keywords which are driving the AI traffic so that we can provide better and better results like going forward and again it will be slower than everyone expect we believe that people will change the way how they are looking for stuff and it will be more conversational and Groupon will be part of it ultimately I see Groupon also as a kind of gateway for small businesses because it's very hard to expect that all small businesses with quite often tough time just to run the business will be ready to have the solution ready working with all the key players. We won't be ultimately the platform which will be bringing all local merchants and the small businesses to AI world.

Thank you, very helpful. Thank you.

Thanks, Sean. We'll now pose written questions to management that came in through our investor relations press line. Investors who are live on the line, if you have follow-ups, please raise your hand and we'll head back to you. Our first written question is in regards to marketing efficiency. Marketing spend rose 14% year over year to 37% of gross profit as you leaned into acquisition. How are you measuring marketing ROI across channels? And what early learnings are emerging from your new brand campaign in key markets like New York and Chicago?

I can take that question. So first, brand campaign is starting in next two weeks. So we don't have a lot of learnings from our own. Obviously, we were doing the homework and we were looking on how our companies were running brand campaigns to take the learning. So we have positive expectations of the outcome. And in terms of performance of our marketing channels, based on the numbers which we were reporting, you can see that our marketing channels and paid marketing channels are performing very, very well. We have very good ROI. We are not changing our ROI goal of like 100% return within the seven-day window for all our performance marketing budget. And with this setup, although based on the results which Google and Meta are posting, you see that we are able to monetize better word traffic. We are still able to grow and improve the marketing with the exactly same ROI, which I consider as a great result. And based on the additional AI opportunities, I believe we still have a way to go. We still can grow the video part, the social part of the marketing. So I believe that part of our future growth will be coming from this area. And maybe one additional comment on this. At the same time, we see a shift of behavior of customers. We see that the AI PCs, mainly by Google, are simply decreasing the traffic coming from SEO. At the same time, we see higher conversion. So SEO overall for everyone, it's not just a Groupon-specific topic, is definitely kind of a headwind. But at the same time, we see that there are opportunities with conversion and opportunities with AI which should balance it. Thank you, Dushan.

Our next written question is in regards to platform modernization. Your new app remains at roughly 3% of traffic, with plans for a full North American cutover by early Q1 2026. What KPIs are you watching to gauge readiness for the full migration, and what incremental uplift in conversion or engagement have you seen from early adopters?

So I'm happy to report that in recent weeks we see quite major improvements and that's why we are more optimistic with the rollout of the platform. The biggest learning and takeaway which we have from the app is that new Mobile Next app users have 10 to 20 percent higher engagement which means that because app is easy to use we are simply coming back to the application relaunching it looking what's available on groupon more than customers using the legacy application at the same time uh it's not converted yet into into conversion the monetization is pretty much on par that's why uh we we are just decided that we will be ramping up the distribution for new users already now in Q4, and then we will really accelerate it in early Q1 because we feel much more confident about the app performance right now. And the second part to this question is related again to that CDP or CRM platform, which would allow us to deliver personalized messaging because this is a tool how to improve experience for customers, deliver them the push notifications and in-app messages which will be more relevant and we see this as a opportunity for us for next year.

Thanks Dushan. We have a follow-up question from Sean from Roth Capital. Sean you can unmute your line.

Thank you. Yeah I noticed that the last quarter and this quarter as well travel seems to be doing better so can you talk about some of the things that you're doing in travel that seem to be working?

Do you want to take that question or Yeah, I can take it.

So, Sean, you correctly noted our travel business has been doing well. You know, our travel business is still relatively small relative to the market opportunity and our business. We have had success this summer working with several large enterprise brands in travel that really fit with our proposition. um and so what we've been doing there you know these are actually existing customers that we're growing faster with uh and and what we've been working closely with them to understand their needs and and designing uh and understand what our customer needs are and and introducing more room nights uh better better deals um and that's and that's been uh really successful um these properties also overlaid with many of the outdoor activities for the summer um and so that that That also, you know, let's say lines up well with our platform offering things to do experiences. And so that's really what drove travel this summer.

Great. Thanks, Rob.

And another follow up from Bobby from Northland. Bobby, you can now unmute your line.

Hey, one more for me. So obviously a lot of discussion on the AI initiatives and kind of where you see the opportunity there. But I guess I was just curious, like, from the customer-facing perspective, you know, is there anything, as folks are checking out the website and looking for deals in the coming months, are any of these kind of AI initiatives going to be able to be directly seen when browsing inventory on the website or maybe through the app, whether it's the legacy or the new rollout one? Just curious to hear that, Collar.

So, one internal project which we are running in this area is also really updated version of search and relevance platform for whole Groupon, which would allow us to unlock better opportunities, more personalization in general, in line with what I was talking about with the CRM project also. And the plan is that when we will have this platform released, we will be adding the AI search also on the Groupon platform. Until then we released a functionality which is not like pure AI but which is like helping customers when they are typing the search query that we are adding the better suggestions, we are adding the related stuff based on the previous result. This is what we are already piloting on that new technology but we expect much more when we will have it. And at the same time, we have a very heavy stream when we are making sure that our website is able to talk with all AI platforms. Because our observation right now is that not many customers are really using the apps in OpenAI and other platforms. It's more still the organic language. Help me find the Groupon deals in New York. For example, the query, which is quite often used in OpenAI, or find me the deals for, I don't know, for the bowling during the weekend. And we want to make sure that our website is providing the feeds for AI agents so that it's very easy to incorporate our results in that natural language flow there. But obviously we are and will be ready also for the upworld when we will see some better numbers coming. We have projects which are covering it so that we are ready. But from like, like impact perspective, I believe that the bigger value right now is about the compatibility of the website to talk with AI engines so that it's easy for them to show our results.

Makes a lot of sense. Appreciate the caller.

Thanks, Bobby. We have one final written question. Can you give an update on the Italian tax settlement?

Yeah, I can take that one. And there are more details on this in our queue. But the headline is we continue to see progress there. Our Italian entity received an update that the proposed settlement we had has received several approvals. So that's good progress. And now it's waiting to get a revised assessment that reflects the terms of the agreement. We also have an upcoming court date in December and we are expecting to jointly seek judicial approval. So this is progress. We're hoping to resolve this ongoing matter and put it behind us. You know, at the same time, it's been a fluid situation. And so, you know, we will continue to update you as we get more information. um yeah and maybe as a reminder uh the reigning amount that that would be owed under the terms of this agreement is approximately 50 million 15 million dollars one five um so that's the latest update we have in italy thank you thank you rana thank you dusan there are no further live or written questions so this concludes our call for today thank you everyone for joining for additional information please go to investor.groupon.com