Q2 2021 Cardlytics Inc Earnings Call
Good evening and welcome to <unk> second quarter 2021 financial results call before we begin let me remind everyone that today's discussion will contain forward looking statements based on on.
Current assumptions expectations and beliefs, including expectations about future financial performance or results, our financial guidance and cash position for the third quarter of 2021 and our ability to achieve long term initiatives to drive long term growth growth and and they use our monthly active users launches by new partners and the.
Coming quarters, Inc.
Increase in our 2 or average revenue per user.
The impact of COVID-19 on our business and the economy as a whole, including the uneven recovery and volatility of the economy Q for being a seasonal high period for AD spending and consumer spending the increase and stock based compensation next quarter continued pressure on our UK results and the anticipated benefits and expectations and goals.
Related to the integration of our acquisitions of Dosh Holdings, Inc. Enbridge, Inc.
For a discussion on the specific risk factors that could cause our actual results to differ materially from today's discussion. Please refer to the risk factors section of the company's 10-Q for the quarter ended June 32021, and in subsequent periodic reports that we file with the Securities and Exchange Commission.
Also during this call we will discuss non-GAAP measures of our performance GAAP financial reconciliations and supplemental financial information are provided in the press release issued today and the 8-K that has been filed with the SEC.
Today's call is available via webcast and a replay will be available for 1 week you can find all the information I've. Just described on the Investor Relations section of <unk> website. Please note that a supplemental presentation to our first quarter results has also been posted to our Investor Relations website joining.
Joining us on the call today is Carl Bolitics leadership team, including CEO, and co founder and lobby and CFO Andy Christiansen.
Following their prepared remarks, we'll open the call to your questions with that let me turn the call over to Lynn Lynn.
Good evening and thank you for joining our Q2.2021 and earnings call. While we grew card lytic platform billings of 111% and adjusted contribution and 123% from Q2.2020, we fell below our guidance. This was driven by us forecasting a faster recovery than we realized and travel.
Retail and restaurants here.
And the numbers.
Political platform billings were $83.2 million up 111% year over year.
On Linux platform revenue, which is equal to billings net of consumer incentives was $56.8 million and increase of 101% from Q2, 2020 and cartilage platform adjusted contribution was $27.6 million up 123% and year over year.
To provide investors with more transparency into the quarter.
And we're providing advertisers spending concentration and growth rates for each of our key vertical and we're also reporting branch results as a separate segment to help investors better understand performance and our investments and this business I want to reiterate that while we're disappointed in the Miss our business is performing well, we believe advertisers spent less than we forecasted for 3.
And reasons first and they were labor shortages.
Retailers and restaurants had supply chain issues and third there was an increase and consumer demand, reducing the need for advertising with several key clients.
For example, and several of our key client restaurants pause their marketing because they couldnt purchased and Thats critical ingredients.
Men's clothing client halted all of their marketing spend when they realize their supply chain couldn't deliver the inventory they needed to maintain customer selection.
As a result, some marketing budgets across our client base, we're actually paused in Q2, something we rarely see and our business and our push to Q3 and.
Additionally, as you can see from the new supplemental information travel and entertainment advertising spend are still down about 75% from Q2.2019, and the U K, it's still down about 23% from Q2.2019.
Our Q3 guidance acknowledges the reality that the pandemic and still affecting our business. Additionally, we're not providing Q for our full year guidance at this time as we continue to see volatility importantly, we're not reducing internal targets or quotas and while our advertising clients remain committed to the platform. They are telling us that marketing budgets continue to be uncertain due to macroeconomic.
Events, and we have discussed in the past much of our billings are concentrated with large advertisers and verticals most impacted by COVID-19 highlighting the importance of self service capabilities to expand our advertising base.
Our team is facing the market challenges head on and focused on achieving the goals we laid out at the beginning of the year.
With that said I'm pleased with the progress we've made against the initiatives that will drive our long term growth.
We are ahead of plan on every single initiative that we have discussed for the last several quarters. Let me highlight some of the key integration and product and client accomplishment.
Josh integration continues to go exceedingly well by realizing synergies that we planned during the acquisition and post acquisition integration process, we're executing against our plan to eliminate the EBITDA loss for the first half of 2022.
We are now live with 8 new banks and Fintech platforms, including Venlo. Additionally, we have another 14, new bank and Fintech platforms coming online over the following quarters. The new partners include a contract with 1 of the most innovative and techs and the U S. This company selected <unk> and Das is it strategic loyalty partner to enhance customer adoption.
And retention and card use by rewarding cardholders for everyday spend.
With the addition of Dosh, we have positioned <unk> to be the platform of choice for fast growing fintech and Neo bank sectors.
Bridge integration, while much lighter than das is also progressing as planned we have begun integrating staff functions, such as HR finance and legal and we're investing resources and capital to accelerate their efforts to achieve significant scale.
Recently, we closed a large home and improve the client and the business has a strong pipeline with many leading retailers and restaurants.
Client feedback on bridge has been impressive 1 of their key partners had this to say about their product quote understanding all of our customers and their engagement levels allows us to deliver a differentiated customer experience bridge has enabled us to complement the deep insights we have around our loyalty members with an understanding of are unknown and cuts in <unk>.
For customer purchase behavior, along with the ability to reach these individuals to develop and optimal customer relationship.
We now have a true holistic view into our customer base that was not possible before.
Our card lytic platform sales strategy is paying dividends and we continue to see strong year over year growth from new industries like D C, which was up over 120% and Q2, 2020, 1 compared with Q2.2019.
And the U K, we soft launched nectar connect to their online and mobile customers. As a reminder, nektar is 1 of the largest loyalty programs and the U K and is run by the grocers Sainsbury. The next step is a phase promotional campaigns and all of <unk> members are focused on open banking is showing positive results as enrollment rates and customer engagement are extremely encouraging and have already.
Outstripped initial expectations.
We hired Peter Chan from Amazon as our CTO Peters impact on migrating to the new self service platform is already evident we are making great strides and partnering closely with agencies leveraging our platform. We now have 27 and agencies spending money on behalf of 43 clients on the <unk> platform.
While not all of the agency clients are using our self service yet those that arent are migrating to the new platform. We have created this momentum as agencies understand the capabilities that we werent able over time as a reminder, we will break out agency spend starting in Q3 of this year.
And finally, we continue to invest to further strengthen our bank relationships and we're working with each of our bank partners to find more ways to deliver content to their customers and improve overall value delivered through new programs. For example, we've established a clear linkage of the program engagement to increases in overall spend habitual card use.
And now even increases and savings and investment rates are creating even more support and excitement for our program across our bank partners.
Before I hand, it over to Andy I, just wanted to say that despite the headwinds in the quarter. The entire city elects team is committed to executing against our initiatives.
We're leaving no stone unturned to make sure that we finished the year strong and continue to become a leading advertising platform for our customers and partners.
Thank you Lynn.
Lynn mentioned, our financial results continue to be impacted by the pandemic, but also share and Lindsay excitements about the immense progress was made on and longer term product and technology initiatives.
And let me review, our Q2 and financial results.
On the billings increase of 116% year over year for $85.3 million carload ex platform billings was $83.2 million and increase of 111 per se.
Total revenue increased 109% year over year to 58, and 9 million pardon.
Carlos platform revenue was $56.8 million and increase of 101%.
Our political revenue and increased 95 per cent year over year, and our carbon and acute pain revenue increased 220%.
And the U S. We saw significant year over year growth for each of our industry verticals.
Prior to 2019. However, it is clear that we are still being affected by and uneven recovery with lingering challenges across travel and spending.
Some cases retail and restaurants.
Our U K business continues to be more severely impacted by the pandemic as lockdowns and restrictions are still on London.
And we're spending and AD budgets have rebounded significantly from last year. We anticipate some continued pressure on new UK results for the next few quarters.
As I mentioned and we've provided a new load from Asia and spending on cartilage platform by industry, both retail and restaurant spending grew in excess of 110% year over year.
And we expect and both of these industries to rebound and an even faster pace when forecasting at the beginning of the year.
Stronger than expected results and March reinforced this expectation.
Specifically, our Polish platform revenue was 16 million on January 15 million in February and 22 million in March.
During Q2 on <unk> platform revenue was $17 million on April 20 million and day, and 20 million and here.
And these monthly fluctuations reflect the volatility of consumer spending and AD budgets and our key verticals and of course.
That's us for some challenges and accurately forecast and short term results.
Adjusted contribution was $29.6 million and increase of 179% year over year.
Although this portfolio adjusted contribution was $27.6 million and increase of 123 per cent.
Adjusted EBITDA was a loss of 5.7 million compared to losses of $7.7 million and Q2 of 2020.
Our adjusted EBITDA loss includes an incremental $10 million of operating expenses related to other recent acquisitions.
As mentioned last quarter, we expect for a luxury EBITDA losses in Q2 than Q1, as our investment and gosh as reflected for a whole quarter and bridges included for roughly half for the quarter.
As I mentioned earlier and music and executing on our plan and a great and rationalize the gosh operations.
And we are presenting bridge as a separate segment, we set our external reports.
Rich operated at near breakeven adjusted EBITDA in Q2, but we have and investment plan to support the expected go on from that business.
Here are a few other items outside of our EBIT results are worth mentioning.
First and Q2, we incurred $14 million of acquisition and integration costs and these costs are excluded from adjusted EBITDA.
A significant portion of this relates to diligence and transaction costs, we are incurring a small on and post acquisition integration costs and so we expect on personal additional costs throughout the rest of the year.
Second our stock based compensation increased from $7 million from Q1 to $13 million from Q2.
About half and to increase relates to warrants issued in connection with the dosh acquisition and assumption of options original issue, but on the.
The other half predominantly relates to our annual retention rates for employees we have.
Expect stock based compensation to go for a couple of million dollars next quarter driven by the bridge acquisition.
Doctor integration and a few new hires.
We ended Q2, with 251 million and cash and cash equivalents compared to 614 million at the end of Q1.
Change and cash is largely due for the bridge acquisition, which closed in May and no.
On cash earn outs for bridge shareholders are expected to total 48 million and May of 'twenty, 2 and 19 and may of 'twenty 3.
In addition, we have another 15 million and still available to us under armour and facility at this time.
Our balance sheet liquidity remained strong and while we're always evaluating our capital structure you see no immediate need to raise additional funds.
And they use increased 7% year over year and were flat sequentially.
As I mentioned earlier and with great momentum with new airbags, and Fintech to dos and putting a very innovative quiet, but we just recently thought we'd expect from any new partner shall watch over the next few quarters.
Arco during the second quarter was 34 cents compared to 18 cents from the prior year.
We expect <unk> to increase on a sequential and year over year basis throughout the rest of the year.
And we continue to grow faster.
Saturate, there and they use.
And $72.9 million shares outstanding from on a Q2 compared with $31.8 million at the end of Q1.
Weighted average shares outstanding during the quarter was $33 million compared to $27.1 million during Q2 and 2020.
This largely reflects the equity issuance last March and the share.
<unk> issued on the Das acquisition.
Now turning to guidance and.
Q3, and we expect total billings of between 85 and $95 million total revenue up from $50.766 million adjusted contribution of between 27 and $32 million.
This is below our prior expectations as we believe we'll still be dealing with and uneven recovery in Q3.
We've also lowered our expectations for AD spending for cartilage and travel this year.
Given the volatility we expect and our key industry verticals, we've decided to wait for why Q4 guidance until we have more visibility.
So on the current macroeconomic climate, we expect Q4 to continue being seasonal high point for most other spending and consumer spending. However, we expect a high level very adult use market dynamics and.
Each industry, we operate and is still working through unique challenges and varying degrees.
And later decision, making on campaign losses.
Additionally, several of our largest clients develop and marketing plans for Q3. So we expect to go and more clarity on the next 2 months.
We remain very excited about the long term potential <unk> and the combined value Latasha and bridge. Our focus is squarely on execution and making sure we have sufficient resources and investments to choose from near term results and continue our progress on our important long term initiatives and with that I'll turn it back over to Linda.
Thanks, Andy there's still significant uncertainty and the market right now given COVID-19 trends, but we believe our business will continue trending towards a position of strength through this uneven recovery. We're looking forward to executing on our plan and acquisition integration for the second half of 2021 with that I'll open up the call for your questions.
Thank you again, if you'd like to ask a question. Please press Star then 1 on your Touchtone telephone.
And that's a question. Please press star and won our first question comes from Jason Courier upgrade and how long your line is open.
Alright. Thank you for taking my questions. Just a couple of clarification items. If you don't mind. So in terms of the metrics you provided it looks like M. A used were down about 1 million quarter over quarter. Just wondering if there was an explanation on that and then when we look at the Q3 guide, obviously, you're providing a wide range of outcomes, but it looks like the low end of the Q3 guide.
And would actually show a lower sequential movement from the Q2 level. So I'm just trying to understand the logic and kind of the puts and takes that would drive a sequential reduction there.
Hey, Thanks This is Andy on.
On your first point on M a use.
While we did add on.
A few million and the ease with the launch with U S Bank.
Actually did have a few million and they use also come down from a planned wind down and the processor and a week.
Been working with them for a while trying to get them to do the things that were necessary to really have a successful program.
We actually have had less than $50000 of revenue from from that partner. This year. So they were actually unprofitable and so.
We've talked a lot about kind of where we're going as a platform. It's just really didn't make any sense for that that's what that was on.
And then on your point on the for.
For Q3 guide, yes, you're right I mean, we have.
There's a lot of uncertainty, we decided to keep the guidance fairly wide and still there just for a lot of things that we're trying to work through with.
Visit.
Certainly, we're we talked about travel and some of the continuing challenges that we have there that are and the market right and from a supply and demand perspective.
And we really just continue to see some struggles there and then the U K.
But yeah, I think generally speaking right and when you look at the guidance and look and kind of where we're where we're speaking from a midpoint. There right. We do anticipate things continue to progress we've seen continued increase quarter over quarter, and we expect that to continue and.
No that wide guidance because of lack of visibility that we have right now.
Got it I appreciate the color Andy I want to squeeze and 1 more just more on the more strategic side, but.
In terms of this enhanced platform that U S Bank is rolling out just wondering if you can kind of reset the expectations on where we go from DS.
From the current point and time.
Other financial institutions do you expect to add there like and and you know at what point in time, and you think you'd get critical mass where you've got several institutions utilizing that platform.
Yeah, Thanks, Jason and his line.
What we've publicly said is there is 1 very large bank that will be going live on this new platform and new experience and the back half of this year.
So you know starting next year, we will have significant M. A use on the platform and then what we've also said is we expect most of the rest of the M. They use to adopt the platform over the course of 2022, so that by the time, we get into 2020..3 we will have the majority probably not all but the majority of M. They use.
On a new version of the user experience.
And just to add to that we are already it's very early U S. Bank is of course you know.
And a good nice mid size bank and it's very early but we're already seeing very encouraging results with significantly higher click rates on ads that have pictures and not a surprise as well as significantly higher click rates on ads that are with the categorization and features that we've added so.
Early times, but very exciting.
Perfect. Thank you I appreciate the time.
Thank you. Our next question comes from Aaron Kessler of Raymond James Your line is open.
Great. Thanks, guys, just a couple of questions and I Wonder if you can discuss the advertiser pipeline, a little bit and maybe a specific credit due to see trends. It looks like that may have flattened out, but it looks like there may have been because of the recovery and some of the other verticals as a percentage of revenue basis.
And just very quickly on that kind of on <unk>.
<unk> calculation just to clarify you're excluding bridge from that I was off by a penny.
They're just sort of clarify that thank you.
Yeah, and then I'll, let you take that.
Yeah, I was going to clarify on it yet.
The bridge is not included and often calculations. The Niu number is really just a politics only platform number.
And then the revenue from generated from from the Polish platform.
Got it.
Yeah, and then on the day to see question I think it's much more what you observed Aaron which is other categories are starting to come back. So D to C is still growing but as a percentage of the overall business as the other categories are coming back it looks like you to see a flattening out but they are it's absolutely still like very very fast growing category for us.
Got it and just how do you feel about kind of advertiser pipeline right now and kind of let's say our sales force and stuff.
And further details there.
Yeah, I mean look I know, it's I know it sounds flipped because we did just have a mess, but we also grew adjusted contribution of 123% year over year, which is higher than I think and I mean any other digital platform out there. So we feel great about the pipeline you know we talked about the momentum for staying with agencies, which are bringing in a lot of new logos and new clients.
And our current clients are still very excited about the platform. The pipeline is robust so I I know it I know it sounds split, but you know there is theres nothing wrong with the core business, we just over forecasted recovery.
Got it great. Thank you guys.
Yeah.
Thank you. Our next question comes from Cal Peters from Needham Your line is open.
Hey, good afternoon, and thanks for taking the questions guys.
Just wanted to see you don't.
On the some of the feedback you guys had been and I'm getting from some of your clients maybe how much of the shortfall. This quarter is from some of these kind of labor and and supply chain issues and and <unk>.
How much of it is maybe from some of this pent up demand kind of creating a little bit of an air pocket just want to see from you guys like what you guys are hearing.
Yeah, I mean, I'll I'll jump in and then Andy certainly feel free to add color, we certainly would have.
And then and the range probably above midpoint had we not seen campaigns pause and the middle of the quarter and the campaigns that pause and the middle of the quarter were because of you know very much like like labor issues or lack of chicken or things like that I do think we would have been above the high end of the guide had.
And we not seen some advertisers just decide to.
Basically non advertising because they didn't need to because of the demand and.
So it's a it's obviously a bit of both but you know clearly the pausing of campaigns that were already committed budgets its something we have rarely seen okay.
And honestly I don't ever remember seeing it I'm sure. It's happened in the past, but it's I don't remember have recent memory of it and it really was because of those issues and like I said, we would have been comfortably inside our guide and probably above the mid point had it not been for those.
Okay. That's that's helpful and then just.
Just a follow up on bridge, the air or a breakdown and and the revenue breakout and in the releases Super helpful. But just wondered if you'd give us any additional color either on the bookings momentum that they're seeing or how how we should think about.
How that are or will kind of roll into revenue moving forward.
Yes.
You'll see a fairly standard I think.
And you know relationship there as it relates to rates on these other software platforms. If you all right, we're going to continue to grow that and.
And as those assets become.
Become realized right and see that most of your revenue, but I think we have quite a bit and good momentum on that side of the business right and you talked a lot about really trying to utilize that scale and and going to market and having conversations jointly and has already begun.
And just to give you some some tangible numbers there and when we acquired bridge and they had 1 full time sales person, they're now up to 3 and were investing heavily.
So we are going to really blow out the pipeline and that's the goal and that's always been the objective.
But obviously going from 1 sales person to 3 you know and and people take time to train et cetera. So it's going to be a multi quarter journey to really get from Tim material scale, but we're very focused on that right now and then the clients. We are calling on and we've identified 25 very high potential clients. These are clients, both that could really benefit from bridge, but.
Also could benefit from bridge and card lytic and combined them and.
And we're going after them pretty aggressively.
Alright, and that's great color thanks, guys.
Yeah.
Thank you.
Our next question comes from Doug Anmuth of JP Morgan Your line is open.
Hey, this is David on for Doug on this thanks for taking the questions first 1 on the challenges that you're on a core verticals we're seeing.
And you talked to them, where do you think they are and.
And solving those challenges do you think there.
Turning the corner or do you think things will go.
A little bit more challenged and before it did improve.
And then on just the contribution on a percentage of revenue, it's the price 50% for the first time this quarter and even if you exclude the British contribution that's close to 49% and assume for you guys are guiding to.
Being in the high for just for something I'm also just curious what drove the increase and how we should think about that going forward.
Yeah, I'll take the first part and Eddy you can take the second part and I.
And I think that's it.
I mean, it's hard to predict the future, but I think the supply chain shortages that impacted a couple of our clients those seem to be going away, but I will say the labor shortages or not and you know as an example, I tried to redeem a burger King offer I was really craving onion rings for the last couple of days and I sent my daughter to go get the onion rings, 2 days and erosion went to Burger King and they were closed.
They they didn't have enough and place so I'm still worried about labor shortages and supply chain shortage is hard to predict but right now those seem to have gone away or at least dramatically declined.
Yeah and on.
And on your second point.
We do have and.
And more enhanced and incentives this quarter than we've had in recent periods. We've.
And we've talked about that right and that dynamic is where the.
Banks are helping to fund it and enhanced offers right and.
Through their Fi share.
That does that will suppress our our GAAP revenue right, but it's actually.
It's neutral to our adjusted contribution for if you're looking at adjusted contribution as a percentage of revenue.
That can be distorted a little bit and those periods, but even when you look at adjusted contribution as a percentage of billings, which is probably a better way to come and look at that you will see and it isn't a bit higher than normal we.
We don't expect to have for that to have that be probably as high on the cosmetic side going forward.
Talk historically about that being about 30% to 32%.
And that's where we actually see it go on longer term there was a little bit on noise here on the corner.
But if somebody uses 32 is where we see that go on.
Got it thank you helpful.
Thank you again and he like to ask a question. Please press Star then 1.
1 moment please.
I'm showing no I have a question from Charles Robbins of Wells Fargo. Your line is open.
Good afternoon, and thank you for taking my question a few of the companies, we follow and the payment space had reported and acceleration and trends and the U K during July and given your exposure I was wondering if you could comment if you're seeing anything similar given some of the reopening and that region.
Yeah, I think we've seen actually some some.
And some nice improvement significant improvement, especially on it looked like a year over year basis.
And they have kind of started to unwind and lot of the lockdowns and restrictions, which new theyre still on the process of winding down.
I think there's a very similar dynamic and need to pay rise that we've had and and travel here on the U S and I think we speak to that.
Couple of different times, right, where you have you know.
And just not near enough of a.
Our need for demand generation, but as far as the spending we do see that spending starting to come back.
And I think really now it's more about making sure we get the AD budgets and the consumer spending, which we need both of those.
Okay. Okay.
And as a follow up I appreciate the color on slide weighted.
Slide 11, with the 13, rather with the offer activation rates by industry and was just curious looking across those those industries, where you see the most potential upside and.
And and activation rate.
Okay.
Yeah. Good question.
I'm sorry, Andy did you wanted to have it go ahead.
Yeah, I wouldn't say, it's it's it's a great question I mean, what we know is first of all let's start with some basic stuff everybody eats. So we think restaurants are always going to be our highest click rates by far I did mention the fact that and we're seeing some really nice engagement with U S bank with the new UI restaurants, or some of the key places where we're showing some pictures.
So I think those have you know there there's some real potential there.
And it takes something like subscription I don't think you're ever going to see it go much higher for.
Subscription is kind of a low engagement, but high value offer.
Offer is the way, we think about it so the more fast fun and frequent our category is the higher the click rates are going to go over time and the more infrequent. The category is the lower the click rates are going to be but the higher and the revenue generation is the way to think about it.
But you know restaurant retail and the kinds of things people do frequently and every day I think those quick rates could go dramatically higher.
Yeah, and I, especially want to I think Russia is only 1 where as we start talking about SKU. The whole offers and those types of things right, there's probably a significant.
Moves that can happen over time, and grocery and you walk into that opportunity.
Great. Thank you for the color.
Okay.
Thank you I'm showing no further questions at this time I'd like to turn the call back over to management for any closing remarks.
And so look we had a miss there's there's no if ands or buts about it were horribly disappointed but at the same time it was over forecasting and are in a very uncertain time, there is nothing wrong with the core business. We still grew for adjusted contribution of 123%.
And so we apologize for the mess, but we are heads down and fully focused if you invested in this business for the long term other long term stuff is still here and and even more robust than it was a quarter ago.
Thanks, everyone. We appreciate your time.
Ladies and gentlemen does that conclude today's conference. Thank you all for participating you may all disconnect have a great day.
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