U.S. Markets open in 2 hrs 24 mins

Edited Transcript of QUOT earnings conference call or presentation 6-Aug-19 8:30pm GMT

Q2 2019 Quotient Technology Inc Earnings Call

Mountain View Aug 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Quotient Technology Inc earnings conference call or presentation Tuesday, August 6, 2019 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ronald J. Fior

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

================================================================================

* Chad Michael Bennett

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* David William Gearhart

First Analysis Securities Corporation, Research Division - VP

* Shweta R. Khajuria

RBC Capital Markets, LLC, Research Division - Assistant VP

* Thomas Ferris Forte

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Welcome to the Second Quarter 2019 Quotient Earnings Conference Call. During the call, all participants will be in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded and will be available for replay from the Investor Relations section of Quotient's website following this call.

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

--------------------------------------------------------------------------------

Stacie Clements, Quotient Technology Inc. - VP of IR [2]

--------------------------------------------------------------------------------

Thank you, operator. Hello, everyone, and welcome to our second quarter 2019 earnings call. Please note that slides to accompany the remarks on today's call are available on the IR section of our corporate website. On the call with me today are CEO and Chairman, Steven Boal; and Ron Fior, our CFO.

Before we begin, please note that during this call, you will hear forward-looking statements. These forward-looking statements include projections for our third quarter and full year 2019, our expectations for our solutions, partnerships, product launches, specialty retail and privacy regulations as well as the expected growth of investments and 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, risks and uncertainties that could cause actual performances or results to differ materially. Additional information about our factors that could potentially impact our financial results can be found in today's press release and in the risk factors identified in our quarterly report on Form 10-Q filed with the SEC on May 10, 2019. We disclaim any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise.

Please note that with the exception of revenues, operating expenses, gross margins and net loss, financial measures discussed today are on a non-GAAP basis and have been adjusted to exclude certain expenses. A reconciliation between GAAP and non-GAAP measures can be found in the financial results press release issued today and on the slide deck posted on the company's website.

And with that, I'll now turn the call over to Steven.

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [3]

--------------------------------------------------------------------------------

Thank you, Stacie, and welcome, everyone. Before we get started, and as you've just seen from our press release, we announced some executive management changes. I want to take a moment to thank Mir for his passion and dedication to Quotient and for helping us chart the strategic course for our continued growth and success. Mir will continue on through a transition period as a strategic adviser to me and the company. I'd also like to welcome Scott Raskin to the team as our President. Scott has been on our Board of Directors for the past 2 years, and we're thrilled to have him working with us full time. And as for me, I'm even more thrilled to be back as Quotient's CEO.

Now on to earnings. Revenue in the second quarter was $104.7 million, up 17% over Q2 last year, and adjusted EBITDA came in at $11.7 million. We also took down our second half guidance primarily to account for 2 specific things. The first, creating what we expect will be a 1 quarter shift in revenue. Our targeted offers printed at checkout will go live in Q4 instead of Q3, 1 quarter behind schedule, which has a meaningful impact in the back half of the year. Reasons for this delay are unrelated to our technology or implementation. The second relates to 3 of our large CPG customers. Their decline in spend on national digital coupons in the second quarter was greater than anticipated. And out of an abundance of caution, we're taking down projections in the back half of the year to reflect this. If we see a material upward change to spending levels by those 3 CPGs, we'll update our estimates at that time.

We're also seeing impacts from a faster decline in our specialty retail business, which we've said before we expect to decline over time, and I'll spend more about this later.

Outside of those specific items, we're seeing meaningful acceleration in all other strategic growth areas. Driving this growth is our targeting and measurement platform. It connects purchase and intent data across offline and online channels and reaches almost 100% of U.S. adult customers -- consumers. To put context around this, each interaction between a shopper and a purchase delivers transaction data that drives targeting and measurement. We are already capturing and using over 76 billion purchase events annually, representing $231 billion in sales. As we bring more data onto the platform, brands and retailers are scaling up their digital performance marketing. We're delivering more integrated campaigns than ever before and driving results that are much stronger than industry averages.

I'll now walk through a few highlights from Q2 with some additional color around promotions and media. One, Retail Performance Media or RPM is proving to be a key catalyst for growth. Not only does it drive an increase in targeted media, but the platform is also listing promotion revenue across RPM partner networks as brands look to build truly integrated campaigns. Through RPM, we've created one of the largest CPG and grocery retail advertising networks for brands to drive targeted marketing campaigns with the retailers that generate significant sales for them.

Two, our social influencer platform, Ahalogy, again delivered strong revenue across a growing number of CPG brands. We are starting to engage with our clients in a much more meaningful and strategic way.

Three, sponsored product search, where brands advertise directly on retailers' e-commerce property as shoppers search for products is live with Albertsons Companies. This better aligns brand search and e-commerce-related media dollars to sales and provides an alternative to spending on Google and Amazon, where a much smaller fraction of CPG sales occur.

Four, we rolled out Quotient Audiences, where brand marketers and agencies use our audience segment, which includes 2,500 CPG buyer ready segments, such as carbonated beverage buyers or lapsed brand buyers to deliver targeted ads through DSP, ad exchanges and publishers. Quotient Audiences now provides reach to over 100 million verified buyer audience and almost 100% of U.S. adults with our modeled segments. And just last week, we announced a strategic partnership with Nielsen to expand Quotient Audiences through Nielsen's Marketing Cloud. In addition, Quotient will connect directly to their insights and measurement solution, bringing seamless third-party validation to our clients. These initiatives are the pillars of our digital media platform and help fuel media revenue growth of 65% in Q2 over last year. We're very proud of the growth of this business and believe there continues to be a large opportunity as CPGs transition more of their $225 billion in annual spending -- marketing spending from offline to digital.

While we're doing an increasing number of campaigns that combine digital coupons and media, we continue to face headwinds in national coupon spend from 3 large CPGs we've mentioned before. Had revenue from those CPGs been flat with Q2 of last year, total revenue would have grown 20%. This is a larger decline than we were anticipating in the second quarter and impacted national coupons in both digital print and paperless. As I mentioned before, out of an abundance of caution, we're going to forecast this rate of decline to continue through the remainder of the year.

In general, these CPGs have decreased total promotion spend across offline and online channels as they follow a strategy of pricing up in the face of rising commodity costs and margin pressures. Pricing up takes place when brands stop discounting items, effectively raising prices on products that consumers purchase. Despite this headwind in national digital coupons, promotions revenue from retailer-specific CPG coupons, a key strategic and competitive advantage of ours, increased 53% in Q2, driven by -- primarily by our integrated packages that combine media with promotions. We started selling these packaged solutions last year and the 53% growth in this segment is a clear demonstration of the continuing success of this strategy.

Another headwind in promotions came from specialty retail. Although we have been projecting declines in this business, it declined more than expected in Q2, 24% year-over-year. This business is mostly dependent on search engine traffic, and to be cautious, even though this is a Q4 seasonally strong business, we're going to flow a larger rate of decline through the back half of the year forecast.

Last quarter, we talked about our key growth drivers. While 2 of these initiatives are delayed, we don't see anything causing us to be concerned about the fundamentals. The first, targeted offers printed at checkout remains an existing sizable revenue business that we are now entering for the first time. Our solution unifies the shopper experience between digital and print and gives retailers a fully integrated marketing solution, which we believe does not exist in the market today and will drive more coupons and integrated marketing campaigns on our platform. It's now live and in test mode at several stores and expected to be fully rolled out in Q4 alongside retailer marketing support aimed directly at the brands already spending large budgets in this channel.

Second, and as I mentioned earlier, sponsored search is live at Albertsons. However, additional work is needed by them to build exposure, and this delay is also expected to impact our forecast for the balance of the year. We look forward to expanding sponsored search to additional retailers throughout the remainder of the year.

I'm going to pause now and turn the call over to Ron, and I'll be back with you shortly.

--------------------------------------------------------------------------------

Ronald J. Fior, Quotient Technology Inc. - CFO & Treasurer [4]

--------------------------------------------------------------------------------

Thank you, Steven, and welcome, everyone. We delivered revenue of $104.7 million, up 17% over Q2 of 2018, while adjusted EBITDA was $11.7 million, representing an 11% margin. We recorded a GAAP net loss of $3.9 million, a slight improvement over Q2 of 2018. GAAP cash flow from operations for the second quarter of 2019 was $14.1 million, enabling us to end the quarter with a cash and short-term investment balance of $253.6 million. In summary, we continue to grow revenue, gain operating efficiencies and generate cash.

Revenues. Total revenue was up 17% over last year and reflected the positive impact of integrated campaigns from shopper marketing, and as Steven noted, growth in Retail Performance Media or RPM is proving to be a key catalyst for growth, driving increased use of targeted retail-specific offers in media. Our social influencer platform, Ahalogy, again delivered strong revenue growth again across a growing number of CPG brands. Against this positive background, we continue to see softness from the same 3 CPGs that impacted Q4 and Q1 as they continued reducing their overall national coupon spend in the market. Had these 3 CPGs kept their spend with us flat compared to a year ago, we would have delivered 20% total revenue growth over Q2 of 2018.

For additional transparency this quarter, we're providing the following color. Benefiting from the strength in social and RPM, media revenues were up 65% year-on-year for Q2. Revenue from promotions declined 6%, primarily in national coupons and primarily attributed to the 3 CPGs just mentioned. Specialty retail, primarily related to coupon codes, a business we have projected steady declines in, declined 24% over last year, much higher than the rate of decline over the past 4 quarters.

Looking at growth by customer cohorts on a trailing 12-month basis, we continue to see growth across our portfolio of customers in spite of the 3 CPG headwinds.

Moving on to gross margin. Gross margin in the second quarter declined due to continued product mix shift as media accounted for 45% of total revenue in the second quarter, up from 35% in Q1. This larger proportion of media revenue was above our internal expectations and was reflective of increased campaigns from shopper marketing, which typically have a greater proportion of media associated with it, offset by the rate of decline by the 3 large CPGs and promotions revenue. We expect to generate higher margin revenue from Quotient Audiences in Q3 and from targeted offers printed at checkout in Q4, balancing the margin impact of a higher proportion of media in the second half of the year. We expect our strategic partnerships to drive long-term growth in revenues over time and an increase in gross margin dollars.

Operating expenses. As we grow the business, we continue to actively manage our costs and leverage operating expenses. Q2 GAAP operating expenses were down 19% from Q1. The decrease in GAAP operating expenses primarily due to the net change in the fair value of escrowed shares and contingent consideration as well as lower R&D costs, reduced sales spend and lowered FICA costs overall.

Non-GAAP operating expenses in Q2 were up just slightly in absolute dollars compared to a year ago as we continue to invest in new products, absorb several acquisitions and increased our headcount by over 130 people during the year. We benefited from lower R&D and sales costs as well as reduced FICA overall. As a percentage of revenues, non-GAAP operating expenses continue to show leverage, declining from 40% of revenues in Q2 last year to 35% of revenues in Q2 of 2019.

Non-GAAP operating expenses exclude stock-based compensation, the net change in fair value of contingent consideration, amortization of acquired intangible assets, our ERP implementation costs, certain acquisition-related costs and restructuring charges.

Adjusted EBITDA. Adjusted EBITDA was $11.7 million and was impacted by the product mix decline in gross margin, offset by continued leverage in operating expenses. Adjusted EBITDA excludes interest expense, income taxes, depreciation and amortization, the net change in the fair value of escrowed shares and contingent consideration, stock-based compensation, restructuring charges, other income expense and certain acquisition-related costs.

Stock buyback. In May of 2019, we announced a 1-year stock buyback program of up to $60 million. Our goal is to move more aggressively than the plan put in place last year. And as of July 16, we have completed the program, buying back approximately 5.5 million shares for $60.1 million, including transaction costs.

Moving on to cash. We ended the quarter down $33 million from the end of Q1 of 2019. The reduction can be attributed to approximately $43.7 million spent on our stock repurchase program, interest paid on the convertible debt of $1.75 million and $1.8 million related to net share settlements upon vesting of restricted stock award issued to our employees, which have the same effect of stock repurchase, partially offset by cash generated from operations. GAAP cash flow from operations for the period was $14.1 million.

Let's now talk about guidance. We are lowering our full year revenue and EBITDA outlook based on the following. One, retailer delays. Our sponsored product search was up and running almost a full quarter late and the full rollout of targeted offers printed at checkout has been delayed until Q4. We expect the combination of these delays to impact full year guidance by approximately $15 million. We expect revenue from these new products to normalize in 2020.

Two, the softer promotion revenue from the 3 large CPGs impacted Q2 revenue to a greater degree than originally anticipated. We expect their continued decline in national couponing to impact our full year guidance by approximately $15 million. We believe these 3 CPGs will resume spend gradually as their integrated digital marketing strategies settle in.

Three, the decline in specialty retail revenue was greater than expected in Q2 and much higher than the rate of decline over the last 4 quarters. We expect this to impact full year guidance by approximately $5 million as specialty retail is more weighted to the back half of the year due to seasonality.

Four, keep in mind that our revenue adjustments are for products that generally have higher gross margin, and therefore, impacts full year adjusted EBITDA expectations as well. For the third quarter of 2019, we expect revenue to be in the range of $108 million to $112 million. We expect adjusted EBITDA to be in the range of $11 million to $13 million. For the full year 2019, we expect revenue in the range of $422 million to $432 million or approximately 10.3% growth versus last year at the midpoint. Adjusted EBITDA for the full year of 2019 is expected to be in the range of $42 million to $48 million or approximately 10.5% of revenue at the midpoint.

As Steven mentioned earlier, except for the timing shift in revenue associated with 2 of our products and the 3 CPGs who have reduced their spending, all our strategic growth businesses have demonstrated strong growth.

I will now turn the call back to Steven.

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [5]

--------------------------------------------------------------------------------

Thank you, Ron. I want to be clear about our conviction in the business as a market leader and the strength of our solutions and our strategy going forward. Our large CPG customers and retailers are making transformational shifts in their businesses, and we remain their trusted strategic partner of choice. We believe our technology data and industry expertise sets us apart in the market and the fundamentals of our business remain sound and provide opportunity for growth over several years.

One, we are the market leader in CPG digital coupons and built the largest platform for digital paperless delivery. Two, we've built a fast-growing approximately $200 million media business over the past 2 years due to the expansion of our solutions, strategic retail partnerships, and all differentiated by data. And three, we have one of the largest data platform servicing our marketplace. As I said earlier, we process over 76 billion shopper transactions annually and use that shopper data to drive targeted digital promotions and media and for measurement. We're also just starting to expand distribution of our consumer segment, giving brand marketers the option to use our rich shopper data outside of our advertising services network. And lastly, at a macro level, brands and retailers continue to drive digital initiatives to meet increasing shopper demand for omni-channel experiences. The need to drive increased sales more efficiently has never been higher, and at the center of these initiatives is data as a greater importance is placed on consumer insights, one-to-one shopper relationships and greater marketing efficiency. Our platforms work in unison to bring all of this together and serve the needs of our brands and retailer partners.

I'd also like to announce that we will be holding our first Investor Day on November 13 in New York City. Details will be sent out shortly.

Thank you, and I'll now open the call up for questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Shweta Khajuria from RBC Capital Markets.

--------------------------------------------------------------------------------

Shweta R. Khajuria, RBC Capital Markets, LLC, Research Division - Assistant VP [2]

--------------------------------------------------------------------------------

Two questions, please. Steven, will the strategic direction of the company be any different going forward with you as the CEO? And if so, how? If not, what are -- what changes do you expect over the next 6 months or a year? And second, on the guide and the delay in product delays. Could you talk a little bit on how big of a surprise that was in terms of the delay for both products? And if it was not technologically related, what was the reason for the delay?

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [3]

--------------------------------------------------------------------------------

Sure. Thanks for the questions. So let me start with -- let me start with the guide and end with strategy if that's okay. So if you recall back in 2015 or so, we had an awful lot of implementation going on. And we're working with very large partners, and they have their own implementation strategies as well and with regard to other products. But everything touches each other when you're working towards integration of point of sale. And so we are subject to systemic delays that happened when our clients are in the middle of doing their own product rollouts. And so that really is at the heart of what some of this was. We actually got confirmation yesterday, so your question's even more timely, that notice has gone out that we are, in fact, launching in Q4 at scale with coupons and offers that are printed in store. And so there's no change in our thinking around those products. They're existing markets. There are an awful lot of budget spent that way. They're effective. And I think that the way that we've implemented is even going to be more effective because these things tie directly to their digital solutions.

Going back to your question about strategy. The strategy that we're on is absolutely correct. We're being very well received in the marketplace. We're scaling up the growth parts of our business. Am I going to take a look at everything we're doing? Of course, I am. But I've been involved in the business all the way along, and so you should not expect any material change to strategy. I think that we're on the right course. And the feedback front that we're getting from the marketplace would echo that back as well.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Your next question comes from Thomas Forte from D.A. Davidson.

--------------------------------------------------------------------------------

Thomas Ferris Forte, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [5]

--------------------------------------------------------------------------------

So I have 3 quick ones. So the first one I had is for Ron on earnings visibility. Can you remind us when you're heading into a quarter, how much visibility do you have in general on sales through both the current quarter and the next one? And then for Steven on privacy, how should investors think about increasing government regulation when it comes to protecting consumers' privacy? And how does this represent both a challenge and opportunity for Quotient? And then lastly, on capital allocation, we ended the quarter with $250 million in cash on the balance sheet. How should investors think about the potential for an accelerated repurchase program?

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [6]

--------------------------------------------------------------------------------

Ron, why don't you take the first question?

--------------------------------------------------------------------------------

Ronald J. Fior, Quotient Technology Inc. - CFO & Treasurer [7]

--------------------------------------------------------------------------------

So on the first question, we typically have between 70% and 80% of the current quarter booked and when we go into the conference call and we have our conversations with you. The next quarter is a much smaller percentage. We generally -- that's really what it is.

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [8]

--------------------------------------------------------------------------------

Okay. Let me talk about capital allocation and privacy. So on privacy, you're specifically, I think, referring -- at least top of mind here, is the CCPA initiative in California. And look, the answer to that is the law is influx. There are a number of amendments that are pending in the state's senate. Some of them are being revised, A.B. 846 was recently revised. Is there a risk? Of course, there's a risk. We're working very closely with our retail partners. Again, this is California specific. It is influx. Nothing has been settled yet. But there is also an opportunity. And that opportunity is that we're getting ahead of it. And because of the way we think about data and consumers and protecting privacy, we have an opportunity to have influence into the discussion here. So that's what I would tell you. We're on top of it. We're working very closely with our California retailers. And it does present a risk, and it also presents an opportunity. And when that settles, we'll be able to action it a little bit more clearly. But right now, it hasn't settled.

On capital allocation, we're really bullish on the business, really bullish on the business. That has not changed at all. And we hit the limit of that last program. And all I'll say is, we're really bullish on the business. Hopefully, that answers the question for you. If it doesn't, tell me now.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Your next question comes from Chad Bennett from Craig-Hallum.

--------------------------------------------------------------------------------

Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [10]

--------------------------------------------------------------------------------

So just questions on the guide in the second half, bring down of the guide, I guess. So I'm just curious, maybe this is a broader question. When we gave guidance for the year, quite frankly, the timing of the point-of-sale, targeted coupon point-of-sale stuff with Albertsons, I think was probably iffy at best for midyear. So my guess is you would heavily discount or normally you would that in a full year guide for sure, starting the year. And then secondly, sponsored search, I think, was equally as early. And I'm not sure, I'd love to hear an elaboration on what the issue with that is inside Albertsons scaling. But I'm just trying to understand kind of the logic behind guiding the way you did, considering those variables coming into the year.

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [11]

--------------------------------------------------------------------------------

It's a fair question. We've gotten better over the years as we integrate with our clients and particularly with the retailers. We've gotten better at predicting the outcomes. Contracts are one thing, and you can't bet on the timing of a contract. But financial commitments in the marketplace, marketing commitments all line up to give us more confidence. And like I said before, it's a 1 quarter delay. The opportunity is so large. Again, for example, on the offers that are printed in store and particularly when tied to digital, that a 1 quarter delay really does have that kind of impact. So we're disappointed that we're delayed, but there's no change to the outlook of the business for us. And like I said, just yesterday, we got confirmation that we were on schedule for full release in Q4. And we already are live, by the way. Just to be clear, we are live in stores. But the way these programs generally work, and I'm not going to talk about Albertsons specifically, but generally, the way these programs work is you do 1 store, you do 10 stores, you do 100 stores, you do 1,000 stores, you do the program. And so those are measured steps because these are very, very high-volume environments. And so disappointed it's a quarter late. In the grand scheme of things, this is a fantastic business for us. And it's been a lot of heavy lifting you get here, so I'm really excited to see it go live.

Actually, I've actually seen it come out of the point-of-sale. They look great. It's a really, really great shopper experience. And that was a really great job defining that shopper experience on paper. So -- and then with sponsored search, same thing. It's a great opportunity. We have everything spinning in the right direction. And then it takes -- because these things are website date and update, you have to then direct traffic in that direction. And directing traffic in that direction takes a little bit of web work, a little bit of mobile work. So that's it.

--------------------------------------------------------------------------------

Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [12]

--------------------------------------------------------------------------------

Okay. And then maybe a couple of other questions on Audience Cloud, specifically. So just so again, nobody gets kind of out in front of something they shouldn't from a material nature of -- from a revenue material nature. So what are the expectations for Audience Cloud starting as soon as this quarter? And kind of maybe give everybody an idea of, obviously, you announced the Nielsen partnership, how -- kind of the economics behind that partnership, at least structurally, how they will work for Quotient and maybe expectations, whether it's Nielsen or Audience Cloud in general for the next 6 to 12 months.

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [13]

--------------------------------------------------------------------------------

Yes. This is going to sound like a cop out, but I don't have that information at my fingertips, and I need to drill into that. But I will say this. We don't expect material impacts from Audience Cloud in 2019. We've been working very hard to get this platform into the marketplace. It is in the marketplace now. We gave some insight into it on the call today that we've never given before. And this goes back to an early question about forecasting and predicting the future. Until we actually had the data, we didn't project it. But I think you heard today, we are now processing 76 billion purchase events in an annual basis. And we're using that data. It's not like we're warehousing. We're using that data. It ladders up to $230-something billion in purchases, and that's informing the segmentation of Audience Cloud. So between our relationship with Nielsen and others that will come out in the marketplace and our own work on it, we're really excited. This is one of the big growth pillars of our business, and it doesn't just happen on our platform. But also, as you would expect, as we make these products, services, segments available on DSPs, on ad exchanges in private cloud, that's where the real scale comes from. And I just don't believe -- and I'm saying that -- I mean, there's a factor that I just don't believe that there's anything like this in the marketplace. There never has been, and there isn't anything close to it in size and scale. And so we'll be able to give you more information on that. We're going to be more transparent about this, but it's going to be 2020 where you're going to feel the impact.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Your next question comes from David Gearhart from First Analysis.

--------------------------------------------------------------------------------

David William Gearhart, First Analysis Securities Corporation, Research Division - VP [15]

--------------------------------------------------------------------------------

My first question, I wanted to focus on gross margin for a minute. You had mentioned on the previous quarter, Mir, I believe, on 48% plus or minus as a gross margin level, where things could settle out and build from. Obviously, the mix has shifted a bit toward media. Just wonder if we can get your thoughts on how gross margin should kind of trend for the year and how we should be thinking about it, especially from a mix perspective.

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [16]

--------------------------------------------------------------------------------

Sure. Thanks for asking. Look, our gross margin story is all about product mix right now. Media represented 45% of revenues, up from 35% in Q1. We do expect stability in gross margin for the remainder of the year, and we expect gross margin to improve in 2020. What that specific number is right now, I can't tell you. But you will see gross margin improvement in 2020. And it's a focus of ours as a company. So you're going to see us putting up -- us shine a brighter light on gross margin on a go-forward basis.

--------------------------------------------------------------------------------

David William Gearhart, First Analysis Securities Corporation, Research Division - VP [17]

--------------------------------------------------------------------------------

Okay. And then in terms of the CPGs, you talked about those 3 and as their digital strategies that things come together, there is a possibility they return and ramp and have greater activity. Just wondering, what has the conversations been like with these 3 companies? Is there any additional color that you could provide on some of those conversations that they've occurred?

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [18]

--------------------------------------------------------------------------------

I can't give you specifics, but what I can tell you with enough around it to give you some directional information is that those 3 CPGs are cutting their national promotion spend across the board. It's not just digital. So if it were the case, they were cutting digital and growing offline, that would be a different story. And that would pose as a different kind of concern. But this isn't an across-the-board decline in their spend in promotion, which really is a pricing strategy. So instead of raising price in-store, you raise price by cutting promotion. And so is that sustainable? We don't believe it is. The rest of the market isn't behaving that way. And again, if we see a return to national promotion spend by those CPGs, and it has an impact on us in the back half, we'll revise, and we'll let everybody know.

On retailer-specific promotions, I mean, those numbers are way up across the board. And that's the trade and spend that we're talking about, the marketing spend that we talked about, the $225 billion that runs across all of that. Our strategy of building RPM and integrating with retailers and becoming the fabric between CPGs, retailers and consumers, that is proving to be very strong, and that will continue to grow from here. So it's really just about national promotion spend and really in the hands of 3 of our largest clients.

--------------------------------------------------------------------------------

David William Gearhart, First Analysis Securities Corporation, Research Division - VP [19]

--------------------------------------------------------------------------------

Got it. And then lastly, I noticed that the breakout between the various revenue lines were not provided explicitly in the presentation. Just wondering if we can expect a different reporting format going forward in terms of the complexion of the business on the top end.

--------------------------------------------------------------------------------

Steven Robert Boal, Quotient Technology Inc. - Founder, Executive Chairman & CEO [20]

--------------------------------------------------------------------------------

It's a very fair question. So if you recall in the past, we said we're not going to be breaking these things out anymore. Given the fact that we're revising down in the back half and we've had management changes, we decided to be more transparent and give more information so that there was no underlying concern about the health of the growth parts of the business. We are talking about KPIs, metrics and visibility here, and so we'll get back to you on the next call, on the next earnings call, with what we expect to be the visibility on a go-forward basis. We want to be consistent, but we also didn't want to show up today and say, "Here are the top line numbers. We're not giving any more data. We revised down and we changed the management team." So we thought that it was -- we thought it was appropriate to try and give more data out.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

We have no further questions. And this does conclude today's conference call. You may now disconnect.