Groupon, Inc.

not waiting on others to prepare reports or data. You can imagine it like you have additional five or six AI people working for you 24 times seven. You can ask them whatever you want. So that pace which comes with it is really, really amazing. We are changing and it's not only us, it's pretty much everyone who is on this AI frontier level, the way how corporations are working. It doesn't make sense anymore to have teams of five or six people working on something with all that communication overhead around it and meetings. It's really one or two people, we call it speed boats, who are taking decisions immediately, moving super fast, shipping products in days or weeks. And I expect that more and more of this will be coming to Groupon. But when you look how we were talking about SEO less than three months ago, for example, without AI, we would not be able to accelerate so significantly. I see the same happening on SCM, also Mobile Next. Last almost three years, we were talking about the project, how we are moving really slowly. But last three to five months, the progress significantly accelerated. We would not be able to achieve it without AI. And I see right now that this is happening across all projects. We pretty much don't want to have in the Groupon any project which would not be around AI first because we simply see the outcomes, speed, and the results from these projects to be significantly superior to the old way of working.

That's super insightful. Thank you, Dishan. I'll return it to you.

Thank you, Bobby. Our next question comes from Sean McGowan from Roth Capital Partners. Sean, you can now unmute your line.

Thank you. I want to follow up on Bobby's question a little bit. You were already doing a pretty good job with SG&A spending, you know, and a lot of cuts. But how, you know, I know you just said it's not about cost primarily, but how much lower could the could the G&A spending get with some of these initiatives?

Thank you for the question. We were in the commentary stating that right now the 15% restructuring is not approved by the board and we are not talking about specific actions. At the same time, we were mentioning that we are looking very closely on the 15 percent along with other significant cost reduction and automation actions because we really see this as a paradigm paradigm change how to operate the company so i will not give you really any numbers the the saving is definitely not a primary motivation because this is probably for the first time in groupon's history when we are talking about these reductions while we are growing not when we need to cut something because like Groupon has major problem with the business as the motivation is really to speed up and change the operation mode of the company. I see it as an opportunity and definitely there will be a lower cost related to all these changes but it gives us also opportunities to also invest to growth in maybe in other areas. Sorry, I can't give you really right now.

I understand. There's sensitivity around that. I appreciate that. Shifting gears, it seems like consistently as you talk about international billings, X gift cloud, the underlying business excluding gift cloud has been pretty strong. Is there any reason that we should not expect that? ex-gift cloud business to stay as strong as it's been or much stronger than the overall reported number? Or are there factors that are going to make that comparison tougher?

I see the difference with international versus NA that in the past, we were, Groupon was doing much less cuts to the sales force and was cutting mainly outside of the sales team. So I would say in general, the sales teams in international are slightly stronger also, not only in terms of experience, but also headcount. And because they are serving individual countries, they can be more focused. So you can think about it that we have these like, country runs in a similar way how we are running the Chicago in an A, where we have better results versus the rest of the country, which is driving the pace. And obviously, the team is doing a great job. So I am optimistic around international. Right now, we have had wins with Emirates. because of this very complex situation with the foreign politics there. But otherwise, I see opportunity for us on all markets.

Okay, thank you. I have two quick questions for Rana, if I can. First, um what's up with the taxes what's the weird thing going on in taxes in the quarter and second uh why would you not add back that severance if if that's in fact you know something that that's boosting that gna spending why would you not add that back for adjusted ebitda yeah thanks sean i'll take the second question first then i'll go to the first question um

You know, we have a pretty established policy on how we define adjusted EBITDA consistent with guidance from our regulators. And, you know, these severance actions were undertaken on sort of ongoing activities. It was not part of a restructuring action that we put in place in Q1 that was board approved. And so at the same time, we wanted to let investors know that we did have, you know, material severance expenses. So this is why we made sure that it was disclosed in our commentary on SG&A. So this is something that we are... see in our numbers, we see it is part of the story in Q1 and why we told you. I don't know if that answered your question, Sean. Before I go to the first one.

No, it just seems like you actually didn't miss the way most investors would look at it. You didn't come in below, but anyway, I get it. It's a matter of policy, but you're adjusted if it does actually better than it looks. So thanks.

And that's correct. And we are You know, our role here, we want to be as transparent as we can be. So we want to make sure you understand the puts and takes of the quarter. And that's why we included that note in the letter. And glad you picked up on that. You know, listen, in terms of tax, and there was... There's always quite a bit of movements going around quarter to quarter related to how we are planning the business and potential changes we're making. I'm happy to go into a little more detail with you offline, but there's nothing structurally that's changed with our business, Sean. At this point, you know, we have we do expect to see some benefits on the cash tax side related to some of the legislature that was passed last year. And so from a cash tax standpoint, we do expect this year to be more efficient. But structurally, our business, there's nothing very different happening from a tax perspective absent changes in the regulatory environment.

All right. Thank you very much.

We'll now pose written questions to the leadership team. Investors on the line, at any point, if you'd like to follow up, please raise your hand. Our first question is for Dushan. How are you personally using AI day-to-day, and what's changed for you in the last six months?

Thank you for the question. I see major changes happening pretty much every month. If I will be looking backwards, how I was using AI six months ago, I was experimenting with like byte coding and having agent doing some like small engineering tasks to build toolkit tools for me to make my life easier. I was using AI as like a chat partner. All my projects, all my brainstormings were run in AI. Then I would say some six to eight months weeks ago, I switched into the agentic mode. I was actually commenting this or posting some articles on LinkedIn about it, that I built AI Chief of Staff, which is like a solution where all my projects live with. It's built on cloud code, on anthropic solution. And it's running all the data. It has access to all the data which I need for my work. I'm sharing a lot of content. It sees my emails, reads all the tasks which we are working on. And this is like primary way of working for me. I'm really spending time on meetings with people or then everything else I am working on through my AI. And I see significant boost of productivity. I was... And I am sharing this toolkit within Groupon and with my peers. Some of them took it and improved it significantly and are much more advanced versus me. But really, right now, I see AI with... pretty much old models right now because all the major AI companies will be coming with significantly better models in coming weeks and months. But if I provide enough context, the AI is giving me the answers which are same or better versus what I would be able to do. It provides me with these answers in minutes or hours versus me. I would need to be spending hours. So I can work on 10 times more projects. I have visibility and more stuff. And also it changed the way how we are working with leadership and managers in the company. In the past, it was always prepare a two-pager, one-pager with big picture. Don't spend more time. Right now, it's completely different. Yeah. Let's provide raw data, throw it on AI, and AI can do complete research, find out how best in class on the market are working and doing the stuff, show five, ten different versions for our solutions. So for me, it's a complete game changer. I feel that I don't have to wait anymore on the stuff because I have it available right now. And I see that the landscape is really developing significantly. The taste is really unbelievable. And what we have right now in few months will be even significantly more capable.

Thank you, Dushan. A follow-up question on that. What's your conviction on where AI and local commerce goes over the next 18 to 24 months? And where does Groupon need to be when it gets there?

So I would like to position Groupon as a company which will be significantly helping small businesses because it's not easy to run and operate small business, not only in North America, but pretty much anywhere in the world. And you definitely don't have time to to educate yourself on what's happening in AI. So Groupon is investing and will be investing more into the toolkit so that we are providing platform to small businesses, how to operate their business, how to get more clients, advise them. We are sitting on a lot of data. We were talking about the CDP, about the customer data platform for consumers, but we have ton of data also for merchants. And I would like to build a solution which will be taking these data and helping merchants to run their businesses better. This is on the merchant side. On the consumer side, the way how people are searching, browsing is changing. So I want to position Groupon as a place which is a platform which any AI agents can be using. So we can be connected to pretty much anything in the world, whatever will be popular best-in-class as a platform which will be consolidating the links and traffic and deals of small merchants who on their own would not be able to do this. So we would, with all this, when we put it together, we will be able to provide the power and benefits of AI to small businesses because right now it's quite limited to bigger organizations which have much more resources versus small businesses.

Thank you, Dushan. Another follow-up on that. What's the right way for investors to track whether the AI-native operating model is actually working beyond the headline P&L?

So the way which we are taking in Groupon is slightly different to the way which some other companies are taking. My strong belief is that if we want to be AI native company, also in terms of AI products for merchants and for partners, first we need to be AI first inside. So that's why it's like, high focus on how we operate to make sure that every single person is running AI, because it changes not only the cost and SG&A, which we were discussing here on the call, which is really not so important for me right now, but it changes the mindset, it changes the way how you are thinking about the stuff. You are not simply willing to do anything in a slow way if you know that you can deliver something in hours. And then this translates into products which we are building, which not only that we will be able to ship them and move them fast, but we will be also able to come with products which will be AI first. If I would be in the shoes of external investor, I would be definitely looking how Groupon is used by AI platforms, whether when you are searching there, whether you can find Groupon deals, which anytime I'm trying that I'm able to find the Groupon deals in open AI or in Google, and this is one of our focus strategies. In the future, I expect that this discovery piece will be moving towards whole agentic commerce, and we inside Groupon have bets and projects to build a platform which will be like an open connector for pretty much any new standards which will be coming.

Thank you, Dushan. And one final written question. What has surprised you most about AI inside the company since you launched Project Foundry?

I would say the biggest surprise for me was the quality of AI voice agents. I was covering this on the call because I was testing them last year. I'm talking to other people who are using it. Last quarter during the trip which I had in my team to San Francisco, we were visiting Eleven Labs and some other frontier companies and what we saw as a progress in this area was unbelievable and I think it's a major unlock for us how we will be able to talk to small merchants and really unlock the capacity. When the AI call is done right, you are simply not able to recognize whether you are talking to human or AI agent. So this change in last probably five months, because in the beginning of the year, this was definitely not true. This was the biggest surprise for me.

Thank you, Dushan. We have a follow-up from Bobby Brooks from Northland Capital. Bobby, you can unmute your line.

Hey, thanks. Thank you guys for taking the follow up just on this. Obviously, there's been some news bubbling up with some up moving towards an IPO. And I think you guys have made it clear to the market that when you get a liquidity window, you'll use it. Just wanted to hear if it'd be a nice cash sum for you. Any thoughts on like what that cash would go to use for? Obviously the balance sheet is really strong. So would it just be, but a lot of like the growth initiatives seem to be like low capital requirements. So just curious to hear maybe how you're thinking about how you might use that, you know, a cash windfall if it were to occur.

Do you want me to take that too, Sean?

Yeah, I don't know. You can take it.

Yeah, so thanks, Bobby, for the question. We continue to believe that SumUp is an incredibly valuable asset. And as you've noted, we continue to own a small minority stake in it. They are developing well. Their performance is strong. And as you've noted, there's some public commentary that they're getting ready to be a public company company. Our view on this is they have the scale, they have the business model, they have the management team, and they have really, I think, the story to be a successful public company. But the timing on that and when that will happen is quite uncertain. So we continue to be a passive shareholder there, and we continue to be supportive of the actions and the direction they're headed. In terms of, you know, this is a non-core investment for us, and we don't plan to hold this for the long term. So if there is opportunities for us to monetize that investment, we will look at it opportunistically. And in terms of that, if that asset does turn to cash, we will look to allocate this consistent with how we think about our capital allocation policy right now, where You know, we are looking opportunistically at share buybacks. We are looking at what we see in terms of our investment needs, which you've noted, you know, how our business is performing, market conditions and where our stock is trading. So, you know, we will be opportunistic and, you know, we will see where things go. The only other thing I'll tell you, Bobby, is, you know, we've been following some up since we've been here for three years. And so what they have definitely done improved a lot, but I've never gotten the timing right on that one. And I don't think it will be smart for us to try to pick timing now. So, you know, what is most important to me is that that business is doing well and has a great position in their market. And we are rooting for them to continue on that path.

Yeah, absolutely. Appreciate that color on it. And yeah, definitely not looking for time, looking for the crystal ball prediction. It's obviously a passive asset for you, but great to hear that additional color on how you might, how you would maybe think about using that cash. And then maybe one last one for me is just on the different marketing channels. I know that was some details were discussed there, but you know, some of the other digital marketplaces I cover are, One particularly was talking about really good strength and leaning into advertising on meta and pins and more so leaning away from Google. Just curious if you could provide any color on the, a little bit more color on what marketing funnels channels are working best for you and which ones maybe you're starting to lean away from.

I can take this question. I don't think there are marketing channels where we are starting to lean from. I believe that Groupon should be maintaining the position and try to send as much as possible with very disciplined ROI on every channel. But you are completely right with Meta, where I see disproportionately bigger opportunity versus Google, where I believe we've penetrated most of the surfaces which are suitable for Groupon, and we can get much better there, but in Meta, especially with video content, we have much more opportunities. Meta also released in the last I think it's two weeks or so much better connectivity for AI so our team is already working with AI generating the advertisements and completely AI managing the campaigns and at the same time we are experimenting heavily with AI driven way how to generate the quantity of videos based on our local content because currently AI allows you if you take Just a few pictures, just from those photos, let's say, you can create really beautiful, compelling videos, which would be opening us opportunity to advertise mainly on Meta, but then also on TikTok more.

Very interesting. And then maybe just one follow-up on that AI content. How does it work, the relationship with the merchants? Essentially, if they're signing up to use you as a service or use your platform, do they inherently then give you the ability to create content for them through AI? I would guess some business owners probably want to be a little bit more protective around that. Just curious to hear how that dynamic works.

We are significantly improving quality of content with AI. So actually until now, I didn't hear about any single complaint. I in several cases heard, wow, this is unbelievable. Then we took, I would say mediocre pictures from a merchant's website, for example, and then reprocessed it and improved it with AI. So I actually see it as a positive thing for merchants because it is in their best interest to be represented the best possible way. And the quality of media, which thanks to AI, we can now provide also to small businesses is comparable with the professional outputs, which bigger companies are using.

That's really interesting to hear. I appreciate the color is always our turn of the queue.

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