RetailMeNot (SALE) Cotter Cunningham on Q2 2016 Results - Earnings Call Transcript

| About: RetailMeNot, Inc. (SALE)

RetailMeNot, Inc. (NASDAQ:SALE)

Q2 2016 Earnings Call

August 02, 2016 8:00 am ET

Executives

Anne Bawden - Senior Manager - Investor Relations

Cotter Cunningham - President & Chief Executive Officer

J. Scott Di Valerio - Chief Financial Officer

Analysts

Mark Mahaney - RBC Capital Markets LLC

Brian J. Pitz - Jefferies LLC

Ralph E. Schackart - William Blair & Co. LLC

Christopher Ford - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Brian Nowak - Morgan Stanley & Co. LLC

Blake T. Harper - Topeka Capital Markets

Operator

Good morning and welcome to the RetailMeNot, Inc. Second Quarter 2016 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Anne Bawden, Senior Manager, Investor Relations. Please go ahead.

Anne Bawden - Senior Manager - Investor Relations

Great, thank you. Hello and welcome everyone to RetailMeNot Inc.'s second quarter 2016 earnings conference call. With me on the call today are Cotter Cunningham, our Chief Executive Officer; and Scott Di Valerio, our Chief Financial Officer.

Before we begin, I would like to take this opportunity to remind you that during the course of this call, management may make forward-looking statements. These include statements relating to expected financial results such as net revenues, adjusted EBITDA, segment operating income, gross profit, and net revenues per visit; as well as non-financial metrics relating to visits to our websites and mobile unique visitors. On today's call, forward-looking statements are based on management's current knowledge and expectations as of today, August 2, 2016, and are subject to certain risks and uncertainties that may cause actual results to materially differ from predicted results. And reported results should not be considered as an indication of future performance.

A detailed discussion of such risks and uncertainties is contained in our most recent 10-Q filed with the SEC on May 3, 2016, as well as in our earnings release issued earlier this morning. As a reminder, RetailMeNot undertakes no obligation to update any forward-looking statements except as required by law. Additionally, certain financial metrics and results we discuss during the course of this conference call are non-GAAP measures. Reconciliation of non-GAAP financial results and guidance to the most directly comparable GAAP financial measures are provided in the tables in today's earnings release except where such reconciliation is not available without unreasonable effort. The earnings release is available on our Investor Relations website at investor.retailmenot.com

And before I turn it over to Cotter, one last note; in addition to our Q2 earnings release, we have posted a prepared remarks document on our Investor Relations website. Similar to last quarter, we will again provide detailed financial information and relevant disclosures within the prepared remarks. This prepared remarks document along with our earnings release will continue to be our primary method of disclosing quarterly results.

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

Cotter Cunningham - President & Chief Executive Officer

Thanks Anne. Second quarter marked continued progress in RetailMeNot's strategy to evolve from a pure-play coupon site into a leading savings destination for our consumers and our retail brands and dining partners. As we noted last quarter, our evolving and expanding solutions centered on several key product investments in 2016, all of which we believe strengthens RetailMeNot's position as a leading savings destination. To accomplish this, we strive to have relevant always-on and differentiated savings content that is easy to access and utilize when shopping online or in physical stores.

We continue to believe this strategy will reinvigorate audience engagement, drive increased frequency and return the business to consistent long-term revenue growth. I'll provide an update on these initiatives in a moment, but first let me start with a quick overview of our financial performance in the second quarter.

On a consolidated basis, net revenue and adjusted EBITDA came in ahead of the high-end of our guidance. Revenue outperformance was largely driven by the combination of better than anticipated desktop online transaction and solid growth in our in-store and ads business, which was up 37% year-over-year and now represents 21% of our total net revenues. Second quarter consolidated adjusted EBITDA margins were 15% or approximately 7 percentage points higher than the midpoint of our guidance. The higher than expected adjusted EBITDA margins were driven by the revenue overperformance as discussed and the deferral of a few million dollars of marketing spend from Q2 to Q3, which we felt better aligned with our brand re-launch and back-to-school promotional campaign. Scott will discuss the core and gift card segments as well as our outlook in more detail shortly.

Moving on to our strategic and operating initiatives, let me start with a few updates on our newer content offerings. As you know in April, we acquired GiftCard Zen, a leading secondary gift card marketplace. GiftCard Zen has now been part of the RetailMeNot family for nearly four months and while there is work ahead, I'm pleased with the progress we've made integrating it into our offerings. As a reminder, our thesis on the gift card category is that discounted gift cards are yet another way for consumers to save money when they shop. They also have the added benefit of not needing to rely on retailers' promotional cadence and budget constraints and typically they allow the consumer to save on any purchase with no exclusions.

In our first quarter operating this business, I'd like to make a few observations. First, as we are educating consumers on the ability to use GiftCard as a savings vehicle for both – for personal use and not just as gifts in the traditional sense, we found while demand is strong, we had less supply than anticipated. This resulted in lower net revenues for the gift card segment in the second quarter than we originally guided. That said the demand was strong for the inventory we did have, which resulted in higher gross margins than we originally guided. Going forward, we believe we can grow our supply with a focus primarily on adding resources to acquire cards. To that end, we've already expanded our team that works to acquire gifts cards.

From a product integration perspective, we are focused on positioning ourselves for a strong back half of the year for the gift card segment. The teams are working hard to make primary and secondary gift cards natively available across all RetailMeNot platforms in the U.S., including the app, which we believe will further accelerate consumer demand. Overall, we're very encouraged about the opportunity and differentiation gift cards can provide to our consumer base and look forward to further expanding our leadership position in the discounted gift card category in the second half of the year.

Another area of focus that we believe will enhance the value proposition of our offering and drive user frequency is in our food and dining saving experience on the app. Our consumers have been asking for this content, searches for pizza have long been a top search query. And this is long before we ever launched food and dining as an official category on the platform. For consumers, the expansion of food and dining content extends the opportunity for on-the-go savings, which we believe will lead to greater usage given that our audience tends to eat out more than they shop. Of course, the more time consumers spend using the app and finding value in that usage, the better.

With that as a backdrop, we are thrilled to launch our dedicated app experience on iOS for food and dining in the second quarter. We believe that taking a phased approach in the product rollout over the past few months has allowed us to get the product to our users faster to test new restaurant content types along the way. We are also well on our way to offering the experience on Android; both the upcoming Android and iOS app updates have some exciting new features in place for later this month, including better user experience, enhanced brand imagery and most notably sellable placements for our sales team.

In addition, our location services within the app, also remains a key component of our solution and ultimately better attribution for our retailers. The more information we can gather a shopper's location, their journey and their preferences, the better the experience for our consumers and more valuable strategic partnerships we are able to offer our retailers. We continue to evolve and refine our geo-targeting capability, which should allow us to better personalize, target our users and measure our performance with our retail brand and dining merchants. For the app specifically, our product roadmap in the second half includes enhanced navigation, enhanced quality of content, prominent placement for the food and dining experience as well as increased searchable content on the homepage.

And the RetailMeNot app continues to receive awards. In 2015, we received a Webby for the best shopping app. In June of this year, the RetailMeNot app earned the Good Housekeeping Seal of Approval, further demonstrating our value of our solutions and increasing our reach to new audiences. And in July, the VoucherCodes app in the UK received the top prize for best use of mobile, for innovation involving our geo-targeting capabilities.

In closing, we continue to make progress in laying the foundation to return the business to growth. There are number of additional efforts under development, including design and feature enhancements planned for the second half of the year and into 2017, which will enable users to store items of value, think gift cards, save coupons et cetera. We're also evaluating the ability to offer engaged and frequent consumers a program to get more benefits shopping through RetailMeNot. We strongly believe we have an important role to play in partnering with retailers, brands and restaurants to help them grow their businesses across multiple channels, especially in today's difficult competitive environment.

As we head into our busiest season with back-to-school and the holidays approaching, we believe the investments we've made and the work we're doing in mobile, in-store, and new content, via gift cards and food and dining, will all drive higher levels of consumer engagement, frequency and an overall enhanced user expedience. I believe in our talented team and that we're doing the right things now to set the stage for 2017. We look forward to updating you further on our progress over the coming months.

With that, let me turn the call over to Scott, to cover the results in more detail.

J. Scott Di Valerio - Chief Financial Officer

Thanks, Cotter. Early this morning, we provided additional details on our financial results for the second quarter by our earnings press release and prepared remarks posted on our Investor Relations website. Given that, I want to quickly get on a few key metrics for Q2 and focus the rest of my comments on our financial outlook for the third quarter and full year 2016.

In the second quarter, we delivered net revenues and profitability that exceeded the high-end of our guidance. Consolidated net revenues in the second quarter were $64.2 million with international net revenues representing 18% and 21% of consolidated and core segment total net revenues respectively.

Consolidated adjusted EBITDA came in above our quarterly guidance at $9.5 million, equating to adjusted EBITDA margins of 15%. A combination of desktop revenues and growth in the in-store and ads business drove the overperformance on total net revenues and on adjusted EBITDA. And for cash flow from operations in the quarter was $14.8 million and we ended the second quarter with $244.4 million of cash and equivalents.

Moving on to our individual segments. With respect to the core segment, total net revenues in the second quarter were $53.5 million, resulting in growth of 1%. To break this number down further, in-store and advertising net revenues were up 37%, representing 25% of total core net revenues. Mobile online transaction net revenues were up 18% or 11% of total core net revenues. Desktop online transaction net revenues declined 11% and represented 65% of total core net revenues. Segment operating income for the quarter was $9.8 million equating to margins of 18%.

Turning to our audience engagement metrics for the core segment, total visits to our websites in the second quarter were 152 million, down 7% with mobile website visits representing 45% of total visits in the quarter. And mobile unique visitors for the quarter were 18.8 million, representing growth of 2%.

For the gift card segment, net revenues in the second quarter were $10.7 million. Revenues were moderated as we continued to enhance our supply channels for inventory. That said, we are encouraged by the demand we saw in Q2 and by our ability to utilize our strong balance sheet to drive gross profit which came in higher than we guided at approximately 8% or $800,000. We expect our gross profit margins to fluctuate as we move through the year, but do not expect them to be below 5% in any quarter during 2016.

Moving on to the outlook for Q3 and 2016. As a reminder, our core segment, in addition to total net revenues, we will provide segment operating income guidance as we believe this to be an important financial metric to evaluate the operating performance of this business.

Segment operating income is defined as operating income of the core segment plus depreciation, amortization of intangible assets, stock based compensation expense, third-party acquisition-related costs and other operating expenses, including non-cash impairments and compensation arrangements entered into in connection with acquisitions.

Our gift card segment defines net revenues as a gross market value of the gift cards sold, or GMV, net of returns. Gross profit is determined in accordance with GAAP and represents the difference between net revenues less the cost of gift cards sold, including adjustments for shipping and chargebacks.

We will also continue to provide guidance combining the results of both businesses on a consolidated basis. So with that, for the third quarter ending September 30, 2016 in our core segment, we expect total net revenues in the range of $49.5 million to $54.5 million or a decline of 1% at the midpoint and segment operating income in the range of $6.5 million to $10.5 million or segment operating income margins of 16.3% at the midpoint.

Next, we expect our gift card segment to have net revenues in the range of $12 million to $15 million and gross profit in the range of $600,000 to $750,000, or gross profit margins of 5% at the midpoint. On a consolidated basis, we expect net revenues in the range of $61.5 million to $69.5 million and adjusted EBITDA in the range of $5 million to $9 million, or adjusted EBITDA margins of 11.2% at the midpoint.

Moving on to the full year ending December 31, 2016, in terms of the core segment, we expect total net revenues in the range of $232 million to $245 million, reflecting a decline of 4% at the midpoint. Within the core, for the full year we expect that desktop online transaction net revenues will be down between 16% and 19%. We also expect that mobile online transaction net revenues will increase 14% to 22% and that our in-store and advertising net revenues will increase between 26% and 34%. And segment operating income is expected to be in the range of $52 million to $63 million, representing segment operating income margins of 24% at the midpoint. Within our gift card segment, we expect net revenues in the range of $43 million to $49 million and gross profit to be in the range of $2.4 million to $2.7 million, or gross profit margins of 5.6% at the midpoint.

Lastly on a consolidated basis for the year, we expect total net revenues to be in the range of $275 million to $294 million, and adjusted EBITDA to be in the range of $50 million to $61 million, or adjusted EBITDA margins of 19.5% at the midpoint.

In summary, we have increased the full year net revenue guidance for the core segment to be reflective of the first half overachievement. The guidance includes any headwinds from currency volatility in Europe. As it relates to the core, segment operating income reflects the impact of additional marketing we're doing in the second half to support the launch of our food and dining experience on the app, back-to-school and holiday season, and our increased brand investment focusing on bringing to life RetailMeNot as the leading digital savings destination. Our guidance for the gift card segment reflects our continued work on securing inventory and the expected integration of secondary market gift cards on our U.S. web and app properties in the fourth quarter.

Lastly, I would like to give details on a few items not included in our press release. For the third quarter and 2016 modeling purposes, we expect: depreciation and amortization expense to be approximately $4.6 million in the quarter and $17.9 million for the year; stock-based compensation expense to be approximately $6.1 million in the quarter and $25.5 million for the year; CapEx to be approximately $2.3 million in the quarter and $3.4 million for the year; capitalization of software of approximately $2.4 million for the quarter and $9 million for the year.

Not taking into account any impact of further repurchases of our stock during the third quarter, we expect our weighted average fully diluted share count for Q3 to be approximately 49.7 million shares and full year to be approximately 49.9 million shares. And for the full-year, we expect our GAAP tax rate to fluctuate, given the projected levels of pre-tax income together with certain non-deductible expenses and discrete items impacting the tax rate.

To conclude, we continue to focus our investments in the areas that build a superior experience for our savings-oriented consumers. We believe the steps we're taking will drive growth in our business and increase shareholder value over time.

Thanks again for joining us and I'll now turn it over to the operator to begin Q&A.

Question-and-Answer Session

Operator

Thank you. And the first question comes from Mark Mahaney with RBC Capital Markets.

Mark Mahaney - RBC Capital Markets LLC

Thanks. Cotter, you mentioned the availability of the app in the Apple App Store, could you talk about what kind of impact you could see from that? Is there any history you have with the Google Play Store, for example, that suggests what kind of incremental demand that could drive things?

Cotter Cunningham - President & Chief Executive Officer

Yeah, sure. Well, first of all just to back up, both our apps are obviously available in both Google Play and the Apple App Store. I think what we are talking about here is we're being featured. It's something we work with both Apple and Google on a kind of regular basis to talk about, it's not something we can predict.

It's a nice pop, but it isn't material in my opinion. I mean it's something that we try to get, it's something we look forward to, but I don't think it's required for a great quarter or it doesn't make the quarter either, if that makes sense. So, exciting, but not necessary.

Mark Mahaney - RBC Capital Markets LLC

And then at a broader level in terms of marketing channels, could you just talk about where you see the business now versus some of the shifts you've seen over time in Google SEO rankings and whether you feel like you've been able to better mitigate that risk, is that more manageable, is it the same situation where it's just a unknown business risk that comes up from time to time, just overall thoughts on how you're hedging managing that risk.

Cotter Cunningham - President & Chief Executive Officer

Sure. I think for me the most important thing we can do to hedge that SEO risk is really move away from it in terms of the business and to get people to come back to us directly and that's been our main focus, so that no matter where we wind up in the SEO rankings, we still have a sort of steady stream of traffic that's coming to us directly, that really doesn't rely on any search engines at all.

Obviously, the app benefits enormously from that. One of the reasons we put so much focus on the app is that there is no intermediary between us and the downloaded app once we get it on your phone. Yeah, I think we've made good progress. As we've become the sort of broader savings destination, I think it really helps us set up for success here, in that consumers will come back directly because they are comfortable that there will be savings available for them, right.

So it's not just a coupon site where maybe there is coupon, maybe there isn't, but as we've begun to offer other alternatives to savings, it really gives the consumers the confident they can come back directly and know that there will be something there for them.

We call that sort of having something always on the page, always on content, and I think that's really important to our future and we've made nice progress. I think we've got a little bit more to go. So good, but not done is the short answer.

Mark Mahaney - RBC Capital Markets LLC

Thank you, Cotter.

Cotter Cunningham - President & Chief Executive Officer

Sure. Thank you.

Operator

Thank you. And the next question comes from Brian Pitz with Jefferies.

Brian J. Pitz - Jefferies LLC

Great. Thanks. Cotter, first question on the macro, can you comment on any weakness, especially outside the U.S. in Q2, as well as into the back half of 2016 that you are seeing? And also maybe more specifically, any commentary on back-to-school versus last year, what you guys are seeing? Thanks.

Cotter Cunningham - President & Chief Executive Officer

Sure. So on the macro level, so far really not seeing much internationally because the (23:20) UK had a great quarter and are really excited about some of the progress we're making there. The new markets we launched: Italy, Spain and Poland in general, kind of Italy is doing great, Spain is doing well, Poland not so much, so we got some work to do there.

But I think the beauty of that effort is we were able to launch those in just a matter of days on a single platform. And so there is real benefit to being able to roll those out quickly. When we think of like Brexit or something like that, it's still too early to tell. Obviously it doesn't impact us directly except for the impact it has on exchange rates.

The question there is kind of what will that do to the UK economic situation, what does that do to the EU economic situation. Certainly we are not in a position to forecast that, but so far so good. In terms of back-to-school, I think so far I would say, so far so good, kind of feels like last year in many similar ways so far, but it's a little bit early. We have seen kind of what the retailers want to do for back-to-school and like what we are seeing but until it actually runs we can't be super comfortable, we can't kind of call the ball. And so I would say cost is optimism for back-to-school like we were seeing but it's still pretty early. We'll be in the heat of it in about a week-and-a-half, so we will know more then.

Brian J. Pitz - Jefferies LLC

Great. And just one additional one, if you look at the business and you ignore seasonality, where do you see in-store revenue trending in the medium and longer-term as a percentage of total going forward?

Cotter Cunningham - President & Chief Executive Officer

You know our goal is to keep driving that up. I mean I feel like in-store is a big opportunity. I've felt that for years at this point. We have taken that business from zero to a meaningful part of our business. It still has some challenges in that we picked up the early adopters but there's some concentration risk there. We need to get kind of more mainline retailers into in-store. That said, we feel like we've made great progress, we've got a clear, clean product roadmap for in-store and so I like where we're going there.

Fingers crossed, but I feel confident that that you will continue to see nice growth in in-store for the foreseeable future.

Brian J. Pitz - Jefferies LLC

Great. Thanks.

Cotter Cunningham - President & Chief Executive Officer

Sure.

Operator

Thank you. And the next question comes from Ralph Schackart with William Blair.

Ralph E. Schackart - William Blair & Co. LLC

Good morning. Cotter, the Desktop business showing continuous rates (26:14) decline. I think it's the lowest in six quarters, with a just perhaps better than expected sort of SEO, but I also think you talked about just kind of gift cards, new content in food and dining and just some overall new search ranking initiatives. Maybe you could give us a sense of what's the biggest impact there? Thanks.

Cotter Cunningham - President & Chief Executive Officer

Yeah. I think for the Desktop, obviously search still matters for us there, but the biggest beneficiary this quarter was strong conversion. So we made some changes on our site that made it a little cleaner, a little easier for the consumers to find and use the coupons that were relevant for them and that had a meaningful impact. And I think you are seeing some of that come through.

And in addition, I think perhaps some of the offers we're getting were perhaps a little bit better than they were year-over-year. It's hard to call that one and hard to know what really resonates with the consumer. But that's my gut is that it's a combination of changes we made and a little bit better content.

Ralph E. Schackart - William Blair & Co. LLC

Great. And just on mobile, you talked about just overall better conversion rates, maybe a little color there. And then just in terms of your product roadmap and evolution, are you sort of at the point where you feel like you have the right strategy or do you think there is still going to be a lot of sort of new product initiatives and testing going forward as it relates to mobile?

Cotter Cunningham - President & Chief Executive Officer

Yeah. On mobile, it's tricky. We continue to invest heavily in the app as we talked about extensively. In food and dining we're excited about it. You know getting people to come back to the app more frequently is an important driver for us.

You shop once or twice a month using the app. The average person uses it about three times a month. But you eat out twice a week, three times a week and so the question becomes – my family seven times a week, and so the question become how do we tap into that, how do we get you to use that more frequently and become more top of mind. And so we've made a big push in the good and dining. We've seen sort of nice initial results. But it's way too early to call. But that's been our plan for the app and so far so good.

For gift cards and the app, the way to think about that is, is we bought GiftCard Zen in April of this year. And we're going to have that fully integrated with kind of a two tap to purchase in the application, in other words really going to the app two clicks and you purchase the gift card, by the end of Q3 we believe if not before and so that really excites me, because I think, one, we've made great progress which is exciting in general. But two, seeing the plans sort of continue forward, seeing what we want to do sort of become real is obviously super exciting.

I think it's challenging for us to guess the impact that will have on the consumer, but I believe it will be great. I mean we're seeing nice adoption today and it's a kind of (29:13) multistep process, you leave RetailMeNot, you go to the old GiftCard Zen site, it's branded well, but it's not clear to the user that where they are and what's GiftCard Zen and where did I just go, and so I think having that all integrated in a tight little bundle will be powerful. So I'm excited about where that's going.

In terms of strategy, like I said, I like the strategy we're on. We feel like we're focused in the right direction. We may add some additional products and so there is always going to be new initiatives from us. But I feel like we're heading in the right direction. We feel like the savings destination is resonating with the consumer and the retailers. And so I like where we're headed right now.

Ralph E. Schackart - William Blair & Co. LLC

Okay, thanks Cotter.

Cotter Cunningham - President & Chief Executive Officer

Yeah, sure.

Operator

Thank you. And the next question comes from Stephen Ju with Credit Suisse.

Christopher Ford - Credit Suisse Securities (USA) LLC (Broker)

Hi, Cotter, It's Chris on for Stephen. A quick question on the gift card business, you guys said that had some supply issues. Can you maybe touch on a high level on what you guys are doing to fix those? And, I guess, are there enough secondhand gift cards out there to feed the demand base that you guys have with your users?

Cotter Cunningham - President & Chief Executive Officer

Yeah. It's a great question. So first things first. So there's kind of two types of supply in the gift card business, there's sort of wholesale and retail, wholesale meaning, you're buying bulk gift cards from everything from pawn shops to secondary dealers, so things like that. And retail meaning, you're actually purchasing them from the individual consumers.

Today, the bulk of our purchases are made at the wholesale level and we have minimal retailer or consumer level purchases. The short answer is, the company we bought had a couple of dedicated channels and we didn't quickly expand those. And so we kind of got caught a little bit when – we probably got caught a little bit there.

The longer answer is our goal is to move away from wholesale as being the primary driver of traffic – the cards that we can purchase and really get more and more into the retail and buying from the consumer. That's not going to happen overnight. It's going to take a long time. So the first thing we can do is can we use our sort of balance sheet to make small purchase and we're talking about a million dollars in total allowing us to sort of consolidate more and more of the gift card that we need to sell.

The good news for us is there's tons of inventory out there, it's just a question of getting to it, finding the person selling it and we talked about it before. There's billions of dollars of gift cards available out in the market that people want to get rid off and so just tapping into that is the challenge. And so, so far so good.

I'm confident we're going to push-through this sort of short-term issue. And we remain excited about the gift card opportunity. I think it's fun. I used a gift card just last week to go to Whole Foods and saved 5%. So it was kind of an exciting day. But, yeah, so far so good.

Christopher Ford - Credit Suisse Securities (USA) LLC (Broker)

Okay. Thanks, Cotter.

Cotter Cunningham - President & Chief Executive Officer

Yeah. Thank you.

Operator

Thank you. And our next question comes from Brian Nowak from Morgan Stanley.

Brian Nowak - Morgan Stanley & Co. LLC

Thanks for taking my questions. I've three. The first one, could you just go back to those changes you talked about that drove conversion, any qualitative examples and should we expect that to be a continued tailwind into the back half and into next year?

Secondly, what percentage of the traffic was from organic search in the quarter, I think last quarter you said it was 57%. And then the last one I guess, could you talk at all about any risk at all from Google rolling out a fourth mobile ad unit, is that something you factored into your guidance, or how should we think about a fourth mobile ad unit potentially impacting the business? Thanks.

Cotter Cunningham - President & Chief Executive Officer

Yeah, sure. Let's take these in reserve order, so we'll start with the fourth mobile, so that actually we saw the beginning of that introduction around the time of the last earnings call. So we've now lived with that a quarter, and I think it's fairly well rolled out in our environment. It's hard for us to see exactly the impact, there's a lot of moving parts here, but in general to the extent we can, we factored it into our guidance of course. I mean we've seen what it's done to us so far, which has been a small impact, but not an enormous one, and it should be in the numbers we're talking about.

In terms of sort of the conversion, I mean the way to think about changes to the site, in general those are going to last at least a year in that the improvements we made should hold for a year. The bad news with conversion and sort of estimating conversion going forward is conversion does change with seasonality. Conversion actually increases a bit in certain parts of the year and will decrease other times of the year depending on kind of where the consumer is in the purchase cycle. So it can make for a challenging effort for us, but we're pretty good at it at this point.

In terms of examples of that, I don't like calling out too much specifically, in general, I would say when we think about improving conversions, it comes down to a couple of things. It comes down to presenting the consumers with just clear, cleaner alternatives for the coupons that they want. And so helping guide the consumer to the best coupon for them.

And the final thing, in organic search that current number was basically flat with the previous quarter, it's 59% this quarter.

Brian Nowak - Morgan Stanley & Co. LLC

Great. Thanks.

Cotter Cunningham - President & Chief Executive Officer

Sure.

Operator

Thank you. And this morning's last question comes from Blake Harper with Loop Capital (sic) [Topeka Capital Markets]

Blake T. Harper - Topeka Capital Markets

Hey, good morning guys. So I had two questions. First, Cotter, on the mobile in-store business I just wanted to ask you if this was being driven on what you kind of see as the bigger opportunity to drive this forward, is it really closing deals with the retailers or have you also been able to make some progress on the technology side as far as notifications in open rates and point-of-sale integration or anything else just on the technology front and integrating with the retailers better as to like more kind of just sales and closing the deals with retailers?

Cotter Cunningham - President & Chief Executive Officer

Sure. I think what I would say is both and that's not a cop out, it's the truth. We had great success or what we would call kind of the early adopters of retail, right, and getting people to try in-store and in general anyone that's tried it has come back for more. We've had amazing retention in the in-store channel. It can be challenging to get retailers to try this.

It's new, they just tend to be focused on things that they know work, it can be challenging. So one of the things we're working on and continue to work on, are product improvements to help make that process better, tighter, smarter. So things like, and you mentioned some of them, better tools for proving attribution always win with retailers, anything you can do to help them see how our channel drove successful business for them is a win.

So things about that, better geo-fencing, not just knowing that you went to the mall, but knowing that you went to Nordstrom's within the mall is exciting and so how do we think about that and how do we actually tag you within the mall and know where you are within it, to the extent we can, really benefits us enormously.

Things like tighter geo-fencing in the way we show the offers. So using geography to show different offers and so historically we've kind of been able to do broad things like East of the Mississippi, West of the Mississippi, things like that. We're getting so much better. We're now to the point where we can really define specific geographies, Austin versus Houston or parts of Austin, things like that. And so thinking about how to help retailers show offers in a small level really benefits them because retailers often want to show particular promotions at a really sort of micro-level. And so the more we can benefit from that and help them to do that, obviously the better it is for us.

But at the end of the day, it comes down to consumer usage and retailer excitement. We have good consumer usage and of the retailers that use our product, we have good excitement. So it's just kind of pushing the ball forward and getting people to kind of continue to use it. I like where we are, but it's not easy.

Blake T. Harper - Topeka Capital Markets

Okay. Thanks Cotter.

Cotter Cunningham - President & Chief Executive Officer

Sure.

Operator

Thank you. And as that was the last question, I would like return the call to Cotter Cunningham for any closing comments.

Cotter Cunningham - President & Chief Executive Officer

Sure. So I just want to thank everyone for joining our call for the second quarter. We had a strong first half of the year and we're excited about helping consumers find more ways to save money as we roll into back-to-school and the holiday season.

We look forward to updating you on our progress against key growth initiatives in a few months. Thanks everybody for your time.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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