Q4 2022 Cardlytics Inc Earnings Call

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Speaker 3: Hello, and thank you for standing by. Welcome to Call of Life's fourth quarter and four-year 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

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Speaker 3: I would now like to hand the conference over to Nick Linton, Chief Legal and Privacy Officer. Sir, you may begin.

Speaker 4: Thanks for joining us and welcome to the Cardlytics fourth quarter and full year 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.

Speaker 4: including expectations about our future financial performance and results.

Speaker 4: Our ability to achieve our key long-term priorities.

Speaker 4: Upgrades to our current products and processes.

Speaker 4: products and processes and a rollout of new products.

Speaker 4: The rollout of our new ad server and user experience.

Speaker 4: our transition to the cloud, and the deprecation of our on-premise data centers.

Speaker 4: and the deprecation of our on-premise data centers, our sales pipeline.

Speaker 4: Our customer confrontation and margin profiles.

Speaker 4: our timeline for achieving positive free cash flow and our path to profitability, our cost reduction initiatives, and the bridge shareholder dispute and earn out payments.

Speaker 4: 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 10K for the year ended December 31, 2022, which has been filed with the SEC.

Speaker 4: Also during this call, we will discuss non-GAAP measures of our performance.

Speaker 4: GAT Financial Reconciliation and Supplemental Financial Information are provided in the press release issue today in the 8K that has been filed with the SEC.

Speaker 4: You can find the information I have just described in the Investor Relations section of the CARLITICS website. Please note that a supplemental presentation to our fourth quarter and full-year results has also been posted to our Investor Relations website.

Speaker 4: Joining us on the call today is Carlytic CEO Karim Tsimshimani and CFO Andy Christensen.

Speaker 4: Following their prepared remarks, we'll open the call to your questions.

Speaker 4: With that said, let me turn the call over to Kareem. Kareem?

Speaker 5: Thank you for joining us and welcome to our fourth quarter earnings call.

Speaker 5: It has been exactly six months since that drone card lyrics.

Speaker 5: And why we still have some short-term issues to resolve my belief in the incredible long-term potential of this business has only been strengthened.

Speaker 5: Caledics is in a unique position at a unique time in the industry.

Speaker 5: The topics of both performance and brand safe online advertising are top of mind with many of our customers and partners.

Speaker 5: which aligns squarely with our value proposition.

Speaker 5: It is rare to see a model that has so many benefits to so many groups.

Speaker 5: Brands get to offer the customers ads that are relevant based on past purchases.

Speaker 5: and financial institutions increase engagement and loyalty.

Speaker 5: The cycle is virtuous, but to realize the true potential as a business.

Speaker 5: We needed to improve our operational efficiency.

Speaker 5: reduce excess costs, and become a company that is led by the products that we are building.

Speaker 5: It's still early, but we are starting to see the results of these improvements.

Speaker 5: On the call, I'd like to highlight our financial results.

Speaker 5: Focus on areas where we have demonstrated operational and cost discipline.

Speaker 5: and giving sites into product enhancements that we expect to positively affect our growth for the year.

Speaker 5: insights into product enhancements that we expect to positively affect our growth for the year. First, some financial highlights.

Speaker 5: Our fourth quarter performance delivered billing, revenue and adjusted contribution in line with our guidance.

Speaker 5: We navigated a challenging microenvironment where inflation and rising interest rates tempered budgets across the at-take market.

Speaker 5: The Spudges headwind for the 40th 2022, we once again deliver double-digit growth across billing, revenue and adjusted contribution.

Speaker 5: Additionally, bridge delivered triple digit revenue growth.

Speaker 5: For the 4-year 2022, Billings grew 12% to $442.5 million.

Speaker 5: Revenue, Route 12, Defense.

Speaker 5: 298.5 million

Speaker 5: breached revenue through 155% to 21.4 million

Speaker 5: An adjusted contribution grew 10% to $143 million. Consumer engagement in the program grew in Q4.

Speaker 5: Users activating offers increased 8.6% year-over-year, even with the impact of the large restaurant clients exiting our channel.

Speaker 5: A platform is creating an impact for banking partners and for retailers to.

Speaker 5: In 2022, our data showed customers engaging with our program spent 1.2 times more on the card and made 1.3 times more shopping trips than unengaged customers.

Speaker 5: And clearly it works well for advertisers.

Speaker 5: We increase the total number of advertisers in the channel by 8% in 2022.

Speaker 5: Not only that, but we also increased the number of advertisers with billions between 500 and 5 million by 17 percent and we increased the number with billions greater than 5 million by 44 percent.

Speaker 5: We have a great business foundation, despite the current state of the economy. In many ways though, the economy is a good forcing mechanism to improve our business efficiencies even more.

Speaker 5: When you combine a more efficient business with the numerous price enhancements that we put into place, it's clear we are setting ourselves up for long-term success.

Speaker 5: We took action to control our costs in this difficult environment.

Speaker 5: We successfully implemented 35 million in cost reduction at the end of December .

Speaker 5: The full effect of these actions will appear into one of this year.

Speaker 5: full effect of these actions will appear into one of this year. We're not stopping there.

Speaker 5: We're improving operational efficiency company wide.

Speaker 5: And despite difficult economic conditions, we are focused on achieving positive free cash flow in Q3 of this year.

Speaker 5: A team has seen significant changes through this process.

Speaker 5: And I would like to take a moment to thank all our leaders and team members for their focus, commitment and hard work. We believe these changes will make us stronger the team and the business.

Speaker 5: Often talking to the people about the importance of becoming a product-led company, and our teams are working tirelessly in every department to revamp and improve our workflows across products, engineering, sales, operations and analytics.

Speaker 5: Let me give you a few examples to illustrate the impact of these changes.

Speaker 5: First, we are upgrading our art decisioning engine to support modern art ranking models to drive higher monetization and offer relevancy.

Speaker 5: we are upgrading our art-decisioning engine to support modern art ranking models to drive higher monetization and offer relevancy based on early results

Speaker 5: We believe that these changes can drive a lift in our pm of 10 to 15% in the back half of 2023

Speaker 5: Second, we are exploring pricing models that are more tight to serve or impression events while still optimizing for advertisers or rare targets. This approach provides better balance between rich and performance goals.

Speaker 5: It also gives colleagues more control of budget management, delivery and ad selection, which helps us capture more buildings.

Speaker 5: Third, the processes we have put in place to allow us to better track performance, averages, adjustments and campaign launch delays, not only allow us to immediately save $350,000 on redundant tools, but also will increase our overall operational efficiency for the year.

Speaker 5: I expect the combining facts of the evolving improvements to positively impact a full-year billing margin by around 2%.

Speaker 5: These are the first of many initiatives that we're putting in place to improve our operations and products.

Speaker 5: I look forward to sharing more details in the coming months. Bright improvements also help from a bank perspective.

Speaker 5: We created a dedicated operations group within a publisher and Jerem team that has implemented rigorous monitoring techniques, decreasing panacequate creation by over 25% from November 2022 to February 2023.

Speaker 5: Not only does this make us more efficient and cost-effective, it also improves upon satisfaction.

Speaker 5: Three initiatives that highlighted last quarter are especially important in the prior to the beginning of the fifth institute. Have anyone heard really new additional comment?

Speaker 5: Three initiatives that highlighted last quarter are especially important in the product area. Are you a server?

Speaker 5: our new user experience and cloud migration.

Speaker 5: So let me give you some insights into progress in each of these areas. We have already connected more than 50% of our MAU base to our new ad server, completing one of our key objectives for the year. We remain on track.

Speaker 5: to connect all of our partners to the new server and user experience by the end of 2023.

Speaker 5: Regarding the new user experience, we're excited to announce that the major partner is launching a new user experience to its 40-sub-base and it should roll out over the next month.

Speaker 5: As we mentioned in the past, the scale created by having a major bank partner on a new user experience and that server will allow us to ship new products to the user.

Speaker 5: which I will discuss in more detail shortly. We also have news to share on child migration.

Speaker 5: In Q4, we finish moving our core US platform to the cloud. We are now focused on duplicating our on-premise data centers.

Speaker 5: Deprecating at data centers will create cost savings of nearly one million dollars in 2024.

Speaker 5: A goal is to have all our banks move to the cloud by Q3 2023.

Speaker 5: Focusing on product makes us more than just efficient. It also unlocks new capabilities.

Speaker 5: Here are three specific examples of new of the constructs that will better in Q1 and Q2.

Speaker 5: of new of the constructs that we will data in Q1 and Q2. First.

Speaker 5: Spend stretch offers or the ability to incentivize a set of customers spending in a certain range to increase their spending on their next visit.

Speaker 5: An example will be a customer who spends $20 on average receiving a $5 cash discount if they spend $40 or more.

Speaker 5: Second, merchant cat and recorder offers, which allow bank funded campaigns that are targeted to specific types of transactions such as gas or grocery purchases. In a test with a large bank partner, we saw around a two-times increase in reduction dollars of a standard campaign.

Speaker 5: Third, receipt level offers, which are a construct tailored to specific prior categories or items.

Speaker 5: These are the offers we are most excited about, and for good reason. In an early test, 10% of activations came from customers who had never activated an offer before, and 19% of those customers had not shopped at that retailer in 12 months prior to the campaign.

Speaker 5: Growth isn't just coming from our core business. As many of you know, we hired Amit Gupta as a new CEO of CardLetics and General Manager of Rich. We're extremely excited to have attracted such an incredible talent to the business.

Speaker 5: And this is already hard at work, both on optimizing a long-term platform and on fully realizing the potential of rich and catalytic.

Speaker 5: Relating to breach, Imit is accelerating the evolution of the business from a customer data platform to a retail media network for mid-market and regional retailers.

Speaker 5: We believe that most smaller retailers cannot build these platforms alone. While Bridge's capability allows to work with larger retailers, the key to success for Bridge is building a collaborative, scale-data sets for mid-market and regional grocery stores, convenience stores, and fuel providers.

Speaker 5: Much in the same way that we build core politics By building scale for these retailers we can create a compelling new product for CPGs to gain insight.

Speaker 5: drive incremental sales, and measure campaigns. I'm meeting the Bridge teams are hard at work on our go-to-market efforts that will enable this vision of providing a best-in-class retail media network for smaller retailers. And as Bridge scales, we will also see improvement to our adjusted contribution margin.

Speaker 5: due to its higher growth margin, which will positively affect a cash flow.

Speaker 5: Given the numerous improvements and innovative products that are on the horizon, I am incredibly excited for the future of college. Our move to being a product-led company is expanding our reach and enhancing our capabilities, which will continue to differentiate us in the market.

Speaker 5: and provide better solutions for advertisers and partners.

Speaker 5: I'd like to close with some observation on consumer spend, the economy, and our outlook for the year. For 2022, consumer spend grew 5% over 2021, at basing transaction growth by over 3%. Inflation clearly affected the consumer in the second half of the year.

Speaker 5: Outside of travel and entertainment which enjoyed recovery through 2022, discretionary spending categories mostly finish down or flat for the year.

Speaker 5: For 2022 year over year, gas and grocery spend was up 9%.

Speaker 5: Travel and entertainment spend was up 25%. Retail was flat.

Speaker 5: And restaurant was of 9%, but more discretionary categories such as bars and nightclubs finished down 4% year over year.

Speaker 5: Leading indicators show that consumers remain resilient and inflation is receding from its high.

Speaker 5: But the Fed has not yet backed away from its current monetary policy. The threat of an economic slowdown has stalled budgets in Q4 and Q1, much in the same way that we saw pause during the onset of the pennant. Advertising clients were extremely cautious in Q4.

Speaker 5: and remain so in the early stages of Q1.

Speaker 5: That said, I am still encouraged by the continued strength of a new business pipeline, especially for the second half of the year.

Speaker 5: I believe that once advertisers reassert the cost structures and budgets will benefit from the ongoing move to brand-stakes performance-based advertising. We are building a business that is resilient in the long term regardless of economic conditions. For 2023,

Speaker 5: we see a path to solid growth, especially after we pass the anniversary of a significant restaurant client exiting our channel in the second half of the year.

Speaker 5: A product enhancements and optimization should provide us with around 2% of additional upside to billing margins for the rest of the year.

Speaker 5: And the growth of rich, higher margin business will benefit both our billions and cash role as we move forward.

Speaker 5: Even with the muted economic conditions, we have room to get to profitability and control a cash flow by managing the business responsibly.

We know our success is dependent on existing with a discipline approach and I'm concerned that strategy and priorities are positioning the company for liquidity, long-term growth and profitability.

And while the bridge shareholder disputes has been a distraction to the business over the last two quarters

We remain constant in our position and are happy to report that we currently expect the matter to be resolved by the NRAV4.

With that, I will hand over to Andy to provide more detail on our results and financial stretch.

I will hand over to Andy to provide more detail on our results and financial stretch. Thank you, Kreme.

Our Q4 results were within our poorly guidance ranges.

In despite macroeconomic headwind, the impacted consumer spending and ad budgets.

We delivered double-digit year-over-year growth in 2022. Let me walk through the numbers for Q4.

Billings told 126.1 million down 5.9% year of the year.

The revenue totaled $126.1 million, down 5.9% year-to-year. Revenue totaled $82.5 million.

down 8.4% year-to-year.

Adjust the contribution totaled 40 million, down 9.2% year-to-year.

and adjusted EVA was a loss of $6.1 million compared to a gain of $2.6 million in Q4 of last year.

Additionally, for Q4, year-to-year, bridge revenue is 74.2%, and agency ad spending on the Carlux platform grew over 20%.

It's also worth noting that core carbonic buildings was flat year-to-year when excluding the large restaurant clients that left the channel in 2022. For the quarter, Zoyne's margin was at 1.8% year-to-year.

Part of this was driven by advertising next.

We typically generate a higher billing margin within the restaurant vertical compared to travel and entertainment. Restaurant ad spending on our channel declined 15% year-per-year compared to a 75% increase within travel and entertainment.

Additionally, there are some temporary drags on Billings margins that will phase out by the middle of the year as we transition our tech stack and automate our operation.

Our expectations return to historical levels of billion margin over time. We also see opportunities to expand our margins.

as we grow and diversify our customer base and leverage higher margin revenues for our fast-growing bridge offerings.

Customer concentration improved over the past year. As our top five customers accounted for 15% of revenue this quarter compared to 23% in Q4 2021. This remains a central focus as we continue to organically grow and expand the depth and breadth of our customer base.

Moving to cost.

We have completed the cost reduction initiatives we announced in 2022 and expect over 35 million annualized savings compared to our annualized run rate in Q2 of 2022. As Cream mentioned, we have more room to control costs and events of further economic decline. We believe we can reach our cash flow goals in 2023 with our current cost base.

As a result of a sustained decline in our market cap and significant increases in interest rates and cost of capital, we recorded a $370 million non-cash impairment of goodwill and tangible assets this quarter.

We're remain excited about the prospects of bridging cartilage, but the impairment was necessary given the fact that our goodwill and entangled glasses were in excess of our market cap.

Moving to our balance sheet and cash flow.

We ended the year with $122 million in cash and cash equivalence compared to $138.6 million at the end of Q3.

Our $60 million line of credit also remains undrawn. During Q4, we used $13.1 million of cash and operating activities, used $3.2 million for software development and capital expenditures, realized a $200,000 unfavorable impact from a strengthening British pound.

and use $200,000 of cash related to financing activities. In the use, we're 182.7 million and 2.4, an increase of 4.2% year-over-year.

Our organic growth rate was in line with our long-term expectations of low to mid-single digit growth.

Rp-44.45, which is a 7.8% decrease year-rear.

For the full year, MEU's increased 9.2% year-to-year and RPU increased 2.6%. We have 33.5 million shares outstanding ERN compared to 33.1 million in the end of Q3.

Weighted average shares upstanding during the quarter were 33.4 million, which was unchanged from Q4 2021.

shares upstanding during the quarter with 33.4 million, which was unchanged from Q4 2021. Lastly, regarding the bridge turnout.

The defeat is currently in the resolution process without wanting an emergency agreement, and we will provide timely updates to the public once the matter has been resolved.

We remain confident in our position and expect the first earn-out, inclusive of broker fees and transaction bonuses to be $126.4 million with a minimum cash payment of $43.3 million.

We expect a second amount to be 67.8 million with a minimum cash payment of 24 million. As that one in the merger agreement, we may have a big regular amount of 30% minimum cash given the 19.9% equity ad dilution cap in place on the shares issue.

Now turning the guidance. The ad market challenges we faced in Q4 continued in the Q1. The Q1 is also typically our annual low point, the decisional consumer spending trends, and decreased quarterly marketing budgets for most of our clients.

For the first quarter of 2023, we expect billions between 84 and 93 million revenue between 54 and 63 million adjusted contribution between 26 and 31 million and adjusted the low loss of between 10 and 17 million.

If the cash operating expenses of approximately 42 million EQ1 expect a slight increase in expenses in Q2 of 2023 due to our annual merit and promotion cycle, but our new expense run rate fully reflects the 35 million annualized savings from Q2 of 2022.

If building a loss of the large cost building mentioned earlier, we expect the core college business in the U.S. to go into low to mid single digits year over year in Q1. A positive sign is that the sequential decline in our buildings from Q4 to Q1 is in line with historical trends from Q1 of 2020.

and Q1 of 2021-22. Sig going that the ad environment hasn't become maturely worse quarter to quarter. We're not providing formal guidance for the full year at this time, but as Kareem mentioned earlier, we believe we will generate sufficient growth to reach positive free cash flow in Q3 of 2023 through product enhancements, optimizing our platform, growing our higher margin bridge business.

and lapping the loss of the significant customer. With that, I'll turn it over to Karim. We want to thank our shareholders, partners, employees and customers for their ongoing support and trust in the company.

We remain focused on driving price innovation and solutions for our partners and advertisers.

This focus will create expanded rich revenue opportunities and efficiency we need to meet that growth and profitability objective.

We look forward to sharing more data on our progress during the year. With that, I will open the call to questions.

Thank you.

Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and wait for your name to be announced.

To withdraw your question, please first start one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of.

expenses for one queue and then there's a couple moving pieces you mentioned with the full kind of realization of some of those annualized cost savings probably pops up by like some merit increases or timing of some of that. So I guess is that 42 million with some modest adjustments based on those factors? Is that a good...

run rate to use moving forward or are there additional opportunities for efficiencies and savings without sacrificing your growth opportunities? Hey, you take Kyle, this is Andy. You're exactly right. We wanted to give a little bit of color around the run rate. I mean, the run rate you see in Q1 does fully reflect the actions that we took in 2022.

And after getting them, we're going to run going forward. Now, I understand you, we may have a little bit of increases throughout the year, but that is how we're modeling. Now, there's certainly opportunities that we have during the year to manage our costs further. But that is right now going to the run rate that we were seeing. So that's a good number to model there.

Give a growth opportunity. Do you guys see for these offers and could these be material boost to results in 23 or is this more of a multi-year slowly getting there but not a big contributor rate of the game?

Yeah, sure. Let me take a swing at that and Krim probably have some thoughts as well. But I think we've been a bit conservative when we think about these things rolling out this year. I think certainly next year, it'll be a much bigger impact on the business. I think it'll be one of those items where we're going to get going here in the next few quarters.

We'll see it, and by the end of the year, we'll probably start to feel it. But really, that's a big 2024 opportunity. But with upside, right, in 2023, if we were really able to pull that forward and execute. Thanks, guys.

Yes, Carlos, I would echo Andy's sentiment. I think these are potential opportunities that give us comfort that we can get to some level of growth this year, some reasonable level of growth this year, but most of the benefits are going to come in 2024.

color, I would echo at least sentiment. I think these are potential opportunities that give us comfort that we can get to some level of growth this year, some reasonable level of growth this year, but most of the benefits are going to come in in 2024. Make some, thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Douglas Armoves with JP Morgan. Your line is open. Thank you.

Thanks for taking the questions. It looks like the two industries where activation rates increase year-over-year were entertainment and travel. Just curious how you're thinking about the shift of consumer spending, some things, two experiences, and how does that impact your business and the go-to-market strategy going forward.

And then separately, you talked about one major partner launching the new user experience. Can you just give us more insight in terms of the benefits of the new user experience, how LeVec be better for users and for advertisers? Thanks.

I think the question is, on your first point, we've talked a lot about some of the real momentum that we felt in Q4 around travel and entertainment. It's been a very, very strong industry vertical for us. In fact, Q4 in 2020, we've talked a lot about travel and entertainment.

to compared to 21, it was up 80%. So I think we're obviously seeing a lot of engagement there, a lot of spend is happening there. So I think it's top of mind-growing, it's just an act of everything what people are looking to say, money is their traveling. Yeah, to this, to your second point.

I'll let you be correct time and all that one, but I think the entertainment travel is pretty quite affordable. Let's get into all that one first.

Yeah, thanks, thanks, and I'll just add to that that essentially there's obviously, um, we would probably not

If hardware go-to-market is important with regards to getting us the right base of customers, but the other part that's really important is how we optimize for the right offers to be surfaced to the right customers. And that's where us becoming a much stronger product-led company.

with a modern ad server and the ability to be a lot smarter when we ask how we put this rewards to the right customers at the right time, will make a vast difference to our business going forward, both in terms of the engagements that we will see from the ads, but also the revenue that we can derive from these rewards.

the question. Please stand by for our next question.

Our next question comes from Alana Jason Craier with Craig Hallup. Your line is open. Your line is open.

Great, thank you guys. Just wanted to see if you can help us bridge the gap from the guide that you gave for Q1 to the commentary on on cash flow generation in Q3. It doesn't seem like you're baking any other cost reduction in there, but just one of you can help fill in that gap over the next two quarters. Yeah, sure. I'm happy to help you, right? So...

Our expense run, we're trying to give a little bit of color to write it, it's kind of wear or wrap. There are certainly opportunities for us to continue to manage our costs. But that's one kind of anchor that we want people to think about. As we get to, we're keeping here in Q3 from a cash flow perspective. We really need to make sure that you're considering the art interests.

about being able to grow the business. One of the things that I think maybe has been underappreciated is the growth in the bridge business, which is a much higher margin business for us, with those dollars flowing all the way down to the just the contribution. So with that combined with many of the things in the cartilage platform that we're talking about with the user experience, new offers, new offer constructions when those are going to be propellants.

to get you back to that double-digit growth rate in the core business, combined with some pretty impressive growth rates with the worst risk and here with Rich. Thanks, Andy. You may have just answered my second question, but you guys were talking about updates to the products we've been giving you confidence in that return to growth. What are the near-term product changes that can influence growth here in 23?

So there's a lot of different angles here. Let me break down a couple different things. Right? Product is certainly one of those things where a new user experience with new offer constructs is certainly on the horizon. Additionally, when you think about our transformation becoming a product-led organization, right? And what the benefit of...

banks as well, right? So we certainly have an expectation of being able to more meaningfully move the needle doing those things, right? And as things like product of offers come online, what we expect is to become more meaningful towards the back half, there's an opportunity for us to accelerate those things and realize some of that growth earlier, if you will.

So there's a couple different things going on there. They're all giving us some additional tailwinds. OK. And one last one, if I can squeeze one in. Keremia, I think you did a great job talking about some new product changes and a bunch of different things. There were three product changes you highlighted. And I think the second one was more about.

kind of offers that were more tied to impression and expanding reach. Just wanted to see if you can give a little bit more clarity around that.

Are you talking about pricing models that are more tied to the third and impression event? Or are you talking about the merchant category code offers? Those are two of our separate remarks. The first one, the impression models.

Yeah, we essentially are currently, as you know, not necessarily optimizing properly with the gas to the offers that we're serving customers. So what we want to make sure is that we are revisiting our pricing models so that while we are continuing to look for the right return investment.

serving the same as the same customers. So we'll have much better control of budget management because of it. We'll have much better control of delivery. So instead of continuously serving the same ads to the same customers, the same rewards to the same customers, we'll be able to select the ads that are more likely to.

and in the right outcome for those customers. So a much better outcome both in terms of the engagement and the experience that the customers will have within their banking app, but also a better leverage for us with the customers' budgets that we can consume. OK, great. Thank you very much.

Thank you. I'm not showing any further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

The conference will begin shortly. To raise and lower your hand during Q&A you can dial star 11.

We.

I have.

But.

Hello and thank you for standing by. Welcome to Connolibic Sport Quarter and 4 year 2022 financial results conference call.

At this time, all participants on the listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask the question during the session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Nick Linton, chief legal and privacy officer. Sir, you may begin. Thanks.

our ability to achieve our key long-term priorities.

Upgrades to your current products and processes.

and products and processes and a rollout of new products.

The rollout of our new ad server and user experience, our transition of the cloud and the deprecation of our on-premise data centers, our sales pipeline.

Our customer confrontation and margin profiles, our timeline for achieving positive free cash flow and our past the profitability, our cost reduction initiatives, and the grid shareholder dispute and earn out payments.

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 10K for the year ended December 31, 2022, which has been filed with the SEC.

Also during this call, we will discuss non-GAT measures of our performance. GAT financial reconciliation and supplemental financial information are provided in the press release issue today in the 8K 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 have just described in the Investor Relations section of the Car

Joining us on the call today is Carlidic CEO , Kareem Tensemani and CFO , Andy Christianson. Following their prepared remarks, we'll open the call to your question.

With that said, let me turn the call over to Korean. Korean? Thank you for joining us and welcome to our fourth quarter earnings goal.

It has been exactly six months since Adjorn Caledix. And why we still have some short-term issues to resolve, my belief in the incredible long-term potential of this business has only been strengthened. Caledix is in a unique position.

at a unique time in the industry. The topics of both performance and brand safe online advertising are top of mind with many of our customers and partners.

which aligns squarely with a value proposition. It is rare to see a model that has so many benefits to so many groups. Brands get to offer their customers ads that are relevant based on past purchases. Customers save on the brands they prefer.

and financial institutions increase engagement and loyalty. The cycle is virtuous.

But to realize the true potential as a business, we needed to improve our operational efficiency, reduce excess cost.

and become a company that is led by the products that we are building. It's still early, but we are starting to see the results of these improvements.

On the call, I'd like to highlight our financial results. Focus on areas where we have demonstrated operational and cost discipline and give insights into product enhancements that we expect to positively affect our growth for the year. Thank you.

First, some financial highlights. Our fourth quarter performance delivered billing, revenue and adjusted contribution in line with our guidance.

We navigated a challenging microenvironment where inflation and rising interest rates tampered budgets across the at-take market.

Despite its headwinds for the full year 2022, we once again delivered double-digit growth across billing, revenue and adjusted contribution.

Additionally, bridge delivered triple digit revenue growth.

Additionally, bridge delivered triple-digit revenue growth. For the four-year 2022,

Billings grew 12% to 442.5 million. Revenue grew 12% to 298.5 million.

Bridge revenue grew 155% to 21.4 million, and adjusted contribution grew 10% to 143 million. Consumer engagement in the program grew in Q4.

Users activating offers increase 8.6% year-over-year, even with the impact of the large restaurant clients exiting our channel.

A platform is creating an impact for banking partners and for retailers to. In 2022, our data showed customers engaging with our program spent 1.2 times more on their cards and made 1.3 times more shopping trips than unengaged customers.

And clearly, it works well for advertisers. We increase the total number of advertisers in the channel by 8% in 2022. Not only that, but we also increase the number of advertisers with billions between 500,000 and 5 million by 17%.

And we increased the number with billions greater than 5 million by 44%. We have a great business foundation despite the current state of the economy.

In many ways though, the economy is a good forcing mechanism to improve our business efficiencies even more.

When you combine a more efficient business with the numerous price enhancements that we put into place, it's clear we are setting ourselves up for long-term success. As mentioned last quarter, we took action to control our costs in this difficult environment.

We successfully implemented $35 million in cost reductions at the end of December . The full effect of these actions will appear in Q1 of this year.

We're not stopping there. We're improving operational efficiency company-wide.

And despite difficult economic conditions, we are focused on achieving positive free cash flow in Q3 of this year.

A team has seen significant changes through this process.

And I would like to take a moment to thank all our leaders and team members for their focus, commitment and hard work. We believe these changes will make us stronger the team and the business.

Often, talking to the importance of becoming a product-led company, our teams are working tirelessly in every department to revamp and improve our workflows across products, engineering, sales, operations and analytics. Let me give you a few examples.

to illustrate the impact of these changes. First, we are upgrading our art decisioning engine to support modern art ranking models to drive higher monetization and offer relevancy. Based on early results, we believe that these changes...

can drive a lift in LPMs of 10 to 15% in the back half of 2023.

Second, we're exploring pricing models that are more tight to serve or impression events while still optimizing for advertisers or RF targets. This approach provides better balance between rich and performance goals.

It also gives colleagues more control of budget management, delivery and ad selection, which helps us capture more buildings.

Third, the processes we have put in place to allow us to better track performance, averages, adjustments and campaign launch delays, not only allow us to immediately save $351,000 on redundant tools.

but also will increase our overall operational efficiency for the year. I expect the combined impact of the evolved improvements to positively impact our full year billing margins by around 2%.

These are the first of many initiatives that we're putting in place to improve our operations and products.

I look forward to sharing more details in the coming months. Bright improvements also help from a band perspective.

We created a dedicated operations group within a publisher and Jiren team that has implemented rigorous monitoring techniques decreasing panacequate creation by over 25% from November 2022 to February 2023.

Not only does this make us more efficient and cost effective, it also improves upon a satisfaction.

Three initiatives highlighted last quarter are especially important in the prior area.

Three initiatives that I highlighted last quarter are especially important in the product area. On youCustomer

our new user experience and cloud migration. So let me give you some insights into processing each of these areas. We have already connected more than 50% of our MAU base to our new server, completing one of our key objectives for the year.

We remain on track to connect all of our partners to the new server and user experience by the end of 2023.

Regarding the new user experience, we're excited to announce that a major partner is launching a new user experience to its full user base and it should roll out over the next month. As we mentioned in the past, the scale created by having a major bank partner on a new user experience and that server will allow us to ship new products to the user base.

which I will discuss in more detail shortly. We also have news to share on Cloud Migration. In Q4, we finish moving our core US platform to the cloud. We are now focused on duplicating our on-premise data centers.

Deplicating our data centers will create cost savings of nearly $1 million in 2024. A goal is to have all our banks move to the cloud by Q3 2023. Focusing on product makes us more than just efficient. It also unlocks new capabilities.

Here are three specific examples of new of the constructs that we will do better in Q1 and Q2.

Here are three specific examples of new of the constructs that we will better in Q1 and Q2. First, a list of them per seelled knowledge that we have Falcon-D with a

Spent stretch offers, or the ability to incentivize a set of customers spending in a certain range to increase their spending on their next visit. An example will be a customer who spends $20 on average receiving a $5 cash discount if they spend $40 or more.

Second, Merchant Category Quarter Office.

which allow bank fund campaigns that are targeted to specific types of transactions such as gas or grocery purchases.

In a test with a large bank partner, we saw around a two-turned increase in reduction dollars of a standard campaign.

Third, receipt level offers, which are a construct tailored to specific prior categories or items.

These are the offers we are most excited about and for good reason. In an early test, 10% of activations came from customers who had never activated enough of a fall and 19% of those customers had not shop at that retailer in 12 months prior to the campaign. Growth isn't just coming from my co-biz.

As many of you know, we hired Amid Gupta as a new CEO of CardLetics and General Manager of Bridge.

We're extremely excited to have attracted such an incredible time for the business. And this is already hard at work, both on optimizing our long-term platform and on fully utilizing the potential of rich and cut lyrics.

Relating to breach, Imit is accelerating the evolution of the business from a customer data platform to a retail media network for mid-market and regional retailers.

We believe that most smaller retailers cannot build these platforms alone. While rich scalability allows to work with larger retailers, the key to success for bridge is building a cooperative scale data set for mid market and regional grocery stores.

convenience stores and fuel providers, matching the same way that we'd be of core tactics.

By building scale for these retailers, we can create a compelling new product for CPGs to get insights.

driving criminal cells and measure campaign. I'm meeting the bridge teams at Hardadwork on a go-to market effort that we've enabled this vision of providing a best-in-class retail media network for smaller retailers. And I've reached scales.

We will also see improvement to our adjusted contribution margin due to its higher growth margin, which will positively affect our cash flow.

Given the numerous improvements and innovative projects that are on the horizon, I am incredibly excited for the future of Calais.

A move to being a product-led company is expanding our reach and enhancing our capabilities.

which will continue to differentiate us in the market and provide better solutions for advertisers and partners. I'd like to close with some observation on consumer spend, the economy, and our outlook for the year. For 2022, end of the year 2020, end of the year 2021 is bringing greater impact to the economy on food, trade, and development. The three agenda items in thiside series include Brexit, order, and growth. For 2020, end of the year 2021

Consumer spending grew 5% over 2021, at basing transaction growth by over 3%.

Inflation clearly affected the consumer in the second half of the year. Outside of travel and enslavement, which enjoyed recovery through 2022, discretionary spending categories mostly finished down or flat for the year.

For 2022 year of a year, gas and grocery spend was up 9%. Travel and entertainment spend was up 25%.

Retail was flat and the rest was of 9%, but more discretionary categories such as bars and nightclubs finished down 4% year over year. Leading indicators show that consumers remain resilient and inflation is receiving from its high, but the Fed has not yet backed away from its current money through

Wo.

That said, I am still encouraged by the continued strength of a new business pipeline, especially for the second half of the year.

I believe that once advertisers reassess the cost structures and budgets, we will benefit from the ongoing move to brand-safe, performance-based advertising. We are building a business that is resilient in the long term, regardless of economic conditions.

For 2023, we see a path to solid growth, especially after we pass the anniversary of a significant wrestling client exiting our channel in the second half of the year.

Our product enhancements and optimization should provide us with around 2% of additional upside to billing margins for the rest of the year. And the growth of rich, higher margin business will benefit both our billings and cash role as we move forward.

Even with the muted economic conditions, we have room to get to profitability and control a cash flow by managing the business responsibly. We know our success is dependent on existing with a discipline approach, and I'm concerned that strategy and priorities.

up positioning the company for liquidity, long-term growth and profitability. While the breach-shareholder disputes has been a distraction to the business of the last few quarters,

We remain content in our position and a happy to report that we currently expect the matter to be resolved by the ANA V8 4. With that, I will hand over to ND to provide more detail on our results and financial stretch. Thank you, Kreme.

Our Q-4 results will within our poorly guidance ranges. And despite macroeconomic headwind, the impacted consumer spending and ad budgets, we delivered double-digit year-rear growth in 2022.

Let me walk through the numbers for Q4. Billings told 126.1 million, down 5.9% year-to-year.

Let me walk through the numbers for Q4. Billings totaled 126.1 million, down 5.9% year-rear. Revenue totaled 82.5 million.

down 8.4% year-to-year. Adjust the contribution totaled 40 million, down 9.2% year-to-year, and adjusted even though it was a loss of 6.1 million, compared to a gain of 2.6 million in Q4 last year. Additionally, for Q4, year-to-year, the Q4, year-to-year, and adjusted even though it was a loss of 6.1 million in Q4 last year.

bridge revenues is 74.2% and agency ad spending on the Carlinux platform grew over 20%. It's also worth noting that core Carlinux buildings was flat year per year when excluding the large restaurant clients that left the channel in 2022. For the quarter, Zoyne's margin was now 1.8% year-beer.

Part of this was driven by advertising mix. We typically generate a higher billing margin within the restaurant vertical compared to travel and entertainment. Restaurant ad spending on our channel declined 15% year-by-year compared to a 75% increase within travel and entertainment. Additionally, there's some temporary drags on billing margin that will save out by the middle of the year.

as we transition our tech stack and automate our operation. Our expectations return to historical levels of billing margin over time. We also see opportunities to expand our margins as we grow in the diversifier customer base and leverage higher margin revenues for our fast-growing bridge offerings. Customer concentration improved over the past year.

As our top five customers accounted for 15% of revenue this quarter compared to 23% in Q4 2021.

This remains a central focus as we continue to organically grow and expand the depth and breadth of our customer base.

focus as we continue to organically grow and expand the depth and breadth of our customer base. Moving to cost.

We have completed the cost reduction initiatives we announced in 2022. Next, expect over 35 million annualized savings compared to our annualized run rate in Q2 of 2022. As Cream mentioned, we have more room to control costs and the events of further economic decline. We believe we can reach our cash levels in 2023 with our current cost base. As a result of a sustained decline in our market cap and significant increases in interest rates and costs of capital, we continue to unclutch patients per year.

We recorded a 370 million non-cash impairment of goodwill and tanger glasses this quarter. We were most excited about the prospects of bridge and carlips, but the impairment was necessary given the fact that our goodwill and tanger glasses were in excess of our market

370 million non-cash impairment of goodwill and tangible assets this quarter. We remain excited about the prospects of Bridge and Carlitics, but the impairment was necessary given the fact that our goodwill and intangible assets were in excess of our market cap. Moving to our balance sheet and cash flow.

We ended the year with 122 million cash and cash equivalents compared to 138.6 million at the end of Q3. Our $60 million line of credit also remains on drawn. During Q4 we use 13.1 million of cash and operating activities. Use 3.2 million for software development and capital expenditures.

Realize that $200,000 un-favorable impact from a strengthening bridge pound and use $200,000 of cash related to financing activities. In the use, $182.7 million, Q4, an increase of 4.2 percent year over year. Our organic growth rate was in line with our long-term expectations of low to mid-to-

3.5 million shares outstanding ERN compared with 33.1 million in the end of Q3.

Weighted average shares upstanding during the quarter were 33.4 million, which was unchanged from Q4 2021.

Lastly, regarding the bridge burnout, the defeat of currently in the resolution process is outlined in the merger agreement, and we will provide timely updates to the public once the matter has been resolved.

We remain confident in our position and expect the first R-Out, the inclusive of broker fees and transaction bonuses, the $126.4 million, with a minimum cash payment of $43.3 million.

We expect a second turnout to be 67.8 million with a minimum cash payment of 24 million. As that one in the merger agreement, we may have a big regular and a 30% minimum cash, given the 19.9% equity and dilution cap in place on the shares issue.

We expect a second turnout to be 67.8 million with a minimum cash payment of 24 million. As that one in the merger agreement, we may have a big regular and a 30% minimum cash given the 19.9% equity ad dilution cap in place on the shares issued. Now turning the guidance.

The ad market challenges we faced in Q4 continued in the Q1, but Q1 is also typically our annual low point due to seasonal consumer spending trends and decreased quarterly marketing budgets for most of our clients. For the first quarter of 2023, we expect billions between $84 and $93 million, revenue between $54 and $63 million, adjusted contribution of between $26 and $31 million, and an adjusted EVO loss of between $10 and $17 million. We expect cash operating expenses of approximately $42 million in Q1.

We expect a slight increase in expenses in Q2 of 2023 due to our annual merit and promotion cycle, but our new expense run rate fully reflects the 35 million of annualized savings from Q2 of 2022. If through the law of the large cost building mentioned earlier, we expect the core-crowded business in the U.S. to go into the low of the mid-tingle digits year-to-year and Q1.

A positive sign is that the sequential decline of our buildings from Q40Q1 is in line with the historical trend from Q120 to Q120 to Q120-22, signaling that the ad environment hasn't become maturely worse quarter to quarter.

We're not providing formal guidance for the full year at this time, but as Khrim mentioned earlier, we believe we will generate sufficient growth to reach positive free cash flow in Q3, but 2023, through product enhancements, optimizing our platform, growing our higher margin bridge business, and laughing a lot through the significant customer. With that, I'll turn it over to Khrim.

We want to thank our shareholders, partners, employees and customers for their ongoing support and trust in the company. We remain focused on driving product innovation and solutions for our partners and advertisers. This focus will create expanded rich, revenue-opening teams and efficiency for our customers.

we need to meet our growth and profitability objectives. We look forward to sharing more based on our progress during the year. With that, I will open the call to questions.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and wait for your name to be announced.

To withdraw your question, please press Start 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Cal Peterson with Needham & Company. Your line is open.

Great, good afternoon. Thanks, guys, for taking the questions. You can just start off on the expenses, help what color you guys gave with roughly 42 million in cash, expenses for 1Q, and then...

There's a couple moving pieces you mentioned with the full realization of some of those annualized cost savings, probably offset by some merit increases or timing of some of that. So I guess is that $42 million with some modest adjustments based on those factors, is that a good?

run rate to use moving forward or are there additional opportunities for efficiencies and savings without sacrificing your growth opportunities?

Hey, you take my office today, Andy. You know, in New York, you're exactly right. And we wanted to give a little bit of color around the run rate. I mean, the run rate you see in Q1 does fully reflect the actions that we took in 2022. And that's a good number to kind of run going forward. Now, I'm under a hint to we may have a little bit of increases throughout the year, but that is kind of how our model is. Now, there's certainly an opportunity.

these kind of newer products, whether it's some of the bank-funded category offers or some of the more kind of incentivizing spending on future trips. I guess how big of a growth opportunity do you guys see for these offers and could these be a material boost to results in 23 or is this more of?

you know, kind of a multi-year slowly getting there, but not a big contributor right out of the gate. Yeah, sure. Well, let me take a swing at that and Krim probably have some thoughts as well. But I think we've been a bit conservative when we think about these things rolling out this year. I think certainly next year it'll be a much bigger impact on the business.

And I think it would be one of those items where we're going to get going here in the next few quarters. We'll see it in by the end of the year. We'll probably start to feel it. But really, it's a big 2024 opportunity, but with uptime, right? In 2023, we were really able to pull that forward and execute. First Jiethe. Next. Yes.

Just Karla, I would echo these sentiments. I think these are potential opportunities that give us comfort that we can get to some level of growth this year. Some reasonable level of growth this year, but most of the benefits are going to come in in 2024.

Make some. Thank you. Please stand by for our next question.

Next question comes from the line of Douglas Armoves with JP Morgan. The line is open. The line is open.

Thanks for taking the questions. It looks like the two industries where activation rates increase year-over-year were entertainment and travel. Just curious how you're thinking about the shift of consumer spending, some things, two experiences, and how does that impact your business in the go-to-market strategy going forward. And then separately, you talked about one major.

partner launching the new user experience. Can you just give us some more insight in terms of the benefits of the new user experience, how will that be better for users and for advertisers? Thanks. Sure, thanks for the questions. On your first point, we've talked a lot about some of the real momentum.

I think it's top of mind for it, it's just an active area where people are looking to save money as they're traveling. To your second point, I'll let maybe Karim chime in on that one, but I think the entertainment and travel is pretty self-explanatory given our spend trends. Thanks, Andy. Yeah, thanks Andy.

It's hard where go-to-market is important with the gas to getting us the right base of customers, but the other part that's really important is how we optimize for the right offers to be surfaced to the right customers. And that's where us becoming a much stronger product-led company.

with a modern art server and the ability to be a lot smarter. We asked you how we took this, we was to the right customers at the right time. We'll make a vast difference to our business going forward, both in terms of the engagements that we will see from the ads, but also the revenue that we can derive from this.

one to ask the question. Please stand by for our next question. Our next question comes from Jason Crayer with Craig Hallam. Your line is open.

Great, thank you guys. Just wanted to see if you can help us bridge the gap from the guide that you gave for Q1 to the commentary on on cash flow generation in Q3. It doesn't seem like you're baking any other cost reduction in there, but just one of you can help fill in that gap over the next two quarters. Yeah, sure. Happy to help you, right? So.

Our expense run rate, we've been trying to give a little bit of color to write it, it's kind of where we're at, we certainly, there are certainly opportunities for us to continue to manage our costs. But that's one kind of anchor that we want people to think about. As we get to break even here in Q3 from a cash flow perspective, we really need to make sure that you're considering the our interest payments for the software development costs, then be able to kind of back into the adjusted contribution, numbers that we would expect to reach rate even.

So Crimson a lot of times is prepared and are talking about all the different vectors of growth. And I think when you put those all together right, we feel really comfortable about being able to grow the business. You know one of the things that I think maybe has been underappreciated is that the growth in the bridge business, which is a much higher margin business for us, with those dollars flowing all the way down to the desk of contribution. So with that combined with many of the things in the cartilage platform that we're talking about, we're talking about.

updates to the product suite that are giving you confidence in that return to growth. I mean, what are the near term product changes that can influence growth here in 23? There's a lot of different angles here. Let me break down a couple of things. Right? Product is certainly one of those things where a new user experience with new offer constructs is currently happening on the

some of those new capabilities and automation to our larger banks as well. So we certainly have an expectation of being able to more meaningfully move the needle, doing those things, right, and add things like product law offers come online, but we expect those become more meaningful towards the back app. There's an opportunity for us to accelerate those things and and rely on those those back growth earlier, if you will.

So there's a couple different things going on there. They're all giving us some additional tailwinds. OK. And one last one, if I can squeeze one in. Keremia, I think you did a great job talking about some new product changes and a bunch of different things. There were three product changes you highlighted. And I think the second one was more about offers that were more tied to impression and expanding reach.

Just wanted to see if you can give a little bit more clarity around that. You're talking about pricing models that are more tied to serves and impression events or you're talking about the merchant category code offers? Those are two of our separate remarks. The first one, the impression models. Yeah, we essentially are currently, as you know, not necessarily optimizing properly with regards to the

those purchasers and essentially better balancing the rich and performance that each advertiser gets so that we can surface More of the right us to the right customers rather than continuously serving the same us the same customers So we'll have much better control of budget management because of it. We'll have much better control of delivery

So instead of continuously serving the same ads to the same customers, the same rewards to the same customers, we'll be able to select the ads that are more likely to end in the right outcome for those customers. So a much better outcome, both in terms of the engagement and the experience that the customers will have within their banking app, but also a better leverage for us with regards to the budgets that we can consume. Okay, great. Thank you very much.

are continuously serving the same ads to the same customers, the same rewards to the same customers, we'll be able to select the ads that are more likely to end in the right outcome for those customers. So a much better outcome both in terms of the engagements and the experience that the customers will have within their banking app but also a better leverage for us with the best of the budgets that we can consume. Okay, great, thank you very much. Thank you.

I'm not showing any further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.