Quotient Technology Inc (QUOT) 2017 Q3 法說會逐字稿

Welcome to the Third Quarter 2017 Quotient 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 Quotient's website following this call.

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

Hello, everyone, and welcome to our Third Quarter 2017 Earnings Call. Please note that slides to accompany the remarks on today's call are available on the IR section of our corporate website.

On the call and with me today are Mir Aamir, our President and CEO; and Ron Fior, our CFO. Steven Boal, our Executive Chairman, is here as well and available for questions after our prepared remarks.

Before we begin, please note that during this call you will hear forward-looking statements. These forward-looking statements include projections for our fourth quarter and full year 2017; our expectations for our Retailer iQ platform and consumer and CPG patterns, integration of Crisp Mobile and its business impact, the company's media platforms, Coupons.com mobile app, the company's expectations regarding its new pricing strategies as well as the expected growth of and investments in our business generally.

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 known and unknown risks and uncertainties that could good cause actual performances or results to differ materially.

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 4, 2017. 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, operating expenses, gross margins and net loss, financial measures discussed today are on a non-GAAP basis and have been adjusted to exclude certain expenses. A reconciliation of 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.

With that, I'll now turn the call over to Mir.

Thank you, Stacie, and welcome, everyone.

Before I begin, I'd like to welcome Michelle McKenna-Doyle to our Board of Directors. Michelle, who is currently the CIO of the NFL, brings deep industry expertise in digital media and technology and we look forward to working with her.

Now, onto the quarter. We had a strong quarter delivering revenue of $82 million or 23% growth over the same period last year and within our guidance range. Adjusted EBITDA was $12.5 million, an increase of 42% over last year and above our guidance. Total promotions revenue grew 12% year-over-year. Revenue from Retailer iQ increased 50% from last year and represented 40% of total revenue. Revenue from media grew 62% over last year, fueled by our data-driven media platform. Our strong performance in media is consistent with what we've said in the past few quarters that we expected double-digit growth in the second half of this year.

Total transactions increased 45% over last year to 987 million driven primarily by 2 exciting factors: First, a growing number of shoppers on digital programs we power, which increased demand for digital coupons; and second, consumer packaged goods companies' continued shift of dollars from offline to digital, increasing the supply of coupons.

Digital paperless coupon transactions, most of which occurred through mobile on Retailer iQ, rose 69% year-over-year. Retailers continue to drive shopper adoption, marketing their digital programs through weekly circulars, personalized e-mails, social media and other channels. The number of shoppers registered to retailer savings programs powered by Retailer iQ now stands at more than 50 million or more than 40% of total U.S. households.

Our technology and network enabled retailers to drive significant sales growth. Our Retailer iQ partners have seen, on average, an 11% increase in sales from shoppers who joined their digital programs. To put this in perspective, if the average shopper spends $3,000 per year, then for every 1 million shoppers on the platform, retailers generate an increase of about $330 million in sales. For retailers with millions of shoppers active on their digital savings programs, this adds up quickly. It is also a major accomplishment in today's highly competitive retail environment where most retailers that sell groceries are experiencing low or no sales in same-store sales.

Put simply, data-driven personalized digital marketing works. And because of the recently combined Amazon/Whole Foods, we're seeing a greater sense of urgency among retailers to bolster their efforts with digital.

Shifting now to trends in CPG budgets. As we've mentioned before, we have been experimenting with ROI-based pricing strategies, an example of which is price per redemption rather than price per activation. In Q3, we accomplished sustained positive results in revenue and transactions from these experiments. This also enabled CPG brands to adopt an always-on strategy, whereby digital coupon content is available for an entire month versus shutting off when clip limits are reached. This pricing strategy has many demonstrated benefits, including, one, it helps overcome budget constraints by brand in a given month or quarter, thereby increasing the supply of coupons; 2, it links the cost directly to brand sales; 3, it allows retailers to better support CPG brands featuring digital coupons in their marketing programs knowing that coupon content will always be available; 4, it provides a greater incentive for brands to shift promotion budgets from offline to digital; and 5, it keep shoppers coming back and engaged.

The promotion revenue associated with ROI-based pricing and an always-on strategy increased 167% in Q3 and provided more coupon supply on the platform. This, coupled with the higher mix of volume from large CPGs with lower rates for volume discounts, resulted in a calculated promotion revenue per transaction of about $0.06 per activation in Q3.

Given the success we've experienced to-date, we plan to offer ROI-based pricing to all CPGs in 2018 to further accelerate their budget shift primarily out of the freestanding insert and into digital, which is a key objective. This has an added benefit as well. More shoppers driving more transactions leads to more shopper data, which is instrumental in fueling our media business, which I will discuss in a moment.

As we move additional CPGs to an ROI-based pricing model, the calculated revenue per transaction becomes an irrelevant metric. We believe this step is another example of our innovative efforts to-date to speed the transformation of the industry.

Overall, our platform enabled CPGs to drive profitable sales. Based on our analysis, brands see, on average, a 3x return on promotional spend through Retailer iQ, which we believe is higher than many offline channels. Again, the power of data, having the ability to personalize and target a digital offer and tie it back to sales, is essential as brands look to spend their promotional and marketing dollars more efficiently.

Such results are why we are confident the transition from offline to digital should accelerate as evident in Q3. For example, in Q3 of 2016, we distributed about $1 billion of CPG savings value through our network, assuming an average discount of $1.50 per coupon. In this past third quarter, that number jumped to almost $1.5 billion, over a 46% increase in savings funded by our CPG clients.

We've spent the last 3 years building scale across the platform to enable this transformation. We are still early in this shift. With 83% of redemptions still occurring from offline coupons, there is plenty of opportunity ahead.

Now turning to media. Revenue in Q3 grew 62% over last year driven primarily by vast amounts of proprietary data on shoppers that we use to deliver targeted ads and coupons. As we mentioned in prior quarters, we've been building the capabilities and large data sets on shopper purchases and behavior to enable brands to target specific consumers with ads and measure the impact in terms of sales in-store and online. This capability, recently launched as QMX, is gaining momentum. We now have an audience of over 80 million verified buyers who our CPG brand clients can target. And through our Quotient analytics platform, we can measure the effectiveness of these campaigns in driving sales.

CPGs' large advertising budgets are still primarily spent in offline channels. A portion of these budgets is being spent in shopper marketing where CPGs can now better influence shoppers with digital brand advertising that calls -- that includes a call to action like clipping their digital coupon or adding an in-store special to their mobile shopping list. It is estimated that shopper marketing spent by CPGs will grow to almost $19 billion by 2019 due to the growing importance of data and the critical need to target shoppers and drive profitable sales.

With our retailer integrations through Retailer iQ, digital coupon capabilities and the vast amount of shopper data, we believe we are well-positioned to lead this marketing transformation as evidenced by our media growth in 20 -- in Q3. This has been further enhanced and accelerated by the mobile media capabilities we acquired with Crisp Mobile. The results have already been tremendous. The integration has gone very well and we are realizing synergies. We've also gained a terrific team that is fully focused on mobile.

Today's retail environment is challenging. Even with 97% of grocery sales still occurring in physical stores, technology and data are driving rapid transformation across the industry. This is the new paradigm in which traditional grocery stores and CPG brands must operate in to grow sales and remain competitive.

The vision we embarked on several years ago is coming to life. Enabled by Quotient's technology platform and network, retailers and CPGs can now have smart technology in place, creating a direct digital relationship with millions of their consumers. This is a critical foundation from which retailers can influence shoppers to buy more, whether in-store or online for delivery at home or store pickup.

In summary, we had a strong quarter as we further established ourselves as a key digital commerce partner for CPG brands and retailers. Going forward, we will continue to focus on the priorities I outlined in the last few quarters: Number one, building shopper adoption of Retailer iQ; 2, expanding our distribution of digital promotions; 3, growing media through shopper marketing opportunities; and 4, leveraging data and analytics to drive revenue.

We have a large opportunity in front of us and we are confident in our strategy. We've laid the foundation for growth, the platform has scaled and retailers and CPGs are reaping the sales benefit from our data-driven solutions. It's an exciting time for us and the industry as the pace of digital accelerates.

I will now turn the call over to Ron.

Thank you, Mir, and welcome, everyone.

Driven by our anticipated acceleration in media and continued growth in digital promotions, Q3 revenues were $82 million, up 23% over Q3 of 2016. This is a significant acceleration over the first half's 10.3% revenue growth rate year-over-year.

We recorded a third quarter GAAP net loss of $10.8 million compared to a GAAP net loss of $11.3 million in Q3 of 2016. The GAAP net loss in the third quarter was primarily due to a $9.7 million charge related to a change in the fair value of escrowed shares and contingent consideration.

Adjusted EBITDA, which excluded the net change in fair value of escrowed shares and contingent consideration, stock-based comp, restructuring charges, ERP implementation costs, a onetime charge for certain distribution fees recorded in Q3 of 2016 and certain acquisition-related costs, was $12.5 million, up from $8.8 million in Q3 of 2016. For the first 9 months of 2017, we delivered an adjusted EBITDA margin of 14.5% compared to 10.6% a year ago.

In the quarter, we generated $14.7 million in cash from operations, a significant increase over Q2. Our cash and short-term investment balance at the end of Q3 was $183.3 million, up $13.3 million from the end of Q2. We continued to drive revenue growth through a balanced approach between investments and operational efficiencies.

Drilling down into our $82 million Q3 revenues, digital promotions came in at $58.1 million, a 12% increase over last year, reflecting the growing demand on our platform and the increased dollars CPGs are spending on digital paperless coupons, partially offset by revenue declines in digital print and specialty retail.

In the third quarter, revenue from our core business, Retailer iQ, grew 50% compared to a year ago and represented 40% of total revenue generated. Revenue from media was $23.9 million, a 62% increase from last year and up 48% from Q2, reflecting strong execution from data-driven media, a key focus area of ours.

Let's look at transactions. Total transactions in the third quarter were 987 million, up 45% from a year ago and up 24% from last quarter. Digital paperless transactions, which are primarily Retailer iQ, grew 69% from a year ago, while digital print transactions declined 12% from the same period last year.

Promotion revenue per transaction in the third quarter was calculated at approximately $0.06, primarily a reflection of customer mix and a tiered pricing model that gives lower prices for larger [spend] commitments and higher volumes. Our -- for example, our top 10 CPG customers grew their digital paperless revenue over 100% year-over-year and more than doubled their proportion of promotion revenues as compared to Q3 of 2016. As Mir mentioned earlier, our ROI-based pricing tests were very well-received and drove increased coupon supply from several larger brands with volume-based pricing.

We remain focused on growing revenue and creating the demand necessary for our customers to spend more on our platform while generating increased EBITDA.

Moving on to the P&L. GAAP gross margin in the third quarter was 54.2% and reflected the continuing change in mix and increased third party costs related to growth in media. This compares to a gross margin of 59.7% in Q2 of this year and 47.2% in Q3 of 2016, which was negatively impacted by a onetime charge of $7.4 million associated with certain prepaid distribution fees.

Non-GAAP gross margin, which excludes amortization of acquired intangible assets, stock-based compensation expense and restructuring charges, came in at 58.2%. This was down from Q3 of 2016 and last quarter and was primarily a function of the product mix changes I described previously.

Operating expenses. For the third quarter, GAAP operating expenses were $55.7 million, up from $50.1 million in the second quarter and $43 million in Q3 of 2016. This was primarily driven by the higher charge for the net change in fair value of escrowed shares and contingent consideration.

Non-GAAP operating expenses in Q3 were $37 million, which excludes stock-based compensation, the change in fair value of escrowed shares and contingent consideration, amortization of acquired intangible assets, our ERP implementation costs, a onetime charge for certain distribution fees recorded in Q3 of 2016, certain acquisition-related costs and a restructuring charge. This is relatively flat over both last quarter and Q3 of 2016 while absorbing a full quarter of Crisp expenses.

In percentage terms, non-GAAP operating costs were 45% of revenues in Q3 of 2017, nicely down from last quarter's 49% level and a significant improvement over last year's 55% level, reflecting a combination of increased revenues and leverage in our overall operating expenses.

Adjusted EBITDA. As noted earlier, in the third quarter, adjusted EBITDA was $12.5 million, representing a 15% margin and ahead of guidance primarily due to delayed hiring in the quarter and lower than anticipated marketing spend. This compares to last quarter's margin of 17% and 13% in Q3 of last year. As our business evolves, we continue to focus on improving EBITDA margins with continuing revenue growth in digital promotions and media and a balanced approach between investments and operational efficiencies.

Let's now talk about guidance. For the fourth quarter 2017, we expect revenue to be in the range of $90 million to $94 million. We expect adjusted EBITDA to be in the range of $12 million to $15 million. We expect stock-based compensation to be approximately flat over Q3.

For the full year 2017, this guidance translates into revenue in the range of $319 million to $323 million or approximately 17% growth at the midpoint. Adjusted EBITDA for the full year 2017 translates into a range of $45.1 million to $48.1 million or approximately 14% to 15% of revenue, a solid increase over the 2016 margin of 12%.

We will continue to balance between driving for growth while tightly managing expenses towards improving margins and building shareholder value. We believe we have a large opportunity in front of us as retailers and CPGs continue to reach and engage shoppers through digital channels.

We will now open the call for questions. Operator?

(Operator Instructions) Your first question comes from the line of Mark Mahaney with RBC Capital Markets.

Let me try 3 questions, please. Any update on the number of retailers on the platform and retailers marketing on the platform?

Secondly, in terms of your guidance for the December quarter versus what you had implied before, it looks like you took up your revenue guidance but took down your EBITDA guidance. So could you just talk about why that -- why the latter occurred? Are there new areas of investments that you want to get more aggressive in?

And then, maybe third is just talk about -- I get your point, Mir, about the promotions revenue per transaction and that that may not be as useful of a metric going forward. That said, how do you think we should model that or think about that going forward? Is $0.06 an area where it would sustain? Or do you think that, that level could continue to go down as you have more mix shifts and more large volume deals?

Sure. I'll take the first one on the number of retailers and then Ron...

I'll do the EBITDA.

You could do the guidance and I'll take the third one.

So the number of retailers that were implemented, last time we talked about 27, that number is about the same. As we had mentioned, we're sort of coming up to the max of almost everybody implemented. There are a few that remain to be implemented, a few banners of certain retailers, and that we anticipate happening in quarter 1.

In terms of marketing, we talked last time about 19. That number is now 21.

Okay. On the EBITDA side, so the thing that's happening there is -- as we beat the EBITDA in this particular quarter, so we actually had moved out some expenses in marketing that are actually going to flow through in Q4 and so that's why if you look at it, our total EBITDA for the full year hasn't really changed, but it's down from a straight quarter-to-quarter estimate if you just went quarter-to-quarter.

And then, Mark, on your third question on promo revenue per transaction modeling going forward, it's hard to predict. I think we said last time that we'd be on the lower end of what we thought it would be and then the mix in the quarter was -- especially towards the end of the quarter, was pretty accentuated. That's why this calculated metric came out to about $0.06.

Going forward, I think as we move more and more to ROI-based pricing, if we are -- if someone is going to do an imputed per revenue per activation transaction, you can expect this to be in this range, but really I think the real way to look at our business is promo revenue growth moving forward. That's how we're sort of how we're looking at the objective.

And, if I could, one follow-up. On the ROI-based pricing, what can you say about how effective that is in generating more customer satisfaction or retailer satisfaction? Like, is it clear to you that the clients that you've rolled this out to had become -- had been willing to allocate more budget to you? Is it -- does it look like it's a customer engagement tools? Is it too early to tell? Like, how big of an experiment is rolling it out?

Yes. It's not too early. In fact, quarter 3 was that point where we learned that the clients love it, right, for all the benefits that I had outlined and it does lead to, and we've seen it, it does lead to more budget shifting faster and more budget being available.

And then, the always-on strategy that I talked about. In a month -- it's so important. Right now, what's happening is -- for brands that are not always on, they limit the number of clicks and that starts to run out. And more and more, the demand for coupons has been increasing. That's been running out much earlier in a month than towards the end of the month. Always-on has a coupon available for the whole time of the month and that's really, really good for consumer satisfaction. Shoppers and retailers love it. They put merchandising behind it. They feature it in their e-mails and weekly circulars and so on. And the whole flywheel spins much faster. We're very, very excited about this.

Your next question comes from the line of Nat Schindler with Bank of America Merrill Lynch.

Just a little bit of follow-up on this ROI-based pricing. I assume that the CPGs were always doing, at least in their own calculations, ROI-based pricing already when they were looking at -- I assume they were looking at redemptions and calculating how much it would cost for them to actually get a coupon into someone's hands so it's actually used. So why would it really effectively change the economics that much? Is it just the certainty of a cost per action-type model? Or is there something else that this is new to the retailers?

Also, has there been any change -- is there any significant difference between the redemption rates on print-at-home and paperless? I've always assumed print-at-home has a higher intent and would be a much higher redemption rate? Is that true? Or is that not really been the case?

Let me address that one first, Nat, and then I'll mention the -- I'll talk about your earlier part of the question and then Steven can chime in here. But redemption rates on paperless are growing and are growing nicely, which is a good thing, right? And we had said several quarters ago that, at that time, redemption rates on paperless were a bit lower than print, but that's because print has been around for so many years. In fact, when print started, it had lower redemption rates and it grew over time. So we had said that, that forecast is coming to life, which is great, which is also supportive of why ROI-based pricing makes a lot of sense for us and for our clients.

Let me answer your earlier part of the question is, yes, CPGs have always been doing the math backwards, but they've been doing that after the fact, right? And it just didn't help the budgeting as much as this does. This makes it more certain, like you said, and it ties it directly to outcome. They can budget a discount amount which they give to the consumers and the fee they give to us altogether. And it just helps them put that together and have an always-on strategy and manage it by forecast.

Steven, you want to add something?

Yes. I just want to punctuate the point on certainty. So just like an e-commerce model where you've got an allowable and you know what it is on a per transaction basis, it's very similar here. So as CPGs think about yield and we think about yield because that's important to us and across our network and our network of publishers, this model allows us to really focus on yield and allow the certainty to flow all the way through to the buyer.

Now, we've been talking about this for several quarters and we've been ramping it up step by step by step over the past several quarters. And this quarter is really the quarter where we experimented at very, very high volume. And clearly, the results were very impressive. And so I think everybody is going to benefit all the way through the ecosystem: the publishers, the retailers from an always-on strategy and the certainty around merchandising and the CPGs around their budgets.

Steven and Mir, one of the reasons why CPC has really dominated versus CPA models for most industries was it's kind of the balance of the risk across the advertiser and the network. So if Tide puts out a coupon on a ROI-based pricing with you where really the savings to the consumer is just comically low, it's just not really worth it. It's -- if you buy a gallon of Tide, you save $0.05. Would you -- would that be a transaction you would take under this model where you just say this won't even get clicked on?

No.

Or would you take and just say it's -- we have infinite inventory and we could do it but, again, you're not going to pay us anything with this and you're not going to get any value from it either?

Yes. So without being specific about any one client or one brand, generally speaking...

That was an example, sorry.

Not all clients are the same. Not all brands are the same. And our system now is at such scale that we optimize not just delivery, but estimates across the platform. And so we should not assume and nobody on the call should assume that when we talk about ROI or, in this particular example, revenue per -- or rate per redemption that, that would be the same across brands or across companies. So the answer to your question is the platform would reject an offer like that.

Okay. On a separate question, going back to your old style of pricing, obviously pricing has fallen from, call it, $0.105 to $0.07 or less in the last 2 years. If that's all volume-based pricing, that would be assuming that your biggest customers are just doing more as you've gone to more digital. Why haven't you seen the small customers who are paying, call it, full freight being more dominant on digital where it's easier to even get it into the hands of the customer?

So small customers are also growing. It's just that the larger customers that have historically spent so much offline and they start to move that online and they start to move it in accelerated rate, we're seeing the effect that we're seeing.

I'll give you 2 pieces of information more to put color to this, right, which are similar to what we said in the last quarter. This isn't a result of price reduction by any of those customers. In fact, if you take our top 10 CPGs whose mix has increased quite a bit, but if you look at their revenue per transaction, last year quarter 3 2016 and this year quarter 3 2017, it's essentially flat. So you can imagine that they already have benefited from volume-based pricing. They're already getting better pricing as they should. But because of the ROI that's growing and because now with ROI-based pricing, many of those brands in there that are now on ROI-based pricing, they're just growing volume so much more.

Now, the other CPGs are catching up, but they are a bit behind. And historically, a lot of them never did emphasize it. It's not a question for them to shift budget, but they're also growing. So it's really this mix shift happening for now.

Just the comment that I made in my remarks was that they've actually more than doubled their proportion. The top 10 CPGs have more than doubled their proportion of the revenues from -- in the promotion revenue piece in the digital side.

Your next question comes from the line of Ralph Schackart with William Blair.

A couple of questions, if I could. I guess, just kicking it off, just curious to know what had more of an impact on the average promotion revenue metric in the quarter. Was it more mix from the larger CPGs or the movement to the new ROI model that you talked about in the quarter?

And then, second, maybe a little bit bigger picture, when should we expect the gap between transaction growth and digital promotion revenue growth to sort of close? Or could this be a sustained period where we continue to see 40-plus percent growth with transactions and, because of either mix and/or ROI pricing model changes, that the promotions revenue will continue to lag that growth rate?

Let me -- this is Steven. Let me take the second part and then I'll route it back to Mir for the first part of the question. That's an excellent question.

So right now, if you look at our promotions revenue, the percent of promotions revenue that's non-CPG -- and specifically, I talked about the specialty retail business which continues to decline and that's on purpose -- that represents less than 8% of our revenue at this point. And so the CPG promotions revenue growth is north of 20%. And so in another quarter or 2, probably 2 quarters, the vast majority of the promotions revenue will align with the transaction revenue growth and you'll start to see that the promotions revenue grows along the same lines of the CPG promotions revenues growing. So it's now north of 20%. That's a good question.

And, Ralph, on your first one, the promo -- calculated promo revenue per transaction declining was primarily the mix effect, and a bit of it was the other revenue/specialty revenue declines that we talked about because their transactions are on a redemption basis so their revenue decline sort of has a mathematical impact on this, but the primary impact was the mix of the larger CPGs.

That mix was accentuated by the ROI-based pricing of some brands, large brands in there, right? Because what happened is we had a great back-to-school, by the way. We had great volume and revenues through August and then the volumes continued in September, but the volumes have grown so much that only the largest CPGs and a lot of those, including brands on ROI-based pricing, could actually continue their delivery of coupons through September. So that part accentuated the mix shift effect this quarter, especially towards the last part of this quarter.

One more, if I could. I remember last year in the third quarter was the first time we saw sort of the -- this metric sort of move down materially. Was there also a seasonal impact that also sort of occurred in Q3 that also occurred last time? Or is there's just different factors sort of driving the metric this quarter?

There's a bit of a similarity in the sense that back-to-school is so accentuated now -- which is good, we like it -- that last year also, if you recall us talking about how in September, it is only the big CPGs that had budget to spend. This year, something similar happened.

Yes. Let me just add. If you look at the transaction volume growth, it's pretty significant and a lot of that is fueled by things like back-to-school, but if you step back and look at the promotions revenue growth and the transaction volume growth, back to your original question, I would rather see high scale transaction volume growth and revenue growth in line versus something like an imputed rate per transaction depression because of the mix effect.

So the objective here clearly is grow transaction volume and have the revenue -- promotions revenue growth along with the transaction volume growth. And you actually saw that in Q3. And then, giving you the knowledge, which we just did for the first time, if CPG revenue growth is north of 20%, you're starting to see the alignment of those 2 things take place.

Great. And, Steven, at some point in the future, perhaps in 2018, we should see transaction growth more aligned with the CPG growth that you sort of laid out, I guess, in the previous sort of comment?

Correct.

Your next question comes from the line of Thomas Forte with D.A. Davidson.

So a couple of things. First off, you mentioned that you are seeing CPGs, in response to Amazon Whole Foods, get more promotional. Are you also seeing retailers also get more promotional or at least react in a way that would be beneficial to digital couponing and beneficial to you?

And then, should we think of the promotional pricing of $0.06 as a floor? And to the extent that you're seeing the efficacy of digital couponing work, that you would have pricing power over time? And I'll start with those 2.

Sure. Let me tackle the first one. So I -- just to clarify, what I said was, not that CPGs are getting more promotional, what I said is that the Amazon/Whole Foods effect is just increasing the sense of urgency among CPGs and retailers, especially retailers, to leverage more digital platforms and strategies to get more -- a bit more loyalty with consumers and drive more sales. And that -- and we've talked about that in the past few quarters, too. We are a key component of the CPG and retailers' digital platform strategies.

We use data to target -- to enable them to target their shoppers, target their promotions, target their media and so on, and then that lays the foundation for retailers, especially who have this digital relationship with millions of shoppers, to convert that digital relationship into an online commerce relationship where they can buy online and pick up in store or buy online and home delivery or, frankly, get influenced online to buy in-store. About 60% of grocery sales in-store are actually influenced by something digital or digital interaction that happened before. So that's sort of the effect going on. We're really excited to be at the -- right at the middle of it and be a catalyst of that effect.

Now, the second one, your question about being a floor, I wouldn't say you should consider that as a floor. I think, based on what we just talked about, as more CPGs turn to ROI-based pricing, pegging revenue into the activation as a transaction number will be sort of apples and oranges. I think the more important way to look at that is you should think about -- and as we think about driving to a higher growth rate of promotion revenues, right? And over time, that promotion rate, revenue growth rate and transaction revenue -- transaction growth rate should start to converge. Exactly when that happens, not sure. Sometime -- probably in the next year, maybe back half of next year.

Okay. So one more question, if I may. So without naming brands, are you observing situations where more brands are essentially going 100% digital and taking the spend they had for freestanding inserts and applying that all toward digital?

Overall, the answer to that question is yes. We're seeing more and more brands come -- spend less on FSI, paper coupons and moving into digital. We are seeing some brands get out of FSI completely into digital. Like we've talked about last few quarters, those discussions, as I mentioned in the last quarter, were accelerating. We're having more of those discussions. We continue to have more of those discussions now that we're in planning season for next year. In fact, one large CPG just told us a couple of weeks ago about cutting 4 flights of FSI next year and to move their coupon budgeting to digital.

Your next question comes from the line of Mark Spencer with Wedbush Securities.

Quick -- 2 quick questions. Who is your major competitors? Would that be Valassis in Livonia?

And then, how long do you think the overall transition to digital couponing via Retailer iQ will take, industry-wise?

So from a competitive perspective, we generally think about the competitive set being companies that are taking dollars out of the system for distribution of promotions. The vast majority of that is offline today. That's how we think about the competitive set.

And how long, the way it looks to us now and based on conversations that we've been having with our clients, it's about a 3-year shift. It's something in the range of 3 years where we think that the lion's share of the promotion dollars will be digital.

Any comment on industry consolidation? I see Valassis has bought one of your smaller competitors in the Detroit area.

No. I've got no comment on that.

And I would now turn the call back over to management for their closing remarks.

Thank you all for joining us today. This is an exciting time for us as we help CPGs and retailers drive more sales through digital marketing using shopper data and, at the same time, helping shoppers to save smarter.

I also want to let everyone know that we're at the RBC and the D.A. Davidson conferences next week in New York and we look forward to seeing some of you there. Thank you.

And this does conclude today's call. You may now disconnect.