Cardlytics - Earnings Call - Q1 2021

Transcript

Speaker 0

Greetings, and welcome to Cardlytics Q1 twenty twenty one Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Kirk Summers, Chief Legal and Privacy Officer.

Thank you, sir. You may begin.

Speaker 1

Good evening, and welcome to Cardlytics' first quarter twenty twenty one financial results call. Before we begin, let me remind everyone that today's discussion will contain forward looking statements based on our current assumptions, expectations and beliefs, including expectations about future financial performance or results, including our financial guidance and cash position for the second quarter and full year of 2021 our ability to achieve key long term priorities the launch of additional functionality by banks, including U. S. Bank growth in MAUs or monthly active users the return to year over year growth the launch of our new user experience and new technology infrastructure the increase in ARPU or average revenue per user the impact of COVID-nineteen on our business and the economy as a whole, including the stabilization of the economy and potential improvements in the economy, the sufficiency of our capital structure, continued momentum in 2021, and the closing and anticipated benefits of our acquisition of Dosh Holdings Inc. And Bridge Inc.

For a discussion of the specific 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 03/31/2021, and any subsequent periodic reports that we file with the Securities and Exchange Commission. Also during this call, we will discuss non GAAP measures of our performance. GAAP financial reconciliations and supplemental financial information are provided in the press release issued today and the eight ks 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 all of the information I've just described on the Investor Relations section of Cardlytics' website.

Please note that a supplemental presentation to our first quarter results has also been posted to our Investor Relations website. Joining us on the call today is Cardlytics' leadership team, including CEO and Co Founder, Lynn Lobey and CFO, Andy Christiansen. Following their prepared remarks, we'll open the call to your questions. With that, let me turn the call over to Lynn. Lynn?

Speaker 2

Thanks, Kirk, and thank you to everyone for joining us on our first quarter twenty twenty one earnings call. We had a strong start to the year with Q1 billings and total revenue exceeding expectations even before adding contributions from DASH in March. Our results reflect a continued positive trajectory in our business. While we're still experiencing impacts from COVID, we are encouraged by the momentum we're seeing in The US. However, US travel and our UK business continue to be significantly impacted by the pandemic and related lockdown.

Before moving to our results, I'd like to briefly address our recent acquisitions. We are integrating Dosh and making solid progress on combining the two organizations. We are pleased with the team and the capabilities and are already seeing our acquisition thesis come to light. We're also pleased to say that we expect to close the Bridge acquisition in May. We believe the Bridge acquisition has the potential to be transformational given its technology and unique position in the customer data platform or CDP market.

I want to reiterate a few strategic points on both acquisitions for our investors. We expect the Bridge and Dosh acquisitions will first, once integrated, allow Cardlytics to utilize SKU data to provide product level offers from CPGs, grocers, and wider retail. Second, accelerate the next generation consumer experience with consumer engagement features. And finally, provide a lightweight platform to attract new partners in the neobank and non FI industries. We're very pleased with the early progress and results from DOSH already.

Now let's turn to some highlights from the

Speaker 3

first

Speaker 2

quarter. Total billings were $76,300,000 up 13 year over year. Total revenue, which is equal to billings net of consumer incentive, was $53,200,000 an increase of 17% from Q1 twenty twenty. And adjusted contribution was $24,300,000 up 19% year over year. Our Q1 results reflect growth in billings across many of our major industry verticals.

D2C continues to be the largest vertical measured by billings and we're pleased to have delivered year over year growth in this sector. In addition, we saw strong billing growth in both our retail and specialty retail verticals, and we're encouraged by the return of positive year over year growth in our restaurant vertical. I want to highlight a couple of success stories to drive home the importance of our platform to advertisers.

Speaker 3

We secured our first annual contract with one of

Speaker 2

the largest e com platforms in the world despite the fact that the same client cut advertising budgets by almost 75% for 2021. Additionally, a large specialty retail client exited our channel in the 2020. Additionally, Then the client began experiencing lost share of wallet, and we proved that targeting these switchers delivered a positive ROI. This resulted in the client signing a meaningful annual 2021 agreement. Travel remains needed given the ongoing impacts of COVID, but overall, we remain encouraged by momentum we're seeing in our results, and we believe we're on track to deliver strong results in 2021.

Our MAU base grew to over 168,000,000 in the first quarter, up approximately 20% year over year, mainly due to the launch of Wells Fargo. We expect that core CDLx MAU growth will eventually stabilize in the low to mid single digits in future quarters. We are evaluating the impact Dash will have on MAUs and ARPUs over time. We're proud to announce that US Bank has launched with our newly built ad server that enables a richer and more robust user experience. The ad server offers both API and SDK integrations to enable faster iterations of any user experience module.

Together with US Bank, we're taking an iterative approach to their deployment, continuously launching with new functionality over the course of the next few quarters. One of our initial modules is focused on educating the consumer about the offers program and how it works in order to drive adoption and engagement. Additionally, one of our other large banks has committed and will be deploying the new ad server in the 2021. Into the 2022, we will be migrating a large portion of our network over to this new technology infrastructure to enable speed, scale, and engagement. Before I turn it over to Andy, I also want to announce that we have launched our first UK based fintech rewards program with Curve.

We're excited about the potential of this partnership. Andy?

Speaker 4

Thank you, Lynn. We are extremely pleased with our results in q one, which marked our return to year over year growth. Our existing business before including the results of Dash exceeded our expectations. Before diving further into our results, I wanted to discuss our cash and liquidity position at the '1, which includes our equity offering in the Dash acquisition and where we expect to be following the close of Bridge. We ended Q1 with $614,000,000 in cash and cash equivalents compared to $293,000,000 at the 2020.

We expect to have over $250,000,000 in cash on a pro form a basis after the Bridge acquisition, which we expect to close later this month. In addition, our loan facility of 50,000,000 remains undrawn at this time. Our balance sheet and liquidity will remain extremely strong following the Bridge deal. While we're always evaluating our capital structure, we see no immediate need to raise additional funds. Now turning to our Q1 performance.

While we saw the usual seasonal decline from Q4 to Q1, Q1 landed at the high end of our expectations before taking into account the partial month contribution from the Dosh acquisition. These strong results came despite the ongoing challenging environment in The UK due to strict COVID nineteen lockdowns and continued limitations in travel. As Lynn mentioned earlier, we saw strength in several industry verticals. What's also encouraging is the growing number of clients in our channel since the onset of the pandemic. While most of our new accounts have relatively small budgets, the increase in advertisers reflects the pivot we made in 2020 and bodes well for the long term health of the platform.

As mentioned before, we believe the self-service capabilities of our new platform will accelerate this trend over time and give us a more scalable solution to onboard advertisers with budgets of all sizes. Billings increased 13% year over year to 76,300,000.0. Excluding the additional 1,300,000 of billings from Dash in the last twenty five days of the quarter, our billings totaled $75,000,000 which was at the high end of our guidance. Revenue totaled $53,200,000 a 17% increase over 2020. And as expected, billings margins were in line with historical norms at 70%.

Excluding the half a million dollars of additional revenue from DASH, our revenue totaled 52,700,000.0, which was near the high end of our guidance. US revenue increased 23% year over year. However, UK revenue was down 25%. Our UK business continues to be meaningfully impacted by the pandemic as lockdowns implemented to slow the spread of new COVID nineteen variants just started to unwind in April. We expect The UK to continue this unwind carefully and anticipate some continued pressure on our UK results in the near term.

Adjusted contribution was 24,300,000.0, an increase of 19% year over year. We don't expect adjusted contribution to significantly outpace revenue growth going forward, but it's worth noting that DASH contracts in place today have a lower level of partner share and other third party costs. Adjusted EBITDA was a loss of 3,900,000.0 compared to a loss of 4,000,000 in 2020. Excluding stock compensation, Dosh contributed 1,300,000.0 in operating expenses. Expenses within r and d and sales increased on a year over year basis and reflect investments made in the 2020 to bring in several new leaders across the organization and increase our product development and analytical capabilities.

We expect to generate a larger EBITDA loss in q two as our investment in DASH is reflected for a full quarter. It's also worth noting that we include 7,000,000 of acquisition costs during the current quarter, and those costs are excluded from adjusted EBITDA. We expect additional acquisition and integration costs in the future as we continue to integrate DASH and close the acquisition of Bridge. As Lynn mentioned earlier, MAUs grew 20% year over year to over a 168,000,000. This was driven by the Wells Fargo launch, accelerated organic growth from logins to check on stimulus checks, and the Dash acquisition.

US Bank will add several million MAUs once fully launched. We also expect continued growth from Dash as new partners come online throughout twenty twenty twenty one. ARPU during the first quarter was $0.32 consistent with the prior year. We expect ARPU to increase on sequential and year over year basis throughout the rest of 2021 as our MAUs stabilize and we continue to grow our revenue. We had 31,800,000.0 shares outstanding at the end of Q1 compared to 27,800,000.0 at the end of last year, which reflects the sale of 3,900,000 shares in March.

Weighted average shares outstanding during the quarter was 29,300,000.0 compared to 26,700,000.0 during 2020. Now turning to guidance. Our guidance range remains a bit wider than usual due to what may be an uneven recovery in The UK and continued uncertainty of when the expected rebound in travel and entertainment will occur. Also, while our guidance includes DASH, it does not include the results of Bridge, which is not yet closed. We expect billings in Q2 of between 85,000,000 and 95,000,000 revenue of between 58,000,000 and $65,000,000 and adjusted contribution of between 26,000,000 and $30,000,000 For the full year, we expect billings of between $380,000,000 and $420,000,000 revenue of between $260,000,000 and $285,000,000 and adjusted contribution of between 117,500,000.0 and 132,500,000.0.

Again, these ranges include contributions from DASH, and we will incorporate Bridge next quarter.

Speaker 1

While we have a lot of

Speaker 4

work ahead of us in 2021, we are very excited about the collective potential of Cardlytics, Dash, and Bridge. In order to realize that full potential, we are making sure we have sufficient resources and investments to thoughtfully bring these companies together and create meaningful shareholder value. Our legacy business is strong and has a lot of momentum, and these acquisitions will not only sustain that momentum for years to come, but will also open up new avenues for future growth. And with that, I'll turn it back over to Lynn.

Speaker 2

Thanks, Andy. Q one was a great start to the year. We're looking forward to executing on our plan and acquisition integration for the rest of 2021. With that, I'll open up your call for questions.

Speaker 0

At this time, we will be conducting a question and answer session. Session. Our first question comes from the line of Aaron Kessler with Raymond James. Please proceed with your question.

Speaker 5

Great. Thanks. Just any updates on the self serve platform? I think you started to roll that out a bit. Should be good to get maybe some feedback there.

And then on kind of the new FI platform at U. S. Bank, I think you said one of their large platform. Maybe just how do you think that could impact kind of conversion rates or monetization? What you would expect there?

Maybe finally for Andy, just on the guidance change for the full year, maybe kind of what's the change in organic versus kind of including estimates for DOSH? Thank you.

Speaker 6

Hey, Erin. How are you? May the fourth be with you.

Speaker 5

Good. Yep. Thank you.

Speaker 6

So yes. So let me take I'll take US the US Bank question first. So they are they are fully rolled out with our excuse me. They are rolled out with our new ad server. They are not fully rolled out with the new user experience.

That is going to be coming over multiple quarters. So they as as we talked about on the call, they've got they've got modules that are API based, and they deploy different modules based on where they are in the rollout of the Right now, they're still very focused on modules that are helping customers find the program and educate them on how to use them. And then over time, they're gonna incorporate more of the modules that are a little bit more focused on different kinds of content, different kinds of experience, so that we slowly sort of try to train these customers from scratch how to use our program across a wider variety of offer features over time. But that what you're seeing now is sort of the first module. Over multiple quarters, they will be rolling out more modules to come.

So that's on U. S. Bank. I apologize. I forgot your second question.

What was

Speaker 7

Oh, yeah.

Speaker 5

Well, first of just kind of the I mean, updates on the self serve platform as well. Yeah. Yeah. Mean,

Speaker 6

we we try not to talk about everything every time, but self serve continues to go incredibly well. It is in rollout now with multiple agencies. We are still committed to giving you billings numbers from agencies starting in 2021 this year, and you'll be able to see how it's growing by looking at actual results.

Speaker 5

Got it. Great. And then, Andy, just on maybe estimates for kind of dash and without, how should we think about that?

Speaker 3

Yeah. You know, our our increase in guidance, certainly, a a big portion of that is attributed to the the three quarters of the year we're gonna gain from from the Dash acquisition. But but I do want to to make sure that that that we everyone understands that we had, you know, quite a bit of strength during q one. And I think that's that's starting to give us a lot more confidence that, we're gonna be on a nice trajectory, and the core business is is doing quite well. So I I think there's some amount of a a small a small amount of of this does relate to the strength in the core business.

There are some pieces, though, that are all giving us still a little bit of pause, like I mentioned, where in The UK, right, they're still just now emerging from their lockdown, and I think that there's a little bit of risk there as to how, uneven that may that may be. But I still feel pretty comfortable with the with the core business with the beat and perhaps weakness in The UK that we're gonna be on track for our full year. So it it is largely nosh.

Speaker 5

Great. That's helpful. Maybe just finally, some share count, how should we think about that for the remainder of the year?

Speaker 3

Share count. So, well, obviously, the the significant jump in share count here in q one was the, you know, 3,900,000.0 share sale that we had with without needing any additional funds for the foreseeable future, I definitely don't think there's gonna be any need to raise, you know, funds through through offerings. So I I think it's it's gonna be a fairly muted increase. Now if Mhmm. Do recall, though, we have performance based awards we've been issuing in the last couple of years for our executives.

The timing in which those will hit does remain a little bit uncertain. Certainly, that's much less shares than we're talking about with some of the equity offerings. But those are out there, so we'll see some lumpiness, later in the year perhaps.

Speaker 5

Got it. That's helpful. Thank you, Andy. Thank you, Juan.

Speaker 6

Thanks, Aaron.

Speaker 0

Our next question comes from the line of Jason Krey with Craig Hallum. Please proceed with your question.

Speaker 8

All right. Thanks and good afternoon. Just in regards to The U. S. Bank ad server, from a consumer experience perspective, is is a US Bank consumer experiencing anything really different than the like a Wells Fargo or Chase or BofA consumer, or is it is it just those modules at this point and really the consumer experience changes with the new platform rollout?

Speaker 6

To be clear, the new platform, they are on the new platform. The new platform is API driven. They have only chosen to take a few of the APIs for their initial deployment of the experience, and those APIs are almost exclusively focused on education. So from that perspective, it's very different. You won't see anything like that in the other banks in terms of these education modules.

But in terms of the actual offer content right now and and the different types of content that we hope to display over time, they're gonna look very, very similar. I think we've discussed this before, but US Bank ultimately is gonna be somewhere in the neighborhood of four to 6,000,000 MAUs. It's not enough to truly get the scale of significantly different types of offer constructs and offer offer types, if you will. So we're really focused on educating the consumer. We're focused on there's some richer imagery in it.

So from that perspective, it'll look very different than the other banks. But the the real meaningful change as they start to incorporate different types of offer constructs and offer experiences, that's going to be, you know, multiple quarters. And as I discussed, we've got other large banks committing to the deployment of this new ad server in the back half of this year, which means they'll be doing the same type of thing going into, you know, q one and q two of next year. That's when we'll start to have the scale to really be able to drive the different kinds of experiences, you know, and advertising content into the channel. Does that help?

Speaker 8

That that helps. I appreciate you kind of straightening that out for me. As a follow-up or maybe a couple of follow ups here, but if you can give any color just on the cadence of what you've seen over the last six to eight weeks, you're lapping some volatility from the pandemic. So just kind of wondering how things have trended there. And then any specific vertical commentary, as you've lapped that?

I I I guess I had one on travel. We started to see some resurgence in advertising and travel. I don't know if you guys have seen that or not or have any perspective on that.

Speaker 6

Yeah. I'll comment, and then I'll throw it over to Andy as well. Much of our beat was because of strong increased consumer spend that we saw in March. We didn't see it in January or February, but we saw it in March. And that's why we came in at sort of the high end of our guide, was really the last three weeks.

So we are seeing it pick back up fairly materially in a lot of categories. We still haven't seen it pick back up as much as you would hope in travel. That it is changing in in in April. But for the q one, travel was still very, very, suppressed, but saw a nice recovery in a lot of the other verticals in the in the last three weeks of March.

Speaker 3

Andy, anything you'd That that that's right, Lynn. We're we're still we're starting to see a slight uptick in travel, but it's not nearly as meaningful. It's not the it's not the rebound we're looking for.

Speaker 4

Sorry.

Speaker 6

These are not the droids you're looking for. May the fourth be with you, Andy. You

Speaker 3

will. Thank you.

Speaker 8

Thanks for the color. Appreciate it.

Speaker 0

Our next question comes from the line of Tim Willey with Wells Fargo. Please proceed with your question.

Speaker 9

Thank you, and and good afternoon, everybody. Hey, Andy. Two quick housekeeping, and then I had a couple about the business. Just to make sure, interest expense on a go forward, should it be around 500,000 a quarter? Is that about right Post offer and post debt pay down and redemption of convertible and everything.

Speaker 3

We're paying 1% on that. And so, yeah, that that that's that's about that's about right. Okay. So we'll 2,300,000.0 on that per per year.

Speaker 9

Okay. Perfect. And then the other one was, I I noticed in the add backs this quarter, I think it was 998,000. There's an acquisition intangible along with the merger charge. I know the charge, you you sort of add that back, hard to predict those.

Is that 998,000 number short of a way to think about one month of amort tied to DASH? Or is that sort of some kind of onetime accounting treatment that's not really gonna be part of the income statement on a go forward basis?

Speaker 3

Because you're absolutely right. It's the former. It'll be the the amortization on those acquired intangibles going forward. So you're right. It's just a a a partial a partial month or twenty five days, of amortization on those intangibles.

Speaker 9

And you'll you'll treat that as an add back, I'm assuming, for adjusted EBITDA and net income. Just wanna make sure we got our adjustments right in the models.

Speaker 3

So we added that as a as a discrete add back in our, non GAAP net loss that we've, we discussed in our press release. We already, add back depreciation and amortization in our, adjusted EBITDA calculation. So it is reflected there as well. We don't add back all of the non GAAP net loss, so you would you would see a difference there.

Speaker 9

Okay. And then just going back to the to the to the business, I I can appreciate The UK and everybody sort of, I think, understands what's going on in Europe. I mean, Lynn, last year, you talked about I can't remember the exact verbiage of the strategy, with your U. S. Customers.

I think it was like retain, rise, and there were three words put together about how you're going to market to bring people back onto the platform and get them going again. And I guess I'm curious as you look at like The U. K. And maybe progress that had been made, but then sort of maybe had to get shelved for a little bit with their lockdowns. Does The UK, do you feel like sort of ultimately sort of comes back like The US?

Is there something about culturally or their banking industry that we shouldn't think about how The US has come back so quickly that that's how The UK should play out once restrictions continue to run their course? Any thoughts about how it'll play out versus what we've seen in North America?

Speaker 6

It's a good question, and I don't know that I have, you know, the exact answer. Here's what I would say. The RISE retain return strategy was a multi quarter strategy for us, as you know. And I would I would now describe The US as fully in the return part of that strategy. Right?

We're we're we're definitely recovery. We're seeing return in most of the verticals. We discussed travel still a little muted, but, you know, we're we're fully in the return element of that strategy. But that's been almost a full year. So I am cautiously optimistic that The UK will go through rise, retain, return in a very quick period when they open back up because they have the advantage of opening back up with, hopefully, most people fully vaccinated.

And so I think it will just be very accelerated, but only time will tell. There is nothing that I see that's fundamentally different about how this has impacted banking or retail or anything like in The UK, that would argue something different than that sort of hypothesis.

Speaker 9

Okay. Great. That that's all I had. Thank you very much.

Speaker 0

Our next question comes from the line of Doug Anmuth with JPMorgan. Please proceed with your question.

Speaker 7

Hey, good afternoon. This is Dae on for Doug. Thanks for taking the question. The first one I had as a follow-up to the RiseRigaine, the RRR strategy. Just curious to hear if, like, consumers or marketers within who are within the Rise and Retain category, like, if any of their behaviors have changed as the world or I guess, as The US starts to reopen.

And how should we think about, like, the behavior of the consumers and marketers within that category going forward? Are you expecting any reversion back to pre pandemic levels, or do you think some of the gains that you had in 2020 will be sustainable? And then as a follow-up, you talked about Taj integration going well. But just curious if there's anything you learned new about Taj now that they're a part of your family.

Speaker 6

Yep. So on the on the the three r strategy, as you like to call it, which is like c p three o, may the force be with you, I think that sorry, guys. I just it you gotta have a little thought with these things.

Speaker 3

That's That's right.

Speaker 6

But I think the direct to consumer, the rise in the direct to consumer vertical, I think, is here to stay. It's just become a very, very powerful vertical, I think, both in terms of consumer demand for those types of products and just us being a really good channel to drive that. So I think that is absolutely here to stay. I think the other thing that I can clearly say with a reasonable amount of confidence that is here to stay is online grocery. We've seen a massive shift in demand there, and we have not seen it start to shift back.

I will say in every other vertical, we've seen it start to shift back to in store purchases. Now I don't know if it's gonna go back to the exact mix it was pre pandemic, but they're all going backwards to meaning, the the the height of the online spend that those verticals had has now gone less, and they're buying more in store with the exception of those two categories, DSD, which obviously doesn't have an in store component, and and online grocery. So to be determined, I don't think consumer spend is ever gonna go quite back to the levels of in store that it was before. But I think for many of our more traditional verticals, restaurant and retail, it's gonna it's it's not gonna be you know? And if it was at 90% before, it might be at 80%.

It's not gonna stay at 40% range, right, just to give you some directional numbers. Does that make sense?

Speaker 7

Yep. That makes sense.

Speaker 0

And with that, we've reached the end of our question and answer session. And I would like to turn the floor back over to management for closing remarks.

Speaker 6

Well, listen, everyone. Thank you for your time. Hopefully, were able to answer questions, and we look forward to continued conversations with many investors over the next couple of days. Appreciate it.

Speaker 0

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.