Cardlytics Inc (CDLX) 2018 Q4 法說會逐字稿

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Quarter Full Year 2018 Financial Results Conference Call.

(Operator Instructions)

At this time, I'd like to turn the call over to your host to Kirk Somers, Chief Legal and Privacy Officer.

Please go ahead.

Good afternoon, and welcome to Cardlytics Fourth Quarter and Full Year 2018 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 2019 first quarter financial results and operating metrics; business strategies and other forward-looking topics such as anticipated growth in Direct, with new and existing customers, including those from Chase and Wells Fargo; the reduction in average revenue per user; the growth in monthly active users; expansion in new verticals, including travel, entertainment, grocery and e-commerce; expanding marketing budgets; consolidating the U.S. banking market for Purchase Intelligence data; improving marketer adoption; delivering sustained growth, expanding our media capabilities, reducing friction and increasing automation and buying Cardlytics Direct; FI investments and consumer incentives; future revenue and profitability; and average length of our contracts with marketers.

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-K filed today, March 5, 2019, 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 and the 8-K filed with the SEC today and in the company's 10-K also filed.

Today's call is available via webcast and a replay will be available for 2 weeks.

You can find all the information I've just described on our 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, we'll 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 us in our fourth quarter and full year 2018 conference call.

We've been a public company for just over 1 year and today, we are excited to announce that we delivered strong fourth quarter results that exceeded guidance from our Q3 earnings call and are consistent with our results announced on January 14.

Here are some highlights.

Total revenue for the fourth quarter was $47.8 million and our core Cardlytics Direct revenue grew 23% year-over-year to $47.7 million.

Our strong top line performance was driven by growth with existing marketers and from adding new marketers.

Adjusted EBITDA in Q4 was a positive $300,000 and we added significant scale to Cardlytics Direct with 42% year-over-year growth in quarterly FI MAUs from 58.7 million to 83.2 million.

Cardlytics Direct reached 99 million FI MAUs for the month of December 2018.

Our strong fourth quarter results cap off an exciting and transformational year for Cardlytics.

Most notably, we've partnered with the 3 largest national banks in addition to many other financial institutions to deliver Cardlytics Direct to their customers.

This is important to our marketing clients.

We offer a brand-safe, privacy-protected channel that profitably drives online and in-store sales with scale that is in line with other leading digital advertising solutions.

And we believe we are well positioned to consolidate the U.S. banking market for Purchase Intelligence, further strengthening our ability to drive, move the needle growth for brands across the range of verticals.

What's clear is that during 2018 our team's efforts, along with our investments build the foundation and the scale to support the opportunity to deliver sustained growth for years to come.

In 2018, we scaled our infrastructure and processes to serve 150 million FI MAUs to support our new national bank partners and future growth.

And in late Q4, the acceleration in FI MAU growth began when Cardlytics Direct was made available to a large group of new customers from our most recent national bank launch.

This step function increase in customer reach is the foundation for revenue growth, but it is important to understand that revenue per user lags FI MAU growth.

Consumers have to discover and learn to use our marketing.

We have to secure larger budgets from current marketers and we have to bring new marketers in the channel.

And we expect further MAU growth to come.

We expect to reach 150 million FI MAUs by the end of 2019 based on completing both the national bank launches.

With this rapid FI MAU growth, we believe it will be 2021 before we bring ARPUs back to the levels that we achieved in 2018.

We know how to do this.

New banks are launching with strong user experiences and we are consistently delivering strong return on the investments from our marketing clients.

This provides the foundation to expand the breadth of marketers we serve and the amount they commit to our marketing solution.

But we are definitely not satisfied with just return into 2018 ARPUs.

Our native advertising channel can deliver a great deal more.

We have important investments underway to position Cardlytics Direct as a strategic marketing platform.

Over the next few years, we expect in our new verticals evolve to an always-on advertising model and expand our media capabilities to unlock the value of our proprietary native advertising channel.

Let me touch on a few highlights.

We are bringing our capabilities to new verticals.

We are now serving new clients in travel, entertainment, direct-to-consumer, e-commerce and grocery.

While these relationships are new and modest in size, we believe it present significant opportunity for us in 2019 and beyond.

We recently made key hires to help lead our sales effort in these new sectors, including a strategic leader to scale these growth verticals, along with industry experts coming from travel industry.

In addition to expanding into new verticals, we're also making a multiyear investment to make Cardlytics Direct a frictionless marketing tool and evolve to an always-on advertising solution.

In Q4, we delivered an important new capability to do this.

As we grow budgets with our marketing clients, validating the return on their marketing spend has been a key point of friction.

This is because it often takes several months for clients to validate our reported results before launching a new campaign with us.

To address this, we developed and launched a partnership with Nielsen to measure and validate the performance of our platform.

This removes the key barrier for our marketers and accelerates scalability to scale their budgets with us.

We are very pleased with the results of this initiatives so far.

Looking into 2019, we have several more programs underway to reduce the friction and increase the automation of the Cardlytics Direct fine process.

Lynne will touch upon these -- upon a few of these in her remarks.

In summary, as we look back in 2018, Lynne and I are extremely pleased with all that Cardlytics has accomplished over the past year.

This is a testament to the strength and excellent execution of the entire Cardlytics team and we want to thank everyone for their hard work and their dedication.

Looking ahead, we're excited about capitalizing on our significant growth opportunities in 2019 and beyond.

In 2018, we build the foundation and the scale to support our growth for many years.

In 2019, we're focused on locking the value of the scale.

We believe our scale, unique marketing and analytics capabilities and ongoing investments in our business will continue to deliver value to our marketing clients, our bank partners and their customers, and of course, to our shareholders.

I'll now hand the call over to Lynne to provide greater detail into some of our recent accomplishments and our initiatives for 2019.

Lynne?

Thanks, Scott.

As Scott mentioned, I'd like to highlight a few success stories since the last earnings call and provide an update on some of our 2019 initiatives.

We launched Chase mobile channel in November.

We have seen strong initial engagements with the program and have been extremely pleased with the implementation.

We remain on target to complete both the national bank launches in 2019.

Once done, we expect to deliver marketing to 150 million monthly active users.

At that point, we will analyze about 1 out of every 2 card swipes in the US.

But as a reminder, a national bank launch takes many months to scale and deliver results consistent with the network.

We continue to invest in the partnership post-launch to ensure customers and advertisers engage with the platform.

For example, we are allowing some advertisers who have significant relationships with national banks to trial the network without cost for a period of time post-launch.

There is another exciting development with our national banks.

Some are now taking a portion of the revenue we pay them and reinvesting it back into Cardlytics Direct.

There are various ways they do this, including increasing the consumer incentive associated with an offer or rewarding purchases in a certain category like groceries or gas.

This is a positive for bank partners and our advertisers.

It drives increased user engagements and strengthens the return on marketers investments.

Our promise with advertisers is legally binding.

This is especially important because generally marketers will not budget for increased scale until new customers are fully online.

One of the key reasons ARPU growth lags MAU growth because of marketers immediate planning cycle.

So early increases in commitments by marketers indicate how they are shifting budgets over time to Cardlytics Direct.

Let me give a couple of examples.

First, we've seen an increase in 8-digit clients.

In 2018, only 1 marketer invested over $10 million in total billings in Cardlytics Direct.

In early 2019, we already have 3 clients with annual contracts that exceed $10 million in billing.

The number of marketers spending more than $1 million on Cardlytics Direct have also grown significantly.

This is probably the most important stats since it highlights organizations that are learning how to leverage our channel.

In 2018, we had a 30-plus-percent increase in the number of marketers spending more than $1 million of billings in Cardlytics Direct when compared to 2017.

As we enter new verticals in 2019, it creates even more opportunity to bring new brands to the channel.

Something we can uniquely do for marketers is help them understand how their customers spend with them and their competitors across all channels.

We go beyond omnichannel and we identify the most valuable omnichannel customers.

We help retailers understand exactly how valuable a customer is if they shop both online and in-store, versus online only or in-store only.

While marketers consume some of this themselves, we add a really important layer of where else those customers shop, so the retailers are now able to see exactly how much headroom they have with very specific segments of customers, particularly those who are prone to switching among brands.

This knowledge helps marketers develop a more robust omnichannel strategy.

And of course, with Cardlytics Direct, they can activate these strategies at the customer level.

For example, we're working with a leading retailer who is launching a grocery pickup service.

With Purchase Intelligence, we identify customer segments that have a propensity to shop with this retailer, but are spending with other online grocery services.

We then promote the new grocery service pickup to these customers, shift market share to the retailer and measure the return of the marketing investment.

Cardlytics Direct's ability to drive and observe in-store and online sales makes it a powerful tool for executing omnichannel strategy.

We also continue to work on eliminating the friction in the buying process, which have contributed to advertiser momentum.

Our validation partnership with Nielsen is working.

In just a few months, we've had several marketers increase the maximum amount they will spend with us and another major retailer for the use of our channel across the corporation because the third-party can validate our results are real and excellent.

In Q4, we also rolled out proprietary technology that laid part of the foundation for an always-on automated buying and self-service solution.

While marketers leverage Cardlytics Direct as a single digital advertising channel, we entirely operate the channel by reaching consumers through online, mobile and e-mail touch points across many banks.

Each of these banks and each of these touch points perform differently.

The technology we launched in Q4 allows us to more easily and automatically direct how media is distributed across these various touch points.

It's a critical tool as we simultaneously optimize campaign revenue and return on asset spending.

And if we're growing the number of opportunities to the channel, it enables us to increasingly automate and optimize these processes, thereby reducing costs and enabling always-on campaign execution.

As Scott mentioned, we could not be more excited about the future of Cardlytics.

The investments we made in scaling our platform and our ongoing initiatives aims at fully recognizing the ARPU potential of our business are exciting.

This will take time, but the foundation is made and now all we have to do is execute.

With that, I will turn it over to Dave.

Thanks, Lynne.

Total revenue for the fourth quarter was $47.8 million.

Revenue within our core Cardlytics Direct business was $47.7 million representing a 23% year-over-year growth rate over the fourth quarter 2017.

Our U.S. direct business was up 26% year-over-year in Q4 and our U.K. direct business grew 11% at constant currency.

For the full year, total revenue was $150.7 million with an increase of approximately 16% over 2017.

While our core direct revenue of $149.3 million was up 22% over prior year.

Average FI MAUs were approximately 42% from 58.7 million fourth quarter 2017 to 83.2 million in Q4 2018.

Consistent with our recent commentary, we expect that FI MAU growth to continue to grow this year driven by the national bank launches providing additional tailwind in 2020.

Our fourth quarter 2018 ARPU was $0.57, down 14% from $0.66 in the fourth quarter of 2017, primarily reflecting the impact of rapid growth in average FI MAUs.

Full year 2018 ARPU was $2.30 compared with $2.23 in 2017.

As we've discussed, new MAUs have a maturation period before they reach their ARPU potential and expect this dynamic to play out for the foreseeable future going forward, and especially in 2019 where material FI MAU growth from national bank launches to cause a decrease of ARPU.

As Scott mentioned earlier, we would expect to return to more normalized historical levels of ARPU in 2021, with revenues in excess of $300 million, coupled with consistent profitability.

Longer-term, we continue to believe this ramp in FI MAUs supports our revenue growth.

Total adjusted contribution profit was $22.1 million in the fourth quarter of 2018, up from $17.4 million in the fourth quarter 2017.

For the full year 2018, adjusted contribution profit was $69.5 million, up from $58.7 million in 2017.

And Cardlytics Direct adjusted contribution profit was $69.4 million, up 26% from $55.2 million in 2017.

Adjusted EBITDA was a positive of $300,000 in the fourth quarter of 2018 compared to a $500,000 gain in the fourth quarter of 2017.

Our fourth quarter adjusted EBITDA was above our prior guidance primarily due to the revenue outperformance in the quarter and to a lesser extent coming in under budget on bank implementation expenses.

Full year 2018, our adjusted EBITDA loss was negative $6.6 million, an improvement from a negative $7.2 million loss in 2017.

We ended the quarter with $59.9 million of cash compared to $67.8 million in cash at the end of Q3 2018.

Our cash balance includes approximately $20 million of restricted cash.

We ended the quarter with $3.3 million on availability on our AR facility.

I'd also like to talk about a few positive trends we've seen thus far in 2019.

We are seeing positive trends in the number of marketers who are spending more with us.

Additionally, already this year, we have seen the average contract length increased by over 50% for our larger marketers, demonstrating our continued push to move marketers to longer-term contracts.

We believe that these proof points position us well to continue growing and expanding existing advertiser budgets as well as sign new material and notable advertising clients in the coming months and years.

Now turning to our 2019 guidance.

While we have gone to great length to analyze Chase's impact on revenue and are very pleased with the results so far, we are still in the very early stages of measuring our performance and analyzing what the steady state will look like.

Adding to that, while we are still on target for a Wells launch in 2019, precise timing remains fluid and modeling the impacts to our 2019 results is, therefore, difficult.

These 2 significant factors create a wide range of possible scenarios for our 2019 results.

And as result, we're deferring our full year 2019 guidance until our Q1 earnings release.

We will have more experience with the expanded network and have an opportunity to analyze the new data and gain greater visibility.

We will continue to provide quarterly guidance throughout 2019 and begin to provide guidance for adjusted contribution, which I'll explain shortly.

For the first quarter, we currently expect revenue to be between $34.5 million and $36.5 million.

We expect adjusted EBITDA loss for the first quarter to be between negative $6.5 million and negative $5.5 million.

We expect adjusted contribution for the first quarter to be between $15.5 million and $16.5 million.

Our decision to guide adjusted contribution stems from the complexities and nuances surrounding our network of FI partners.

As Lynne mentioned, we will always strive to ensure the successful launch with national bank partner and in doing so, we'll encourage and adopt various activities to ensure customers and advertisers engage with the platform.

As we continue to monitor the effects, we've seen new developments take place, one in particular that impacts our GAAP revenue.

Our banking partners are embracing our program by reinvesting more of their FI shares into the program in the form of larger consumer incentives and attractive offers.

We're referring to these as enhanced consumer incentives.

Therefore, there can be a shift of dollars into consumer incentive from FI share.

And as you'll recall, our GAAP revenue is billing less consumer incentive.

So while this does suppress our revenue, it is important to understand that this has a netting effect to adjusted contribution and adjusted EBITDA.

Longer term, we believe this has a very positive effect on improving engagement and the stickiness of Cardlytics Direct with consumers.

Therefore, providing adjusted contribution guidance provides a better view as it relates to the performance of our business.

Separately, to help with your modeling and as we've previously discussed, we currently expect FI share commitment shortfall in 2019 to be between $5 million and $6 million.

We expect this accrual to begin in the second quarter of 2019, in which phase we would anticipate the shortfall in the 12 months thereafter.

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

Scott?

Thanks, David.

2018 really was a transformational year for Cardlytics.

Cardlytics Direct is a brand-safe, precision-targeted, native advertising channel that profitably grows in-store and online revenues for advertisers at a scale comparable to other digital marketing solutions.

I've spent a lot of time with our marketing clients over the past quarter.

It is really exciting to see how we are one of the most important tools in their marketing mix.

In addition, our larger marketers increasingly rely on our analytics and insights to support their business overall.

As we expand our client roster, we can really have an impact on the effectiveness of Congress going forward.

David is exactly right.

We are laser-focused on growing our marketer clients and budgets to achieve 2018 ARPUs of $2.30, once again in 2021.

But importantly, we will achieve these ARPU levels with a customer reach of 150 million FI MAUs, delivered by adding 2 new national banks to Cardlytics Direct.

And we believe we're making the investments now to sustain strong growth well beyond 2021, by developing richer media capabilities, entering new verticals and evolving to a frictionless, always-on business model.

Lynne and I are really proud of what our team accomplished in 2018.

And we are confident in their ability to achieve our goals going forward.

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

Thank you.

(Operator Instructions) Our first question comes from Doug Anmuth from JPMorgan.

This is Dae Lee on for Doug.

Appreciate the color you guys provided on your Q1 guidance.

The fact that guys are pushing up 2019 guide to 1Q because of uncertainties.

But I mean, 1Q guidance is a little bit -- those signals, lumpy sales from 4Q level.

So can you talk a little bit more about the drivers behind that?

And how that could potentially compare to your full year number?

Any color would be appreciated there.

And then secondly on Chase, realized it's still early, but can you talk about -- talk a little bit more about that, the performance of that channel and your progress towards activating all of Chase channel, the app, that you launched in 4Q?

Yes.

Daniel, this is Scott Grimes.

First of all, thanks for joining the call.

Appreciate it.

Let me touch on both of those questions.

One of the things that is -- that we -- a number that we don't guide on is our overall billings.

And what we are seeing right now are very -- our billing is in line with what you guys would've expected and what we've expected.

And a lot of the noise that makes it appear like a deceleration in Q1 is actually good news is some of the things that David touched on.

Both in terms of our FIs reinvesting their FI share into consumer incentives.

And also, some of the work we're doing to bring some big advertisers into the network.

And the reason we believe both of those things are good news is when we were making investments it's causing 2 things to happen.

First is causing customers to engage with the channel sooner and more aggressively; and then second, a lot of why we're making these investments with the advertisers is we estimate very important large advertisers into the networks for the very first time.

We are doing that without media fees, but we're doing that to secure these and fill up these advertisers testing network, see the return on their network and hopefully become very large advertisers over the next year or 2 as we work with them.

So as much as you're seeing is anything, is that's taken some fairly bold actions since part of that launch to really sort of set this channel up for a great performance over the next decade.

And that is specifically on the Chase launch and then David I'll let you talk to the specifics.

We're really pleased with the Chase launch.

We have seen customer engagement levels certainly beyond expectations.

We are seeing advertiser performance in the channel at levels that we hope to achieve.

So overall we're still very much the middle of launch and we -- I don't want to speak more to individual banks.

But we are tracking in a way that it gives us a lot of confidence, in a way that gives us a lot of confidence of how the channel will perform.

With 150 million that may use that line over the next few years.

Okay, David, do you want to add to that?

Yes.

Sure, Scott.

Thanks.

I think you had asked a whole bunch of questions.

I think you had asked the question about the sequential decline.

That's usually fairly typical with the business obviously, going from Q4 to Q1, so that's nothing of surprise there.

Scott touched it on a little bit.

I think as I look at -- I think, Doug may be one of the few guys out there that kind of had a billings number out there for Q1.

We're not that far off from that, but as Scott mentioned, there's a couple of things that we're doing to ensure a very strong bank launch here in this quarter.

Some of that is through the enhanced consumer incentive route, which has netting effect.

There are other things that we are doing that will compress all the numbers a little bit, that you'll see in the Q1 guide as well.

But again, I think all of this comes down to ensuring that we have a very successful launch with Chase.

On that same front, Scott made a couple comments around some of the positive trends we're seeing.

We're seeing longer contract terms.

We're seeing more million dollar budgets in the pipeline.

So a lot of good sound bytes out of the quarter so far.

Our next question comes from Tim Willi from Wells Fargo.

A couple of questions.

First, if I remember correctly, you have said that SunTrust is a customer.

I'm curious, is BB&T currently a customer?

Is there any comment you can make around that?

Tim, this is Scott Grimes.

Thanks for joining the call today.

The answer is yes.

BB&T and SunTrust are both customers.

They both are great bank partners and we're really glad they're in the network.

And I'm sure, they'll continue thinking about the program as they drive the consolidation over the next couple of years.

Okay.

And then another question I had was going back to Lynne's comments about the marketers that you've signed up in the billings.

Did that exceed expectations?

Was it more in line with what you were thinking?

Just sort of curious how that played out versus your expectation for signing up and expanding budgets.

Yes, so are you specifically referring to the increase in marketer spending $1 million?

Yes, that.

And I think even the 8-digit ones where you went from 1 to 3?

Yes, yes.

That not only exceeded our expectations, specifically in the ones that are spending more than $1 million, that is nearly double the increase that we saw '16 to '17 versus the increase '17 to '18.

So significant acceleration in the number of new logos that are spending enough dollars in the channel that they are taking it seriously.

We know that they usually have to spend between $0.5 million and $1 million to get a really good read on the channel.

So we are very excited about that.

It is a very good early sign of what is to come.

Same thing with the 8-digit clients.

We went from 1 to 3. So obviously, whilst a small number, a significant increase.

And we are continuing to really push on signing large deals, annual plus level contracts with advertisers once they understand the power of the channel.

It is a good predictor of what is to come.

Tim, just to add to what Lynne said, advertisers sort of don't really budget for the volume until they know it's real, because they don't want to run the risk of not spending their money.

And we, of course, launched in the middle of the Christmas season, which is a really busy time for advertisers.

I've been with a ton of CMOs over the past couple of months, right, it's really January and February.

And when you go in there and we can talk about how we can really move the needle and drive growth in their business with the scale we have, it's a very different discussion.

So while it's hard for you guys to see in Q1 results, what we can tell you from where we sit, walking in with the scale now and where the scale's going to be over the short period and what it does to the business.

It's a higher level discussion and a much more impactful discussion, so we're pretty bullish in what we said.

Great.

And just I had one last one and I'll hop off, but sort of on the topic of the bigger contracts, is there a discussion at all about any kind of incremental customization or scope or, say, would have an impact around near term profitability and margin targets?

I mean, it's all good long term, fully onboard with that.

I just want to make sure we're not missing something around scalability, if you really start to see big contracts like this really start to gain momentum.

Yes.

This is David.

Tim, it's a good question.

And certainly, there's a couple of things that are going to help drive operating leverage: One, is just the size of the contract.

The incremental effort that goes into running a significantly larger contract is minimal, relative to being able to go out and secure a larger deal.

The other piece is part of what Scott and Lynne talked about in their -- at the beginning, in the outset here is around reducing some of the friction and we are making some headway there and that will only help paint a picture for better operating leverage in the future as well.

Our next question comes from Andy Hargreaves from KeyBanc.

So qualitatively, everything sounds pretty good, but the -- just general revenue has been lower than what we expected, say, 1 year or 18 months ago.

So I'm wondering if you can comment at all, is there user engagement at sort of existing banks that's just not lived up to your expectations because there have been product changes with the banks?

So can you just comment on what sort of the gap is between what we thought 1 year ago and where we are right now?

So Andy, I'll take it at a high-level and then David and Lynne can add to this.

For the overwhelming majority of our advertisers, MAU growth -- user engagement is not the constraint to the growth.

The constraint is the number of advertisers that are in the network and the size of budgets that we're securing from those.

And that's one of the reasons ramping the scale is so important is, because we know especially in the digital world, advertisers buy scale.

We are now a few months into giving them that kind of level of scale that they really would want.

And so when I think about where we end up in 2021, to me, it's simply a function of how many advertisers are in the channel or how big of way are they using the channel, which is why we focus so much on bringing the $1 million advertisers because we know those are kind of land and expand, that's the land.

And then the expand is how quickly can we get them from a 7-digit budget to an 8-digit budget.

Yes.

And Andy, it's a good question.

I think it's something worth reiterating.

I think back to a large part of the conversation, we talked about at the IPO and what the long-term plan look like 5 to 6 years out, which will be 2023 and what that looks like is call it a $0.5 billion business with 20% EBITDA margin.

I am -- as I look at our model today, I am right on track.

We are right on track with what exactly what we said we're going to do.

And it's partly why we alluded to returning to normalized ARPU levels by 2021.

Just by looking at the model and you assume something north of $2 on ARPU, on $150 million MAU, we're now consistently profitable and we're now somewhere around $300 million of revenue, which then gets us directly on track with what we talked about the IPO.

And just positioned to really keep accelerating growth.

And then just a follow-up on sort of the ad phasing sales side that you guys have made a couple of hires, it sounds like.

Can you comment on what the total size of that sales force is?

And where you would like to get as you try to land more advertisers and bigger budgets?

Yes, I mean, Scott alluded to this a little bit.

I mean, so much of what we are doing is elevating the dialogue with our advertisers.

When you're talking about making the ads that we're talking about, from 6-figure to 7-figure to 8-figure, you can imagine that the dialogue changes.

And then therefore, as we think about our sales force and our go-to-market, that naturally has to evolve as well.

We have made 3 or 4 significant hires at the senior ranks in the sales force.

We probably have a couple of more to go.

As we laid out in November, we have laid out a pretty specific game plan for, call it, 6 to 8 months, we're right on track.

We still have some things that we still need to go execute on, but as I sit here today, everything is as we laid it out.

Our next question comes from Nat Schindler from Bank of America.

Can you just walk me through a little bit the process -- the typical or at least the historical, I don't know, it's not a whole lot, behavior as a new advertiser comes on and how they work with the system early and how they evolve?

Yes.

Nat, this is Lynne.

Let me take a shot at that.

Our typical new advertiser is going to always start with the test IO.

That test IO is usually 45 days in length.

What we have seen pre versus post national, the latest national bank launch, is that IO size has gone up.

So in the past, it was maybe in the couple of hundred thousand dollar range and now we're seeing it in the $0.5 million to $1 million range, simply because they are really wanting to make sure they understand the full scale and potential of the network.

Then after the 45-day IO runs, it usually takes another 45 to 90 days for the results to be sort of processed and absorbed by the organization, and vetted and sort of validated for lack of a better term.

And as Scott has mentioned, our Nielsen partnership is really helping with that and also accelerating that time line a little bit.

And then it just depends where we are in their annual or biannual media buying processes.

Most advertisers budget once a year with a kind of midyear course correction and their fiscal years can often be different than typical December to January year-end.

So depending on where we are in this budgeting cycle, it can take another couple of months for us to get to a point where they're ready to actually put us in as a line item.

So while we are excited by the number of new logos that are in the channel, we still kind of reiterate, it's going to take 6 months on average, maybe longer, 9 months, for new logos to start significantly expanding their spend.

And as we mentioned in the very beginning, these new logos also don't tend to test until they actually see the volume that's really there.

So that is why the stats that we introduced about what we're seeing with new logos, with $1 million budgets and with 8-digit budgets, in January are really important precursors of what's to come.

Okay.

Just can you walk me through a little bit historically, why have some of your advertisers be -- is that you have for quite a while become 8-digit guys and others haven't?

What were the -- what was the differences between a Starbucks and a smaller advertiser?

The -- one of the really important parts is making sure that we connect with the analytics organization and the client.

And I think where we work best with our bigger advertisers, is when our analytic team is embedded with their analytic team.

They've really understood the return in our advertising investment.

At the highest level I'd say, really believe like for $1 they're paying as we're giving them $5 incremental revenue back.

And I think everyday, we're getting better and better at doing that.

I think the other thing that really drives the adoption by advertisers is when they use our analytics as part of their broader business, that's also when we're just frankly simply more top of mind and more -- the increment part of the marketing mix.

And this is why it's so important, why as we focus on things like taking the friction out of the buyers process, enabling self-service to make it just easier to use Cardlytics as part of what we do everyday.

Out next question comes from Matt Trusz from G. Research.

So to tie up the discussion on marketer budgets, as we see here in March, how big are your marketer budgets for the full year, given the dynamic timing of the ramp and how much flexibility is there generally for them to go up and down over the next 6 or 9 months?

Yes, that's a great question, Matt and I'm going to add to this.

The one thing that we're trying to explain is, marketing budgets for the first half of year were set probably late half of the year -- or I mean, early last half of the year in 2018.

So there is some flexibility in those, but those are largely nailed down.

That being said, we -- in the back half of 2019, we think there is a lot of ability to go and grow budgets.

But they tend to operate in about a 6-month cycle.

So you go get in there, you test, you prove the scale, and you're working to get that budget increase in the next 6 months.

And that's a journey, because every time a marketer is shifting significant dollars to us, it probably means they're moving it out another one of their digital channels.

So they don't do that as a step function versus a series of increments over time.

One of the 10- digit clients that Lynne was talking about, they've been working with us -- the 8-digit clients, when the 8-digit clients Lynne was speaking to started working with us 5 years ago, spent about $250,000 in that first year.

Today, they're spending significantly more, but that took several years of growing that budget.

But the flip side is, another one of those 8-digit clients that I was referring to went from sort of 0 to 8-digit in about 1.5 years.

So we are seeing that the sales cycle is accelerating from where it was sort of the presignificant scale, but I still think it is wise to assume that the sales cycle is going to take, as I said, sort of 6 to 9 months depending on where you are in their media planning cycles from when they do that initial $500,000 to $1 million IO.

And it's why we speak of accelerating growth, because we know we're putting the foundation in place right now with the series of testing, and we understand the rate at which we can go and grow that over time.

Got it.

And then can you just discuss which product innovations are highest priority or most impactful for you in 2019?

Yes.

It's the broad set of capabilities around taking friction out of the buying process.

And if you sort of map out how organizations buy, there is a series of touch points, starting from how they do their media mix modeling, how they set their media strategy, how they actually execute the media and how they report on it.

And so we have a whole series of initiatives going against those different touch points, which by the way, is a couple of years of work to where we are today to where we want to be.

And each quarter, we'll talk to you about how we're releasing against that schedule.

(Operator Instructions) Our next question comes from Youssef Squali from SunTrust.

This is Sagar on for Youssef.

I just want to make sure that I got a couple of numbers correct.

First, that December had 99 million MAUs and second, that there was no timeline associated with that 150 million number.

And also some other way, could there be a revenue noise with Wells Fargo when that starts ramping, similar to what we're seeing now to ensure a good experience for advertisers?

And lastly, can you explain on that $5 million to $6 million number you gave around the FI shortfall commitment?

Yes, sure.

I got 4 questions there.

So let me do my best here to repeat this.

The first on Wells...

Which is 99 million.

Yes, so on Wells, you talked about any change in the revenue outlook.

I think what you would see there is just a change in campaign consumption more than anything and an adjustment from that.

As I sit here today, to again, 99.3 million in December, 150 million MAUs by the end of this next year, we've got plenty of headroom to go out and run campaigns and consume budgets.

It just changes and adjusts how we go about doing that with regards to the timing of the Wells rollout.

The $5 million to $6 million shortfall, that is something we've been talking about and I'll give -- and even apologies for that for the last 3 quarters or so.

That particular bank will start in the second quarter, so we'll start that accrual of that $5 million to $6 million.

That won't be due until 12 months later.

So April-ish of 2020, but that is correct.

And I think those are the 4 questions.

The 99 million...

Yes, that's perfect.

Yes, and I just want to make sure that the $5 million to $6 million is basically as you're saying, 3 quarters this year and 1 quarter next year?

That's right, 3 quarters of that this year and 1 quarter in 2020.

I show no further questions in the queue at this time.

I would like to turn the call over to Scott Grimes, CEO and Co-Founder for closing remarks.

Please go ahead.

Thank you.

Well, awesome everybody.

We really appreciate you joining the call today.

Hopefully, you hear the excitement in our voice about -- we had a great Q4 and we were really excited how we ended the year.

And more importantly, we really think 2018 lays the foundation for sustained and accelerating growth for many years to come, and we're just at the very beginning of that journey, but we're really excited internally about how we're positioned and we're really excited about how our marketing clients are thinking about exactly how they incorporate us into how they run their business to drive their sustainable long-term growth.

So once again, thanks for joining the call and we look forward to talking to you, again, next quarter.

Thank you, ladies and gentlemen for attending today's conference.

This concludes the program.

You may all disconnect.

Good day.