Cardlytics Inc (CDLX) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2019 Cardlytics, Inc.

Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

It is now my pleasure to introduce Chief Legal and Privacy Officer, Kirk Somers.

Good afternoon, and welcome to Cardlytics' First Quarter 2019 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 second quarter and full year financial results and operating metrics; business strategies and other forward-looking topics, including our expectations regarding growth in Direct, with new and existing customers; the reduction in average revenue per user, or ARPU; growth in monthly active users, or MAUs; expansion in new verticals, including travel and entertainment, grocery, premium and e-commerce; expanding our media capabilities, reducing friction and increasing automation in buying Cardlytics Direct with an always-on advertising model; continued FI investments in consumer incentives; positive adjusted EBITDA for 2020; and returning to 2018 ARPU levels at the end of 2021.

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 March 5, 2019, and in 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 and the 8-K filed with the SEC today and in the company's Form 10-Q that we plan to file later today.

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

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

Please note that a supplemental data presentation to our first quarter results has also been posted to our Investor Relations 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 our first quarter 2019 earnings conference call.

Today, we are pleased to announce that we delivered strong first quarter results with several key metrics exceeding guidance from our Q4 earnings call.

Here are some of the highlights.

Total billings for the first quarter was $58.6 million, increasing 20% year-over-year.

Total revenue, which equals billings net of consumer incentives and net of enhanced consumer incentives from our FI partners, was $36 million.

It came in at the high end of our guidance and was driven by continued growth with existing marketers and from adding new marketers.

Adjusted contribution margin exceeded guidance at $17.6 million, growing 24% year-over-year.

We had an adjusted EBITDA loss of negative $3.2 million, also better than Q4 guidance, and we continue to add significant scale to Cardlytics Direct, increasing quarterly FI MAUs from 83.2 million to 108.5 million, a 30% quarterly increase and growth of 85% year-over-year.

We had a strong first quarter.

It was the first time we were able to execute campaigns for our marketing clients with a reach of over 100 million monthly active users via our FI partners.

This is important to our marketing clients.

We can now deliver marketing scale on par with other major digital platforms, and we provide unique benefits.

Marketers reach customers in a brand-safe, privacy-protected channel.

We profitably deliver an omnichannel solution that drives in-store and online sales, and we market to the most valuable customers based on their actual spending, not a model proxy for their behavior.

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

I'll now hand the call over to Lynne to provide greater detail on some of our recent accomplishments.

Lynne?

Thanks, Scott.

I'd like to highlight a few success stories since the last earnings call.

As we discussed earlier, we launched a new national bank in Q4 and began to scale MAUs.

In addition to the mobile channel we rolled out in Q4, we successfully launched Cardlytics Direct and its bank e-mail channel in Q1.

We're also happy to announce that we completed the rollout of their online banking channel just last week.

As a result, our FI MAUs increased from 83.2 million in Q4 to 108.5 million at the end of Q1.

We expect FI MAUs will continue to increase in Q2 and throughout 2019.

Importantly, we now have more than a quarter of performance data, our most recent launch continues to meet expectations.

We remain on target to complete a second national bank launch in 2019.

Once done, we expect to deliver an aggregate audience of over 150 million FI MAUs for our marketing clients.

And we believe this audience will be responsible for about 1 out of every 2 card swipes in the U.S.

Let me share a recent example of why scale matters to marketers.

In Q1, we met with the CMO of a major U.S. retailer that had not worked with us in the past.

He was sharing some of the challenges he dealt with last year in the incredibly difficult retail environment.

Even with their best effort, their revenues declined in 2018.

We shared a projection that if you fully leverage Cardlytics Direct in 2019, we could increase their same-store sales growth by 2% and deliver a 5 to 1 return on their marketing investment.

We are now executing our first campaign with this retailer to validate our projection.

We're going to work closely with them to scale their investment in 2019 and 2020.

It's just one example of how our significant scale positions Cardlytics to be an important tool for our marketing clients.

We've also made great progress against the initiatives we've previously discussed to drive multiyear growth.

We've hired senior leadership and are signing our first test campaign with marketers in the e-commerce, travel and entertainment, grocery and premium verticals.

And we are investing in our technology to increase the capabilities of our Marketing Solutions to reduce friction in the buying process.

We are building an always-on advertising model for advertisers to easily manage their investments in Cardlytics as part of their overall marketing processes.

We're also building richer media capabilities for advertisers to do more with the platform.

These will be ongoing initiatives for the remainder of 2019 and into 2020.

While this will take time, the foundation is now laid and all we have to do is execute.

With that, I will turn it over to Dave.

Thanks, Lynne.

As we've prefaced on our last earnings call and as Scott mentioned earlier, we are now reporting and guiding on billings.

Total billings, which is the gross amount billed to marketers and inclusive of the consumer incentive, is calculated simply by adding the consumer incentive to our total revenue.

Total global billings for the first quarter increased 20% year-over-year to $58.6 million.

Total U.S. billings up approximately 17%, U.K. billings up 35%.

Total revenue for the first quarter was $36 million, representing a 10% year-over-year growth over the first quarter of 2018.

Total adjusted contribution profit was $17.6 million in the first quarter of 2019, up 24% from $14.2 million in the first quarter of 2018.

These results exceeded our prior guidance driven by strong billings growth.

Our recent U.S. and U.K. total adjusted contribution profit increased 22% and 45% year over year-end, respectively.

As we've discussed, revenue growth was less than our billings and adjusted contribution product growth in the first quarter, mainly due to the increased investments being made in consumer incentive by our bank partners.

This is a great commitment from our banking partners, further signifying their excitement about the platform.

More specifically, our banking partners are reinvesting more of their FI shares in Cardlytics Direct program in the form of larger consumer incentives and attractive offers for what we refer to as enhanced consumer incentives.

Therefore, there was a shift of dollars in consumer incentive from FI share in Q1.

As you know, our GAAP revenue is total billings with less consumer incentive.

So while more consumer incentives depress our GAAP revenue, there's less FI share and, therefore, a netting effect to adjusted contribution as well as adjusted EBITDA.

This impact is clearly illustrated in our Q1 numbers as evidenced by the change in our billings margin or revenues percentage of total billings which declined from approximately [67%] Q1 in 2018 to approximately [61%] in Q1 2019, but with a similar yet opposite impact to adjusted contribution as a percent of revenue, which increased from 43.5% in Q1 2018 to 49% in Q1 2019.

We have provided a simple, illustrative example of this in our supplemental earnings materials to help further clarify your understanding of this impact.

Adjusted EBITDA was a loss of $3.2 million in the first quarter of 2019 compared to a $3.1 million loss in the first quarter of 2018.

Our first quarter adjusted EBITDA was above our prior guidance primarily due to our topline performance.

Average FI MAUs were approximately 85% from $58.7 million in the first quarter of 2018 to $108.5 million in Q1 2019.

Consistent with our recent commentary, we expect FI MAUs to continue to grow this year driven by the ongoing rollout of our recent national bank launch and other national bank launches providing additional tailwind in 2020.

Our first quarter 2019 ARPU was $0.33, down approximately 40% from $0.55 in the first quarter of 2018 primarily reflecting the impact of rapid growth in our average FI MAUs and the longer-term ARPU maturation of these new MAUs.

We continue to expect this dynamic to play out for the foreseeable future, especially in 2019 where material FI MAU growth from national bank launches will continue to cause a decrease in ARPU when compared to prior years.

We expect to return to more normalized historical levels of ARPU by the end of 2021.

We ended the quarter with $56.7 million in cash compared to $59.9 million at the end of Q4 2018.

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

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

Now turning to 2019 guidance.

For the second quarter, we expect billings to grow 19% to 28% to between $61 million and $66 million.

We currently expect GAAP revenue to be between $42 million and $45 million.

And we expect adjusted contribution for the second quarter to be between $19 million and $21 million.

Finally, we expect adjusted EBITDA loss for the second quarter to be between negative $4 million to negative $3 million.

For the full year of 2019, we're expecting billings growth of 23% to 33% and to be between $270 million and $290 million.

We currently expect GAAP revenue to be between $175 million and $190 million, and we expect adjusted contribution for 2019 to be between $83 million and $88 million.

Finally, we expect adjusted EBITDA loss for the full year 2019 to be between negative $8 million and negative $5 million.

Finally, for your modeling purposes, at this point we are no longer accruing for any FI share commitment shortfall in 2019.

If anything changes on this front, we'll be sure to keep you apprised.

We continue to be excited about our prospects as we see instances and data points of an accelerating business.

And as we've talked about before, we'd expect to start seeing the benefits of a fixed cost business in the second half of this year and positive adjusted EBITDA for 2020.

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.

Q1 was a strong quarter.

And most importantly, we feel like we are exactly on track to deliver 2018 ARPUs of $2.30 across more than 150 million FI MAUs in 2021.

Lynne and I are really excited of our team's execution and are looking forward to an exciting 2019.

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

(Operator Instructions) And our first question comes from the line of Youssef Squali with SunTrust.

Couple of questions.

First is around just the sales growth going forward as you look at the linearity of growth throughout the rest of 2019.

I was hoping you can just help us understand the increase in the sales force.

I think you talked about increase in the quota-carrying salespeople.

You'd be hiring a fair number of them.

Maybe just provide some updates there.

Any color on sales efficiency?

How many of them are hitting quota, et cetera?

And just what are just the gating factors beyond the -- just hiring salespeople that should help accelerate the growth that everybody is anticipating?

And I have a follow-up.

Yes.

Youssef, this is Scott Grimes.

I hope you're doing well.

Thanks for joining the call.

Yes.

So we've been talking pretty openly that we do see accelerating growth, and it's less around having to make a lot of additional sales investments, and David could speak to this more.

We have most of our investments in place, and it's more around the time that it takes to work into advertising budgets in cycles.

As I think we talked about in the last call, our MAUs came online and we were able to start having serious discussions with advertisers about what they could spend now in the channel.

Most of the discussions, frankly, are around the back half of the year versus the first half.

And what we are seeing in the business right now that makes us feel good about the accelerating growth are lots of important test -- advertisers in testing right now, looking at the results and then looking at our proposals for the investments they can make in the back half of '19 and also in 2020.

Do you want to add to that, David?

Youssef, David.

You've touched on a couple of things.

As you remember, we started our investment cycle last June in preparation for the Wells and Chase launch.

And as we mentioned in the last call, we're kind of coming to the end of that investment cycle here in the next month or so.

We've made some pretty senior hires.

We've got a new VP of Travel, new VP of Grocery.

We just announced a new VP of e-commerce.

And so we filled most of those roles.

One thing I would clarify, we haven't added in total heads, we've just added some senior people that really, to Scott's point, elevates the dialogue with a lot of these major advertisers that we work with, which will be a large component of the acceleration that Scott's referring to.

Okay.

Super helpful.

And then I may have missed this, but the -- on the Wells Fargo launch, what is the timing of that?

And when does it start to kind of impact the numbers on the P&L?

Youssef, it's Lynne.

We have not announced the specific timing on Wells Fargo because we don't try to talk about any specific bank or any individual launch.

What I would tell you is we are confident that we're going to be at 150 million MAUs by year-end, and that's obviously the continued launches of Chase and other national banks.

Yes.

The other thing too I would add, Youssef -- and this is -- and then we harp on this but this is super important.

We are not MAU-constrained.

And so as I look at my forecast, the timing of Wells is not -- does not make an impact there.

So given the performance that we've seen from the launch of Chase, given that we now have online banking up and running, we've got plenty of headroom to add additional advertiser budget.

So it's not a constraint or a headwind to my 2019 numbers.

It will start to come into play in 2020, but certainly, as Lynne mentioned, it's something we're excited about.

And our next question comes from the line of Doug Anmuth with JPMorgan.

First, just hoping you could talk a little bit more about the -- some of the technology improvements and advancements that you're making on the advertising stack just as you're looking to build more always-on capability there for marketers.

And then secondly, just on the trade-off between MAUs and ARPU, which we know always happens as you're ramping a lot of users with these large national banks, but can you help us kind of walk through a little bit from now to, not overly prescriptive, but you talked about more normalized levels of ARPU at the end of 2021.

If you can just kind of help us walk through a little bit why it kind of takes that long to get back there, that would be helpful.

Doug, great questions.

First of all, let me talk on the tech stack.

As I think most of you appreciate today, we are a insertion order-driven model.

We sell 45-day insertion orders.

And once that campaign is complete, we then go and try to secure a new one with most of our advertisers.

We do have some advertisers where we run continuously with annual contracts, but not the majority of them.

Where we want to move to is to the same model that other digital media is.

Instead of being insertion order-driven, we're an always-on contracting model, where we agree on a budget per month and we run at that budget until it's changed.

Yes.

The second thing today is we have analysts who think about how do we analyze purchase data to identify the audience we want to market to.

We want to move to automated targeting versus analyst-driven targeting.

Today, we have analysts that watched both the progression of the campaign throughout its execution.

We want to automate that execution.

And then finally, today, we have a lot of complicated back-end analytics we do to show the performance of the channel.

That is also very automated -- automatable thing.

So we're working across all those dimensions.

That is an effort that will span 2019 and go into 2020, but we think we come out the better -- the other end with a much more -- almost -- just like a SaaS-like model in the terms of the way we work with our advertisers, and in that kind of always-on approach.

And we're also just able to scale more -- support more advertisers over the same resources.

David?

Yes.

And I was going to comment on your -- second part of your question, Doug.

This is David.

Around the kind of reverting back to normalized ARPU levels by the end of 2021.

It's another way of saying we see a business that's north of $300 million in revenues by the end of 2021, which kind of puts us right on track to what we've talked about all along for our long-term plan.

Long-term model, again, kind of in the 2023 of $0.5 billion business with 20% adjusted EBITDA margins.

And so whether we're at 150 or greater than that, it -- at 150 x $2.30 which is what we ended 2018, it puts us north of $300 million by the end of 2021.

And that's really what we're trying to get at.

Yes.

And to David's earlier point, the constraint there is not MAUs, the constraint is the rate at which we can sign new advertisers, we can grow advertising budgets.

And we -- we're trying to have a sort of practical look at that.

And our next question comes from the line of Aaron Kessler with Raymond James.

A couple of questions.

Maybe first, I think last quarter, you talked about some hesitation with the advertisers kind of taking a wait-and-see to the Chase portfolio.

I was thinking just maybe give us an update there.

And then also maybe an update on some of the vertical performance specifically on some of the newer verticals that you've entered such as travel.

Aaron, it's Lynne.

So I think what we were trying to say the last time around was less around a wait-and-see but more around "come tell me when the volume's actually there and I can actually meaningfully engage in a sales conversation." So those conversations are now happening in a pretty rapid clip and a pretty rapid scale.

As we've talked about in the past, banks have a tendency to slide.

And so the advertisers have definitely been trained that until the volume's there, they're not going to meaningfully engage or think about allocating budgets.

So now that the volume is there, the conversations have changed.

In terms of the new verticals, as David mentioned, we've hired leads in all of them.

I believe it is fair to say we have test IOs from 1 or more advertisers in every new vertical that we've gone into.

In some verticals, we have more than 1 or 2. But they are test IOs.

Most are in the $200,000 to $500,000 range, sort of a 90-day campaign to prove that the network performs the way we know it does.

We are expectant that at least some of those will have meaningful budgets and spend by the time we get to Q4 of this year, but we do know it's still going to be a sales cycle.

And our next question comes from the line of Matt Trusz with G. Research.

On the topic of these enhanced consumer incentives, did this only recently start with Chase?

Or has this been ongoing?

And can you just discuss how many other banks participate or consider it and what the trend has been there?

Matt, David.

Good question.

This is something that came up on our last call, and it's certainly something that a lot of our bank partnerships -- we have many discussions with them around how do we enhance their program, how do we create a more engaged consumer.

And this has been one of those things that has introduced itself coming into 2019, how to -- one of the ways that our bank partners view this is to use their FI share to enhance consumer incentives that would mathematically exceed the results that we go out there with but, in effect, creates for more of an engaged consumer.

As we talked about in the prepared remarks, effectively what happens in this scenario is you're effectively just shifting dollars from FI share to consumer incentive, which is the primary reason why we've made the disclosure this go around.

Again, we prefaced it on the last call.

But suppresses GAAP revenue but nets out at adjusted contribution.

That's one important piece of how we think about consumer incentive.

Now there's another piece of this which is just the ability to be able to exceed or achieve the same results with less consumer incentive.

In that scenario, that's a net win or 2 as on adjusted contribution.

But again, this is something that introduced itself at the beginning of this year.

We -- obviously, we're ecstatic about it because it means our banks are really leaning in to the program, and at the same time creating a more engaged bank customer.

I think as we've found that more banks are joining the platform, they're looking for ways to create uniqueness to the program relative to others, and that's why this has introduced itself.

That's really interesting.

One more quick question.

As we think about things like digital wallets and nontraditional financial channels or nontraditional credit cards, do you see those as an opportunity?

And can you talk about whether it's a material size?

Or whether you're already in those types of conversations?

Yes.

So I think across our major bank partners, they think about all the different digital touch points where they can extend offered content to drive their customer's engagement at that digital touch point.

So I think we definitely expect over the next year or 2 to see our marketing content brought to places where we're not bringing it today.

I will touch on one point, it is we do pretty much have a bank-centric model.

So we work very closely with our bank partners to see how we can go and enrich the experience their customers have with them.

What we do not focus on are kind of alternatives to banks versus we're partners with the banks to help them go protect their customers and help them go protect the digital relationship they have with their customers.

Your next question comes from the line of Tim Willi with Wells Fargo.

All right.

So 1 housekeeping question and then I have a business question.

Just you referenced positive EBITDA in 2020, is that just a comment around an exit run rate?

Or would that be cumulative for the full year, there will be some kind of positive EBITDA in 2020?

Yes, Tim, David.

This -- that -- for the year 2020, is the answer to that.

I mean in effect, what we should start seeing in the back half of this year is the fact that [ARPU] starts to level out and then that should put us in a position for positive adjusted EBITDA in 2020.

Okay.

So for the full year.

Perfect.

And then the question around the new verticals you've entered.

You talked about you e-comm, travel, grocery, et cetera, is there anything around the decision-making process -- the -- and sort of the spontaneity or the aggressiveness of these new verticals and their marketing plans?

I got to imagine there are some that are sort of very budgetary and sort of pragmatic.

There may be something in the e-commerce world that's like, let's fail fast, let's test, let's try, let's make a move.

Just any way to think about that?

Yes, this is Lynne.

So we've seen the direct-to-consumer and e-comm brands have a very accelerated sales cycle.

They are not -- they're not obviously traditional retailers, therefore, they don't have a lot of the traditional silos as other retailers.

And they're much more return-on-investment kind of focused and acquisition-focused.

So we have seen them accelerate the sales cycle, frankly quite a bit.

Some of our largest advertisers now are the sort of direct-to-consumer e-comm brands.

The flip side is when you talk about the grocery vertical, that's a tough one, right?

They are very siloed.

They have very thin margins.

Most of their advertising dollars do tend to come from the brands, so the Procter & Gambles of the world.

So that's going to be a much slower sales cycle but obviously huge amounts of spend there.

So we're making progress with all of them, but yes, direct-to-consumer has been a very, very refreshing and pleasant surprise for us on how they've accelerated the sales cycle.

And I'm showing no further questions at this time.

So with that, I'll turn the conference back over to CEO and Co-Founder, Mr. Scott Grimes, for closing remarks.

Well, everyone, thank you very much for joining today's call.

We are really excited about what everybody accomplished for the quarter.

As we look into the back half of 2019 -- or the remainder of Q2 and the back half of 2019, we're really feeling good about seeing the combination of accelerating revenues on top of a fixed cost business, which most -- lets us talk in confidence now about our ability to demonstrate operating leverage, but importantly, to have generated adjusted EBITDA profit in 2019 -- or 2020.

Sorry.

Got that wrong.

So very excited about what's coming ahead and look forward to talking to everyone at our next earnings call.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program, and you may all disconnect.

Everyone, have a wonderful day.