Deb Schwartz - Groupon, Inc. Rich Williams - Groupon, Inc. Mike Randolfi - Groupon, Inc..

Samuel James Kemp - Piper Jaffray & Co. Paul Bieber - Credit Suisse Securities (USA) LLC Sameet Sinha - B. Riley & Co. LLC Mark Kelley - Citigroup Global Markets, Inc. Heath Terry - Goldman Sachs & Co. LLC Justin T. Patterson - Raymond James & Associates, Inc. Brian Nowak - Morgan Stanley & Co. LLC Deepak Mathivanan - Barclays Capital, Inc.

Akshay Bhatia - Bank of America Merrill Lynch.

Good day, everyone, and welcome to Groupon's Second Quarter 2017 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.

For opening remarks, I would like to turn the call over to the Vice President of Investor Relations, Deb Schwartz. Please go ahead..

Good morning and welcome to Groupon's second quarter 2017 financial results conference call. On the call today are CEO, Rich Williams; and CFO, Mike Randolfi. The following discussion and responses to your questions reflect management's view as of today, August 2, 2017 only and will include forward-looking statements.

Actual results may differ materially from those expressed or implied in our forward-looking statements. Additional information about risks and other factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our Form 10-K.

We encourage investors to use our Investor Relations website 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, we will also discuss the following non-GAAP financial measures; adjusted EBITDA, non-GAAP earnings per share, non-GAAP net income or loss attributable to common stockholders 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'll find additional disclosures regarding our non-GAAP measures, including reconciliations of these measures with U.S. GAAP.

Unless otherwise stated, all comparisons on this call will be against our results for the comparable period of 2016 and are excluding year-over-year changes in foreign exchange rates throughout the quarter. And with that, I'm happy to turn the call over to Rich..

as I said on our last call, the future of Groupon is voucher-less. The friction and inconvenience of a traditional voucher or paper coupon in the mobile age from Groupon or anyone is simply something we have to move past. Our card-linked offers product which we're calling Groupon+ is a cheap way we are working to remove the voucher.

Not only does it reduce friction for customers and merchants, it's a potential accelerant for scaling inventory in our marketplace by offering businesses more flexible discounting options which in turn enables them to run more frequently on our platform.

Removing the voucher also makes Groupon easier to work with for merchants who no longer have to train their staff on accepting Groupon or create bespoke, potentially confusing, deal arrangements. Customers benefit as well with card-linked.

They simply pay the way they are accustomed to paying, yet still enjoy valuable Groupon discounts on their purchases.

We are building momentum on our rollout of Groupon+ going from hundreds of card-linked offers to over a 1,000 by the time we exited the second quarter and we doubled the number of available markets including major cities like New York, San Francisco, Chicago, and Los Angeles.

We're still in earliest minutes of the first period with this rollout and we expect to continue to ramp the product in terms of cities, merchants, offers, categories and technology throughout the rest of 2017.

On that last piece, our card-linked platform and technology, we continue to invest aggressively in the infrastructure necessary to further scale the product. This means adding more consumer and merchant features to make the product even easier to use, plus expanding payment options for customers.

To that end, we just completed an agreement with MasterCard, which should enable us to offer Groupon+ to millions more existing and potential customers. We expect to have MasterCard live on the platform as a Groupon+ linking option later this quarter. All said, the combination of MasterCard and Visa should allow us to address over 80% of U.S.

consumers. While it's still early for Groupon+, we're encouraged by both the customer and merchant response. Our goal is for anyone with a Groupon account and a payment solution, whether that's a credit card or a digital wallet, to have access to seamless Groupon offers and discounts.

We believe our approach with Groupon+ delivers an outstanding customer experience and the ability to work with even more local businesses over time. Likewise, we're seeing exciting prospects in our beauty booking product which we call Beauty Now.

This is another voucher-less and importantly, cashless experience where customers book their service, set a time and pay online in advance at their convenience, much as one might arrange for a car, flight or a hotel. Beauty Now was launched a few short months ago and we've already expanded to five markets based on early results and customer feedback.

It's nascent, but steadily attracting top shelf spas and salons taking advantage of Groupon's position as one of the top online health, beauty and wellness destinations in the U.S. What's exciting about this product right now, the traction we're seeing as a result of the combination of our partnerships and internal booking technology.

In just a few months we've grown to literally thousands of bookable spas and salons running on Groupon, a dramatic change and clear sign of the needs and opportunity with merchants in this large historically underserved space.

As we've invested in the customer experience, we've also focused on broad engagement through our marketing programs as customers have a cleaner and richer Groupon experience, we are driving more of them to our marketplace and looking to bring them back more often. In the second quarter we saw further traction in these programs.

Bottom line, our marketing efforts are paying dividends. Over the last six quarters, we've added more than 6 million new customers in North America alone. We added more than 300,000 customers in North America in the quarter, and expect to continue to invest with a 12-month to 18-month ROI window and an eye toward generating a long-term customer value.

We're particularly pleased with our offline campaign which has done an excellent job of driving brand awareness and engagement with our platform. Since we launched offline campaigns about a year ago, we've seen brand understanding more than double. As simple as it sounds, we can't take the importance of this for granted.

Bringing our customers along on the journey is critical for our long-term success. We expect to keep investing here with increased focus on purchase frequency and reinforcing Groupon's brand and ability to help customers save money on what they do every day.

In addition, we expect to target international customer acquisition more aggressively with our offline campaign, focusing on countries where our products and platforms closely resemble those in the U.S.

Overall, our combined online and offline campaigns are performing well, reflected by steadily increasing North America Local unit growth, customer growth, and gross profit growth. Finally, our efforts to streamline and simplify the business have further bolstered our overall results.

Our hard earned SG&A improvements are giving us the room to invest in our future, while delivering a stronger bottom line. We are leaner, faster and executing better, where we believe we can win. Underscoring that last point, Monday we announced a long-term commercial deal with Grubhub to power food delivery through Groupon.

We believe food delivery is a core Local use case and our own efforts in the area have shown us that it has a home on the Groupon platform. Along the way, we also learned that it's not something we have to directly operate. Restaurants are a large and important part of our business and food delivery remains an exciting opportunity for them and us.

As we complete the integration with Grubhub, expected to be later this year, we'll give customers yet another way to seamlessly enjoy the Groupon experience, including exclusive discounts on something they do multiple times per week. And it will be backed by the leading food delivery platform in the U.S.

We believe this arrangement will ultimately allow Groupon and Grubhub to better capitalize on this fast growing market and better serve restaurants and customers by combining Grubhub's more than 55,000 restaurant partners in 1100 cities with Groupon's 32 million North American customers and top 25 mobile footprint.

Our partnership with Grubhub is a demonstration of our unrelenting devotion to our customers and merchants. Our marketplace is at its best when we bring customers the best answers to their needs.

The power in our platform comes from making Local easily transactable and readily available for tens of millions of customers looking to connect with great Local businesses and amazing new experiences. We believe strong partnerships are an increasingly important component to unleashing the true potential of our Local business.

Expect more from us on this front, as we build the daily habit. With that, I'll turn it over to Mike for more color on our performance and outlook..

it was negative $36 million in the second quarter, bringing our total free cash flow on a trailing 12-month basis to positive $36 million. As a reminder, our cash generation is seasonal as we typically consume cash in the first few quarters of the year and generate significant cash flow in the fourth quarter.

On CapEx, we now expect it will be lower than 2016 closer to $60 million for 2017 as compared to the $68 million for 2016. For the full-year of 2017, we continue to expect to generate meaningful positive free cash flow. We ended the quarter with $619 million in cash, in addition to our $250 million revolver.

In closing, the investments we're making in customer experience, supply and marketing are translating into improved North America Local unit growth, total North America gross profit growth and laying the groundwork for future International growth, which leads us to believe we are on a path toward multi-year adjusted EBITDA and free cash flow growth.

With that, I'll turn the call back over to Rich..

Thanks, Mike. After another quarter of focused execution, we continue to see the benefits of our strategy and the development of an unparalleled local mobile marketplace. We have scale, a great brand and are well positioned to continue to make progress toward our vision and build an amazing company.

We continue to invest in the things that helped to get us here. Customer experience, customer engagement and operational excellence. We believe these are fundamental to building a thriving ecosystem for local businesses. We also believe it's time to start playing more offense and for innovation to take a front row seat at Groupon.

Our network of merchants and partners in Local from world-class restaurants, tickets for great events and activities to amazing health and beauty services is a tremendous advantage. We have nearly 50 million customers and a brand that runs with the world's best when it comes to satisfaction. And we have genuine wow-level experiences on our platform.

Unleashing our innovation engine on this foundation over the next few years should be very exciting. Now, let's take some questions..

Our first question comes from the line of Sam Kemp with Piper Jaffray. Your line is open..

Great. Thanks for taking the question. Congrats on a strong quarter. Looks like ex-LivingSocial, you added about 500,000 net customers during the quarter which is down just a smidge from Q1.

Can you talk about what we should expect going forward in the second half especially as you shift more of that ad budget towards frequency driving marketing? And then, if you look over the next kind of 12 months to 18 months, is the benefit of the Grubhub deal more about outsourcing that operational component or is it more about expectations that you have around volume benefits?.

So thanks for that Sam. I'll hand it over to Mike to cover just the outlook on the marketing side and then, I'll pick up after that on the Grubhub deal to give you a little bit more flavor on it..

Okay..

So, yeah, Sam, on the customer additions, first, I would just highlight that as we go to the back part of the year in general, I think you'll look at Q2 and see that as being relatively a low point on customer adds.

So I would expect in the back part of the year, our customer adds both in North America and International will trend up from what you saw in Q2. So, and that's while we're still having a frequency message. So I think, what you saw in Q2, you're about right around 500,000 net adds when you adjust for LivingSocial.

And within that, we had a strong focus on net additions that had a good quality, really high quality lifetime value and, so, that was part of our 500,000 net adds for North America, but I would expect both in North America and International in the back part of the year for those to trend up from the second quarter level..

Great. And on the question of Grubhub, really you posed two pieces of it, is it about reducing operational load or is really about growth if we're looking 12 months to 18 months out.

To take a step back from the deal, really the two things that we've learned, at least the two big things that we learned while operating the business ourselves was that, one, food delivery has a home on the Groupon platform. Our customers understand it and when we offer it, our customers buy it.

The second piece we learned was, we don't have to be the ones that really run the back-end and logistics component, the delivery piece and restaurant integrations frankly with that product.

So when we stepped back from those learnings and we said well, how do we offer this product to as many of our customers as possible, as fast as possible, partnerships started to make the most sense.

We could have continued to invest on it as a standalone, but that didn't make as much sense, when we had the opportunity to partner with what we believe at this point is the strongest delivery platform for food in the U.S.

So we look at it in both ways, we absolutely look at it as a way to reduce operational load over the next 12 months to 18 months, especially relatively trying to scale to hundreds of markets on our own and we also see it as an opportunity for engagement growth and unit growth and frequency growth in the platform over the longer term by being able to offer it to more customers and easier.

So we look at it both ways and right now our focus with the deal is on getting the integration done. We just signed it, but our goal is very much to make it a core part of the Groupon experience for restaurants. And to make it just as seamless as the rest of Groupon will be over time..

Great. Thanks for the color..

Thanks, Sam..

Thank you. Our next question comes from the line of Paul Bieber with Credit Suisse. Your line is open..

Good morning. Thank you for taking my questions, and congratulations on a strong quarter. Just a quick follow-up on the Grubhub line of questioning.

Can you walk us through what the consumer experience will be for food ordering on Groupon going forward for Grubhub branding and that experience? And is there any impact of the partnership on the outlook? And then just separately what was the LivingSocial contribution to billings in 2Q?.

Great. Thanks for that Paul. Good morning as well. I'll start out on the Grubhub piece and if Mike has anything to add on LivingSocial after that, I'll turn it over to him. The number one thing to think about with the Grubhub deal, as far as customer experience is concerned, is that our goal is again to make it a deeply integrated experience.

And what I would say is, look at our Groupon To Go experience that we've been running in markets like Chicago and St. Louis and Denver, as a bellwether for what to expect in that overall delivery experience.

And remember, we largely integrated the OrderUp experience deeply into the Groupon stack and so it looks and feels exactly like Groupon when you're checking out and on and on. So, that's our ultimate goal for the product is to make it feel as comfortable as the rest of Groupon feels and as integrated as the rest of Groupon feels.

We're still working out the specific details of that with Grubhub, but one thing you should absolutely expect is when somebody shows up with food, and a Grubhub delivery person is delivering it, they're probably going to be looking – they're probably very much going to look like a Grubhub delivery person.

So, there is going to be Grubhub brand is going to present in the delivery experience for Groupon without question. And, Mike and I don't know if you have a perspective you want to share on impact and outlook..

Sure. I'll just – just talking about the outlook in general. I'd first just start by saying as we've come into Q3, particularly for North America Local gross profit, the same trends that we saw in the second quarter, where we saw strong double-digit growth are the same trends that we've seen continue into Q3.

And then in terms of the LivingSocial component to that, it's roughly from a billing standpoint, roughly 350 basis points from a billing standpoint, roughly similar take rates to our overall business.

And what I would just say about LivingSocial, is that we completed our technology integration in the month of June, they're on our platform, we think over time that will be additive over time. With regards to our commercial agreement with Grubhub and the sale of some of the assets associated with our food delivery operations.

What I would just say is, is in the back part of the year, with the sale of certain of those assets, there were some GP that we'll no longer generate during this year, that's baked into our guidance. Over time, we expect the commercial agreement to ramp up, but that's going to take a little bit of time.

So, we don't necessarily expect that GP to be replaced this year. So, net-net it's actually a little lower GP in the short-term, we obviously are very optimistic about the overall agreement and think it's a great opportunity for both companies..

Thanks for taking my questions. Appreciate it..

Thanks, Paul..

Thank you. Our next question comes from the line of Sameet Sinha with B. Riley. Your line is open..

Yes. Thank you very much. A couple of questions here, can you talk to us about domestic marketing spend and I know you put that number out in the Q, but if you can give that on the call that would be helpful? And secondly can you talk about International business, it seems to have stabilized versus Q1.

Should we expect this kind of level to continue or what are some of the puts and takes there?.

Sure. What I would say is, if you look at our marketing spends both the year-over-year increase that you saw of $12 million and I think were up $14 million compared to Q1. That sequential increase was steered almost entirely at this stage towards North America.

Now, what I would say is going forward on marketing, you should expect that as we continue to lean into marketing, you will see us add more and invest more internationally.

We think there – markets there that as we build out the product, as we build out the brand, and as we continue to as we continue to build supply internationally, it will be – we'll support that with the marketing and we're actually seeing some early – some good early read in certain markets.

With regards to International, you know, what I would say with regards to International, we definitely are – it's definitely in a more stable place in the second quarter than it was in the first quarter.

However, what I would say is you still saw where we had net customer reductions and we still had some gross profit in GP, small GP decline in the second quarter. I would expect over time those trends to improve. However, I would also say and we've – there's been a lot of work that the team has taken on as we've reduced our country footprint.

So, as we think about this year, we still are I'd say, somewhat cautious in the short-term with regards to International, but very optimistic with regards to the long-term opportunity.

On International, I mean we look at it – consistent with my prepared remarks, I mean, the addressable market in those countries exceeds in a material way that of North America. Yet, today we generate a third of the gross profit. So we think that that lends itself to a big opportunity. And with that we are focusing on those various markets.

In the last quarter, we had some significant product improvements. We've built out supply and we think over time those types of investments will bear fruit..

Thank you..

Thanks, Sameet..

Thank you. And our next question comes from the line of Mark Kelley with Citi. Your line is open..

Hey, good morning. Thanks for taking my question. First one is on card-linked offers. You know, I know it's kind of an early in terms of the rollout in places like New York – excuse me. But your early data suggests you have similar adoption trends relative to some of the test markets.

And is the goal to get your payback time until the low end of 12 months to 18 months target, or maybe an improvement there? And the second, you gave a lot of good color about the marketing plans for the rest of the year.

Just curious, how it relates to card-linked offers, specifically in terms of how you're planning to allocate your resources there? Thank you..

Yeah. Thanks, Mark. So, yeah we're really happy with the data that we're seeing off the CLO and we're seeing very consistent performance with CLO rollout city to city. Customers who adopt it really like it and we're very excited about that.

On the payback side of it, with respect to marketing, we treat it like the rest of the marketing program that we have. And when we apply our 12-month to 18-month payback threshold, there is not really a goal to get it to the bottom end of that at this point.

Actually in that product, the goal is to push it as hard as we can within that 12-month to 18-month payback. So, if we find pockets of efficiency, we're going to try to skill those efficiency pockets up to generate more volume at either a solid efficiency or push it up to the high end of the region at least for now.

So, I would expect us to not be focusing on hitting a low marker or anything else on that. I'd actually be thinking about how do we get as many customers as possible on it as fast as possible to make it even more attractive to merchants.

So, on the – with respect to the actual marketing program around CLO, with the onboarding of MasterCard that you're going to see a little bit later this quarter, you should expect to start to seeing in-market more specific Groupon+ marketing campaigns and that's going to be broad based.

You're going to see some out-of-home, you're going to hear about it in our offline channels, you're going to see more of it in our online channels. And that will be a market-by-market approach as we get to the place where we see all the offer volume and content is really great.

But for the rest of the year, really, part of our marketing budget will be allocated to just rolling out those products market-by-market and you should see that really start to hit a little bit later this quarter..

Really helpful. Thank you very much..

Thanks, Mark..

Our next question comes from the line of Heath Terry with Goldman Sachs. Your line is open..

Great. Thanks. Just wondering if you can give us a little bit of sense of what you're seeing on the deal side from a category perspective.

I know, you called out spa and beauty, any other categories that you're seeing particular growth or contraction in? And overall, how would you measure the level of deal quality that you're seeing on the platform compared to where it's been in the past? And then, just quickly on the goods business, is there a level where we should expect it to stabilize or does it in time fall into the category that restaurant delivery did for you and you potentially see yourself partnering with someone else or exiting that business altogether?.

Great. Thanks for that, Heath. Good morning. I'll start and then, Mike, if you have any color feel free. On the category side, we mentioned some strength in health, beauty, and wellness and our things to do category. Those are two of our largest categories in Local.

So seeing strength in those is generally a great thing for us, largely driven by both quality of merchant and offerings on our platform as well as our continued focus on shifting more and more attention on to the Local business overall. So, just a good combination of both strategic execution there and day-to-day inputs management in the business.

I'd also say, we're actually seeing great development in our Home and Auto category, continues to expand for us, another fast growing category, but overall Local is performing really well. And you brought up, how we think about the level of deal quality and I think you can – hopefully you can see that as a consumer or a customer on the platform.

Even just right now, if you're going on to the platform, you're seeing amazing brands; you're seeing Costco running on our platform right now. It's one of the best brands in the U.S. So overall in every category, we're seeing significant improvements in overall quality.

And that relates directly to the focus of our teams internally on amping up what we would call, kind of, our Silver Plus (39:56) merchants. And that's really, we've kind of a medal (39:58) segmentation here that we apply.

But our focus is very much on bringing that high-quality inventory to the platform, especially through our existing vouchers business.

As we roll out card-linked offers and some of our other beauty booking and more convenience-based utility-oriented use cases on the platform, you'd actually start to see just more merchant volume, where it's – quality means a lot of things in the high-utility case and sometimes quality is just about proximity and availability.

So as long as – it's obviously a reputable merchant and one that's nearby, that can be something more important to our customer than a big name brand. So, I think you'll continue to see us, particularly in our voucher business, push on outright quality, but as you see more and more of our voucher-less business coming up, it's going to about coverage.

So expect that over time. On the goods business, just hitting on a couple of pieces of that, you're going to see that business continue to move around a little bit, and a piece of that is, we're going to move to where our customers really want to go. And so we don't have a specific unit level stabilization measure there.

It's ultimately more about doing the best thing for the long-term lifetime value of a customer and that – and that's going to change throughout the year.

So, obviously in the back half in Q4 customers naturally gravitate more towards products and you're going to see a natural gravitation likely to that get that kind of a mix, where goods will be favored a little bit more just from natural market trends.

So, we're at this point focused on continuing to drive more health in that business, improve its gross profit profile and have it be a great contributor to engagement on our platform and lifetime value of our customers. I don't know if you have anything else to add, Mike..

No, on the vertical, the one thing I would just highlight is on all of the verticals where consumers are purchasing in the Local category from a home and auto things to do, our health, beauty, wellness and food and drink, all of them had a meaningful growth in the second quarter. So, I'd just highlight that.

The other thing is to Rich's point, as we think about goods, what I would think about just overall is we're focused on maximizing gross profit over the overall platform, over an extended period of time. And so to us good plays a part of that, it's an important engagement driver for our consumers.

But obviously, you're going to see us continue to emphasize our more differentiated Local product. What I've highlight is a couple of things on goods, just to expect is, I would still expect as we move forward the revenue trends in goods to be down year-over-year and I'll just provide a little bit a color on that.

On the other hand, I would expect from a gross profit standpoint, it's going to get closer to flattish, as I look towards the back part of this year. And there's really three things going on there. First is, you're going to continue to see us have a bias for our Local category, it's higher margin and more differentiated.

Second, within goods, you will see us manage goods to generate and extract more gross profit from goods itself. And the third thing that I would just highlight is that within goods you're also going to see us emphasize more of a marketplace model where we continue to bring third-party supply in.

Now, keep in mind that third-party supply may be very accretive from a gross profit standpoint, but it has a different revenue dynamic because you don't recognize the grossed up value of the revenue, you simply recognize the commission. So, that's going to weigh on revenue, but be additive from gross profit.

So, as I look from a gross profit standpoint though, I do think it probably starts to look flatter as you get to the back part of the year than you saw in the second quarter..

Great. Thank you very much..

Thank you..

Thank you. Our next question comes from the line of Justin Patterson with Raymond James. Your line is open..

Great. Thank you very much. I wanted to revisit Beauty Now. It sounds like the expansion is going very well for that service.

How should we think about the cadence of new markets and investment in this category over the course of the year, and then when you look at the customers engaging with that product, how does frequency and just purchasing behavior compare to the overall Groupon service? Thanks..

Sure. Thanks, Justin. So, yeah. Beauty Now is another exciting early progress story. A way to think about our expansion is that over the course of the last quarter or so we've doubled our markets and that's a general trajectory that you should expect us to stay on.

We're going to be aggressive on expanding markets and building inventory in the markets that we're launched in over the next couple of quarters and likely well into 2018. So, it'll be a good pace there and the teams have got a good cadence and we're running.

The other thing to keep in mind as we push on Beauty Now is that we are also using that effort to expand the bookability on our platform overall. I think it's a very key component for us, as we think about voucher-less.

It's a – booking and appointments in general is a doorway to voucher-less, and as we onboard merchants onto Beauty Now, we're also onboarding voucher merchants on to the core booking technologies and platforms. So expect that will continue to scale at a pretty heady pace here over the next couple quarters as well.

As far as what we're seeing on the customer side, it's actually very similar to what we see in Groupon+ as we've talked about the card-linked behavior that we're seeing from customers, where their purchase frequency takes a material step forward once they start to adopt these products.

We're seeing the exact same things with purchase frequency about doubling for customers that start to adopt the product. So, we're excited on that front, still early obviously and we got a lot of work to do, but its general pace and the customer dynamics behind it are very, very encouraging..

Got it. Thank you..

You got it. Thanks..

Thank you. Our next question comes from the line of Brian Nowak with Morgan Stanley. Your line is open..

Thanks for taking my questions. I have two. The first one, I know you've talked a lot about over the past year on increasing transaction velocity.

Can you just talk about the transaction per customer trends you're seeing and how you think about growth between customer count and transactions per customer in the back half and into next year? And then the second one, just on the gross profit guide for the full year and the Grubhub arrangement.

Could you just help us a little bit on how big that is from a gross profit perspective, Mike, to kind of to call it out as a headwind to gross profit for the year? And what was the EBITDA contribution? Thanks..

Thanks, Brian..

So I'll take the first part – I mean the last part first. And with regards to Grub and the sale of certain of our assets from our food delivery business, what I would just say is there is some impact on gross profit and we've included that in our gross profit guidance.

From an adjusted EBITDA perspective, what I would say is it doesn't meaningfully impact our view on adjusted EBITDA in a material way. But – and that that's probably I'm not going to get into much more detail with regards to that. But I would just say it's all included within our guidance.

On our overall transaction velocity you know, what I would probably say on that is a couple things, is first, if you look at just our bias and our focus within the business, what you saw this quarter was, if you look at North America Local, you saw units up double digits, and that was pretty closely in line with the increase in our customer count.

So, what you saw was definitely a high degree of engagement on the platform and what I would say is an increased level of engagement, particularly compared to what we have seen in the preceding quarters. It's not – that's not something that – that's not a metric that we're going to project going forward.

But what I would say is our focus is clearly on increasing engagement, increasing purchase frequency over time, generating more gross profit per customer, all the initiatives as a company that we're pursuing, whether it be Groupon+, Beauty Now, or optimization between goods and Local are all with that intention. So....

Yeah, and the only thing that I'll add there Brian is there's going to continue to be a little noise in the units per customer measures as we do a couple things.

One is as overall rate of customer growth starts to stabilize over time, your – and those customers that we've acquired and again keep in mind we've acquired 6 million customers over the last six quarters.

As those folks start to mature and get into a place where their purchase frequency is more in line with previous cohorts, what starts to happen really in year two and beyond, based on the curves that we've shown in the past, that will start to be reflected there.

But again, you're going to keep in mind that, that big load of new customers that inherently haven't had a time to mature, is a bit of a wait to the overall at least for the units per customer measure, as well as we're making some pretty big shifts between locals and goods and there is a lot of unit trading on that side.

There's going to be a little bit of a noise out there, as we get those to stabilize and ultimately long-term as we invest in voucher, as we invest in Groupon+, and Beauty Now and other voucher-less capabilities that that are really designed to add utility to Groupon platform, we'd expect that to start to overcome that noise.

But we're a little bit aways away from that..

Okay. Thanks..

Thank you. Our next question comes from the line of Deepak Mathivanan with Barclays. Your line is open..

first Rich, beyond Grubhub there are many vertical category leaders that have solid platforms with backend integrations. Should we expect Groupon to pursue more initiatives like that? What are some of the areas that you think makes sense? And then, second, Mike, you called out SG&A savings in the back half in your remarks.

Can you help us with the underlying drivers to achieve that, and long-term how should we think about SG&A structure for Groupon? Thanks again..

Thanks, Deepak. I'll just – I'll cover the vertical piece. As I mentioned, you should expect us to be a bigger part and partnership to be a bigger part of our story going forward, but it's not a new part. I want to clarify that.

I mean, we've had now going back six years or seven years an amazing relationship with what Live Nation Entertainment as an example, we had a joint venture – have a joint venture with our GrouponLive business there. And that was bringing together the best of the content creators with the biggest local platform with over 30 million customers on it.

We've had a great track record on that front. We just haven't done as much of it over the last couple years. I would expect us to do to more of it. Now as you mentioned there are some great vertical players out there that look at Groupon and say, boy, I really want to have access to over 30 million customers in the U.S.

or almost 50 million customers worldwide and we look at them and say, hey, we really want to access to that great inventory to keep our customers happy and engaged in the platform.

So, I think there's a lot of opportunity out there for us, our teams are talking to a lot of folks and it's just about finding the right combination of agreement plus finding the right way to integrate those offerings into our platforms so that we leverage the best of Groupon and the trust in the Groupon brand, et cetera.

So, I'd just say stay tuned but expect more..

On the SG&A front, what I would say is, if you look at over the last year, I mean there is really three things that are driving the SG&A improvement. One is simply streamlining our operation and just running a much more focused business than we have in the past. Second, moving several of our processes to shared service model.

And the third thing is throughout our business working to adopt best practice type practices from an administrative perspective and all three of those has really helped us rationalize our SG&A and help build a much more scalable model.

In terms of what to expect, I would say based upon the actions we've taken thus far, I would expect in the second half of this year, SG&A will be lower than the first half of this year.

But I would say going beyond that, what I would say is, while you should always expect we'll have an eye for efficiency and continuing to improve how to run our business in a more improved way.

What you should also expect is we're going to invest in our business, we are going to invest in our product, we're going to support Groupon Now, we're going to support Beauty Now, we're going to work to have a good customer experience, we're going to invest in marketing.

So my point there is, while over time we expect to always work to gain efficiencies, you should also expect that we're going to be having offsetting investments as we lean into our business and work to drive growth in our business..

Thank you. And our final question comes from the line of Akshay Bhatia with Bank of America. Your line is open..

Hi. Thank you. So just a quick one on the EBITDA guidance versus what you guys are expecting for 2Q and where the Street was. It seems like you basically flowed through the beat into the guidance range.

Why not take up the guidance more than that given what the trends you've seen so far through July?.

Yeah. So, just to highlight what was the source of our beat and what was different from our expectations and essentially, it was just the strength that we saw in our North America Local business where it really just performed really well in the second quarter and that's continued into the third quarter.

And then, what I would say within our guidance range, some of the things we thought about is, is particularly around International.

As I mentioned earlier, we think that's a tremendous long-term opportunity and we think there is a lot of potential to unlock value there, but we put that business through a lot in the last six months and if you look at the second quarter, we still had declines in customers, small decline in gross profit, declines in billings.

And so that was factored into our guidance range that we provided..

Thank you..

Okay..

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day..