Cardlytics Inc (CDLX) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cardlytics Second Quarter 2019 Financial Results Conference Call.

(Operator Instructions)

As a reminder, today's conference may be recorded.

I'd now like to introduce your host for today's conference, Mr. Kirk Somers, Chief Legal Officer.

Good morning, and welcome to Cardlytics Second 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 third quarter 2019 and full year financial guidance, expectations on adjusted EBITDA for 2020, the anticipated impact of our 4 key priorities on driving the monetization of our increased scale of FI monthly average users or FI MAUs.

The timing of the rollout of Wells Fargo and its anticipated impact on our FI MAUs and the number of card swipes we see in the U.S. The impact of our investments on driving revenue in nascent industry verticals and our expectations regarding average revenue per user or ARPU levels.

For a discussion of the specific risk factors that could cause our actual results to differ materially from today's discussion, please refer to the Risk Factors section of the company's 10-Q that we plan to file later today and in subsequent periodical reports that we filed 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 that will be filed with the SEC.

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

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

Please note that a supplemental data presentation to our second quarter results has also been posted on 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 us on our Second Quarter 2019 Earnings Conference Call.

We are pleased to announce that we delivered strong second quarter results, which exceeded our guidance from our Q1 earnings call.

Here are some of the highlights.

Total billings for the second quarter were $73.8 million, an increase of 43% year-over-year.

Total revenue, which is equal to total -- which is equal to billings, net of consumer incentives was $48.7 million, up 37%.

And adjusted contribution was $21.8 million, growing 35% year-over-year.

Each of these metrics beat our prior expectations and is consistent with the top line acceleration that Cardlytics has delivered over the past 8 quarters.

Additionally, we had an adjusted EBITDA loss of negative $626,000, also better than guidance.

And we continue to grow our reach, increasing quarterly average FI MAUs from 108.5 million to 120.1 million, an 11% sequential increase from Q1 and growth of 104% year-over-year.

For the balance of 2019, we will continue to focus on our key priorities aimed and monetized in our significant MAU scale.

First, to drive growth by increasing the number of marketers we count as Cardlytics' clients and increasing the amount those marketers spend in our platform.

We offer marketers a brand-safe, privacy-protected channel that profitably drives online and in-store sales.

By leveraging actual purchase insights at a massive scale, we believe our ability to deliver significant ROI for our clients will continue to set us apart in the market and enable us to gain share of marketing spend.

Second, to continue to bring our capabilities to new verticals, our significantly increased scale and recent sales leadership hires are contributing to momentum in our more nascent e-commerce, travel and entertainment, grocery and premium verticals.

While many of our clients in these verticals are new and still modest in size, we believe they present significant opportunity as they grow their marketing investments with us.

Third, to continue to evolve the Cardlytics platform, as we've discussed, we are making a multiyear investment to move to an always on, highly automated platform that can reduce buying friction, be extended to third parties and support richer media.

And finally, to demonstrate operating leverage in our business from the investments we have already made in our infrastructure, technology and workforce to support more than 200 million FI MAUs.

While we still have much work to do in each of these areas, we are pleased with our progress so far and look forward to sharing further updates with you over the next several quarters.

With that, I will turn the call over to Lynne and David to provide more detail on our progress against our key initiatives, our Q2 results and our guidance.

Lynne?

Thanks, Scott.

In Q2, we completed the rollout to Chase's online banking channels.

Our most recent national bank launch continues to exceed our expectations.

We were pleased to hear Chase comment on the program in their recent Q2 earnings call and at their Investor Day.

They called it a "powerful flywheel, which delivers benefits, not just to consumers but large merchant clients."

They also cited it as an example of the continued engagement they're seeing with consumers, stating that more than 60 million Chase offers have been activated to date.

As Scott mentioned, our efforts with Chase and our other FI partners expanded our average FI MAUs from 108.5 million in Q1 of '19 to 120.1 million in Q2.

We also remain on track for a phase rollout of Wells Fargo beginning in Q4.

Similar to other national banks, we believe the rollout will be phased over multiple quarters across channels.

We expect to deliver an audience of more than 150 million FI MAUs for our marketing clients, which we believe will roughly equate to 1 out of every 2 card swipes in the U.S.

We continue to make good progress against the initiatives we previously discussed to drive multiyear growth.

First, I'll provide an update on the momentum we're seeing with new vertical penetration.

Last quarter, we announced that we hired senior leadership to accelerate revenue in the e-comm, travel and entertainment, grocery and premium vertical.

This focus is paying off.

Since the beginning of the year, we signed 12 new growth vertical brands to test on the Cardlytics' platform, including a new e-comm client who's already signed a 7-figure deal.

On the grocery front, we have tests in place, not just with traditional grocery chains, but also major multiline retailers with their own grocery offerings.

We believe our ability to see both in-store and online purchases position us well to help these brands drive their omnichannel strategies, including in-store and online shopping and pickup and delivery.

Next, you've heard us talk about our focus on reducing friction in the buying process for marketers.

Our plans to move to a more automated, always-on-buying model are on track.

Our next-generation platform requirements are scoped, implementation plans are underway and early deliverables for internal use are in production.

For example, we have new campaign publishing controls scheduled to go live in Q3 and Q4, and we are currently piloting our automated analytics portal with select clients in the U.S. and the U.K.

We believe these tools will eventually become key components of our self-service portal, where marketers can use purchase intelligence to understand important insights for their business, put those insights into action by automatically marketing on our platform and then measure the impact to their business precisely using actual purchases.

We'll continue to provide updates on future calls, but we're optimistic that our early efforts are positioning us well to evolve the platform for continued growth.

With that, I'll turn it over to David.

Thanks, Lynne.

As Scott mentioned, our second quarter results exceeded our expectations, and we continue to gain momentum.

I'll begin by commenting on our second quarter results, and we'll then discuss our third quarter and full year 2019 financial outlook.

Total billings, which is the gross amount billed to marketers inclusive of the consumer incentive, for the second quarter increased 43% year-over-year to $73.8 million.

Total revenue for the second quarter was $48.7 million, representing 37% year-over-year growth.

Total U.S. revenue increased 40% year-over-year and total U.K. revenue increased 16% year-over-year.

Adjusted contribution was $21.8 million in the second quarter of 2019, up 35% year-over-year.

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

Adjusted EBITDA was a loss of $626,000 in the second quarter of 2019 compared to a $2.2 million loss in the second quarter of 2018.

Our second quarter adjusted EBITDA was above our prior guidance.

Average FI MAUs grew 104% from 58.8 million in the second quarter of 2018 to 120.1 million in Q2 of 2019.

We expect to see continued growth in FI MAUs through the natural maturation in the network, ongoing efforts with FI partners and digital adoption.

Per Lynne's comment, we also expect to experience additional FI MAU growth from the phase launch of Wells Fargo in the fourth quarter of this year.

Our second quarter 2019 ARPU was $0.40, down approximately 32% from $0.60 in the second quarter of 2018, but up 22% from the $0.33 in the first quarter of 2019.

As expected, the year-over-year ARPU decline primarily reflects the impact of rapid growth in our average FI MAUs.

However, we believe the sequential improvement in the metric is encouraging and reflective of the early momentum we are seeing with expanding marketer budgets and adding new logos.

As we've said before, we continue to expect to return to historical levels of ARPU by the end of 2021.

Moving to our balance sheet.

We ended the quarter with $42.7 million in cash and restricted cash compared to $56.7 million at the end of Q1 2019.

This decrease reflects the reduction of our total outstanding borrowings after amending and extending our credit facility during the second quarter.

Our cash balance now includes $10.3 million of restricted cash, and we have $10 million outstanding on our term loan.

We ended the quarter with $13.3 million of availability on our AR facility.

Total debt as of June 30 was $36.7 million compared to $46.7 million at the end of Q1.

Now turning to guidance.

For the third quarter, we expect billings to grow 44% to 56% year-over-year to between $70 million and $76 million.

We expect GAAP revenue to be between $46 million and $50 million, and we expect adjusted contribution for the third quarter to be between $20 million and $22 million, representing 33% to 45% revenue growth and 18% to 30% adjusted contribution growth year-over-year.

Finally, we expect adjusted EBITDA for the third quarter to be between negative $1.5 million to negative $0.5 million.

For full year 2019, we are reaffirming a high end of our guidance, with billings growth of 26% to 32% to between $275 million and $290 million.

We expect GAAP revenue to be between $180 million and $190 million and adjusted contribution for 2019 to be between $83 million and $88 million, representing 19% to 26% revenue growth and 20% to 27% adjusted contribution growth for 2019.

We also expect adjusted EBITDA guidance for the full year 2019 to be between negative $7 million and negative $5 million.

Overall, we continue to be excited about our prospects for 2019 and beyond and are executing according to our plan.

We continue to see acceleration in our business, driven by our ongoing efforts to expand advertising budgets with existing marketers and drive deeper penetration into new verticals.

It's still early with our latest national bank launch, and we are gaining further insights every day into their contribution to our business.

The underlying trends so far are very positive, but the launch will continue to create some noise in our financials for the next several quarters.

We believe our Q2 results and the momentum in our business puts us in a solid position to deliver against our 2019 expectations.

In addition, as we discussed on our last quarterly call, we continue to expect to experience the benefits of a fixed cost business later this year and into 2020, with positive adjusted EBITDA in 2020.

Finally, before turning the call back over to Scott, you may have noticed that we filed a universal shelf registration statement on July 26.

We view filing of shelf as a natural step towards improving our financial flexibility.

If used, we would expect that the most likely use of the shelf would be to strengthen our balance sheet in order to acquire or invest in complementary businesses, products, services, technologies or other assets.

Today, no acquisition is imminent, although, we regularly evaluate acquisition opportunities.

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

Scott?

Thanks, David.

Q2 was a very good quarter.

We are excited about our business and believe it can continue its momentum into the future.

Lynne and I are proud of our team's ability to deliver results, and we are focused on a strong finish to the rest of the year.

With that, I will open up the call to your questions.

(Operator Instructions) Our first question comes from the line of Andy Hargreaves with KeyBanc.

Just wondering, on the guidance, why we're not seeing a little bit more linear, sort of, progression?

It just seems like now that there is good momentum at Chase.

You're adding some new advertisers that we might see, and a little more sequential growth, also the good Q2 numbers.

And then just a question for Lynne.

Can you just review because I think I kind of missed it what, sort of, the operational milestones you're looking for always-on, and when that might become, sort of, a regular part of doing business on the platform?

Andy, this is David.

On the guidance question, look, that's right.

We obviously have a strong Q2.

We see a very strong Q3.

I just want to reiterate, while we're very excited about how the network is continuing to progress.

And the progress we're making with Chase.

It's still early days.

We're seeing a lot of noise and a lot of momentum, but we're just not at the point now where we're willing to get out over our skis too far on the implied Q4 guidance, which is the reaffirmation of the high end for the year.

And this is Lynne.

On the operational front.

So the platform will not be fully externalized until late 2020, and that will be externalized first for our partners.

The interim steps that we are taking are building different pieces and components of the code or the processes that are required to fully externalize it.

You have to kind of do it in bite-sized pieces.

So that when you're ready to fully roll it out, it's all there, and it's all working, and it's all been tested.

But I would say, late 2020 is when our first initial partner clients will be using the externalized platform.

Between now and then, should we have or will you guys be reporting on or talking about any, sort of, progress in the tests?

Or are we just going to be internal and then we'll see it in late 2020?

Well, for example, we talked about the automated analytics platform that is already in tests right now with 4 or 5 beta clients in the U.S. and a similar number in the U.K. So we can certainly, over time, talk about some of those components where we are externalizing it.

But I wouldn't expect material updates beyond just something like what we said today.

Our next question comes from the line of Chris Shutler with William Blair.

My first question is just on the hiring of Dustin Renn, the Head of Corp Dev.

Maybe just talk about the timing of that hire?

And why is right now the right time to be thinking about M&A?

And when you do think of acquisition opportunities, are they more kind of consolidating or strategic in nature?

Chris, this is Scott.

I'm glad you're on the call today.

Yes, we have been, for some time, out there talking to someone to lead our Corp Dev function, and we're excited when we finally were able to bring Dustin into the team.

So that was a big win for us.

We've talked since the IPO that we think inorganic growth is an important part of our journey over time.

And think of it as -- if you think about the company, we have advertisers who would like us to do more for them.

We had banks who would like to have -- see ways that we can bring them more value.

And of course, we have a very large channel that we can promote more product through.

And so Dustin and his team's job is to get out there, understand that universe, get to know those companies, potentially partner with them in advance before we do an M&A-type activity.

So there's nothing imminent, but we have a good systematic and disciplined process in place as we think about inorganic growth over time.

Okay.

And I also wanted to ask about just offering more imagery and video in the ads.

Any FI is testing that today, and when could that become a more meaningful contributor to ARPU?

Yes.

This is Lynne.

Great question.

We have done some very, very small tests with enhanced imagery with a handful of FIs, very small, I would add, so I wouldn't expect that anyone listening to this call would have seen them.

I think we would anticipate more significant tests will be happening early next year with enhanced imagery and better visuals than what we have today.

But again, all along, we've been really focused on externalizing the platform and really significantly upgrading the consumer experience is really a back half of 2020, even going into 2021, before that is widespread and deployed across the banks.

All right.

Great.

And then lastly, any more data that you could share on market or retention or engagement?

Just anything there would be great.

Chris, we don't report, sort of, the engagement metrics.

And one of the key reasons we do is they don't directly correlate to our revenue growth because of the way we price in the market.

And so we, obviously, watch those, we carefully manage the growth of those to manage the return on our marketing.

But we simply don't go and report the direct metrics.

David, you want to add to that?

Yes.

No.

I think it's a good question.

I think just given the amount of noise we're seeing in the network today.

Over time, we're going to continue to find ways to provide additional transparency in the business, and we might find a point in time where we've got good correlation as it relates to the top line drivers.

But as it stands today, we do not.

Our next question comes from Aaron Kessler with Raymond James.

Got a couple of questions here.

First, we noticed kind of in Q2, the consumer incentives decreased versus Q1 that we did kind of an increased FI and third-party comps, Q2 versus 1Q.

Can you just maybe talk around the dynamics of that?

And then I'll have a follow-up question.

Yes.

Sure.

So on the consumer incentive piece.

As you know, in Q1, we had a good amount of enhanced consumer incentive in the first quarter, predominantly driven by ensuring a successful launch with the Chase platform.

We did not see as much ECI in the second quarter.

So the primary driver as it relates to the consumer incentive piece.

As it relates to kind of adjusted contribution numbers as a percent of revenue, those -- as we've said in the past, those will continue to fluctuate balance around, especially, while we're in the midst of launching major banks, and we would expect to see that going forward.

But for the most part, we've kind of continued to stay in this mid- to high 40s percent touch contribution as a percent of revenue.

Great.

And then can you just update us maybe on the user growth that we exclude Chase.

And then if we -- then maybe the mix of credit card versus debit accounts at this point, and kind of how engaged -- consumer engagement is tracking on these?

Yes.

No, obviously, Chase is a significant contributor to the growth that we've seen in MAUs.

And as we've said in the past, we'll continue to see added MAUs in the network just through the natural maturation of our relationships with our banks.

And so as we've said in the past, you should expect to see kind of mid-single to high percent MAU growth with all of our banks, so long as we continue to innovate on the platform.

And then on -- sorry, debit credit, we don't disclose the mix there.

Now I will say, obviously, with Chase, they bring a nice credit portfolio, along with that, which has been a big contributing factor for our success in new verticals.

So it's a tremendous positive for us.

Yes.

maybe just to follow-up on the Chase relationship, kind of where are you in terms of maybe the user interface initiatives to kind of drive ARPU up to your -- or some of your higher performance in the $4 per range?

This is Lynne.

So Chase has, for the most part, completed their UI for, what I would call, sort of, Phase 1 of the launch.

So the UI is fully integrated now across all of their digital channels and across the majority of their cards.

I do not think they will have material changes to the user experience similar to our other banks until we roll out some of these new enhanced features that we've been talking about.

But I would say that many of our recent rollouts with these national banks, whether it be Chase or Wells Fargo, they are embracing best-in-class user experience that we have today.

It just takes them a little bit of time to get that rolled out across all of their channels.

Chase took multiple quarters and Wells Fargo will as well.

And we're actively sharing the new user interface approaches with all of our banks right now and working with them to share this back -- share what they need to do so that we can get those in the market in the back half of 2020.

Our next question comes from the line of Youssef Squali with SunTrust.

This is Nate Mitchell on for Youssef Squali.

A few questions, if I may.

Can you speak to the sales force efficiency, and how they're performing relative to your expectations as they sell in for these new growth verticals?

How many do you have now and how many do you expect to have by year-end?

And then which new verticals -- of the new verticals, which are you seeing the most traction and why?

Yes.

This is David.

I'll answer the first part of that.

As we talked about, kind of, coming near the end of the investment cycle that we introduced about a year ago.

We have gone out and successfully hired 4 new verticals, sales had there up and in place up and running.

We do still have a couple of specs out for some additional people on that front.

But for the most part, we're in good shape.

And we're seeing the beginnings of some nice traction in some of those verticals.

We mentioned grocery.

We mentioned e-commerce earlier where we've had some nice wins here as of late.

Lynne?

Big travel accounts?

Yes.

That's right.

Yes.

I mean, I think where we're seeing the most success is some of the e-comm and some of the newer brands, some of these direct-to-consumer brands.

They just are not quite as siloed as some of the more traditional brick-and-mortar retailers and so they're moving a little bit faster.

I think the place where it's obviously the hardest is grocery, they have very thin margins.

So we're working through some additional features and enhancements there to kind of help with that.

But we are overall quite pleased with the momentum that we've seen in these new verticals.

At some -- in many cases, it's the first time we've been calling on these advertisers and they're moving quite quickly.

I'm showing no further questions in queue at this time.

I'd like to turn the call back to Mr. Grimes for closing remarks.

Well, look, everybody, we are really excited about the quarter, it's a great quarter.

And what we're probably even more excited is the momentum we see in the business that can serve us well for many, many quarters going forward.

We really appreciate everyone joining the call today, and we look forward to speaking to you again in Q3.

Thanks, everybody.

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

This concludes the program, and you may now disconnect.

Everyone, have a great day.