Quotient Technology Inc (QUOT) 2015 Q1 法說會逐字稿

Welcome to the first-quarter 2015 coupons earnings conference call. (Operator Instructions)

As a reminder, this conference is being recorded and will be available for replay from the investor relations section of Coupons.com's website following this call.

I will now turn the call over to Stacie Clements, Vice President of Investor Relations. Thank you, Ms. Clements, may begin.

Hello and welcome everyone to our first-quarter 2015 earnings call. Please note that slides to accompany the remarks on today's call are available on the IR section of our corporate website, www.couponsinc.com, and I urge everyone to take a moment to download them along with their 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 the continued rollout of Retailer iQ platform and bringing new retailers live on it, as well as the anticipated financial benefits therefrom and our expectations to successfully leverage our investment and operating expenses. 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 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 annual report on form 10-K filed with the SEC on March 19. 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. A reconciliation between GAAP and non-GAAP measures can be found in the financial results press release issued today and on the slide deck posted on the Company's website.

And with that I'll now turn the call over to Steven.

Thank you. Good afternoon, everyone, and thank you for joining us today.

We had a good start to the year with both revenue and adjusted EBITDA above our guidance. Revenue came in at $55.6 million, with adjusted EBITDA of $4 million.

As a reminder, our Business is best measured on a full-year basis rather than quarter by quarter as our platform gives CPGs the flexibility to shift budgets between quarters. Given this and the way we manage our Business on an annual basis, we'll be aligning our guidance going forward accordingly. Our promotions business continue to grow this quarter and as expected we saw growth in digital paperless primarily due to mobile and Retailer iQ.

We now have a total of nine retailer banners live on Retailer iQ, two of which rolled that within the past few weeks. We also have a full schedule of rollouts between now and the end of Q3, as we expect to go live during that time with an average of one banner every three weeks to the platform. Keep in mind that we don't begin to feel meaningful transaction revenue effects of a banner going live until they begin marketing their digital coupon programs to shoppers.

The timing of this is driven by the retailer and can take up to several months to start after Retailer iQ initially goes live. As of today, four retailers have started marketing the program in some form.

We've also continue to develop our pipeline for additional retailers, with a focus on continuing to build the broadest reach. With more retailers on the platform, live or signed, we now have full US geographic and trade channel coverage including grocery, drug, dollar, and mass merchandise retailers.

In terms of market coverage we've added over $30 billion of retailer grocery and drug sales represented on our platform, bringing the total to approximately $230 billion, which is estimated to be about one third of the total US market. We are encouraged by the early and consistent Retailer iQ results. We continue to see over 70% of Retailer iQ usage on mobile. Additionally, mobile users engaged nearly 40% more frequent than desktop users.

We are also seeing early encouraging results from our CPG targeting campaigns based on shopper data. Our technology platform allows retailers and CPGs to target specific shoppers and segments at scale, providing the right digital offers to the right consumers at the right moments. The targeting capability can leverage data from across our network, including shopper behavior and web and mobile usage from our approximately 30,000 publishers. Targeted campaigns allows CPGs and retailers to reach any number of small shopper segment at scale, something that isn't impossible in the off-line world.

For example, in the first quarter we ran a few targeted programs for a large CPG with the overall goal of targeting consumers with a propensity to buy a category, but who haven't purchased their brands. We delivered targeted offers to these select shoppers at the optimal time with communication across mobile, email and digital receipt. The results were strong with actual redemption rates on average five points higher than expected. These are just the first of many more programs to come, as consumer adoption continues to build.

This quarter we saw continued strength in our media business. CPGs and other advertisers want an integrated approach to promotions and media as they look to build their digital media strategies to deliver against maximum ROI. The scale and high-quality audience of our network is a key differentiator for us and our advertisers.

Coupons.com users are highly valuable. They are typically the primary decision-makers for grocery and home-related purchases and engage in our properties when they are preparing to shop, with over half headed to the store within the next 48 hours of engagement. Consumers are visiting our sites, our mobile applications and our publishers with purpose and serving them relevant, targeted ads enhances their experience.

As our network continues to expand, so should our media business. With a strong start to the year, our roadmap and developing pipeline and the secular shift from off-line to digital, we are excited by what we're seeing across the business. We're working hard to deploy more retailers onto Retailer iQ and supporting their marketing initiatives designed to speed consumer adoption.

As we continue working with our retail partners, there may be some slight shifting around on live or marketing dates, but we still expect over 18 retail banners to be live by the end of the third quarter and most, if not all, starting to market by the end of the year.

Our platform was built to enable the shift for the promotions industry from off-line to digital. It's a large market, with 310 billion coupons distributed annually, and we're in the early stages of that shift. We believe no other company has the digital reach and scale to do this, with approximately 2,000 brands and 700 CPGs working across a network.

There is also another dynamic within the marketplace and that's digital print and paperless. During this quarter, we saw periods where more than 50% of transactions were paperless, meaning not digital print. Remember, this is an expected transition, and one that we look forward to driving over the next few years. We monetize both digital print and digital paperless the same way, and expect that over time increased frequency primarily due to mobile usage, will drive transaction volumes in digital paperless faster then digital print.

Looking ahead, I'm excited about the growth opportunities across the entire business as we continue to connect CPGs, retailers and consumers. We believe Coupons.com is laying the foundation now for what we expect will become the digital standard in the promotions industry for the next several decades, just as legacy off-line vehicles, such as the freestanding insert and in-store offerings like point of sales printed coupons did for prior decades.

I'll now turn the call over Mir for a review of our financials.

Thank you, Steven, and welcome, everyone.

I will review our financial results for the first quarter and then provide financial guidance for the second quarter and full year 2015.

Total revenue for the first quarter was $55.6 million, up 8% year-over-year, and above our guidance for the quarter. Revenues from digital promotions increased 5% over last year, while revenues from media and advertising increased 20% from a year ago as we continue to see demand by CPGs and retailers for integrating digital coupon campaigns with brand ads on our web and mobile properties and across our network.

Revenues from digital paperless coupons continue to build in Quarter One, driven primarily by our Retailer iQ platform deployments at major retailers in the US. Of the nine retailer companies, representing 18 banners, signed onto the platform as of year-end 2014, five banners were life as of December 31 and two had started marketing.

In the first quarter, an additional two went live and another two delayed their deployment into Q2. These two retailers are now live. The remaining signed retailers are scheduled to go live by Q3 of 2015, with marketing activities expected to gain momentum in Q4. Any delays by retailers from the current schedule may push some deployments into the fourth quarter, thereby impacting our estimated revenue for 2015.

As we've discussed before, we believe that the compound effect of the Retailer iQ deployment schedule and the subsequent marketing by retailers suggest a stronger back half of 2015 with an even greater inflection point in the fourth quarter. As we've also referenced earlier, we have been sharing these forecasts with our CPG clients to help them better plan their digital coupon budgets for 2015 and encourage a higher budget availability in the second half of this year to meet the growing shopper demand for digital paperless coupons through our platform.

As a reminder, in additional factor related to our Q1 revenue comparison versus a year ago is the unexpectedly high quarter end budget deployment by a few large CPGs that we experienced in March 2014. We had referenced this during our Q1 earnings call last year, and during our Q4 earnings call, when we suggested that we didn't know if such quarter end budget deployments would repeat this year.

Net, we are pleased with the performance of Retailer iQ post-implementation and marketing. Early results continue to be encouraging in terms of consumer adoption, transaction volume and positive sales impacting retailers and CPGs.

We are confident that the shift from off-line to digital is likely to continue at a healthy annual rate going forward. With about 90% of grocery coupons still redeemed in paper form, sourced from off-line print vehicles, we believe there is significant potential for growth in the market.

A key catalyst for this shift in the coming months and years is the increasing number of shoppers who are interested in digital paperless coupons primarily downloaded through mobile. Moving down the P&L, gross margin was 61% in the first quarter, as compared with 60% in the first quarter of 2014. As revenues grow, we expect to see continued leverage in gross margins, given that more than half of our cost of revenue is fixed expense, and is not expected to grow in line with revenue.

We also continue to see operating expense leverage in the business. Operating expense in Q1 of this year was $42.5 million, compared to $44.8 million in Q1 last year, excluding the favorable impact from the change in fair value of contingent consideration related to the Eckim acquisition. Excluding stock-based compensation and the impact of this contingent consideration, operating expense was $34 million, or 61% of revenue in Q1 2015, as compared with 62% of revenue in Q1 2014.

Adjusted EBITDA in Q1 was $4 million, beating our guidance for the quarter. As a percent of revenue, adjusted EBITDA was 7% in the quarter as compared with 8% in Q1 of 2014. As we have scaled up our operations, we have increased headcount by a modest amount, especially in the area of retailer services and data analytics. To position us well as we continue to innovate and introduce new products related to Retailer iQ, such as our new digital circular, as well as data analytics services, we expect to see continued operating expense leverage reflecting growth in adjusted EBITDA as a revenues build through the year.

Moving to cash flow, we used $852,000 in cash from operations in Q1 2015. This was driven primarily by the timing of cash receipts and payments, including the payout of annual bonuses and sales commissions in Quarter One. Normalizing for these payments, we would have generated positive cash flow from operations, suggesting a consistent relationship between cash generated from operations and our positive adjusted EBITDA.

During the quarter, we purchased 209,000 shares for $2.1 million, consistent with the approved stock repurchase plan we announced during our Quarter Four earnings call in February. We believe this demonstrates our continued confidence in the Business and commitment to our shareholders.

I would now like to provide guidance for the second quarter and full-year 2015. For the second quarter, we expect revenues to be between $54 million and $56 million, and adjusted EBITDA to be between $2 million and $4 million. For the full year 2015, we expect revenues to be between $270 million and $280 million, and adjusted EBITDA to be between $35 million and $45 million. This reflects the impact of delayed implementation of the two retailer banners in quarter one, and our best estimate based on the schedule of Retailer iQ deployment and marketing launches through this year.

Additionally, from the third quarter onwards, we will not be providing quarterly guidance, but will continue to provide annual guidance. As we've experienced and discussed several times in the past, our Business is best evaluated on an annual basis, given the variations and quarter deployments of the annual budgets by CPGs, which makes it difficult to forecast on a quarterly basis. Along these lines, to reiterate, these year we expect revenues to ramp through the year with stronger growth in the second half of this year, and especially in Q4, due to the compounding effect of Retailer iQ as more retailers go live and start marketing the program.

To summarize, we are pleased with the early results from Retailer iQ implementations, which is providing us a solid foundation for continued growth to digital paperless coupons at a sustainable, competitive advantage. With this platform largely enabling coupon usage through mobile and driving CPG and retailer sales, we believe we are in the early stages of the digitization of the promotions industry. As Steven mentioned, we aim to have this platform and the resulting personalization and targeting of coupons based on shopper data to become the market standard for digital shopper relationship management for the foreseeable future.

We will now open up the call for questions.

(Operator Instructions)

Nat Schindler, Bank of America Merrill Lynch

You said that you, and I might have missed this, that you now have signed Retailer iQ clients equaling $230 billion in annual revenue. Before you had said $200 billion. Does that mean you signed a new retailer or is it still the original nine?

That's correct. We have continued to sign.

You have signed additional retailers. Great.

Secondly, I would love to ask -- can you help us out and give us -- how significant retailer is Walmart for both redemption of coupons from your network and as a distribution hub for coupons you distribute?

As you know, we power the digital print coupons on walmart.com. We don't break out distribution by partner, by -- whether it be publisher or retailer.

But broadly speaking, I think there are some industry stats that you could draw on. I think there's some published data about the percentage of all coupons redeemed by Walmart. I don't have that at my fingertips, but I believe that is available publicly.

It should be somewhere similar to what Walmart is as respect to the entire grocery industry and, I know you go beyond the grocery industry, but that's the largest user of coupons?

I'm not sure you could draw a direct correlation because it would be a combination of how much traffic would be driven from a particular publishers retailers website and then also what percentage of total coupons are redeemed at that retailer that may have come from different publishers' websites as well.

Finally, on your guidance, I understand it's really difficult for you to do quarterly projections, but taking this quarter and next quarter's guidance combined you've got a first half is looking at something around 8% growth year over year. Your second half has to look like something on the order of the high 30% growth in order to make your annual guidance.

What gives you the confidence that the CPGs will create their campaigns in the second half?

Yes, Nat, so consistent with earlier conversations. We are sharing detailed forecast with CPG clients, especially on Retailer iQ, because it is important for them to understand how this builds. And so we can forecast demand based on what we are seeing so far.

It's still early, but we have some data that we use to project out and we're sharing those forecasts with the information informing how they are thinking about their budget deployment this year to make sure that there's enough budget availability in the back half of the year. Like we talked earlier, we don't want to be in a situation where CPGs run out of budget midstream and unable to fulfill that demand in the back half of the year, especially since the demand is coming from digital paperless and it's coming through mobile. They are very interested in making sure that they meet that demand.

Secondly, again we talked earlier about how CPGs do annual planning, so they look at annual planning, so we have some visibility into that. So it's the quarterly deployment that vary that gets harder to predict but we are sharing those forecasts with CPGs.

Can you help me out on trying to understand what drives the revenue in the end. If Retailer iQ is a great distribution platform to get more coupons to people, but is getting the coupon to people once you've got it from the CPG the driver of revenue, or is it getting the supply from the CPG that decides revenue?

I think a better way to ask this is if you look at what drives your revenue? Is it coupons that sellout or is it coupons that are constantly running? And that you could just get to as many people as possible?

It's really a combination -- it's a classic supply and demand. If the orders from the promotion providers, CPGs primarily, do reach as many consumers as possible, some with targeting some without targeting, like we've talked about, and then that throughput at the platform, whether it's Retailer iQ or digital prints or through other mobile or desktop applications or websites. It's really a combination of the two or three, actually, and it's really about keeping balance across the whole network.

Going back to the point that Mir made, the annual planning process is done in advance of fiscals and we talk a lot about this. Manufactures, CPGs, already have a very good idea of what their fiscal deployment looks, the baseline or the minimum of what the fiscal deployment looks like. When we talk about the volume picking up in the back half, we're being very specific with the clients and we're saying you have an annual commitment, you have an annual plan, to the extent possible think about having a lot of its capability available to you in the back half.

As we go forward through this year into next year with all of these retailers live and marketing and the benchmarking behind us, the annual planning for 2016 becomes a lot easier because we have actual data to draw upon and to say this is the volume increase that you saw, this is the rate of increase that you saw, this is what it looks like as we add new retailers.

Great. Thank you.

Mitch Bartlett, Craig-Hallum Capital Group

I wanted to check something you said in the script, or at least what I perceived you saying is. That you had in Q1 over 50% of your transaction volume was digital paperless? Is that correct? If that's true, what would it have been in Q1 a year ago?

Specifically what I said was, in Q1 there were periods in time when we saw greater than 50% of transaction volume coming from digital paperless, pure digital. And I reiterated that is an expected transition that will take place over the next few years and we are driving that. We are driving that with additional Retailer iQ and mobile usage. And that on our platform, we monetize digital print and digital paperless the same way.

The transition to paperless is expected and good and we think -- and we're seeing now, with mobile usage higher frequency will translate into higher transaction volumes as well. That will continue to accelerate.

But with only four retailers marketing on Retailer iQ, that's a fairly astounding growth in digital paperless. I'm sure you have volume other places from digital paperless, but that is primarily where that growth is coming from I perceived.

Is that true? Just a few retailers are driving an enormous amount of volume in digital paperless?

In addition to Retailer iQ, we also have our legacy load-to-card business and so when we talk about pure digital or paperless it would include Retailer iQ and our legacy load-to-card business. But your overall assumption about volume growing faster in Retailer iQ is a good one.

Do you have separate contracts or agreements, or whatever is the norm, with CPGs on Retailer iQ volume versus their overall supply of coupons, whether it's print or digital paperless? You have separate agreements for them to supply the Retailer iQ?

Mitch, most of our CPG contracts and relationships are one and it's not separate. So from a supply and a pricing standpoint, there is a certain amount of budget and it gets distributed to all of our platforms, print and paperless, and then shoppers consume the way they prefer to. In some cases, with some CPGs, we do have separate contracts that specify different budgets and sometimes pricing, but those budgets all roll up into a macro budget of the CPGs end.

We do have situation where some of them actually shift from one versus the other.

It sounds like you've added a couple, maybe multiple? Maybe you could specify -- more retailers onto the Retailer iQ platform including a mass merchant, which is the first time perhaps you've talked about that. Could you be more precise on how many guys you've signed?

We want to be able to demonstrate that we are continuing to grow the platform, but more precision right now is going to be a challenge for us. As things rollout publicly into the market we'll be able to talk about them further.

Great. Thank you.

Thank you.

There are no further questions at this time. I will turn the call back over to Ms. Clements for any closing remarks.

Thank you, everyone, for joining us this afternoon. If you have any further questions, please reach out to me directly or to our corporate website. Thanks again and have a great day.