Groupon, Inc. (GRPN) Earnings Call Transcript & Summary

Welcome, everyone, and thank you for joining Groupon's live investor conversation on X with CEO, Dusan Senkypl; and CFO, Rana Kashyap. Before we begin, today's discussion and management's responses to questions reflect management's views as of today, August 25, 2026, only and may include forward-looking statements. Actual results may differ materially. Groupon undertakes no obligations to update these statements, risks and other factors that could potentially impact the company's financial results are described in the company's SEC filings, including its most recent Form 10-K and Form 10-Q. This is not an earnings call. Management will not provide new financial information or update the guidance issued on August 6, 2026, and comments will be limited to information already made public. Any non-GAAP financial measures referenced, including adjusted EBITDA and free cash flow are reconciled in our earnings materials at investor.groupon.com. This session is open to all investors is being recorded, and a replay will be available. With that, let's open the floor to questions. We will start with written questions we've received over the past week. But if you have questions live, please post them as a reply -- as a reply to our account or raise your hand here to be promoted to a speaker.

Our first question comes from CZ, YOLO trader. How do you plan to attract younger generations beyond the Mystery Deal concept? Dusan?

So first, thank you, everyone, for joining us here. Very happy to have you here. Under Mystery Deal concept, first, let me provide some bigger picture for those who don't know the Mystery Deal concept because it's part of how we are transforming Groupon, how we are bringing new types of products. So mystery vacations right now, but I see the same mystery concept opportunity also for many other products with Groupon, a result of the change how we think about the travel. We are moving from selling just destination to selling experiences. And we are pretty much taking away also from our customers a decision which we have to make where I will travel. So this is very explanatory product where they just buy for $199 to $299 per person a trip, and then without knowing where you are going, you may pick the dates, we call them in 3 days and somebody tells them where to go. So it's something which was not promoted, which was not on the Groupon in the past. And this is one example of how we are building a completely new product proposition, which is relevant for especially younger generation in this case. And on the levers, how we plan to attract the younger generation in general, there are 3 dimensions to this. This is reach, this is product and inventory. With reach, we are heavily investing both in our organic channel and paid channels. I'm very happy that we returned to growth with organic channels in Q2, and we see many more opportunities here to continue in the trajectory. And at the same time, we are building and improving our paid and brand partnerships and also influencer capabilities. So with Groupon appears where younger customers typically discover ideas. On the product side, the answer which I see is that the Groupon can't be the same for everyone visiting the platform. I was talking on the earnings call about the personalization, which helps us shape experience around affinity to category by our customers and the browsing behavior. And I think this will be a very important part how we will be making Groupon more attractive to people in actually not only younger groups, but in different groups. And we will be also bringing in Q3 new onboarding experience, which will help especially younger people who may not know Groupon yet understand what is Groupon about. On inventory, this new format is very important for us. Tour packages have reached customers who did not respond to other deal formats. And what I see overall is that we have a public evidence that active customers grew 2% to over 16 million and conversion is improving on pretty much every surface which we have. Also, if I would double down on what will work best for young people, my personal bet is that influencer marketing will help us a lot together with better socials because this is how especially younger people are discovering new products, new services. And this is an area which we just recently started. I believe that we have all the right tools, which we need, and you can expect a lot of stuff coming from us in this area. And especially together with our mission to get people offline, I see it as a great fit. Another dimension where I believe that it will be very specifically helping us, especially with younger generation is AI because I strongly believe that AI is redefining how the distribution opportunity works. And we simply see that younger people are adopting AI trends faster versus rest of the population. And we are building towards that. And by the way, we will be sharing on our X account an example of what we built recently based on the input from Nick Nemeth and our actually small shareholders with AI deal adviser where customers can be talking to Groupon AI and AI is recommending them deals. So we will be investing heavily in this direction. And the third, but definitely not last is personalization because right now, we need to do better job in recognizing younger people and providing relevant products. We have data and feedback showing that some of them are confused because we have a variety of categories and deals, and we are expecting something else. So this is actually the bread and butter and core of the personalization bet, which we have to take very early signals like the device, you have location, browser, first 1 or 2 clicks and recognize the profile of customer and serve the deal, which makes sense to them.

Thank you, Dusan. And as Dusan just said, if you want to see an example of how AI is a new distribution opportunity for us, we just posted an example as a reply to this space. Our next question also for you, Dusan. Do you plan to expand into new countries and markets?

So right now, our priority is really go deeper where we already operate, not just to expand additional countries or areas where the marketplace would not have significant impact because pretty much every marketplace and especially local ones are about density and about pretty much city-by-city coverage. And we have an evidence from our successful marketplaces that they were really growing not on the country level, but they were conquering every single city category by category by having enough quality supply and then attracting enough customer demand in each location. In international, even we are concentrating supply and marketing investments in major cities, in most countries. And we see that the cities where we have higher density of our marketplace are growing at strong double-digit rates in Q2. So this is a signal that this is the way how we need to be working. At the same time, we are also resuming operations in Italy. And the reason for that is that we had a large base of merchants where they were still eager to work with us given our recent presence in the market. In the long term, I believe that Groupon business model is very suitable, and we can definitely see opportunities in many other countries. However, right now, our focus is on the markets where we are in. So this is not something which we are actioning right now.

Thank you, Dusan. And a final pre-submitted question from CZ YOLO trader. This one for Rana. If SumUp IPOs, would Groupon sell its stake? If so, how would you use the proceeds?

Thank you for the question. So yes, first, we do own a small minority stake in SumUp. We have been pleased to be shareholders there. We continue to get updates from that management team, and their business continues to do well. It is growing healthily. It is profitable. And how I see this, it has all the features of what should be a successful public company. And I understand that the desire of that management team is to one day be public. We have identified and communicated for several years now that this is a noncore investment for us. And we are -- we will look at opportunistically -- opportunities to monetize that stake, whether it is an IPO or a pre-IPO secondary, this is something that we're very open to. We -- as long as there is a good commercial opportunity, we don't believe it's in the best interest for shareholders for them to get, let's say, SumUp long-term investment results from investing in Groupon. The core business of Groupon is what we're focused on here. So we do expect at some point to get liquidity there, and it's more of a question of timing, which has been hard to predict with that situation. But the good news is that, that business is doing well and continues to do well. So we can be patient. In terms of using the proceeds, our business generates positive cash flow. It has a healthy amount of adjusted EBITDA. So -- and based on the plans that we have right now, we expect that to continue. So our core business does not need additional capital. And so to the extent we do sell SumUp, we would be looking at the opportunity to reinvest those proceeds against our capital allocation framework. You saw how we've made comments now for several quarters now that we will be looking the best way to create shareholder value. And really, we'll be quite opportunistic about this. We are significant shareholders here, and we think about how to grow long-term per value share all the time and if we have excess capital, we'll be thinking the best way to deploy that to generate the highest rate of return.

Thank you, Rana. We'll move to a question from RVX CZ. Of the approximately $20 million to $25 million in annualized payroll savings, how much should investors expect to flow through to 2027 EBITDA/FCF versus being reinvested into growth.

I'll take this one. So we haven't issued 2027 guidance, so I'm not going to do that now. What we've said right now is as follows, as you've already noted the restructuring, we expect to realize about $20 million to $25 million in savings. We also noted that about half of that we'll expect to get this year and that we expect to invest about half of that into marketing, AI infrastructure and talent density. And so that's what we've said thus far. As we think about next year, so there will be the other half that we'll be picking up and how we might think about that, I think it's too early to say, we also continue to run our overall foundry program. And as we execute against that and get more visibility on how the business is evolving, we will be coming back to shareholders and updating them on how we're thinking about 2027. And so this is what I can say right now. Happy to take a follow-up on this, if anyone has one, though.

Another question from RVX CZ. What do you see as a sustainable long-term FCF margin for Groupon once the transformation is further along?

Yes. So we don't have a long-term free cash flow margin target, but -- so I'm not going to give one right now. But I do think it's useful to talk about the framework here because I do think free cash flow is something that's not well understood in our business. If you just think about the components of what to get to free cash flow, you have your adjusted EBITDA margin, which is, I think, fairly easy to calculate. You also have some pretty easy to model discrete items like cash taxes, interest expense and CapEx, and we have a pretty CapEx-light business or asset-light business. And so that gets you to -- one subtotal. And then the last remaining piece is working capital. And in our business, we have a negative working capital cycle. And so if you just think about this, if we are -- our ambition here and the opportunity we see is to accelerate growth against what we see as a pretty big market opportunity. And as we get billings to grow, working capital will be a source of cash. And so if you think about the long-term free cash flow margin potential for the business, you really need to have 2 assumptions that you need to be thinking about is one is where do you think we'll get adjusted EBITDA margins? And two, where do you think we will get sort of durable growth? And there's definitely scenarios I can see in the future if we have billings growing at the levels that we believe are possible, where the free cash flow margin could be higher than our adjusted EBITDA margin, given the negative working capital cycle that we have in our business.

Our next question. How should shareholders think about the convertible notes and potential dilution if the share price moves materially higher?

It's a good question. As you might imagine, we think about dilution a great deal here. Dusan is personally a large shareholder. And through his fund Pale Fire, they're our largest shareholder. I personally have a significant amount of my net worth invested in Groupon. So dilution is something that we do not take lightly. I think the best way to think about this is just look at our track record. We have executed now 2 transactions on our capital structure related to the converts. The first one was when we refinanced our 2026 into 2027. At that time, our business wasn't, let's say, performing as strongly as it is today. And there were many options we had on the table to refinance it. And we decided to choose a fairly complex refinancing, which included higher interest rates, some structured aspects of the note, let's say. And we did that all to get a strike price, which was at the time, I can't exactly recall but I think our stock was in the teens or the low teens, but we went and got a strike price of $30 a share. And most of our advisers were kind of thought that was quite odd, like regular way convert financings, you do a 20%, 30%, 40%, 50% premium, you call it a day. But we were very clear that we were not interested in any dilution at that time, given the fundamentals and our belief in the business and anywhere near where the sort of standard terms were coming. And that's sort of like, let's say a transaction one. I think the second transaction you can look at is instructive to see how we think is what we did last summer. And last summer, we issued a 2030 note, which has a strike price into the 50s, which would take our EV over $2 billion. And what we thought about at the time, and there were trade-offs because that refinancing was not costless, and there was some things that we took on. It was, in some ways, quite expensive. But as we thought about the pros and cons overall, again, we chose to really push the dilution potential for our business to a point where now we have most of that in the 50s. And given where the fundamentals of that business were at that time -- of our business at the time, we felt that north of the $2 billion issuing some stock would make sense. And that's sort of how we're going to think about this going forward. I think there is a question later on about just debt. I mean our business is predictable. It generates cash. We do think that it is a business that can have some debt on it. And so we will be thinking about the best instruments to do that. But clearly, for me, like and Dusan and I think the Board, for us, managing the optimal capital structure, our goal is maximizing long-term shareholder value per share. And to do that, we have to think about both the numerator and the denominator. So it's something that we very much pay attention to. I'm happy with the track record we have thus far. I'm sure we can always do better. But that's the best way to explain to you how we think is looking at our actions.

Thanks, Rana. A question for Dusan. What specifically needs to improve in North American local for you to feel confident that growth there is sustainable?

So I would not answer specifically about North America local, but I would answer how I see Groupon overall. For me, the sustainability means that we see the marketplace engine works. And it's not for one good month. It's really for a longer time period. And it has 3 components. The first, this is a supply-driven marketplace. So the core themes are the same ones which we talk about almost every quarter. We need to adequate supply coverage and sales engine that keeps bringing freshness and new inventory to the site. And you can see that we invested a lot also to the human capital here. Adi Rajkumar and Mark Marge joined Groupon sales organization primarily recently, and we are pretty much rebuilding and improving the capability so that we can drive sales department further. The second, when we have the right inventory, we need to have capability to properly merchandise it to our customers so that they buy it. And what's most important is so that they build a trust about the quality and products which we are selling because with this trust and quality, we can then talk about the third piece, which is purchase frequency. Here, in this trust and quality piece, I see huge progress which we are making over the last, I would say, even months, and this is one of the AI analogs which we have because in the past, the number of deals which we have in Groupon, it was like super complicated to go through it and analyze what's working, what's not working for customers, what's the friction. Right now, we are able to pretty much on a daily basis to review all the customer communication, all the signals which we are getting from a redemption, from customer reviews, from customer support communication and identify what we need to change on deals. Sometimes it means turn off the deal. Sometimes it means talk to merchant and change the deal. Sometimes we just see the way how either merchant or our team describes the deal on the website is not easy to -- it's not understandable for the customer. So we are changing the layout, making more prominent features, which are important for customer decisions. So I see really huge progress on this piece. And then the third part of the product flywheel is improving the experience on both sides of the marketplace. But I would focus here more on the customer part where we want to make whole process very smooth. It starts with the content, with the deal quality, but then it continues also with the bookability, with the customer experience during the redemption. We actually introduced recently also the Apple and Android wallets where our coupons can be -- for some deals, not all deals can be simply moved to the Apple wallet, which we just present and makes all the experience during the redemption much better and easier. And all this together should be reflected in the purchase frequency, which is ultimate driver and mark for me that the marketplace engine works. And we need to see improvements in purchase frequency, which is the core priority of the whole company right now. And when I'm looking on what specifically in numbers based on what we actually published in -- for Q2, clearly, the small business merchant base was slightly lower year-over-year because the new merchant acquisition was not as strong as we were expecting. I still see health, beauty and wellness soft, and this is one of the focus areas for us to restart the category and bring there, especially more freshness similar to what we did with like Mystery Deals. On the other hand, things to do grew double digits. So this is a very strong signal for us and one of key categories, which Groupon is betting on. We are also reaccelerating new merchant acquisition. We pretty much want to double the new merchant productivity to approximately 10% of North America local supply and with that return health, beauty and wellness to growth.

Great. Thank you, Dusan. We're going to turn now to a live question we received. [Operator Instructions] This question came in from Nick Nemeth. Rana has talked about excess cash. What do you feel is a sufficient cash buffer considering the negative working cash model?

Yes. Thanks for the question, Nick. So we've got answered -- we've had this question a few times. We never issued a formal guidance. This is the level of cash that we can operate on. How I've answered is, I've given people a couple of data points for them to sort of make their own conclusions. The first is in our history, we have operated in much tighter cash conditions several years ago when our business was let's say, more challenged. And at that time, we never really had, I would say, significant challenges in operating the business. We paid our vendors on time. We paid our merchants on time. And so one way to look at what's the right level of cash is just look at where we've operated in the past. When you do that, you do need to remember that our business is somewhat seasonal and cash does fluctuate quarter-to-quarter. And so what I've also told people is our high point of cash or high point from a working capital standpoint is end of the year. And our low points are really September and April. And so if April, we don't report, March is -- or closest but March is not -- April, we see sort of the unwind of the, let's say, spring break season. So I would really look at September as sort of one point. But then you need to remember that there is -- that's the low point from also a working capital standpoint. And then the last thing I would just say on this topic is -- when I think about excess cash, I also think about kind of what we need to handle in terms of upcoming liabilities. At one point, we had an unknown liability related to Italy. We were pleased to settle that dispute in the end of Q4 and remove that uncertainty. And now we -- as Dusan mentioned earlier in the call, we are reentering Italy so that was good. We also paid off our '26 notes when they came to maturity. We have a small stub on the '27 notes that are coming for maturity in the fall -- in the spring. So those are the other things I think about -- so if you're trying to work through the calculation of what is excess cash, I would sort of think through a few of those assumptions I just laid out, and that's the most that we've been able to give to investors at this point.

Thanks, Rana. A follow-up for you. If free cash flow continues to improve, how do you think about the priority between debt reduction, reinvestment and potential buybacks?

I think I've already answered some of this, so I'll try to go fast. Our first priority is organic growth. At the same time, we feel that we are sufficiently allocating the capital through our P&L to fund our organic growth. So I think that will always be our first priority. We know we need a healthy sustaining, growing business with good cash flow, which will produce excess cash and which that we can then do other things with. But it only contingent on doing the first thing and doing the first thing well. And so that will always be our first priority. In terms of debt and buyback, as I commented earlier, I think our business can have some debt. We don't have a clear leverage target. But we like the instrument we have in our balance sheet. It's long maturity, it's unsecured, very limited covenants. Yes, there's potential dilution. But as we covered before, we've navigated that in the past, and we will be opportunistic at how we will manage it go forward. So we're not trying to be a highly levered company that's not really where we think the value is for shareholders substantially. There's a lot of operating leverage in our business. So we think that executing on our playbook to unlock value here is primarily going to be driven by operational leverage and some modest financial leverage will be something that we think is reasonable. And so really, that sort of frames how we think about debt reduction. And with respect to buybacks, we've said consistently now, I would say, now for 4 quarters, that we're going to be very opportunistic. And we will look to allocate capital to buybacks in a way that we believe will create best long-term shareholder value.

Thank you, Rana. Our next question is from Martin Novak. How do you consider the biggest competitor now? Who do you consider the biggest competitor now? And in the next 3 years, how do you see your competitive advantage as well as a disadvantage?

So I don't really see one biggest competitor for Groupon because we are operating in several categories. And when you think about to how local experiences are discovered and sold today, it's very fragmented. There are travel and experience marketplaces, which are focused on travelers, which is definitely not Groupon. Our bread and butter are local customers who are just discovering what to do in their neighborhood, with their friends, with their families. There are plenty of direct merchant relationships, where search and social platforms and specialized marketplaces, which are focusing just on one category. So it's very hard to name just one competitor. However, what I consider very important, and it's not just as a competitor, but it's a changing landscape because I strongly believe that AI will change how people decide what to do offline. So we need to be there. And I believe that we are positioned very well. There will be a competition who will be the trusted local intent and structured local supply provider. And I believe that our advantage is that we already sit between consumer demand with our millions of local customers and transactions. And often our merchants, they are not technologically advanced, and we can help them with our platform, with our AI focused to be a gateway how they can get their businesses into online world of the future, and make overall local commerce much easier for them to understand. But at the same time, this is a potential threat and disadvantage. The experience is not consistent enough because we have so many categories with so many different product flows. The supply is fragmented. And most importantly, and I mentioned it as a focus the purchase frequency declined year-over-year in Q2. And yes, we are positioned very well with the new tooling and the replatforming, which we were doing recently that we can really unlock the focus and just work on the improvement. But at the same time, right now, I still see it as a disadvantage which we are focusing on solving. So this is why our strategy talks and centers on personalization, reach, trust and quality. In the end of the day, it means the focus on purchase frequency. And I -- with all this, if we execute well, Groupon can really become a natural bridge between AI-driven discovery where we have all the tools for connection and then the Main Street and merchants who have trouble actually to understand technology and get there.

Thank you, Dusan. [Operator Instructions] Our next question also for Dusan. Improvement of offering is a constant focus for more than 2 years. Why do you think the result in increased volumes is not yet visible? LTM units decreased since 2026 after slight recovery between 2024 and 2025. What else do you plan to do to attract more merchants, except more capacity to reach out, thanks to voice AI and any changes in structure of the deals for merchants?