Thank you for standing by, and welcome to the First Quarter 2022 Cardlytics, Inc. Earnings Conference Call. At this time, all participants are in listen-only mode. Please be advised that today's conference is being recorded. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] I will now hand the conference over to Kirk Somers. Please go ahead.

Good evening, and welcome to Cardlytics first quarter 2022 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 about future financial performance and results, our financial guidance for the second quarter, our ability to achieve our key long-term priorities, the increase in MAUs or Monthly Active Users connected to our ad server, the increase in ARPU or Average Revenue Per User, the growth in Bridg ARR or Annual Recurring Revenue, the impact of COVID-19 on our business and the economy as a whole, the sufficiency of our capital structure, economic recovery across verticals by the end of 2022, the growth in advertisers on Ads Manager, the use of cash for the Bridge run up, maintaining 30% annual growth rates, achieving positive adjusted EBITDA in the second half of 2023, plans for Entertainment and their content, adding new financial institutions and banking partners, renewal of our Bank of America contract, growth with Bridg, our margin profile, continued momentum with agencies and advertisers in 2022 and the anticipated benefits of our acquisitions of Dosh, Bridg and Entertainment. 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 31, 2022, which will be filed with the Securities and Exchange Commission. 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 in the 8-K that has been filed with the SEC. Today's call is available via webcast, and a replay will be available for one week. You can find the information I have just described in the Investor Relations section of Cardlytics' website. Please note that a supplemental presentation to our first quarter results has also been posted on the Investor Relations website. Joining us on the call today are Cardlytics CEO and Co-Founder, Lynne Laube; and CFO, Andy Christiansen. Following their prepared remarks, we'll open the call to your questions. With that said, let me turn the call over to Lynne. Lynne?

Good evening, and thank you for joining our Q1 2022 earnings call. We had our largest Q1 ever and delivered results that exceeded our guidance. Our sales team continues to deliver against our plan despite a choppy macroeconomic environment. Here are the numbers. Billings increased 28.7% year-over-year to $98.2 million. Revenue increased 27.6% year-over-year to $67.9 million, and adjusted contribution increased 34.6% year-over-year to $32.8 million. Our Q1 results reflect year-over-year billings growth in all of our industry verticals, except restaurants, which continues to be impacted by labor and supply chain issues. The choppiness in restaurant was balanced by significant improvement in travel and entertainment as well as improvements in the direct-to-consumer and retail industries, which reflect the continued diversification of the business. Let me share some specific examples of what we accomplished. Travel and entertainment had a great quarter and was up nearly 150% over Q1, 2021. We saw consumers transact frequently for concerts, cruises and travel, and leading to a 54% increase in overall consumer spending in this sector. In addition, the bank co-brand partnerships that we mentioned last quarter were a key driver to outperformance, and these relationships continue to help us unlock new sources of marketing budgets. In the direct-to-consumer sector, a large subscription service provider that piloted with us in 2021 signed a new contract in the mid-seven figures. While incremental return is important to this client, a key factor in the increase was the unique insights that we can provide on purchase behavior around subscription rates and churn rates. For retail, consumer spending is still growing, and we're seeing a stronger than expected return to brick-and-mortar. We had eight seven-figure contract wins in the retail space in Q1 due to our incremental return and custom competitive insights. Advertising spend from agency accounts grew over…

Thank you, Lynne. The business strengthened in the second half of the quarter, allowing us to exceed expectations. Year-over-year, we managed to grow billings 28.7% to $98.2 million, grow revenue 27.6% to $67.9 million, and grow adjusted contribution 34.6% to $32.8 million. Geographically, US revenue grew 25.5% year-over-year, and UK revenue grew 52.6%. Strong back-to-back quarters in the UK is a welcome sign that they are recovering from their extended pandemic-related lockdowns in 2021. Before I move to EBITDA, I wanted to discuss Bridg results. Bridg revenue grew 17.3% sequentially from Q4 to Q1, which is nearly 90% growth on an annualized basis. Despite this impressive growth in revenue, ARR, which is calculated as annualized revenue for the last month of the quarter, declined quarter-over-quarter from $15.3 million in Q4 to $14 million in Q1. This temporary decline was primarily due to the expiration of two large contracts in Q1 that we are close to extending at even higher ARR renewals. We also have a large multiyear contract pending signature. So our expectation is for ARR to grow significantly next quarter and then resume growing more consistent with revenue. Bridg gross margin increased to 55.6% this quarter from 40.7% in Q4 of 2021. As a reminder, the Bridg business incurs higher expenses during client onboarding given the large amount of historical point-of-sale data that is transferred upon implementation. Gross margins will grow over time as the business matures and develops a larger base of customers, but we expect Bridg gross margins to be pressured over the next few years, as the business continues to grow at a fast pace. Longer term, we expect Bridge to achieve 75% gross margins. To help investors understand this dynamic, we introduced a new slide in our supplemental earnings deck with additional color. Adjusted EBITDA…

Thank you to everyone supporting our business. Q1 was a solid start to the year, and we believe our business will continue trending towards the 30-plus percent year-over-year growth target we set out last quarter. We're looking forward to executing on our plans, both financially and strategically. With that, I'll open up the call for your questions.

Thank you. [Operator Instructions] Your first question comes from Aaron Kessler with Raymond James. Your line is open.

Great. Thanks for the question. Just first, on the agency pipeline, can you just give us a sense for how that looks and maybe what size agencies are you seeing? Is it kind of more mid-market or kind of the large agencies? And then from a -- I noticed the campaign spend, looks like it decreased a little bit on the groceries and restaurants categories but looks like it's up nicely in the travel. Maybe specific to groceries and restaurants, I'd be interested to get your thoughts there as well? Thanks.

Sure, Aaron. It's Lynne. How are you?

Good.

Yeah. On the -- yeah, we've identified 35-or-so agencies that we're targeting, more are what I call mid-sized agencies. There's a handful of really big ones. The challenge with the big ones is they all have different organizations within the big agencies, so you need to sort of penetrate the big agency, get an MSA and then you still need to penetrate division by division. So there's a mix, but most of them are more midsized types of agencies that represent, I would call it, upper mid-market types of clients, not the top 100 advertisers in the country, but certainly the top tiers more or less.

Correct.

And then on kind of the verticals, you're absolutely right. So restaurant was really impacted this quarter. We saw a lot of choppiness. We saw continued supply chain and labor issues with several of our large restaurant clients, including Starbucks, which has been pretty vocal about it, but also several others. Grocery is more a mix issue. Nothing to read into there, but travel really was the offset for restaurants.

Got it. That's helpful. And then just any additional details on maybe cross-selling this quarter between Bridg and Cardlytics? I think last quarter, you noted some nice synergies there?

Yeah. I mean we're starting to figure it out. I want to be cautious. We have 25 clients that we've identified are ideal cross-sell targets for Cardlytics and Bridg. These are clients that we know would benefit from the Bridg solution, and in many cases, these are clients that are worried about measurement and attribution on the Cardlytics solution. So the ability to have Bridg be their own attribution solution is really powerful. We have a very small team of Cardlytics and Bridg people that are joint selling. We are definitely in the early days, but we have three clients for sure and probably another two in the Hopper that are actively working with us on joint deals. So we're seeing a lot of momentum there, but it's just momentum. You don't see it quite yet in the numbers.

Got it. Great. Thank you.

Your next question comes from Kyle Peterson with Needham. Please go ahead.

Hey. Good afternoon. Thanks guys, thanks for taking questions. Just wanted to touch a little bit, I know you guys kind of mentioned that there were some -- a little bit of fading in kind of the last two weeks of March, and then you provided some commentary at least in the first couple of weeks of April that suggests you guys are at least outperforming kind of the broader consumer spending. Just wondered if you guys could give any color on, how the first couple of weeks of April compared to those last few weeks of March. Was it kind of further deterioration, was about flattish or maybe a little better? Just trying to get a sense of kind of how things are going on kind of at least the most recently available data you guys have.

Yeah. Thanks, Kyle. Yeah, we saw in the back half of March, spend really kind of turned around. We saw for most of the quarter, pretty good year-over-year growth. And that kind of deterioration started in March. It did improve a little bit in April. It was down very, very slightly. It was not a lot. But nonetheless, our platform continued to really outperform, expectations and really was -- we're able to deliver in what was a challenging spend environment. So -- and then, we certainly are excited with that trend, that we're able to deliver despite the challenges of the market.

That's really helpful. And then, I guess just kind of a higher-level follow-up, really, just on the diversification efforts with the platform. Thinking back to kind of where you guys were around 2Q of last year compared to now, it seems like a lot of things, whether it's supply chain or inflation and some pressures on the consumer have -- it seemed like those headwinds on a broader level, have gotten a little more acute. But you guys in terms of the performance, seems like it's been more consistent. Is this just a more diversified platform? Is it a couple big campaigns, in travel coming and really giving you guys a big boost this quarter? Just trying to put together some of the puts-and-takes to see kind of how you guys …

It's …

…are outperforming?

Yes, hey Kyle. Yes is the answer to kind of everything you said, but just to give you a little bit of historical timeline. What happened in Q2 last year surprised us. It's the first time we saw supply chain issues and labor issues. And so it absolutely surprised us. Since then, we're much better about not getting surprised, but you certainly see that dynamic. We're scrubbing our pipelines, much more carefully, we're really understanding what risks the clients may or may not have in their own businesses better. Then you also see increased diversification. I mean we're at 600 advertisers running this -- in Q1. I don't remember how many we had in Q2 of last year, but pretend it was 120, 130, something like that. So you're seeing diversification. You're seeing a really nice travel come back, as we talked about in the script, but that is somewhat offset by restaurant. So it's just a bit of everything. It is still very messy out there for sure. But I think we're getting better at predicting and working with our clients on the messiness and making sure we don't get ahead of ourselves there and also on diversifying.

Great. Its very helpful. Thanks guys. Nice quarter.

Thank you. Your next question comes from Jason Kreyer with Craig-Hallum. Please go ahead.

Great. Thanks for taking the questions. Just given the success-based nature of the platform, I think you could conclude that the Cardlytics ad budgets could be a little bit more isolated from the macro than the broader ad industry. So just curious if you're hearing dialogue from advertisers that would support that maybe those budgets are a little stickier.

Hey, it's Lynne. A little bit, I mean, I think what we're hearing much more consistently from clients is just the macroeconomic challenges that they're dealing with. And so they're either pulling back. In most cases, if they're pulling back, they're pulling back everywhere, probably less so with us. But while we are seeing some positive response to the performance-based nature of the channel, I think it is way too early to declare that we're going to be less susceptible than other ad budgets out there right now just because it is so messy, as I've been saying.

Fair enough. And then just on the ad server, wondering if there's any notable progress. You called out that you have commitments to get to that 50% goal. Just curious if those are new commitments to get to that level? And then if you're hearing any commentary from the bank partners on what that deployment time line looks like.

Yes. I mean we've been working with all of our banks, as you know, for multiple quarters now to get commitments. So these commitments are not new. They're just -- we're closer to the date. So as you get closer to the date, you feel a little bit more confident that maybe they're not going to fly. We do have commitments from multiple banks, just not all this year. So -- and events [ph] are, as we all know, frustratingly sometimes slow and will delay a project for what seems like almost no reason. So this is an aggressive goal still, but we do have a committed date that we are getting closer to.

Perfect. Thank you.

Thank you. [Operator Instructions] Your next question is from Jeff Cantwell with Wells Fargo. Please go ahead.

Hey, thanks for entering in this call. Congrats on the results. I have a couple of follow-ups on your commentary earlier. Can you maybe talk some more about the rest of the year on billings? Is there any additional color you can provide on what type of cadence should we expect to see here? There seems to be a lot of moving parts. Maybe just help us understand the seasonal trends you might be looking forward on billings. And how optimistic you might be about the back half of the year? Any thoughts there would be appreciated. Thanks.

Yes. You bet, Jeff. So we've talked quite a bit here recently around our growth, target growth rate of 30% plus growth rate. And we still are very comfortable with achieving that this year and beyond. Now Q2 and Q3, historically, we've had a little bit of inconsistency as to which quarter is going to be larger than the others. I do think, though, this year that we're going to see Q3 larger than Q2. And we always see Q4, right, with the seasonal uplift of spend in ad budgets. It's always our biggest quarter. So I don't think that's going to be a real dramatic growth from Q2 to Q3, but we will see Q3 be larger. We have a very difficult comp in Q4. So we do think that we should have some nice growth rates in the next couple of quarters. In Q4, it may be a little bit more challenging there, but that should be kind of how kind of plays out in the next couple of quarters.

Okay. Great. Appreciate that. And could you just clarify. It sounded like you might have been talking earlier about seeing opportunity to potentially accelerate the path to profitability around the back half of next year. Is that right? What are the drivers there? Can you walk us through that and talk a little bit more about what do you see as the drivers there? .

Yes, that's right. We've talked about being profitable back half of next year. And I think if we sustain our growth and achieve our goals here over the next several quarters, we're going to be in a great shape to accelerate that, right. That comes with higher growth rates, that comes with omni edges, sharpening our pencils on our OpEx and a little bit more discipline there. But really, we're going to -- these growth rates, we're going to be profitable in the back half. . I think it just remains to be seen quarter by quarter, right, what is that growth rate? We've talked a lot about our growth doesn't always -- it's not a straight line, right. So if we can sustain these growth rates according to our plan, then we'll be in a great position to accelerate.

Okay. Great. appreciate all the color and thanks again. Congrats on the results.

Thank you so much. Next question is from Nat Schindler with Bank of America. Please go ahead. Q – Nat Schindler: Yes. Hi, guys. Just a quick question. I wanted to -- on your Slide 16, on the offer activation rates by industry, travel ticking up. I guess, more people are traveling, that's pretty -- that makes some sense. But everything else actually ticked down on a year-over-year business -- year-over-year basis. Is there any specific reason? A – Lynne Laube: Yes. Thanks, Nat. It's Lynne. Yes. We -- the quarter got off to a slow start. That's why we were so cautious with our guide that we gave. It definitely got to got off to a slow start. I think it's just more everything that was happening. We were in some wave of Delta or COVID, I can't remember what wave we were in. Q – Nat Schindler: Omicron. Yes A – Lynne Laube: And the war in Ukraine was starting -- thank you, Omicron. Gas prices were going through the roof. So I think it is much more related to the quarter getting off to a bit of a rough start. The one call out, I will say, is grocery. That's much more of a mix issue. We have a number of really large grocery platforms in the channel that are like subscription-based type services. So they have lower click rates, but much higher revenue potential. You've got a mix issue there. But I think everything else was really just around slow start to the quarter, and it was just -- it was a really weird January and February, like in the world, not just at Cardlytics. Q – Nat Schindler: Totally understand that, but do you see April engagements backed up on a year-over-year basis? I know…

That makes sense. Thank you.

Yeah.

Thank you. And with that, we conclude the Q&A session. I will turn it back to Ms. Lynne Laube for her final remarks.

Well, thanks, everyone, for listening to our earnings call. We were pleased with the quarter. We saw some puts and takes. But overall, pleased with the quarter, and we continue to believe that we can see 30-plus percent growth year-over-year for multiple years to come even with some lumpiness out there. But we're feeling good about where we're positioned as a company, as a business and as a leadership team.

And with that, ladies and gentlemen, we conclude our conference for today. Thank you for participating, and you may now disconnect.