Hello, and welcome to Groupon's first quarter 2026 Financial Results Conference Call. On the call today, our Chief Executive Officer, Dushan Sankful, and Chief Financial Officer, Rana Kushan. 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 material, 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, 2026 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 annual 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 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 2026 earnings call. It's great to be with all of you today. Yesterday, after the market closed, we released our earnings and posted our shareholder letter on our investor relations website. Today, I will make 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 shareholder letter, press release, and thank you. Let me start with the headline. Q1 fell short of our expectations. Global billings of $383 million declined 1% year-over-year, slightly below our guidance. Revenue of $117 million was flat year-over-year and within our guidance range. Adjusted EBITDA was $12.8 million, slightly below our guidance range. I want to be clear on one item. Adjusted EBITDA of $12.8 million includes approximately $2 million of severance reflected in SG&A in the quarter related to the roughly 5% headcount reduction we executed in Q1. The pressures in the quarter concentrated in three areas. Continued softness in our managed and organic channels, which we flagged on the Q4 call, a deceleration in North America local, where SMB merchant acquisition slowed and enterprise turned negative for the first time in five quarters, and our first soft quarter in health, beauty, and wellness after four consecutive quarters of growth. Severe winter weather in January and February added a near-term headwind. Things to do continue to grow across both North America and international and partly offset these pressures. April performance has improved, driven by North America locally accelerated. Managed channels are recovering, with email returning to positive year-over-year growth. SEO trajectory turned positive in mid-April. These are early indicators, but they validate the work we have been doing on our customer data platform and on AI-driven content, and they give us confidence in the big half. Importantly, none of the Q1 results yet reflect the operating impact of Project Foundry, which I will speak to next. Turning to Project Foundry. Foundry is the most consequential operating decision this management team has made since arriving at Groupon three years ago. We are rebuilding Groupon as an AI-native company. Foundry is not a product launch. It's a redesign of how the company works. We are embedding AI agents into the core of every function, giving business and product owners direct access to the data, tools, and creative leverage they need to act in hours rather than weeks, and removing the analytical and engineering layers that previously sat between an idea and its execution. The operating shift is already visible. We are piloting AI voice agents that conduct outbound outreach to small and medium-sized merchants, and our objective is for the majority of new merchant meetings to be set by AI voice agents by the end of 2026. Our marketing teams are operating an AI-driven stack across SEM and SEO that continuously evaluates campaign performance, generates creative variants, and runs experiments at a pace not previously possible. Our product teams are starting from AI-built demos rather than written specifications, and in some workflows, shipping consumer-facing functionality without traditional engineering involvement. Groupon IQ, our AI deal creation platform, is in production. AI-generated review summaries are live across the marketplace. By the end of Q2, we expect every leader at Groupon to be using AI agents in their daily work. As we rebuild around AI-native execution, we are also restructuring the operating model. We reduced total headcount by approximately 5% in Q1. We are evaluating additional restructuring actions in Q2 that we expect will further reduce global headcount by approximately an additional 15%, along with our significant cost reduction and automation actions. actions. These plans have not been finalized or approved by the board, and we will share details on timing, expected costs, and anticipated savings once approved. The purpose is straightforward. To enable Groupon to operate at the speed required to win in an AI-native world. Outside of Foundry, we made meaningful progress on our other strategic bets. Our customer-facing platform, Rebuild, is in the final stretch after a multi-year journey. The new iOS app is fully deployed across North America. The new Android app launched in North America at the end of Q1 to new users. The new international web platform is live in all markets. These platform upgrades were delivered without material disruption to our financial results, which is itself a meaningful accomplishment given the scope of the work. Our customer data platform is now live in all major markets, and we are using it to drive a fundamentally different approach to manage channels anchored on customer lifetime value rather than individual transactions. And in SEO and AI search, we are positioning Groupon to continue to drive performance in an organic search landscape restructured by AI-driven search experiences. On capital allocation, we execute it against the buyback authorization, Since our last earnings released on March 10th, we repurchased 2.8 million shares for 29.7 million at a weighted average price of $10.58, representing approximately 7% of shares outstanding. As of May 7th, approximately 215 million remains available under that program. Going forward, we will continue to be opportunistic, taking into account our cash generation, our investment priorities, market conditions, and the trading price of our shares. Our first capital priority remains investing in the organic growth opportunities in front of us. We continue to hold our minority stake in sum up, and any liquidity even there would give us additional capital to deploy. On guidance, we are reaffirming our full year. We continue to expect billing growth of 3 to 5%, revenue of 513 to 523 million, adjusted EBITDA of 70 to 75 million, and free cash flow of at least 60 million. For Q2, we are guiding billings flat to up 2%, revenue of 126 to 128 million, and adjusted EBITDA of $13 to $15 million. While April's improvement gave us a positive start to the quarter, we have set Q2 guide in the same range as Q1 to factor in a difficult comparison later in the quarter related to several large enterprise campaigns that have different performance expectations this year. We expect the second half to deliver improved results from our strategic bets, better execution in North America core local, and additional marketing support. Stepping back, the long-term opportunity for Groupon remains compelling. The market for online local experiences is significantly underpenetrated relative to categories like hotels and airfare. We believe AI-driven discovery and agentic transactions will accelerate that penetration, and Groupon sits at the intersection of consumer intent and local supply, a natural bridge between the AI economy and the millions of local merchants who power Main Street. We remain committed to our long-term ambition for accelerated growth. Our Refresh mission anchors all of this. We get people offline through quality local experiences at great value. The best things in life happen offline and as the world becomes increasingly digitized, demand will grow for analog in-person experiences and for the digital pathways consumers use to identify, discover, and book those experiences. That is the company we are building. I want to thank our team. This transformation is not easy, and their dedication, intensity, and execution under pressure have made this progress possible. With that, let's open the call for questions.

Thank you, Deshaun. Our first question comes from Bobby Brooks from Northwind Capital. Bobby, you can now unmute your line.

Hey, good morning, guys, and thank you for taking my question. I just want to unpack a little bit more some of the factors that cause some of the headwinds in the small business merchant base in North American Local. Is that mostly stemming from kind of the weather and the, you know, kind of severe weather in the first two months? Curious to hear there.

So severe weather was definitely a part of that. Also, and Bobby, thank you for the question, the SEO and managed channels, headwinds, which we were talking about on the last call, also participated on headwinds. And the third element was also related to enterprise where the AI inventory is very important. At the same time, we have plenty of bold actions right now with CoreLocal, and we are very optimistic going forward. The AI will significantly unlock for us an opportunity to acquire more merchants without being restricted to limitations of the size of our core sales team, because we plan and we are already piloting the meeting setups for them with AI, which significantly increases the performance and capacity. And we have many other tools which we are deploying right now.

Curious, on that AI outbound with the merchants, I was just curious, are you seeing good win rates, I guess is the word I'll use, of merchants getting those calls and setting up that first? because i could i also kind of see you know when i get an ai call like i usually just kind of you know ignored or hear it's ai and hang up like is that have you guys kind of figured it out where it's it doesn't seem like ai and those merchants are booking the first meeting so there is

definitely a small group of people but it's it's really minority who don't want to talk to ai yet I believe personally that this group will be getting smaller and smaller as pretty much every big company, every bank is deploying the AI and the quality. When we are using the frontier models and frontier solutions, I am personally not able to recognize whether the call is coming from AI or from a human person. But at the same time, what it opens to us is unlimited capacity at required times. because right now with a limited number of salespeople, they are pretty much trying to find out when to call to whom. And based on the AI, suddenly we have zero limitations in terms of how many calls we can be doing and when. So we can be doing the calls at times which are fitting much more to merchants. So if we know that in some segments, for example, the owners of small businesses don't have so many customers around noon, So we can be calling them around noon to all of them at the same time. We can be accommodating based on where you are sitting. Is it East Coast versus West Coast? Right now, majority of our workforce in sales is in Chicago, in Illinois. So we are not really calling in the evening. All this opens up and it's more than paying off versus that initial loss, which we currently have with people who don't want to talk to AI.

Okay, that's great, Colin. And then kind of continuing on the AI initiatives with, obviously, a clear focus of being an AI-native company. And I think last quarter you mentioned how all business unit leaders kind of had to come and propose how they're going to integrate AI into the workflow. And I think today's call you said that you expect all folks to be using agents later this year. So I was just curious to kind of hear more of a deeper update on like what some of those initiatives, maybe what's some of the more exciting initiatives you heard get proposed by those business leaders? And is it fair to think that the headcount reductions is direct relation to, oh, okay, we can use AI for this. And so now we can kind of pull back on our headcount in this area.

so uh first uh let me tell you that the motivation for the change and being ai first is not to save costs or have less people for working for us for me the main motivation is to accelerate how company operates i personally don't think that the companies which will not operate in this mode would survive and because i'm i'm investing heavily in ai for last two years and we have plenty of people like this in in groupon and in in other companies around me i see how people who are ai native completely changing the paradigm of how quickly they are they are moving because they are not waiting on others to prepare reports or data they can just You can imagine it like you have additional five or six AI people working for you 24 times seven. You can ask them whatever you want. So that pace which comes with it is really, really amazing. We are changing and it's not only us, it's pretty much everyone who is on this AI frontier level, the way how corporations are working. It doesn't make sense anymore to have like teams of five or six people working on something with all that communication overhead around it and meetings. It's really one or two people, we call it speedboats, who are taking decisions immediately, moving super fast, shipping products in days or weeks. And I expect that more and more of this will be coming to Groupon. But when you look how we were talking about SEO less than three months ago, for example, without AI, we would not be able to accelerate so significantly. I see the same happening on SCM. Also, Mobile Next, last almost three years, we were talking about the project, how we are moving really slowly. But last three to five months, the progress significantly accelerated. We would not be able to achieve it without AI. And I see right now that this is happening across all projects. We pretty much don't want to have in the Groupon any project which would not be around AI first, because we simply see the outcomes, speed, and the results from these projects to be significantly superior to the old way of working.

That's super insightful. Thank you, Deshaun. I'll return it to you. Thank you, Bobby.

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

Thank you. I want to follow up on Bobby's question a little bit. You were already doing a pretty good job with SG&A spending, you know, and a lot of cuts, but how, you know, I know you just said it's not about cost primarily, but how much lower could the SG&A spending get with some of these initiatives?

Sean, thank you for the question. We were in the commentary stating that right now the 15% restructuring is not approved by the board and we are not talking about specific actions. At the same time, we were mentioning that we are looking very closely on the 15% along with our significant cost reduction and automation actions because we really see this as a paradigm change how to operate the company. So I will not give you really any numbers. The saving is definitely not a primary motivation because this is probably for the first time in Groupon's history when we are talking about these reductions while we are growing, not when we need to cut something because Groupon has a major problem with the business as the motivation is really to speed up and change the operation mode of the company. I see it as an opportunity and definitely there will be a lower cost related to all these changes, but it gives us also opportunities to also invest, to grow in maybe in other areas. So sorry, I can't give you really right now.

I understand and there's sensitivity around that. I appreciate that. Shifting gears, it seems like consistently, as you talk about international billings, ex-GIF Cloud, the underlying business, excluding GIF Cloud, has been pretty strong. Is there any reason that we should not expect that ex-GIF cloud business to stay as strong as it's been or much stronger than the overall reported number? Or are there factors that are going to make that comparison tougher?

I see the difference with international versus NA that in the past, Weaver or Groupon was doing much less cuts to the sales force and was cutting mainly outside of the sales team. So I would say, in general, the sales teams in international are slightly stronger also, not only in terms of experience, but also headcount. And because they are serving individual countries, they can be more focused. So you can think about it that we have these like countries around in a similar way, how we are running the Chicago in NA where we have better results versus the rest of the country, which is driving the pace. and obviously the team is doing their great job. So I'm optimistic around international. Right now we have headwind with Emirates because of this very complex situation with the war and politics there. But otherwise I see an opportunity for us on all markets.

Okay, thank you. I have two quick questions for Rana if I can. First, what's up with the taxes? What's the weird thing going on in taxes in the quarter? And second, why would you not add back that severance if that's, in fact, you know, something that's boosting that G&A spending? Why would you not add that back for adjusted EBITDA?

Yeah, thanks, Sean. I'll take the second question first, then I'll go to the first question. You know, we have a pretty established policy on how we define adjusted EBITDA, consistent with guidance from our regulators. And, you know, these severance actions were undertaken on sort of ongoing activities. It was not part of a restructuring action that we put in place in Q1 that was board approved. And so at the same time, we wanted to let investors know that we did have, you know, material severing expenses. So this is why we made sure that it was disclosed in our commentary on SG&A. So this is something that we are, you know, see in our numbers. We see it is part of the story in Q1 and why we told you. I don't know if that answered your question, Sean. Before I go to the first one.

No, it just seems like you actually didn't miss you, you know, the way most investors would look at it. You know, you didn't come in below. But anyway, I get it. It's a matter of policy. But, you know, you're adjusted. It does actually better than it looks. So thanks.

And that's correct. And we are, you know, our role here, we want to be as transparent as we can be. So we want to make sure you understand the puts and takes of the quarter. And that's why we included that note in the letter. And glad you picked up on that. You know, listen, in terms of tax and we there there was there's always quite a bit of movements going around quarter to quarter related to how we are planning the business and and potential changes we're making. I'm happy to go into a little more detail with you offline, but there's nothing structurally that's changed with our business, Sean. at this point, you know, we have our, we do expect to see some benefits on the cash tax side related to some of the legislature that was passed last year. And so, you know, from a cash tax standpoint, we do expect this year to be more efficient. But structurally, our business, there's nothing very different happening from a tax perspective, absent changes in the regulatory

environment all right thank you very much we'll now pose written questions to the leadership team investors on the line at any point if you'd like to follow up please raise your hand our first question is for dušan how are you personally using ai day to day and what's changed for you in the last six months

uh it's thank you for the question i see major changes happening pretty much every month uh So if I will be looking backwards, how I was using AI six months ago, I was experimenting with like bytecoding and having agents doing some like small engineering tasks to build toolkit tools for me to make my life easier. I was using AI as like a chat partner. All my projects, all my brainstormings were run in AI. Then I would say some six to eight weeks ago, I switched into the agentic mode. I was actually commenting this or posting some articles on LinkedIn about it, that I built AI chief of staff, which is like a solution where all my projects live with. It's built on a cloud code on Anthropic solution and it's running all the data. It has access to all the data, which I need for my work. I'm sharing a lot of content. It sees my emails, reads all the tasks, which we are working on. And this is like primary way of working for me. I'm really spending time on meetings with people or then everything else I am working on through my AI. my AI and I see significant boosts of productivity. I am sharing this toolkit within Groupon and with my peers. Some of them took it and improved it significantly and are much more advanced versus me. But really right now I see AI with pretty much old models right now because all the major AI companies will be coming with significantly better models in coming weeks and puns, that if I provide enough context, the AI is giving me the answers which are same or better versus what I would be able to do, but it provides me these answers in minutes or hours versus me, I would need to be spending hours. So I can work on 10 times more projects, I have visibility in more stuff, and also it changed the way how we are working with leadership and managers in the company in the past. It was always prepare two-pager, one-pager with big picture. Don't spend more time. Right now, it's completely different. Just let's provide raw data, throw it on AI, and AI can do completely research, find out how best in class on the market are working and doing the stuff, show five, ten different versions for our solutions. So for me, it's a complete game changer. I feel that I don't have to wait anymore on the stuff because I have it available right now. And I see that the landscape is really developing significantly. The pace is really unbelievable. And what we have right now in a few months will be even significantly more capable.

Thank you, Dushan. A follow-up question on that. What's your conviction on where AI and local commerce goes over the next 18 to 24 months? And where does Groupon need to be when it gets there?

so i would like to position groupon as a company which will be significantly helping small businesses because it's not easy to run and operate small business not only only in north america but pretty much anywhere in the world and you definitely don't have time to to educate yourself on what's happening in in in ai so uh groupon is investing and will be investing more into the toolkit so that we are providing platform to small businesses how to operate their business how to get more clients advise them we are sitting on a lot of data we were talking about the cdp on about the customer data platform for consumers but we have ton of data also for merchants and i would like to build a solution which will be taking this data and helping merchants to run their businesses better this is on the on the merchant side on the consumer side, the way how people are searching, browsing is changing. So I want to position Groupon as a place, which is a platform which any AI agents can be using. So we can be connected to pretty much anything in the world, whatever will be popular, best in class, as a platform which will be consolidating the links and traffic and deals of small merchants who on their own would not be able to do this. So we would, with all this, when we put it together, we will be able to provide the power and benefits of AI to small businesses because right now it's quite limited to bigger organizations which have much more resources versus small businesses.

Thank you, Dushan. Another follow-up on that. What's the right way for investors to track whether the AI-native operating model is actually working beyond the headline P&L?

So the way which we are taking in Groupon is slightly different to the way which some other companies are taking. My strong belief is that if we want to be AI native company, also in terms of AI products for merchants and for partners, first we need to be AI first inside. So that's why this high focus on how we operate to make sure that every single person is running AI, because it changes not only the cost and SG&A, which we were discussing here on the call, which is really not so important for me right now, but it changes the mindset. It changes the way how you are thinking about the stuff. It changes the, you are not simply willing to do anything in a slow way if you know that you can deliver something in hours. And then this translates into products which we are building, which not only that we will be able to ship them and move them fast, but we will be also able to come with products which will be AI first. If I would be in the shoes of external investor, I would be definitely looking how Groupon is used by AI platforms, whether when you are searching there, whether you can find Groupon deals, which anytime I'm trying that, I'm able to find the Groupon deals in OpenAI or in Google. And this is one of our focused strategies. In the future, I expect that this discovery piece will be moving towards whole agentic commerce. And we inside Groupon have bets and projects to build a platform which will be like an open connector for pretty much any new standards which will be coming.

Thank you, Dušan. And one final written question. What has surprised you most about AI inside the company since you launched Project Foundry?

I would say the biggest surprise for me was the quality of AI voice agents. I was covering this on the call because I was testing them last year. i am talking to other people who are using it last quarter during the trip which i had in my team to san francisco we were visiting 11 labs and some other frontier companies and what we saw as a progress in this area was unbelievable and i think it will it's a major unlock for us how we will be able to talk to to small merchants and really unlock the the capacity when when the ai call is done right you are simply not able to recognize whether you are talking to to human or or ai agent so so this this change in last probably five months because in the beginning of the year this was definitely not a true uh this was the biggest surprise for me thank you dushan we have

a follow-up from bobby brooks from northland capital bobby you can unmute your line hey thanks

thank you guys for taking the follow-up just on this the obviously there's been some news bubbling up with sum up moving towards an ipo and i think you guys have made it clear to the market that when you get a liquidity window you'll use it i just wanted to hear it would be a nice cash sum for you any thoughts on like what that cash would go to go to use for obviously the balance sheet's really strong so would it just be but a lot of like the growth initiatives seem to be like low low capital requirements so just curious to hear maybe how you're thinking about how you might use that you know a cash windfall if it were to occur do you want me to take that

too sean yeah i don't know you can take it yeah so um thanks poppy for the question we we continue to be believe that sum up is an incredibly valuable asset and and as you've noted we continue to own a small minority stake in it. They are developing well. Their performance is strong. And as you've noted, there's some public commentary that they're getting ready to be a public company. Our view on this is they have the scale, they have the business model, they have the management team, and they have really, I think, the story to be a successful public company. But the timing on that and when that will happen is quite uncertain. So we continue to be a passive shareholder there and we continue to be supportive of the actions and the direction they're headed. In terms of, this is a non-core investment for us and we don't plan to hold this for the long term. So if there is opportunities for us to monetize that investment, we will look at it opportunistically. And in terms of that, if that asset does turn to cash, we will look to allocate this consistent with how we think about our capital allocation policy right now, where we are looking opportunistically at share buybacks. We are looking at what we see in terms of our investment needs, which you've noted, how our business is performing, market conditions and where our stock is trading uh so you know we we will we will be optionistic and and you know we will see where things go um the only other thing i will tell you bobby is you know we've been we've been following some up since we've been here for three years and and so what they have definitely improved a lot but i've i've never gotten the timing right on that one and i and i don't think it will be as smart for us to try to pick timing now um so you know it what what what is most important to me is that that business is doing well uh and has a great position in their market and um and and we and we are rooting for them to uh to continue on that path uh yeah

absolutely appreciate that color honor and yeah definitely not looking for time looking for the crystal ball prediction it's obviously a passive passive asset for you but uh great to hear that additional color on how you might how you would maybe think about using that cash and then maybe one last one for me is just on the different marketing channels i know that was some details were discussed there but you know some of the other digital marketplaces i cover one particularly was talking about really good strength and leaning into advertising on meta and pens and more so leaning away from google i'm just curious if you could provide any color on the a little bit more color on what marketing funnels channels are working best for you and which ones maybe you're

starting to lean away from right i can take this question i don't think there are marketing channels where we are starting to lean from uh i i believe that groupon should be maintaining the position and try to send as much as possible with very disciplined roi uh on every channel but you are completely right with Meta, where I see disproportionately bigger opportunity versus Google, where I believe we penetrated most of the surfaces which are suitable for Groupon and we can get much better there. But in Meta, especially with video content, we have much more opportunities. Meta also released in the last, I think it's two weeks or so, much better connectivity for AI so our team is already working with AI generating the advertisements and completely AI managing the campaigns and at the same time we are experimenting heavily with AI driven way how to how to generate a quantity of videos based on our local content because currently AI allows you if you take just a few pictures just from those photos let's say you can you can create really beautiful uh compelling videos which would be opening us opportunity to to advertise mainly on meta but then also on tiktok more very interesting and

then maybe just one follow-up on that ai content how when how does it how does it work the relationship like with the merchant if essentially if they're signing up to use you as a you know use you as a service or use your platform do they inherently then give the you know give you the ability to kind of create content for them through ai like just because you know i would guess some business owners probably want to be a little bit more protective around that just curious to hear

how that dynamic works we are significantly improving quality of content with with ai so So, actually, until now, I didn't hear about any single complaint. I, in several cases, heard, wow, this is unbelievable. When we took, I would say, mediocre pictures from a merchant website, for example, and then reprocessed it and improved it with AI. So, I actually see it as a positive thing for merchants because it is in their best interest to be represented the best possible way. And the quality of media, which thanks to AI, we can now provide also to small businesses is comparable with the professional outputs, which bigger companies are using.

That's really interesting to hear. I appreciate the color. As always, I'll return to the queue.

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