Groupon, Inc.

Good day, everyone, and welcome to the Groupon's first quarter 2022 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. To ask a question, press the star key followed by number one on your touchtone phone. Once again, press star one to ask a question. Today's conference call is being recorded. For opening remarks, I would like to turn the call over to the Chief Communications Officer, Jennifer Dugomez. Please go ahead.

Hello, and welcome to Groupon's first quarter 2022 financial results conference call. On the call today are CEO Kedar Deshpande and Interim CFO Damian Schmitz. The following discussion and responses to your questions reflect management's views as of today, May 9, 2022 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 our earnings press release and in our filings with the SEC, including our annual report on Form 10-K. We encourage investors to use our 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, we will also discuss the following non-GAAP financial measures, adjusted EBITDA, free cash flow, and 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 to the most comparable measures under U.S. GAAP. And with that, I am happy to turn the call over to Kedar.

Hi, everyone, and thank you for joining us. I will use my time to talk about our first quarter results and how we intend to address our performance challenges by reducing our cost structure and creating a more differentiated inventory offering. Since starting as CEO in December, I have spent a substantial amount of time studying our business, trying to understand why we have not been able to successfully translate our significant assets, scale, data and customers into a sustainable growth engine. Let me be clear. I have good news and bad news. The bad news is that our first quarter results fell short of our expectation and did not demonstrate our potential to create value for our customers, merchant partners, employees, and shareholders. In the first quarter, we didn't see local demand come back as Omicron cases began to subside. We had expected to see a pattern similar to what we saw last year in the wake of Delta. So we executed on the initiatives that reflected our expectation for increasing demand post-Omicron. But this demand did not materialize. As you know, Groupon is a marketplace that offers discounted experiences and services. And merchants simply did not need to leverage the Groupon marketplace as much as we thought they would coming out of the pandemic. And this has been worsened by inflationary headwinds. With demand high and capacity low, merchants did not need to sell discounted inventory on our marketplace. In addition, we saw merchant availability contribute to driving refund rates higher, which put further pressure on our inventory levels as well as adjusted EBITDA. While we think this is transient, you will hear us talk about our plans to make Groupon more helpful to merchants throughout the economic cycle. The good news is that we have a plan to address the drivers behind our shortfalls this quarter and grow the business for the long term. There are two key areas that we need to improve and we are moving quickly to address them. First, we need to improve our expense structure substantially and we intend to do this fast. We are streamlining our technology platform and our operating processes. By doing this, we believe we can deliver a full year adjusted EBITDA margin in the 15 to 20% range and generate a minimum of $100 million in annual free cash flow starting in 2023. Second, in order to grow our top line, we need to offer more differentiated inventory. As I will explain, our marketplace needs to give customers a well rounded interaction that includes a great selection of experiences and services at a variety of price points. Today, You will hear me talk about two innovative ways that we plan to expand our inventory, curated inventory collections and the launch of beauty and wellness marketplace that offers premium experiences. So let's talk about how we will get this done. Starting with our expense structure, we spend a lot on our tech platform. In fact, we devote about 40% of our overall cost structure to technology. This translates to about $210 million per year. We have a legacy platform that was built in 2010, and we need to streamline it to meet the current needs of Groupon. Over the past 10 years, we created services to handle just about every nuance. At the start of the year, there were about 700 services operating behind our platform. This is way too complicated and big for our needs and size. Our move to the cloud really highlighted the cost associated with this legacy technology platform. Our cloud cost per transaction is well above levels I have seen in my previous experience. I believe we can generate meaningful cost savings if we streamline our platform to serve our current needs and cut out any non-essential services that don't need to be migrated next too many of our processes require human touch and this is not scalable or sustainable if you want to grow the company we are looking at all our processes to reduce cost so let me give you a quick example we can do more to scale our self-service automation features and allow merchants to join our marketplace without human touch. We have done a good job of increasing the number of merchants and listings that onboard through self-service. But we have many other opportunities to go beyond just onboarding. These should lower our costs related to serving our merchant partners we also need to streamline other associated infrastructure processes. This work is now underway. There are many other examples, but what I want you to take away from this conversation is we are moving aggressively towards automation. And we are doing this across our entire organization. We expect this to both increase productivity and reduce our costs. As we march towards automation, we believe we can also build a financial model that has a lower fixed cost base. This will allow us to be more nimble as demand ebbs and flows. Next, we need to drive top line growth and our marketplace into a new era. What do I mean by this? We need to become a marketplace for all occasions. This means that customers today are looking for one trusted marketplace where they can find all local services and experiences they want, a place where it's easy to transact and interesting to browse. These shoppers are not always price sensitive, so they are not always searching for a deeply discounted deal, but they will want a great value. In order to be this marketplace solution, our inventory needs to be highly differentiated. So we are going to work on expanding our inventory in two important ways. Uniquely curated collections and a standalone marketplace experience for premium beauty and wellness experiences. In both cases, our goal is to deliver unique inventory that customers can't find elsewhere. we already have a broad spectrum of deal inventory on our core Groupon marketplace. But our offering is not always differentiated enough to be compelling to consumers. This is where curation comes into play. We will create package inventory listings that combine experiences and services in unique new ways. These collections will span a wide range from Date nights, which might include a dinner at a fantastic Italian restaurant and a night out bowling that is packaged and sold as one listing. Or rainy day kids passes that could bring together a great museum experience and a trampoline park, for example. We believe we can create unique experiences that will appeal to existing and new customers alike across a variety of demographic groups. And only Groupon has the breadth of transactable inventory to offer these packages. Whether there is a deep discount or not, the value of package inventory is that it's unique to Groupon, making us a destination for discovery while meeting the intent that customers have when they are searching for things to do on any given day or night. I believe that this unique inventory will wow our customers. This approach will give more value to merchant partners than Groupon can by just being a destination for deeply discounted inventory. So inventory curation will be an important tool that will leverage to drive customer engagement and growth. But curation is only one part of our inventory opportunity. With the tremendous set of assets we have, we believe we can create even more value for our stakeholders by launching a beauty and wellness app that will stimulate both sides of our two-sided marketplace. I have done something similar in my career. So let me take a few minutes to give you an example. Zappos was able to attract a variety of popular brands but needed to bolster its table of premium brands. So we created a new experience that could live side by side with core experience. Zappos built a website where customers looking for premium brands could be sent. And we were able to attract those premium brands to our new destination and service, the intent of those customers. Today at Groupon, we lack the ability to attract many premium local experiences and services to our marketplace because we typically expect a deeply discounted listing. But when customers have high intent, they're not focused on discounts. The discount requirement in our core Groupon marketplace is constraining our ability to acquire and offer the broad inventory selection some of our high intent customers want. This is inhibiting our ability to grow. To take advantage of this opportunity, we are planning to launch a new marketplace experience dedicated to providing a great local selection that is not all on deep desktop. Our goal is to introduce this marketplace by the end of this year. We will start with beauty and wellness services and experiences. Trust will be the cornerstone of this new marketplace offering. Consumers will know that they can trust Groupon to deliver premium experiences from quality merchants and that their purchase to redemption process will be seamless. We will offer a curated marketplace experience with cutting-edge functionality and new standalone branding. And we intend to do this by leveraging our improved technology infrastructure and platform to paint the picture of what we expect this new experience to offer consumers will receive best-in-class customer service, content, and price transparency. We also plan to explore options to offer financing for high-end services such as cosmetic surgery. As many of you know, the beauty and wellness industry is a large and growing market, and we believe we are well-positioned to capture much greater market share with this. We expect this experience to be truly unique and to be attractive to our high-intent customers. Best of all, this will be complementary to our core Groupon experience. And with nearly 100 million unique visitor sessions per month, we intend to move customers between our two website properties as intent dictates. I knew that when I took this role, the stakes would be high. The path forward would be rocky. but that the rewards for success would be very compelling so far my journey has met my expectations i have discovered some things about the business that i didn't expect and some things were in line with my preformed expectations but everything i have seen is something i have seen before last quarter i talked about the untapped assets that make Groupon opportunities so attractive a global scaled platform, large customer base, and actionable data. I believe that these assets, coupled with a more innovative approach to leveraging our unique inventory, position us to grow our business for many years to come. If you add this growth potential to reduced cost structure and a strong balance sheet that includes our investment in SumUp, I think you will agree with me that Groupon is well positioned to create shareholder value. We look forward to sharing our progress with you as we work to create the value our stakeholders deserve. With that, I will turn the call over to Damien to cover financial performance.