RetailMeNot, Inc. (NASDAQ:SALE)
Q2 2013 Earnings Conference Call
August 22, 2013 16:30 PM ET
Mike Magaro - Vice President, Investor Relations
Cotter Cunningham - President, Chief Executive Officer, Founder
Doug Jeffries - Chief Financial Officer
Scott Devitt - Morgan Stanley
Mark Mahaney - RBC
Brian Fitzgerald - Jefferies
Deb Schwartz - Goldman Sachs
Jordan Rohan - Stifel Nicolaus
Stephen Ju - Credit Suisse
Ralph Schackart - William Blair
Good day ladies and gentlemen and welcome to the RetailMeNot Second Quarter 2013 Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today’s program is being recorded.
I would now like to introduce your host for today’s program, Mr. Mike Magaro, Vice President of Investor Relations. Please go ahead.
Great. Thank you, Jonathan. And welcome everyone to RetailMeNot second quarter 2013 earnings conference call. With me on the call today are Cotter Cunningham, RetailMeNot’s Chief Executive Officer; and Doug Jeffries, Chief Financial Officer.
Before we begin, I would like to take this opportunity to remind you that during the course of this conference call management may make forward-looking statements which are subject to various risks and uncertainties. These includes statements relating to expected financial results such as revenue, adjusted EBITDA and revenue per visit as well as non-financial metrics such as visits to our website and mobile application downloads and app sessions. Actual results may differ materially from the results predicted and reported result should not be considered as an indication of future performance.
Also, I would like to remind you that during the course of this conference call, we may discuss the non-GAAP measures when talking about the company’s performance. Reconciliation to the most directly comparable GAAP financial measures are provided in the tables in the earnings press release issued today and available on our website at www.retailmenot.com.
In addition, after our prepared remarks, we will host a Q&A session. To ensure everyone has ample time to ask questions, we ask that each of you limit the number of questions to a maximum of two and then can circle back into the queue, if you have additional follow-ups.
Also, on the Investor Relations portion of our website, you will find our full Q2 earnings press release. In addition, we have provided two additional documents, first a CFO commentary, which summarizes our financial results for the second quarter and second, a presentation that reviews our quarterly key financial metrics and operating results. These two documents provide useful information on the results for the quarter and key operating metrics of the business.
With that, I’d now turn the call over to Cotter.
Thanks Mike. And welcome everyone to our second quarter 2013 earnings conference call.
I will start by summarizing our operating results for the second quarter. And since today’s call is really the first one we have ever had, I thought it would be helpful to take a step back include a brief overview of RetailMeNot, the markets we serve and how we measure ourselves.
I will conclude briefly by touching on our growth initiatives for the second half of the year and then I will turn it over to Doug Jeffries, our CFO, who will give us some more detailed look at the numbers and our outlook. With that let’s jump right into the second quarter results and a review of the business.
I’m very pleased with the company’s performance in the second quarter. We saw solid growth across many of our key metrics including net revenues, which grew 44% year-over-year to $43.4 million. We delivered $15.7 million of adjusted EBITDA in Q2, which exceeded our own expectations and resulted in adjusted EBITDA margins of approximately 36%. Our strong comp and bottom-line results are doing large parts to the growth we’ve experienced across key operational metrics including visits and revenue per visits.
At our core, RetailMeNot is a marketplace where ready-to-shop consumers connect with leading retailers and brands across multiple categories and channels at scale. From a technology standpoint, via effective digitalization, mobile connectivity and social sharing, have really empowered consumers and fundamentally obtained the relationship with brand retailers and the way they shop.
Information about products, services and businesses and people are now available to users any time and anywhere just at the tap of a finger and customers are increasingly embracing these new tools.
Coupons have been around over a 100 years, during the last decade, the emergence of digital coupons have changed the landscape. Many of you heard me say that RetailMeNot, we didn’t invent the coupon and we didn’t bring it online. What we did do is create a marketplace where we could bring it to live and then make the distribution effective as scale.
Our industry is still nascent and highly fragmented. We quickly built an exciting business and pride ourselves in today being the world’s largest digital coupon marketplace. We continue to reinforce our position by not only helping consumers find our best digital coupons but also creating an efficient channel for leading retailers to engage with large enthusiastic audience. We feel we are really just getting started.
Over the past 12 months, I’m pleased to announce that RetailMeNot has experienced more than 500 million visits globally. It’s an important milestone in our history and is indicative of our scale. Ultimately, our vision is to create the premier marketplace where consumers come for the highest quality digital coupon just like they go to eBay as a secondary eCommerce marketplace and Priceline as a marketplace for travel and hotels.
We measure our success primarily in three areas; net revenue growth, total consumer visits and consumer engagement through mobile and email. This quarter, we delivered strong metrics in all three.
During the second quarter, total business grew 19% year-over-year to approximately $121 million, growth in business were driven primarily by mobile which is up almost a 100% year-over-year and represented 25% of total traffic excluding the app sessions. If you do include those app sessions, approximately 40% of our traffic came from a mobile device and that’s up from 18% a year ago.
Adding more consumers and getting them to come back more often and giving them more reason to engage to our marketplace produces a network effect as visits to our websites and sessions in our mobile apps grow, the depth of our retailer relationship increase resulting in better digital coupons in our marketplace.
In turn, this meaningfully contributes to our increased conversion and improved monetization, is measured by net revenue per visit monetization in the second quarter grew by 22% as we saw improved performance across all platforms.
More recently, we made a concerted effort to expand our direct traffic with marketing efforts focused on email subscription and mobile app download. On this front, we’ve seen strong results in both app download and engagement. Cumulative mobile app downloads totaled 7.1 million as of June 30th this year, that’s up from 1.4 million on June 30th, last year and growth of almost 20% sequentially from March 31st of this year, equally important. We are seeing impressive consumer engagement on the app, with app sessions growing 600% on a year-over-year basis.
Although, we see consumers often use our apps to research or save a coupon and then go on to complete the transaction on a desktop or tablet device given the bigger form factor. We believe driving more interaction through the app will help drive future initiatives such as our in-store effort. In fact, in July, we had over 1.7 million coupon saved by users on their mobile device, the highest amount in any month to-date.
We are also working to make the consumer transition from apps to desktop more seamless. For example, we just released version 3.0 of the RetailMeNot mobile app which include that we call a unified account. Unified account allow users with registered accounts to use their mobile device to save their favorite digital coupons on the mobile device and then later go to the desktop and find that coupon and transact.
Our RetailMeNot mobile app is also engaged in deeper engagement with our users through geotargeting by utilizing location based technology, our RetailMeNot mobile app notifies consumers of saving opportunities and digital coupons win their shopping near one of our 1100 geofence shopping or outlet areas. Currently which is double the amount we had on June 30th. We had dedicated specific resources to broaden our geo location reach which one have, as we deliver – which one also we can deliver, excuse me, to both consumers and retailers.
In addition, we are also looking at other ways, we can leverage our experience in geotargeting to help consumers find more relevant digital coupons and retailers find more relevant consumers. As we enter the back half of 2013, we are very excited about the opportunity ahead of us. We have a well-defined growth strategy that’s focused on increasing traffic and expanding revenues.
We believe, we are in early innings of better leveraging data in analytics to enhance our monetization. Two, improving and investing in our mobile solutions as we continue to further integrate our desktop and mobile product offerings and tailor use our experiences with more personalized tools; three, growing the depth of our paid relationship with retailers; and four, expanding internationally, this is our acquisition of ma-Reduc.com that we announced on July 4th, which together with our existing properties in France, gives us the largest portfolio of digital coupon website in France. As well as our greenfield expansion in the Canada, with RetailMeNot.ca.
Hopefully that gives you a clear picture of our progress in our Q2 and we are focused on the remainder of 2013. We have a $28 billion opportunity in potential sales that we believe our marketplace is well-positioned to capture.
Now, let me turn the call over to Doug, for detail on the financials. Doug?
Thank you, Cotter. Hello everyone and thank you for joining us.
As we walk through the results for the quarter, please note my comments on growth rates will refer to the year-over-year changes unless otherwise indicated.
Our second quarter results illustrate the progress we are making in expanding RetailMeNot’s position as the world’s largest digital coupon marketplace. We achieved solid results in the second quarter across many of our key operating and financial metrics.
Net revenues came in at $43.4 million up 44% to the strong traffic growth and enhanced monetization and our organic growth rate which excludes the impact of acquisitions was 41%.
Our international business contributed approximately $8.6 million in net revenues on our second quarter or 20% of total net revenues. This is slightly down sequentially from a very strong first quarter but overall was in line with our expectations and up 53% year-over-year.
Revenues from our mobile website totaled approximately 5 million in the second quarter up 272% year-over-year and up 24% sequentially and represented 10% of our total net revenues in the quarter.
Looking at total visits, we experienced approximately 121 million visits during our second quarter up 19%. Growth in visits was driven by mobile web, which is up almost 100% year-over-year and 7% sequentially and represented 25% of total visits.
Mobile web visits include any visit to our mobile website from a tablet or mobile phone but excludes, web app sessions.
Consumer engagement with our mobile app continues to be strong as reflected in the over 26 million sessions in the quarter up over 600% versus a year ago and sequentially – and a sequential improvement of 30%.
From a monetization perspective, net revenue per visit was $0.36 in the quarter compared to $0.29 during the second quarter last year. The improvements we saw in monetization came largely from enhancements to our websites and mobile products which helped conversion.
While net revenues per visit is a useful monetization metric, it’s important to keep in mind that our net revenues are derived not from the number of visits but commissions revenue we earn when our visitors make purchases from our paid retailers. We believe that the expansion of mobile use by consumers enabling any time, any place shopping will be an increasingly significant contributor to our net revenue growth.
Stated simply, we believe the increased frequency of consumer interactions made possible by mobile will result in increased sales volume for our retailers and increased commission revenue for us.
Now turning to operating expenses, while we have increased our level of investments during the past year as it positions the company for sustained growth, we plan to continue to balance our approach to investing against long-term growth with a focus on maintaining strong operating margins.
During the quarter, net revenues allowed us, net revenue growth allowed us to increase our level of investment in sales and marketing, technology and corporate functions while delivering adjusted EBITDA of $15.7 million or 36% of net revenues.
One of our key areas of investment and the primary driver of our success to date is attracting top talent to our company. During the second quarter, we continued to expand our team, adding 42 people and exiting the quarter with 373 full time employees up from 236 full time employees a year ago.
Most of the growth in employees has been focused in our products and technology, operations and corporate teams. We expect that our employee base will continue to expand through the rest of the year and will be in the range of 430 to 450 full time employees as we exit 2013.
Another primary area of investment is marketing initiatives that develop our brands and expand user engagement including SEM, online and offline advertising and consumer engagement initiatives such as extending our marketing reach through social media, email and our mobile applications.
Before, we turn to guidance, I do want to point a quick item as it relates to the calculation of EPS as reflected in our income statement. EPS for historical GAAP reporting purposes does not include the common shares, the issue up on the conversion of our preferred shares. With the completion of our IPO in July, our preferred shares have now converted to common shares.
For purpose of computing historical EPS on a basis consistent with our EPS calculation going forward, we provide a table in the earnings release that calculates the historical fully diluted shares outstanding as our preferred stock is converted to common.
Turning now to outlook for the third quarter and full year, we expect to continue the increased level of investments in the business, we began in the second half of 2012. Our goal is increasing our investments continue to broaden our solutions that help connects the best retailers and brands with savvy consumers looking to save wherever and whenever they are shopping.
As our outlook indicates, we believe we can achieve our investment and growth objectives for the business while maintaining strong profitability.
For the third quarter, we set net revenues in the range of $45 million to $46 million which equates to 32% to 35% growth.
For the full year, we expect net revenues to range from $192 million to $196 million, resulting in approximately 33% to 35% year-over-year growth. It is important to note that we do experience some seasonality in our business. Historically, we experienced the highest level of visit to our website and net revenues in the fourth quarter of the year, which coincide with the winter holiday season in the U.S. and Europe.
With respect to EBTIDA consistent with the first half of the year, we expect to continue to invest in the second half of 2013 in our ability to innovate, to stand user engagement and brand awareness and further develop our infrastructure and team both in the U.S. and Europe.
For the third quarter, we expect to adjust EBITDA to be in the range of $14.5 million to $15 million or 32% to 33% EBITDA margins. For the full year, we expect adjusted EBITDA to be in a range of $73 million to $77 million or adjusted EBITDA margin of 38% to 39%.
For full year 2013, modeling purposes depreciation and amortization is expected to be approximately $14 million and stock-based compensation is approximately 9%. In addition, CapEx is expected to be approximately 7 million in 2013 reflecting primarily investments in facilities to accommodate our larger employee base.
We expect our full year effective GAAP tax rate to be approximately 40% and for EPS purposes the denominator for weighted average fully diluted share count for the third quarter should be approximately 51.7 million shares and 50 million shares for the full year.
In closing, during the second quarter, we saw very positive trends across many of our key operating and financial metrics including traffic volume, net revenue growth, monetization and cash flows. We believe our strong operating performance in the quarter results from the investments in people and innovation we have made to-date and highlight the strong growth potential to markets in which we operate.
With that thank you for your time. And we will now take questions.
(Operator Instructions) Our first question comes from the line of Scott Devitt from Morgan Stanley. Your question please.
Scott Devitt - Morgan Stanley
Two, please. The first one, Cotter, could you just give us a more of an update on the offline initiatives, I think you were doing some testing with retailers recently and anything to provide in terms of conversion and monetization. And also related to that longer term, how you think about mobile pricing, relative to desktop and how important in-store is to driving mobile prices higher over time.
And then secondly, international continues to grow very strongly, bigger picture, looking out over the next couple of years, how you think about international growth in terms of organic same country growth in regions where you have businesses now versus country expansion versus M&A? Thanks.
Sure. I think the message on mobile/in-store remains very consistent from the last say 6 months or so, which is I couldn’t be more excited by the comments we hear from retailers, the interactions we have seen with consumers and the way people work with us. That said, it remains really small as an overall percentage. So while we are incredibly excited, we always try to temper our enthusiasm a bit but the cold reality of – in this quarter for example mobile is about $5 million in revenue and of that in-store is a significantly smaller piece. Look $5 million is not some change and we are not turning it away, I’m just saying it’s not – it’s not that much.
I will give you a couple of things that I think I’ve heard from retailers that are exciting. One, we are running some TV advertising right now and we have had a number of retailers that we featured in the ad that have told us anecdotally about consumers and this is kind of filtered, you can imagine from stores, up through the channels to the guys we work with and then we work with to us where people are coming in with the app and they are saying, hey, I saw your logo on TV with this RetailMeNot app does it really work? It’s kind of fun, that one, people are seeing the ad, but two, it does sort of underscore this sort of whole brave new world we are in. There are people feel like they have to ask the cashier, hey, does this – this app really works? So, I think that’s exciting.
Two, when we go to meetings with retailers now, mobile has become a huge part of, if not the driving part of our discussions for kind of the rest of this year and next year. I mean, everybody is excited about the online piece and of course that remains the bulk of our business but mobile is really what’s getting people excited. So I think that’s amazing.
Obviously you have seen the headline, but its 272% increase, year-over-year growth in mobile and I think that’s amazing and we couldn’t be more excited. So, long-term, I have said all along that I believe ultimately the in-store customer is worth more than the online customer because we are literally delivering not only a customer like in online, where you are ready to transact and poised and ready to go, which is very similar to the customer [billing] [ph] online but in the in-store piece, especially they are standing in your store and that I think gives it a value that’s even greater than the online piece.
Obviously, today that’s not realized in fact we obviously monetize the mobile piece significantly less than we do the online piece. But, over time I believe that value will begin to creep into our discussions. Doug, you have anything you want to --?
Yes. Just to highlight, the trend, mobile continues - the monetization of mobile continues to improve if you look at last year second quarter mobile was monetizing at about 26%, what we saw on a desktop and in the current quarter it’s about 40% what we are seeing on the desktop. So, while we continue to see improvement in monetization overall on the desktop mobile is tracking really well.
On the international growth piece, we said all along we really want to continue to expand internationally. We believe using everything you mentioned both growth in existing countries, adding new countries both greenfield and through acquisition. We think international represents kind of 40% of our business in the next three to five years and we believe that.
We are actively looking at a number of opportunities in countries around the world, we have always said this, this is something we continue to do and can see the continuing. I think for me, our – we do see amazing opportunities remaining and working within the countries we are already in.
So, by no means do I see this only as growth coming from new countries, new acquisitions, greenfield efforts, I think we can continue to grow the business we have in a very nice way. One of the reasons, we just bought another property in France is, albeit small, we really believe France is similar to the U.S. eCommerce market as it relates to couponing literally four years ago. So we really want to kind of double down on that investment and we are excited by frankly the acquisition made.
We think it’s a great acquisition. We are excited by it and I think it’s going to really have a great benefit for us. Doug, what else am I leaving out?
I think that covers it.
Okay. I think that’s it. Anything else?
Scott Devitt - Morgan Stanley
Thanks a lot.
Thank you. Our next question comes from the line of Mark Mahaney from RBC. Your question please.
Mark Mahaney - RBC
Two questions. First, you talked about the number of employees you wanted -- that you wanted to end the year with. Any color on where you think those employee adds will be? And then over the last month-and-a-half, two months, there's been a bit of a transition in the industry, given the Google affiliate channel being changed or shut down. Can you just comment on what disruption, if any, you've seen to business practices, your business practices, because of that? Thanks a lot.
Sure. So I think the vast majority of the hires that we have to complete the rest of this year which is about 40 or so will come in engineering, product and what we call operations which is, people that will help us gather and proof the coupons, and a little bit of sales. So we’ve got all the accountants we need, and CEO. We’re going to [inaudible] people that do work. All kidding aside, I think those are the main areas.
In terms of the GAN update as we predicted prior to the IPO we saw GAN as potentially costing us a few thousand dollars and I think that’s been about right. To my knowledge of all the GAN customers we have only a really small number, four or so have chosen not to continue on with us, which I think is exciting. And none of those are of consequence.
We had 90% plus migration to date and anticipate another 5% or so in this month. That’s gone well. I think in terms of the industry, yes, I think there is some interesting stuff here. We have seen a number of big players go with smaller networks. Obviously, the Commission Junction and the Linkshares have done very well with GAN going out of business. But, we have also seen a number of big players go with networks that that were much smaller that may be work “household names” that the CJs were.
I think that’s interesting. And time is going to tell if they are happy and if they stay there. I will say this is for changing networks is not new to our industry, it something that happens with some regularity obviously it doesn’t happen on kind of the sea change level that with GAN going out of business and literally 100s of customers having to find a – or closing the business, excuse me, 100s of customers having to find a new home.
But, migrating networks is not something that’s new to us. We have been able to handle that from a core to business standpoint pretty straightforward.
Mark Mahaney - RBC
Thank you, Cotter.
No, no. Thank you.
Thank you. Our next question comes from the line of Brian Fitzgerald from Jefferies. Your question please.
Brian Fitzgerald - Jefferies
Total and mobile visits. Appreciate that. When you look at that growth in engagement, can you give us more color in terms of new users versus existing shoppers coming to your sites or your apps more often or both? And then I had a second question on the latest promotion you're running, reimbursing 500 members shopping carts up to $150. What has been the response to that so far? What is consumer interest? And is that centered
Yes, sure. So couple of things, I can give you some color on mobile, I think its anything, one of the things we have seen about in the past six weeks or so, is a pretty big shift in what consumers use on the app. So coupons, I’m dividing it between coupons and what we call printables. Printables is the in-store product and coupons primarily is the online product. So, we have seen a nice, sort of pretty steady usage of the online or coupon product if you will or you have seen a pretty dramatic increase over the past six months. So its gone from lagging to leading printable app -- in the app.
So we are really seeing a pretty significant pick up in app printable usage, which I think is fascinating and I suspect its somewhat reinforcing, right? You use one, it works, you like it. You are more comfortable trying it again, kind of the store has sold before about people coming in the store confused, they saw the ad on TV and they want to know, do you guys really take it?
Once you seen that works, you are much more likely to kind of continue that usage and obviously, the printable is not truly printable I’m sorry. I get caught up in our jargon, it’s obviously on the screen of the mobile device, sorry, that’s confusing.
We have seen a pretty dramatic sea change in consumer app usage of on screen view buys, which is exciting. The other thing we have seen as we have increased the geofencing, we have seen a lot more interactions with the geofencing. We have seen a nice sort of pick up in that as well and we talked about the saving in my comments on the call. So, we have really seen a nice trend across the board and the way people interact with the ad, saving, using the geofence, crossing the geofence and using the printables. So that’s all great.
In terms of new versus existing users, we have seen a bit of an uptick in existing users versus new. Historically, it have been – we have been a pretty consistent number and we have seen that shift slightly, we don’t give any numbers exactly, I would say directionally, we have see a bit more on the existing side. So, I think that’s sort of interesting.
The shopping card promotion, yes, it is time to back to school. And the profession works like this, if your registered member coming on, we thought golden ticket. If you are register member of RetailMeNot, we are going to hold your set of number of sales each day completed sales transactions and so if you are one of the lucky one that we pull, we will pay for your transaction up to $150 maximum.
So its excited, we kind of – and as you know, our average order value is about $100, in general we are saying we are going to pay for your shopping card.
Response to that has been good, obviously, our goal is to get more people to register and we have seen an excellent uptick in registration during the promotion. I wouldn’t say its killing it, but we have seen nice strong growth, so we believe in registration that we believe is a trivial to this promotion.
So, on the whole, we really like it. No, huge news there. The other thing I can quickly comment on is back to school. I think we have a little of shift to back in school, which I found compelling, two things that I think are of note, wasting a little bit of a moment to brand, so of the more upscale customers we work with. We’ve definitely seen strong growth in them going back to school. So, it is a little bit of a – call it a flight to quality, but I think that’s a decent way to think about it. And then the other thing we’re seeing is office supplies, supply type stores seem to be doing really well with us. So, I thought that was interesting as well for whatever reason people seem to be buying more than they have historically from the office supply segment for back-to-school. So, thought that was compelling so kids are taking more pens and pencils and notepads back.
Brian Fitzgerald - Jefferies
Great. Thanks, Cotter.
Thank you. Our next question comes from the line of Deb Schwartz from Goldman Sachs. Your question please.
Deb Schwartz – Goldman Sachs
Great. Thanks so much. Two quick questions. First, revenue per visit accelerated in the quarter recognizing that this isn’t a metric that you particularly manage towards. Can you help us understand what the drivers are behind that? And if there are any categories of advertisers I know quick-serve restaurants has been a focus of yours -- you’re making traction in converting from unpaid to paid.
And then second on advertising you mentioned that’s been an area of focus for you both offline and mobile. Can you share any results on how those campaigns have performed and what we should expect in terms of marketing for the back half of the year?
Yes, let me take the first part and Cotter will talk about the marketing piece. In terms of revenue per visit, I mean the improvement we saw in the quarter. It is about improving conversion, some of that is product related. And we think also the other piece that Cotter has alluded to is if you see the engagement with the apps – the increased app sessions. I think a lot of those are around research or discovery that ultimately, these transactions happen on the website.
So, we’re seeing a higher revenue per visit in the website based on lot of the exploration and discoveries taking place on the app and so it’s a little bit of product improvement on the website making more efficient to use more effective, but the other piece of it we think is going on is as the mobile engagement increases we’ll find ourselves with a higher transaction, higher conversion rate on the website.
Yes, in terms of the marketing plans for the second half of the year, I don’t want to say it’s more of the same but in a way it’s more of the same. I think the thing -- clearly the TV campaign that we ran is small very campaign, worked well. So, you can expect to see more TV from us, we like that. In addition, we’re running two primary initiatives right now, one that drives downloads the app and one that drives email subscribers.
And so most of our sort of three big marketing initiatives are, TV sort of branding and awareness campaign and then two campaigns one that drives mobile app one that drives the email subscription. We really see all of those is performing well and are pleased with the results today. And I think for us it’s kind of put down held the medal, how much more can we scale these while staying obviously within the expenditures we budgeted previously.
So, can be more efficient, can we get more for our dollar I mean that’s the kind of thing we’re working on now instead of paying ex-sellers and approximately, can we pay 50% low or whatever. And then that is challenging as you know and so that’s really where the bulk of our energies are going today.
Deb Schwartz – Goldman Sachs
Yes, just a follow-up on the second part of your first question on the categories. No big shift year-over-year in terms of category.
Driving RPV, it really was kind of site functionality enhancements and the mobile engagement we’re seeing. If you look at things like average order size and commission rate average and that sort of thing is pretty consistent period to period.
Deb Schwartz – Goldman Sachs
Okay. Thank you.
Thank you. Our next question comes from the line of Jordan Rohan from Stifel. Your question please.
Jordan Rohan – Stifel
First question is it's really on margins and when we should think about this period of, I guess, accelerated hiring starting to flatten out a little bit. Do you think as we head into 2014, you'll start to see a little bit more leverage, particularly on G&A, and sales and marketing lines? Or -- your comments seem to imply that marketing campaigns will continue to increase, but perhaps some clarification about how we think about it longer-term. And second, when you look at the growth that's implied in the guidance, $45 million to $46 million in revenues, 32% to 35% year-on-year, what kind of growth in volume are you assuming in that? Is there something -- some sort of seasonal factors that you look at, given that we're more than halfway through the quarter, that make you feel good about a certain level of growth above, say -- consistent with this last quarter, accelerations like deceleration in growth and visits, something like that.
Yes, Jordan on the headcount, first I guess so we’ve been very successful this year in building up the teams, feel good about the quality as well as the quantity of capacity buying of the company. If you look ahead of the next year, we march as we go forward but in terms of hiring grades that Cotter alluded to it, we have lot of hard working accountants and they have done a great job but we probably need to many more in terms of corporate staff. So, if you’re looking at the operating leverage on the function of spend lines we would expect looking into 2014 even see operating leverage on the same lines related to corporate expenses G&A.
I think in general technology investments the product and marketing side it’s early engages for us and those investment levels will probably sustain for that year based on the growth opportunity we see. And now the gross margin line we’ve done a good job of building up the teams the operations area I think we saw a little bit of quarter-over-quarter improvement in gross margins. There is probably a little bit of opportunity for leverage there are now a lot I think would probably at a point it’s fairly sustainable looking ahead. So, big opportunity in terms of OpEx spend looking at the next year would be the leverage on the G&A line.
Jordan Rohan – Stifel
Yes, it’s a – we’re a web based business than as Cotter likes to say we’re kind of – our living everyday. And so we need to continue to do the job of having an engagement site of quality content bringing in a large audience and then the inefficient that’s converting them to a good outcome for them. So, we don’t have any special point of view around the longer term outlook for us we’re very encouraged by the size of the market, we’re seeing the budgets deployed by our – the merchants we do business with. And kind of the feedback we’re getting around the product direction we set out, we talked about mobile a little earlier. But we think for us mobile is very, very strong component of our growth longer term. And at this point some advertising at the level desktop but we’re very optimistic about where it goes over a long run. So, the mobile trends are things we watch most closely in terms of that forward view.
Jordan Rohan – Stifel
All right. Thank you, very much.
Your next question comes from the line of Stephen Ju from Credit Suisse. Your question please.
Stephen Ju – Credit Suisse
How large was your latest acquisition in France in comparison to the two that you already own, in terms of traffic or user base? And how much of a lead do you think you have versus your nearest competitor in France now post-acquisition? And in terms of the offline opportunities, how far behind do you think international markets are at this point versus the U.S., in terms of retailers' willingness to jump onboard? Thanks.
So, in France the acquisition we made is roughly the same size in terms of traffic maybe a little bit bigger than the two properties we already own, which is a little confusing because one of those properties is not in coupon side, it’s a cash back side and so it’s always a question do you want them to gather do you – when we talk about coupon size, should you separate them? That said, we now believe we’re definitely the largest player in France. In terms of how much big we are in the next five years as you know with these small private companies it’s hard to know who is bigger and who is not but in general I think we feel like we’re the largest player and we’re going to use our sale of the benefit us as best we can. So, we’ll see – we like our position there, we France a lot it’s been a great market for us, we have a great team there and we’re really, really pleased with the results today.
In terms of kind of future acquisitions, well, excuse me – so in terms of the in-store opportunity it’s interesting obviously, it’s not a perfect fit internationally in that. So for example geofencing is harder in the UK than it is here, right I mean here you’ll have a mall it’s well on it’s own that sort of distinct from the neighborhood around it, in the UK it’s much more common for the stores to be small as you know and much smaller footprints and so it’s much more difficult in sort of geofence. It’s harder to do that.
That said, we have an excellent app in the UK, for example that actually was the first one in our portfolio to operate in-store and have in-store coupon. And so a lot of what we’ve learned here in the U.S. came from there, they have done a great job. And so we do think there is an in-store opportunity internationally as well because we have it now and we’re seeing it in the UK. And I think over the next year or so you’re going to see us sort of aggressively roll out in-store opportunities internationally.
That said, you have to kind of meet the market and so you have to wait till the retailers are ready for you. So, I don’t want to give like a timeline or necessarily an estimate as to when that’s occurring but it’s safe to say we’re ready when the retailers are and we feel like their scale will be there.
Stephen Ju – Credit Suisse
Of course. Thank you.
Thank you. Our last question comes from the line of Ralph Schackart from William Blair. Your question please.
Ralph Schackart -William Blair
Good afternoon. Looking at the mobile revenue, as it becomes a larger piece of the business, are there any fundamental differences between the average order value and commission rate between a mobile as well as a desktop purchase? And then a follow-up question, as you talked about monetization rate at websites and then also – I’m sorry, web improvements in addition to mobile, any more color you can provide on the web improvements?
Yes, Ralph in terms of the monetization, we use the kind of the same infrastructure and merchant agreements for mobile and for the M-dot side for our mobile web as we do for the website, so it’s fairly consistent in terms of order size and commission rates and that sort of thing. The in-store is a different program and such as Cotter mentioned good engagement there, but its early days and so pricing structures and all that are evolving. We’re really encouraging a lot of tests at this point.
Yes. In terms of the web improvement, we don’t like talking about that’s too much from our competitive standpoint, I can’t say but in general we continue to focus on delivering quality of the consumer and what that means to us is making the language clear, what the coupon is offering. The example I like to use is, it will say 20% off a 100. So, does that mean it’s 20% off the first 100, 20% off more than a 100, so if you spend $400 you get $20 or do you get $80, right? I mean it’s sometimes confusing the way it’s written and our site can have a short hand to it that’s the novice user is uncomfortable with.
And so making that clear and more obvious to the consumer is kind of a thing one. Thing two, is we continue to work hard on making sure our coupons work as you know and as we talked about a lot during the Road Show, UGC or User Generated Content is a major part of our initiative. The downside of the UGC is sometimes consumers forget major exclusions or they’re malicious and they put up a code that doesn’t work or some codes expire. And so, we have to make – we work really hard to make sure that the codes that are going on our site work because that’s a huge paying point for consumers, they hate it when codes don’t work and I’m proud to say that we have a nice increase this month in Net Promoter Score. And I think partially that due to the fact that we’re working so hard on improving our content quality and working with consumers to do that.
And then finally, we just kicked off a program where users can interact with consumers via chat on certain stores where we’ve seen problem and so or confusion maybe a better way to say it. And so we have a nice pilot program there where we’re sort of testing – you can come out and say hey I tried this code, it doesn’t work, what’s the problem and we have customer service reps that will work with you and help you figure out why it didn’t work with you. And we think that’s a really nice thing for consumers to help them sort of figure out why something is not working and that will let them leave the site with a positive experience which of course as you know means they’re more likely to come back.
Ralph Schackart -William Blair
Okay. That’s helpful. Thank you.
Okay. So, I want to thank everybody for joining us. And we look forward to speaking with you during the quarter. Thanks for your time. And we’ll chat soon.
Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.
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