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Operator: Good day and thank you for standing by. Welcome to the Cardlytics Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Nick Lynton.

Nick Lynton: Good evening and welcome to the Cardlytics first quarter 2024 financial results call. Before we begin, let me remind everyone that today’s discussion will contain forward-looking statements based on our current assumptions, expectations, and beliefs, including expectations regarding our future financial performance and results, including, for the second quarter of 2024, our capital structure and various product initiatives and improvements. For a discussion of the specific risk factors that could cause our actual results to differ materially from today’s discussion, please refer to the Risk Factors section of the company’s 10-Q for the quarter ended March 31st, 2024, which has been filed with the SEC. Also during this call, we will discuss non-GAAP measures of our performance.

GAAP financial reconciliations and supplemental financial information are provided in the press release issued today and the 8-K that has been filed with the SEC, which you can find on the Investor Relations section of the Cardlytics website. Today’s call is available via webcast and a replay will also be available on our website. Joining us on the call today is Cardlytics’ CEO, Karim Temsamani; and CFO, Alexis DeSieno. Following their prepared remarks, we’ll open the call to your questions. With that said, let me turn the call over to Karim.

Karim Temsamani: Good evening and thank you for joining our Q1 2024 earnings call. On our last earnings call, I highlighted the progress we made in 2023 and early 2024. We rebalanced our cost structure, resolved the SRS dispute, invested in our tech and products, renegotiated partner agreements and signed a new bank partner. I also discussed how we could now fully focus on execution and growth, as well as addressing our capital needs. Since the call, we made significant steps to remove the capital concerns around the company. We raised $50 million in cash and repurchased the majority of our outstanding 2020 convertible notes at prices below par and issued new convertible notes not due until 2029. Coupled with our positive adjusted EBITDA results for full-year 2023 and now also in Q1 2024, we believe we have fully addressed our balance sheet issues, ensuring our bank partners and advertisers have confidence to work with us in the long term.

As we have completed these transactions and find ourselves on a path to sustained profitability, we are starting a new period for Cardlytics. We have slowly rebuilt the foundation of the business over the past 18 months. So we can now turn to our longer-term growth prospects. I am confident, we have the technology, products and the team to make significant growth a reality. While the full transition will take some more time and there will be some noise along the way, we are making the necessary progress to ensure we finish 2024 with even stronger momentum. Our first quarter performance has us off to a good start to 2024. Excluding entertainment, which we saw at the end of 2023, billings grew 12% over the first quarter of 2023, indicating strong interest from advertisers.

Redemptions which as we said last earnings call, we view as our Northstar, were also up significantly. More redemptions mean more people are engaging with our program more frequently, which provides the best outcome for our banks, their customers and our advertisers. And importantly, adjusted contribution grew 27% over the first quarter of 2023 when excluding entertainment. Adjusted contribution is an important metric that reflects our business performance as it is the money we keep from our billings after paying out customer rewards and bank revenue share. Additionally, driven by the strong top-line performance, we finished the quarter with $0.2 million of adjusted EBITDA. This is the first time in our history that we have been positive in the first quarter, which is a seasonally lower billings quarter.

Alexis will provide further details on all these financial metrics later in the call. We believe this momentum will continue in the second quarter, but bigger picture, we have much higher growth ambitions for the business and believe we can achieve sustained higher growth rates longer term. Let me expand. First, the macro environment. We benefit from market tailwinds as cookie-less identity resolution becomes essential for any business and card-linked offers become table stacks for our partners. As opposed to cookies, we use purchase data to provide precise targeting, insights and measurement for businesses looking to reach new customers, better understand their existing unknown customers, and increase frequency from their loyal customers. It’s also clear that rewards are increasingly vital to our banking partners with continued regulatory pressure on traditional card benefit programs, and that loyalty is more important than ever for retailers who look to retain customers in the face of rising costs.

Second, our investments in tech and sales. Our recent upgrades and progress with our Ad Decisioning Engine, or ADE, have laid the groundwork for ongoing innovation at a more agile pace than ever before. For example, we are currently building a dynamic marketplace which will allow us to provide flexible campaign durations, meet campaign optimizations, more timely reporting and dynamic pricing based on offer activations. These improvements are critical to delighting advertisers and better aligning our U.S. business to the engagement-centric pricing model that is driving our growth internationally. We are not only investing in our tech, but have also started to reinvest in our agency team and our account management teams to better support more advertising clients.

Investors will see bumpiness in our short-term expense numbers, but we are confident that we are making the right investments to exit 2024 with strong momentum. Third, redemptions and engagement. We continue to make technology upgrades across our network. We’re seeing ongoing signs of progress towards Northstar of driving redemptions and engagement. While we still have a long way to go in achieving our aspirations, the trends we discussed in Q4 remain consistent in Q1 as we saw a 30 percentage point difference in redemptions between customers of banks on ADE versus customers of banks not on ADE. We are putting the right offers in front of the right users faster and these offers are driving larger basket sizes and incremental purchases. As a result, we are consuming budgets more quickly and delivering more value within a campaign, including more rewards to consumers.

While we are not currently billing for all this added value due to campaign budget, it signals the capacity and potential for adjusted contribution growth in the future. Improving offer quality and increasing consumer redemptions is a trend we expect to continue which will significantly increase the scale of outcomes we will deliver to our clients and partners. Fourth, scale. Scale is crucial to competing for bigger budgets in advertising and we are growing our network, including by actively working towards onboarding our newest large bank partner. Marketers are investing in the few platforms that deliver the most meaningful and measurable outcomes, and growing our network ensures clients benefit from the reach they need to scale their campaigns.

Recently, we are seeing strong growth potential for our global investments as our international business grew over 50% year-on-year in Q1. We believe that we will keep similar growth levels for the next several quarters, especially as we look to increase our presence internationally. Fifth, Bridg. By leveraging its unique and exclusive identity resolution capabilities, Bridg is on a path to establishing itself as the new key in a cookie-less advertising world. Our logical growth path to increasing a total addressable market means continuing to enhance our customer data platform product and pushing into new solution areas such as retail media, which is already responsible for 29% of digital ad spend in the U.S. We launched Rippl, our retail media and data network, to further establish our presence in the retail media market and deliver growth, and we have line of sight to on-boarding 100 million individual shopper profiles by year-end.

This would make Rippl one of the largest retail media networks in the country. To further expand our retail media network solution, we’re also working to allow brands to use the Rippl technology to export and access targeted audience segments which will allow them to target customers through integrations with major DSPs such as the Trade Desk and LiveRamp. On the retail media network front, we’ve recently launched initial test campaigns with [Nuke’s] markets where Danone and Kraft targeted specific audiences using Bridg’s data on individual shopping preference at the SKU level and the Rippl technology. The initial campaigns showed better performance on most indicators of campaign performance against benchmark averages. The success prompted these brands to launch a second round of campaigns with plans to expand to more Rippl retailers in the future.

This demonstrates the strong performance and demand for our audiences and segmentation. With our capital needs addressed through our $50 million raise and new convertible notes not due until 2029, we are focused on higher growth rates. Our Q1 results and projected Q2 results continue to give us confidence. We have strong tailwinds behind us and we have scale that allows us to provide the best breadth and depth of offers for our banks and measurable outcomes for our advertisers. We are rapidly innovating our platform with major developments underway, including the dynamic marketplace. We are beginning to drive deeper engagement and are starting to see the results of our changes. We are also making the right short-term investments to drive longer-term growth and exit 2024 with strong momentum.

And our Bridg business is continuing to show signs of progress, especially given our progress with Rippl, which sets us to be one of the largest retail media networks in the country. It is an exciting new period for Cardlytics. Now I’ll hand it over to Alexis to discuss our financial results.

Alexis DeSieno: Thank you, Karim. We are pleased with our financial results for the first quarter driven by strength in redemptions, which indicates that our product initiatives are working as well as the material improvement to our balance sheet. For the first quarter, we performed in line with our guidance and delivered the third consecutive quarter of positive adjusted EBITDA and we saw a meaningful acceleration in billings from Q4. Given Q1 is a seasonally weak quarter for the company, this result is a testament to the work we have done to re-engineer our cost base. Now, turning to our first quarter results. My comments will be year-over-year comparisons for the first quarter excluding entertainment, which we sold in December 2023 unless stated otherwise.

In Q1, billings reached $105.2 million, a 12% increase. On a category basis, we continue to see strength in travel and everyday spend. The restaurant category also grew once again this quarter after rebuilding our sales team. More than half of our growth came from our top accounts, spending more with us, winning back key accounts and reducing churn. Our Northstar redemptions which drives consumer incentives on our income statement were up 20% to $37.6 million. Revenue which is billings net of consumer incentives, but before partner share was $67.6 million, up 8%. As we continue to refine ADE, we are getting more effective at driving redemptions and we believe redemption should be seen as a leading indicator of demand. In the short term, we may see outsized rewards as engagement accelerates beyond top-line growth due to our targeting and ranking improvements.

We feel good about this dynamic, especially given adjusted contribution was $37.1 million, up 27%. Margin increased from 47% to 55% as a percentage of revenue and 31% to 35% as a percentage of billings. We are keeping more of every dollar we bill even while redemptions are accelerating. About half of the operating leverage we are seeing is driven by our partner share renegotiations which annualize in June with the rest driven by mix shift between banks. We believe adjusted contribution is a better long-term indicator for our business rather than GAAP revenue. Turning briefly to segment results. U.S. revenue increased 6%. The U.K. continued to show very strong double-digit growth at 56% partially due to our auto-enrollment program with Lloyds.

As we mentioned, auto-enrollment means customers no longer have to opt into our offers program, which has allowed our U.K. sales team to sell and deliver larger budgets. We expect to see very strong double-digit growth in the U.K. in Q2 as a result of auto-enrollment, new leadership and our newest U.K. bank partner Monzo which is now live. Notably, our U.K. business is primarily on a cost-per-redemption pricing model and we believe the U.S. business will begin to see the benefits of shifting to similar models, which we plan to do later this year, albeit on a larger base. Bridg revenue grew 1% due to the expansion of existing contracts and offset by the loss of a single existing customer. The redemption and partnership dynamics we’ve discussed do not impact Bridg, so revenue is the key metric we use to assess the performance of this business.

In Q1, we invested in foundational elements including product design, engineering, architecture, and go-to-market resourcing. We continue to grow the profiles in our database and we are actively onboarding top regional grocers with a line of sight to 100 million profiles and we believe we have the scale to be relevant to CPG customers. Adjusted EBITDA was $0.2 million, and as Karim said, the first time in the company’s history for adjusted EBITDA to be positive in the first quarter. Business operating expenses came in lower than expected at $36.8 million. However, operating expenses should normalize in the mid-to-low 40s given the investments we are making in our technology, product, and sales organizations in support of key growth initiatives.

Operating cash flow was negative $17.6 million. The first quarter is always seasonally low from a cash flow standpoint due to annual bonus payments, interest payments, and timing of accounts receivable. Last quarter, we introduced a new metric, free cash flow. In Q1, free cash flow was negative $22.4 million. However, we expect free cash flow to be positive in the second half of 2024. On the balance sheet, we ended Q1 with $97.8 million in cash and cash equivalents, and we had $29.5 million of unused available borrowings under our line of credit. As a reminder, we paid $20 million at the end of January as part of our settlement with SRS, which was offset by cash received from the $50 million equity offering in March. We also repaid the $30 million draw on our line of credit in April.

In addition, we repurchased $184 million of our outstanding 2020 convertible notes at prices below par value, partially via the issuance of $172.5 million of new convertible notes now due in 2029. Through these transactions and the repayment of the line of credit, we have reduced the amount of debt that would have been considered current as of September 2024 to $46 million from $260 million absent other capital transactions. The convertible transaction is settled on April 1st and will be reported in our Q2 financials. Lastly, MAUs were $168.5 million and ARPU was $0.40 for the first quarter, an increase of 7% and a decrease of 2% respectively. The increase in MAUs was driven primarily by net new MAUs and the decrease of ARPU was driven by 20% increase in redemptions.

Turning to our Q2 outlook. For Q2, we expect billings between $115 million and $126 million, revenue between $73 million and $81 million, adjusted contribution between $40 million and $45 million, adjusted EBITDA between negative $3 million and positive $1 million. Our billings’ guidance represents 7% to 17% growth excluding the sale of entertainment. I’d like to provide some additional color on what we are seeing in the top line. Billings continues to be driven by success in the everyday spend and travel categories and our larger clients are spending more with us. We are focusing on getting new brands onto the platform and winning back lapsed brands. With these brands, we are seeing pilot programs convert into larger budgets based on strong campaign performance.

We are expecting another quarter of elevated redemptions as we continue to see the benefits of improved targeting and ranking. Adjusted contribution is expecting 19% growth excluding entertainment at the midpoint of our guidance. As previously stated, we expect operating expenses to increase to the mid-40s excluding stock-based compensation due to the investments we are making in our technology, product, and sales teams and in support of key growth initiatives like dynamic marketplace and Bridg. We continue to expect double-digit billings growth for the full year 2024 and to be operating cash flow positive on a full-year basis with both accelerating as we enter 2025. We are focused on our Northstar redemptions and we expect to continue to drive consumer engagement, top-line growth and full-year positive adjusted EBITDA.

Now I’ll turn it back to the operator for questions.

Operator: [Operator Instructions] Our first question comes from Kyle Peterson at Needham.

Kyle Peterson: Hi, good afternoon, guys. Thanks for taking the questions. Wanted to start off, I guess, on some of the billings trends you guys saw throughout the quarter. I guess just given the timing of kind of reporting towards the end of the first quarter was a little surprised to see you guys be a little closer to the low end of the guidance. So, did you guys have any, like, larger whether it was like cancellations or delays or anything that you saw in the last two weeks of March?

Alexis DeSieno: Yes, thanks for the question. Look, we’re still growing 12% on the top line and our adjusted contribution was 27%. So this is pretty good performance on a historically weak quarter and a pretty good acceleration from Q4, which was less than 5% growth. But to answer your question more specifically, yes, we’re making a lot of changes to our network and our tech all at the same time. And some of our partners are also making changes to their UX, which you’re probably seeing. That’s all leading to higher engagement, which is why I say that rewards are really a leading indicator of demand. And so, as Karim said in his remarks, we’re consuming budgets more quickly, which is driving those higher redemptions. But in some cases, we can’t bill for all of that demand yet.

And we also had a few campaigns that didn’t come through. So again, we’re happy with the adjusted contribution growth of 27% and adjusted EBITDA still being positive, even while we’re paying out more rewards than we expected.

Kyle Peterson: Okay, that’s helpful. And then I guess just a follow-up on some of the moving pieces with the higher redemption rates. Is the 1Q consumer incentives as a percentage of billings, is that a good proxy to use going forward, or is redemption rates increase, should we expect that percentage to continue to go up? Just trying to get some sense as to what the mix and redemption rates is going to be on the P&L in the near term.

Alexis DeSieno: Yes, at least for Q2, we’re expecting it to be similar. As you can see from the guidance ranges, continuing to focus on our Northstar redemptions is really the main focus right now. And those tech initiatives are really paying off. So we continue to convert accounts to our new pricing models and excited to have this increased engagement that is higher than we’ve typically seen. And then the other portion of that is from the renegotiation of certain bank contracts, which will annualize in June. So you’ll continue to see similar margins, but the growth rate may not be quite as high as we annualize that, and that starts in Q3, obviously.

Kyle Peterson: Okay, that’s helpful. I’ll hop back in the queue. Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from Jason Kreyer at Craig Hallum.

Jason Kreyer: Thank you. I just want to focus a little bit more on the redemptions that we’re talking about. Historically, if we look at the model, the proportion of incentives has been in a pretty tight band that moved out of that band in this quarter. You’re optimistic that redemptions is the positive leading indicator. I’m just — I’m curious at how that number moves so much in a quarter and if we need to rethink the ratio of redemption versus billings going forward.

Alexis DeSieno: Yes, a similar answer to prior. I think for Q2 at least I would consider similar model of redemptions to billings as a percentage. So this is really a testament to the product changes we’re making on ADE, better targeting and optimization of our ranking capabilities. And so as people are making changes to the UX in terms of our bank partners’ things, the widget moving up. This is really driving higher engagement. It’s all good for the future, but it may take a while for us to get those budgets to match the engagement that we’re seeing.

Jason Kreyer: Okay. And if you’re consuming budgets at a more rapid pace, I think you’ve talked about that a couple of times. It would seem that if you’re driving successful campaign performance, you’re delivering on those campaigns at a more rapid pace, it would seem a pretty easy argument to go back to those marketers and be able to fill budgets after those campaigns end more quickly. Am I wrong to think that?

Alexis DeSieno: No, we agree. Obviously, Q1, we had low transparency into this, but we now understanding how our models are working better. I think we’re investing in our sales team significantly more to try to capture more of these budgets and focus more on selling and less on account management. So we are investing in the sales team and also on agency to capture more budgets as we’re opening up more engagement for our brands in general. Karim, I don’t know if you have anything you want to add.

Karim Temsamani: No, I mean, this is a good question, Jason, and clearly it’s a very positive thing that we’re driving more engagement in the program, which is driving more redemptions. It’s obviously good for our bank partners. It’s good for advertisers. There’s a timing difference here with regards to our teams being able to go back and get the budget in the timeframes that we’re talking about. But longer term, it’s very healthy for the program.

Jason Kreyer: On the surface, it kind of seems like you’re driving more redemptions, but you’re driving more redemptions at a greater cost to the model. So that’s the part of this that I’m kind of struggling with and I’m struggling to gain an understanding of that. Just a near-term issue or is it a longer-term evolution?

Karim Temsamani: No, I think it’s very clearly a longer-term evolution. And I would say we have been signaling this for a very long period of time. From the first call since I joined 18 months ago, we basically said that it was really important for us to drive further engagement in the program, that engagements rates were low, and that driving engagement is positive for our bank partners, that it’s much more aligned with what they want, much more aligned with providing consumers with the benefits they should have for the program. It’s better aligned with driving additional budget for advertisers. What needs to come with it is us continuing to negotiate rev share agreements with our banking partners to ensure that the gains that they’re getting from people consuming more and therefore spending more on their cards is a net benefit for us as well.

So I think longer-term, you would see that as we continue to grow billings, we’re going to, hopefully, continue to drive a lot more redemptions, but we should keep more in adjusted contributions. So you’re going to see some differences in the economics for the business as a whole, but we think that we can manage that in a very healthy manner going forward.

Jason Kreyer: Okay, thanks for taking the questions.

Operator: Thank you. One moment for our next question. Our next question comes from Jacob Stephan at Lake Street Capital Markets.

Jacob Stephan: Hi, guys, thanks for taking my question. Maybe, Karim, if you could just kind of help us think about where you’re investing in kind of the agency side of the business? Is that directly related to headcount or maybe just kind of help us think about some of those investments?

Karim Temsamani: Yes, as Alexis mentioned in the call — and thanks Jacob for the question. As Alexis mentioned in the call earlier, there’s several areas in which we investing in the business. As I mentioned as well in my remarks, we are investing in our tech and product just to ensure that we continue to innovate and providing the right products to our banks and to our advertisers. But what we have also identified are the several areas, in terms of our sales teams in which we needed to reinvest. We talked about in the last quarter about our investment in the restaurant and retail sectors. And at present, we continue to invest in our account management team so that we can service our clients better but also service more customers.

And one area which we had not invested for a while was agency team. And we think that agencies can be a big driver for growth for us in future where we can get many more accounts. So it’s mostly a headcount investment here that you’re talking about. But we definitely want to be able to gain more budgets via ad agencies in the future.

Jacob Stephan: Okay, that’s helpful, and then maybe just kind of talk about the self-serve platform. How far along are we in kind of the development of that platform? Is that ready to go, or is there still some work to be done there?

Karim Temsamani: Can you be more specific? Are you talking about what we mentioned last quarter, which was an automated dashboard, or some of the longer-term plans for self-serve platform for advertisers to book?

Jacob Stephan: Yes, just looking more at the longer-term kind of tech enablement and the self-serve side, which caters more to the agency.

Karim Temsamani: Yes, so, I mean, I’ll cover both just in case. On the first one, the automated dashboard side, which I think is really important to surface insights to our customers, which will be also very important for agency customers. Well, we’ll essentially have about 10% of our customers having access to automated insights by the end of Q2, and we plan a full rollout by the end of the year. Self-serve overall with regards to the ability to book budgets without intervention for our team, will take longer. That’s part of the reason why we’re also investing in account management because this is obviously on our roadmap longer term, but it’s probably not something that we’ll get to this year.

Jacob Stephan: Okay, got it. Maybe just switching over to Bridg, the last quarter, I think we talked about a large new restaurant customer joining the platform. It sounds like you might add some customer churn, but, what can we kind of expect as a growth rate here in 2024?

Karim Temsamani: So, just to be clear, the large restaurant customer we mentioned last time was on Cardlytics, not with regards to Bridg. With regards to Bridg, obviously, we are reinvesting in the product. We feel very confident that we have a long-term asset in Bridg. However, we have to rebuild a lot of the technology that was there from a Bridg perspective. And importantly, as we’ve discussed over the last several quarters, we’re investing in Rippl, which is our retail media network as well to provide not only the ability to get the insights that customers want but also have the ability to target customers across the broader landscape. And so we’re making the investments now. I don’t want to give you growth rates with regards to Rippl, as we don’t report specifically on this, we don’t give guidance specifically on these.

But again, we’re very confident that we’re playing in a very large market there, an area that’s really expanding, that we have the right foundational elements with regards to the engineering infrastructure. We have to go to market resourcing now. We’ve onboarded a number of regional grosses that give us line of sight to 100 million profiles by the end of the year. And therefore that we have the scale to drive significant growth. But I won’t give a specific number on the growth rates we expect.

Jacob Stephan: Okay, understood. Thanks, guys.

Operator: Thank you. I’m showing no further questions at this time. I would now like to turn it back to Karim for closing remarks.

Karim Temsamani: Thank you very much. And thank you, everyone, for joining us today. We look forward to discussing our second-quarter results on the next earnings call.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.