GRPN - NASDAQ

Hello, and welcome to Groupon's Second Quarter 2025 Financial Results Conference Call. On the call today are Chief Executive Officer, Dusan Senkypl; Chief Financial Officer, Jiri Ponrt; and Senior Vice President of Finance Rana Kashyap. [Operator Instructions] 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, August 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 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 in 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.

Hello, and thanks for joining us for our second 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 10-Q, which contain more detail on our fourth quarter and full year results. I'm pleased to report another strong quarter of accelerating growth. Global Billings grew 12% year-over-year, marking, continued acceleration in our growth trajectory. This was driven by strong performance in our core local category with North America Local Billings up 20% year-over-year and International Local Billings, excluding Italy and Giftcloud, up 15% year-over-year. Combined, our core local category, excluding Italy and Giftcloud, grew 19% and now represents nearly 90% of our billings. This validates the scalability of our marketplace transformation playbook and keeps us on track toward our target of accelerating global billings growth to over 20% by 2027. We generated strong positive free cash flow of $25 million, demonstrating our ability to drive profitable growth while investing in our platform and team. We also announced a proactive refinancing that meaningfully simplifies our capital structure and eliminates constraints, putting Groupon in a position to play offense. Our hyperlocal strategy continues to deliver strong results. Our North America enterprise brands had an exceptionally strong quarter with 26 brands generating over $1 million in quarterly billings, representing 53% year-over-year growth. North America Things To Do delivered strong double-digit growth for the sixth consecutive quarter, demonstrating market leadership during the crucial summer season with particular strength in amusement parks, parks, water parks and multi-attraction tour passes. On the leadership front, I'm excited to announce that effective September 1, Jiri Ponrt will assume the role of Chief Operating Officer, and Rana Kashyap will become our next Chief Financial Officer. Both have been instrumental in our transformation since joining in early 2023, and these changes reflect our commitment to developing leaders from within as we build toward our next chapter of growth. Looking ahead, we are raising our full year billings guidance from 3% to 5% to 7% to 9% growth, reflecting the strong momentum we are seeing across our business. We see multiple levers driving accelerating growth and remain confident we are building the foundation for sustained long-term value creation. We are still in the early innings of a large opportunity to build a hyperlocal 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 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.

Our first question is from Sean McGowan from ROTH Capital Partners.

Can you hear me, okay?

Yes, we can.

Great. You mentioned in the commentary that you issued yesterday that you're seeing AI-generated traffic or searches. Can you just elaborate a little bit more on that? Is that incremental -- you think you're getting incremental traffic and business from that? And what is it that makes that more valuable?

Thank you, Sean, for the question. Based on how we currently review, we believe that the traffic coming from AI is more as an incremental. And I really see AI traffic as a tailwind to us. We are spending a lot of resources on building the platform in a way that we are a great partner for AI-driven companies. I'm big believer that the traffic is moving and people are changing behavior, and they will be using AI more and more. And I actually see Groupon positioned very well in this because we have a very unique offer, and we can be a gateway for many merchants to be part of this AI economy as to call it. And yes, we are growing with pretty much 0 base last year because this is extremely developing. But overall, we see it as a positive trend with really very, very strong double-digit growth every month. At the same time, this is a new field, which is not always easy to measure and there are no like standards in general. So we see on the market various numbers from different types of companies. So I would like to emphasize that still it's a small part of our traffic, but it's the type of traffic, which we believe will grow significantly and will grow also in terms of impact on overall Groupon performance.

Do I have a chance to ask another question at this point? Yes, okay. If you can talk a little more generally about the efforts that you've been making over the last couple of years to get merchants more engaged and to see more repeat business. Can you talk a little bit about progress there?

Yes. So we are talking about the merchant relationship and the way how we are doing the sales pretty much since I joined the Groupon, and we have different views and different angles how we are looking at it. But in general, I consider Groupon like an amazing platform for merchants in general because we are performance-based platform. So which means that we are getting paid only when merchants are getting paid, and this is very important when you are advertising on our platforms, typically, you have to pay for traffic and then you hope that you will be able to optimize. So in general, our long-term positioning is very strong with merchants. We are still in the process of transformation of our sales force to be partners to merchants. We are now looking on Groupon not as a one marketplace when one size fits all. But internally, we are talking about like triple-digit number of micro categories on Groupon. We want to understand one by one, understand how the economy for merchants works and then be their partners and helping them to create campaigns, which will make sense both for merchants, but also for marketplace. And this applies actually across the board. We were in our commentary talking about very strong performance in the national enterprise segment. And what I was describing works both with small businesses, but at the same time, it works with large national enterprise partners where sometimes the discussion is even easier and faster because they really understand performance. They understand how much they are paying with other marketplaces or advertising platforms, which they are using. And when we understand their needs, then we can be a great partner for them. Also, I would say that in the last 12 months, we made a huge progress on understanding what's going on, on the platform. So right now, and we are starting with these like large partners, we can come to them and explain and show them what the data are showing about the incrementality of the business, like whether customers coming from Groupon would come to where either websites or properties without Groupon or not show them, and the behavior, how they were making the decision process. And these data are actually very positive for -- in the way how we are presenting and showing Groupon value, and then it helps us grow the business with merchants more.

Our next question comes from Bobby Brooks from Northland Capital.

And first, I just want to congratulate Rana on moving to the CFO role and Jiri taking over the COO role. So kind of piggybacking on the AI question, it was really interesting to hear that the AI-powered search is showing strong signs of growth, albeit off a small base. But 2-part question. First, of that notable growth that you've seen so far, is that mostly just these AI search engines sort of organically picking up your deals? Or have you made intentional enhancements to your listings to try to pick up this traffic? And then second, just wanted to hear how you plan internally to further accelerate that traffic coming from this channel.

Yes. So internally, we are looking on AI together with SEO because as you know, Google is significantly changing the behavior of the search result pages. How we are looking and put in more and more content and keeping the people much more on their website versus sending them to us. So what we see in SEO that -- is that we have pretty much a steady performance, which actually is a great win because there are plenty of companies which are really facing headwinds right now because the traffic goes down. What we see is that we have declining traffic. However, people are making and spending a little bit more time in decision-making on Google, for example, and then coming to Groupon and they have simply higher conversion. So in SEO part, which also partially includes AI through its AI snippets, we are holding steady, which I consider great results. And then we see the part where people are starting their search in AI engines, being it Perplexity, OpenAI and others. And we are investing into our platform so that Groupon is providing proper results so that they can directly link us as a source through the recommendation and you would be discussing what I can do with my kids over the weekend that Groupon is included, and this part is growing, and I see this trend of moving people towards AI search is very strong, and it just accelerates. And how we look at it from the midterm and long-term perspective, yes, we are investing into our platform so that our platform is a good citizen and partner in this AI world. We plan to be part of the pilot program, for example, with OpenAI so that -- as they will be developing their product, it will be even possible to book Groupon experiences and deals directly through AI agent. And this is, in my opinion, the direction where AI is heading. It will take some time, but I expect that it will be really like an executive assistant for people where they will be using voice, talking, discussing with AI, what to do and e-commerce players who want to be really playing important part in this ecosystem need to support it so that it's easy for AI platform to do the booking, do the orders and find all the relevant information. And this is one of the internal focuses of Groupon to play really well. And maybe last remark on this. I believe that we are positioned very well also from the perspective that we have unique inventory. There are many companies which pretty much have commodity inventory, which you can buy on other places, but Groupon has unique deals, which are not available anywhere else, typically on the Internet. And in this point, it's a major, major advantage for us to be even, I would say, preferred partner for AI companies in certain segments.

Appreciate that detail. And just to confirm, so it seems like the uptick in traffic that you've seen so far is sort of a mix of just organic and enhancements that you've made to the platform?

I would say that in SEO, we have -- we can, let's say, maintain our numbers because of new platform which we have, which is able to provide better and better results from Google. And then there is the part focusing on what you can get internally in ChatGPT and others, which is, I would say, additional technological development, which our platform is capable of providing right now. And that part is the growth which we were talking about in our commentary. This part, although starting with very low and small base, it's growing 50% month-over-month.

Got it. And then the next one for me is you guys talked about how you mentioned. Over 200 micro categories within the North American local segment where you feel you can execute your go-to-market strategy. Could you just provide some context on that? Like maybe what would be helpful is how many micro categories did you feel you successfully pursued within second quarter, that resulted in -- that were reflected in second quarter results?

So we are trying to improve across the board. However, it will be a long-term process, and we were mentioning that we are really in the beginning in many areas that we see that if we do a deep dive, we have a category manager in some segment and we really understand the merchants. We understand their economy. We understand really in depth what customers are asking for, then it allows us to accelerate. So we have several categories, and I believe we were mentioning, for example, the airport parking, we were mentioning categories which maybe you would not expect on Groupon like oil exchange, for example, where we work very closely to have proper supply on one side. But at the same time, we are in the product and again, thanks to the better platform, which we have now available. We can start customizing the user interface, so that it includes features which are important for decision-making process. To give you a very simple example, there are categories where image is not important at all when you are, for example, deciding on the oil exchange, the picture is very small part of the decision-making process, while there are categories where simply you need to know how the place where you will go looks like, how it will be the feelings, emotions. So we are able to go on that level, both with merchants, but right now, also with the consumer to customize the user experience. And it will be -- this will be pretty much never-ending process like there are many marketplaces which really focus on one category, and it's much easier for them. We have, as I said, right now internally, our structure shows 200 categories. This is by far not the final number. We may end up with less or more, but it will take time really to go deeper and deeper. We have several categories which we preselected and focus on them to prove the concept, which -- where we have very good results. But then we will probably improve pretty much each of them to a certain level and do iterations.

Awesome. That's super helpful. And then just one last one for me. With the refinancing that you guys did intra-quarter, that obviously allows you to step back into your buyback. Just curious to hear any thoughts on when that might make sense for you guys to do it or just maybe triggers that you would be looking for to then step into -- start to repurchase shares?

So like the -- maybe I can take this one, is that I look at this through the lenses of value creation. So we are here -- and our main responsibility is to grow value for our shareholders. I believe that we are in a very good position, and we want to maintain going forward, optimal and resilient balance sheet. And right now, I see two areas which we are looking into it. First, as you mentioned, is share repurchases. Right now, we have an existing share buyback authorization in place, which has $245 million available for repurchases. And while buybacks will always remain an important consideration. We will deploy capital here only when it represents really highly attractive use of funds. The second part to the story are M&A opportunities. During my career, I lead like dozens of acquisitions, and I understand both the opportunity and the risk associated with inorganic strategies. And while we will remain open to strategically aligned acquisitions that enhance our market position and capabilities, we will do it only with discipline to make sure that it brings value. So these are both share repurchases and M&A opportunities are something which we are looking into very, very deeply, and we want to make right decisions here.

Thank you, Bobby. It looks like we have a follow-up question from Sean.

I appreciate that. Any update on the progress you've made in kind of reengaging the cohort that you felt like you lost late last year in the tech conversion?

My answer would be very similar to what we were answering last earnings. We don't publish any specific numbers. But based on the overall results of the company, you can see that we were able to achieve some meaningful improvements here. Overall, we are very happy both with the acquisition of new customers and growth of new customers, but also the cohort of existing customers is performing well.

Okay. If I can ask a couple of questions about Italy. Does this settlement with Italy put, in your opinion, a final end to that whole thing? Are there any other countries kind of looming in the wings there that might have something to say? And would you rule out restarting the business, the local business in Italy now that this tax thing is settled?

I will answer that. So first of all, the settlement is -- agreement is now only verbal agreement. It's not binding. It has to go through various approvals through various statutory bodies in Italy. But if it's approved, then yes, it is -- it means that our troubles in Italy about these 2 cases, tax cases from 2012 and 2017 are over. And then to your second question, [indiscernible] will be thinking about reopening Italy. Generally, what we see, we see that we are doing very well in international business, which was not the case in a couple of quarters ago. And so certainly, we will think all options, including reopening Italy.

We will now move to written questions. A question for Dusan. You may have answered a bit of this already. Which initiatives are spurring most growth?

I don't see it as one single initiative. Like I know that there are many people who love this question, and I'm like answering it in the same time -- in the same way for the last 2 years, plenty of smaller initiatives, which simply add up together, and this is done by the complexity of Groupon a number of verticals, which I was talking about today in questions regarding the micro categories where simply we need to take it one by one. And I think in the past, when the company tried to have like one-size-fits-all approach, I don't think it was the right strategy. But I can simplify it into the three parts of which are pretty much most important for each marketplace. On demand side, we have new platform mobile next powering plenty of our traffic. We were able to improve the platform so that it's running and supporting our marketing activities. So new platform and marketing engine behind it is a big enabler of what we are doing and the results which we are achieving right now. And that marketing engine, it's not just the performance marketing, but pretty much all channels. We were discussing today SEO and AI, which are a tailwind for us versus headwind for many other companies. But at the same time, we are able to do huge progress in marketing, in display -- display marketing. We are growing and doing plenty of not only experiments because we have very significant traffic already coming from resources with influencer marketing. So we are moving here, thanks to the platform and the marketing engine up in the funnel, and that's why we were talking about the plan to run in Q4 and Q1 next year, the small brand campaign. Then on the supply side, there were several questions to this. I see it the way that every quarter, we are getting better and better in smaller steps in managing supply side. And I'm answering it in a very wide open way by talking about managing supply side means understanding who are the merchants which we need to get on the platform. How the deals which we need on the platform should look like. What is the value which we should be providing as a Groupon. And there are multiple strategies. It's like micro category approach to understand risk businesses and profitability. However, also last several earnings calls, I was talking about this hyperlocalization strategy where the teams are focused on smaller areas. We understand it. So this is a mix on the supply side of both these approaches. And then for last year, we were fighting with multiple headwinds from our platform migrations, and it was a huge lesson for me, for the whole company, I believe. And this year, we do much better, and we focus on mitigating impact and making sure that whatever we do, it takes longer than what I would love to see. But at the same time, the platform is not causing headwinds, which we were fighting last year.

It looks like we have a follow-up question from Bobby Brooks from Northland.

Just a quick one. And I just feel like it might be helpful to remind the investment community of the dynamic between billings growth and revenue growth and how you see those two starting to converge here over the next few quarters. Could you just remind us on that dynamic?

Yes, Bobby. So what you see is that we are growing, especially in local business billings much faster versus revenue. This gap is very similar to what we described in the previous quarters. Roughly half of that is related to our take rate and -- sorry, to our redemption, which influence take rate, which is our people are really enjoying our deals, and we are proposing and pushing them to do it because we believe that -- and we see it on our data, if the customer is using and redeeming our voucher, it's increasing their lifetime value because they are coming back to our platform, buying new deals and thus becoming our loyal customers. So this is one part. Second part is a mix of take rates due to our increased enterprise deals. And also, you know that we had very good things to do season, which is generally the line of business, which doesn't have such high take rates as, for example, health and beauty or other categories. So those 2 factors, higher redemption and mix of categories and mix of enterprise versus core local is what's contributing to the difference between our billings and revenues.