Q3 2021 Cardlytics Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Thank you for standing by and welcome to the cartilage Q3, 2021 financial results conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press Star then one when you touch tone telephone.
As a reminder, today's conference call is being recorded.
I would now like turn the conference host Mr. Kirk Somers, Chief legal and privacy officer, Sir you may begin.
Good evening and welcome to <unk> third quarter 2021 financial results call before we begin let me remind everyone that today's discussion will contain forward looking statements based on our current assumptions expectations and beliefs, including expectations about future financial performance of results our financial guidance in <unk>.
Cash position for the fourth quarter of 2021, our ability to achieve key initiatives to drive long term growth growth and they use our monthly active users and migration of clients to our ads manager launches of our new AD server by bank partners and the capabilities and timing thereof.
Renewal the bank of America contract and contracts with other financial institutions and the timing thereof.
The increase in <unk> 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.
The impact of violates privacy changes the growth in agency sales the impact of product level offers.
Participating benefits expectations and goals related to the integration of our acquisitions of Dodge and bridge.
For a discussion of 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 September 30th 2021 and in subsequent periodic reports that we file with the Securities and Exchange Commission.
Also during the 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 is filed with the SEC.
Today's call is available via webcast and a replay will be available for one week you can find all the information I've just described on the Investor Relations section Cognetics website.
Please note that a supplemental presentation to our third quarter results has also been posted to our Investor Relations website.
Joining us on the call today is <unk> leadership team, including CEO and co founder Lynne Laube 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 Q3 2021 earnings call, we had a solid quarter and delivered results above our guidance. During Q3, we saw increasing momentum from our investments in sales and marketers are better managing the ongoing labor and supply disruptions that impacted our results in Q2 here.
Here are the numbers.
Hardwood ex platform billings were $95 $5 million up 54% year over year.
Card lytic platform revenue, which is equal to billings net of consumer incentives was $62 $1 million, an increase of 35% from Q3 2020.
Our latest platform adjusted contribution was $28 $9 million up 46% year over year.
Our Q3 results reflect sequential billing growth in all of our industry verticals.
Core business continues to gain traction with our clients and we achieved wins in all of our major verticals, including six new logos within travel and entertainment.
We are encouraged by the pace of our billings growth compared to last quarter and expect the momentum in our sales organization will continue but I want to caution that the now well documented labor and supply chain disruptions that we noted last quarter contingent continue to impact our clients.
It's difficult to estimate the impact this may have on their appetite to drive consumer demand until conditions improve.
On a positive note I want to remind investors that Apple's iOS privacy changes do not affect our platform and we believe it will be an additional tailwind moving forward as advertisers look for new ways to engage their customers.
Moving on from results I want to provide an update on our key initiatives as we've discussed over the past several quarters, we're transforming our entire platform to have features and functionality that are similar to other digital platform, but still within the brand safe and responsive bank channels.
This is a company wide initiative that has involved nearly every single employee and I'm proud of the progress. The team continues to make to enable us to open our platform to agencies and Smbs.
And enabling new capabilities, such as product level offer imagery dynamic pricing and self service.
In Q3, we started migrating our campaigns to this new platform, which we refer to as our ads manager.
We're excited to report that as of today, 99% of our current campaigns in the U S were built on the new platform.
We are pleased with the migration in our current efforts are focused on standardizing processes and optimizing campaign performance.
As we've discussed before agencies would be the first group of clients to leverage self service and our agency sales team with the earlier. This year continues to gain traction for example, our largest agency partner has spent over $8 million on behalf of six clients in 2021 and is planning to pilot campaign with several other new clients.
Also sign an MSA with a top five agency group, which will allow us to access performance marketing budget across all of their operating entities.
And as promised we are reporting agency as a percent of advertisers that starting this quarter.
I'm pleased to say that our agency accounts grew over 150% year over year and now represent nearly 10% of advertisers spending during Q3.
Concurrent with launching our new AD manager, we're deploying our new AD server. This is the technology, we deploy for our bank, but enables the transformation of the user experience. It will allow us to deliver richer and more diverse content. The new AD server, one neighbor new offer constructs at scale such as product level offers.
Offers that can only be redeemed at a specific time of day offers that are local and our store specific and other constructs that give advertisers much more choice and features versus our current experience.
To provide an example of the benefits U S Bank. The first adopter of our AD server now has rich imagery live on 20% of its campaign.
And soon we'll be piloting product level offers to U S bank consumers well.
We're working very closely with our major bank to launch the new AD server and have received significant positive interest thus far while we expect a full adoption process to be a two year journey, we aim to have greater than 50% of our meus connected to the new AD server by the end of 2022.
However, this call is subject to change given we're dependent on our Si partners, but we will keep you updated on our progress.
Once we gain sufficient scale and they use live on the AD server, we will be in market selling new products and new offer types. We're excite excited to expand these offerings as more F. EIS adopt the new AD server.
Finally, we're using the new AD server as a catalyst to update FY contracts and working protocols. We are encouraging our banks to let us do more for them. So we can all go faster together. This is an extremely positive development in all of our bank relationships.
However, the introduction of the AD server and other new offerings has increased the complexity and time it takes to renew contracts.
As a result, we believe the bank of America contract May not be renewed until early next year, but both teams are still working very hard to get it done before the end of the year.
Regardless, we fully expect to reach an agreement with Bofa and believe this new contract will be highly beneficial to both parties.
We're also focusing on other strategic initiatives, including our recent acquisitions.
The Dosh integration continues to proceed as planned.
Virgin DOCSIS technology to speed up our development efforts.
And our network to large fintech platforms and allow our banks to test and learn new features before they adopt that we are on track to achieve our planned cost synergies next year and therefore this will be the last time, we discussed das as a separate entity.
We will continue to speak about bridge as a separate entity they too had a solid quarter and our integration continues as planned in Q2, we began combining back office functions and during Q3, we started to invest in bridges sales team, we expect spreads to exceed the first year that we initially forecasted in our acquisition thesis.
Partially driven by recent wins at a large home improvement retailer and several well known restaurant brands.
Bridges also entered a new industry vertical finding their first cinema clients bridge's platform of last studios to analyze in market to previously unknown movie goers, giving studios access to data similar to that of the largest streaming platform.
Also want to highlight that we had a significant restaurant clients renew their relationship with bridge and partly due to the value of our shared insights are targeting there.
It still represents a 400% increase in spending compared to when the advertiser was buying from each company separately and it's a real testament to the value of the combined insights from both organizations.
Our early successes proving our acquisition thesis the value of the bridge is greater when combined with cosmetics, given our complementary products the dataset.
And we expect spreads to contribute more as we connect the two platforms to enable product level offer construct for our client.
Internationally. The open banking program with nectar continues to make progress. We now have several hundred thousand customers that are connected at least one account. In addition, new business conversations are progressing well, including potential open banking clients in the U K and gas convenience and retail.
On another note, we're happy to announce that Chris who joined the board of <unk> in September of 2021 Christmas.
Christmas currently the corporate Vice President and Chief Financial Officer of Microsoft Cloud AI. He brings an impressive background in accounting and finance to the board.
With that I will turn it over to Andy.
Thank you Lynn we saw the core business strengthened throughout the quarter as we achieved sequential billings growth each month and as Lynn discussed. We also made exciting progress on our strategic product and technology initiatives.
So let me review, our Q3 financial results.
Total billings increased 59% year over year to $98 4 million.
Our latest platform billings was $95 5 million an increase of 54%.
Total revenue increased 41% year over year to $65 million.
Cordless platform revenue was $62 1 million.
Increase of 35%.
Adjusted contribution was $31 6 million, an increase of 60% year over year.
Platform adjusted contribution was $28 9 million an increase of 46%.
Adjusted contribution as a percentage of billings was 32% for the carloads platform, which is slightly below historical levels and is temporary as we migrate to ads manager.
It is possible that we experienced similar margins in Q4, which will be our first full quarter with ads manager, but that is not our expectation.
Our carload ex U S revenue increased 32% year over year.
Third to Q3 of 2019 revenue was only up 12%. So it's clear that we've been impacted by the economic disruption of the pandemic for well over a year.
In the U S. We saw year over year growth in each of our industry verticals with the exception of travel.
Despite this continued improvement I want to caution investors that advertisers are still facing macroeconomic headwinds related to labor and supply shortages.
Chromebooks U K revenue increased 84%.
But it's still down 11% compared to Q3 of 2019.
Our U K business has been impacted by the effects of the pandemic even longer than the U S. Due to lockdowns and restrictions that have been in place for much of 2021 will.
We're paying close attention to the new Delta plus variance or hopeful that the U K business will continue for a couple of the next few quarters.
Adjusted EBITDA was a loss of $5 2 million compared to a loss of <unk> 6 million in Q3 of 2020.
Our adjusted EBITDA loss includes an incremental $7 8 million of operating expenses related to our recent acquisitions.
We expect <unk> operating expenses, which is most of the incremental operating expense will come down over time as we continue our integration efforts.
There are a few other items outside of our EBIT results worth mentioning.
First in Q3, we incurred integration costs of $1 7 million down from the $14 1 million incurred during Q2 that contain a significant amount of diligence and transaction costs.
We expect to incur some additional costs next quarter, but we expect it to be even less in Q3.
Second our stock based compensation increased sequentially from $13 3 million in Q2 to $16 8 million in Q3.
We mentioned last quarter that we expected an increase related to both the bridge and dosh acquisitions as well as a few new hires.
We expect stock compensation will decline approximately three to 4 million next quarter.
We ended Q3 with $237 5 million in cash and cash equivalents compared to $250 7 million at the end of Q2.
Large portion of the supply relates to the payment of acquisition and integration costs that we recognized in Q2.
In addition, we have another $50 million still available to us under our loan facility. This time.
Our balance sheet liquidity remained strong although we're always evaluating our capital structure, we see no immediate need to raise additional funds.
And they use a $170 6 million an increase of five 6% year over year and up from $167 6 million in Q2.
The U S Bank launch was completed this quarter and.
<unk> contributed a couple of hundred basis points of year over year growth.
Our organic growth rates are in line with our expectations as what we anticipate going forward.
Also during the third quarter was 36 cents compared to 29 cents in the prior year.
We expect <unk> to increase on a sequential and year over year basis. In Q4, we expect revenue to continue growing at a faster rate than in the us.
We had $33 2 million shares outstanding at the end of Q3.
Paired with $33 million at the end of Q2.
Weighted average shares outstanding during the quarter was $33 1 million compared to $27 3 million during Q3 of 2020.
Reflects the issuance of $3 9 million shares in March of 2021.
Now turning to guidance.
In Q4, we expect total billings of between 105 hundred $20 million.
Total revenue of between 70 and $80 million in it.
The contribution of $2 $33 million to $38 million.
It's worth mentioning that our guidance range is wider than normal on.
On the one hand, we have a healthy sales pipeline and a scaled user platform. That's capable of consuming budgets that are significantly larger than the budget. We are today.
On the other hand, our clients are still wrestling with supply chain issues.
Acerbate by labor shortages.
We believe the supply chain issues are likely to get worse before they get better.
And for many companies these issues could persist for some time.
It is difficult to estimate the potential impact this may have on our clients advertising budgets in Q4.
Clients have havent made any meaningful changes to their planned advertising campaigns, yet, but the labor and supply issues. During the peak retail spending season. Good restrained the desire to drive consumer demand that may not be capable of being satisfied.
And while it isn't making good progress in reducing our reliance on specific industries and clients.
Our AD budgets are still heavily concentrated which heightens our sensitivity to these macroeconomic issues.
A wider guidance range reflects these risks and uncertainties.
As I said last quarter, we remain very excited about the long term potential carlitz dosh enbridge in concert with our strategic initiatives.
We remain focused on things we can control.
Developing and maintaining strong relationships with all of our partners and developing a technology platform that will unlock the massive potential of our channel.
The near term risks I noted I'm feeling optimistic about the rest of the year and what's in store for 2022.
I'll turn it back over to Lynn.
Thanks, Andy this quarter was a step in the right direction and we believe our business will continue trending towards a position of strength. Despite the challenges in the global economy I want to thank card lytic employees for their hard work this quarter as we continue through a series of important strategic changes execution remains our primary focus and we have the team and resources to achieve.
Our financial goal to be a strategic partner for our banks and continue our progress on product and technology initiatives. We're looking forward to executing on our plan and finishing out the year strong.
With that I'll open up the call for your questions.
Okay.
Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
Withdraw your question press the pound key.
Again, its star one to ask a question please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Doug Anmuth with Jpmorgan. Your line is open.
Okay.
Thanks for taking the questions.
I have two so I mean, you guys have talked about in supply chain and labor shortage issues affecting your marketers you guys had mentioned this.
Well, so I'm just curious.
This past quarter three months now what state or your advertisers.
The supply of labor shortage challenges relative to what you saw in <unk>.
I'm curious if the outlook for holiday season.
Okay.
In many ways because of this and I'll go into specific verticals that might be affected more by these challenges.
And then as a follow up to your comments about contract renewals coming up with your Fi partners I'm curious to hear your latest thoughts on competition.
Or from your partners on this front.
Hey, this is lance thanks for the question.
On the supply chain and labor disruption issues.
Q3 was certainly quite a bit better than Q2, we actually did not have to the best of our knowledge. We had no advertisers that had impacts in those issues such that they pulled or reduce their campaigns.
We did not see it in Q3 like we did in Q2.
However, we know lots of other people are seeing it we certainly know that.
In the holiday season coming up I mean, just today I was reading articles about there's not gonna be Turkey for Thanksgiving.
So we are very cautious about it so it certainly has dampened. The Q4 guide that we gave you is why the range is wider than it's why it's.
Certainly you know lower than we would've we would've thought and hoped to be for these issues happened. So the real we haven't seen them in Q3 like we did in Q2, we are cautious for coupons.
On the competition question.
There is there's really no one out there still in the U S and in the U K to the best of my knowledge that is competing with us in terms of getting access to big data and digital channels.
Publish targeted advertising content and content that gives you the ability to fully close the loop. There are certainly people out there who are trying to publish other types of content to some of our bank partners. Some of that content is complementary some of it is kind of noise.
But in terms of really creating true transaction base targeted marketing and fully penetrating all of that spend and being able to use it for advertisers and for advertising purposes. There is no one out there.
Got it.
30.
Thank you.
Our next question comes from the line of Cal Peterson with Needham Your line is open.
Hey, good evening guys. Thanks for taking my questions.
Wanted to touch a little bit.
On the outlook and typically if you guys have.
What you guys have seen in October whether it's qualitatively or quantitatively I think you guys mentioned that kind of the expectation is that things might get a little better or things makes it a little worse before they get better so.
Just wanted to see if there was any kind of update of what you guys are seeing either in the numbers or just conversations with advertisers.
Quarter to date, so far.
Yeah, Hey, guys. This is Dan.
Andy.
Look we tried to be.
Fairly clear that we are.
We are being cautious about Q4, we haven't quite seen the level of disruption.
We did a couple of quarters ago, but I think it's.
Really logical that.
As we get into kind of the peak demand season shopping season.
With some of the issues that are present.
To be stressed even further but I think while we haven't seen that yet either October October is.
Basically it won't be as expected but.
Think that risks really does remain.
Think that theres going to be a full quarter of spending.
As I think everyone is thinking about how do I secure.
Gifts and whatnot, a little bit earlier this year.
Will it be in a good position to handle things, but as it relates to advertisers' thinking about whether they need to be driving additional demand that's a huge uncertainty for us.
We are being cautious, but I think there's a very real risk.
We expect the pizza to some degree.
Alright.
Super Helpful. And then just a quick follow up on grid.
Obviously, the commentary seems seemed very positive and it's great to hear about some of these new deal wins, how should we think about kind of a ramp schedule of some of these recent deal wins and when we'll start seeing them show up in <unk> and revenue.
That's a great question. So when bridge signs a client first name the client has to do with this bridge access all of the data and then branch out.
Organize that data.
That can go as quickly as two weeks.
Still on average for most clients, it's taking a couple of months and that's just the client sort of getting their data organized in an order.
So.
He reached his ability to deliver for those clients until probably two maybe three months. After the deals are signed.
And then you can it is a it's a fact based model so.
The sort of D. A R R.
Later, however, what most clients do is they start by giving bridge a certain amount of data maybe a million customers to see what bridge can do with that data and then they give them more and more over time, it's pretty consistent so it's usually somewhere in the neighborhood of some clients gave all the data right away.
So call it three months, but some clients really do test and learn for a couple of months before they give all of the data so anywhere from three months to as long as nine months quite frankly, maybe even longer before you get to the full potential.
SaaS base amount that that client is going to pay them and then it continues from there obviously does that help.
Yeah, Yeah that's.
Streaming helpful. I'll hop back back in the queue. Thanks, guys.
Thank you.
Next question comes from the line of Jason <unk> with Craig Hallum. Your line is open.
This is billy on for Jason.
Thank you for taking my call.
I'm just wondering what kind of traction you guys are seeing with self serve what kind of indications you might be getting from users is building under long term confidence in solution.
Yeah. Thanks for asking the question so I want to be clear with investors that we are working with agencies.
Basically for the first time ever we started building an agency sales team for the most part this year, while we've had the occasional agency client.
In the past it was only when the advertiser that we went directly to referred us to that agency. We're now directly calling on agencies for the first time ever and I think some of the stats that I gave should've sort of show improve the momentum that being said not all of those agencies are using self service. Many of them are still testing and learning on the platform and letting.
Asked you to work for them and the service of course is available in it be one version, which is you know.
Strong, but rudimentary in terms of what what we ultimately want to have available so for us the.
Hey, we look about this how much spend are we getting from agencies and then how many agencies are over time doing more and more of the work themselves right now I would say most of the agencies are letting us do the work for them. There's a few exceptions.
But we were closely watching how over time as the platform has proven to them. They then start putting their hands on keyboard and that will continue to happen over the course of the.
The rest of this year into 2022, and probably even into 2023 quite frankly.
Great. Thanks for the color on that.
That's all for us.
Yeah.
Thank you.
Our next question comes from the line Aaron Kessler with Raymond James Your line is open.
Okay. Thank you a.
A couple of questions. Just you mentioned kind of the idea of paying headwinds are not seeing that in.
Maybe how you think about maybe potentially getting some budget share with marketers now maybe looking to reallocate some of the budgets have you had any conversations with respect to that and I did notice that the consumer incentive payments increased to I believe 35% in Q3, just any details around that and how we should think about that going forward. Thank you.
Hey, Aaron I couldn't hear what you said the very first part of your question.
It kind of wins that we're seeing on what.
The first part is the I think the idea of pay headwinds that the industry was saying you said that youre not seeing any of that thoughts on maybe gaining some market share from some of those marketers that would need to reallocate.
I mean.
Yes, yes. Please we're obviously out there being very very clear with our advertisers that we are not impacted by those changes that we can still reach the consumers that they want to reach in our highly secure channel and it is definitely a tailwind for US is obviously a fairly recent tailwind I think a lot of advertisers are still trying to figure out how it.
Has impacted your advertising strategy.
But we do think it will continue to work in our favor going forward just how much is hard to say.
But it is absolutely a tailwind.
And then got it.
And I mean, I think that one Andy.
Yeah, the trend I think someone's Dennis.
Yes, I think that was 35% in Q3, but my calculation a little bit higher than normal just thoughts on that yes.
Yes, that's right that's right. So you know look.
Look I think really what we saw this quarter the actual.
Percentage of incentives does fluctuate from period to period for a number of reasons.
Didn't see that during the pandemic, but the mix of advertisers really really shifted we saw a lower incentive during that time that has kind of shifted back.
Closer to where it's been historically on top of that we've talked a little bit about certain banks, who use some of their fi share.
In certain periods to fund Richard rewards.
Increases the consumer incentive but that were actually made whole on that those are dynamics certainly that we see today that does cause a little bit of noise on the billing margin.
What do you look down at our at our take your adjusted contribution as a percentage of the belief that is very very stable. He did have a little bit lower margin there than we've had over the last couple of years not that significant but I will chalk that up a little bit to just leave it that.
<unk> shift into our ads manager and as we work to finalize some of the optimization tools et cetera.
We'll see that rebound here, the next quarter or two but that's really the dynamics this quarter.
Got it that's helpful. Thank you.
Yeah.
Thank you.
I'm showing no further questions in the queue I would now like to turn the call back over to Lynn for closing remarks.
Well. Thank you everyone for joining the call as we've said I think.
Continue to see positive momentum with both our advertising base and the progress that we're making on diversifying our advertising base and our advertising capabilities.
So despite some of the short term tailwind certainly from the ones. We saw in Q2 and some of the ones that we're cautiously watching for Q4, we feel great about this business and where.
As optimistic as we've ever been so thank you for joining and we'll be available for questions. After for those who want to schedule a call.
Hello, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
[music].
[music].
[music].