Hello and welcome to Groupon's Third Quarter 2024 Financial Results Conference Call. On the call today are Chief Executive Officer, Dusan Senkypl; Chief Financial Officer, Jiri Ponrt; and Senior Vice President of Corporate Development and Investor Relations, Rana Kashyap. 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. Before we begin, Groupon would like to remind listeners that the following discussion and responses to your questions reflects management's views as of today, November 12th, 2024 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 report on Form 10-Q.

We encourage investors to use Groupon's Investor Relations website at investor.groupon.com as a way of easily finding information about the company. Groupon promptly makes available on this website the reports that the company files or furnishes with the SEC, corporate governance information, and select press releases and social media postings.

On the call today, the company will discuss the following non-GAAP financial measures, adjusted EBITDA and free cash flow.

In Groupon's press release and their filings with the SEC, each of which is posted on its Investor Relations' website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. And with that, I'm happy to turn the call over to Dusan..

Platform for Performance. Our new front-end will be able get us to faster, more stable customer experiences.

While we are not there, we see strong pace of weekly improvements in this direction and we believe by the end of Q4, the new platform will be superior to Legacy, which will also position us better for SEO & SEM as we should be able to drive more traffic and have higher conversions. Increased Customer Value.

New features like improved personalization and search relevance, merchant pages, and AI-driven FAQs inspire customer interactions and increase retention, while optimized targeting and personalized content improve visit frequency. Global Reach and Flexibility.

Our new front-end's expanded language capabilities mean we can reach and engage diverse customers and merchants, mainly Spanish-speaking population in the USA, with relevant offerings. Positive Early Results for App.

With the new app in beta showing solid performance in NA, we’re focusing on fine-tuning for a full rollout early in 2025, as we don't want to risk Holiday season and we have sufficient functionality with gifting support in Legacy app. We expect to migrate International markets during the first half of 2025. Platform for Future.

We have high expectations in terms of agility and development speed. We can see significantly faster development times and ability to bring new features to the market versus Legacy. Gifting.

As we enter into Q4 holiday season, we are excited to roll-out another new set of gifting features and customer journeys to make gifting and receiving experiences more exciting for everyone. Video. We have started to add video content into merchant pages and have positive early results.

It is still very early and there will be significant improvements in the coming months, but video is just one example of a feature that our legacy platform would have struggled to launch. Merchant pages and Merchandised pages.

With the new front-end in place, we will be moving from our legacy focus on a deal page as the main surface that consumers interact with to also build out merchant pages and category pages. This will allow us to target consumers at different points in their journey and bring them to Groupon to help find the right offering for them.

Before I turn the call to Jiri, let me make a few closing remarks. In conclusion, despite some challenges, I’m optimistic about our future. The progress we’ve made in transforming our platform and enhancing our customer experience is laying the groundwork for sustainable growth.

Our International Local business is showing promising signs, and the positive response to our new features like gifting and video content reinforces our belief that we’re on the right path. We’ve seen significant progress in marketplace understanding and in how we operate our sales channels.

We’re committed to continuous improvement and innovation, and I believe the best is yet to come for our company. I want to express my sincere gratitude to our teams worldwide for their hard work and to our investors and partners for their unwavering support. Thank you for joining us on this journey. With that, I’ll turn it over to Jiri..

revenues between $124 million and $131 million, or a decline year-over-year between minus 10% and minus 5%. Positive adjusted EBITDA between $14 million and $19 million. Positive free cash flow. Management would also like to update its full year 2024 outlook. Year-over-year revenue change at minus 6% to minus 4%, below our prior outlook.

Positive adjusted EBITDA between $65 million and $70 million, down from $65 million to $80 million, as we narrowed the range due to our lower Q4 outlook. Positive free cash flow for the full year. Finally, I would like to provide some additional commentary to assist you with your models.

We continue to explore potential changes with our payment methods. After running a test in September and October in the US, we recently made the decision to offer PayPal to all US customers as a payment method.

Similarly we returned PayPal to several international countries and we are looking for additional payment options as we try to find the most optimal mix of payment methods for our customers. We expect consolidated revenue as percent of gross billings staying within the range we have reported over the last six quarters.

While we still expect revenues to inflect to a sustained positive growth trajectory, given the exit of Italy Local and the hit to North America legacy customer retention rates from tech migrations, we no longer expect to inflect to growth in Q4 2024 and the timing of our inflection to growth may be delayed by several quarters until we address these headwinds.

While we are not providing guidance for 2025, we currently expect 2025 revenues compared to 2024 to be flat, or up to low-single digit growth, with the first half year down and the second half year up, EBITDA to be similar or better than 2024 and free cash flow to be positive.

Before I close, let me share a few update on our balance sheet and other matters.

First, today the company announced it has raised $197 million in privately negotiated agreements with certain holders of our existing convertible notes due in March 2026 by, one, exchanging $176 million of 2026 notes on a 1:1 basis for a newly issued secured convertible notes due in March 2027, and two, issuing $21 million in new 2027 notes.

The new 2027 notes that will be due in March 2027, bare interest at a rate of 6.25% per year, and we'll have a strike price of per $30 share, a premium approximately 184% over the 20-day trailing volume-weighted average price ending on November 11, 2024.

The new 2027 notes will be guaranteed by certain subsidiaries of Groupon, which meet certain threshold requirements. The new 2027 notes will be secured by a first priority security interest and substantially all of the assets of the company and the granters subject to certain exceptions, and permitted leads.

Management expects that this new financing provides additional flexibility, as we continue to execute on our transformation plan to return our consolidated business with sustainable growth. Second, an update on Italy.

As previously disclosed, one of our subsidiaries, Groupon Esaral [ph] has been litigated a negative tax assessment in the Italian cards since 2018. As we also previously disclosed, we began the purchase in Q2 of exiting the local market. In October, we reached separation agreements and with all employees and exited hourlies.

The total amount of restructuring is expected to be up to US$ 3 million versus previously estimated US$ 7 million. In the litigation, the second-level appeal's Court indicated, it will rule against Groupon SRL and in favor of the tax authorities at the level of the appeal. We still do not have the formal decision from the Court.

Groupon SRL will be able to launch an appeal to Italian Supreme Court and eventually Chileans Italian tax assert determination in an international mutual arbitration proceeding. The company continues to believe that the assessment led the merit and is vigorously defending the case.

The company does not expect financial exposure that exceeds assets for Groupon SRL. More information about this matter can be found in the company form 10-Q. Finally, noncore asset sales. Management continues to evaluate the monetization of certain noncore assets, including the company's remaining stake in SumUp and GiftCloud.

While there can be no assurances as to whether or when the sale of these noncore assets will be consummated, management currently believes these future noncore asset sales could generate proceeds of approximately $90 million. With that, we would like to open the call up for your questions.

Operator?.

Thank you, Jiri. Our first call -- our first question comes from Sean McGowan from ROTH Capital. Sean, you can now unmute your line..

Thank you. Can you hear me, okay..

Yes, we can..

Could you provide a little bit more color on why you don't think the legacy retention rates would bounce back in North America? What do you think the impediment is there?.

Hi Sean. Thank you for the question. So we have multiple activities to reactivate those legacy cohorts. Last year, we saw a big improvement in their activity during Q4, which shows that our value proposition of Groupon, which is great for gifting when there is some peak season, it works, but we don't take it as granted for this year.

So this is still our plan to reactivate them. Maybe I can comment also on what happened in some cases we were doing from securities and technology changes during the, for example, password resets or logging some users out of the application and it added simply into the friction.

These customers weren’t typically buying our health and beauty segment, and it's simply possible that some of them, they will not log in again. We are communicating with them. We are trying to get them on the platform and this is still our intent, but the comments here is because we don't see it as a granted..

Okay.

And can you give a little bit more color on what you think the timing will be internationally of the Tech Stack upgrade there? When do you think the majority of those markets will see that upgrade?.

The plan is to do it in the first half of the next year..

Okay. Thank you. And then one quick question for Jiri.

What happens to the rest of the 2026 converts that are not in that $176 amount?.

We still have them, and it's our plan to either refinancing which -- maybe the $20 million, which we have or earn money and pay them back. So we still have it. It's roughly $54 million, which we have..

Would they be offered the opportunity to take the same notes as the rest of the group?.

No, at this moment, we not thinking, and I think we will be thinking that little bit later, what we will do with the remaining part..

Okay, all right. Thank you very much. Appreciate it..

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

Hi, good morning guys. I wanted to touch a little bit on the ROI, like the 100% ROI within 14 days.

Could you just talk about what needs to happen for you to hit that marketing payback?.

So we had and have periods when we are hitting this marketing payback. We were just commenting that during the last quarter, we had a period where our efficiency of marketing systems was impacted by changes. So we were not always there. But in general, we are very close to this range, and our target is to be there. So I don't see any major blockers.

We also noticed the period before the presidential elections were overall the spend on these campaigns was really enormous, and it was impacting the cost of advertising that we were not reaching same levels. But in general, I don't see a huge risk not to be able to run the marketing campaigns at 100%.

And our goal would be obviously to try additional channels to just increase that spend and bring and speed up that acquisition flywheel..

Okay, got it. And then I was trying to read through the press release, but it obviously came shortly before the call. But I think I read that its attributed -- one of the attributes, one of the things that was attributed to the year-over-year decrease in North American local revenues was an increase in local voucher redemption rates.

But I would have thought an increase in voucher redemption rates would be a benefit to revenues, not a headwind? What am I missing there?.

I think it's a little bit linked to variable consideration because what we saw in summer was that -- there were very good deals. People really enjoyed. So, we saw higher redemptions. So, we have revenues and we have also, at the same moment, people take them. So, we have a lot of our breakage -- that would be part of the revenue..

I guess I'm still kind of not fully understanding that. I get how -- like when someone redeems something, right, that turns into revenue.

But why would it then be if people are redeeming vouchers at a higher pace, how would that be a negative headwind to revenue, not a positive?.

It's already in -- we are having our margin of Groupon. If it happens at its break, we have 100% of that. But certainly, we are looking for people to redeem because our business is to have a repeated customer, satisfied customers who are with us for a long period..

All right. And then I guess, just reading kind of between the lines, -- it's you mentioned in the press release, it talks about $25.8 million remeasurement of the SumUp stake. There obviously has been news that SumUp is looking to do a new round.

Could you just -- and I know you can't really talk about timing because it's not in your control, but could you just remind us all how you look at that SumUp ownership.

Is that a piggy-bank you'd like to tap if the opportunity opens up? And maybe explain why that -- the valuation is still kind of much lower than what that -- writers article that I mentioned..

Well, you know that last year, we sold two tranches of SumUp, which is always a combination of demand and supply. We are reiterating there for many quarters that we are considering to sell it -- this is private component. There is no market for that. So there has to be -- there has to be demand for that, and it has to be done together with SumUp.

So -- it's not only that Groupon could go for some private agreement. It has to be always with coordination with SumUp..

Our next question comes from Pierre Rope from Goldman Sachs. Pierre, you can now unmute your line..

Hey thanks so much for taking the question.

We just wanted to ask about your growth investments and whether there was anything more to share around the progress of the sales force in North America, specifically as you continue to scale and hire into the rest of the year? Maybe we had a focus on any verticals or regions where you've seen the most progress in rebuilding the supply side of the platform and whether you can point to any benefits you're seeing from the better marketplace balance in those areas as we head deeper into Q4? Thank you..

So, in the last six weeks of this year, the hiring is paused because it's not very efficient in terms of training, but we were significantly ramping up the hiring during pretty much a whole quarter until now, and we plan to continue again from January with the same speed.

Right now, we are focusing on hiring people in Chicago because we are doing the trainings in the office, and we are actually also expanding the office space there so that we can accommodate the salespeople so that they can be much more -- in the office as we see this extremely efficient, especially for the further sales force.

And they are serving the whole United States. We just have allocation to a certain region of the United States. And in terms of efficiency, we see the better numbers overall in the largest population centers of United States.

And we see a very similar trend developing in Europe, because like higher coverage of deals, higher number of deals at the same time with higher quality, it translates very quickly into more customers buying the services..

Thank you..

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