RetailMeNot (SALE) Q3 2016 Results - Earnings Call Transcript

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About: RetailMeNot, Inc. (SALE)
by: SA Transcripts

RetailMeNot, Inc. (NASDAQ:SALE) Q3 2016 Earnings Call November 1, 2016 8:00 AM ET

Executives

Anne Bawden - RetailMeNot, Inc.

Cotter Cunningham - RetailMeNot, Inc.

J. Scott Di Valerio - RetailMeNot, Inc.

Analysts

Brian P. Fitzgerald - Jefferies LLC

Ralph E. Schackart - William Blair & Co. LLC

Mark Mahaney - RBC Capital Markets LLC

Murali Sankar - Boenning & Scattergood, Inc. (Broker)

Brian Nowak - Morgan Stanley & Co. LLC

Operator

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

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

Anne Bawden - RetailMeNot, Inc.

Great. Thank you. Hello and welcome everyone to RetailMeNot Inc.'s Third 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 the 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 including visits to our websites and mobile unique visitors.

Forward-looking statements are based on management's current knowledge and expectations as of today, November 1, 2016, and are subject to certain risks and uncertainties that may cause actual results to materially differ. 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 August 2, 2016, as well as in our earnings release issued earlier this morning.

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.

Before I turn it over to Cotter, one last note; in addition to our Q3 earnings release, we have posted a prepared remarks document on our Investor 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 methods of disclosing quarterly results.

With that, I'll turn the call over to Cotter.

Cotter Cunningham - RetailMeNot, Inc.

Thanks Anne. And thank you everyone for joining us this morning. Before we jump into our third quarter results, I want to quickly reflect on the long-term strategy and vision we outlined at the start of this year.

We've been hard at work in 2016 to evolve the platform and brands from a pure-play coupon site into a leading savings destination, meaning an always-on and relevant savings site for both our customers and our retail, brand and dining partners. To reach this goal, we focused on investing in several specific key products to strengthen RetailMeNot's leadership position in the market in order to drive growth over the coming years and are encouraged by our progress to-date. I'll discuss a bit more on our strategy in a minute.

We're pleased to report high-level results for the third quarter, all within or above our guidance ranges. On a consolidated basis, net revenues for the third quarter were $64.6 million. Our continued focus on capital allocation helped drive adjusted EBITDA of $9.8 million, above the high end of the guidance, equating to adjusted EBITDA margins of 15%. Scott will expand on this shortly.

Within our core segment, we continued to see growth in our in-store and advertising businesses. Over the past four years, we've developed a large digital market opportunity to help retailers shift marketing dollars from traditional media, think print, TV and radio, towards digital promotions, in an effort to drive increased foot traffic to brick-and-mortar store locations.

In the third quarter, we continued to bring new retailers on to our in-store and advertising platform which grew more than 28% year-over-year. We were, however, impacted by the highly concentrated base of retailers in this part of our business as a handful of larger retailers reduced their overall marketing budget, causing lower in-store in-quarter promotions.

As we evolve our product offering and educate retailers' brands and restaurants on the opportunity with RetailMeNot, we believe we will continue to expand our customer base and reduce our concentration risk.

Shifting to our online business, overall, revenues were within our guidance range given the growth in Mobile Web, which was partially offset by the underperformance in our desktop business. While we were challenged in the quarter by some volatility in our SEO rankings, we continue to focus our efforts on providing RetailMeNot customers with the highest quality offers and savings content, with a focus on increasing ease and frequency of use, while reducing friction in the shopping journey. Taken together, we believe all this drivers an unmatched user experience, a successful business and ideally a returning customer.

Lastly, we delivered solid, sequential growth this quarter in our gift cards segment as demand for discounted gift cards continues to grow as we enter the holiday period.

Overall, we're pleased to have met expectations for the quarter. Nonetheless, as some of the traffic data shows, we have work to do to drive audience growth. As such, we continue to execute against the initiatives we outlined at the start of the year. As a reminder, they were: lead with mobile, expanding our content offering and leveraging the wealth of data we have accumulated, all while managing our expenses to continue to deliver solid adjusted EBITDA margins and operating cash flow.

With that as a backdrop, I'd like to provide some additional detail for our strategic priorities for the remainder of 2016 and on into 2017. During the third quarter, we continued to make good progress in delivering and testing new features for our consumers and retail partners.

Again, our strategy is centered on reinvigorating audience growth through new product investment. We focus these investments in areas we believe will enhance the value we deliver to consumers and give them a reason to come back more often. We want our customers to look to RetailMeNot for savings everything time they shop, while also providing additional value and data insights for our retail, brand and restaurant partners.

Let me start with the steps we've undertaken to improve the experience for our consumers. There are two primary areas we focused on in 2016, discounted gift cards and food and dining content within our mobile app. In terms of gift cards, while we are still in the early stages of educating the consumer market after our Q2 acquisition of GiftCard Zen, we made great progress during the third quarter, demonstrating solid demand driven by organic awareness in a very short period of time. From a product perspective, as of last month, we've hit an important milestone. We have discounted gift cards natively available across all channels of the U.S. RetailMeNot platform, online, in-web and of course the app.

While we still have work to do, we will continue to capitalize on this momentum heading into Q4 and on into 2017. With the initial gift card integration complete and more improvements to come, our consumers now have access to approximately 180 retailer, brand and dining partners across all channels. More so, the release at the end of last month significantly improves the findability and function of our gift card experience.

We believe discounted gift cards will engage our consumer more frequently with real-time savings with retailers that do not discount in a traditional way. For example, coupons. In addition, savvy consumers will also be able to stack or bundle their savings by purchasing a discounted gift card and applying a coupon on top of that, which over time will increase the ease of use, frequency of visits and reduce friction in the savings journey.

Introducing new product offerings has been an important part of increasing the utility we provide consumers and driving increased frequency. During the quarter, we strategically redesigned the navigation of the RetailMeNot app to make food and dining more prominent within our new Eat tab. This includes a – both a wider selection of relevant national restaurant content and easier navigation, enabling savings while dining out. We're pleased that consumer adoption continues to grow in this area, especially on the Android platform.

Next for our retailer, brand and dining partners, we've recently launched attribution reports in October, enabling our sales team to provide individual account performance, specifically around the traffic and incremental benefits that RetailMeNot is influencing both online and in-store. The attribution report is a great example of our commitment to leveraging our unique data collection capabilities to deliver personalized insights that help our retail partners drive sales and traffic.

We've soft-launched the report with a handful of retailers and initial feedback has been very positive. In some cases, it has been a key influencer for a retailer to work with us and one we believe differentiates RetailMeNot from our competition. In fact, last week we released to the press the methodology behind the studies with more to come in 2017.

We've also refined our location services and geo-fencing within the mall experience by re-introducing our consumers to the near-buy feature, which allows consumers to see exactly what savings are close and convenient, which means as you move through the mall, the app will be able to identify the closest stores and send the user available offers around their location to encourage return visits. We believe the work we've done to streamline the app, specifically the navigational features, helps our consumers find savings in a variety of ways.

Last, we're very pleased with the work our teams have done on the advertising front. Revenue associated with our programmatic display ads continues to grow and in fact exceeded internal expectations in the third quarter. This performance is driven by the value that advertisers see in our large, high-purchase intent audience and our integration of a leading-edge programmatic display ad technology that's allowing us to better monetize unpaid store pages.

To summarize, we believe the work we're doing in bringing discounted gift cards to market, combined with food and dining initiatives and the focus on providing increased value and data to retailers via attribution reports are all important components to our product roadmap and long-term value position.

As we enter the fourth quarter, one of our busiest periods in terms of holiday shopping, we've been hard at work with these initiatives and have already begun to execute against our 2017 product roadmap. Over time, we believe the combined efforts across our platform will have a meaningful impact on driving audience frequency, engagement and ultimately retailer satisfaction, all of which will return us to long-term growth as the leading savings destination.

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

J. Scott Di Valerio - RetailMeNot, Inc.

Thanks, Cotter. Earlier this morning, we provided additional details on our financial results for the third quarter via our earnings press release and prepared remarks posted on our Investor Relations website.

During my discussion, I'll reference third quarter data which is also provided in detail across both documents and focus the remainder of my comments on our financial outlook for the fourth quarter and full year 2016.

As Cotter noted, the third quarter of 2016 was marked with continued progress across our key objectives for our consumers and our retailer, brand and restaurant partners. While financial results across both business segments were within or above our respected guidance ranges, we remain focused on bringing back growth to our core segment and accelerating profitable growth in the gift card segment.

With that, let me discuss some Q3 financial highlights. Consolidated net revenues increased 23% to $64.6 million with our core business segment declining 4% and our gift card segment achieving sequential growth of 32%.

Our international net revenues represented 16% and 20% of consolidated and core segment total net revenues, respectively. Consolidated adjusted EBITDA came in at $9.8 million, equating to adjusted EBITDA margins of 15%, above the 11% midpoint of previous guidance.

Our continued focus on expense management and capital allocation drove overall strong performance on adjusted EBITDA. And cash flow from operations in the quarter was $2.2 million as we ended the third quarter with $235.3 million of cash and cash equivalents.

Moving on to our individual segments, with respect to the core segment, total net revenues in the third quarter were $50.5 million, a decline of approximately 4%. Breaking this number down further, we had solid growth in our in-store and advertising net revenues, which increased 28% representing 30% of total core net revenues.

Mobile online transaction net revenues were up 13%, representing 11% of total core net revenues. Desktop online net revenues declined 17% and represented 59% of total core net revenues. And segment operating income for the quarter was $10.4 million, equating to margins of 21%.

Turning to our audience engagement metrics for the core segment, total visits to our website in the third quarter were 146 million, down 9% with mobile website visits now representing 47% of total visits in the quarter. However, mobile unique visitors for the quarter grew 3% to 19.2 million.

For the gift card segment, net revenues in the third quarter were $14.2 million, up 32% from $10.7 million in the prior quarter. The third quarter marks nearly two full quarters post the GiftCard Zen acquisition and we continue to be pleased with the progress here.

Not only have we been able to improve our supply chain, but as Cotter mentioned, as of early October, discounted gift cards are now natively available across all U.S. RetailMeNot channels.

This means consumers can now view gift cards on individual store pages as well as in our dedicated GiftCard hub. We were encouraged by the demand for gift cards we saw in Q3 and continued to utilize our strong balance sheet to drive gross profit, which came in at approximately $869,000 with gross profit margins of just over 6%.

Lastly, given the size of our audience today, we continue to refine our marketing approach. Along those lines, we are taking a disciplined approach to investing in our brand value proposition for the short term and long term, while balancing marketing spend across higher quality user acquisition in the digital space.

This may dampen overall audience trends in the short term. However, we believe focusing on higher quality of audience as well as our savings destination message, will deliver better ROI and audience health over the long term for both us, our retail brand and restaurant partners.

Moving on to the outlook for the fourth quarter and full year 2016. For the fourth quarter ending December 31, 2016, in our core segment, we expect total net revenues in the range of $73 million to $78 million or a decline of 9% at the midpoint and segment operating income in the range of $25.5 million to $30.5 million or segment operating income margins of 37% at the midpoint.

Our fourth quarter core segment revenues reflects the weakness in desktop traffic trends in addition to foreign currency headwind, particularly the British pound, which have negatively impacted our forecasted revenue. However, we strongly believe that focusing on capital allocation will result in strong segment operating income margin for the fourth quarter.

Next, we expect our gift card segment to have net revenues in a range of $17 million to $20 million and gross profit in the range of $900,000 to $1.1 million or gross profit margins of 5.5%.

On a consolidated basis, we expect net revenues in the range of $90 million to $98 million and adjusted EBITDA in the range of $25 million to $30 million, equating to EBITDA margin of 29.3% at the midpoint.

Moving to the full year ending December 31, 2016, in terms of our core segment, we expect total net revenues in the range of $231.7 million to $236.6 million, reflecting a decline of 6% at the midpoint.

Within the core, for the full year, we expect that desktop online transaction net revenues will be down approximately 19%. We also expect that mobile online transaction net revenues will increase approximately 10% and that our in-store and advertising net revenues will increase approximately 30%.

Segment operating income is expected to be in the range of $58 million to $63 million, representing segment operating income margins of 26% at the midpoint. Again, we are focused on leveraging our revenue, allowing us to deliver strong full year segment operating income.

For our gift card segment, we expect net revenues in the range of $41.9 million to $44.9 million and gross profit to be in the range of $2.6 million to $2.8 million or gross profit margins of 6.2% at the midpoint.

Our guidance for the gift card segment reflects our continued work on securing inventory of secondary market gift cards and distributing them through all U.S. RetailMeNot channels.

Last, on a consolidated basis for the year, we expect total net revenues to be in the range of $273.6 million to $281.5 million and adjusted EBITDA to be in the range of $56.6 million to $61.6 million or adjusted EBITDA margins of 21.3% at the midpoint.

In summary, we believe in the work we're doing to improve our product, including broadening the type and volume of savings-oriented content, increasing our content across platforms and upgrading the user experience will continue to drive consumers to our websites and mobile applications.

It's still early and we have work to do in terms of educating consumers on the value of RetailMeNot, not just in terms of discounted gift cards, but as a leading savings destination. So we believe over time, the work we're doing will continue to drive traffic to our websites and mobile applications.

As we've indicated in the past, these efforts take time as we create short-term growth with a focus on mid-term and long-term investments. However, I want to make it clear we have the sense of urgency to deliver while continuing to be disciplined about allocating capital to drive value for consumers, retailers and our shareholders.

We continue to be active in our stock buyback program, purchasing approximately 577,000 shares for a total of approximately $5.3 million in the third quarter. Since the start of the program, we have purchased 7.6 million shares or approximately $81.8 million of stock with approximately $68 million left in the program.

Last before we conclude, I'd like to give detail on a few items not included is our press release. For the fourth quarter and 2016 modeling purposes, we expect depreciation and amortization expense to be approximately $4.7 million in the quarter and $18 million for the year, stock-based compensation expense to be approximately $6.4 million in the quarter and $25.3 million for the year, CapEx to be approximately $1.1 million in the quarter and $18 million for the year, capitalization of software of approximately $22.9 million for the quarter and $9.6 million for the year. Not taking into the account the impact of any further repurchase of our stock during the quarter, we expect our weighted average fully diluted share count for Q4 and the full year to be approximately 49.6 million shares and approximately 49.8 million shares, respectively.

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.

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

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. Our first question comes from Brian Fitzgerald of Jefferies. Please go ahead.

Brian P. Fitzgerald - Jefferies LLC

Thanks. Cotter, you mentioned programmatic display as a bright spot and in-store and advertising was up 28%. It's 30% of total net now. How do you see that growth trajectory trending? Where could it get longer term as a percent of the total in a – kind of broader view? And then two anecdotal questions to that; how much of that was driven by in-store versus advertising or how do you break that whole line if you can look at it that way and maybe you don't. And then to what extent was header bidding an upside on the advertising piece? Thanks.

Cotter Cunningham - RetailMeNot, Inc.

Sure. Good morning, Brian. So a couple things. I think for in-store like you said, look overall for the year, growth is going to be – it's about 30%. I think the bright spot with in-store is, we met recently with some of our best customers in like our consumer – customer advisory board.

And to me, the enthusiasm and excitement we saw from them sort of furthered my own enthusiasm for the product frankly. I mean this is still something retailers are very excited about and we continue to see really nice improvements. The attribution report we've come out with, and we did a nice press release on this earlier in the week, really starts to begin to help retailers see how their spend is paying off.

In-store can be challenging to measure because of the nature of it. It doesn't have a closed loop that we have online. And so by working hard with the tools we have available using sort of some of the geo-fencing and the geo-targeting aspects of the business, we're able to really track consumers and see where they go and then use sort of the retailers' data and our data and then extrapolate from there. So it's a nice report and it's really given us a lot of confidence.

In terms of advertising, it continues to grow nicely – one that we don't talk about much is between 40% and 50% of the outclicks or the traffic from our site is unpaid historically. It goes, it's from retailers that we don't have a commission relationship with. And so normally that traffic – those pages have not been monetizable. Because we have this advertising program now, now we're able to monetize those and of course, advertising has made – online advertising, I think, has made amazing strides over the last three years in terms of its targeting capabilities and just overall the tack and so we're able to take advantage of some of that and really do some nice work.

So, short answer is, I think, we see great – a great future in advertising. We have an amazing kind of in-market audience that's attractive to advertisers and it's not unusual for us to see really nice CPMs versus a more general target. So – so far so good. We're really pleased with the advertising effort. We made great strides there and I couldn't be happier. We don't break it out versus in-store.

We have been testing some header bidding. So far so good. It's probably a little early to call that. I think that rolled out about three weeks ago. So we're still sort of working through that, but I think we're pleased with the initial results.

Brian P. Fitzgerald - Jefferies LLC

Awesome. Thank you.

Cotter Cunningham - RetailMeNot, Inc.

Yes. Thank you.

Operator

Our next question comes from Ralph Schackart of William Blair. Please go ahead.

Ralph E. Schackart - William Blair & Co. LLC

Good morning. Cotter, I was wondering if you'd maybe just give us a perspective or any update on the macro front as you head into the holiday season in 2016 maybe versus 2015. And then the adjustments in the revenue outlook and then the increase in profitability, I assume that's the change in the audience that you're targeting and some of the marketing spend, maybe a little perspective on that as well would be great.

Cotter Cunningham - RetailMeNot, Inc.

Sure. So first things first. Yes, I think in general, back-to-school was probably a little lighter than we had hoped. It's always hard to call sort of a macro – we only see a piece of the typical consumer spend. And depending on the consumer, it can be a very small piece. So it's challenging for us to make broader market views about – from what we're seeing. But basically from talking to our retailers, from sort of watching our own market, it felt like back-to-school was okay, not great, at least for us and for our consumers.

That doesn't necessarily have any impact on the holidays, so far so good for the holidays. I mean, I think the good news-bad news there is the holidays tend to be hyper-focused around kind of Thanksgiving Week and Cyber Monday, and so to be honest, we just won't know the truth about the holiday – sort of the facts about the holidays until that week.

That said, we've had tons of activity, retailers are booking placements. I mean, we are gearing up for the holidays. This is a huge time of the year for us and basically something we plan for year-round with our partner, and so this is something that does not catch us flat-footed. So we are very much in position for them.

I think – I'll let Scott speak to the second half of the question.

J. Scott Di Valerio - RetailMeNot, Inc.

Yes. I mean, we continue to focus our marketing spend around a higher ROI. And I think you are seeing some of the results of that as we move through Q3 and into Q4 around our ability to drive profitable revenue and we'll keep that focus, Ralph. We still are working on making sure we can try to slow down the decline in desktop and that's a key focus for us, while putting our investment in the right product suites as we move through. So we feel good about where we're coming out from a bottom-line perspective and certainly working hard to get that top line where we need it to be.

Ralph E. Schackart - William Blair & Co. LLC

Okay. Thank you.

Cotter Cunningham - RetailMeNot, Inc.

Yep, thank you.

Operator

Our next question comes from Mark Mahaney of RBC Capital Markets. Please go ahead.

Mark Mahaney - RBC Capital Markets LLC

Thank you. Could you talk a little bit about the two things: how we should think about the desktop business going forward? I think you cited both the deterioration in commission levels and the decrease in desktop visits. Do you think this is just a segment that's just structurally in decline in part because consumers move away from desktop towards mobile or there are things you can do to stabilize that and are you trying to do that with the deterioration in commissions? Is that you're trying to bring it down to a level? Just talk about the dynamic that's causing that. And then you did mention the algorithm changes and I know that Google had another algorithm change I think at the very end of September. Could you just maybe provide a little bit more color on what kind of impact you're seeing that – from that maybe in comparison with the algorithm changes you've had to endure in the past? Thank you.

Cotter Cunningham - RetailMeNot, Inc.

Sure. Of course. So I think with desktop, we talked about this benchmark in the past. Desktop continues to be a tough business for us. Mobile is where the growth is. Mobile continues to be where the consumer is.

And so the good news-bad news there is not only is mobile where the growth in the consumer is, it's also where we make less money. And so the challenge for us has been how do we make more money from the mobile consumer, how do we get it to come anywhere close to what we make from the desktop. Desktop revenues for the quarter per visit were $0.39, which is relatively flat year – for the year and then mobile RPV was about $0.08 and that's up kind of 11%.

We – so we continue to see some progress in our ability to make revenue per visit in mobile, but I'd say it still lags the desktop dramatically. So, we really need to find a way to stem the desktop decline. I think we can do it. My own opinion is, it continues to boil down to the things we've been talking about. Make the visits we have better for the consumers that are coming to the site and over time, that will improve their experience with us and then their ability to return.

We continue to invest in things that make that experience better. Things like rebates, things like gift cards, allow the consumers to save on each visit, which to me is critical in that it allows them to build this history of trust with us. When you come to RetailMeNot, you save money. When you come to RetailMeNot, you save money and that really pays off over time. When we've done sort of interviews with consumers, it's one of the things they mentioned that they really like. So we continue to work hard on that. I think the second part of your question....

Mark Mahaney - RBC Capital Markets LLC

Algorithm...

Cotter Cunningham - RetailMeNot, Inc.

...was, yes, the algorithm. We had some SEO choppiness. It was nothing like the sort of algorithm changes we've seen historically. I think it's – personally it looked like to me just some movement in our SEO traffic. I don't think it was anything significant. And so – like I said, certainly nothing like the previous algorithm changes of the past where they were severe and kind of in one day or over a week or two and very noticeable.

Mark Mahaney - RBC Capital Markets LLC

Thank you, Cotter.

Cotter Cunningham - RetailMeNot, Inc.

Thank you.

Operator

The next question comes from Murali Sankar of Boenning. Please go ahead.

Murali Sankar - Boenning & Scattergood, Inc. (Broker)

Right. Good morning. Thank you for taking my questions. I wanted to follow up on the SEO question as well. If you could give us an indication of how much traffic at this point actually comes from SEO and how that breaks out for mobile. Because mobile's not growing particularly fast, i.e., they're at (32:06) only about 3%. I think if I recall correctly whereas desktop was declining 17%? And I have a follow-up on gift cards as well.

Cotter Cunningham - RetailMeNot, Inc.

Sure. So we talk about Google traffic sort of in – not Google – excuse me, search traffic in terms of the company as a total. It's been a little bit under 60%, (32:27) 59% of the total traffic we get for a couple quarters. And that trend continued here.

Murali Sankar - Boenning & Scattergood, Inc. (Broker)

Okay. Great. Thank you. And in terms of the gift card, can you go into a little bit more detail as to where that traffic comes from? Does that come, kind of, organically through your websites mostly or is it Google searches and is that also in a sense then impacted by search traffic in a similar way?

Cotter Cunningham - RetailMeNot, Inc.

Sure. So, gift card traffic comes from a variety of sources. We have – we made a purchase of a company called GiftCard Zen about two quarters ago. It had some traffic to its site that it still receives – that their customers have kind of learned over time that they trust – they trust the site, they use it, they like it and so they tend to come back. We've not shut that site down.

We do have gift cards now pretty fully integrated into the RetailMeNot site and so on the desktop, on the Web and on the app – on the Mobile Web and on the app. And so we've seen a nice increase in traffic from that, while certainly if we have SEO changes that do impact those pages, it would impact gift card features on those pages, it's still so small that it shouldn't be meaningful.

And more importantly, I think one of the fun things about putting gift cards – discounted gift cards on those pages is it allows us to begin to differentiate from other sites and also show the consumers again a way to save money consistently. One of the things we talk about on the call and I think, you know, you kind of can't say enough is that gift cards allow us to offer the consumer a way to save money regardless of sort of the retailer's current promotional structure. And so today, you can save money at a variety of retailers, usually around 5% to 10% and that's kind of irregardless of their own promotions and for our consumer, that's exciting.

Murali Sankar - Boenning & Scattergood, Inc. (Broker)

Thank you.

Cotter Cunningham - RetailMeNot, Inc.

Sure.

Operator

Our last question comes from Brian Nowak of Morgan Stanley. Please go ahead.

Brian Nowak - Morgan Stanley & Co. LLC

Thanks for taking my questions. I have two. Just to go back to your comment on a handful of large retailers reducing their budgets. How big of an impact was that in the third quarter and how big of an impact is that in your fourth quarter guidance? And then you mentioned there's an expectation to continue to increase your customer base. Just talk about some of the big drivers that you think are going to really bring new customers onto the platform as you go throughout the holiday season and into 2017? Thanks.

Cotter Cunningham - RetailMeNot, Inc.

Sure. So one of the things we've talked about with in-store is that it does have a concentration of retailers that are currently using that product. Our overall and our company only – our biggest customer is just a few percentage points of total revenue. In-store, that number is different. It is actually – is more weighted towards a handful of large customers.

So we had a couple customers that reduced spend early in the quarter. We worked with them to kind of revitalize them and show them some of the ways we thought the program was working for them and actually we were able to – the team worked incredibly hard and were able to bring the vast majority of those revenues back onto the platform by the end of the quarter. So, in general, I would say the answer to your question is a (36:10) handful and we rallied nicely to bring them back in.

In terms of the way we think about driving new customers to the platform, to me, it's about differentiation from other – I would say a couple things. One, we want to think about how do we make the site quicker, easier, better, smarter, right? How do we make sure that we've worked hard to show you the easiest way to save money possible? And whether that's saving on a coat at Nordstrom's or school supplies and staples, kind of doesn't matter. We still have to work harder to help you save money quickly and easily.

The second big initiative for us is what we call always-on which is the gift cards and the rebates, which allow the consumer to save money regardless of the retailer's stance. And so to me, that gives us a way to show the consumer a different way to save money kind of every time. So every time you come to the site, if you're a Lululemon customer, right now, we have gift cards at about 11%-12% off, or we did a few weeks ago and I bought one for one of my kids. You come to the site, you save 12%. That's fantastic, right? So those things combined, to me give, the consumer confidence that coming to RetailMeNot helps them save money and pays off over time.

Finally the other thing is on in-store, I would just remind you we talked about it a little bit earlier, the attribution reports continue to do a great job of assuring customers that their money is well spent and using data to prove that.

We've seen a number of accounts kind of come back into the fold or increase their spend because of those reports. And so I think you're only going to see that number increase over time. So I'm super-excited we were able to launch that and pleased at the results so far. And I think it will continue to improve over the next four months to six months.

Brian Nowak - Morgan Stanley & Co. LLC

Great, thanks.

Cotter Cunningham - RetailMeNot, Inc.

Thank you.

Operator

And this concludes our question-and-answer session. I would now like to turn the conference back over to Cotter Cunningham for any closing remarks.

Cotter Cunningham - RetailMeNot, Inc.

So thanks everyone for joining us. Before we close, so thank you to our teams across the globe. We've made good progress in the first nine months of the year and we look forward to closing this year on a high note as we enter the holiday shopping season. We remain focused on our strategy and executing our key initiatives to position RetailMeNot for long-term success for consumers, retailers and shareholders.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.