Cardlytics Inc (CDLX) 2019 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2019 Cardlytics, Inc.

Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded (Operator Instructions) I would now like to hand the conference over to Chief Legal and Privacy Officer, Kirk Somers.

Good evening and welcome to Cardlytics' Third 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 fourth quarter and full year 2019 financial guidance, expectations on adjusted EBITDA for 2019 and 2020; the anticipated impact of our key priorities on driving growth; the timing of the rollout of Wells Fargo and its anticipated impact on our financial institution monthly active users or MAUs; and the number of card swipes in the United States; expectations regarding adding additional marketers and marketers' spend in 2020, the impact of investments on driving revenue in nascent industry verticals; the evolution of our platform to reach more advertisers and provide a better bank customer experience; and our expectations regarding 2021 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 for the quarter ended September 30, 2019 that we plan to file later today 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 today and the 8-K that will be filed with the SEC.

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 on the Investor Relations section of Cardlytics website.

Please note that a supplemental presentation to our third quarter result has also been posted to our Investor Relations website.

Joining us on the call today are Cardlytics leadership team, including CEO and cofounder, Scott Grimes; COO and cofounder, 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 third quarter 2019 earnings conference call.

We're pleased to announce that we delivered strong third quarter results, which exceeded all key metrics from the guidance on our Q2 earnings call.

Here are some highlights.

Total billings for the third quarter were $82.8 million, an increase of 70% year-over-year.

Total revenue, which is equal to billings net of consumer incentives, was $56.4 million, up 63%.

Adjusted contribution was $24.7 million, growing 46% year-over-year.

And we generated adjusted EBITDA of positive $3 million.

As a result of our strong third quarter and year-to-date results, we are raising our full year 2019 guidance, which David will discuss in more detail later in the call.

In the third quarter, we continued to grow the reach of our platform.

We increased our quarterly average FI MAUs to 128.3 million, a 7% increase from the second quarter and 116% from Q3 2018.

We also remain on target to start the launch of Wells Fargo later this month.

Similar to other national bank launches, we expect the bank to roll out across customer portfolios and digital channels in a phased approach.

Based on our current view of launch timing, we expect to exit the year with 130 million to 140 million FI MAUs.

As the Wells Fargo launch nears completion in the first half of next year, FI MAUs will surpass 150 million, which we believe will roughly equate to 1 out of every 2 card swipes in the U.S. This represents significant scale and puts us on par with the other major advertising platforms in the U.S.

Lynne and I are proud of our team's hard work and dedication to making the Wells launch possible and for an incredibly strong quarter.

We continue to make progress in all of our key priorities in the third quarter, which Lynne will now discuss with you in more detail, before handing the call to David to discuss our results and guidance.

Lynne?

Thanks, Scott.

Before discussing the progress we're making on key priorities, I'd like to give you a little bit more detail on the Wells Fargo launch.

We are progressing well towards an initial phase launch later this month.

This includes links on Wells Fargo mobile and online sites for a portion of their customers to drive them to our offers.

Going into 2020, we expect broader exposure to Wells Fargo channels, rolled out at a similar pace to our last national bank launch.

Once complete, we expect Wells Fargo to have a robust user experience across all channels, mobile, online and email.

Now I would like to set our key long-term priorities to drive future success.

First is to increase the number of marketers we count as Cardlytics clients and increase the amount those marketers spend on our platform.

We're pleased to say we continue to expect increased logos and spend for 2020 as marketers fully understand the impact we could have on their business.

Second, to continue to bring our capabilities to new verticals, including our more nascent verticals of e-commerce, travel and entertainment, grocery and premium.

Third, to continue evolving the Cardlytics platform by making a multiyear investment to move to a more highly automated platform that can reduce buying friction, be extended to third parties and support richer media.

Feedback from our FI partners has been very positive, and they're excited about the richer content and user experience to scale.

And finally, to continue to demonstrate operating leverage in our business from the investments we've already made in our infrastructure technology and workforce to support over 200 million FI MAUs.

We expect to finish the year out strong as we keep these objectives in mind.

With that, I will turn it over to David.

Thanks, Lynne.

As Scott mentioned, we delivered very strong third quarter results that exceeded our expectations.

And we are therefore raising our full year 2019 guidance based on our strong results and the momentum in our business.

We are tracking very well to the plan that we have been communicating to investors over the last several quarters.

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

Total billings, which is the gross amount billed to marketers inclusive of the consumer incentive, for the third quarter increased 70% year-over-year to $82.8 million.

Total revenue for the third quarter was $56.4 million, representing 63% year-over-year growth.

Total U.S. revenue increased 65% year-over-year, and U.K. revenue increased 47% year-over-year.

Adjusted contribution profit was $24.7 million in the third quarter of 2019, up 46% year-over-year and up 53% if you exclude an $800,000 benefit from the Lloyds contract in Q3 2018.

Adjusted EBITDA was positive $3 million in the third quarter of 2019.

This is compared to a loss of $1.7 million in the third quarter of 2018.

We are pleased with our adjusted EBITDA results in Q3, which is reflective of the operating leverage which we anticipated coming through our business model in the second half of this year.

While we continue to expect to see the benefits from a fixed costs business on our profitability moving forward, we believe it's also important to highlight that we will continue to make strategic investments across our business to capture the significant growth opportunities we see for Cardlytics in the market today.

As a result, our adjusted EBITDA will likely experience some fluctuation from quarter to quarter in the future.

Average FI MAUs grew 116% from 59.3 million in the third quarter of 2018 to 128.3 million in Q3 2019 primarily reflecting the launch of Chase.

Looking to 2020, we expect additional FI MAU growth from the phased launch of Wells Fargo in addition to continued growth in FI MAUs through the natural maturation in the network, our ongoing efforts with FI partners and digital adoption.

Our third quarter 2019 ARPU was $0.44, down approximately 24% from $0.58 in the third quarter of 2018, but up 10% from $0.40 in the second quarter of 2019.

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

We expect this dynamic to play out for the near term and continue with the growth in our FI MAUs that will come from the Wells Fargo rollout.

Moving to our balance sheet and the impacts from the follow-on offering completed in September.

On September 13, we successfully completed and closed a follow-on offering in which we sold 1.9 million shares and selling stockholders sold 1.2 million shares, which resulted in approximately $61 million net proceeds to the company after deducting underwriting discounts and commissions and expenses.

We believe this capital raise provides increased strategic and financial flexibility to execute on our long-term strategic goals.

We also received $19.2 million in proceeds from the exercise of options and warrants to put the shares of common stock in the third quarter.

With that, we ended the quarter with $95.2 million in cash, $246,000 in restricted cash on the balance sheet compared to $32.5 million in cash and $10.3 million in restricted cash at the end of Q2 2019.

We also ended the quarter with effectively 0 debt outstanding.

In the third quarter, we eliminated the balance of our 2018 term loan using the $10 million of restricted cash on our balance sheet during the loan.

In addition, we used the cash on hand to pay down the $26.7 million outstanding on our $40 million AR facility, which remains fully available for us to borrow against.

As a result, our total cash plus available dollars to us in our credit facility as of September 30, 2019, was approximately $135 million.

We ended the quarter with 25.7 million shares outstanding and quarter to date weighted shares outstanding for the quarter of 23.6 million compared to 22.8 million outstanding at the end of the second quarter.

The difference in common shares outstanding relative to the June 30, 2019 number reflects the increase of 1.9 million of primary shares due to the follow-on and 1 million shares from the exercise of warrants and options made during the quarter.

Now turning to guidance.

For the fourth quarter, we expect billings to grow 17% to 25% year-over-year to between $82 million and $88 million.

We expect GAAP revenue to be between $55 million and $59 million.

And we expect adjusted contribution profit for the fourth quarter to be between $23.5 million and $25.5 million representing 15% to 23% revenue growth and 6% to 15% adjusted contribution growth year-over-year.

Finally, we expect adjusted EBITDA for the fourth quarter to be between $1 and $2 million.

For full year 2019, we are raising our guidance.

We expect billings growth of 36% to 38% to be between $297 million and $303 million.

We currently expect GAAP revenue to be between $196 million and $200 million and adjusted contribution for 2019 to be between $87.5 million and $89.5 million, representing 30% to 33% revenue growth and 26% to 29% adjusted contribution growth for 2019.

We also expect adjusted EBITDA for full year 2019 to be between $0 million and $1 million.

Overall, we are pleased with our strong third quarter and year-to-date 2019 results.

We continue to see good momentum in our business driven by increasing demand for our platform and strong execution against our key growth strategy, including our efforts to expand advertising budgets with existing marketers and drive deeper penetration into new verticals.

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

Scott?

Thanks, David.

Q3 was a strong quarter.

We remain excited about our opportunities for growth and believe we can continue building on our strong momentum.

Lynne and I are proud of our team's ability to generate consistent, solid results.

We remain exactly on track to deliver against our key 2019 priorities, which set us up well for success in 2020 and beyond.

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

Thank you.

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

Congrats on the strong quarter.

Two quick questions for me.

On Wells, can you remind us again how many debit and credit card holders they have?

How many do you think can you penetrate over the next, say, 12 months?

And maybe, Lynne, you can speak to the more automated buying model that you spoke to.

I think this is a work in progress.

Maybe you can just tell us where you are in that evolution.

Good afternoon, Youssef.

Hope you’re -- this is Scott, hope you’re doing well.

In terms of the specific account numbers with Wells or for any of the banks, we don't speak to their accounts but they do publicly disclose them.

Wells is certainly one of the largest debit card issuers in the country.

And they also have a significant credit card portfolio.

In terms of how much is debt that we penetrate over time, similar to our other national bank launches, we expect to be live with the overwhelming majority of all their customers.

And Youssef in terms of automating the platform, I think we have stated some goals around Phase 1 of the platform automation is to find a partner or 2 who can start to test what we've automated with us.

That will likely be either a performance agency or maybe some other type of large advertiser partner.

And our goal is to try and get that done sometime in 2020 in terms of a testing partner or 2.

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

I want to gauge your thoughts on the amount and quality of the marketing content that you have on the platform today.

I know obviously you're playing catch-up with a rapid expansion of the MAUs but how do you plan to make the offers more targeted over time?

This is Lynne.

I think that is a big part of our platform automation that we're doing is to try and use more machine learning to make the offers more targeted and relevant.

You are right.

If we get an offer from like a large food retailer, it tends to go to a lot of people because everybody eats, but that doesn't necessarily mean it's a well-targeted offer.

So a lot of the automation that we're bringing to the platform is going to enable targeting that quite frankly an individual human can't do.

And you're also correct because we are playing a little bit of catch-up on the ARPU side, given the significant MAU scale.

We have a lot of new logos that are in the system.

We're quite pleased with those, but they're not spending at scale yet.

So you don't have the variety of content that we would ultimately hope for.

So I think those are both fair questions and critiques and something we're very, very aware of and a big part of what we're very focused on as a team.

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

I have 2. First, just on the 4Q guide, can you just help us understand some of the factors that go into the growth rate there for Q4 relative to weighting in 3Q?

I know it's a tougher comp, if you could help us understand the decel better there?

And then second, just going back to the more automated platform, can you kind of outline the magnitude of investment that might be required here and over what time frame that could play out?

Sure.

Hey, Doug, this is David.

As it relates to the 4Q guide, obviously we raised for the year a couple of dynamics here that were at play.

Number one, we did consume more budget or pull budget into Q3, just given the success we were having with the platform.

The good news is that we were able to find some additional budget dollars for the fourth quarter, which therein allowed us to raise the guidance for the year.

You point out fairly that Q4 last year is a pretty tough comp to go against, and therefore that's why you've got the growth rate that you do.

But nonetheless we're super excited about this past Q3.

If you go back and look over the past few quarters, that Q2, Q3 sequential growth number for this go-around is pretty impressive when you consider the prior year.

So I hope that helps answer the question.

The investment in automation?

Yes.

So investment in automation, certainly, this is something that we are continuing to evaluate, as Lynne talked about.

Obviously we'll set aside some investment dollars in both OpEx and CapEx for next year to make prudent investments that should accelerate kind of our time-to-market on the front.

Yes, Doug, in terms of the time line, we see this as a series of rollouts in both 2020 and 2021 to get us from what I would describe what we do today as a white glove managed service, where we have really smart analysts thinking about how we targeted and manage our campaigns and doing that across hundreds of advertisers.

The journey where an automation is to go have a fully automated service benefit of serving hundreds of serving thousands of advertisers, and we'll get there through a series of releases that build that capabilities out across our value chain.

And I think we would reiterate what we've talked about in the past, which is a profitable adjusted EBITDA for 2020.

And that should still allow for continued investment with the things we're trying to do around automation.

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

A couple of questions, maybe just on the newer verticals, if you can update us there, maybe some of the traction as well as maybe traction with some of the larger advertisers.

I think you talked about starting to see some better traction with some of the larger advertisers given your increased MAU size.

And then finally, I believe BofA updated their mobile app recently.

Just maybe thoughts if you're seeing some higher click-through rates, et cetera, and engagement on their mobile app.

Yes, this is Lynne.

So in terms of advertisers, here's -- the growth that you've seen in 2019 is primarily from advertisers who've been on the platform prior to the Chase and Wells Fargo launch simply growing their budgets.

Now they're not all growing their budgets as quickly as we grew the MAUs.

But most of the material growth that you're seeing is coming from existing advertisers spending quite a bit more.

We are very pleased with the number of new logos that have entered the channel.

But for the most part, those new logos are not responsible for the growth that you're seeing in Q2, Q3 to Q4.

However, we do think we are well positioned for those new logos to be a material part of the growth in the back half of 2021, and we've talked about the verticals that those new logos are in.

So we're feeling good about the concentrated focus and dedicated hiring that we put against those verticals and again the hiring of people with expertise, deep expertise in those different industries.

In terms of BofA, yes, they did update their mobile app.

We're pleased with the engagement.

Banks are constantly updating their mobile app.

And generally speaking, we have continued to maintain an elevated position and are pleased with the real estate that banks are dedicating to this program.

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

A couple of questions here.

First, if you could just sort of walk through maybe thinking back over the last couple of quarters, where the positive surprises have been and where maybe you're still learning or sort of tweaking the business plan or the strategies.

Obviously, there's been a lot of success as demonstrated by the results.

So I just want to get your thoughts around the upside drivers, but then sort of where there might still be some levers that haven't quite kicked in, if you could share that.

Yes.

Tim, this is Scott.

I think the first thing I would say is so when we went public a couple of years ago, we kind of had a plan for how this company unfolds over -- between now and 2023.

And at the highest level, I'd tell you, we're still really tracking against that plan that we laid out a couple of years ago, and we feel good about it.

We're tracking against ramping up and consolidating the banking market, and we're really seeing the results of that.

I think places that we were a little more cautious about early in the year that we're feeling better and better about now was, first of all, the ability to scale advertising budgets as we've grown MAUs.

Lynne spoke to that.

That's really been the driver of growth this year.

When we think about driving growth in 2020 we, of course, want to continue to grow budgets with existing advertisers, but we want the new verticals to kick in.

We're seeing great adoption in new verticals and budget expansion.

So I think it's fair to say that we feel good about our momentum there.

And then the path to automation, we believe, is really important to 2021 and beyond.

We're really happy with the progress our team is making on that journey.

So I would say less around surprises and more as we continue to execute against the plan, we feel more confident in the plan.

Great.

And then I have 2 follow-ups.

I guess the first one is obviously you get a lot of data and more and more data sort of every minute of every day, given the way the business runs.

And just sort of curious your thoughts whether it's intermediate term, longer term, near term about finding other ways to monetize that data and that perspective that you have, especially once you have Wells up and running along with BofA, JPMorgan and obviously lots of other banks.

And surely, there are other people, other institutions that would love to have the insights.

It would seem like you could monetize that beyond what you're doing.

And I'm sure that you have to -- the privacy issues and firewalls, and you've got to figure out how to do it with your bank partners, but just any thoughts you have there.

And then I have one last follow-up.

Yes, Tim, let me touch on this, but Lynne, you may want to dive in.

But our focus is very much we have created a walled garden with scale similar to the other very large walled gardens out there.

We've just now achieved this customer scale.

So the full focus of the company is now scaling the financial scale of the walled garden based on the kind of massive customer reach.

So all the stuff we do with our data, all the analytics we do with our data is to grow the number of advertisers we serve and expand what they do with us.

And we don't spend any time thinking about other things we could do.

We maybe do other things over time, potentially.

That's not our focus today.

And you touched on some of the super important, Tim.

The great thing about our business model is the way that we handle the really sensitive data that we do it without PII, no data ever leaves Cardlytics.

And that's sort of very central to the tenets around how we run this company.

Great.

And my last one was as you built out the capabilities in terms of your bank partners, the verticals that you're calling on for the content, the automation, et cetera, how does that change your thoughts, I guess, and time lines around M&A and maybe what partners are sort of indicating they would like to see, what things you're discovering as you sort of think through those strategies with those large partners?

Does it prompt M&A discussions about maybe it's as we've gotten larger, become more sophisticated, that we need to spend a bit more time thinking about acquiring capabilities?

Or do you feel like organically you can address whatever the partners are sort of thinking about it?

Yes.

It's a great question, Tim.

If you sort of step back to my prior comment that our focus is solely Iaround scaling our walled garden and making it go from serving hundreds of advertisers to thousands in an increasingly targeted and relevant way, the obvious question as part of that is when you do think about build versus buy.

And we have a great corp dev team that's always out there in the market thinking about that, but also thinking about M&A in the context of the way we run our business versus the broader digital media ecosystem.

So we think about it.

We spend a lot of thinking about it.

I would say we don't, in any way, feel compelled to rush ourselves, unless we see something that really creates a lot of value for the company and for our shareholders.

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

So a couple of things.

One, the growth in the U.K., I assume that's an acceleration.

I haven't heard that number before, but just wondering if there's a renewed effort there or new FI wins there or anything specific right now.

I think -- this is David.

I think we're still seeing great performance out of the U.K. We still see opportunity to continue to grow MAUs.

We still see opportunity to continue to grow advertisers.

So we're making appropriate investments around that business because we still see a lot of opportunity there.

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

I agree with that.

We're really proud of our U.K. team.

We are definitely studying the changes going on in open banking in the U.K. and Europe more broadly or globally.

And as that unfold in the market, we will see if it creates additional opportunities.

Not a lot to speak of at this point, however.

Okay.

And then a couple of people have tried to ask this, I think.

But I wonder, if you could give us any clarification on 2020 EBITDA, understanding there's a lot of moving points right now.

And I understand that it could move around quarter-to-quarter.

But just how are you thinking about sort of incremental profitability into next year as a whole and how much you want to let revenue growth that you'll get -- you want to let flow through?

Yes, it's -- I mean it's a fair question.

Obviously, we'll be ready with formal guidance at the next call.

But just a couple of data points, as we mentioned at the outset, we are starting to see nice data points around a business that's benefiting from a fixed-costs business.

So just to put it in perspective, I don't think -- I think delivery went down year-over-year.

And these are the people who are involved with running the campaigns, and you're seeing that leverage just as one example.

So as it relates to positive EBITDA for 2020, I still think I'm of the mindset that, that's certainly well within the -- our sights.

I think a large part of what we're going to try to figure out here, hopefully sooner than later, is that if we find ways to accelerate our go-to-market around automation, we're going to want to make those investments.

Obviously, that will impact the degree to which we see positive EBITDA in 2020.

But nonetheless, we do see, again, we are seeing nice data points around a fixed-costs business.

We are seeing a trajectory that makes us feel good about profitability on the EBITDA line item in 2020.

But we're also trying to make sure that we've got the dry powder to make the investments necessary to accelerate go-to-market.

I am showing no further questions at this time.

I will now turn the call back over to CEO Scott Grimes for any further remarks.

Well, first of all, everyone, thank you for joining the call today.

I said it earlier, but Lynne and I are just really proud of the quarter the team delivered, and also are really excited that the Wells launch is now underway and that we are continuing that journey to build a walled garden on scale with the other leading platforms out there that have some incredibly unique capabilities in terms of finding the most valuable customers, driving them into our advertisers and measuring the return and the ad spend to the penny.

So we are very much focused on mission and feeling great about how we're executing against it.

So thanks, everyone, and have a great evening.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating, and you may now disconnect.