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Edited Transcript of QUOT earnings conference call or presentation 5-May-20 9:00pm GMT

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Q1 2020 Quotient Technology Inc Earnings Call Mountain View May 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Quotient Technology Inc earnings conference call or presentation Tuesday, May 5, 2020 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Pamela J. Strayer Quotient Technology Inc. - CFO & Treasurer * Stacie Clements Quotient Technology Inc. - VP of IR * Steven Robert Boal Quotient Technology Inc. - Founder, Executive Chairman & CEO ================================================================================ Conference Call Participants ================================================================================ * Elliot Andrew Alper D.A. Davidson & Co., Research Division - Senior Research Associate * Nathaniel Holmes Schindler BofA Merrill Lynch, Research Division - Director * Ralph Edward Schackart William Blair & Company L.L.C., Research Division - Partner & Technology Analyst * Shweta R. Khajuria RBC Capital Markets, Research Division - Assistant VP * Steven Bruce Frankel Dougherty & Company LLC, Research Division - Senior VP & Director of Research ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to the First Quarter 2020 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 on the Quotient's website following this call. I would now like to turn the call over to Stacie Clements, Vice President of Investor Relations. Thank you. Ms. Clements, you may begin. -------------------------------------------------------------------------------- Stacie Clements, Quotient Technology Inc. - VP of IR [2] -------------------------------------------------------------------------------- Thank you, operator, and hello, everyone. Welcome to our first quarter 2020 earnings call. On the call with me today are the CEO, Steven Boal; and Pam Strayer, our CFO; and Scott Raskin, our President. The company's stockholder letter has been posted on the IR section of our corporate website, investors.quotient.com, alongside our press release and earnings presentation. In the interest of time, we have summarized the posted stockholder letter for today's call and look forward to jumping into Q&A. Before we begin, please note that during this call, we will hear forward-looking statements. These forward-looking statements include projections for our second quarter and full year 2020, our ability to manage our business and liquidity and to capture marketing dollars during and after the COVID-19 pandemic, brands plans to rebook paused or delayed campaigns later in the year, growth in e-commerce, the importance of promotions to CPGs during recessionary periods, CPGs' plans to reduce spending on FSIs, the effectiveness of our cost control measures and our ability to leverage investments and operating expenses 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 cause actual performance as a result to differ materially. Additional information about factors that could potentially impact our financial results can be found in today's press release and then the risk factors identified in our annual report on Form 10-K filed with the SEC on March 2, 2020, and our future filings with the SEC. We disclaim any obligation to update information contained in these forward-looking statements, whether as result of new information, future events or otherwise. Please note that with the exception of revenue, 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 between GAAP and non-GAAP measures can be found in the financial results press release issued today and on the slides posted on the company's website. With that, I'll now turn the call over to Steven. -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [3] -------------------------------------------------------------------------------- Hello, everyone. And welcome to our Q1 2020 earnings call. I hope that everyone is healthy and staying safe during these most challenging of times. I want to take a moment to acknowledge the hard work and dedication by so many people, first responders, health care workers, delivery drivers, food and grocery staff and all other community members that help bring essential needs and services to everyone. These prepared remarks will be abbreviated to leave more time for Q&A and have been prerecorded to avoid any technology interruptions given we are all working remotely. I want to start by saying that our #1 priority continues to be the safety of our employees, customers, partners and shoppers. Since March 13, our global team has been working remotely under our well-established business continuity program, and we don't foresee any significant operational impact from working remotely. I'm incredibly proud of our team. Their dedication, focus and agility has been nothing short of inspiring. As you've seen from our release, in the last few weeks of the quarter, brands began delaying or pausing campaigns due to the rapidly changing COVID-19 situation. Revenue in the first quarter was $98.8 million, and as a result of COVID-19, came in below the low end of guidance by 7%. On the plus side, we delivered $5.1 million of adjusted EBITDA, 60% above the top end of guidance due to a higher proportion of revenue from promotions, coupled with a focus on cost controls within the quarter that lowered total operating expenses. Our promotions offerings carry a higher gross margin than our media offerings, and with the unemployment rate at its highest level in recent memory, we expect promotions to continue to be a focus for shoppers and our CPG and retailer partners for the foreseeable future. January and February delivered revenue as expected, with impact from COVID-19 starting in mid-March as shoppers began to self-isolate to stay healthy. Many retailers and CPGs have experienced significantly higher sales over these past weeks as shoppers stocked pantries, cooked more at home and prepared for shelter-in-place mandates for extended periods of time. At the same time, grocery e-commerce, a historically small component of overall sales, surged to unprecedented levels, putting an even sharper focus on digital shopper engagement, something that Quotient is uniquely prepared for. Supply chains are now starting to stabilize, and we believe mid-March through early May will have been impacted the most. Early signs that we've seen the worst are appearing, and brands are starting to rebook delayed or paused campaigns for June and into Q3. Already, bookings for Q3 are higher than historical trends at this point in Q2 and our pipeline is strong. As I mentioned on our last earnings call, we have a healthy pipeline of new retailers, and today, we are excited to announce 2 more retailer additions. We have signed 7-Eleven onto Retailer iQ, adding a new vertical, convenience stores or C-Stores to the Quotient network and bringing digital savings directly to shoppers through their 7Rewards loyalty program. 7-Eleven has been widely recognized as an innovator in digital initiatives. 7-Eleven is the largest retailer of beer sales in the United States, and now adult beverage brands can utilize our national alcohol rebate solution to drive sales to millions of 7-Eleven shoppers. And last week, Shipt launched Quotient digital paperless coupons across its 90-plus retailer network. This partnership represents our first same-day delivery service and marketplace retailer on the Quotient retailer network and comes at an unprecedented time when online grocery delivery services have seen significant growth and increased consumer demand. Through Retailer iQ, we now bring the same CPG value to Shipt members in 5,000 cities through their website and app. We are excited to welcome both 7-Eleven and Shipt to the Quotient network, and with an active pipeline of additional retailers and verticals, we look forward to additional network expansion announcements over the next several months. As I alluded to earlier, COVID-19 has been the catalyst for unprecedented growth in grocery e-commerce, which was already predicted to grow approximately 19% in 2020. But today's environment will likely push this growth rate even higher for the foreseeable future. Quotient is uniquely positioned to benefit from this shift, as existing and new retailers build out their e-commerce grocery platforms incorporating promotions and media informed by data and analytics that Quotient provides. The more shoppers engage with e-commerce grocery, the more digital opportunity we have to connect CPGs, retailers and shoppers. Offline paper coupons are finally starting to reach their end of life. The offline freestanding inserts, or FSIs, are expected to lose over 20% of their coupon distribution from leading CPGs over the course of 2020 and 2021. As a result, the value of the FSI diminishes. We expect other CPGs will follow, and a portion of these dollars will shift to digital. As the market leader in digital promotions, we expect Quotient will benefit from this shift. Some retailers, as a result of COVID-19, has stopped accepting paper coupons altogether and have directed shoppers to their digital paperless coupon programs. Many grocery delivery services have also stopped accepting paper coupons. We believe these measures will further accelerate the adoption of digital paperless coupons. It's also important to note that a recessionary period has historically experienced higher coupon usage, another tailwind for digital paperless coupons growth. In 2009, CPGs distributed more coupons than any year in the preceding 3 decades, and redemption rates increased 27% over 2008. Lastly, we believe digital will benefit from the millions of dollars that CPGs had planned to spend on sponsored events, professional sports and specifically, the Olympics. With events now canceled, we expect that those marketing campaigns will have to be rescoped and dollars redeployed. Quotient is ideally positioned to help shift those dollars to working media that drive sales. We've built our business around a large secular shift to digital. The current environment is accelerating this shift faster than ever as consumers change their shopping behaviors and retailers and CPGs rise to meet the challenges of today. The strategic value Quotient provides differentiates us from others and keeps us focused on both the immediate-term industry needs and the long-term opportunities of tomorrow. And with that, I'll turn the call over to Pam. -------------------------------------------------------------------------------- Pamela J. Strayer, Quotient Technology Inc. - CFO & Treasurer [4] -------------------------------------------------------------------------------- Thank you, Steven, and good afternoon, everyone. I'll keep my remarks brief and encourage you all to read the full prepared financial results posted on our website for additional detail. Revenue was $98.8 million, below guidance as Steven mentioned earlier. Media revenue in Q1 was 40% of total revenue and grew 13% year-over-year. The effects of COVID-19 primarily impacted our media business. Promotions revenue in Q1 was 60% of total revenue and declined 6% year-over-year, which included expected declines in digital print of 27% and specialty retail of 20% year-over-year. On a trailing 12-month basis, our top 20 cohort grew 22% year-over-year, and all 3 cohorts together grew 12% year-over-year. GAAP gross margin for Q1 was 38.1% and includes an increase of $1 million in amortization of intangible assets due to the Ubimo acquisition. Non-GAAP gross margin in the quarter was 45.1%. Gross margins benefited from a higher proportion of promotion revenue in the quarter, offset by an increase in fixed costs, primarily from head count investments made in anticipation of delivering higher revenue. As we noted last quarter, we continue to be highly focused on improving gross margins through the year. As a step toward improvement, we set a goal of 50% non-GAAP gross margin by the end of the year, and we are on track with the initiatives we outlined in February to help us get there. GAAP and non-GAAP operating expenses were slightly up year-over-year but declined by roughly $2 million quarter-over-quarter. We continue to manage costs and invest where appropriate while driving greater efficiencies in the business. For example, we implemented a more efficient go-to-market model and revised our commission structure. We also slowed hiring and reduced marketing spend in the quarter. As a result, GAAP and non-GAAP operating expenses were lower than we anticipated. For Q2, we expect operating expenses to be roughly consistent with Q1 as we continue to manage costs into Q2 on lower revenue as a result of COVID-19. As CPGs resume spending, we feel confident in our operating plan to resume hiring as originally intended and to support our long-term growth. In this scenario, total operating expenses for the year would be mid single-digit growth overall and in line with our expectations at the beginning of the year. Given our total revenue expectations for the year have come down due to the impacts from COVID-19, adjusted EBITDA expansion for this year will not be as much as we originally anticipated, but we are confident that we'll gain expansion in 2021 as revenue picks back up. We delivered $5.1 million of adjusted EBITDA in Q1 2020, above the top end of the range, primarily due to product mix and lower operating expenses in the quarter. Looking at cash, in the first quarter we spent approximately $30 million related to the Ahalogy earnout. We ended the year with cash and cash equivalents of approximately $200 million, cash used in operations for the quarter was $8.9 million, but it included $15.4 million from the overachievement award associated with the Ahalogy acquisition. Excluding this, operating cash flows for Q1 would have been positive $6.5 million. Turning to guidance. As a reminder, on April 1, we made a change to a portion of our media business, which will impact our revenue growth rate and gross margin going forward. Revenue from certain media products are now being recognized on a net basis as opposed to growth. This change in our media business has no impact to our net income or adjusted EBITDA. However, it does impact our year-over-year growth rate. We're adjusting our forecast as a result of COVID-19. We have spent time with our CPG customers in April, working with them to plan and reschedule marketing campaigns that were affected by the impacts of COVID-19. While campaigns were delayed or put on hold during April, we are now seeing fewer delays and more stabilization in our bookings. Marketing plans are starting up again and new campaigns or continuations of existing campaigns are generally expected to start up again in June and July. We believe Q2 will be the most effective quarter with the back half of the year starting to show growth as campaigns start to get redeployed. Although we believe we should benefit from the accelerated pace of CPGs and retailers shift to digital, we remain cautious around timing. As a result, we are widening our guidance range. For the full year 2020, we now expect revenue to be in the range of $430 million to $470 million or approximately 3% growth at the midpoint. For the second quarter of 2020, we expect revenue to be in the range of $80 million to $90 million. While there is still some uncertainty about when business will pick back up again, we believe that Q3 revenues will reflect a return to year-over-year growth. Adjusted EBITDA for the full year of 2020 is expected to be in the range of $40 million to $55 million. For the second quarter of 2020, we expect adjusted EBITDA to be in the range of $0 million to $3 million. Given our current levels of investment in the business, we could be cash flow negative in Q2. However, the business has leveraged and we have cost control measures in place. Given our current level of investment in the business, we expect to be cash flow breakeven or slightly positive if revenues climb above $90 million. Given that, we expect we would return to cash flow positive in Q3. If the impact from COVID-19 persists longer than expected, we would take a harder look at our cost structure and make the changes we would need to preserve cash. We remain agile and focused on the balance between cost structure, cash preservation and the long-term opportunities that we have to grow the business. In summary, although we have a short-term impact in our business for 2020, we believe the long-term opportunity is greater than it's ever been. The current environment is amplifying the need for digital-first strategies, and we are excited about our growth opportunities given our market-leading position. I'll now turn the call over to the operator for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from the line of Shweta Khajuria from RBC Capital Markets. -------------------------------------------------------------------------------- Shweta R. Khajuria, RBC Capital Markets, Research Division - Assistant VP [2] -------------------------------------------------------------------------------- Okay. Two questions, please. First, on -- can you please talk about the recent news from Ibotta and Walmart? And how that changes the landscape, if at all? And then second is on just the overall ad market, you said -- just the advertising environment, you said mid-March through May and potentially June will be -- you will see headwinds, but you're seeing positive signs for Q3. I guess, can you talk about how your conversations have trended with the top 3 CPGs? What they have been -- what the conversations have been around? And what kind of improvement have you seen from late March to mid-April to end of April so far? -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [3] -------------------------------------------------------------------------------- Great. Shweta, thank you. It's Steven. So I'll address the first question. Generally, we don't talk about other folks of the industry, but there was some confusion generated by that. If you go to visit Ibotta's app now, there's actually a notice of it that this program is powered by Ibotta and not affiliated with Walmart Grocery. I think there was just some confusion in the marketplace like that was some sort of Walmart-sponsored or connected product. So I think that's just a vendor announcement. On the ad market question. Yes. So middle of March, April, May, we certainly felt the effects of out-of-stock situations. CPGs and retailers really just working as hard as they could to make sure they could supply people with the necessities that they needed, and paused or delayed a lot of the bulk marketing and promotional activity. I mean it doesn't make sense, right? If you're a shopper going into a store or ordering online, there's no reason to promote a product that either is an out-of-stock situation or flying off the shelves on its own. Having said that, budgets are budgets, and the paused or delayed programs are now being talked about, Q3 and Q4, turning them back on. So it's a bit of a compressed spring because those budgets will get deployed later in the year. In addition, some other events have taken place this year. The Olympics got postponed out a year. Sporting events clearly and unfortunately have been put on hold. There's a lot of confusion around media spend. And so in a year like this, and in particularly in election year, where an awful lot of advertising dollars take over the airways, CPGs and CPGs in partnership with retailers are talking and talking with us about how to deploy those dollars into working dollars so that they continue to support shoppers that are going to need support this year. Unemployment rates higher, recession clear, may be worse. So that's what we're seeing. We're seeing the compression of the spring and the release of it in Q3 and Q4. Those are the conversations we're having with our partners now. -------------------------------------------------------------------------------- Shweta R. Khajuria, RBC Capital Markets, Research Division - Assistant VP [4] -------------------------------------------------------------------------------- Okay. If I could add one more, please. What was the -- what is the expected impact from the accounting change in the Q2 guidance? -------------------------------------------------------------------------------- Pamela J. Strayer, Quotient Technology Inc. - CFO & Treasurer [5] -------------------------------------------------------------------------------- Shweta, this is Pam. I'll answer that question. So yes, as you're referring to the change that we made in our media business where now we are delivering certain media services in a different way, that leads to a different accounting answer that beginning April 1, so in Q2, we're going to be booking that revenue net instead of gross. When we did our earnings release in February, we estimated that for the year, it was going to be an impact of about $33 million. We haven't updated that forecast, and I'm not going to provide an updated forecast today. What I will try and do is provide some historical information on it, but forecasting in this environment, at that level of detail, one specific product line is challenging. So I'm not updating those numbers today. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Your next question comes from the line of Steven Frankel with Dougherty. -------------------------------------------------------------------------------- Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [7] -------------------------------------------------------------------------------- Steven and Pam, maybe start by clarifying a couple comments in the text you supplied. You talked about revenue mix going back to 46%, 47% media. Are you talking about that for the full year? Or is that a Q2 comment? -------------------------------------------------------------------------------- Pamela J. Strayer, Quotient Technology Inc. - CFO & Treasurer [8] -------------------------------------------------------------------------------- Yes. So let me expand on that a little bit. I think the way to think about the product mix going forward, I'd put it this way. If we return to an economic situation that's close to what we were like before COVID-19, then I would expect the product mix to stay around that 46%, 47% media revenue that we experienced at the end of last fiscal year. I would expect that to be relatively consistent through 2020. What we saw in the first quarter was a heavy mix towards promo revenue because the media business was the one that dropped off when store shelves were empty and CPGs wanted to pull back on marketing. So in a highly recessionary environment, we've looked back at what happened in 2008, 2009, and it's a strong environment for promotions. So in a recessionary environment, I would expect the promotion revenue to be a higher mix, and it might -- it would be closer to something like what we saw in Q1, which was 60% promo and only 40% media. So it's hard to predict at this point, but I do think that as we run into lost jobs and people concerned about income, there will be more mix towards promo. -------------------------------------------------------------------------------- Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [9] -------------------------------------------------------------------------------- Okay. And then one more numbers question before -- for you before I ask Steven a question. Last quarter, when you gave annual guidance, going back to the previous question about this accounting adjustment, you gave us an apples-to-apples number. So if the current guidance is now plus 3% at the midpoint, what would that be adjusted for this accounting change? -------------------------------------------------------------------------------- Pamela J. Strayer, Quotient Technology Inc. - CFO & Treasurer [10] -------------------------------------------------------------------------------- Yes. That would require that I update my forecast for that part of the business, which is going to be really challenging to give a forecast for a specific part of the business given where we're at just overall in our guidance, right? We expanded our guidance range to a $40 million range just because we're not sure where this year turns out. So it's going to be too difficult for me to forecast that right now, and I'm -- so I'm not going to update those numbers today. -------------------------------------------------------------------------------- Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [11] -------------------------------------------------------------------------------- Okay. Can't fault me for trying. And then -- and Steven, could you talk about the different opportunities you might have going after the C-Store category. And so what excites you about the 7-Eleven relationship? And how long does it take to ramp something like that? -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [12] -------------------------------------------------------------------------------- Sure. So it's a great question. I'm giddy with excitement. It's such a great channel. It's so important to many of our CPG clients. But if you think about beverage categories, adult beverage category, snack foods, they're really -- really an awful lot of opportunity there. And 7-Eleven has got a very well-regarded and large loyalty program. They're considered to be real leaders when it comes to digital. A lot of firsts from 7-Eleven. The first 24 hours, a lot of things grew out of the 7-Eleven brand. So I'm particularly excited about adult beverage category. 7-Eleven is the largest beer seller in the U.S. And so you, like we, have been reading a lot about alcohol consumption during the current environment. I will say it's a public service announcement. It's reputed to weaken the immune system. I'll just say that out loud. But I'm actually -- I'm super excited. This is a vertical that I've been interested in for a very long time. So -- and there's more to come. It's great. -------------------------------------------------------------------------------- Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [13] -------------------------------------------------------------------------------- Okay. And then, obviously, other plans you had for the year, like the point-of-sale couponing have been put on hold given the situation. How about, with the e-commerce uptick, what's going on with your paid search product? -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [14] -------------------------------------------------------------------------------- So I -- look, I can't talk about things that are unannounced, but what I can say is that we've never had a pipeline this robust. We've got engagement with more retailers now at one time than we've ever had before, and that includes the beginning days of launching Retailer iQ. And there is a very heavy focus. There's very sharp focus on e-commerce. But not just e-commerce as a stand-alone channel, it's really how do you integrate the experience so that the e-commerce experience mirrors that of the physical store experience. Because when all this is over, whenever that is, there will want to be a return to some normalcy. E-commerce will have established a new baseline for sure. So the sort of anemic growth of e-commerce traditionally has given -- has been given a real accelerant. But it's really about how retailers can synthesize the 2 so that when a shopper decides to do an e-commerce transaction or an in-store transaction or split their shopping or make decisions week by week, they have the same opportunities for discounting. And that happens in product search, it happens in list building, it happens in discount discovery. Also real quick, I think you said something about the POS couponing on hold. It's actually the paper couponing has been put on hold. I'm sure that's what you meant, but I just want to be clear. -------------------------------------------------------------------------------- Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [15] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [16] -------------------------------------------------------------------------------- Digital paperless couponing has not been put on hold. It's the acceptance of paper couponing that has been put on hold by a bunch of retailers. -------------------------------------------------------------------------------- Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [17] -------------------------------------------------------------------------------- Yes, that's what I was referring to. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Your next question comes from the line of Ralph Schackart with William Blair. -------------------------------------------------------------------------------- Ralph Edward Schackart, William Blair & Company L.L.C., Research Division - Partner & Technology Analyst [19] -------------------------------------------------------------------------------- Steven, I'll start with you. Just maybe circling back to your FSI comments where, I believe, you said industries forecast to decline about 20% in '20 and I think the same rate in 2021. But just given the unfortunate situation with COVID, are there any conversations you're hearing from your industry partners or maybe your customers about FSI, perhaps declining at a faster rate, given what's going on in the current environment? And then if so, how could that potentially impact the business perhaps in '20 and further in '21? -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [20] -------------------------------------------------------------------------------- Sure, Ralph. So we actually -- we projected over 20%, and we're talking to clients who are telling us. So we have data. Over 20% of the value in the FSI will be gone in 2021 and some of that will start in '20. So not 20% each year. But having said that, the recent events have actually caused some CPGs to take earlier action. And so we do know of cases where people have come out of the FSI entirely. That may not sustain itself for the whole year, but we do know that, that has happened. And I would expect that, that would continue to accelerate from here. Because again, having dollars allocated to a vehicle that has got longer lead cycles means that when something is not accepted in store, it's really uncertain now whether or not the virus will slow down in the summer heat or have a resurgence. And so having your dollars locked up in a vehicle, it doesn't give you the kind of real-time ability to move around is a risk for people. And the other thing -- I probably should have said it earlier, but I'll just state it now. These types of events, unprecedented, obviously, but happening in the first part of the year gives brands and retailers an opportunity to think about how they reallocate their budgets. When something like this or something like this were to in September, October, November, during back-to-school, Thanksgiving season, there's really no time to think about how to redeploy those budgets. And so I think that there's some really good thinking going on right now about being stuck in vehicles that may not be available to shoppers during the course of the year and how they can move those dollars elsewhere. And what we're hearing -- and actually, we put it in our shareholder -- our stockholder letter, sorry, some quotes from CPGs about moving dollars into working dollars, media and working dollars. And that's exactly the swim lane that we are in. -------------------------------------------------------------------------------- Ralph Edward Schackart, William Blair & Company L.L.C., Research Division - Partner & Technology Analyst [21] -------------------------------------------------------------------------------- Okay. That extra color is helpful. And then maybe one for Pam. I believe Pam, during the prepared remarks that you were reading, you talked about revising some commission structure. Just curious if you could provide any extra color on that. -------------------------------------------------------------------------------- Pamela J. Strayer, Quotient Technology Inc. - CFO & Treasurer [22] -------------------------------------------------------------------------------- Yes. So what I would say there is we've talked in the past about how Scott Raskin came into the company and really was focusing on our go-to-market efficiency and improving all of those processes. We did some key hires in Q4, a new SVP of revenue ops, new manager for customer success. With this new talent and some other changes, the overall efficiency of the go-to-market model has improved. And we've done that by investing more heavily in inside sales, investing more heavily in customer support team. We got a new marketing VP, and we're consolidating all of the marketing resources around the company to do a more effective approach with marketing. So all those things are helping us kind of streamline our go-to-market model and reduce account management that overall reduces the commission base. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Your next question comes from the line of Elliot Alper with D.A. Davidson. -------------------------------------------------------------------------------- Elliot Andrew Alper, D.A. Davidson & Co., Research Division - Senior Research Associate [24] -------------------------------------------------------------------------------- You mentioned that Q3 bookings are higher than historical trends from booking delays. How should we think about the cadence of your annual guidance and how it may differ from the past? -------------------------------------------------------------------------------- Pamela J. Strayer, Quotient Technology Inc. - CFO & Treasurer [25] -------------------------------------------------------------------------------- Yes. So let me talk about that a little bit. We have done a lot of work on, like I talked about, go-to-market, and part of that is really getting better visibility into pipeline and bookings. We think we've got better visibility into the pipeline today than we have ever before. And with that, we can compare how we're doing relative to quota and plan relative to prior quarters. And we're seeing a strength in the pipeline for Q3 that we wouldn't have seen at this point in time in other quarters. So it gives us some confidence about the second half of the year. When we came out with guidance -- revenue guidance for the year, I would just say the original revenue guidance for 2020 had a midpoint of about $490 million. And if you take a look at where we're at for the first half of the year between Q1 actuals and Q2 guide, we've really come down from what our expectations were on that $490 million number. Just in the first half, we're down maybe $30 million, $35 million, which would bring you down to more like a $460 million midpoint, $455 million midpoint, something like that. We put the top end of the guide at $470 million because we do think there's a reasonable possibility that all of these marketing campaigns that were paused or delayed will be restarted again in June, July, August and will be done on top of existing campaigns and plans the CPG customers had, which might result in even a higher half 2 for us than we were originally forecasting, but the low end of the range accounts for the fact that we just don't know timing. And so right now, we think that Q3 is going to be a strong quarter and it's going to be very consistent with what we would have expected pre-COVID-19. But it's also possible that this thing drags on and it doesn't come back as fast as we originally anticipated or maybe there's a little bit more uncertainty for a little bit longer. So the bottom end of that range accounts for those kind of scenarios. -------------------------------------------------------------------------------- Elliot Andrew Alper, D.A. Davidson & Co., Research Division - Senior Research Associate [26] -------------------------------------------------------------------------------- Okay. Great. And then off the CPGs rebuilding their pipelines, kind of on the other side of COVID, how are they thinking about their marketing campaign contract differently? You talked about better visibility. Could they be signing shorter-term contracts that could reduce visibility? -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [27] -------------------------------------------------------------------------------- It's Steven. So no, remember, we do most of our planning on an annual plan basis lying -- lining up to the fiscal years of our clients. And so they have budget allocated and then business is booked against that budget that's already been pre-allocated. So no -- the other thing I'll just add, just to add on to what Pam said before. I've been in this business for a long time. I stepped away for a little bit and came back. Our systems, for understanding our pipeline, understanding our forecast, holding people accountable have never been better than they are today. And so as you've seen, we've made a lot of changes in the management structure of the company since we've been back -- since I've been back and since Scott joined. And that really gives us a lot more comfort on how do we look at, how do we forecast, whereas historical, it's been a little bit hard to pin down. So I just wanted to add that. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- And our last question comes from the line of Nat Schindler with Bank of America. -------------------------------------------------------------------------------- Nathaniel Holmes Schindler, BofA Merrill Lynch, Research Division - Director [29] -------------------------------------------------------------------------------- Great. Steven, you said a portion of the FSI share will go to digital as they lose 20% numbers of their distribution. I'm sure that it will probably end up being higher given the death of papered coupons. But where would the rest go if it's not going to digital? Why are -- is there a change in CPGs' interest in promotions? Is the total number of discounted dollars changing? -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [30] -------------------------------------------------------------------------------- Nat, no, the total number of discount dollars really doesn't change very much at all year-over-year. You see macro things happening like in 2008 -- 2009, you saw a huge lift in the amount of promotions that were deployed and the redemption rates that went up, and that was because of the recessionary period. But we say a portion of it -- a portion could range anywhere from 1 to 99, right? Without being 0 or 100. And so I think that's more of a style comment than it is a substance comment. There's -- we think a large portion -- I mean I think a large portion would shift to digital provided on a like-for-like basis promotions move from analog to digital. -------------------------------------------------------------------------------- Nathaniel Holmes Schindler, BofA Merrill Lynch, Research Division - Director [31] -------------------------------------------------------------------------------- And also, did you see any -- at least the change in how people have been shopping with the closure of restaurants and everything else and kind of grocery stores seeing items being hoarded and off the shelf. Did you see anything that happened really quickly with how CPGs reacted to their promotional budget that they spent on your platform, which is flexible and able to be changed immediately as opposed to FSIs where you're talking 6 to 8 weeks ahead of time you would have -- they would have to make their decisions? -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [32] -------------------------------------------------------------------------------- Yes. Yes, we certainly did. And that's absolutely right. Look, one of the benefits of a platform like ours, and particularly our platform because of its integrated nature, is that you can make very quick decisions and react to the market. And that happens if you want to deploy or you want to pull back. And so mid-March, when things really started to get difficult, our platform allowed CPGs to, say, pause that program, delay the launch of that program or pause that program that's currently running, and we will relaunch it or we will launch it when we've returned to a situation where we have stock. And so that works to our favor sometimes and against us sometimes from a pure economic basis. But in the long run, it's ultimately this type of environment, this type of platform and capability that gives CPGs and retailers the comfort to deploy dollars, knowing that they can stop and start them as they need to respond. Ultimately, at the end of the day, the #1 most important thing is the shopper. And as long as you can make decisions quickly on a platform like ours to satisfy the needs of the shopper, that's going to be something that people are interested in. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- There are no further questions at this time. I will now turn the call back over to management for any closing remarks. -------------------------------------------------------------------------------- Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [34] -------------------------------------------------------------------------------- Thank you, operator, and thank you all for joining us today. As we enter this next phase of change with grocery e-commerce coming into its own and CPGs and retailers working more closely than ever before on their digital-first strategies, we believe Quotient, with the largest cross retailer network of CPG sales in the U.S., is well positioned for growth. Thank you again, and stay safe everyone. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.