Q2 2023 Cardlytics Inc Earnings Call
Good day, and thank you for standing by and welcome to the Q2 2023 cartilage.
Earnings Conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again please.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Nick Litton, Chief legal and privacy officer.
Good evening and welcome to the <unk> second quarter 2023 financial results call before we begin let me remind everyone that today's discussion will contain forward looking statements based on our current assumptions expectations and beliefs, including.
Expectations about our future financial performance and results, including for the third quarter of 2023, adding new partners to the network and increasing our may use our partners transition to the new AD server and user experience the growth and expansion of our advertiser base the impact of our new product initiatives, including a re.
Media network, our liquidity and our growth and profitability, including expectations related to achieving positive operating cash flow free cash flow and adjusted EBITDA on an annual basis.
For a discussion of the specific risk factors that could cause our actual results to differ materially from today's discussion. Please refer to the risk factors section of the company's 10-Q for the quarter ended June 32023, which has been filed with the SEC.
Also during this call we will discuss non-GAAP measures of our performance GAAP financial reconciliations and supplemental financial information are provided in the press release issued today and the 8-K that has been filed with the SEC today's call is available via webcast and a replay will be available for one week.
You can find the information I've just described in the Investor Relations section of the card Bolitics website.
Please note that a supplemental presentation to our second quarter results has also been posted on our Investor Relations website.
Joining us on the call today is card lytic, CEO , Graham <unk> and director of corporate development and Investor Relations Robert Robinson.
Following their prepared remarks, we'll open the call to your questions with that said, let me turn the call over to Karen.
Good evening and thank you for joining our Q2 2023 earnings call.
This was a solid quarter for <unk>.
Billings revenue and adjusted EBITDA, all exceeded our expectations for the quarter.
The results reflect our team's hard work in transforming the business during a difficult period for the economy and advertising market.
Adjusted EBITDA performance in Q2 improved by $11 $7 million year over year.
Efficiency measures and our new product initiatives to court.
And our operating cash flow for the quarter.
Positive $5 7 million.
These are great outcomes delivered ahead of schedule.
While we are excited about the positive changes underway and the early momentum we have in driving new customer facing product innovation, we have much more to accomplish in the business.
Every transformation has challenges, but we are making the right long term decisions for Catholics.
And as our numbers demonstrate we are clearly making progress.
Our results for Q2.
Billings increased one 6% year over year to $109 4 million.
U S billings increased 7% year over year.
Revenue increased one 7% year over year to $76 7 million.
Adjusted contribution increased six 8% year over year to $37 $5 million.
<unk> revenue decreased 3% year over year to $6 million.
This is in line with our expectations of short term variability in the business given our focus on bridges retail media network product.
Our focus on sales effectiveness, delivering new products, and making operational improvement led us to exceed expectations, Despite lukewarm consumer spend and advertiser uncertainty.
While restaurant and retail categories are still underperforming versus last year, given the trends the travel entertainment vertical continues to outperform for us.
Even as consumer spending in the category slows.
On the expense side, we continue to make the right financial decisions for the business.
We renegotiated several contracts in the quarter and implemented cost optimization across AWS and snowflake.
The underlying fundamentals in our business continued to show strength.
Unique consumers activating offers increased 2% year over year in Q2.
We saw total activations increased 10% year over year, and total redemptions, 7% year over year.
Just like last quarter, we increased the number of users activating offers year over year and our current users are engaging more often.
While we don't have any significant updates to our partner pipeline discussions with multiple top 20 U S banks and several high upside pantex remain ongoing and.
And we are confident we will sign at least one of these major partners by the end of 2023.
We will continue to update you as we make progress on these potential partnerships.
Now I would like to discuss our strategic initiatives.
As we are making short term financial progress. We're also becoming a strong product led organization.
<unk> and consumers.
The decisions, we make as a business.
First as you know we announced this quarter that we renegotiated a contract with chase.
While we cannot discuss financial details outside of what we already presented in last months 8-K. This is a testament to the strategic value of our partnership.
Additionally, we are happy to announce that chase is 100% live on the new user experience.
Second our three important product initiatives for our bank partners and advertisers.
<unk>.
New user experience and cloud migration on track to deliver long term benefits.
All major U S banks have data I made everywhere and most have systems in AWS.
We expect nearly all of major banks to move to the new AD server.
End user experience by the middle of 2024 versus the end of 2023.
As we said in the past bank timelines can change quarter to quarter, we're having constructive conversations with our partners and our goal is for adoption to happen as soon as possible.
Our partners continue to adopt our Decisioning engine.
To drive higher amortization and offer relevancy for the business.
Most of our banks have now migrated or have agreed to migrate to AE.
It is we are still seeing great results using AE.
Believes using enhanced targeting are up 10%.
Durations are up six 5% and redemptions are up five 7%.
Third new advertising product initiatives are showing similarly exciting results.
For example, multi tier offers which provide valuable incentive based on objective have been effective in shifting purchased channel behavior.
In a pilot of a 21 day period.
Store channels as a percentage of total spend increased from 34% to 71%.
The product and engineering teams are also hard at work on new capabilities and improvements.
We launched our first campaign with receipt level reporting this is important because it opens up incremental demand from cpg's and retailers, who need product level reporting.
It also gives consumers access to better content and offers they want to see.
We reduced the time it takes to process transactions from 70 hours to 35 out.
This reduction allows us to deliver rewards sooner to our partners and customers.
It also makes the billings and at serving systems more efficient.
We can make it more effective adjustments based on budget consumption.
We can more efficiently per auto campaigns at risk of over delivering.
<unk> campaigns that aren't meeting targets.
We launched a target return on that spending pricing pilots in the past month.
This pricing model Leverages, a dynamic marketplace and features bidding on impressions dynamic pricing adjustments and immediate recollection of campaign spend.
While early these capabilities at scale will vastly improve the efficiency of our financials in the long term.
Fourth we continue to diversify our business.
We are making fast progress in transforming the breach business.
Our retail media network pilots have received positive responses from major national CPG brands and the initial feedback we have gathered highlights the excitement around the flexibility they'll have in building sophisticated audiences seamless access to a national footprint.
End user friendly tools that empower them to get valuable insights.
<unk> substantial incremental sales.
Accurately measure the impact of their campaigns.
Product is not the only area we are upgrading we have.
Responsible investing in our people too.
I want to welcome our new CFO Alexey <unk> to calculate it.
We are thrilled to have attracted such a talented and capable executives.
Alex This track record of collaboration across business lines, and driving financial results through data driven analysis makes her the perfect fit to drive long term growth and profitability for cosmetics.
She starts in less than two weeks and exists excited to speak with all of you on our next earnings call.
Alex. This is just one example of the high level talent, we are adding to the business.
Cosmetics potential and the tangible improvements, we are making attracting diverse and innovative talent.
We saw several senior level hires with exceptional background join our product engineering and sales team that this quarter.
Which will continue to elevate our capabilities and boost our competitiveness in the market.
Before I turn to our market trends and outlook I want to share some additional insights for our platform.
To give investors a better idea of our value proposition and our future potential each quarter will surface. Some of the data we share with our advertising customers.
This quarter, we will focus our multiline retail.
The category that includes over 100 brands that most up in sale items, such as apparel electronics and home goods.
In the quarter, we saw consumers spend 67 billion a decline of one 3% year over year, and an uptick up six 1% quarter over quarter.
Average spend per customer is a $196 per month in this category.
This is a competitive category where customers exhibit lower loyalty.
Average consumers to suspend with $2 seven brands per quarter.
This loyalty decreases further during the holiday season in Q4, which represents 28% of the yearly spend.
On a state by state basis for Q2, California represented 16% of Multiline retail spend followed by Texas at 11% and Florida at 9%.
Interestingly, despite the lower brand loyalty this market is not fragmented multi.
Multiline retail has seen significant consolidation in recent years.
With full brands representing over 80.
Percent of the spend that we analyze.
This has been maintained year over year with the top two brands gaining market share largely from the next two brands.
These are the kinds of impacts that we share with our clients to help them make critical business decisions and we're excited to continue to share more of these insights with you moving forward.
Moving to market trends and our outlook.
Consumer spend in the first half of the year was flat compared to 2022.
Year over year spend was down 2% in Q2.
Restaurant and retail spend are still struggling growing 1% and declining 3% year over year, respectively.
Travel spend also slowed significantly at 1% growth year over year.
There is positive news to the consumer still remains strong based on deposit data ended July consumer confidence index increase for the third consecutive months hitting its highest level in two years.
The labor market have softened, but job growth remains solid.
Inflation appears to be declining as fed rate hikes have their intended effect.
Given the external economy and growth environment, we do expect some bumping thats in our results over the next several quarters.
While there will be differences quarter to quarter. We are now on a path to sustain positive operating cash flow free cash flow and adjusted EBITDA on an annual basis.
Regardless of the economy environment.
Teams are focused on improving the business and we are moving forward with a disciplined approach.
The organizational changes we are making continued to give our teams room to operate with speed and a clear focus.
Our results this quarter.
Great sign strategy and priorities are moving the company towards achieving consistent growth and profitability.
Now I will turn it over to Robert who is filling in this quarter to discuss our financial results.
Thank you.
<unk> said, we are excited about our results in Q2.
I've seen a considerable effort from our teams in the past few months and this outcome is well deserved.
Our financials are under control and we're focused on positioning the business for long term success.
The numbers are a great sign that the business is moving in the right direction, but we want to stress that the near term economy and advertising environment are still uncertain.
The chance of a severe to moderate recession has decreased but consumer spend is go on EBIT.
Causing advertisers to continue to review costs and exercise caution with their budgets.
We expect some variability in our quarter to quarter results moving forward.
Here are the numbers for Q2.
Billings increased one 6% year over year to $109 4 million.
Revenue increased one 7% year over year to $76 7 million.
Adjusted contribution increased six 8% year over year at 37 5 million.
<unk> revenue decreased 3% year over year.
Like we mentioned last quarter and earlier in the call the transformation of the business will cause fluctuations in our growth rates quarter to quarter.
As we begin to convert proof of concepts, we expect growth rates to increase and normalize in the future.
Geographically U S revenue increased 7% year over year.
U K revenue decreased 35% year over year.
U K revenue is still affected due to the loss of the bank partner in the channel, but we have opportunities in the pipeline to increase our supply of UK amazed historical levels.
We expect growth rates in the U K business to normalize in future quarters.
Moving to customer concentration.
Our top five customers accounted for 15, 7% of revenue this quarter compared to 15, 8% in Q2 of 2022.
Concentration will remain a key focus as we continue to grow and expand our advertiser base.
Adjusted EBITDA was a loss of $4 1 million this quarter compared to a loss of $15 8 million in Q2 of 2022.
Operating cash flow was positive $5 7 million.
These results highlight our discipline and actions we've taken to rightsize our cost base.
That said, we do expect Choppiness over the next several quarters.
Our expectation moving forward is to be operating cash flow positive and adjusted EBITDA positive on an annual basis starting in 2024.
Okay.
On the balance sheet, we ended Q2 with $92 1 million in cash and cash equivalents compared to $139 million at the end of Q1 of 2022.
During Q2, we used $4 $3 million of cash in operating activities and $5 5 million for software development and capital expenditures.
Additionally, we have paid $51 million in cash related to the bridge you are now.
As of the end of Q2, we had $7 million of unused available borrowings under our line of credit.
We still believe that our available liquidity is sufficient to support our business plans.
We had $37 1 million shares outstanding at the end of Q2.
Paired with $33 7 million at the end of Q1 of 2023.
Diluted weighted average shares outstanding during the quarter was $34 8 million compared to $33 7 million for Q2 of 2022.
As of Q2, we have issued $2 7 million shares in connection with the Bridger now.
<unk> were $188 1 million, an increase of four 6% year over year.
Our fleet during the second quarter was 38.
Which is flat year over year.
Now turning to guidance, while there is renewed optimism in the economy, our advertising clients are still taking a cautious approach to 2023.
We still believe this uncertainty is disproportionately affecting smaller advertising platforms.
That said, we do expect sequential improvement in our Q3 results given seasonality and our focus on operational efficiency.
With that in mind for Q3, we expect billings of between 111 and $123 million.
Revenue of between 70 $584 million.
Adjusted contribution of between 39% and $45 million.
And adjusted EBITDA between negative $2 million and $10 million.
Our transformation into a product led company is fully in play.
I again want to commend our team's tireless work on improving the business.
As we said in the past several quarters. The team is fully committed to achieving a profile of consistent growth and profitability that will allow us to fulfill our long term potential.
And with that I will turn it back over to Craig.
We are committed to running the business with a disciplined focus and closing out the year strong and.
And I'm looking forward to discussing the new capabilities, we are providing to advertisers and partners with all of you.
I will now open the call to questions.
Thank you we will now conduct the question and answer session. As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
One moment please.
Our first question comes from the line of Kyle Peterson with New Handicap. Please proceed.
Hey, guys. This is Sam on for Kyle today, Thanks for taking the questions.
Nice results here I was wondering if you guys could talk a bit more about how AD budgets progressed throughout the quarter and maybe parse that out across some of the core verticals you guys are in.
Sure. Thanks for the question.
So we've seen that.
Overall as we mentioned.
The consumer is definitely slowing overall.
No.
As we mentioned during the call.
Spend from consumers down.
In retail and by 3% for instance.
And only slightly up in trouble when he was up quite dramatically over the last several quarters.
So overall spend is only up 2% year on year, which means that obviously it has some level of impact.
Advertising budgets as well, having said that there are two factors that are positive for US one we're seeing some of the products that were driving to market starting to have an impact.
And two we read.
Driving more efficiency with our sales teams our sales teams.
Spending more time in market.
And we are seeing more demand from advertisers as a result of that.
The results have actually been to some degree a contrary to achieve versus what we have seen on the consumer side.
Some of the areas, where we've seen live.
Slowness on the consumer side.
Again, namely trouble versus the growth that we've seen before and restaurants were.
Retail, where we've seen slowdown started to come back for us. So a positive trend in this area of our business.
Got it that's helpful. I appreciate the color there.
And then just thinking about the back half of the year. How are you guys thinking about AD budgets, there and maybe how does that stack up relative to your expectations from last quarter.
Yes, I think we are still seeing some choppiness and Thats why we are being cautious with regard to the.
The back half of the year, but there is definitely some positive signs as well.
Starting to be showcased both because of again the two items that I mentioned before the continued.
The drive.
Within our sales teams and some of our product coming coming through.
But we're also seeing some positive signs from some of our clients who want to drive.
Additional spend in the back half of the year. So there's positive discussions out carrying there again, we need to be cautious with regard to what we're seeing but definitely some positive signs of what we might see in the economy overall.
Got it that's very helpful. Thanks, guys nice quarter.
Thank you.
Thank you one moment please.
Our next question comes from the line of Jason <unk>.
With Craig Hallum. Please proceed.
Great. Thank you guys.
Just wanted to ask on your <unk> partner contract negotiations I'm curious if you can maybe talk about what would what new products or services that you're providing that would encourage bank partners to want to renegotiate with terms that would be more favorable to <unk> and then an hour.
Do you think that you can replicate the contract revisions that you've already seen with either existing Fi partners or new partners that you are looking to onboard.
Thanks for the question.
This is <unk>.
The important thing here as I think I mentioned in the first call that.
We had.
Move to <unk> is that we.
We really are obsess about.
Our partners onshore that we listen to their needs and that we provide the right level of tech and services to what they want to do to achieve better results for us.
Our partners and obviously the consumers as well I think we are making great improvements in strides towards that.
Excellent engagement and most of your engagements that we've ever had.
We are listening to what our partners want and creating products that.
Here that you can see some of these improvements both in terms of the UI changes that we've made but also in several of the new product trials that I've mentioned that essentially are driving benefits for both our partners consumers.
And advertisers so I've mentioned receipt level offers.
That are coming through.
Again.
<unk> launched a.
Spend targeted return on that spend pricing pilot, which also will be helpful. In all of these things are essentially contributing to us having a better program that enables the banks to feel comfortable that we are there are long term partner for them and continue to invest in those changes.
With us.
So it's an overall efforts that we're making but I have to commend the team.
Both on the Tech side, but also obviously on the <unk>.
On the side for enhancing the engagement that we have.
Keybanc.
And current since you've been there you've talked a lot about product and making the right investments you talked about a little bit of these in the last response here, but can you maybe highlight a few specific product improvements that you've rolled out and more so curious how are these manifesting in the numbers.
You put up a really nice quarter today.
Are we seeing those a result of new bookings or new share where should we see that in the numbers today and going forward.
Yes, I think.
You are definitely starting to see that in the numbers to some degree although obviously not at scale yet.
But stepping back in terms of your question. The first thing that is really important that has changed is that the UI of the product is different to what it was before and when you look at this you Arthur has rollout 100% unchanged.
The look and feel of the program is entirely different and the look and feel of the program itself is driving more engagement.
Consumer level, which is really important for the program overall, and obviously for the banks and for the advertisers.
That's the core thing already that that is really important.
Second area is that as we think about.
New product initiatives.
Bing.
Enabling new product construct some of them that I've just mentioned so I won't go back into it but enabling new product construct that creates more interest from consumers more engagement in the program are really critical as well to driving.
Further engagement and activation and that essentially is what is starting to be reflected in numbers.
Think as Youll see over the coming quarters as we gain more scale with more of our banking partners you should see an even deeper impact across the whole of the business.
And I'm going to sneak in a third sorry, but you mentioned chase being fully rolled out I'm just curious what why.
With Chase have you seen that really clicks or that may be clicks with chase or your advertisers to prove or to validate this new user experience.
Well again, we are seeing them.
All of our key numbers, whether you're thinking about activations of redemptions.
Or engagement in the program overall continue to improve so these are very very positive signal for us, but we're making the right changes in the business.
Thank you guys.
Thank you one moment please.
Our next question comes from the line.
Doug Anmuth from Jpmorgan. Please proceed.
Okay.
Hey, Thanks for taking the question. This is <unk> on for Doug.
Great quarter, guys I'm, just kind of wanted to touch on the EBITDA guide breakeven for <unk> mid point, just curious what that assumes in terms of investments into these newer products and kind of what you would see it in each system to reach the upper end of that and kind of a slight positive in third Q.
Thanks for the thanks for the question.
So a great degree this is a continuation of the scaling of the product that we believe will happen across the quarter as well as.
Continued disciplined from a cost perspective.
We are continuing to be cautious with regards to.
How we look at the advertising market in general as we've mentioned.
And therefore, we are again being cautious with regards to how we guide based on what we see in the advertising market, but as.
As we continue to roll out products that we continue to see improvements in the economy.
Have potential to continue to do better from a financial perspective as well so.
The guide is essentially based on what do we see now in the continue continued progress, we're making both on product level and with advertising customers.
I believe you.
Kind of guided to around like a $40 $42 million in cash Opex before is that run rate quarterly run rate still safe to assume here or is there any changes to that that number.
Yes, I'll, let Rob take that on.
Something but thats essentially roughly the.
The current trend in expenses line.
Robert do you want to add anything.
No you certainly answered the question.
No change from what we've told you guys the past few quarters.
Great Super helpful. Great.
Great quarter guys. Thanks, Thank you.
Thank you at this time I am showing no further questions I would now like to turn it over conference back over to Kirk for closing remarks. Please.
Please proceed.
Thank you obviously this brings the call to a close I wanted to leave you all with us.
<unk> is at the forefront of our strategy and it is helping us build stronger partnerships and new capabilities.
More advertisers to our business and as you know we are highly focused on the long term financial health of the business.
Expectation is positive annual adjusted EBITDA and operating cash flow for 2024 will continue to be disciplined as we make investments to reach our full potential.
For your continued support and I look forward to speaking with you all soon.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Okay.
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