Q2 2022 Quotient Technology Inc Earnings Call
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Good afternoon, ladies and gentlemen, thank you for attending today's quoted Q2 2022 earnings call. My name is Tia and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask.
A question. Please press star one on your telephone keypad.
I would now like to pass the conference over to your host Marc Griffin.
You May proceed.
Yeah.
Thank you operator, good afternoon, and welcome to <unk> second quarter 2022 earnings call.
This press release and earnings presentation have been posted on the IR section of the company's corporate website investors quotient dot com.
Before we begin please note that during this call you will hear forward looking statements, including the guidance, we will be providing for the company's third quarter and full year 2022.
These forward looking statements are based on information available to and the good faith beliefs of the company's management as of this call and are subject to known and unknown risks and uncertainties that could cause the actual results to differ materially from those contained in the forward looking statements.
These forward looking statements and the related risks and uncertainties are set forth in the earnings presentation slides located.
On the company's Investor Relations website.
Additional information about factors that could potentially impact the company's financial results can be found in the risk factors identified.
We will report on Form 10-K filed with the SEC on March one 2022 as amended by Form 10-K, a amendment one filed with the SEC on April 29, 2022, and in our quarterly report on Form 10-Q filed with the SEC on May 15, 2022, and the company's future filings with the SEC.
We may 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 gross profit gross margin adjusted EBITDA and adjusted EBITDA margin and operating expense financial measures discussed today are on a non-GAAP basis.
Have each been adjusted from the corresponding GAAP measure to exclude certain expenses reconciliations.
A reconciliation between GAAP and non-GAAP measures can be found in the earnings presentation slides posted on the company's website.
That let me turn the call over to Matt.
<unk> CEO .
Good afternoon, everyone. Thank you for joining our second quarter earnings call.
Today marks the beginning of a new chapter for portion.
I am excited to be here with you as <unk>, new CEO alongside our new CFO , you need Conn and our President Scott Raskin.
It's been a busy couple of months as we've taken an in depth look at the company and had valuable conversations with employees key customers and key partners.
Since I became CEO , we have made significant progress in focusing our strategy and positioning the company to maximize the value of our leading promotions network and retail media platform.
Throughout this time I've been able to leverage my prior experience as quotient CTO, where we're closely on strengthening our strategy and product offerings and growing our promotions network.
Let's start with a quick review of second quarter performance.
Despite a complex macro environment, we were in the range of our guidance delivered.
Delivering a total revenue of $69 3 million.
non-GAAP gross profit of $36 2 million and EBITDA loss of $1 3 million and positive operating cash flow of $19 5 million.
I'm proud of our margin expansion as we have continued to improve our operational efficiencies and reduce our overhead cost to streamline the business.
We exited the second quarter with approximately 52% non-GAAP gross margin.
In addition, we've made significant strides to improve our working capital by creating greater focus and rigor on our dsos throughout the quarter.
We expect continued margin improvement into the second half of this year as we see the result of the recent steps, we've taken to optimize our expenses, including the difficult, but necessary decision to reduce our head count by approximately 7% globally.
In addition, we've also consolidator offices to better align our real estate footprint, where their hybrid work model.
As you need will discuss further we continue to make strong progress to address the upcoming maturity of our debt.
We have brought in an external financial advisor to assist in this process.
Our philosophy is to find a balance between cost of capital equity dilution and other factors.
We believe we have a strong foundation with our core assets and the team has made significant progress in transforming quotient.
Over the past few quarters, we have worked hard to integrate businesses Sunset legacy systems and simplify our technology.
We continue to realign our expenses and organizational structure to capture the market opportunity.
Additionally, in the past few months, we have hired incredible talent in critical areas of the organization that will help to drive change and value for our shareholders. This includes a refreshed management team.
New technology leaders with significant AD tech experience.
The new leaders, we've hired over the past six months, including our new CFO CIO and CTO bring a fresh perspective and are already having an impact accelerating the change that is underway.
The high caliber talent that we brought to our company, especially in a complex hiring market environment and my view is a testament to the strength of our business their confidence in our go forward strategy and the growth opportunities ahead.
In addition.
We've appointed six new members to the board over the past 12 months, they bring decades of technology media and brand experience with proven track records of scaling businesses through execution and transformation.
They are contributing to a collaborative and constructive dialogue as we enter our next chapter.
Together, our refreshed leadership team and board and company are moving forward with a shared vision and purpose.
In my view the foundational heavy lifting is behind us and now we are focused on executing our go forward strategy.
I believe the hidden value of quotient is the strength of our network.
And ability to deliver value to consumers and help brands drive performance through our promotions network and media platform.
During the second quarter, we delivered $2.6 billion of savings to the American population.
An increase of 8% versus prior quarter and 14% versus the prior year.
We believe this is an important metric that demonstrates the value of our network as consumers look to quotient for savings and Cpg's look to engage consumers at scale and drive sales.
In our view the power of our network the breath of our touch points the scale of our consumer reach.
And our data quality provide a strong foundation for us to drive profitable and sustainable growth.
Speaking with you today I am confident as ever in our long term strategy and our ability to execute.
To fully leverage the power of our network and to drive focused execution.
We are realigning our organization around four key product families.
First is promotions.
We have been evolving our promotions business as a broad network across our retailers publishers and our direct to consumer at.
We continue to scale up existing and recently announced partnerships and we believe this has significant growth potential.
As we offer consumers.
More ways to save across multiple touch points, whether it's cash now.
Cash back are earning rewards in their shopping journey.
Second is direct to consumer.
Earlier this year, we announced plans to bring shopping them to the U S.
Our premium direct to consumer brand that provides a rich set of features and capabilities to our partner network and drives consumer engagement and savings.
We are moving into beta testing and expect to fully launch shop me them in the U S. Later this year.
Third is retail media.
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.
Our retail media business and the industry are going through a significant transformation.
As retail media moves from an outsourced model to an in house model.
We believe retail media will eventually evolve into a marketplace model, where retailers own their supply and cpg's buy across multiple networks, our opportunity is to be the easy button, enabling retailers to monetize their network and cpg's to simplify their buying.
In a recent report from Wakefield research, 64% of Cpg's expect to increase their retail media spending in 2023.
We are excited about the potential and expect a high degree of innovation and evolution in this area over the coming quarters.
Fourth as digital out of home are proprietary location based technology allows agencies and advertisers to plan against very specific sets of consumers.
Reach shoppers in and out of stores and measure the direct impact of sales.
Quotient self service platform is built for the unique challenges of out of home advertising.
One of our large CPG advertisers recently grew their billings for our platform by over 60% quarter over quarter.
In addition, we announced a partnership with a report that.
The global out of home media buying and planning agency arm of IPG media brands to be there and an out of home technology partner.
Digital out of home has been a strong driver for us in the first half of the year.
Delivering high double digit growth and providing us.
With tremendous opportunities with agencies.
We believe in the solid fundamentals of these four product families and.
And the distinct growth opportunities at each represents.
That said.
We continue to be impacted by supply chain challenges and incurred input cost pressures, despite the macro inflationary environment.
As a result.
Some CPG brands have been cautious with promotions and media spending to prevent overselling.
This uncertainty has affected the volume of offers and content on our network. However, we are still delivering significant value to consumers and to those <unk> that are not experiencing the same level of constraints.
We believe the inflationary environment should become a favorable tailwind for our promotions business as consumers look for savings and as Cpg's work through their supply chain constraints and cost pressures.
As we look to the back half of the year.
We're factoring in the current environment and these macro conditions into our guidance, which you need will discuss shortly.
Now that we've gone through a four product families. Let's discuss the three pillars of our growth strategy, which are expanding our promotions network.
Simplifying retail media buying.
And integrating promotions and media.
We expect these three pillars to provide benefits across all of our product families.
Starting with expanding our promotions network.
A key tenet of growing our promotions business is increasing the scale of our network to reach consumers across more touch points.
Shoppers options are constantly evolving.
Reaching them and providing them with promotions more complex.
In this environment.
Our network's reach has provided to be valuable for our CPG customers and their consumers.
For example.
Pepsico was able to leverage our network to reach their consumers with a national promotion campaign that moved over 3 million units and drove more than 17 million of incremental sales for their brands.
Our next strategic growth pillar is simplifying retail media buying.
We have created a platform that leverages artificial intelligence to automate our customer's media programs.
This enables our customers to more efficiently deploy their media dollars and allow brands to target buyers, where they shop across relevant media channels with reduced complexity time to execute and cost to serve.
In a recent tylenol campaign using our location based technology, we were able to reach 35% new purchasers to the category, 17%, new purchasers to the Brewers and brand, resulting in 36 dollar return on advertising spend which is almost three times greater than the average REIT.
Turn on advertising spend.
Finally, our last pillar of growth is combining our promotions network and media platform, which enables brands to amplify their message by serving a timely promotion to a consumer to increase awareness and drive purchase with a call to action.
While we are still early in the process of implementation. Our recent beauty brand case study showed the power of bringing together promotions and media to drive performance.
By adding in media exposure with a value based call to action to a shopper's journey, we increased the overall sales performance of the campaign by a one four times versus a standalone promotion or media unit.
To wrap up in our view.
The strength of our network.
The value of our data and the capabilities of our technology provide quotient a competitive advantage that will enable us to drive profitable growth and unlock shareholder value.
I wanted to reiterate that we're pleased with the results we see as we continue to drive our transformation forward, we're moving quickly and urgently to position quotient to capitalize on its avenues of growth across our four product families and execute on the strategy I have outlined above.
Finally, we are excited to announce that we are planning to host an investor day by the end of the year to provide more detail on our current business model and our go forward strategy to drive sustainable growth and profitability.
With that let me turn the call over to you need.
Yes.
Thank you, Matt and good afternoon, everyone.
Before I get into our results I want to reiterate my excitement about cushman and what I believe is a tremendous opportunity to create value through our strong network and technology assets.
I mentioned last quarter I have more than 25 years of financial leadership experience, but more importantly, a strong background in AD tech and CPG industry.
It's this combination in my background that will allow me to support Matt and executing on the strategic vision of the company as well as driving financial discipline to the organization.
We will continue to build the necessary processes and routines to run the business based on today's reality, which is represented in fact, the numbers taking a bottoms up approach intended to deliver a realistic and achievable forecast.
A priority for me and my team is addressing the upcoming maturity of our long term debt.
We believe that our existing cash balances colored line and operating cash flows are sufficient to meet our working capital and capex needs.
We're actively working to a strategy to address our convertible debt in a way that does not overburden, our P&L our cash position and also takes into account critical factors such as equity dilution.
Expect to complete this process in the coming months.
My remarks today will be focused on our financial highlights and I encourage everyone to visit our Investor Relations page, where all of the documents posted today, including our GAAP to non-GAAP reconciliation.
Q2 proved to be a solid quarter in terms of execution.
Met all our guidance ranges in revenue non-GAAP gross profit adjusted EBITDA and operating cash flows.
Our Q2 year over year compare includes a full quarter without albertsons full impact of shutdown of our specialty retail business and the final material gross to net accounting change.
I would like to remind listeners that our year over year comparison remains challenged from the impact of these items.
Our second quarter revenue was $69 3 million down 44% year over last year.
And in line with our guidance of $68 million to $76 million promotions represented 62% of total revenue and media at 38% versus 48% and 52% respectively. In Q2 2021.
Our revenue in Q2 was impacted by continuing supply chain factors in the CPG space, which has led to <unk> to moderate spend on national promotional campaigns.
This was offset by strength in our digital out of home and direct to consumer businesses, which both showed continued momentum in the quarter.
Our non-GAAP gross profit was $36 2 million and in line with our guidance of $35 million to $39 million.
non-GAAP gross margin was 52, 3% up 11.2 points sequentially and up 12 points when compared to Q2 last year.
Gross margin was positively impacted by improved revenue mix and gross to net accounting changes.
Q2, non-GAAP operating expenses were $39 6 million down $7 6 million from the prior year and down $1 6 million sequentially. The.
The year over year decline was primarily due to headcount reductions and related spend along with continued cost discipline, including the reduction of marketing spend and other miscellaneous expenses, such as independent contracts and decreased the real estate expenses.
As part of our drive to maintain profitability, we have realigned our cost structure to match our current revenue base subsequent.
Subsequent to the quarter, we implemented approximately 7% reduction of our global workforce on a run rate basis, we anticipate that this will lead to an annualized reduction of approximately $19 million of our operating expenses.
These benefits have already began impacting our business results from early in the third quarter.
We intend to continue to optimize our expense structure through non head count related items, such as reducing our reliance on outside vendors and consolidating technology infrastructure.
Our adjusted EBITDA loss for the second quarter was $1 3 million in line with our guidance range of a loss of $2 million to a positive adjusted EBITDA of $2 million.
Versus prior year, our adjusted EBITDA was down $5 million driven by a reduction in revenue and gross profit as outlined before offset by a reduction in our operating expenses.
Turning to cash we had an operating cash flow of $19 5 million in the quarter ahead of our guidance of 7% to $12 million, primarily due to positive working capital changes.
We ended the second quarter with $214 9 million in cash and cash equivalents of $12 4 million sequentially.
As Matt mentioned in his remarks, we continue to put focus and rigor on managing working capital, especially around improving our dsos.
Once again I want to reiterate our view that our existing cash balances Caroline and projected operating cash flows are sufficient to meet our business requirements and put us in a strong position to execute against our debt strategy.
Moving ahead to guidance as I said in the beginning of my remarks, I believe in shedding an outlook that is stock base. Our forecast is built bottoms up based on data we have today, rather than factors from 2020, one and earlier this year.
Incorporated what we see in the macroeconomic elements that Matt talked about previously into our guidance.
Our second half forecast is built on our present visibility around revenue bookings are probability adjusted revenue pipeline and I'd expense run rates.
Our expense guidance reflects ongoing cost benefits from the head count actions and operational changes already made during the third quarter.
In light of current market dynamics, and our latest data driven forecast, we are revising our third quarter guidance and year end guidance.
For the third quarter of 2022, we expect revenue to be in the range of 70 million to $80 million non-GAAP gross profit to be in the range of 37 million to $42 million adjusted EBITDA to be in the range of 5 million to $10 million in operating cash flows to be in the range of negative $5 million to break even.
<unk>.
For the full year 2022, we are revising our guidance for the revenue to be in the range of 295 million to $310 million non-GAAP gross profit to be in the range of $147 million to $160 million adjusted EBITDA in the range of $15 million to $20 million.
And operating cash flow in the range of zero to $5 million.
We estimate weighted average basic shares outstanding for 2022 to be approximately $95 9 million in line with our prior estimates.
I'm looking forward to engaging with you in coming weeks and hosting you at our Investor event later this year, but Matt Let me turn it back to Matt for a few closing remarks.
Thank you you need.
I wanted to emphasize that we have been focused over the past year in positioning quotient to capture the future market opportunities.
We have made significant progress reorganizing our business realigning, our cost and strengthening our platform with the aim of delivering enhanced value for our customers partners and shareholders.
We are excited about this new chapter and look forward to updating you all in the near term.
With that we're happy to take your questions.
We will now begin the Q&A session. If you would like to ask a question. Please press star followed by one or you touched on keypad. If for any reason you would like to remove that question. Please press star followed by Tim.
Again to ask a question press star one.
As a reminder, if you are using a speaker phone. Please remember to pick up you have said before asking your question.
We will pause here briefly to allow questions to generate in Q.
The first question just doesn't line of Nick <unk> with Craig Hallum. You May proceed.
Hi, This is Nick on for Chad Bennett.
Maybe a few questions for Matt and then one for you need them at the end.
Time I'd like to start with many of your line is now open you May proceed.
Can you hear me.
Can you hear me.
Well you verify that your line is not on mute.
Can you hear me.
Hello.
Well.
Again to ask a question please press star one.
Okay.
Okay.
Hello.
There are no questions at this time I would now pass it back to the management team for closing remarks.
Thank you operator, and thank you everyone for joining just wondering besides that we've really had a strong focus over the past year really kind of positioning quotient and our transformation, you're really capture some of our future market opportunities.
We really feel that we've done a good job, making significant progress to the business realign our cost structure and really strengthening our platform as we continued to deliver value to our customers our partners and our shareholders and we're just really excited about the path forward in the next chapter.
Thank you so much.
Goodbye.
That concludes today's conference call. Thank you you may now disconnect your line.