Cardlytics Inc (CDLX) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by.

Welcome to the Cardlytics fourth-quarter and full-year 2017 financial results.

(Operator Instructions).

And as a reminder, this conference is being recorded.

Now I would like to welcome and turn the call to Kirk Somers.

Good afternoon, and welcome to Cardlytics' fourth-quarter and full-year 2017 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 projected 2018 first-quarter and full-year financial results and operating metrics, business strategies, and other forward-looking topics such as anticipated growth in direct with new and existing customers, average revenue per user, monthly average users, advertising budgets, marketer adoption, customer engagement, bank partnerships, improved customer experience, and anticipated investments.

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 prospectus, filed pursuant to Rule 424(b)(4) under the Securities Act of 1933 on February 9, 2018, and in subsequent periodic reports that the Company files 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 8-K filed with the SEC.

Today's call is available via webcast, and a replay will be available for two weeks.

You can find all of the information I have just described in the Investor Relations section of Cardlytics' website.

Joining us on the call today are Cardlytics' leadership team, including CEO and Co-Founder, Scott Grimes; COO and Co-Founder, Lynne Laube; and CFO, David Evans.

Following their prepared remarks, will open the call to your questions.

With that, let me turn the call over to Scott Grimes, Cardlytics' CEO and Co-Founder.

Scott?

Thanks, Kirk, and thank you to everyone for joining today's call.

We're happy to be hosting our first call as a public company today.

We saw some familiar faces, and met a lot of new investors during our IPO roadshow.

We look forward to getting to know all of you, and thank you all for your support of Cardlytics.

I also want to thank the entire Cardlytics team for their hard work and dedication throughout the process.

We're clearly excited about the power of purchase intelligence, and what we plan to accomplish this year and beyond.

On today's call, we'll discuss our fourth-quarter and full-year 2017 results, and also talk about our plans for 2018.

Total revenue for the fourth quarter was $39.3 million due to continued strong execution across the board, including increasing monthly active users, or MAUs, and expanding our base of advertisers and verticals.

As expected, total revenue growth for Q4 was in the high single digits overall, but up over 20% for our core direct business.

For the full year 2017, our core business grew 25%, with total 2017 revenue of $130.4 million.

Adjusted EBITDA was $487,000 in the fourth quarter compared to a $202,000 loss in the prior-year period, mostly as a result of flow-through from higher revenues.

For the full year 2017, our adjusted EBITDA loss was $7.2 million, representing an improvement of $9.9 million from a loss of $17 million in 2016.

Lynne Laube and David Evans will provide more detail regarding our product activities and financials in their prepared remarks later during this call.

But before I hand it over, let me first touch on how our purchase intelligence platform is solving real business problems for marketers, and the progress we made with our clients in Q4 and throughout 2017.

I recently spoke at a market and industry event in San Francisco where senior leaders voiced their continued demand for accountability, transparency, and brand safety from their advertising partners.

Marketers are looking for partners who can not only reach real customers at scale, but also deliver a strong ROI and be able to measure it based on real business outcomes.

This is what Cardlytics does.

Based on our years of experience using purchase intelligence to help marketers grow their business, we know that past purchase history is one of the best predictors of how people are likely to make purchases in the future.

The incredible insights we have from view into $1.5 trillion in annual spend not only gives marketers a holistic view of how their customers spend their money; but we also help them put that knowledge to use to drive real business through our own native advertising channel, Cardlytics Direct.

We continue to drive adoption of Cardlytics Direct with both new and existing marketing clients, all of which helps us grow average revenue per user, or ARPU.

And as part of our land and expand strategy, we work closely with all of our advertising customers to grow their budgets.

As we grow MAUs and drive customer engagement, we have seen even more opportunities for our marketing clients to reach valuable customers via their trusted banking channels.

As an example, in Q4, we signed our 2018 agreement with a major retailer who increased their annual investment by nearly 80%, and have increased it by over 5X since they first adopted Cardlytics Direct in 2012.

We continue to work towards growing [spend] and signing long-term contracts with all of our existing advertisers, including those in our stronghold verticals such as retail, restaurant, and subscription services; as well as newer growth verticals such as grocery, travel, and entertainment.

Finally on the advertising front, we recently announced that we've added Randall Beard to our executive leadership team as Group President for our advertising business.

Randall most recently served as Global President for ad solutions, expanded verticals, and innovation at the Nielsen Company.

Prior to Nielsen, Randall was the Head of Marketing and Product at American Express, and Global Head of Marketing at UBS.

Randall will continue to drive marketers' adoption of our platform, in turn creating greater value for our bank partners and their customers.

That's the powerful network effect we see in our business.

In addition to growing relationships with our marketing clients, we're also constantly working with our bank partners to improve the customer experience and to increase the value we create for all of our marketers, banks, and their mutual customers.

I'll now hand the call over to Lynne to discuss how we continue to innovate with our bank partners.

Lynne?

Thanks, Scott.

Our strategy on the bank side is similar to our two-pronged land-and-expand strategy on the marketing side.

We grow relationships with new banks, and continuously improve our performance with the existing banks, all of which helps us drive MAU and ARPU growth.

In 2017, we developed a number of new relationships, including the launch of SunTrust in March.

SunTrust Deals launched with our best-in-class UI design in their online banking and mobile environments, which drove immediate results.

At the time of SunTrust's press release announcing the launch, nearly 80% of those who had visited SunTrust Deals had activated a deal.

We continue to see SunTrust customers reap the benefit of the program, helped by our best-in-class UI.

In fact, SunTrust recently featured the SunTrust Deals program as one of their most important tech accomplishments in 2017 in their corporate annual report.

During the roadshow, we mentioned that Wells Fargo would be launching a pilot program with us in Q1.

The pilot launched on January 29 and is progressing nicely.

We're encouraged by recent traction with this email-only pilot where we've seen open rates and engagement rates in excess of other, similar programs on our networks.

We're also always working to make existing bank partnerships even more valuable.

We've been doing this for a decade.

And we've become very effective at using our data and analytics to predict and measure what will drive even better results for our bank partners and for their customers.

I'd like to highlight two examples from 2017.

First, we worked with our bank partners to improve their mobile user experiences.

A number of our larger banks have implemented a product that allows their customers to access deals without authenticating, and bring their advertising client logos to the homepage of the mobile banking app.

In 2017, this helped us grow the number of customers activating through mobile.

Second, we had a number of our bank partners, including many of our largest banks, implement a program to get more of their customers engaged.

This included emails to their customers as well as banner ads on their online and mobile channels, including the homepages of their sites.

We've been pleased with the results of these initiatives.

Finally on the bank front, we recently announced that Shannon Johnson has joined our executive leadership team as Group President of Financial Institutions.

Shannon comes to us from SunTrust, where she sponsored the launch of Cardlytics' SunTrust Deals.

Prior to that, she worked at PNC, where she was responsible for launching one of Cardlytics' first large bank partnerships, PNC Purchase Payback.

With her intimate knowledge and understanding of how our program drives real value for banks, Shannon brings immediate value.

With that, I'll turn the call over to David to walk you through the fourth-quarter and 2017 financials.

Thanks, Lynne.

For the fourth quarter, overall revenue of $39.3 million increased 8% over Q4 of 2016.

Revenue within our core direct business was $38.8 million, representing 22% growth over Q4 2016.

For the full year, total revenues were $130.4 million, an increase of 16% over 2016, while our direct revenue of $122.4 million was up 25% over the prior year.

Total revenue growth was offset by our decision to deemphasize non-core products and other platform solutions.

Note that we expect other platform solutions to be a meaningful headwind to overall revenue growth until we anniversary through the discontinuation of managed services and audiences in the third quarter of 2018.

An important driver of our revenue is MAUs, which grew 24% over the fourth-quarter 2016 to 58.7 million.

Continued adoption of our program and secular trends in digital banking, new bank volume from SunTrust, and ongoing channel expansion into email programs at our banks, all drove the significant increase in MAUs versus the prior-year period.

As we extend our reach with existing bank partners and add new banks, we will continue to grow MAUs.

Compared to 2016, we have grown MAUs 21% year-over-year with existing banks, and 4% by adding new banks.

It is important to remember that new MAUs have a maturation period before they reach their ARPU potential.

We would expect this dynamic going forward, where material MAU growth will cause a decrease in ARPU for a period of time.

Longer-term, however, we believe the ramp in MAUs supports continued revenue growth, looking out beyond 2018.

To this point, fourth-quarter 2017 ARPU was $0.66, roughly flat versus $0.67 in the fourth quarter of 2016, reflecting strong MAU growth.

Similarly, full-year 2017 ARPU was $2.23 and flat versus the prior year.

Adjusted contribution profit, which we believe is another important metric we use to measure performance, was $16.9 million in the fourth quarter compared to $15.1 million in the fourth quarter of 2016.

For full-year 2017, adjusted contribution profit was $57.1 million compared to $46.5 million in 2016.

Adjusted EBITDA was $487,000 in the fourth quarter of 2017 compared to a $202,000 loss in the prior year period.

For full-year 2017, our adjusted EBITDA loss was $7.2 million, representing an improvement of approximately $9.9 million from a loss of $17 million in 2016.

We ended the quarter with $21.3 million in cash and $13 million in availability from our AR facility.

Note that approximately $66 million in proceeds of our IPO will be reflected in our first-quarter financials, given that we priced on February 8.

Before I turn the call back over to Scott and open the line for your questions, I'd like to share a few thoughts about our guidance philosophy, which I think is important, particularly as a newly public company with new and prospective investors still getting to know us.

As you know, we have many marketers and advertisers, most with annual budget cycles, which gives us a fairly good sense of what to expect for any upcoming calendar year; and, therefore, our visibility around annual revenue guidance.

However, what we and our advertisers are not specific on when we start the year are the exact dates and timing relating to the launch of their ad campaigns, which gives us less visibility month-to-month and quarter-to-quarter.

Our first-quarter guidance, as an example, reflects some pull-forward campaign activity.

So while our view around annual guidance would remain about where we thought it would be when we entered the year, it might have an impact on subsequent quarters.

To that end, we expect first-quarter revenue to be between $29.5 million and $30 million, with full-year 2018 revenue in the range of $157 million to $160 million.

Further, we expect adjusted EBITDA loss for the first quarter to be between minus $4.9 million and minus $4.7 million, and between $12.6 million and $11.4 million for the full-year 2018.

Of note, this adjusted EBITDA range excludes any FI share commitment shortfall, which we estimate to be roughly $2 million in the second half of 2018.

Also, as Lynne noted, we recently launched the Wells pilot.

I want to be clear that while we are excited about Wells, and are on track with the pilot, we do not expect any meaningful contribution to revenue from Wells until 2019.

As for a few housekeeping items, we anticipate recognizing an estimated $2.5 million non-cash expense related to warrants that vested in our February IPO, which will hit the FI share line item.

This will be adjusted out of adjusted contribution profit and adjusted EBITDA.

We're off to a good start to the year, and feel very good about what we've accomplished so far.

And with that, I'll hand it back to Scott for his closing remarks before we open the call to your questions.

Scott.

Thanks, David.

In summary, we're excited about the positive momentum we're seeing as advertisers and banks see the value in our purchase intelligence platform.

We're pleased with the growth from our direct business in 2017.

And we believe the significant growth in MAUs during 2017 positions us well for sustained growth in 2018 and beyond.

We expect to make disciplined investments to support that growth, and to continue to innovate in our unique purchase intelligence platform.

With that, I'll open the call up for your questions.

(Operator Instructions).

Douglas Anmuth, JPMorgan.

Hi, this is [Davey] on for Doug.

Thank you for taking our question.

I have two, if I can.

First, do you have any update on how long you expect Wells Fargo pilot to be run?

And then secondly, could you give us more color on how engagement and conversion differs across desktop banking, mobile Web, in-app, and then email; and if you have anything in the product pipeline that could drive MAU growth higher?

Hello.

Thanks for asking the question.

So in terms of Wells, as we mentioned during the roadshow, we are working closely with them around the details for a broader rollout.

As we get closer to those, and have those details refined, we will talk to investors.

But we're not at the point where we're ready to do that yet.

And the second question was around engagement and mobile versus online.

Is that right?

And email.

Yes, and email.

So what we find across these different channels is they interact with each other.

So we focus less on reporting the engagement in any single channel; versus when we launch a bank, we tend to launch with a single channel -- so in the case of Wells, we started with email -- and then we work with the bank to go and add subsequent channels.

What we find is as we add additional channels, it has an effect across all of them, and raises engagement overall for our customers.

Got it.

Thank you.

Tim Willi, Wells Fargo.

Two questions.

One: Scott, you mentioned in your opening comments you were at a media/advertising type conference discussing the accountability demand that marketers want.

We've obviously seen some stuff in the broader press about that, as well, over the last week or two.

I guess I'm curious, just what is your gut feeling about whether this is neutral, an incremental positive, or an unknown in your mind with marketers and retailers and Cardlytics?

Hi, Tim.

Thanks for the question.

One of the things that we have seen over the past decade is one of the real strength of -- there's really two real strengths to our model.

First of all, the way that we handle data in a very consumer-safe, anonymized way, and never share data; and also the fact that we can measure the return of our marketing to the penny.

It's a real strength.

And as you know, still 91% of all sales in the US are in stores; only 9% are online.

So we believe that as marketers demand better and better measurement, more and more accountability across all media types, [at] the strength of our channel relative to other channels.

And we also think as we extend our ability to measure not just in our own media, but other types of media, that that creates a big opportunity for Cardlytics as we continue to grow.

Great, thanks.

And then just two quick follow-ups.

The first one was around MAUs.

I don't know that it's been discussed in our prep work, et cetera, over the last six months.

But in terms of the banks and engagement, right?

So we're seeing a lot of strong growth with mobile banking, Web banking, and engagement.

Is anything that's gone on underneath the service of efforts by banks to reengage consumers that might have been active with you, but for whatever reason dropped off?

I'm just curious if that's a dynamic in play that you've had to address from time to time, or that's really not something that's materialized; and once somebody comes active, they are pretty consistently active with you.

Tim, this is Lynne.

I'll take that one.

I think, generally, once somebody becomes active with the program, they tend to stay engaged.

So it's that first-time use that is more of a challenge than repeat use.

That being said, we've had a number of banks roll out some engagement strategies to drive more frequent repeat use.

So, instead of using it two times a quarter, maybe they'll use it three times or four times a quarter.

And they will get rewarded for doing such.

So two of our top five banks have done programs like this in the past couple of months.

And I think they will continue to do that.

It just drives faster engagement.

Great.

And then my last one was for David.

Just sort of a modeling type question.

And appreciate your philosophy around the guidance.

In terms of the margin and the outlook, and sort of balancing the revenue versus the actual margin equation, what would be the most likely variable that would maybe be the trade-off of not hitting a margin target, but seeing an opportunity on the revenue side to invest in?

Is there anything that you are keeping an eye on out there?

Is it the new verticals (technical difficulty) like around travel and entertainment, stuff like that, that might get (technical difficulty) dollars?

And maybe the margin wouldn't necessary stay in place, relative to guidance, but the revenue could be better than expected?

Yes, I think it's a good question, Tim.

I mean, obviously, as we talked about on the road, a couple things just more generally speaking on margins.

I'll just kind of walk through a couple of the line items here.

Obviously as it relates to the FI share of the third-party data costs, that is something that we see consistent going forward.

And then obviously on the OpEx line items, I think these are areas where we will be at, or better, going forward.

I think as it relates to what we're seeing in other verticals and other go-to-market strategies, I think we've seen a number of improvements over the last couple of years.

I think we've found a good way to optimize on those.

As we enter in new verticals, every new vertical is going to have a different approach and a different way that they want to engage with their consumers.

We're certainly going to help them do that.

I don't know if I necessarily see anything that would be a risk to those margins.

But at the same time, I don't also see anything that looks to be something of materiality with regards to improvement on those margins, either.

Scott, I don't know if you had anything you'd add to that.

I agree.

What we really find is when we are able to keep our return on ad spend for advertisers in that [1 to 5, 1 to 6] region, that places us at the top of the marketing stack.

And that is really ultimately what dictates our markets, because it's how much consumer incentive do we have to provide consumers to do that.

We're pretty good at optimizing those across verticals.

And so, does it require a little more optimization, early on, as we enter into a new vertical?

Probably.

But we've worked across enough verticals now that we see that remaining pretty consistent.

Great.

That's all I had.

Thanks so much.

Youssef Squali, SunTrust.

This is [Sargo] on for Youssef.

With the land and expand strategy so important to revenue growth, I was hoping for some more color beyond the few categories you mentioned in the prepared remarks.

Especially as you've been meeting with marketers, planning their annual budgets; both from the point of view from existing marketers, and marketers that are potentially thinking about joining Cardlytics.

Sargo, thanks for the question.

There's a couple points that I think are worth mentioning there is our core three verticals -- which is retail, restaurants, and subscription services -- even in those verticals alone, we are just now barely tapping into the total budgets.

So we have tremendous headroom in both capturing more budget with our existing advertisers, penetrating advertisers within those three core verticals that we don't have.

And we could just grow a long, long, long time from those verticals.

One of the key reasons we're focusing on grocery and travel and entertainment is, first of all, grocery is just -- 100% of our customers eat.

Grocery is important to our banks and their customers.

And our experience in grocery is that when we bring grocery into the channel, it drives overall customer engagement and improves the performance of offers across all verticals.

One of the ways we've really learned that is, over in our UK operation, we have really very successfully penetrated the grocery vertical in the UK.

We're taking the learnings from the UK and we're beginning to deploy them in the US.

So that's really what's behind grocery.

In the case of travel and entertainment, as we continue to think about the banks we work with now and in the future, we think of what we believe we'll see a lot more credit card spend.

That credit card spend is especially important in travel and entertainment.

And we're trying to get ahead of that to make sure we have some really good advertising inventory in that credit card space.

All right.

Thank you for the color on that.

(Operator Instructions).

Andy Hargreaves, KeyBanc.

A little bit of a follow-up is when you grow revenue and new verticals, or add new advertisers in those verticals, is there a way to frame how additive that is versus cannibalizing other opportunities?

And I'll just throw out the second, which is: any progress on the data licensing business?

Do you guys still see the potential for that to ramp from the current levels?

Yes; let me touch real quickly and first on your additive question.

So, at the core, that's an ad load question.

We have a tremendous amount of available impressions within all of our bank partners.

So we are not -- as we bring in new offers, new verticals, we think it will have virtually no cannibalization costs.

And there's a great deal more we can do in optimization, even with our existing offers, to continue to drive up their ARPUs.

So we don't see any near-term risk.

Do you want to build on that, David?

Yes, I did want to build on that just a little bit, just from an MAU perspective.

As we've talked about, our MAUs will grow over a three-, five-, seven-year period at a low-teens rate pretty fairly consistently.

And we've seen that in the past.

The fact of the matter is this is going to go in fits and starts.

This past year, we had a good growth in MAUs.

And so as it relates to having additional inventory, this is a great year for us to go out and go after a lot of those MAUs, when you consider we grew MAUs this past year at 25%.

So we've got a lot of areas to put that -- those MAUs to use.

And then the data licensing: first, I want to sort of clarify that.

The business that we are focused on outside of the bank is what we call measurement, which is where we are using our analytics to measure the effectiveness of other types of media.

And we do that in conjunction with our privacy partners.

Importantly, we do not ever share our data with other partners.

Instead, what we do is we conduct analytics on top of -- with our data, for other types of media.

We are -- our bank team is constantly working with our network of banks to bring new bank partners into that business.

And we expect to discuss that more over the coming quarters.

Thank you.

Thank you.

And ladies and gentlemen, this concludes our Q&A and program for today.

Thank you for participating.

Have a great day.

You may all disconnect.