Q1 2022 Cardlytics Inc Earnings Call
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Operator today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Thank you for standing by and welcome to the first quarter 2022 Car, Inc Earnings Conference call.
This time, all participants are in listen only mode.
Please be advised that to say this conference is being recorded after the presentation. We will conduct a question and answer session to participate press star one on your telephone keypad. If you require any further assistance. Please press star zero.
I will now hand, the conference over to Kirk Somers. Please go ahead.
Good evening and welcome to cosmetics first quarter 2022 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 and results our financial guidance for the second quarter, our ability to achieve our key long term priorities increase in M. A user monthly active users connected to our AD server.
Increasing ARPA or average revenue per user.
And bridge a R R or annual recurring revenue impact of COVID-19 on our business and the economy as a whole the sufficiency of our capital structure economic recovery across verticals by the end of 2022.
The growth in advertisers on ads manager the use of cash or the bridge earned out.
Turning 30% annual growth rates, achieving positive adjusted EBIT in the second half of 2023.
Claims for entertainment and their content.
Adding new financial institution.
And banking partners renewable of our bank of America contract growth with bridge.
Margin profile continued momentum with agencies and advertisers in 2022, and the anticipated benefits of our acquisitions of Dosh Bridge and entertainment.
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 March 31, 2022 which will be filed 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 one week.
You can find the information I've just described in the Investor Relations section part Bolitics website.
Please note that a supplemental presentation to our first quarter results has also been posted on the Investor Relations website.
Joining us on the call today are card lytic, CEO and co founder and then they'll dee.
And CFO Andy Christiansen.
Following their prepared remarks, we'll open the call to your questions with that said, let me turn the call over to Lynn Lynn.
Good evening and thank you for joining our Q1 2022 earnings call. We had our largest Q1 ever and delivered results that exceeded our guidance. Our sales team continues to deliver against our plan. Despite a choppy macroeconomic environment here are the numbers billings increased 28, 7% year over year to $98 2 million.
Revenue increased 27, 6% year over year to $67 9 million and adjusted contribution increased 34, 6% year over year to $32 8 million.
Our Q1 results reflect year over year billings growth in Oliver industry verticals et cetera, restaurants, which continues to be impacted by labor and supply chain issues.
Choppiness in restaurant with balanced by significant improvement in travel and entertainment as well as improvements in the direct to consumer and retail industries, which reflect the continued diversification of the business let.
Let me share some specific examples of what we accomplished.
Travel and entertainment had a great quarter and was up nearly 150% over Q1, 2021, restock consumers transact transact frequently for concert cruises and travel and leading to a 54% increase in overall consumer spending in the sector.
In addition, the bank co brand partnerships that we mentioned last quarter were a key driver to the outperformance and these relationships continue to help us unlock new sources of marketing budget.
And the direct to consumer sector, a large subscription service provider that piloted with us in 2021 signed a new contract in the mid seven figures while incremental return is important to this client a key factor in the increase was the unique insights that we can provide on purchase behavior around subscription rates and churn rates.
For retail consumer spending is still growing and we're seeing a stronger than expected return to brick and mortar. We had eight seven figure contract wins in the retail space in Q1, due to our incremental return and custom competitive insights.
Advertising spend from agency accounts grew over 60% year over year and represented over 10% of advertiser spending during the quarter.
Over a third of active Q1 agency accounts, where new business in this quarter, but our earliest partners are also scaling quickly.
We also produced several new reports for agency you see our self service tool in the quarter.
Moving on from results I want to provide an update on our key platform enhancement initiatives.
Our work on the AD server ads manager and user experience adoption continues to progress we have bank commitments to connect 50% of any use to the new AD server by the end of the year and as a reminder, we are dependent on banks sticking to these timelines.
In the first quarter, we began piloting local content from our partner with one of our major banks. This is an exciting development and allowed us to test the scalability of our new advantage of it.
In this pilot we included over 300 hyper local advertisers from a third party content provider.
In addition, our newly formed mid market group.
And we published 200 mid market advertisers in Q1, bringing our total advertiser count for the quarter to over 600 advertisers.
We are well on our way towards reaching our goal of having over 1000 advertisers running simultaneously on the platform in 2022.
This pilot is also important because it tests, our new platform scalability on the old platform, we could launch a maximum of 40 new campaigns a week with this pilot on the new platform, we launched 325 campaigns over a few days.
This is a compelling early proof point on the potential to reach many thousands of advertisers over time.
Our bank relationships continue to be strong all but two of our banks have committed to moving to the cloud and one of those two is in the final stages of approval. The last bank as the midsize bank and we expect to receive approvals from them in 2022.
Bank of America contract is still on pace to be renewed and we are progressing nicely.
We expect to come to an agreement that is mutually beneficial for both parties.
One of our large banks has seen twice as many mobile activation since they improve the program visibility in late February another large bank is planning to nearly double their 2021 investment spend into the program to leverage our offers as an extension of their core loyalty program.
And despite small sample sizes, we continue to see the new AD server outperformed the old server in interesting ways for.
For instance customers that are served hero imagery are two to four times more likely to visit an advertiser website BN external click.
With our recent focus on neo banks and Fintech via Josh. We now have 18 publishers live and 15 publishers that are under contract and scheduled to launch later this year.
Additionally, despite the delay the marquee partner, we mentioned last year is scheduled to launch the Das program this quarter. This.
This partner reaches more users than any dos partner, we signed and we are excited to begin working with them.
We remain enthusiastic about the long term growth opportunities with these partners as well as their ability to further diversify our base and then they use.
The bridge progress and pipeline remains strong and still includes late stage opportunities at CPG and grocery that we mentioned last quarter, which are very close to being signed in.
In addition, we have several new pipeline opportunities within retail grocery and convenience and restaurant that were initiated through a joint sales effort between the card Bolitics enbridge genes.
Integration with entertainment is proceeding well the acquired business met expectations for the quarter and were working to start leveraging your content on the broader <unk> platform.
Our U K business grew revenues 52, 6% year over year for its largest Q whenever the result was driven by a recovering economy and execution from our sales team.
The business saw year over year growth across all industries, and grocery and gas were standout performers. Additionally, several top clients that laps with the pandemic returned in Q1. So we believe the U K business has strong momentum going into Q2.
Overall these strong results exceeded our expectations, especially in light of the challenging macroeconomic conditions in a quarter that is historically the seasonal low point for our business.
U S consumer spend in the quarter was the highest in four years despite risks from inflation.
However, we did see U S spend pullback in the last two weeks of March down, 5% and 3% year over year, respectively.
We're watching consumer spend carefully and we'll continue to monitor its effects on the business as interest rates rise in this inflationary environment. It.
It sounds prudent to point these risks that to investors, but we also believe that the performance based nature of our platform can deliver results in a price sensitive consumer environment. We remain cautiously optimistic we will meet and even exceed our 30% growth targets for 2022.
Before I turn the call over to Andy I want to take a moment to welcome welcome Jose singer to the card Linux team, we recently announced that Jose is joining us as chief product officer, succeeding Michael Akkerman.
Donna Thank Michael who did a great job in building, our product organization and expanding the capabilities of our platform Michael.
Michael hired a talented team that is well positioned to either functional areas. During this transition.
Our new ads manager is running 100% of campaigns and as I mentioned, we're starting to deliver the self service capabilities, we discussed with investors back when Michael started.
Our ads manager is performing well and we have solid line of sight to connect 50% of <unk> to our new AD server before the end of the year. Thank you.
We were incredibly fortunate to attract so Dave and the team. He brings over 16 years of experience building and running product team. He has the skills, we need to build on the foundation accolade because they joins US from next door, where he served as head of products for the business and agency solution.
In this role Jose was responsible for the end to end product experience unifying the AD platforms and the overall strategy for small and enterprise advertisers prior.
Prior to his role at next door, who they held various leadership positions at Yahoo, including the Vice President of product for their advertising solution, where he ran their native search service delivery and supply side platforms.
With that I will turn the call over to Andy.
Thank you Lynn the business strengthened in the second half of the quarter, allowing us to exceed expectations year over year, we managed to grow billings 28, 7% to $98 2 million ROE revenue 27, 6% to $67 9 million and grew adjusted contribution 34, 6%.
To $32 8 million.
Geographically U S revenue grew 25, 5% year over year and UK revenue grew 52, 6%.
<unk> back to back quarters in the U K is a welcome sign that they are recovering from their extended pandemic related Lockdowns 2021.
Before I move to EBITDA I wanted to discuss bridge results bridge.
Bridge revenue grew 17, 3% sequentially from Q4 to Q1, which was nearly 90% growth or annualized basis.
Despite this impressive growth and revenue.
ROE, which is calculated as annualized revenue to the last months of the quarter declined quarter over quarter from $15 3 million in Q4 to 14 million in Q1.
This temporary decline was primarily due to exploration with two large contracts in Q1 that we are close to extending it even higher.
We also have a large multiyear contract pending signature so our expectations for arrow to grow significantly next quarter, and then resume growing more consistent with revenue.
Bridge gross margin increased to 55, 6% in this quarter from 47% in Q4 of 2021.
As a reminder, the bridge business incurred higher expenses for employee Onboarding, given the large amount of historical point of sale data transfer and upon implementation.
Gross margins will grow over time as the business matures and develops a larger base of customers, but we expect bridge gross margins would be pressured over the next two years as the business continues to grow at a fast pace.
Longer term, we expect bridge to achieve 75% gross margins.
To help investors understand this dynamic we introduced a new slide in our supplemental earnings deck with additional color.
Adjusted EBITDA was a loss of $10 5 million in Q1 of 'twenty, two compared to a loss of $3 9 million in Q1 of 'twenty one we.
We expect a slight improvement in EBITDA in Q2 compared to Q1, given the uptick in adjusted contribution, but as I mentioned last quarter. We also expect an increase in operating expenses largely as a result of wage increases in April along with some planned investments in sales and technology.
We remain confident that we'll reach sustainable positive adjusted EBITDA in the back half of next year with continued strong performance. It's possible that we can accelerate our path to profitability.
We ended Q1 with $208 3 million in cash and cash equivalents compared to $233 5 million at the end of Q4.
We used $2 3 million of cash in connection with the entertainment acquisition and also saw an increase in working capital driven by the timing of collections prepayments for insurance and software and payments for incentive compensation earned in 2021.
Our balance sheet liquidity remained very strong and we also have 50 million available to us under our loan facility. So we see no immediate need to raise additional funds.
We are thoughtfully, considering the right blend of cash or equity to satisfy the bridge from out payment due in Q2, and we expect to use more cash than a 30% minimum required under the merger agreement.
And they use were $178 5 million, an increase of five 9% year over year our.
Our organic growth rate was in line with our long term expectations of low to mid single digit growth.
Arco during the first quarter was 36 cents, an increase of 12, 5% year over year.
We expect <unk> to continue to increase on a sequential and year over year basis through the rest of the year as revenue continues to grow at a faster rate than they use.
We had $33 8 million shares outstanding at the end of Q1, compared with $33 5 million at the end of Q4.
Weighted average shares outstanding during the quarter was $33 7 million compared to $29 3 million. During Q1 of 2021, which reflects both our $3 9 billion share equity offering last year and the issuance of $1 1 million shares for the adoption of entertainment acquisitions.
Now turning to guidance.
Consistent with our long term outlook, we expect year over year growth of approximately 30% in Q2, which equates to total billings of between 106 hundred $16 million total revenue of between 73 and $80 million.
Adjusted contribution of between 36, five and $45 million.
I want to reiterate what Lynn mentioned earlier about the outlook for next quarter and the rest of the year.
Our internal reports of macro U S consumer trends shows that spending in the first two weeks of April was down slightly year over year.
But our platform is clearly outpacing that they're showing solid year over year growth.
We're keeping a close eye on consumer spending and external events.
Mostly optimistic we can continue to deliver solid performance throughout the year.
What is an increasingly price sensitive environment.
Q1 was a solid quarter and we're really pleased with the execution despite significant uncertainty in the global economy.
As I've said in the past we remain focused on the things we can control.
Eloping and maintaining strong relationships with all of our partners expanding our offerings and developing a technology platform.
Lock the massive potential of our channel.
We remain focused on strong execution here in Q2 look forward to sharing more updates on our progress throughout 2022.
I'll turn it back over to Lynn.
Thank you to everyone supporting our business Q1 was a solid start to the year and we believe our business will continue trending towards the 30% year over year growth target. We set out last quarter. What are you looking forward to executing on our plan, both financially and strategically with that I'll open up the call for your questions.
Thank you and as a reminder to ask a question simply press star one on your telephone to withdraw your question press the pound or husky.
Your first question comes from Aaron Kessler with Raymond James Your line is open.
Great. Thanks for the question first.
On the agency pipeline can you just give us a sense for how that looks and maybe what size.
Are you, saying just kind of more mid market or kind of the large agency and then from a nurse the campaign spend looks like decrease a little bit on the groceries and restaurants categories. Because it was up nicely in the travel maybe specific to groceries and restaurants stubs the interest to get your thoughts there as well.
Hey, Darren how are you.
Good.
Yes, we've identified 35 or so agencies that were targeting.
Paul Matteis agencies, there are a handful of really big ones.
The big ones is they all have different.
Organizations within the big agencies that you need to sort of penetrate the big agency getting MSA and then you still need to penetrate division by division. So theres a mix, but most of them are more niche type.
Have agencies that represent I would call it.
Mid market types of clients.
Not the 500 advertisers in the country certainly the top line.
Right.
And then on.
Kind of the vertical is youre absolutely right.
It was really impacted this quarter and we saw a lot of Choppiness. We saw continued supply chain and labor issues with several of our larger clients, including service, which has been pretty vocal about it but also several others.
Graduated more of a mix issue.
Nothing to read into there but.
<unk> really was the offset for restaurants.
Got it that's helpful. And then just any additional details on maybe your cross selling this quarter between bridge in cosmetics I think last quarter you noted some nice synergies there.
Yeah, I mean, we're starting to figure it out I wanted to be cautious we have 25 clients that we've identified are ideal cross sell targets for Craig Livingstone Bridge.
These are clients that we know we benefit from the bridge solution and in many cases. These are clients that are worried about measurement and attribution on exploration.
The ability to have rich be their own attribution solution is really powerful.
Have a very small team of cosmetics enbridge people that are selling we are definitely in the early days, but we have three three clients for sure and probably another two in the hopper that are.
We are working with us on <unk>, we're seeing a lot of momentum there, but it's Jeff momentum you don't see it quite yet in the numbers.
Got it great. Thank you.
Sure.
Your next question comes from Kyle Peterson with Needham. Please go ahead.
Hey, good afternoon guys.
Guys. Thanks for taking my questions.
Just wanted to touch a little bit I know you guys kind of mentioned that there were some a little bit of fading in kind of the last two weeks of March and then you provided some commentary at least in the first couple weeks of April that suggest you guys are at least outperforming kind of the broader consumer spending.
Just wondering if you guys could give any color on your how the first couple weeks of April compared to those last few weeks of March was it kind of further deterioration was about flattish or maybe a little better I'm just trying to get a sense of kind of how things are going on at least the most recently available data.
Got that.
Yes, Thanks Paul.
We saw in the back half of March spend really kind of turnaround we have.
Most of the tumor pretty good year over year growth.
And that kind of deterioration started in March it did improve a little bit in April it was down very very slightly with not a lot, but nonetheless, our platform continued to really.
Outperform expectations and really we're able to deliver it.
The challenging spending environment. So we certainly are.
This trend that we're able to deliver this despite the challenges of the market.
That's really helpful. And then I guess, just kind of a high a higher level follow up I'm really just on the diversification efforts with the platform you know thinking back to kind of where you guys were you know were.
Around <unk> of last year compared to now it seems like a lot of things, whether it's supply chain or.
Inflation and some pressures on the consumer.
It seems like those headwinds broader.
Broader level have gotten a little more acute but could you guys in terms of the performance. It seems like it's been more consistent is this just a more diversified platform is a couple big campaigns in travel coming in really giving you guys. A big boost this quarter just trying to put together some of the puts and takes.
Just kind of how you guys are outperforming.
Yeah, Hey, Kyle.
Yes is the answer to kind of everything you said, but just to give you a little bit of a historical timeline what happened in Q2 last year surprised us. The first time, we saw supply chain issues and labor issues and so absolutely surprised since then we're much better about not getting surprised but you certainly see that we're scrubbing our pipeline is much more carefully where.
Really understanding what risk clients may or may not have in their own businesses better than.
And then you also see increased diversification I mean, we're at 600 advertisers running.
In Q1, I don't remember how many we had in Q2 of last year, but pretend. It was 120 <unk> hundred 30, something like that so you are seeing diversification, you're seeing really nice travel come back as we've talked about in the script, but that is somewhat offset by restaurant.
Just a bit of everything it is still very messy out there for sure, but I think we're getting better at predicting and working with our clients on the Messiness and making sure. We don't get ahead of ourselves there and also on diversifying.
That's really helpful. Thanks, guys nice quarter.
Thank you. Your next question comes from Jason <unk> with Craig Hallum. Please go ahead.
Great. Thanks for taking my questions just given the success based nature of the platform I think you could conclude that.
The card Lititz AD budgets could be a little bit more isolated from the macro than the broader AD industry. So just curious if youre hearing dialogue from advertisers that would support that maybe those budgets are a little stickier.
Hey, Glenn.
I mean, I think what we're hearing much more consistently from clients is just the macro economic challenges that they're dealing with.
And so they are either pulling back.
In most cases is they are pulling back or pulling back everywhere probably lifestyle with us.
While we are seeing some positive.
Our response to the performance based nature of the channel I think it is way too early to declare that we're going to be less susceptible than other ad budget.
Out there right now just because it is so.
As I can say.
Fair enough.
And then just on the AD server wondering if there's any notable progress you called out that you have commitments to get to that 50% goal. Just curious if those are new commitments to get to that level and then if you're hearing any commentary from the bank partners on what that deployment timeline looks like.
Yeah, I mean, we've been working with all of our banks as you know for multiple quarters now to get commitments from these commitments are not new there Jeff.
We're closer to the date, so as you get closer to the day, you feel a little bit more confidence that maybe they are not going to fly we do have commitments from multiple banks, just you know not not.
Not all this year.
And banks are as we all know frustratingly, sometimes slow and will delay a project for what seems like almost no reason. So this is an aggressive goal still.
But we do have a committed date that we are getting closer to it.
Perfect. Thank you.
Thank you and as a reminder to ask a question simply press star one on your telephone you're.
Your next question is from Jeff Cantwell with Wells Fargo. Please go ahead.
Hey, Thanks, Thanks for allowing me to join these calls I Ah congrats on the results.
Couple of follow.
Follow ups on your commentary earlier can you maybe talk some more.
The rest of the year on billings is there any additional color you can provide on what type of cadence should we expect to see here.
There seems to be a lot of moving parts, maybe just help us understand the seasonal transferred Michael obviously, we're looking forward on billings and how long it would be sticky might be about the back half of the year or any thoughts there would be appreciated. Thanks.
Yes, you bet Jeff.
So we've talked.
These are recently around R. R.
Growth target growth rates of 30% plus growth rate.
We still are very comfortable with with achieving that this year and beyond.
Now Q2, Q3 vertically, we've had a little bit of inconsistency as to which quarter is going to be larger than the others.
Do you think those this year that we're going to see Q Q3 into Q2, and we always see Q4 rate was the seasonal uplift of spans AD budget as is always our biggest quarter.
So I don't think thats going to be a real.
Dramatic growth from Q2 to Q3, but we will see Q3 be larger.
Have a very difficult comp in Q4. So we do think that we should have some nice growth rates in the next couple of quarters.
Q4, maybe a little bit more challenging there, but but that should be how accomplish over the next couple of quarters.
Okay, Great I appreciate that and could you just clarify it sounded like you might have been talking earlier about seeing opportunity to potentially accelerate the path to profitability around the back half of next year.
Is that right what are the drivers there can you walk us through that and talk a little bit more about what do you see as the drivers there.
Yes, I mean, we've talked about being profitable back half of next year I think if we sustain our growth and achieve our goals over the next several quarters, we're going to be in a great shape to accelerate that rate that comes with higher growth rates that comes with on the edges.
Sharpening our pencils on our Opex and a little bit more discipline, there, but really if.
These growth rates were going to be profitable in the back half I think it just remains to be seen quarter by quarter right. What is that growth rate, we've talked a lot about our growth.
It doesn't always it's not a straight line right. So if we can sustain these growth rates. According to our plan that will be.
Great position there.
Okay, Great I appreciate all the color and thanks again and congrats on the results.
Yeah.
Thank you. So much next question is from Nat Schindler with Bank of America. Please go ahead.
Yes, hi, guys.
Just a quick question I wanted to.
Your slide 16.
Offer activation rates by industry.
Travel picking up I guess more people traveling that's pretty that makes some sense, but everything else actually ticked down on a year over year business the year over year basis is there any specific reason.
Yeah.
Thanks, David Flynn.
Yeah.
Got you first start you know that's why we were so cautious with our guide that we gave it definitely got it.
To start I.
I think it's just more of everything that was happening we were in some way with delta or Covid I can't remember what way, we ran the warranty almost already.
Okay. Thank you omicron gas prices were going through the roof.
It is much more related to the quarter getting off to a bit of a rough start the one call out I will say is grocery that's much more of a mix issue and we haven't a number of really large grocery platforms in that channel that are like subscription type services. So they have lower click rate, but much higher revenue potential.
So you've got a mix issue there, but I think everything else was really just around slow start to the quarter and it was just it was a really weird January and February in the world not just the cards.
Totally understand that but do you see April engagements backed up on a year over year basis. I know that this is really hard with different waves of Covid, just messing with the macro but April was going to be clean last year in April now how does that compare.
April was looking clean now as Andy said, we're watching closely so it's slightly down year over year in April but not like what we thought in the back two weeks of March but so far April bookings.
Sure Joe.
It wasn't just a little bit to dig into that especially at the grocery.
I'm interested in because it's a different type of product, but with.
Inflation push on the consumer.
You know Joe Wood products, which are you know at.
At this time in service with the coupons.
Wouldn't.
Wouldn't that have an uptick in this type of economy or is it just the overall spend which is the driver.
It's the.
So we have some new grocery advertisers in the platform.
Much more subscription based and so it's a higher upfront cost for the consumer.
More but it's a higher upfront costs and we've got more of those in the platform than we've had before.
So youre not seeing as much of the say, 3% on your groceries at retail are you still seeing that because youre also seeing you know.
And $100 on this particular subscription and save 20, and so I think it's much more like those those will have lower rates, just because it's a higher upfront cost for the consumer even though they save more and we make more money, but the claim rates are just by definition the higher ticket price.
Right.
Across every vertical wells on average that's the way it works.
Yeah.
That makes sense. Thank you yep yep. Thank.
Thank you and with that we conclude the Q&A session I will turn it back to MS. Lynn lobby for her final remarks.
Well, thanks, everyone for listening to our earnings call.
We were pleased with the quarter.
The conference puts and takes but overall pleased with the quarter and we continue to believe that we can see 35% growth year over year for multiple years to come even with some lumpiness out there yeah.
We're feeling good about where we're positioned as a company as a business and as a leadership team.
And with that ladies and gentlemen, we conclude our conference for today. Thank you for participating and you may now disconnect.
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