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RetailMeNot Inc. (NASDAQ:SALE)

Q4 2013 Earnings Call

February 6, 2014 8:30 AM ET

Executives

Mike Magaro – Head, IR

Cotter Cunningham – CEO

Doug Jeffries – CFO

Analysts

Brian Fitz – Jefferies

Debra Schwartz – Goldman Sachs

Scott Devitt – Morgan Stanley

Jordan Rohan – Stifel Nicolaus

Mark Mahaney – RBC

Stephen Ju – Credit Suisse

Blake Harper – Wunderlich Securities

Operator

Good day ladies and gentlemen and welcome to the RetailMeNot Q4 2013 Earnings Conference Call. At this time all participants are in a listen-only more. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder this conference call is being recorded. I would now like to introduce your host for today’s conference Mike Magaro, you may begin.

Mike Magaro

Great, thank you good morning everyone. Welcome to RetailMeNot’s fourth quarter 2013 earnings conference call. Again, it’s Mike Magaro, Head of Investor Relations for RetailMeNot. 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 net revenues, adjusted EBITDA and net revenues per visit as well as non-financial metrics such as visits to our website, 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 non-GAAP measures when talking about RetailMeNot’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. Also on the Investor Relations portion of our website we have posted management commentary under our Q4 2013 results. This management commentary was developed to provider investors and analysts with additional detail in advance of our quarterly conference call and will not be read on the call.

During the call today we will provide brief prepared remarks before hosting the Q&A session. To make sure 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.

With that I will now turn the call over to Cotter.

Cotter Cunningham

Thanks Mike and welcome everyone to our fourth quarter 2013 earnings call.

A brief aside, while Austin has been kind to me and us as a company, it certainly not been kind to my allergies. So I want to apologize to everyone in advance, I sound pretty awful. But I’m here in good spirits. We’re trying a different approach on today earnings call hopefully you’ve had an opportunity to read through our management commentary that was posted on our website prior to this call. I’m not going to bore you by reading it now. But I would encourage you to go through it if you haven’t already. It provides a detailed overview and financial update on Q4 and 2013 as well as some of our plans for 2014.

This morning I thought I’d keep my comments short and just quickly review our achievements for the fourth quarter and the previous year and discusses why we’re even more excited about the year ahead. 2013 was an amazing year, we achieved 55% revenue growth in our fourth quarter and 45% revenue and growth for the full year. These results significantly exceeded our expectations. Our fourth quarter was particularly impressive across our key growth measures.

Total business were up 24% year-over-year, revenue growth for both desktop and mobile were strong with desktop revenue growing 43% and mobile revenue up 179% year-over-year. Mobile web did increase 87% and represented 30% of total web traffic that’s excluding the app. As we ended the quarter with nearly 14 million total mobile application download that’s a record quarter for addition to our mobile application data base.

We saw strong international performance in the fourth quarter with the U.K. growing 55% year-over-year interestingly many of the shopping behaviors in U.S. are now carrying over to the U.K. specifically we saw 100% growth in visits and revenue on Black Friday. Who knew we had 88 retailers using our mobile solutions to deliver digital offer directly to in-store shoppers in the fourth quarter that’s up 65 retailers at the end Q3.

Retailers using our in-store mobile solutions platform in the fourth quarter represented over 35,000 store location. It wasn’t this mobile though that was strong. Shoppers receiving our emails accelerated as well to over 17 million in total resulting in 106% year-over-year growth. We accomplished many of our objectives during the course of 2013 and I feel good about the results we delivered.

During the year our international business continue to perform well achieving revenue growth of 75% year-over-year and representing 21% of total revenue. We added two new countries The Netherlands and Canada and added a business to our existing position and France. We now rank at number one in the U.S. the U.K. and France. We continue to enhance our market leading content offering although over half a million offers for over 60,000 retailers and brands.

We have strengthened our relationships with retailers growing a number of retailers with whom we have generated over $1 million in commission revenue for the full year to 30 and that’s 50% from 2012. Also the average commission revenue for our top 500 retailers grew 34% to 310,000 that’s up from 231,000 a year ago.

Our strong active community continue to enhance the breadth of our offers contributing over one third of the overall content of RetailMeNot. We made terrific strides in enhancing consumer success by further improving our content to raise capabilities including the fourth quarter strategic acquisition of ZenDeals which we talked about previously.

Beyond our financial performance we saw other strong indicators that our investments in products and expanding consumer engagements are paying off. Growth in mobile app downloads and email subscribers are two good examples but we also saw a large increase in unaided brand awareness since we began tracking it over a year ago.

In addition through expanding our direct relationship with consumers through email and our apps we’re also seeing an increase in volume of traffic coming directly to our website. In the fourth quarter 91% of our business came from unpaid sources with 28% coming directly through our website. As a key driver to continue to scale our business we’ve added 150 very talented new people across our company in 2013 that brings our total employee base to 444 at the end of the year.

In addition, we introduced some really great investors to our company through our IPO in August and our follow-on offering in December while raising $76 million in new capital net of dividends paid to drive growth in our business. And most importantly we continue to help consumers save money in the spending environment where shoppers are looking for the best deals we’re proud to be the world’s largest digital coupon marketplace.

In the fourth quarter, we estimate the sale attributable to consumer traffic in digital coupons in our market place accounted for approximately 2.6% of U.S. ecommerce spending during the five day period from Thanksgiving to Cyber Monday. We continue to reinforce our leadership position not only by helping consumers find our best digital coupon but also creating an efficient channel for leading retailers to engage with the large enthusiastic audience.

Overall, we’re pleased with our fourth quarter results delivering robust unit metrics cost aboard posting strong revenue, traffic and mobile growth and wrapping up a solid 2013. Our results underscore our position as the world’s largest digital coupon marketplace and we believe we’re well positioned to further capitalize on our $28 billion opportunity.

With that let me turn the call over to Doug.

Doug Jeffries

Thanks Cotter and good morning everyone. We provided detailed on our financial results for the fourth quarter and our management commentary posted on our website. So this morning, I won’t go over that information but instead will provide some additional color on our 2013 performance and our outlook for 2014. Our strong fourth quarter and full year results demonstrate the increasing strength of our marketplace and the value we bring to both consumers and retailers.

The strong performance in 2013 was enabled by investments we have made in people, technology and marketing to position the company for long-term growth. In the four quarter we benefited from a strong ecommerce environment and a heightened level of retailer promotional activity which we believe was influenced by the shorter holiday shopping season. This heavy promotional activity amplified our seasonal trends and help drive significant upside to our revenues versus our forecast. As a result in the fourth quarter, we delivered revenue totaling $78.5 million up 55% year-over-year which drove very strong full year revenues up $209.8 million up 45% year-over-year.

Let me now turn to our outlook for 2014. We remain focused on investing for long-term growth by continue to extend our markets, enhance our product offerings and increase consumer engagement. We will continue our investment philosophy of investing for long-term growth while maintaining strong adjusted EBITDA margins as we scale our business. It is important to note that our business reflects the seasonal trends inherent in retail industry. Our first quarter is typically our weakest quarter of the year as retailers moderate their promotional investments post-holiday.

Similar to 2013, we expected our seasonality will result in roughly 60% of our revenue coming in the second half of this year. The seasonality in our revenues coupled with our continuing investments to extend our business will result in lower adjusted EBITDA margins in the first half of 2014 then we expect to see for the full year.

For the first quarter ending March 31, 2014, we’re raising our revenue outlook to range up $54 million to $56 million, a growth of 35% at the midpoint. We expect adjusted EBITDA to range between $17 million and $19 million or adjusted EBITDA margins of 33% at the midpoint.

For the full year 2014, we expect revenue to range between $262 million and $270 million or growth of 27% at the midpoint and we expect adjusted EBITDA to range between $96 million and $103 million or adjusted EBITDA margins of 37% at the midpoint.

For first quarter and 2014 modeling purposes, we expect depreciation and amortization expense to be approximately $4 million and $16 million respectively. Stock-based compensation expense will also be approximately $4 million and $16 million respectively. CapEx is expected to be approximately $3 million in the first quarter and $5 million for the full year primarily reflecting investments driven by our growing employee base. Our weighted average fully diluted share account for the first half and full year should be approximately 55.3 million shares and we expect our first quarter and full year GAAP tax rates to be approximately 37%.

In summary, we are entering 2014 well-positioned. We continue to see strong positive trends across our business including traffic growth, monetization, consumer engagement and retailer adoption of our mobile solutions. We believe the investments we are making in the business are setting us up to extend our leadership position in the large and growing market for digital marketing solutions.

Let me now turn the call back to Mike to begin Q&A.

Mike Magaro

Great thanks Doug. Operator, we’re ready to begin the Q&A portion of today’s call.

Question-and-Answer Session

Operator

Thank you (Operator Instructions) And our first question comes from the line of Brian Fitz from Jefferies. Your line is now open.

Brian Fitz – Jefferies

Great. Thanks. Great quarter guys. Can you talk about some specifics of your marketing campaign what proved most successful to you this holiday season and how do you really anticipate adjusting your marketing strategy going forward based on what you learned? I know you discussed investing, but does an increasingly competitive environment have any impact on that marketing plan as well? Thanks so much.

Cotter Cunningham

Hey, thanks Brian. Good morning. I think in general, we spent the money in the same ways we have talked about historically, which is we focus on long-term benefits to the company. How can we drive something that engages the consumer not just today in other words driving them to decide today but instead how can we establish a relationship with them either through getting them to download the app, sign-up for our email, register with the site things like that. So developing that through a hook if you will as supposed to just sending them to the site giving them the coupon and moving them on.

So with that in mind, the things that work the best were things that drove those actions typically TV worked well for us, we saw a nice increase in downloads, we did some outdoor stuff of all things that actually seem to work pretty well. And so I think it said to me we have to continue kind of think outside the box, I think given that it is a competitive environment not just in our space but in general the Q4 especially as you know is a great coming year for us to be reaching shoppers because they’re so heightened about shopping they want to save money. But also, it’s an incredibly competitive media environment that I think it forced us to be a little bit like I said out of the box in a way we thought, but then actually we were rewarded by, so I think you will continue to see us sort of push the edges of that.

And then let’s say competition, yes, we haven’t really, we haven’t seen anything yet from some of the newer competitors into the space that give us pause. They are big companies we’re watching closely, we remain nervous, we’re always nervous, I was nervous when is started this thing four years ago, I’m nervous today. But we haven’t really seen anything yet that gives us pause. Thank you.

Brian Fitz – Jefferies

Great. Thanks.

Operator

Thank you. And our next question comes from Debra Schwartz of Goldman Sachs. Your line is now open.

Debra Schwartz – Goldman Sachs

Great. Thanks. And congrats on the quarter. Couple of questions on the in-store initiative. Can you talk a little bit I’m not into it, I’m sure you’re getting a lot of consumer data. I was curious if you have an early read on what consumer behavior is like in-store. And similarly how you’re thinking about partnering with retailers in terms of sharing that data and then last question just can you talk about the economics of in-store now versus online and sort of how you think about your take rates for in-store long-term?

Cotter Cunningham

Sure. Let me flip those and I’ll talk about the take rates first. So today we were testing as we talked about 70% of our in-store revenue comes from our traditional commission model. It’s sales driven. We get a POS feed from the retailer sort of saying you drove a million of sales. We calculate our commission based on that and send them a bill. The other 30% varied a bit, we’ve tested cost per click, we’ve tested what I would call subscription some of the SaaS model.

In general my own opinion is you will see, it appears to me that retailers are resonating more with the commission they love the fact that they don’t have to pay the money after the sales occur that the risk is on us as a vendor to send them a customer its worthy of what we’re paying for. And so I think you’ll see that continue to be the dominant form of commission.

In general the rates today are roughly comparable to online it’s my own belief that over time, you’ll see that increase because I think it’s a more valuable consumer than the online consumer as you will know, online consumer just one mouse click away from being at your competitor. A consumer this is a model. It’s a little bit more valuable they have to work harder to leave you. So personally I think you’ll see those rates rise over time. They’re still loaded. In general, the mobile experience is as you know is still – mobiles are nice part of this, the in-store piece of that is still relatively small. So we’re, we’ve always want to caution people on that number.

In terms of consumer behaviors in stores, it’s really interesting. We’re just starting to kind of get to the point where I think we can analyze this data with any significance. We’ve had data for a while now but I think it’s been spotty and occasionally the numbers are just small that you hate to make broad conclusions from it. The one thing that is interesting to me is, the data would suggest that consumers really, really hate it, when the experience does not go well. The cashier doesn’t recognize the coupon or for some reasons coupon doesn’t work. And so I think while coupon quality is always important to us. And as you know we’ve spent some money here to make it better, it becomes even more important for in-store which makes sense you drive five miles to the mall, you put the kids in the car, you get them out they’re screaming, yelling you take coupon to the cashier and they’re not honored somewhat like a credit card getting declined. So the biggest data we have so far is, I think it forces us to work even harder to make sure the coupon is a good one.

Debra Schwartz – Goldman Sachs

Great. Thank you.

Cotter Cunningham

Thank you.

Operator

Thank you. And our next question comes from the line of Scott Devitt of Morgan Stanley. Your line is now open.

Scott Devitt – Morgan Stanley

Thanks a lot. Hi. There are two questions. The first one Cotter I just wanted to give you a chance to talk more in depth on the initiatives for 2014 you talked extensively on the call about mobile but we’re also interested in the content quality initiative with the validation technology? And then what you’re going to be doing from a community standpoint in 2014?

And then secondly, you just finished the year with 39% EBITDA margins, I think if you go back a couple of years you were pushing levels closer to 60 and you guided 14 to 37, so it seems like long-term there is a lot of embedded upside to the margin structure and I wanted to see if you could talk a bit about that as well? Thanks.

Cotter Cunningham

Sure. Thanks Scott. Yes. When we think about our initiatives for 2014. You did mention the coupon quality efforts, I’ll talk about that first. We made an acquisition in kind of Q4 of 2013 of ZenDeals. It gave us a chance to do real-time improvements to coupon on quality. There, it’s funny that the guys have all moved to Austin. They’ve been working really hard to integrate their system in with ours.

It’s my understanding that yesterday literally yesterday, we tested really significant number of coupons during the day using the ZenDeals technology. It’s super exciting. Things are going as we hope they would. And so my hope is by the end of this quarter Q1 of 2014 will be in line with our system and sort of integrated part of our day-to-day operation.

So in other words we had to take them from a standalone unit and kind of shove them into our sort of existing operation. It sounds easy but as you can imagine it poses a few challenges. That said what they can do and I said we’ve given this color before, their technology allows us to test literally in a few days what we were doing in a month previously. So it’s really exciting.

In terms of other initiatives for 2014, I think there is two others that really stick out. The first is, mobile obviously, we continue to see broad adoption, the consumers want to come to us the way they want to come to us. We talked about this a bunch. I know the consumers want to access our content in a way that’s easy for them in a way that they can do and they don’t care that it’s on iPad or a phone or a desktop they just want to get our information when they’re ready for it.

And so I think it puts the burden on us to make sure one, that the information is available in a format that you can quickly come in and grab it, get a coupon and use it at the retailer of your choice. But also as you know there is also some effort incumbent upon us to make sure that while you’re here, we’re introducing you something now we talk about why its high. We work hard to develop our relationship with you as supposed just giving you a coupon and leaving.

So I think there is a lot of effort underway there we are making an additional investment in sales for the mobile theme or more than doubling the sales people that are associated with mobile. So during 2014, yes, we’re going to see a nice increase in sales head count.

Then finally, I talk a minute about sort of the community. We continue to see a huge advantage coming in the way that we generate content in the way that it comes to us through the community and community means so much to us. It can mean not only just the fact that we get the EDC [ph], which allows us to scale and show coupons for retailers that we really normally wouldn’t have the ability to show coupons well because the community gives them to us as supposed to have in case someone to go out and find those coupons. But also it really allows us to show coupons that I think it just gives the speed in a really nice sort of success that otherwise would be difficult to replicate.

The community is so powerful and in general, I think the community and content does really go hand-in-hand and – I know probably not making this clear, but I just think there is so much we can do there and so you’re going see us continue to focus on the community generating the coupons driving to us as well as the content piece of it. You will see us in 2014, I think really begin to push on things like personalization where we’re showing content that’s relevant to you.

I think consumers come to our site today really it’s kind of hit or miss. Instead, we’re going to be able to use but history that you’ve established with us to show you coupons that are more relevant to you. I think it’s going to be so powerful as you know the feature on the Amazon home page it says recommended for you think about that but for coupons I think it’s going to be just an example. But I think that type of technology I’m not saying we’re going to do it like that. With that hyper technology really is powerful I think give us enormous opportunity for the future that’s one example.

In terms of EBITDA, I’ll let Doug discuss.

Doug Jeffries

Yes, Scott. On the operating model, we do think there is long-term of potential to continue to improve the operating leverage in the business it’s a compelling business model and one who believe is one investment against and that’s only how we’re thinking about near term. We can talk about we like, like the disciplined profitability so for us in the near term we’ve been investing against the long term opportunity. I would continue to think about us focusing on EBITDA target in the high 30% range as a margin goal which gives us room to invest in the business for a long term scale we have return we got to maintain that kind of discipline on strong profitability.

Scott Devitt – Morgan Stanley

Thanks for the detail and congrats on your success.

Cotter Cunningham

Thank you.

Operator

Thank you. And our next question comes from the line of Jordan Rohan from Stifel Nicolaus. Your line is now open.

Jordan Rohan – Stifel Nicolaus

Hey good morning everybody congrats on the quarter. I have one question which is perhaps a little softer and more qualitative and then a follow up which is more related to the numbers. So the qualitative question is, can you try to explain to me or to us broadly how the flow and the conversations that you’re having with major retailers as the desired urgency to be more promotional starts to hit them during the course of the fourth quarter. When they come to you what do they say? Do they give more exclusive deals? Do they say feature us more, do they try to pay you more commission for sales, how exactly does that make it so that you have a bit of a counter cyclical short term advantage when things aren’t going as well as traditional retail would like?

And then secondly on the numbers, as that translates into your guidance have you, listen you stood 50% organic in your guidance for 2014 if I remember correctly aside 20% to 30% revenue growth. Have you factored that promotional activity as almost a one-time event or an unpredictable event that may or may not reoccur in 2014 and therefore we should be particularly conservative with our growth rate in fourth quarter 2014? Thanks.

Cotter Cunningham

Sure. Thank you. When retailers come to us I think it’s important to point out that usually sectors, within a sector some retail isn’t great some are not they are so great so we tend to see couponing at the retailer level not necessarily at the category level if that makes sense. They really come to us with a couple of different goals. It can be everything from liquidating old inventory I guess some last year’s product that really got to move it to I want to drive new customers I want to reengage old customers it really varies. And depending upon your goal we tend to structure programs that focus on that goal so it’s an example liquidation moving old inventory we use a product we’ve developed recently that specifically sells product right. So there is a Monday email that goes out and it’s like G.I. Joe is on sale 60% off whatever I’m making this up. And that product really has proven that it can move with tremendous amount of inventory quickly and I think retailers responding nicely to that.

More often though is the case is that someone who is just trying to generate foot traffic or traffic to the .com and so that tends to be more of a discussion around a broader coupon or a coupon 10% off or category 10% off in the whole store that kind of thing. So that tends to be the way the conversation goes. It starts with sort of what their goal and then migrates from there to how can we help them achieve it.

Jordan Rohan – Stifel Nicolaus

When they’re adjusting in real time is there a software exclusive to the retail I mean that platform or they run on Commission Junction and LinkShare and broader affiliate marketing network?

Cotter Cunningham

Yeah that’s a great question so. Exclusives were up really nicely this year. In general and I’m speaking generally here they tend to be more exclusive to us so revenue for exclusives was up –

Doug Jeffries

50%.

Cotter Cunningham

Yes 50% year-over-year which we’re super excited about as I think we talked about historically we focus our sales people on finding exclusive content for us. It’s important to me that you can come to retail and may not find coupons you can’t find anywhere else. So yes your point is a great one. We tend, when someone comes to us and says hey I need some traffic, we tend to say great but it help you but we wanted to be exclusive to our side. That’s not mandatory but it’s kind of where we start.

Doug Jeffries

Yes. I mean and Jordan the second part of the question on kind of the outlook at how the two quarter performance close to the outlook. I mean absolutely there is part of performance was taking advantage or seeing the outcomes form investments we’ve made during the year and that will carry through into the 2014 outlook. And there was a portion that is promotional related to a shorted holiday season that’s the best way to think about it its new book and there is a guidance we talk to you about in the Q3 call for Q1 we gave an outlook for Q1 and we’re taking that guidance up with this call and that’s really consistent with the trends we saw develop in Q4 carrying through into 2014 has given us confidence around increasing the full year view.

Jordan Rohan – Stifel Nicolaus

Thank you.

Doug Jeffries

Thank you.

Operator

Thank you. Our next question comes from the line of Mark Mahaney from RBC. Your line is now open.

Mark Mahaney – RBC

Thanks, I think you may be the only company have come so far that actually benefited from the abbreviated chopping season in 2013. So, congrats on that. So let me just ask you, because you’ve seen cycles before with this business although I know that it’s been relatively early stages but you’ve been in cycles before. Was there a dramatic change did you notice something dramatically different in terms of the user base because of that abbreviated chopping season? And the more important question is do you think its sustainable, to what extent do you have to worry that when you don’t have these, when we have a less promotional environment and less fluky December quarter that you won’t have that kind of surge in revenue or is there something that really create new market opportunities for you there were retailers that came to you that weren’t because of the season that came on and now are new build up customers going forward would that make sense? Thanks a lot.

Doug Jeffries

Yes, it’s a great question. And we had some data that helps point the way here and then lot of that gives hard to discern. I think we saw though is that because there was a – and you saw a mobile accelerate in Q4 they used to that, we had mobile customers particularly much strongly up into the right. And then some of that was in the holiday season kind of accelerating that we’ve already seen. So, for us standing back what we think we saw was the various promotional environment it is – growing at all of expects due to excellent awareness of the couponing for online purposes, excellent awareness of our brand and our mobile capabilities.

And that’s positive. So, we feel lot of the middle stick right priced but there is this portion that’s hard to identify that was we think and usually promotional activity in the quarter with the shortened holiday season. And so it is – it did oppose but we do think that the – that promotional activity helps broad awareness to consumers a mass consumers in RetailMeNot and our products and also demonstrate to retailers what we can do to help improve their performance. Yes.

Mark Mahaney – RBC

Okay. Thank you.

Operator

Thank you. (Operator instructions). Our next question comes from the line of Stephen Ju of Credit Suisse. Your line is now open.

Stephen Ju – Credit Suisse

Hey, guys, congratulations on a great quarter. So, Cotter, looking at the app sessions per downloaded apps, I guess the proxy for engagement, it looks like that it’s above year-over-year. So, what have you done from a product perspective to drive that higher engagement and how much more room do you think you have to drive further increases? And second, the marketing expand came in a little bit high of our expectations but as your marketing mix changed at all since the time in new IPO when you mentioned also little bit earlier. But give it a higher focus on mobile over the longer term, do you have a higher willingness to be used in the likes of Facebook to drive app installs in a more near term? Thanks.

Cotter Cunningham

Yes. Good morning, Stephen. Thank you. Great question, so let’s see. I think just to – in terms of the marketing investment, I’ll take that one first. I think we did change the mix slightly in Q4 to heavy spending around driving that downloads and driving new subscribers to the e-mail. So, well that’s always been a goal of ours. Some of the incremental spending we did was focused on that. Now, the great news here is still only one-third of app downloads are paid, so two-thirds are unpaid which I think is a crazy powerful number. You mentioned Facebook, as you know Facebook the app download which it has actually it worked really well for us. So, that’s actually going to be a nice benefit. But, we found that finding consumers did it in shopping mode you can’t depend the download the app.

Also, we reached number two in the App Store for about 10 days period, it might be hitting harder either. And so lots of people that use the list of kind of what’s hot in the App Store to figure what they’re going to download, so that’s starting. In terms of the way we thought about changes to the product that have increased some engagement, at this point we have seen a pretty remarkable increase in geo-fences hitting the U.S. over the last say two to three quarters. That’s going to start tapering off but simply with geo-fence everything were geo-fencing. So, I would encourage you not to stay focus on that number.

But what it does do is the more people we have with the app, more people that go into one of those environments the more chance that you have for the phone going off and saying hey do you want to see your phone sale in your area. So, one of the things we’ve tried hard to do is we have to start tailoring those geo-fences to be more appropriate. One of my jokes as I coming home from the airport at 11 at night and I drove passed the mall near my house and my phone goes off, well it should, right, I’m in the car I’m not stopping it’s 11 at night I’m not shopping, we need to think that. But on the whole, much of the engagement you’ve seen increase as come from the benefit of two things like one there is an increasing content on the app which is powerful and alone drives lot of it. But two with the increase in geo-fence and I guess really helped us sort of engage that audience to keep them focused. That answer your question?

Stephen Ju – Credit Suisse

Yes. Thanks. And out of curiosity does your consumer uses data for their apps such as that people are looking at to talk them into ask them to couch [ph]. Are they generally out and about when they decide to check for a coupon?

Cotter Cunningham

Great question. Little bit of those in general though it’s when they’re out about. Your – there is obviously a segregation in the phone and the tablet. As you well known the tablet now has become the Desktop. So, we assume all tablet as you’re sitting at home on the couch watching TV and scroll on video around your tablet. But the phone stays to be more in the world so to speak.

Stephen Ju – Credit Suisse

Thank you.

Cotter Cunningham

Yes, this is a data point we can share on that as an indicator.

Doug Jeffries

Well, that’s not third of our app sessions are from within a geo-fenced area, just to give you a sense of app sessions that are not in the shopping environment.

Stephen Ju – Credit Suisse

Thank you.

Operator

Thank you. And our last question comes from the line of Blake Harper of Wunderlich Securities. Your line is now open.

Blake Harper – Wunderlich Securities

Yes, thanks guys. I had most of my questions answered but I just wanted to ask two bigger picture things. Cotter, could you maybe talk about what you think about expanding geographically and how that compares to your priorities versus the opportunity you have in the U.S. in your existing markets? And then secondly, could you maybe provide some update about what you think of the digital wallet or mobile payments ecosystem and kind of how you fit in there? And any update you have with any of your partnerships there?

Cotter Cunningham

Sure, of course. So, geographically it’s interesting. As you know we’re now in a number of countries beyond U.S., Canada, France, Germany, U.K., The Netherlands. I think historically we’ve seen some great opportunities internationally and we jumped on them. We continue to look internationally at both acquisitions in Greenfield opportunities and we’re aggressive in that. That said, I think we’ve seen an increasing opportunities here in the U.S. but mobile coming on and some of the other things we’re working on that now are the point where to be honest much of our M&A expansion focus is now in the U.S. versus where two years ago it might have been more international.

That said, when we do think internationally there is still some great opportunities out there, we lost some of the emerging markets, South America, the Far East. There is still some interesting things in the EU. And as you see from the numbers we prove we can manage an international company well I mean the numbers for the international piece speak to themselves. So I think we continue to look beyond that orders for opportunities. I think the [indiscernible] in general we’re going to go and find the best opportunity. Today, we think that’s mostly here in the U.S. but it’s more it might be somewhere else.

In terms of the digital wallet as we mentioned historically we do have – we’ve done a couple of tests with some of the wallet players. We’re still not seeing huge consumer engagement here, I’m not saying it’s not coming but it is not there today. One of my colleague describes that as the solution consumers don’t want and it’s hard to argue that right now. I think it’s coming, I’m not naïve to this but I really can’t stress enough but man it’s not something we see lot of now. We continue to believe that we need to be ready for this as we get closer to it. Consumer adoption would be increasing. So, our solution is to sort of work with everybody we can to be sort of switch one and understand how all the wallets are and work with all of them on a nonexclusive basis and so far so good. We haven’t seen anything that makes us think that that’s not going to work.

Blake Harper – Wunderlich Securities

All right. Great. Thanks a lot guys.

Cotter Cunningham

Thank you.

Operator

Thank you. And I’m showing no further questions at this time. I like to turn the call back over to the management team for any final comments.

Cotter Cunningham

Sure. Thank you, operator. And I want to thank all of you for joining us today. We look forward to seeing you at some of the upcoming conferences we’re going to be speaking at. So, thanks for your time. And see you soon.

Operator

Ladies and gentlemen. Thank you. This does concludes the conference. This does conclude today’s program. You may now disconnect. Have a good day to everyone.

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