Quotient Technology Inc (QUOT) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Coupons.com first-quarter 2014 earnings call.

(Operator Instructions)

Thank you. I would now like to turn the call over to Paul Sloan, Vice President of Corporate Communications. You may now begin.

Hello, and welcome to our first-quarter 2014 earnings call. Please note that slides to accompany the remarks on today's call are available on the IR section of our website, and I urge everyone to take a moment to download them, along with our financial results press release. On the call in here with me today are Steven Boal, our Founder, President and CEO; and Mir Aamir, CFO and COO.

Before we begin, please note that during this call you will hear forward-looking statements. These forward-looking statements include our projections regarding future financial performance, our expectations regarding revenue from Retailer iQ, and our expectations to successfully leverage our investment and operating expenses, and grow our Business.

Forward-looking statements are based on information available to, and the good faith beliefs of, our management team as of the time of this call, and are subject to risks and uncertainties which could cause actual performance or results to differ materially from those expressed. Additional information about factors that could potentially impact our financial results can be found in today's press release, and in the risk factors identified in our 424(b) prospectus filed with the SEC on March 7. We disclaim any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise.

Please note that with the exception of revenues, financial measures discussed today are on a non-GAAP basis and have been adjusted to exclude certain charges.

Now I will turn the call over to Steven for a summary of our Business and the quarter.

Thank you, Paul, and thank you, everyone, for joining us this afternoon. We've had a great first quarter as a public company.

As you've read in our press release issued this afternoon, we've seen quarterly year-over-year revenue growth of 41% and adjusted EBITDA growth of 180%. These results represent the accelerating shift to our digital couponing platform by both retailers and consumers, which we expect will continue as the year progresses. In fact, we experienced double-digit growth in every part of our Business, including our digital print business, commonly referred to as print-at-home.

We've also had several key accomplishments in building our Business and our platform, including the launch of Retailer iQ, which I will review in more detail in a few minutes. But before we discuss our financial results for the quarter, we wanted to provide a brief overview of our Business, as this is the first earnings call since our March IPO.

Coupons are a huge business in the United States. For over 40 years, retailers and consumer packaged good companies, or CPGs, have relied on couponing to help drive their businesses. Last year, Coupons.com delivered 1.3 billion transactions, but CPGs distributed a total of 315 billion coupons in the United States.

Those same CPGs spent $34 billion a year on advertising and $200 billion a year on trade promotions. Coupons.com directly addresses those markets, and we believe our proprietary technology platform, extensive retailer network, and high-quality content provide a significant competitive advantage. While 99% of those 315 billion coupons were distributed in paper form, primarily through the Sunday newspaper, we are seeing a significant shift to digital as CPGs and retailers re-examine how they reach consumers. We are helping to lead this transition through our broad suite of digital promotion products that offer benefits to CPGs, retailers and shoppers.

We work with brands across a wide array of promotional activities, from digital coupons on owned and operated sites, and those of our many affiliates, which includes CPG and retailer websites and mobile applications, to coupon codes and digital coupons that are generated and redeemed at the point of sale. We also offer display advertising through our platform, which includes our web, mobile and social channels, as well as those of our CPGs, retailers, and our extensive network of approximately 30,000 publishers that display our coupon and advertising offerings on their websites.

Our latest addition to this broad suite of products is the recently announced launch of our real-time point-of-sale platform, Retailer iQ. Just two weeks ago, we publicly announced Retailer iQ, which combines digital eReceipts, personalized recommendations for products and digital coupons, integrated shopping lists, and real-time analytics into a sophisticated solution for retailers and CPGs. The platform, designed as a mobile-first solution, integrates directly with a retailer's point-of-sale system, and provides consumers with a digital receipt as they check out at grocery, drug, mass or dollar stores.

Today we are pleased to announce that two more top-10 grocery retailers have signed onto the platform since our IPO, bringing the total number of retailers to six, two more than we originally expected in this calendar year. These six top retailers have combined annual sales of over $150 billion a year. This has been a multi-year build, with targeting, analytics, customer data and reporting. It delivers sophisticated and in-depth analytics, so retailers and marketers can provide more relevant and targeted offers than current systems provide. We already announced that Walgreens is now live on our platform, and the technology is running in more than 8,000 of their stores.

We expect that Retailer iQ and its associated services will be an important part of our growth story over the next few years. We are in the implementation phase, but expect that by the third quarter of this year, we will see consistent revenues from this platform. We also expect the platform to be implemented in all six of our retail partners by the end of this calendar year.

I will now turn the call over to Mir, who will review our financial performance.

Thank you, Steven, and welcome, everyone. I will first review our financial results and key metrics for the first quarter, and then provide financial guidance for the second-quarter and full-year 2014.

We had a strong first quarter, with top-line and bottom-line growth. To give you a snapshot, total revenue for the first quarter was $51.5 million, up 41% year over year. Adjusted EBITDA was $3.9 million, up 180% year over year. Total transactions rose 30% to $408 million in the first quarter of this year, up from $313 million in the same period a year ago.

I'd like to note that while our net loss was $14 million in the quarter, if you exclude stock-based compensation, the result is pro-forma net income of $0.6 million, representing an increase of 108% from the same period last year, when we posted a pro-forma net loss of $6.8 million, excluding stock-based compensation. Net cash from operating activities was $0.9 million in the first quarter of 2014, compared to cash used of $13.5 million in the same period last year. As of March 31, 2014, we had $220.8 million in cash and cash equivalents.

Now to speak a bit about our revenues this past quarter: As Steven mentioned, a key driver of this revenue growth is the accelerating shift to our digital couponing platform by CPGs, retailers and consumers. We saw a faster shift to digital in quarter one than we had originally anticipated, which drove higher revenues and adjusted EBITDA. We were also pleased with the quality of our revenue growth, which was driven by an increase in coupon transactions, up 30% over quarter one a year ago. We define transactions as the total number of digital coupons distributed through our platform that generate revenues.

Furthermore, revenues increased across all areas of our Business. Revenues from promotions grew 35% in the quarter, and we saw a 67% increase in revenues from media advertising, which is typically part of digital coupon campaigns on our platform. Additionally, we saw a stronger increase in CPG coupons in March, which indicated a drive by CPGs to generate end-of-quarter sales using our platform.

Now that we are at scale, our digital platform allows CPGs and retailers, with very short lead times, to drive large volumes. This underscores the strength and reach of our platform, which, with our proprietary technology and data-driven capabilities, we believe gives us a sustainable competitive advantage, as we help drive the shift to digital.

Our strong revenue growth in the first quarter continues the growth we've experienced over the past few years. Our annual revenues have increased at a cumulative average growth rate of 43% over the last four years, driven by growth in transactions. Our average revenue per transaction has been consistent over this time frame.

Our transaction fees are helped by higher redemption rates, and therefore, a stronger return on investment for CPGs from digital coupons through our platform versus traditional paper coupons. As shoppers redeem more coupons and buy CPG products, the efficiency of their spend increases.

Now turning over to our expenses: With strong revenue growth, we continue to realize the benefits of operating expense leverage. As we shared during our IPO, we invested significantly in technology, network operations, engineering and sales capabilities, in the last two years to drive and support our rapid growth. As a result, our operating expense was $44.8 million in quarter-one 2014, which, if we exclude stock-based compensation, was $31.8 million in the quarter, increasing only 5% when compared with the corresponding number from the same quarter last year.

As a percent of revenue, operating expense was 62% in quarter-one 2014, when we exclude stock-based compensation, as compared with the corresponding number at 83% of revenue in quarter one of 2013. Such operating expense leverage was realized across all expense areas, including sales and marketing, R&D, and G&A. Therefore, strong revenue growth and expense leverage resulted in the $3.9 million in adjusted EBITDA for quarter-one 2014, which exceeded our expectations. This is consistent with our improving profitability trend in 2013.

One factor to note here, as we discussed during our IPO, is that in Q1 we began incurring additional support and infrastructure expenses for Retailer iQ as we started implementing this platform with retailers. This expense is for the full platform, and starts incurring even before meaningful revenue is realized from the platform, which is expected to be in the back half of this year. This is one reason why our first-quarter EBITDA, while increasing by 180% year over year, wasn't as high as in the fourth quarter of last year.

Now I'd like to briefly review our financial guidance for the second-quarter and full-year 2014. We expect revenues for the full-year 2014 to be between $217 million and $223 million, and adjusted EBITDA to be between $12 million and $17 million. For the second quarter, we expect revenues to be between $50 million and $52 million, and adjusted EBITDA to be between $1 million and $3 million.

A key factor incorporated in our EBITDA guidance is the incremental expenses for Retailer iQ, as I just mentioned. Such expenses, which reflect our continued investment in the platform, are expected to be higher in the second quarter and beyond, as we implement additional retailers throughout the year. To reiterate, these are support and infrastructure expenses for the full platform, and are incurred now, even before meaningful revenues from Retailer iQ are realized, which is expected to be in the back half of this year.

To close, we are very pleased with the momentum we have seen in the past quarter, and expect it to continue in the quarters to come. We strongly believe that our ability to grow our top-line business, especially through our new Retailer iQ platform, and the operating expense leverage that I just discussed, position us well for future growth and towards achieving our long-term financial objectives.

We will now open up the call for questions. Operator?

(Operator Instructions)

Mark Mahaney, RBC Capital Markets.

Two questions, please. First, Steven, I know you had said that you were seeing a faster shift to digital in Q1 than anticipated, but you have been covering this industry -- you've been involved -- you've been driving this industry for a long time. Do you -- any color on why that shift is accelerating, that would be great?

And then, secondly, could you just remind us, please, of Retailer iQ, the revenue streams that flow out of that and the unit economics and how they compare with the core business today, just a quick reminder would be helpful?

We have seen a faster shift to digital than expected in Q1. One of the reasons for that is that now that we're operating at scale, meaning that we are large enough now where clients can make last-minute decisions in a quarter to shift budget into promotional vehicles. Historically, that has been very difficult to do because there are long lead times in offline vehicles, but when operating at scale, and our clients need to move product through either retailer shelves or they need to do more promotional activity for any reason, they can now do that on our platform. And we did see deceleration of that at the end of the quarter, so that is one of the reasons why we saw a faster shift than we had anticipated.

On Retailer iQ, for now, really, the primary revenue off of the Retailer iQ platform is the same revenue drivers we have across our entire platform, and that is that as we issued coupons, we get paid. There will be derivative opportunities from that platform going forward, but for this year, the way to think about that is to think about the -- just the continuation with the coupons.

And then Steven, if I could ask one last question. As you -- you've now that six of the 10 gating factors to getting more and I know that is faster than you thought you would rolled them our or get people signed up or committed, but the gating factors to getting others, is it just -- are there supply constraints on your part, you can take on only so many at one time? Is it still you have to convince some of the other major grocery retailers to get involved? How do you go from 6 to 20 over the next two to three years?

There are a couple things that we have to do. One is there's just a natural cadence in this industry, point-of-sale integration work happens during certain cycles of the year, and when you head into holiday season, all of that slows down. So there has to be a rhythm to the actual deployment.

And then, the second part of that really is our own planning and how we cover the classes of trade, the geographic coverage, the dollar volume of sales that happen at the specific retailers. So I would say, for the most part, if we think about it, we've talked about maximum capacity of onboarding four to six a year, and that's probably the way to think about this for the next couple of years, as well.

Thanks a lot, Steven.

(Operator Instructions)

Nathaniel Schindler, Bank of America.

This is Jason Mitchell here for Nat. I just wanted to ask how much -- if you could just give a little bit more color about how much Retailer iQ contributed to transactions this quarter and how has the consumer response been since you've rolled out the platform to Walgreens?

From the consumer response perspective, look, we are still early, but I can tell you that we are definitely meeting our expectations, so we are on plan and meeting our expectations there. With respect to the transaction volume, we don't break that all. We look at total transactions across our platform, and certainly, given that it's a single retailer that has gone live today, we just wouldn't be in a position to give you those transaction volumes separately.

Okay. Fair enough. Do you expect any -- you said you were going to launch on these additional partners through the remainder of the year. Do you expect to launch an additional retailer in the second quarter or is most of that going to be into 3Q and 4Q?

The current plan is that we will be launching them over the course of Q3 and Q4, as they would have an impact on our volumes and revenues.

And Jason, the way you want to model this is, back half of the year starts the beginning of meaningful transactions and revenue from this platform, and it ramps up into 2015 and beyond.

Okay. Thank you.

Deb Schwartz, Goldman Sachs.

One additional question on Retailer iQ. As it relates to Walgreens and your other partners, can you talk through what you expect these retailers to do to market the platform to consumers and whether or not they are committed to actively drive consumer usage of it?

In all cases, there are marketing plans that are developed by the retailers, but with our input, and they do have a marketing requirement as part of the installation deployment of the platform. So that marketing takes the form of direct point-of-sale marketing to consumers. If the retailer has a loyalty program or engaged consumer, they'll do marketing to them through that mechanism, in-store signage, circulars, and media around that side, as well.

We will also participate in the marketing, so that we will bring the base of our consumers, the Coupons.com consumers into that retailer to enroll in the program. That's one of the big competitive advantages that we offer as a Company is that we have such a broad audience of shoppers now that we can drive them into the retailer to enroll them in the program.

And Deb, also, as we discussed during our IPO, this platform really allows the retailers to drive their own volume and loyalty with their customers. So it's in their incentive to use this to really drive volume. That's why there's more incentive to do the marketing, to speak of their motivation.

One other very important factor towards motivation is that there is a distribution fee -- a revenue share involved here -- which also is meaningful for the retailers to actually use their marketing and make sure their customer adoption on their platform.

Great. That's helpful. And then one other question just on your Q2 guidance, if I may. When we think about the seasonality of the business, your guidance implies flat growth sequentially from Q1 and historically you've seen a little bit of a seasonal uplift. Is there any reason to assume, other than your better-than-expected performance in May, that we -- that growth would be flat sequentially in Q2?

Largely the reason we have guided as flat is the seasonality that you mentioned. Summer is a slow season for coupons, generally speaking, so that's what effective in the guidance.

And one other factor to keep in mind is in quarter one, like Steven mentioned, we saw the end of quarter effect of CPGs driving volume through our platform. That's -- it's hard for us to anticipate that and factor that into our guidance. So just based on that and based on seasonality, we feel comfortable with our quarter two guidance right now.

Great. Thank you.

(Operator Instructions)

There are currently no questions at this time. I would like to turn it back to Mr. Sloan for any closing remarks.

That's it. Thank you very much for joining us today.

Again, thank you for your participation. This concludes today's call. You may now disconnect.