Thomas Grant - VP, Investor Relations Richard Williams - Chief Executive Officer & Director Brian Kayman - Interim Chief Financial Officer.

Ralph E. Schackart - William Blair & Co. LLC Kevin LaBuz - Deutsche Bank Securities, Inc. Dean J. Prissman - Morgan Stanley & Co. LLC Brian P. Fitzgerald - Jefferies LLC Arvind Bhatia - CRT Capital Group LLC Matthew Robert McGinley - Evercore Group LLC Blake T. Harper - Topeka Capital Markets, Inc..

Good day everyone, and welcome to Groupon's First Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the company's formal remarks. Today's conference call is being recorded.

Now for opening remarks, I would like to turn the call over to Vice President of Investor Relations, Tom Grant. You may proceed, when ready..

adjusted EBITDA, non-GAAP earnings per share and free cash flow, as well as FX neutral results. In our press release and our filings with the SEC, each of which is posted on our Investor Relations website, you will find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures with U.S. GAAP.

Unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2015 and are excluding year-over-year changes in foreign exchange rates throughout the quarter. And, now, I will turn the call over to Rich..

to invest in customer growth; to streamline and simplify our operations; to reduce empty calories; and to build that amazing customer experience quickly and with solid results.

These are the things that will help us further scale our marketplace and capitalize on the vast opportunity in local, something I believe we're uniquely positioned to do and that can have a lasting positive impact for Groupon, our shareholders, and the communities in which we operate.

With continued focus, we move forward in all four of our priorities in Q1, which helped us deliver solid results that give us confidence that we're on the right path. We still have much to do throughout the balance of the year, but I'm pleased that we've built on the momentum from this past holiday season and continue to execute at a high level.

In the first quarter, strong operating fundamentals were the largest contributor to our revenue and adjusted EBITDA performance. While both saw declines compared to Q1 2015, they were the expected result of our streamlining actions internationally, reducing empty calories and our increased marketing spend.

In North America, gross profit dollars increased 11%, while gross margins climbed 23% year-over-year; solid improvements in local take rate, plus shopping margins that hit their highest level since 2013 drove the gains. While we're pleased with our margin rate improvements, we'll continue to favor gross profit dollar gains over percentage gains.

Brian will go into more detail on the quarter and our full year guidance momentarily. Before I turn the call over him, I'll give a bit of color on each of our strategic priorities. First, on investing to bring million more customers to our marketplace.

We continue to see promising early returns from our increased marketing investment and customer acquisition programs. As marketing spend has ramped, so have our active customers.

On an incremental $39 million in the quarter, all in North America, we added 1 million incremental new customers as our spending mix shifted to acquisition, from our historical transactional tactics. While we saw a bit of inefficiency as we ramped our marketing investment, it was in line with our expectations and the team is actively working it down.

As we move deeper into the second quarter and expect to realize more online efficiencies, we're excited to kick off our offline marketing in earnest and accelerate our customer education efforts around Groupon's marketplace evolution and improved value proposition.

Though it's still early, the quality of the Q1 customer cohort is solid, roughly 4% below last year's Q1 cohort value, but in a good place overall given the phasing of the ads in some new activation campaigns that effectively reduced the average price of the first transaction.

As we stack more of these larger quality cohorts throughout the course of this year, we continue to believe they will fuel long-term growth. Second, on streamlining and simplifying. We continued to make fast progress in the quarter, we're working on fewer, but more meaningful things. Our team is committed to building a stronger, leaner, faster Groupon.

Our focus on improving SG&A delivered $7 million of savings sequentially. On a year-over-year basis, SG&A for our international segments declined by $18 million, a result of both our decision to exit countries and our effort to consolidate key shared service functions and regional centers.

These centers should continue to give us improved service levels and operating leverage. We also exited the shopping business in a number of countries and Rest of World and completed the integration of our ideal fashion business into our core North American shopping experience.

It's important to note that while we've been able to move fast on our streamlining efforts, it's been far from easy. We've seen short-term effects on our international results, largely due to the magnitude of change.

Reducing our footprint and exiting business lines have obvious P&L impacts, but they also place significant management and operational load on our teams as we work to establish new processes and ensure we're doing the right things for our employees. That's why our goal with our broader international business remains stability.

Once stable, we can get back to bridging the gap in maturity between our international and North American marketplaces. That means we intend to increasingly focus our attention internally, including prioritizing cities and reducing the overall number of operational centers that serve them.

As we've previously discussed, we expect that the former will continue to place pressure on revenue this year as we work to complete our restructuring in the fall, while the latter should continue to give us fuel to both deliver stronger bottom-line results and invest in growth.

Third, on reducing empty calories, which again means moving away from those low margin categories and items that draw short-term revenue, but little else, particularly in our shopping business.

The first quarter marked another step forward in shopping margins, where our North American shopping team delivered 390 basis points of year-over-year improvement to 12.3%. More importantly, it marked a 51% year-over-year increase in shopping gross profit dollar generation.

A downside to this is the reduction of our shopping billings growth rate, which we expected. We continue to believe it's the right tradeoff. We also know we have a lot left to do to build a great shopping operation.

We need to continue to improve our merchandising, assortment and category mix to deliver a better balance of top line growth and gross profit generation. Additionally, there's more opportunity to optimize our logistics and supply chain to deliver stronger bottom line performance and a better end-to-end shopping experience.

We have solid plans and execution paths for both. Finally, let me touch on our efforts to improve the Groupon customer experience.

We added this as one of our strategic priorities in 2016, because it is a massive opportunity area, one that is solely in our control, where we can fundamentally change how customers experience Groupon and how merchants can effectively use our marketplace to grow their businesses.

If there's one strategic priority where we're not happy with our progress, it's this one. We know that there is so much more we can do to make the Groupon product not just better, but great. We aren't short on ideas in this area, and work is definitely underway, particularly in important areas like redemption and expirations.

We simply don't yet have sustained big product wins to share, but we will. That said, one piece of the customer experience in which we've made fast gains is in customer service, where we'll continue to increase our investment.

For example, despite great strides in our global CS operation, our North American customer service levels have been well below market standards and customer expectations for years.

Over the past 60 days, however, our team responded with a series of improvements that have taken our service levels from less than 25% of calls answered within 60 seconds to over 70% of calls answered in 60 seconds.

The next step is to hold these gains and then build the service levels in line with our e-commerce peers, while maintaining our world-class service satisfaction ratings.

We also made some real improvements to the merchant experience in the quarter, when we launched an improved suite of tools to help business owners better track and optimize their Groupon campaigns.

For example, we enhanced our Deal Builder self-service platform to give merchants more flexibility to customize discounts, as well as use their own images and descriptions to help their businesses and deals stand out in the Groupon marketplace.

There is much more to do here, but the team is hard at work and the progress we've made in our other strategic priorities gives us the opportunity to expand our customer experience efforts throughout the balance of 2016.

Coming out of the first quarter, I'm proud not only of the progress we've made on our strategic priorities, but also of the new partnership we announced with Atairos shortly after the quarter's end. As we said in that announcement, Atairos invested $250 million in Groupon in exchange for convertible notes.

And Michael Angelakis, Atairos' Chairman and CEO, and the Former Vice Chairman and CFO of Comcast Corporation joined our board. I believe this partnership will help even better position us to execute on our strategic priorities and I'm very excited to have Michael join our board.

We're looking forward to working with the Atairos team in finding ways to combine Groupon's local expertise with Comcast's vast subscriber and advertiser network. With that, I'll turn the call over to Brian..

Thanks, Rich. We delivered continued progress on our four key priorities during the first quarter. Our focus and strong execution led to solid results, with revenue of $732 million, adjusted EBITDA of $31 million, and non-GAAP earnings per share of negative $0.01.

As I walk through our results, all comparisons, unless otherwise stated, will refer to year-over-year growth and are FX-neutral. Let me begin by focusing on our margin improvement initiative. In North America, we delivered the second quarter in a row of services revenue growth in line with gross billings growth.

In Q1, North America's services billings grew 5.6% to $643 million, and revenue grew 6.1% to $213 million. We also improved shopping margins to 12.3%, a 390 basis point improvement on a 3.3% increase in gross billings. The net result of our margin focus was a North America gross margin of 23% and a gross profit of $216 million, which is up 11%.

To put our work and margins in perspective, $216 million is the second-highest quarterly gross profit we reported outside of the $219 million we reported last quarter, and the $219 million last quarter was generated with $110 million more in gross billings.

As Rich mentioned, we believe the results in our international segments continue to reflect execution challenges, largely due to restructuring and earlier stages of marketplace and operational developments. Billings and gross profit declined on an absolute dollar basis. Our decision to close countries and FX were significant contributors.

Billings in most remaining key operations such as the UK, France and Germany were largely stable before FX, which was a good result considering that these countries are working though head count actions and remain one years to two years behind North America in terms of marketplace fundamentals.

International gross margins slightly declined during the quarter, primarily reflecting pricing decisions, such as using additional order discounts. We also took substantive actions on our simplify and streamline initiative.

During Q1, we increased focus on our Rest of World segment and exited our shopping businesses in Japan and Brazil, two of our top 10 countries. Earlier this month, we exited Russia through a divestiture of the business bringing our country total to 27.

We're also continuing to invest in building centralized deal factory operations and improve capabilities and customer service. The net impact of our savings initiatives and investments was a global SG&A reduction of $7 million quarter-over-quarter. With respect to marketing, our expense for the quarter was $90 million.

North America marketing was $68 million, an increase by $39 million representing all of the incremental global spend. Our spend patterns remained substantially similar to Q4 with online spend focused on display, paid search and mobile and offline spend focused on radio.

Our efforts led to the most significant customer additions in nine quarters with North America active customers increasing by 955,000 to 26.9 million. Also, for the first time we activated more customers through mobile channels than through web. Mobile remains our focus with nearly 60% of transactions completed on our mobile platforms.

We believe that our new cohorts are in a good place. As we think about ROI, the gross profit dollars generated by the new cohorts are consistent with the historical cohort performance and within the 12 month to 18 month payback that we originally discussed in Q3. We will continue to monitor and report on our progress.

Correlating billings growth and customers helps put in context why we believe in our marketing efforts. We entered Q1 2015 with active customers up almost 16% and we reported 13% in North America services billings growth. We entered this quarter Q1 2016 with active customers up about 8% and North America services billings grew about 6%.

We remain focused on improving customer growth trends and continue to expect an impact towards the back half of the year. Order discounts also remain a component of our marketing efforts. We increased order discounts by $9 million for Q1 total of $50 million. The increase was largely focused on a few specific objectives.

For example, we integrated our ideal (15:30) operations, moving ideal (15:31) distribution into our Kentucky facility and integrating ideal (15:35) into the Groupon site. As we combined operations, we used incentives like order discounts to accelerate ideal (15:42) inventory turns.

Our focus on customer experience is a work-in-progress, our pay-for-performance merchant value proposition continues to demonstrate increased adoption with active deal count increasing to over 425,000 in North America.

We expect to fund improvements in other aspects of the customer experience from SG&A savings and we look forward to reporting on our progress in the coming quarters. Let me also touch on a few financial aspects outside of the execution on our key priorities.

Our free cash flow for the quarter was negative $97 million bringing our trailing 12-months free cash flow to $94 million. Our trailing 12-months operating cash flow was $179 million.

Adjusting for changes like our increased marketing spend and cash payments under our restructuring program, including cash used to fund country exits, our Q1 free cash flow fits within our historical range. We expect that our initiatives, particularly those related to marketing and restructuring will continue to impact free cash flow during 2016.

With the $250 million in cash we added in connection with our convertible debt placement on April 4, we further strengthened our balance sheet, giving us continuing flexibility for capital uses, such as buyback and opportunistic M&A. Now let me turn to guidance.

Our 2016 guidance for revenue is unchanged and we continue to expect our traditional Q4 heavy weighting. We expect our 2016 revenues to be between $2.75 billion and $3.05 billion.

We continue to balance improving customer growth and margin performance in Q1 with a focus on stability in our international operations and our choices to de-emphasize lower margin goods and prioritize our city footprint, particularly in our top 10 countries. We are moving quickly on our restructuring efforts, and we're executing well.

As a result, we have generated additional cost reductions and are increasing our expected adjusted EBITDA range to $85 million to $135 million.

As always, our overall guidance reflects current FX rates, and our results may be materially affected by various factors, including a high-level of uncertainties surrounding the global economy and consumer spending, as well as exchange rate fluctuation.

In summary, we demonstrated solid progress in Q1 on our initiatives, and continued execution toward our financial targets. We delivered margin and SG&A improvement, as we focus on long-term growth in operating income.

Also, our platform continues to grow with increasing active customers and active deal growth, which we believe are two keys to unlocking our long-term growth potential. As I said last quarter, our need to invest remains and we remain focused on driving long-term value. We look forward to continuing to update you on our progress.

I'll now hand the call back over to Rich..

Thanks, Brian. Before we move onto questions, I want to thank our employees for their commitment to Groupon and for embracing our strategy. Change has been a constant at Groupon and I would argue that over the past five months, we've changed more and faster than at any time in my nearly five years at this company.

We've covered a lot of ground, yet we remain in the early days across all four of our strategic initiatives. It should be clear that this is not easy or short-term work and it should be clear that we're making real progress. We couldn't do that without a great team, and we have one. On that note, I wanted to quickly address a few changes on the team.

First, we're excited to welcome Mike Randolfi to Groupon, as our Chief Financial Officer. Mike brings a great track record of success, plus decades of large-scale financial, operational and e-commerce leadership experience to the team. Tomorrow will be his first full day on the job as CFO.

With that, I want to thank Brian Kayman for his efforts as our Interim CFO. Brian stepped up in a big way in the role and has done a great job over the past 10 months. He's also been a true partner to me, since I took over as CEO last November. Brian's contributions are both significant and deeply appreciated.

And I'm happy to say that we're exploring new opportunities for Brian at Groupon. Are we happy with everything? No. We still want to see the local business accelerate to its true potential, we still have to fully stabilize our international business and we still have to deliver big customer experience wins.

However, I believe we're more than just on track. Solid execution continues to deliver stronger than expected profitability, and we remain positioned to win. Let's take some questions..

Thank you, sir. . Our first question will come from the line of Ralph Schackart. Please go ahead. Your line is now open..

Good afternoon. Looks like North America and European trends are pretty stable. However, Rest of World continues to sort of decline a little bit.

Just curious if that's the wind-down of other markets driving the trend, and when you think Rest of World may stabilize?.

Sure. Thanks, Ralph. I'll start and Brian will probably pile on after. I mean, you're definitely seeing the effects of our streamline and simplify imitative in Rest of World and just restructuring in general.

We have made some moves on specific countries in Rest of World, as well as we've exited the shopping business in a number of countries in Rest of World. So, you can see that impact as well.

The other thing that I'd add to it is restructuring itself is a significant undertaking, and it's the same folks that have to operate the businesses that have to work through that challenge. And, it's a real challenge, and as fast as we've moved, we put a significant load on the teams.

And they're thankfully reacting really well to it and continuing to make progress on it. The other thing that I'd say is you did see actually – once you take out some of the cost of restructuring, actually did see a bit of a step forward in Rest of World profitability, which Brian will add on to..

So, as Rich mentioned, we did see our segment operating loss on an absolute number increase, but if you remove the restructuring charge, segment operating loss in Rest of World actually declined quarter-over-quarter.

We still have a bit of an operating loss to focus on, so you'll watch us continue to make progress over the coming quarters to minimize or eliminate that loss..

Great. One more if I can bolt-on.

As you look at sort of the footprint of the countries that you're operating in today, do you think you're sort of operating in the right number or do you think that you may continue to wind down some more countries going forward?.

So, our restructuring process is ongoing. And we're looking to try to wrap it up by September. And, as we go through that process, we're continuing to evaluate our country footprint, where we can win, and we'll continue to make assessments through the end of the process..

I think the only thing that I'd add, Ralph, is that as you've seen us really cover restructuring over the last six months or so, we spent a lot of time focusing on country footprint.

Moving forward, you're going to see us do more of what we talked about it a little bit in the earlier remarks around city prioritization that we've actually tackled in a number of countries.

And I think the real core for us is to make sure that we're focusing our energies, our resources and our people on the biggest opportunities, and in the international business in particular that means the biggest cites. So, as an example, the vast majority of the GDP in the UK sits in London, last time I checked, it was right around half.

So, the real core to win in the UK is to make sure you have London in particular, really well staffed and with all support that it needs to really grow that marketplace.

So, you'll see us shift a bit in our conversation from countries to making sure that we're in the right cities and our footprint is optimized around the opportunity in cities in particular..

Okay. That's helpful. Thank you very much..

Thank you, sir. Our next question will come from Ross Sandler. Please go ahead. Your questions please..

Hi. Thank you. This is Kevin LaBuz on behalf of Ross. You guys did a really good job, adding new customers in North America this quarter.

Just wondering if you're seeing any major differences between the customers you added in North America in terms of spend levels and in terms of customer acquisition cost between the new customers and let's say, your typical customers?.

So, thanks for that, Kevin. Yeah, we're really happy with our progress on the marketing side.

We started to ramp in Q4 and as we've said there, it was mostly transactionally ramped and the team reacted really nicely in Q1 and quickly moved over to the acquisition marketing and you can see it in the results, adding 1 million customers in the quarter is a really nice step forward.

Our customer quality and cohort quality, is in a really good spot. I mean it's right within our historical ranges, it's a couple of percentage points lower than our Q1 specific cohort from last year, but it's nothing that we would see as out of range or that we're really concerned about at this point and they're tracking nicely.

The important thing to remember is that, yes, I mean, those cohorts take time to build and when we shared the cohort data in the past, when we look at our annualized cohorts, you can see that they build consistently up into the right over time and they become very predictable.

So these cohorts though they're still in various stages throughout the quarter, they have the same basic shape of the curve so far, and we're going to be watching them like hawks to make sure that they stay on there.

And our marketing teams – the other part of our marketing teams that's really tacked with customer health is of course really focused on making sure those million customers have a real smooth ramp and introduction into Groupon..

Got it. Thank you.

And then, just on the good side of the business again, really nice progress in North America on getting margins up, would you expect that trajectory to continue throughout 2016 or are we going to kind of stabilize at these levels?.

Yeah, we're going to continue to focus on margins both from a mix perspective and from a cost perspective looking at things like logistics. And we could see margins move around during the course of the year as we look at different types of mix.

So we're very happy with the progress, we'll remain focused on gross profit dollars and we'll keep you updated as we move through the year..

Great. Thank you..

Thank you. Our next question will come from Dean Prissman. Please go ahead with your questions please..

Thanks for taking my question.

So on your newer cohorts in North America when you look at consumer behavior in terms of their mix of goods versus local purchase, how does this compare to your older cohorts or perhaps said another way, are you seeing your newer cohorts increasing their mix of local purchase?.

Thanks for that Dean.

Just to make sure I heard correctly, it was a little bit muted, but you're basically asking have we seen any differences in our new cohorts and their mix between the channels, local versus shopping, our services versus shopping change, the answer is not materially, they're spending in a relatively similar way given that you had a little bit – you had slower growth in shopping in North America in particular.

And, in Q1, relative to services, you're going to see a little bit of that mix shift reflected in the customer cohort, but we're talking a few hundred bps here and there. So, it hasn't been a material shift at this point, and if anything our cohorts are really consistent in their mix over time..

Great. That definitely answers my question. And then, just an housekeeping item.

Can you discuss how many points of growth came from OrderUp in the quarter, specifically you related to your North America local billings and local gross profit?.

Similar to last quarter, we have roughly 100 basis points of growth in billings coming from OrderUp..

Great. Thanks a lot..

Thank you..

Thank you. Our next question comes from Brian Fitzgerald. Please go ahead with your questions please..

Thanks, guys. One high frequency service kind of category – local category that we're focused on food delivery, order and take out. It seems very fragmented with e24 and GrubHub, Delivery.com, DoorDash et cetera.

How does your food and drink team factor in there? How does the brands factor in there between OrderUp and Groupon To Go? And then, now that the team is fully integrated for a bunch of months now, how has that transitioned been? Are you seeing any cross-sell opportunities or inventory leverage across the brands there?.

Sure. Thanks for that, Brian. I mean you're exactly right, it is a fragmented category. I think there's opportunity in that fragmentation especially when you think about it from a merchant's perspective or a restaurateur's perspective. The difficulty with fragmentation especially in this phase is that, very few people have real consumer scale.

And when we look at that space, it's clearly a space where we feel that we have an advantage coming in with now close to 27 million customers. We also have really significant reach in that space from a merchant point of view.

To your point we actually have a food and drink team, it's a big business, it's a big part of our local business here and we have a lot of contact points with merchants overall. So at the very core, we think we have some really solid advantages there with just consumer and merchant reach.

And then on top of that, I think now with OrderUp being fully integrated and it is fully integrated at this point, I think we now have a product advantage and this gets a little bit to your question about how does Groupon To Go and OrderUp really mesh in terms of brand.

We're really happy with OrderUp's progress and in fact we've launched a couple new markets, but we're being very methodical in this space because it is operationally intensive and we know what it means to get expansion wrong in a business that's operationally intensive.

We're being really methodical here and so far we've been extremely pleased with both the technology and how consumers are responding to it, how merchants are responding to it. And you can see it in their results at a market level. We've seen that that team and that product can do more than just compete.

It can win at a market level and OrderUp at this point is focused on that mid-market layer as they expand and as they continue to roll.

Groupon To Go factors in really as our first big city experiment using that integrated technology and team, taking the learnings from our midmarket and seeing what it means operate in a bigger geography that's more complex logistically et cetera. And in that space versus – again we're being very methodical and it's very early.

We're not jumping the gun and putting a huge amount of splash behind it. We're learning and going neighborhood-by-neighborhood, which is in our view how this space will ultimately be one.

So I think Groupon, given our intrinsic advantages, can play well in this space and now with the product and team firing on all cylinders, we feel really good about it, but it is a long-term bet for us and not something that we expect on any given quarter just to fly off..

Great. Thanks, Rich..

Thanks, Brian..

Thank you. Our next question will come from the line of Arvind Bhatia. Please go ahead. Your line is now open..

Okay. Thank you, guys. Just a couple of questions here.

First one, I wondered if you guys can maybe talk about some of the early second quarter trends you might be seeing in terms of the marketing efficiency and customer acquisition trends? And then, there was a time when you guys used to give some color on your email versus non-email channels and the transaction volume.

I realize email has become much smaller, but I wonder if you could maybe touch on that a little bit? And then, one question for Brian on free cash flow, if you could maybe touch on what you're expecting for the full year? Thank you..

Sure..

Thanks, Arvind. Obviously, it's a little early to talk about second quarter, but I would just echo the comments made earlier about, we're really happy with the team's progress in marketing so far, and they've just done nothing but execute within our expectations.

And our expectation was for some inefficiency, and our expectation is that they'll work that inefficiency down. So, I haven't seen anything that would have us thinking anything other than them staying on a good track, but it's still early and we'll have to report on 2Q marketing a little bit later this year.

So, on email and NA versus non-email, just I think one of the pieces of marketplace fundamentals that we talk a lot about is the percentage of transactions related to search.

And we've seen a nice improvement there and I think that has improved roughly 400 basis points year-over-year, was right around 27% in Q1 last year, it's right around 31% this year.

So, just continuing to see more and more of our customers and consumers in general coming to the site, searching, browsing and finding what they want on Groupon, which is all good. Email continues to stay at about its share, that's in the 30%-ish range of transactions.

So less than what we're seeing from the search related transactions, which while we're building a marketplace, is exactly what we want to see..

Arvind, on the free cash flow, we don't forecast for the year, but I will give a little bit of color on Q1. Our four key priorities do require investment. So you'll watch us have to spend money on our marketing expense as we increase it roughly $150 million to $200 million.

We're paying severance under our restructuring and with our negative working capital cycle, we do have to fund as we exit countries and shrink goods. Outside of these investments, our traditional cash flow cycle continues and we don't really see that changing. So I would also point that in Q2 we funded our escrow for securities litigation.

So we do have a one-time event in Q2. Our 3/31/2016 cash balance of roughly $688 million, if you add that to our $250 million that we received on our convertible note plus our availability under a line of credit, we have over $1 billion in availability and our balance sheet remains very strong and we're very comfortable with where that sits..

Okay. Thanks guys..

Thank you..

Thanks..

And presenters we have one last question in the queue. And it comes from the line of Ken Sena. Please go ahead. Your line is now open..

Hi guys. This is Matt filing in for Ken.

I was just wondering if you have any updates on how order discounts are trending for you guys, and how you see that shaping up for the rest of the year?.

So, I'll start and Brian will probably pile on, so thanks for that Matt, the easy way to think about order discounts, just as a percentage of billings, they're in the range from last year, roughly the same as Q3 in 2015. The only outlier really last year was in Q4 and that was really just a sign of strong seasonality.

More than anything, I think our order discount changes quarter-on-quarter and year-on-year, which is about $9 million globally year-on-year, $7 million in NA, just reflecting increased testing to tune and refine the program, which the team is doing a great job on.

Increasingly, the program is focused on continuing to introduce customers to new channels, to new features, to new offerings. And we think that's fertile ground, and we'll continue to explore in that space..

Order discounts globally were $50 million, order discounts in North America were $39 million, and so order discounts in North America up roughly $7 million and $9 million globally. We'll look at order discounts for selective items. In the first quarter, we used order discounts as an example to help activate customers.

And as we look toward the year, we would continue to think about order discounts as roughly around a similar percentage of billings. And we'll also continue to experiment in different quarters on activation techniques, which could cause the order discounts to move around a little bit in each quarter..

Great. Thank you..

Thanks, Matt..

Thank you, sir. We do have another question in queue, comes from the line of Blake Harper. Please go ahead. Your question please..

Yeah. Thanks. I had a question for Rich.

Could you discuss significantly SEO, (37:09) if there's any traffic or transactions that you've seen from there that have materially increased either from TGS or through Groupon content or from anything else?.

There hasn't been anything really material there, Blake. I mean we continue to make improvements in that space, on the pages front we've more than doubled the amount of indexed pages year-over-year. I think we're right around 2 million or so this time last year, we're up over 4 million indexed now.

And we continue to build content on those pages from our customers. We're roughly 60 million pieces of review content which we're adding something in the neighborhood of call it 5 million to 15 million depending on the quarter just sequentially. So we're getting traction there and as you know, unique content matters a ton in that space.

But there isn't anything major that I would point to. We're just seeing continued progress, you're seeing I think the continued development of the Groupon brand and the equity that we have, and the reputation of the URL and domain.

In particular, it's really strong and it's only getting better, the more that we generate unique content both in local and in things like coupons, et cetera. So just good steady progress there and nothing specific to highlight..

Okay. Great. And then, if I could ask one more, if you could maybe update us with, has your relationship with Alibaba changed at all since they filed a stake and made the investment in your company. And does that investment that they've made change your Rest of World strategy as far as Asia is concerned..

So, I would say the relationship has changed and just more that we're staying in closer contact. I mean they are now a large investor and we stay in touch with all of our large investors. And we more than anything have spent time with Alibaba so far just to make sure they understand where we're going.

We want to make sure that all of our large investors understand our strategy and how we think about the future and the potential of the business. And we've done that, but it's still in the very early stages of getting to know you and all that sort of fun stuff, and we'll continue to build that relationship over time.

It's far too early to have any one investor relationship change our Rest of World strategy. I mean, our strategy for Rest of World is well locked at this point, and it's streamline it and simplify it and we're going to continue to do that and continue to make progress on it like we have been for the last couple of quarters..

Got it. Thanks a lot..

You bet..

Thank you. And presenters at this time, I'm currently showing no additional questioners in the queue. This will close our Q&A time, and this will also end today's conference. Thank you everyone for participating. This does conclude today's call. You may now disconnect, and have a wonderful day..