Quotient Technology Inc. Q1 2023 Earnings Call
Okay.
Good afternoon.
Thank you for attending the quotient technologies first quarter earnings call. My name is Matt and I'll be your moderator for today's call.
All lines have been muted during the presentation portion of the call up an opportunity for questions and answers at the end if you like to ask a question. Please press star one on your telephone keypad.
I'd like to turn the conference over to Oracle, they're a nice elegant.
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Thank you operator, good afternoon, and welcome to our first quarter 2023 earnings call with me on the call today are the company's CEO , Matt Grubb sick and you need Conn, our CFO and C O M.
The company's press release and earnings presentation have been posted to the IR section of the company's corporate website investors dock question 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 second quarter and full year.
These forward looking statements are based on information available to and the good faith beliefs of the company's management team as of the time of this call and are subject to known and unknown risks and uncertainties that could cause 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 impacted the companys financial results can be found in the risk factors identified in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K filed with the SEC On March 16th 2023 as amended by our 10-K Slash a filed.
But the SEC on April 28, 2023, and future filings and reports by us.
We disclaim any obligation to update information contained in these forward looking statements, whether as a result of new information future events or otherwise.
The transformation.
As we have shifted our business model from being a managed services agency to a technology based solution designed to provide greater value to brands and retailers.
This transition as we have communicated in prior quarters is intended to deliver a superior margin profile and scale quotient relative to our legacy model.
On the top line promotions continued to deliver growth with our network performance becoming stronger.
We saw our savings delivered grow by 22% again outpacing overall retail sales on promotions growth of seven 9% as reported by Nielsen I Q.
Menstruating, our ability to capture share and expand our addressable market.
And Q1, we saw the underlying fundamentals our network and platform continue to strengthen with activators on our network up 15% year over year and redemption is up 14%.
We believe that each of these internal key performance metrics demonstrate the positive momentum for our network as we grow the reach of our audience and we deliver results for brands.
This in our view is creating a virtuous cycle with new brands, bringing new content onto the platform and engaging new consumers delivering more savings and driving results.
Looking forward.
The strength of these internal indicators underlies our outlook for the rest of the year and are reflected in our guidance for Q2, where we begin to show top line growth.
From a macro perspective, we are seeing brands face pressure on volume as the begin to lap their price increases from last year is price sensitivity is creating headwinds for our consumers.
As a result.
We're seeing growth and content on our platform given our ability to programmatically deliver offers to consumers, increasing performance and reducing waste and promotion spend for brands.
Content growth is reflective of our transition to a technology platform and our programmatic capabilities, where we can now more easily support new content for smaller brands regional players and new consume repurchase occasions.
During the quarter. We also expanded coverage of our network to include the adult beverage category. If you recall. This expansion is one of our key strategic growth initiatives for the promotion business driving revenues at a higher margins in our view this expansion to a category that is incremental for consumers and complementary.
For our network in retail partners enables us to expand our addressable market and increase the monetization of our existing network.
While we are still in the early innings of our business model transformation I am pleased with the work our new Chief revenue Officer, Alison Metcalf has done to refine our go to market strategy with a focus on winning net new business.
And Q1, we brought 92 net new brands onto our promotions network and.
And our pipeline growth is ahead of our historical norms with particular strength and the promotions business.
Turning to our media business.
As you May recall, we have been executing a strategic pivot for this business with the in housing in retail media and our transition from an agency managed media model to an AD Tech self service product.
We have successfully transition the costs burdensome managed media business in 2022.
With Q1, reflecting the new Adtec model for our media products as we become a technology partner for our retailers and of buying platform for brands.
As we take this step forward for our media business, we are introducing gross billings this quarter as a leading indicator.
And key performance metric that is intended to provide transparency for our investors and demonstrate the utilization and solid momentum for the period of our media business to an AD tech product.
Gross billings is an internal operational metrics to provides a view on the utilization of our platform.
Our ability to capture share of the addressable market and ultimately our ability to convert that strength into revenue.
Turning to digital at all we saw our gross billings double in Q1 2000 twenty-three over the same period year ago, demonstrating the strength of our product as well as showing the potential for what we believe is one of our core longterm growth drivers for closure.
The digital at a whole market is expected to grow at 15% through 2025, According to E marketer.
This growth is driven by two trends.
First the digitization of the traditional at our home placements and secondarily the digitization the physical store.
In store audiences for retailers are one five times larger than their digital audiences.
And 90% CPG transactions are still made in store.
With access to over 500000 screens of which over 200000 are in or around a physical retail store.
Our digital at home product is quickly becoming in our view the digital in store product.
We offer an industry recognized demand-side platform that enables advertisers to programmatically reach consumers on digital screens wherever they are and wherever they shop.
Quotient self service platform is designed for the unique opportunities of out of home location based advertising.
That enables brands to reach consumers on the move during their path to purchase.
As a testament to our capabilities or digital out of home business received nominations for <unk> 2023 media buying and planning awards.
We renamed a finalist in the best Digital Auto home campaign category, which recognized are successful campaign with the clothing retailer H N M USA.
As well as the best multichannel experience.
And the best Digital media campaign categories for our summer Snacking campaign with <unk>.
This campaign was recognized for the power of taking it omnichannel strategy using multiple channels, including social mobile display and digital on a hold to deliver a cohesive message to consumers across multiple touch points.
Turning to the retail AD network.
In the quarter, we shared initial campaign results from our retail AD network with our CPG pilot partners.
Initial results are well received and speak to what we believe is the promise of simplifying the buying of retail media.
This innovation is delivering on CPG expectations for performance, while solving key pinpoints of supporting all retail media businesses.
Looking to our future as I mentioned briefly on our last call in the coming years, we have a goal to return the business to a low to mid teens growth rate, 60%, plus gross margins and 20% plus EBIT margin. We believed based on our current trajectory we have a line of sight to achieving these targets by 2025.
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On the top line, we expect to achieve this growth rate steady organic growth in our promotions product family and scaling up our strategic growth initiatives within our other product families such as did you at our home and shot me.
On the promotion side with the product Mac capabilities of our platform. We believe that we can more easily support new content for smaller brands regional players and new consumer purchase occasions, as well as new adjacent categories.
With individual at our home and shot me and we are expanding the reach of our product offerings as we seek to capitalize on a growing Tam and these product areas.
I spoke to some of the Tailwinds were experienced an integer on a home a moment ago for shopping and we continue to build on the success of our European shot me a map with the launch of shopping you mean in the United States growing our direct to consumer content by 23% in Q1 2023 versus the prior year and we continue to be excited about the <unk>.
Monetization opportunities given early read on user engagement levels in the App.
On the profitability side. The work we did in 2022 to reduce our operating cost structure has provided in our view a path to a 60% gross margin and a 20% EBIT margin by 2025, achieving these targets will be dependent upon growth on our higher margin revenue initiative.
And leveraging the fixed cost base.
In conclusion, while Q1 results were within our expectations are leading internal indicators are showing green shoots across the business from the strength of our promotions network to the 92 net new brands and increased gross billings through our digital at our home PSP the.
The hard work of transitioning to a technology provider is progressing.
And our financial fundamentals continue to strengthen.
We are focused on driving organic growth, while simultaneously expanding margins.
With that I will now turn the call over to you need to review financials and guidance.
Thank you, Matt and good afternoon, everyone. My remarks today, it would be focused on our financial highlights and I encourage everyone to visit odd Investor relations paid for all the relevant documents, including our gap to non-GAAP reconciliation.
Q1 results demonstrate the work we started last year to strengthen the financial fundamentals of the company and I will continue to focus on improving our financial processes.
In particular, I'm proud that via achieve positive adjusted EBITDA and first quarter of this year versus a loss posted and first quarter of last year.
Customer to our focus on profitability cost discipline and efficiency.
Combined with our solid cash and liquidity position. We believe we are valid position to continue funding our transformation and fueling our growth.
Our first quarter revenue was $59.3 million, but then our guidance range of $55 million to $65 million <unk>.
This compares to $61.5 million of revenue reported.
First quarter of 2022, excluding the impacts of the winding down of our relationship with a large partner and I shifted net revenue recognition.
These excluded items contributed $17 million of the $78.5 million of revenue that'd be reported in Q1 of last year.
Promotions represented 80% of revenue in Q1.
As Mac mentioned or promotions business continue to demonstrate strength, while media was impacted by decline and matter of services.
Do too and housing and a strategic shift away from low margin managed services media products.
Non Gabe gross profit of $29.9 million resulted in a non-GAAP gross margin of 50%.
Compared to 41% in Q1 of last year.
Gross margin improvement was primarily driven by the adoption of met revenue recognition.
<unk> towards higher margin products and cost reduction options, including efficiency driven improvements to our operations and delivery functions.
R Q1, non-GAAP operating expenses.
$31.4 million versus $41.2 million in June of last year.
Year over year decline in spending was primarily due to previously announced cost reduction actions as well as our disciplined Opex management.
non-GAAP adjusted EBITDA in Q1 was $1.8 million within our guidance range of $1 million to $5 million versus the loss of $7 million in the prior year.
Turning to cash are operating cash uses for the quarter was $6.6 million within our guidance range of a cash usage of five to 10 million and improving by 19 million then first quarter of last year.
The gas usage and one Q is reflective of normal seasonality of certain cash outflows that happened in the beginning of the year as well as timing of certain known non regarding payments.
We ended the quarter with 44 million of cash and with our unused an available asset base revolving credit facility.
We believe we are well capitalized to meet all our cash needs.
We continue to strengthen our cash management processes, leading to greater visibility into elements of hot gas cycle, and helping drive further optimization of our working capital.
During the second quarter I'm excited about the strong commercial momentum that we are witnessing across our promotions as well as our that's a lot of home products as matters bonded out.
<unk> revenue guidance. The flex this momentum and is supported by a pipeline that is trending ahead of season alarms fell.
Further we continue to see meaningful improvement and adjusted EBITDA driven by our focus on growing higher margin products and are proven cost performance.
We believe it is important to emphasize that AD revenue guidance for two two is also signaling unexpected return to growth for our company, excluding the impact of a certain Bryan period revenue recognition item that we previously disclosed during Tokyo of last year.
For the second quarter, we anticipated revenue to be in the range of 67% to $72 million non-GAAP gross profit to be in the range of $34 million to $38 million adjusted EBITDA in the range of three to 6 billion in operating cash flow in the range of zero to $5 million.
For full year 2023, we are maintaining our guidance, we expect revenue to be in the range of $275 million to $305 million non God, God's prophet and the range of $145 million to $165 million adjusted EBITDA in the range of $30 million to $245 million.
And operating cashflow to be in the range of $10 million to $25 million.
We estimate weighted average basic shares outstanding to be approximately $98.8 million.
In closing I'm very proud of our company's transformation journey, so far and very excited about the positive momentum that is building up.
And in my view, we are laying solid groundwork towards achieving our long term financial growth of revenue growth in the mid teens gross margin north of 60% and EBITDA margin north of 20%.
We would now like to take your questions. Operator can you. Please open up the line for Q&A.
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We'll pull up your briefly a question of the registered.
The first question is from the line of the Franco with Rosenblatt Securities. Your line is now open.
Good afternoon could we start with the digital add a home business and this build up a building.
<unk>.
Maybe give us an idea of how important is business revenue in 2023 and Rams from there.
Yeah, Hey, Steve How're, you doing and thanks for the question. So did you have a home it's certainly been a it's been a growing part of our business Eric.
Eric growing part of our media business. It does represent a true adtec take right.
When we look at the business here through the I think through Q1 it does represent.
A year I would say a good 50 per cent of our media revenue and we expect that to continue to build throughout the year.
Okay, Great and then.
On gross margin I was anticipating it may be routine higher gross margins this year not quite to.
Think that 60 per cent target, but making some good progress this year on your guidance seems to imply that there isn't as much with what's the dynamic there.
Yeah.
So.
First of all as you said in the past.
Part of our polio is pretty healthy the portfolio that'd be have right now that is pretty nice direct margins.
Gross margin did you see right now is 50%.
Substantially higher versus very very last time.
And the first quarter of 2022.
Between what you saw in the fourth quarter versus what you are seeing in the first quarter.
Primarily related to the top line revenue number.
Revenue.
$11 million sharp.
Fourth quarter, which is normal seasonality that we have in the business underneath our products, which are pretty healthy when it comes to gross margin 570, 80% and that is the reason why the gross profit declined.
You have less growth <unk>.
<unk> solar absorption in the first quarter its normal seasonality, it's in line with our expectations within our guidance and this is something that we see kind of like no leveling off as we progress through the year already you'll see the gross margin for second quarter to be trending higher than the first quarter and as the revenue growth we will.
See that gross margin percentage become better and better through the year.
Like I said before it's advert expectations guide for our second quarter and totally reflects that.
And then.
Cause there are bunches.
It's kind of hard to model, so maybe give us.
An idea of where.
non-GAAP.
<unk> should be in Q2 and through the rest of the year.
Yeah. So it's a non grab opex should be in line with what you're seeing in in.
In the first quarter of slightly better we expect in the second quarter because in the first quarter you have some calm catch ups.
And a little bit of like.
Incremental sales and marketing expense so.
It will be in the same zip code or what you're seeing like in a in the first quarter.
And what about the back half of the year Flatliners or is there room for sort.
Taking more cost out of the model.
For the year.
Uscb there is always doing today golf course leg Opex monitoring is something that we have actually demonstrated in the last year is valid that's front and center of our financial management.
<unk> strategy so.
We will continue that that drill but for modeling purposes for now will allow you to like you know keep it straight line with like maybe a different revenue trajectory.
Okay and then.
Last question.
On shop in.
Where does that business have to scale to before you start sharing some metrics with us.
Yeah, I would say, it's less about the scale of the business, Steve It's more about us getting comfortable with his internal metrics and making sure. We have proper benchmarks that both allow us to model it as well as to allow.
Sure that metric out for you guys model as well so I I expect as we move through the year will continue to kind of look at that the growth of the overall lead to that business and start to count and take a look at the right metrics that we'll start sharing externally.
Okay, great I'll jump back in the queue.
Thanks, Steve.
Thank you for your question.
The next question is from the line Chad Binette with Craig Howell and your line is now open.
Great. Thanks for taking my question, So just Wanna verify the mix in the in the quarter did you say you indicate promo was 80% of the mixed in the quarter.
Hey, Chad that is correct, yes, and a quarter Romo is 80% of the next.
Okay and then.
In terms of how we should think about that for the remainder of the year from a mix standpoint.
It seems like promos, certainly did better than that at least we saw it in the quarter, but maybe media was was a little bit lighter than what we saw it kind of just kind of expectations for mix for the rest of the year in in maybe secondarily.
What do you expect from the media business from this kind of run rate in Q1.
Yeah. It's a good question, it's something that we're we're kind of keeping a keen eye on when we think about the shift we made in the media business towards an AD Tech model.
We expect that build throughout the year, we know the second half typically is a much stronger billings period for us and you can I can see that in some of the historical data we provided and so we expect that too.
As we progress through the year media will certainly move up our next.
Cuomo, it's been very strong in Q1.
We certainly see some strength in queue to just looking at the savings delivered we had out there in Q1, so I would say.
Gradually we will see some probably faster growth rates with media office baseline, but I think that mixed progressively become more balanced as we move to the back half of the year I think it will still probably be in that that range of 70, 30, but I would say still early early innings to see where that how that evolves.
Do you think just on the promo side, Matt from everything you're seeing and just kind of the the macro date.
Data points on CPG.
Kind of price elasticity as in and kind of you know.
Annualizing on price increases in volume decreases and so forth.
I mean, we typically look at that business kind of seasonally throughout the year. It seems like this year.
You know I hate to say you're fearful.
Fearful to say it could be different but that almost you'll regardless of a traditional seasonality that promo biz.
Should.
Trying to improve sequentially every quarter throughout the year I don't know that anybody has visibility in the fourth quarter, but just wondering how you think about the seasonality of that business relative to.
Quote unquote normal years.
Yeah, I mean, the way we're thinking about our guide for the year. At this moment is we're still kind of take into account traditional seasonal patterns that being said you are correct to point out that there are some.
Some positive tailwinds out there in the macro environment for us right inflation levels remain elevated which means we're seeing a lot more consumer engagement and demand fair offers July we see your savings delivered grow we see cpg's facing a lot of pressure on volume and so certainly seeing some positive tailwinds there as they look taken at.
Leveraged more of a digital promotion, which can be targeted and programmatic to help them move volume and move units more efficiently and more effectively so.
It does give us as we look forward certainly some green shoots towards where we see this business and this year could be could.
Could become a unique ear for us, but I would say we're still early in the year on that one.
We see certainly strong momentum and quarter to for our promo bookings.
And we're in a we continued kind of track that into Q3, we're certainly way ahead of the curve predict and see where Q4 would land, but I think it's certainly something that's on the table and I certainly would say the.
The macro and industry Tailwinds, our in our favor right now.
And they just kind of more broadly.
And that just on on how.
View the platform today, the promotion platform or network.
If if we do see a comeback in trade incentives and spend from Cpg's. Just just kind of wear caution is physician from our market share standpoint to capture that.
Spend versus you know historical time periods.
Thanks.
<unk>.
It's it's a good question I would say our network today as we shifted to that network model. The publishing partners. We added last year, we have more reach today of consumers than we ever have as as a company and as a platform.
We think that gives us a unique opportunity to continue to help brands deliver savings to the American consumer.
Across all possible touchpoints, whether that's.
Through their retail <unk>, whether it's through one of our publishing partners, whether it's through their favorite shopping list App.
We've really become very agnostic and shifted our network to truly be a promotional AD server, allowing us to deliver savings to consumers across multiple touch pointed however, they shop I think that gives us a very strong position to continue to help brand new volume and help consumers say.
Yes.
Got it. Thanks, so much I appreciate you taking the questions.
I appreciate it yet.
Thank you for your question.
There are no additional questions waiting at this time I will now turn the conference back to Matt Crepe sick for closing remarks.
Thank you all for joining us today on R. Q1 results, we look forward to continuing to update you on our progress in the near future.
Thank you.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.
Everyone else has.
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