Good day and thank you for standing by. Welcome to the Q3 2023 Cardlytics, Inc. 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 call over to your speaker for today, Nick Lynton, Chief, Legal and Privacy Officer. Nick, please go ahead.

Good evening, and welcome to the Cardlytics Third Quarter 2023 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 our future financial performance and results including for the fourth quarter and full year 2023, adding new partners to the network, our partners transition to the new ad server and user experience, the growth of Rippl, improvements to our operations, our platform and our U.K. business, international expansion, the Bridg earn-out payments and our liquidity. 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 September 30, 2023, 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. 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 the Cardlytics website. Please note that a supplemental presentation to our third quarter results has also been posted on our Investor Relations website. Joining us on the call today is our CEO, Karim Temsamani; and our 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.

Good evening, and thank you for joining our Q3 2023 earnings call. To start the call, I'd like to provide some context to this quarter, now that I've spent a year in the business. When I arrived last year, our finances needed to improve. Before I started, our Q2 2022 adjusted EBITDA annual run rate was worse than negative $55 million and adding to the difficulty our teams were facing. My immediate priority was to rightsize our cost structure and reinvest in building the foundations of our business, starting with our financial institution relationships. While we have much left to accomplish, I am proud of the work our teams have done so far. The financial foundations of our business is stronger and our banking relationships are in a much better place. We can now think longer term about our growth prospects. Our results this quarter match this sentiment. We were in line with guidance on our top line metrics and better than expected on our profitability metrics. Of note, adjusted contribution grew 22% year-over-year and our adjusted EBITDA was positive for the first time in 2023 at $3.9 million. We also had positive operating cash flow for the since straight quarter. Alexis will provide more details later on our full financial results. Our solid financial performance this quarter points back to our underlying value proposition. For example, gas, grocery and convenience grew more than 65% this quarter year-over-year. We saw success because we help brands target shoppers who buy competing brands. We deliver strong ROI for them, which helps us succeed in this category. Another that saw success was travel and entertainment, which grew more than 20% in the quarter year-over-year. While consumer spend in travel and entertainment has softened in the back half of the year, our clients are…

Thank you, Karim. I'm thrilled to be addressing all of you today on my first earnings call. I spent my first 80 days as CFO meeting the teams, evaluating next steps for our capital structure and beginning to optimize our finance processes and systems. I also helped lead the 4-year strategic planning process that Karim mentioned. There is room to expand our addressable market and diversify our revenue streams while maintaining a focus on profitability and cash flow to strengthen our balance sheet. I'm excited to be joining at this time in our trajectory. We are positioned to be the leader in providing trusted and intelligent business insights, and there are a few other platforms that have the level of data and reach that we do. This gives us the right to compete with any platform in our space. And in the post-cookie landscape, the trends align with our strengths. In the near term, I have three major priorities; First, driving incremental revenue through pricing improvements and monetization of our assets, which will ultimately allow us to deliver more insights to our partners. Second, continuing to embrace automation and data analytics across the organization to allow us to make more informed decisions more quickly and more newly. Third and most importantly, being hyper focused on profitability, and improving our balance sheet and capital structure. This will allow us to deliver our goals and our promise to investors. Now let's move to our results and guidance. As Karim mentioned, we delivered solid third quarter results with billings, revenue and adjusted contribution consistent with our Q3 guidance and adjusted EBITDA exceeding our Q3 guidance. We had our second consecutive quarter of positive operating cash flow at $1.2 million and our first quarter in 2023 of positive adjusted EBITDA of $3.9 million. We…

As you know, I am extremely happy with the progress we've made on our financial structure. The trajectory of our profitability has dramatically improved of our run rate in Q2 of 2022. We are gathering speed in each passing quarter. Our platform is starting to look different and the collective improvements we are making to our products and operations are far exceeding our pace from prior years. And can back this up, with recent feedback from our banks who have told us we are moving at a much better pace than in prior years. Our dedication to product leadership, financial health and strategic growth is setting us on a promising course and I'm looking forward to the future.

[Operator Instructions] Your first question comes from the line of Kyle Peterson from Needham. Kyle, please go ahead.

Great, thanks and congratulation guys. I wanted to start off on the outlook, chicken on billings and revenue. I guess a lot of the commentary sounds pretty positive in terms of feedback you guys are getting from or your larger clients, but I guess the numbers looked a little light. So I just wanted to see what is driving that. Is this more of a consumer spending headwind kind of the other side of the funnel? Or is this just broader pressure, especially with some clients that maybe aren't some of the larger advertisers? Or is there something else at play here?

Thanks, Kyle, for the question. Just to step back first, as you know, Kyle, our priority has been to put this company back on the right financial footing. While obviously, at the same time, rebuilding many parts of our operations. I think we've demonstrated that we've made very large progress going from a run rate of close to $55 million in EBITDA losses to a breakeven situation. So what's really cool here is that we now believe that we can run the company profitably on a much lower cost base. This will allow us to concentrate on growing our revenues going forward. But going back to sort of the gist of your question, it's clear that our revenue guidance is lower than we had hoped for, for a couple of reasons. One, there are macro factors at play. I mentioned some of that on the call, we're seeing that inflation is still high. Interest rates also, and we're definitely seeing some points of weakening consumer demand and signals are pointing to that. And obviously, there's a lot of additional feedback that you're hearing in the market with regards to -- we can consider signals. We're also seeing some weakness in some of the sectors which we are addressing internally. That's definitely not easy for us to do better with our sales driver in some of our teams given that we're seeing inconsistency in delivery between some high-growth sectors and some much lower in declining sectors. So there's definitely work that we want to do internally. And then I would say there's also a few areas that we wanted to be cautious around in the guidance we provided, but that could provide additional benefits in the quarter. The longer-than-normal holiday sales cycle this year could potentially help us. And we're still hoping that there will be unplanned budget that we come at this time of the year that we could have like last minute. So overall, we're very positive about the future. We're cautious about Q4, but we're very positive about the future. We see a positive EBITDA for Q4 and possibly for the whole year, as we said, we see that some categories are growing very well and that we're continuing to grow large accounts that are spending a lot more with us. We want to emulate that more consistently across the business. We see that we're winning more supply. And we see that new ad formats and ad tech and ADE will soon be at scale and at us continue to improve our monetization potential. So definitely not where we want to be in Q4, but some very good sort of outlook for us longer term.

Got it. That's helpful. And then maybe if I could follow up on some of the newer products. It seems like there's some good traction there. I guess any metrics you might be able to share or whether it's qualitative or quantitative on some of the adoption of these products. Our clients that are using these are some of these new logo wins that are interested in these? Or is this expansion with existing clients? Or is there's some pure substitution, but happier clients are kind of all of the above?

Yes. I mean I think there's two parts to your question. The first one is that -- the adoption of our tech at scale is a great benefit for us longer term. So in the call, I mentioned that ADE drives high amortization and offer relevancy for the business so that we can improve targeting. Now that we have two of our largest bank that have fully adopted ADE, we can see that there will be further benefits for us going forward. And then certainly, the adoption of new product features like multi-tie offers, which I also talked about on the call, definitely enables us to have different discussions with clients and bring new clients as well to the ecosystem. And I've been talking over the last few quarters about new pricing models, we're trailing some of these now. And obviously, there's no numbers that we want to share yet until some of these things are but there are many elements of co-offering where we really see potential growth going forward.

Got it. That makes sense and it's helpful. And maybe if I could just squeeze one more modeling question in. Nice to see the adjusted contribution margin moved up nicely in the third quarter and the 4Q guide kind of implies that seems like it's going to continue. Is there any mix whether it's types of offers or anything in the pipeline? Or is this kind of 54-ish percent run rate for just contribution? Is that a good run rate to use moving forward in our models?

Hi, this is Alexis. I can take this one. So the benefit you're seeing in adjusted contribution is primarily due to the renegotiation of a major bank contract as well as a small mix shift from our financial institutions. So we do have different agreements with each one, which does drive some of the changes there. You're also seeing that impact in revenue, so changes to partner mix. And as I said on the call, also improvements in pricing. So I do think that Q3 is a more normalized state going forward. And so that would be a good thing to continue.

Got it. That makes sense. It was very helpful. Thanks guys.

One moment for your next question. The next question comes from the line of Jason Kreyer from Craig-Hallum. Jason, please go ahead.

Terrific, thank you. Karim, just wondering if you can talk about -- you indicated things are getting a little bit less stable as we get into Q4. What are you hearing from advertisers? Like are you seeing campaigns get paused? Are you seeing those get terminated? Or are you getting any transparency around things are being paused in the short term, but some indications that they may come online at some point in the future? Just trying to get some more detail there.

Yes. Thanks. What we're seeing is that there's no uniformity across the various verticals. There's definitely a number of verticals where we're seeing very strong growth, as we've mentioned on the call as well. Some of our everyday spend categories like grocery, gas and convenience, are really growing very, very strongly year-on-year. Travel and entertainment also is doing well. We are definitely seeing that in other industries like retail and restaurants, for instance, there's a lot more caution and some of the budgets that you would see normally at this time of the year really come up, particularly in retail, are a lot softer than we expected. Some of that is definitely driven by sort of caution around the economy and the ability for consumers to spend. We know that there's a lot of issues around this period for many retailers as consumers just get further into that. But there's also things that we're looking at ourselves because we definitely want to drive more consistency in how we are driving the business across all of our verticals, and we think we have opportunities to ourselves to improve the balance of our business. So yes, does that answer your question, Jason?

That's very helpful. Thank you. I also just wanted to see if we can step back and talk a little bit about what you view as the market opportunity for Rippl. And then the go-to-market for you guys on -- if you expect to do a lot of that independently or if there's partnerships you're looking to pursue to kind of strengthen that or broaden that go-to-market approach?

Yes. Well, so as a reminder, Rippl really provides a single part of access to anonymous shopper profiles, which we enrich with SKU level data. So advertisers that are using Rippl will have an ability to have transparent shopper data that they can use to drive additional spend and a better shopping experience for consumers. We expect that there's going to be choppiness in how Bridg and Rippl scale. It's very new businesses. And obviously, we are in very early stages of talking to many of our customers there. But -- and I would say as well that sort of the time lines for getting customers to join the Rippl network is longer than our core product as well. But having said that, we're thrilled with the progress we're making. We're getting a lot of positive feedback from discussions we're having with both retailers and CPG brands. We have promising pilots in progress, and we have a number of discussions with large clients that are going well. And on top of that, we've just hired a new CRO for Bridg, who will help us scale the Bridg and Rippl business, and we expect that to contribute meaningfully in 2024. So we're very excited about the prospects, but expect some choppiness as we build that business.

Thank you. Last one for me. I wanted to just maybe double-click on multi-tier offers, which sounds like a really interesting opportunity. What is the gating factor to that growing more rapidly? Is there -- like do you need more banks on the ADE or the user experience? Or does it just take more time to get advertisers on there?

Yes, it depends on sort of the goals that advertisers have and their ability to have differentiated type pricing or so offering for their customers. So multi-tier offer is going to be a very successful product for us. That's going to be relevant for many of our customers, but not for all of our customers. We're certainly having multi -- a number of discussions about multi-tier offers with customers right now, and we're planning to scale it as fast as we can. One of the things that I would mention though is that having more of these type of products also opens up discussion for the core product. So as you have more product to sell and can have new discussions with other tiers, even you see them seeing that maybe the multi-tier offer is not relevant for them right now or even in the future, but they end up spending on sort of the -- the normal rewards offers that we have. So it's relevant in many different areas. So as we have these products at scale, and again, I appreciate you all asking for numbers, but we want to see them at scale so that we can provide more meaningful data with regards to the impact that they're having on our network, and we certainly plan to do that in the future.

Got it. Alright, thanks Karim. Thanks everyone.

Thank you Jason.

Thank you. At this time, I would now like to turn it back over to the speaker for any further comments. So back to you, Karim.

Thank you very much, Felicia. That brings the call to a close. As mentioned, we remain committed to positioning the business for future success. Thank you for your continued support, and I look forward to speaking to you all soon.

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