Q1 2022 Quotient Technology Inc Earnings Call
Presentation slides located in our Investor Relations site.
Additional information about factors that could potentially impact our financial results can be found in our stockholders' letter issued today and in the risk factors identified in our annual report on Form 10-K filed with the SEC on March one 2022 as amended by Form 10-K, a amendment number one filed with the SEC on April 29 2022.
And in our future filings with the SEC.
We disclaim any obligation to update information contained in these forward looking statements whether as a result of new information future events or otherwise. Please note that operating expenses gross margins and net loss financial measures discussed today are on a non-GAAP basis, each having been adjusted for the corresponding GAAP measure to exclude certain expenses.
A reconciliation between GAAP and non-GAAP measures can be found in the financial results section of the stockholders' letter issued today and in the earnings presentation slides posted on the company's website.
I would like to remind you that the company its directors and certain of its executive officers are participants in the solicitation of proxies from the company's stockholders in connection with the company's 2022 annual meeting.
The company intends to file a definitive proxy materials for the meeting in due course.
Stockholders of the company are strongly encouraged to read the company's definitive proxy statement the accompanying proxy card and all other documents filed with the SEC carefully and in their entirety as they contain important information.
[noise] formation regarding the identity of company's participants and their direct or indirect interest by security holdings or otherwise will be set forth in the definitive proxy statement and other materials filed by the company with the SEC, which can be found for free through the company's website in the section investors or through the SEC website at Www Dot SEC Dot Gov.
We will not comment on the proxy contest with engaged capital on this call with that I will now turn it over to Steven Steven.
Thank you Marla Hello, everyone and welcome to our Q1 2022 earnings call. This will be my last time, leading quotients earnings calls as we execute on an orderly leader leadership transition to Matt <unk>, who as you know will become quotient CEO by year and I am confident that the company and its shareholders.
We'll be in good hands going forward.
I will talk a bit more about Mac his accomplishments at quotient to date and the impressive team. He has already started assembling in a few minutes.
Let me first start by briefly discussing a few highlights about last quarter and where we are positioned as a business. We are off to a good start in 2022 meeting or exceeding our guidance targets in revenue non-GAAP gross profit and adjusted EBITDA.
In Q1, we delivered $78 million in revenue and $32 million in non-GAAP gross profit both at the high end of our initial guidance and negative $7 million and adjusted EBITDA.
As previously indicated we have now renegotiated the majority of our remaining contracts such that going forward, we do not expect to call out any material changes to our gross to net accounting adjustments, which negatively impacted revenue, but have no impact on gross profit or adjusted EBITDA.
I am proud of the progress we have made in our transformation and our incredible teams unwavering dedication focus on execution and commitment to client service. While there is more work to be done. We believe we have laid a strong foundation and I couldnt be more excited for <unk> future.
It is from this position of strength that Matt Kreps at will be taking the reins as CEO .
<unk> appointment as CEO is the result of a nearly year long deliberate succession planning process led by our board of directors.
That is an AD tech and marketing veteran and since joining quotient over a year ago as chief analytics Officer, and more recently Chief Technology Officer. He has been instrumental in shaping quotient strategy defining our product roadmap extending our partnership network and recruiting senior level talent, who will drive the company.
Forward from here.
Matt came to quotient from Nielsen Holdings, where he served for more than 15 years in various executive roles.
At Nielsen, Matt lead attribution media planning and activation products. Most recently as senior Vice President and general manager of outcome products.
Mass other positions at Nielsen included global head of analytics products.
<unk> director of analytics Asia Pacific Middle East and Africa, and Vice President Analytics North America.
He also had an integral role in Nielsen strategic review process, which culminated in the sale of its Nielsen IQ business to advent international for $2 7 billion.
Matt is the right person to lead quotient and I am confident this will continue to be a smooth transition.
Okay.
I am also looking forward to you need corn, joining us as our new CFO .
You need brings over 25 years of global AD Tech finance and strategic operating experience to the role and will be an important partner to Matt and the leadership team as quotient enters the next stage of company's growth.
Unique joins quotient from Nielsen IQ, where he held several executive level positions.
Nielsen IQ was formerly Nielsen's global consumer business, and a world leading marketing intelligence enterprise.
During his 12 year tenure with Nielsen. He served in a variety of financial planning commercial and product strategy and business development roles, including President of the global consumer insights business from 2020 to present, Chief Financial Officer of Nielsen Global connect now Nielsen IQ and Chief financial.
Officer of Nielsen Global operations and technology.
The utmost faith, and Matt and his team to execute on quotient strategy to achieve sustainable profitable growth and drive shareholder value creation and now I'll turn it over to you need to say a few words before handing it over to Matt to take us through quotient go forward growth strategy you need.
Thank you Steven and good afternoon, everyone I could not be more excited to be joining cushion.
But before then I wanted to take this opportunity to introduce myself to you all I.
I have spent over 25 years in financial leadership roles.
And a variety of financial planning commercial and product strategy and business development positions throughout <unk> and.
In particular, my AD Tech and CPG industry expertise will lend itself well to the transformation currently underway at cushion, but I expect to be able to add a lot of value.
<unk> is a dynamic company with a strong product portfolio and valuable partner platforms.
After evaluating all of the work that the team has done over the past two years to transform the business I felt this was a perfect time to join.
I'm eager to roll up my sleeves, alongside Matt and the leadership team and take advantage of the many opportunities that lie ahead.
Look forward to meeting you all in person over the coming months and with that I will now turn the call over to Matt.
Thank you you need it's an honor to be here today as <unk> next CEO before I get started I'd like to take a moment and acknowledge steven's contributions as founder and CEO of this great company. During his tenure potion has begun to mature from a transactional services business to a scalable promotions network and retail media.
<unk> designed to generate repeatable business and reoccurring revenue over the last three years since he joined <unk> as CEO Stephen has led a transformation, which in our view positions us well for the future with.
What attracted me to join quotient a year ago, and what excites me, even more as the incoming CEO is our ability to connect our promotions and media platforms to amplify rois for advertisers, we believe it's where one of our biggest opportunities lie and it's where we're headed over the past few years the path to purchase has become more complex.
What I mean by that is shoppers have more places they can buy and are walking aisles less frequently. They are also being very deliberate in their shopping trips, making promotion discovery more difficult.
Aim to reach shoppers everywhere we.
We've been very intentional in solving these challenges.
We've partnered with our clients to better understand how we can deliver even better experiences for them and meet the evolving needs of their consumers as a result, we've identified opportunities to leverage the strength of our technology platforms and reach of our networks to make it easier for brands to reach consumers and shoppers to utilize promotions.
We believe we will capture these opportunities by winning in three key growth areas number one expanding our promotions network number two simplifying retail media buying and number three innovating media and promotions to drive outcomes for brands let.
Let me start with our promotions network.
<unk> has accelerated the growth of e-commerce and options such as delivery and in store pickup and as previously noted the shopping path to purchase has become more complex with more touch points along the way.
To keep up with these trends.
We're continuing to evolve our network partner model, adding new partners that help us reach more consumers across more touch points during their shopping journey.
In turn expanding our network enables us to generate more scale and is starting to create greater operating leverage and improved margins.
We are continuing to scale up existing and recently announced partnerships and our aim is to continue launching new partners and experiences on a regular basis. For example, we recently entered into a partnership to provide on shelf price tags to grocery retailers quotient will be incorporating our promotions into shelf tags, along with a QR code.
Would that shoppers can easily scan and then redeem at checkout or through retailers that we believe this will result in increased awareness and utilization of promotions, leading to more sales for retailers units move for brands value for consumers and economics for quotient.
In addition, we recently extended our partnership with Hy Vee launching <unk> national rebate capabilities, enabling highway customers, even more ways to save we believe this will extend the reach and raise awareness of our national rebates, creating greater scale for IV and quotient.
Our next strategic growth pillar is simplifying retail media buying retail media has become a significant focus for brands given the quality of the data and the ability to reach shoppers close to the point of sale to directly influence purchasing decisions. However, executing our retail media campaign remains a highly fragmented and manual process.
Yes.
Advertisers must buy across numerous retail media networks, each with separate target audience definitions and different AD formats. This also requires.
Creatives for each banner that are relevant and localized to each audience and store locations.
So while many CPG is are very interested in retail media the cost involved with executing a broad campaign is a barrier to long term growth.
That is why our goal is to be the easy button for CPG.
I mean by this is we intend to help brands targeted buyers, where they shop localized creative to a retailer and reach them across all relevant media channels and measure the performance of campaigns.
This platform solution is intended to ultimately reduce complexity time to execute and cost to serve this benefits clients drive scale and we believe will improve our margin structure let.
Let me elaborate a bit on each of these points.
Today's advertisers have to build audiences separately for each retail media network.
<unk> simplifies the process of identifying a brand's buyers and building its audiences using our platform advertisers can do behind their audience of buyers once.
Which can then be deployed across multiple retail media networks at once.
Next brands need tailor ads to each retailer using.
Using their specific AD formats are different banners and tailoring to each store location. Today. This is a very manual and time consuming process our platform Leverages AI to simplify this process and is designed to enable brands to create tens of thousand ads dynamically off of one piece of accretive significantly improves.
<unk> efficiency and returns we are also expanding the omnichannel reach of our retail media platform by continuing to add media channels and partners to make it a one stop shop for media buying for example, we recently began offering advertiser clients the ability to buy connected TV.
Television through our retail media platform. The CTV channel is garnering significant interest for advertisers and we expect it to more than double by 2024.
Today, we are pleased to announce a new partnership with tremor video a global leader in video and CTV advertising to enable clients to buy connected TV. We're excited to welcome them into the quotient partner network and look forward to providing more information in the future.
And finally, our platform provides clients with full transparency into their media investments by providing fully attributed campaign measurement. So that they may optimize their execution in real time to achieve better outcomes.
As with any technology platform Rollouts. It takes time to educate clients on the service teach them how to use it and achieve broad adoption. While we are in the early stages of implementation clients have been receptive and excited for the benefits they can achieve by utilizing our platform.
The third pillar of our growth strategy is our ability to connect our promotions and our media to drive sales and outcomes for brands as I mentioned earlier consumer spending habits are evolving and we continue to develop more creative ways to reach them.
One way or we're doing this is through the launch of our promotion amplification product. This tool enables brands to reach consumers across various media channels earlier in the purchase journey to create awareness of brands in store merchandising and trade promotion activities. We believe this will drive consumers into stores or online to shop, while cushion has <unk>.
Letters in promotions and in retail media, we are the only company that brings together promotions and retail media with tools like our promotion amplification product at scale.
As such we see our ability to amplify promotions in order to drive unit sales and outcomes as a competitive advantage.
In summary, our relentless focus on these key growth drivers, we believe will enable us to continue to capture market share and lead to profitable growth as we enhance our product portfolio streamlining our business operations and expand our network model. We believe quotient will yield meaningful long term returns for all of our stakeholders.
I want to thank you again for being here today and I am pleased to turn it over to John to walk you through our financials in more detail John .
Thank you, Matt and good afternoon, everyone. My remarks will be focused on our financial highlights I encourage you all to read the full financial results in our stockholder letter posted on the Investor Relations page on our website. We are off to a good start in 2022 meeting or exceeding our guidance targets and revenue non-GAAP gross profit and adjusted EBITDA.
<unk> was $78 $5 million down 32% year over year, but towards the top end of our original guidance of $69 million to $79 million.
Q1 reflected the loss of Albertsons from February 26 on and included a $13 million adjustment related to moving from gross to net revenue recognition as a result of the changes we made to commercial terms and operations.
Excluding albertsons in the gross to net revenue recognition adjustment from both the current and prior year quarters revenues declined 15% year over year.
Promotions represented 64% of total revenue and media, 36% versus 60% and 40% respectively. In Q1, 2021 promotion revenue decreased 28% year over year, excluding albertsons and gross to net revenue adjustments promotions revenues declined.
16% due to difficult prior year compares compounded by the impact of supply chain challenges in the current year as well as being negatively impacted by our exit from our specialty retail business.
More specifically last year Q1 saw a stronger than expected performances CPG that has held back spending in the first half of 2020 due to Covid spent those funds towards the end of 2020 and into 2021.
By contrast, this year supply chain issues led cpg's to pullback on national promotion campaigns as inventories remain tight resulting in less need for promotions to move product.
Media revenue declined 38% in Q1, or 14%, excluding albertsons and gross to net revenue adjustments.
Similar to promotions media was also negatively impacted by supply chain issues.
GAAP gross margin was 37, 4% down 20 basis points gross margin was negatively impacted by our planned exit from the high margin specialty retail retail business and negative mix due to a lower share of high margin national promotions revenue, resulting from the previously noted difficult compares and supply chain.
Issues.
This was partially offset by lower amortization of intangibles and our gross to net revenue accounting adjustments.
non-GAAP gross profit was $32 2 million.
At the top end of our original guidance of 28% to $32 million.
Gross margin was 41, 1% down 260 basis points compared to 43, 7% in Q1 last year. This decrease was primarily due to negative operating leverage on lower revenues and our planned exit from the high margin specialty retail business.
And negative mix on lower national promotions, partially offset by the impact of implementing growth to net revenue recognition.
Over the course of the quarter, we were able to renegotiate the majority of our remaining contracts such that going forward, we do not expect to call out any new material changes to our growth to net estimates.
Q1, non-GAAP operating expenses were $41 2 million down $4 $3 million from the prior year and down $5 $3 million sequentially. The year over year decline was primarily due to head count reductions the removal of marketing costs related to our specialty business, which we exited and an increase in capitalized R&D.
<unk>.
Adjusted EBITDA was a negative $7 1 million versus a positive $6 8 million in the prior year and in range with our original guidance of a negative $4 million to a negative $8 million.
The decline in adjusted EBITDA was due to lower gross profit, partially offset by lower operating expenses.
We expect our non-GAAP gross margins to continue to improve throughout the year as we see the benefit from the implementation of gross to net revenue recognition being recognized starting in Q2, but more importantly, we expect to see positive margin mix from growth in high margin national promotions, and operating leverage and scale benefits from the <unk>.
Pension of our promotions network adoption of our retail media platform and careful expense management.
We also believe that gross margin improvement combined with careful Opex management should lead to adjusted EBITDA improvements as the year progresses.
Turning to cash we are reaffirming our full year operating cash flow guidance. However in Q1, we used more cash than expected. We had an operating cash flow usage of $25 $6 million in the quarter below our guidance of a negative $3 million to positive $3 million.
Primarily due to working capital fluctuations this results in slower than expected build in deferred revenue bookings primarily associated with duration based promotions, mostly due to supply chain constraints faced by CPG is in Q1. In addition to the timing of collections and payables.
Importantly, our receivables are healthy and our pipeline remains strong in the back half of the year. We ended the first quarter with $202 6 million in cash and cash equivalents down $34 8 million from year end, primarily due to a $25 million earn out payments with BMO and the second and final 8 million.
Our upfront payment to a customer that will be amortized against future revenue. Both of these items were in line with our expectations.
Now turning to the outlook.
For the second quarter of 2022, we expect revenue to be in the range of $68 million to $76 million.
non-GAAP gross margin to be in the range of 35 million to $39 million.
Adjusted EBITDA to be in the range of a negative $2 million to positive $2 million.
And operating cash flows to be in the range of 7 million to $12 million.
For the full year 2022, we are reiterating our previous guidance for revenue to be in the range of $330 million to 330 $345 million.
non-GAAP gross margin to be in the range of $180 million to $190 million adjusted EBITDA to be in the range of $35 million to $45 million in operating cash flow to be in the range of $15 million to $25 million.
We estimate weighted average basic shares outstanding for 2020 to be approximately $95 9 million slightly below our prior estimate of $96 3 million and with that we will now take your questions.
Operator.
Thank you we will now begin the Q&A session. As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
We'll now take our question from Chad Bennett of Craig Hallum.
Your line is open.
Great. Thanks for taking my question. So maybe a quick one just on the cash again, so your cash went down by $35 million sequentially.
Cited a couple of items you actually benefited from receivables came way down like $60 million.
And the items, you mentioned, where they are known items. When you gave the cash flow guidance for the quarter, our cash burn guidance for the quarter.
Hey, Chad, Yes, we certainly had a slower rate than expected kind of build on our deferred revenue from our duration programs.
Certain program is going to move out a little bit further just due to some pressures on supply chains. Some of our brands had and then just some timing issues.
Towards the end there on some payables and receivables.
You benefited from receivables, though right.
We did we added benefit from receivables, but we expect it to have some more come in and just add some movement there on timing.
Okay.
And so and then on the media kind of pro forma I didn't catch that.
That year over year could you say that again.
The revenue.
The revenue on year over year.
Yes.
Yes, yes.
Yes, just one minute here.
Yes.
Yes.
Yes, so media declined 38% in the first quarter.
Okay.
So.
Yes.
So I'm just trying to understand better.
On kind of the kind of pro forma ex gross to net next albertsons growth rates.
I mean, the supply chain issues have been there for a long time.
If anything else they probably improved I mean, I don't think AD spend has been.
Our promo spend.
Down, 20% and 30% year over year. If you look at comps was there is there some.
Nothing else we're missing.
Yes, the other thing I'd say too is we had a strong comp strong Q1 last year. So as you think about that was early into that like I said.
Early independent make we saw a lot of brands pullback spending and then towards the end of that time period in Q4 and Q1, we saw a lot of budget flush coming through so we had a really strong Q1 last year and so one thing that we're seeing this year is just some tough comps in terms of the year over year comparison, once we kind of pull out the abscopal kind of change.
Okay, and then maybe one last one for Matthew Matthew just in laying out kind of the.
Areas of focus for the platform.
Simplifying retail buying and measurement and so forth.
Where are we today and how much more work do we have to do to kind.
<unk> developed.
<unk> developed that platform to where are you.
You talk about it today and.
Effectively.
As you kind of talk to customers more and more now that you are.
Kind of in the in the CEO role or more acting CEO role.
What is their take on your platform rather than.
Running media via Albertsons, retail media network, or Walmart or target or whatever I'm, just trying to get a sense of the value you really add there.
And kind of how they talk to you about it.
Yes, so I would say.
Over the past few months I've, just been spending a lot of time out in the field talking to a lot of our customers and our clients and we all look at retail media is a tremendous opportunity as we think about the evolution of the media landscape, we see a move towards more deterministic verified audiences and REIT.
While media presents that opportunity in spades, it's a fantastic channel however.
The biggest challenge they all see when we sit down and chat with them is hey, we love the promise and potential of retail media, we want to spend more dollars in this space, but we're starting to face. This challenge of we can buy across 123 different seats, but we can't continue to buy across 45678.
910, 11, 12 different individual retail media networks and so the big demand in the ask from our clients has been hey can you simplify this.
Really sit at the intersection of a lot of these retailers you have a lot of really good experience managing a network.
And we love, where youre going from a technology standpoint, and a platform and the ability to kind of execute that campaign across the networks right. So that's where we've launched our multi touch attribution capability to kind of provide that performance metric. We're rolling out our creative building capabilities to simplify that process of brands can build thousands.
<unk> adds that are localized and personalized and relevant for each retailer. So theres a lot of momentum there in this space and just really excited about kind of getting the platform in the hands of more users and partnering with our brands as they start to make this transition and transformation for retail media and commerce.
Got it great. Thanks for answering my questions.
Thank you.
Thank you Chad.
This time I would like to turn the call back over to the management team for any closing remarks.
Okay.
Thank you operator, and thank you to everyone, who listened and participated on today's call. We delivered a solid quarter achieving the high end of our range for revenue and gross profit and within range for adjusted EBITDA.
We are pleased with the progress, we're making to transform our company and capitalize on the significant opportunities ahead.
I am excited to lead the company forward at this important time and look forward to continuing to execute on our three key pillars of growth to build out our national promotions network leverage our retail media platform and capitalize on the combination of promotions and media and we expect to deliver enhanced value for our advertisers.
Our partners consumers and our shareholders. Thank you again for joining and we look forward to speaking with many of you over the coming days and the upcoming investor conferences.
That concludes <unk> first quarter 2022 earnings call. Thank you all for your participation you may now disconnect your lines.
Okay.
Yes.