Quotient Technology Inc (QUOT) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Coupons.com Incorporated third-quarter 2014 financial results conference call.

(Operator Instructions)

Please note that this call is being recorded today, Tuesday, November 4, 2014, at 4:30 Eastern time.

I would now like to turn the meeting over to your host for today's call, Stacy Clements, Vice President of Investor Relations. Please go ahead, Miss Clements.

Hello and welcome to our third-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 and 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 ability to grow our business, the continued shifts in our industry, our expectations regarding financial benefits from the Retailer iQ platform, and our expectations to successfully leverage our investment in operating expenses.

Forward-looking statement 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 that 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 quarterly report on form 10-Q filed with the SEC on August 7, 2014.

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 expenses.

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

Thank you, Stacy, and thank you everyone for joining us this afternoon.

We've had a great third quarter across all areas of our business. With year-over-year revenue growth of more than 47% and significant margin expansion on the bottom line.

We continue to lead the market as the industry shifts from traditional off-line promotions to digital. We believe this shift will be ongoing for quite some time, given that only a small portion of the $3.5 billion CPG paper coupon market is in the form of digital and that, too, has primarily been driven by us. With our digital coupon technology and platform, CPGs and retailers can reach tens of millions of shoppers quickly and effectively, creating an opportunity to capture more of their household shopping budgets.

Another dynamic at play that's enabling our growth is our network effect. As we add products, distribution capabilities, customers and traffic, the network value goes. We are starting to leverage the way all of our products work together to offer the most comprehensive set of promotional and media services to consumer packaged goods manufacturers, retailers, and shoppers.

As you know, a major focus for us has been Retailer iQ. We are now live with several retailers covering a broad and thorough footprint across the country. As a reminder, Retailer iQ is our digital coupon platform that integrates into retailers point-of-sale systems to deliver digital paperless coupons to shoppers. It is built with the mobile user in mind, making the user experience around clipping and redeeming coupons simple for shoppers.

Most importantly, this platform allows for personalization and targeting at an individual shopper level based on real-time and historical shopper data. Personalization and mobile engagement capabilities across the platform include digital receipts, integrated mail/e-mail management, Geofencing, and notifications.

In Q3 we started to see volume ramp up, as retailers went live and others began the first phases of marketing the program with positive early results. As we've said, Retailer iQ is designed as a mobile first solution and we are already seeing almost 70% of the usage of the platform through mobile devices.

As a reminder, coupon transactions through mobile have the exact same economics to us as those that take place on other devices. Moreover, the mobile experience enables a richer set of consumer data, geo-location capabilities, and real-time savings, all of which improves our overall targeting capabilities resulting in a better consumer shopping experience.

Even though early in adoption curve, we are very excited to report that retailers using the Retailer iQ platform are already seeing greater engagement and increased spend from shoppers, with basket sizes increasing more than 50% versus shoppers who have not yet enrolled in the program. Additionally, our media business continues to demonstrate strength, up more than 100% from Q3 of last year. And CPGs and retailers see positive results from integrating display and video ads with their digital coupon campaigns. As our network continues to grow, we're seeing media offerings become even more valuable to our customers.

With the addition of our Retailer iQ platform, we can now leverage in-store shopper data to create more targeted web, mobile, and video ads for our clients. We have also recently brought our media capabilities onto the Retailer iQ platform, with the goal of increasing foot traffic into stores.

This allows us to use real-time shopper transaction data to deliver advertising and trade supported programs directly to shoppers on the retailers digital and mobile properties and across the Coupons.com network of publishers and affiliates. In addition to Retailer iQ driving mobile paperless coupons in grocery retail, we are also making strides with our mobile efforts across all of our products to better help shoppers save money in physical stores, where more than 90% of all shopping takes place in the United States.

Just yesterday we released the latest version of our popular Coupons.com app, which includes both personalized push notifications and our proprietary Geofencing notification system. These notifications will be sent to the shoppers based on their location, their personal preferences, and based on their prior shopping behavior. We believe this feature will be very effective in driving shoppers into physical stores and restaurants, and we're excited to add it in time for this holiday season.

Also, we recently announced a new version of Brandcaster, our self-service publishing platform that third-party publishers use to offer coupons to their visitors. Our partners can now offer card-linked offers, which primarily cater to the mobile shopper directory from Brandcaster to our distribution network of over 30,000 publishing affiliates.

While card-linked offers is still a young product for us, this is an example of how we're leveraging our broadcast distribution network to bring another product to market. For more than 40 years CPGs and retailers have turned to Coupons to drive sales and traffic for their businesses. For context, last year CPGs distributed 315 billion coupons in the United States, with 99% of those still distributed in paper form, primarily through the Sunday newspaper.

However, although only 1% were distributed in digital form, a full 10% of total industry redemptions were from digital coupons. With newspaper circulations continuing to decline and 90% remaining to shift, we're clearly at the very beginning of a large and growing secular change. By being at the center of these three constituents, CPGs, retailers and shoppers, we're able to create a digital coupon ecosystem that is far more effective and efficient than was ever possible in the off-line world.

I will now turn the call over to Mir, who will take you through the financial details.

Think you, Steven, and welcome everyone.

I will first review our financial results and key metrics for the third quarter and then provide financial guidance for the full year 2014. We are very pleased with our financial results in the third quarter, which significantly exceeded both our revenue and adjusted EBITDA guidance.

Total revenue for the third quarter was $58.5 million, up 47% year-over-year and exceeding the top end of our guidance of $54 million. Revenues from digital promotions increased 35% over last year, driven in part by a strong, back-to-school season in September. As CPGs ran more coupon campaigns to drive sales to families returning from summer break and getting back into their school routines.

Also in this quarter we had several retailers live on the Retailer iQ platform, which began to contribute revenue. We are pleased with the initial results from this platform and we are seeing positive momentum across our retail customers. Revenues from media and advertising increased 105% from a year ago. Retailers and CPGs are seeing stronger ROI and marketing investments by wrapping additional offers with brand equity advertisements across our web and mobile properties, as well as our network of publishers, affiliates, and retailers. Total digital promotion transactions in the third quarter were $440 million, up from $313 million in the same period a year ago, driven by the launch of Retailer iQ, as well as strong September back-to-school budget deployments by CPGs.

Gross margin was 61% in the third quarter, as anticipated and reflects a slight uptick from last quarter. As revenues grow, we expect to see continued leverage in gross margins.

Now moving down the P&L, as expected, we continued to see operating leverage this quarter. Operating expense in Q3 of this year was $35 million compared to $29 million in Q3 last year. Excluding stock-based compensation and the favorable impact from the change in fair value of contingent consideration related to that Eckim acquisition, operating expense was $31.8 million, or 54% of revenue in the quarter.

This is a significant improvement over Q3 last year when operating expense, excluding stock-based compensation, was 71% of revenue. As a result, adjusted EBITDA in Q3 2014 was $8.1 million or 14% of revenue, which represents another significant improvement over the 3% adjusted EBITDA margin in Q3 of last year. We expect to continue to see operating leverage in our business as more retailers go live on the Retailer iQ platform and revenues begin to ramp further.

Net loss in the quarter was $782,000. Excluding stock-based compensation, we generated net income of $5.7 million. Net cash used in operations was $700,000 in the third quarter of 2014, compared to $200,000 in the same period last year. As of September 30, 2014, we had $193 million in cash and cash equivalents.

Before I turn to guidance, I'd like to give some additional color on how to think about our business going forward. Although we delivered strong revenue growth of the third quarter over a year ago, a better way to understand our growth is to look at the trend over several quarters, and, ideally, on a full-year basis.

For example, our revenues in quarter one increased 41%, followed by 32% in Q2, and now 47% in Q3, bringing the year-to-date revenue growth at 40% over last year. While CPGs plan their budgets and allocations on an annual basis, the budget deployments by quarter very from year-to-year. Now, many factors play into this. For example, a CPGs overall performance in a quarter, their volume objectives, and new brand introductions.

Given this dynamic and the flexibility that our platform offers CPGs to initiate promotions with very little lead time, in Q3, several CPGs shifted some budget from Q4 into Q3 to bolster their back-to-school sales. Therefore, as I've said before, looking at the trend line on a semiannual or an annual basis is more reflective of our overall business strengths.

With this context, we expect revenues in the fourth quarter to be between $62 million and $64 million, reflecting a second-half 2014 revenue growth rate of approximately 32%, at the midpoint of our guidance over the same period in 2013. We expect adjusted EBITDA in Q4 to be between $6 million and $8 million reflecting continued operating expense leverage in our business, driven from our growing digital coupons business, especially through Retailer iQ, as well as our growing digital media business.

For the full-year 2014, we are raising guidance from what we had shared in our previous earnings call. We now expect full-year 2014 revenue to be between $224 million and $226 million, reflecting an annual year-over-year growth rate of 34%, at the midpoint of the range. We expect adjusted EBITDA to be between $22 million and $24 million, suggesting an adjusted EBITDA margin of 10% to 11% for the year as compared with 1% in 2013.

To close, we are excited about our business performance this year, having delivered sustained growth again after four years of more than 30% CAGR. As Steven mentioned, we're at the very beginning of a large and growing industry shift, with less than 1% of the 315 billion CPG paper coupons market in the form of digital, primarily driven by us, we believe there is significant potential for growth over many years. We're in the business of helping our CPG and retail partners grow sales through efficient promotions and media spend, which supports the continued shift of budgets onto our platform.

Our technology, built over many years with significant investment in security, scale, point-of-sale integration, and mobile delivery of digital coupons, together with our network of growing -- growing network of CPGs, retailers, and publishers, it is very difficult to replicate at scale, and we believe provides a sustainable competitive advantage. And now with our Retailer iQ platform live at several retailers and generating revenue, we are confident about our ability to maintain a leading share of this growing digital space.

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

(Operator Instructions)

Mark Mahaney, RBC Capital Markets.

Hey, guys, it's Brian on for Mark. Thank you for taking my question. In terms of driving Retailer iQ adoption, are there any early learnings that can be applied to subsequent Retailer additions to the platform?

And then also, when you talk about incorporating Retailer iQ data into your media solutions, when could we expect that to have a material impact on media revenue growth, if we haven't seen that already? Thank you.

This is Steven; let me take the first part, early learning. The answer is definitely yes. From the first retailer we rolled out, through the others that are in the process of going live, we're certainly learning from the consumer experience. We're learning from the in-store cashier experience. And we're learning from the integration of how the retailers market through their in-store vehicles, their online vehicles, and [QR] platform. And we're able to very quickly leverage those from one retailer to the next. So, we're already seeing the gains there, and we continue to expect that as we roll out additional retailers.

And, Brian, on your second question, we are just beginning the data -- Retailer iQ data leverage for media. And we expect to continue rolling that out as we roll out the platform to retailers. So, as far as revenue impact, probably best to think about that specific aspect on media revenues in the back half of next year.

Okay. Thank you very much.

Sure, let me just had one point there. So, we've been in the business for a long time now of taking shopper data, whether it be through coupon use, or activation of coupon redemption data, and using that to decide how we display media, in addition to interactions on our website. This is just a whole new data set for us to ingest -- a very large one -- a whole new data set for us to ingest. But we have been doing for a long time -- taking shopper data and using that to deliver targeted advertising to people.

What inning would you say you're in, in terms of your targeting capability?

I would say that we're in the early innings from a capability perspective. We're very early from a data perspective. So, we've gone through the process of building out the targeting platforms and the cohorts and all the data science teams and things of that nature already. But getting the data in -- we're very early. As we bring these retailers up, getting that data into the system, we're very early there.

Thanks, again, guys.

Jason Mitchell, Bank of America Merrill Lynch.

Hi, guys, great quarter. I'm here for Nat. So, I was looking at your new app yesterday, and your Brandcaster seems a lot more focused on specialty retailer coupons. Could you just give us a sense as to where that business is right now, and where you see that growing long term?

Sure. As we'd talked about earlier, if you recall, we acquired a company called Yub, which really gave us an expanded set of capabilities by allowing us to take primarily specialty retail offers, and putting them on MasterCard, Visa, American Express. And so, what you're seeing in the app, for example, is the full integration of that platform into a unified application. And if you look carefully when you open up the app, you'll see that it's not just specialty retail, but we've interleaved specialty retail, grocery, in-store, online, all together with a high degree now of personalization and geo-location.

And so, what we're doing is we're providing a unified experience for a consumer, and a very, very quick one-click access to get to a section of the app that they're looking to be in. Whereas before, you launch the app and there was a menu system and you would choose: I want to go to this section, or this section, or this section. Now, it's more intuitive, and we're guiding the user to the experience or the section that they want to be in, based on that moment-in-time shopping. So, you're just seeing us -- and as we said before, you're seeing us bring all of these products together and start to leverage each other so that we really understand what the consumer's looking for, at that moment in time, as opposed to trying to drive them into a specific section of our platform.

Okay, great, thanks. Just a quick follow-up: Your growth on the coupons really re-accelerated this quarter. How much of that would you say was from Retailer iQ starting to go versus increased couponing campaigns from the CPGs? Was that the majority of just dollar shift from the CPGs or how should we think about that exactly?

Sure. Let me address that -- a few factors. One is: Retailer iQ is definitely helping. So, you see the impacts of that in quarter four -- quarter three.

Some of that -- of quarter three -- had to do with budget shift from quarter four into quarter three -- a small portion of that. And then, along those lines, when you talk about CPGs, the Retailer iQ is also CPG budget deployments and digital coupons. So, just to be clear that is -- it's all part of the same platform and coupon system and (inaudible) budget from CPGs.

And even though CPGs plan annually in terms of their coupon budgets, their deployment by quarter varies from year to year. So there is, as you saw in quarter one, as you saw in quarter two and three, and now at the end of three into four, there is some shifting of budget that happens within quarters. But outside of that, quarter three was great, and the growth continued, based on our platform driving more coupon transactions, Retailer iQ coming on live and adding on to growth, and then, of course, our media business growing as well in quarter three.

Okay, great, guys, thanks.

(Operator Instructions)

Debra Schwartz, Goldman Sachs.

Great, thanks. Couple quick questions: First, in terms of the CPG budget shift that you mentioned, can you give us a sense of whether or not that impacts the media business differently from the digital promotions business? And if there is similarly any impacts differently between printed home and digital save to card?

And then, also just wondering if you could quantify a little bit more the impact from Retailer iQ? Can you give us a sense of how much it contributed in the quarter? How many retailer IQ customers you have live? How many are signed up -- would be great.

Sure. Thanks, Deb. Let me talk a little bit about the shifting. Just to give you some context, again, to describe it a little bit differently, when we go through the annual planning process with our clients, ahead of their fiscal even starting, they lay out their minimum spend for their fiscal. They don't necessarily lay it out by quarters, and oftentimes there will be a media component and a promotions component to that annual plan. And so, when you see shifting moving around quarter to quarter, and because we are starting to see the effects of having media associated with promotional campaigns, which our clients are finding are amplifying their ROI, you will see some media shift as well.

And so, again, as Mir said before, thinking about us on a semi-annual or better on an annual basis, because we have some visibility into how our clients are thinking about how their entire fiscal lays out, is probably the way to think about the Business. And there will be some inter-quarter shifting back and forth.

Also remember -- it's an important point -- I should say it here. Not all of our clients are on annual fiscals. And so, we have several clients that their fiscals start in the middle of the year. We have large clients that their fiscals start at odd months during the year as well. And so, it's not completely predictable on a quarter-by-quarter basis. But on an annual basis, it's pretty predictable.

There are no further questions at this time. I'll now turn the call back over to the presenters.

Thank you, everybody, for joining us this afternoon. We had a great quarter. We really appreciate your questions and interest in our Business. And if you have any further questions, I encourage you to reach out directly to us through our corporate website. Thanks again. Have a great day.

That concludes today's conference call. You may now disconnect.