Q4 2023 Cardlytics Inc Earnings Call
Participants
Nicholas Lynton; Chief Legal and Privacy Officer; Cardlytics Inc
Karim Temsamani; Chief Executive Officer; Cardlytics Inc
Alexis Desieno; Chief Financial Officer, Principal Accounting Officer; Cardlytics Inc
Kyle Peterson; Analyst; Needham & Co
Jacob Stephan; Analyst; Lake Street Capital Markets
Jason Kreyer; Analyst; Craig-Hallum
Presentation
Operator
Good day and thank you for standing by. Welcome to Cardlytics fourth-quarter 2023 earnings conference call. (Operator Instructions) Please note that today's conference is being recorded.
I will now hand the conference over to your speaker host, Nick Lynton, Chief Legal and Privacy Officer. Please go ahead.
Nicholas Lynton
Good evening and welcome to the Cardlytics fourth-quarter and full-year 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 regarding our future financial performance and results, including for the first quarter of 2024 and various product initiatives and impacts.
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-K for the year ended December 31, 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 in the 8-K that has been filed with the SEC. Today's call is available via webcast and a replay will be available for one week. You can find the information I've just described in the Investor Relations section of the Cardlytics website.
Please note that a supplemental presentation to our fourth quarter and full year results has also been posted on our Investor Relations website. Joining us on the call today is Cardlytics CEO, Karim Temsamani; and CFO, Alexis DeSieno. Following their prepared remarks, we'll open the call to your questions.
With that said, let me turn the call over to Karim.
Karim Temsamani
Thank you, Nick. Good evening, and thank you for joining our Q4 2023 earnings call. I would first like to reflect on 2023 as a whole, we started the year in a difficult position financially with the SRS. dispute presenting a significant challenge for the company. I'm glad we not only resolve this dispute, but also finished the year with positive annual adjusted EBITDA of $3.8 million. This is the first time since 2019 that we ended the year with positive adjusted EBITDA in 2023. We also made fundamental changes to our cost structure, including renegotiating partner contracts and rightsizing our expenses.
And we made key hires for tech, product sales and leadership team. All these efforts and results are a great foundation for us to continue to improve our business with the SRS. dispute resolved and our cost structure rebalanced, we can now fully focus on execution and growth as well as addressing our capital needs. I am delighted to add that we have just signed a large new banking partner as per the eight K we file within the last hour. Q1 is off to a good start, and we're expecting 12% to 16% billings growth when we exclude Entertainment, which we sold in Q4. And Alexis will provide further details on our financial performance later in the call.
Aside from our finances, we are making progress across our operational teams. Our sales teams in the US and UK are driving stronger growth and bringing advertisers back to the platform. As I mentioned, our bank partner team has just signed a large new bank partner in the US and we continue to have promising discussions with additional banks in the US and the UK. Our product and engineering teams are continuing to launch new products that improve the experience of our bank partners and their customers as well as provide more options for advertisers.
Let me provide more specifics on our progress. We continue to obsess about the outcomes we create for our banking partners. Customers and tech adoption is a foundational part of creating these outcomes. A new technology provides us the ability to run the network better surface, more relevant offers to bank customers and rollout new products more quickly. All these are great drivers for engagements, new content and growth. We continue to make progress on tech adoption with almost 80% of our network traffic now on AWS bank partners that are on AWS have the ability to adopt a decision engine already, and we are in discussions with the remaining banks who have not yet migrated to AWS.
We've mentioned that 80 will be a powerful driver for improvements over time by allowing us to interface with banks in real time and hence audience segmentation and offer relevance and improve dynamic targeted. So far, we are already on our third version of 80, 80% of our network is now ready with 40% of our network on the latest version for those banks already, we have seen a 23% increase in redemptions compared to a 9% increase increase across the whole network. We saw this trend continue in January, and we are confident that subsequent versions of AD will continue to improve redemption numbers. Our focus on the impact of Eddie on redemptions because we view driving redemptions as our North Star as they provide the best outcome for banks, their customers and our advertisers. And because the best way to increase redemptions is to increase engagement, we have focused on four key pillars to drive more engagement with our platform.
The first key pillar is content and insights. We are continuously aiming to improve the quality and variety of content on the network. We pride ourselves on being a high-quality, in-demand advertising solution for well-known large brands. We are seeing growth from our existing advertisers and are additionally seeing advertisers return that had previously left our network. The strength of our business resides in our insights, most competitive analysis focused on scan data from a limited number of retailers or is a subset of cutoff. Our data provides the most comprehensive scope across channels, card and geography, making our insights highly differentiated. However, historically, it's been a manual process for our teams to pull this data. We're fixing this. We plan to deliver an automated dashboard by the end of 2024 that will provide advertisers with a snapshot of the performance against industry benchmarks. This dashboard will give advertisers a self-serve view of the market.
Summer summary for the category, we'll let them visualize competitor activity, showcasing revenue transactions and customer growth across different brands.
Lastly, we will offer a customer centric dataset showing brand affinity, new customer and churn benchmarks. This is just the beginning of a growing list of insights use cases that we will be exposing over time as we productize more of these insights, we will also free up time from our analytics team to provide custom highly nuanced and actionable insights for our largest advertisers and bank partners. We believe this is a highly differentiated offering that will enable us to reduce churn and increase budgets over time.
Second key pillar is giving merchants customizable tools to optimize campaigns and offers. I wanted to highlight the success we had recently with receipt level off a test we did with a major U.S. airline. As a reminder, visit level offers offers tailored to specific product category items. In this case, the airline wants to promote a higher cash-back reward for flights that departed within the months as they were experiencing softer than expected booking demand in the low season to the airlines delight 45% of ticket purchases in the campaign where for the targeted time period and allowed us to close a renewal with the client just days later for campaigns that run the following month. This is one example of how our product initiatives are driving more targeted growth for advertisers and delighting their customers.
The third key pillar is making offers easier to discover and use with several of our banks. We are testing different placements for the core regions, call it buttons new entry points and alerts. All of these are at low volumes, but we have already shown a strong ability to increase engagement with the program. As an example, when one of our bank partners started placing offers on the line item transaction in customers' bank statements. We saw an activation rate for those offers. There was five times higher. Then the typical activation rate.
Fourth key pillar is a differentiated offering for each bank, AdTech and size of network enables us to create differentiated offering such as featured offers, increased Curations and proximity offer. We also relying on enrichment and customization of the offer experience. For example, we launched a unique event, the week leading up to the Super Bowl called the big game with one of our bank partners, big game targeted cardholders of that bank with featured cash-back deals for all of their party supply needs across multiple advertisers. This is the first of many 2024 initiatives where we will leverage our existing advertisers to target customers with unique tentpole events to increase engagement with the bank's rewards platform. With these four pillars in mind, we are building a best in class platform with a flexible platform API. It's a deep understanding of merchant data, a top-tier targeting and decisioning engine and a rich, highly differentiated user experience with a fantastic source of content and insights. All of this is hosted in the cloud and fully flexible.
Moving to bridge first-party data is the foundation for the cookie free world of marketing and Bridg continues to serve the leading retailers, QSRs and entertainment businesses, helping them to better understand the customers by expanding and on reaching the first-party data. For instance, we are helping one of the fastest growing grosses and hence the inventory management strategies by analyzing purchasing data, a partnership with a large, fast food restaurant allows them to grow their loyal customers by delivering hyper targeted promotions, Ripple, our retail media and data network that we recently launched provides CPGs and other brands flexibility in building sophisticated audiences, seamless access to a national footprint and user friendly tools that empower them to gain valuable insights, drive substantial incremental sales and accurately measure the impact of the campaign over the last few months, several leading retailers, including Wegmans and Guaranty, all have joined the repo platform, which translates to a national footprint of around 70 million profiles actively being loaded onto the platform. This has sparked interest from leading CPGs who have started running test campaigns. And this gives us great confidence that our strategy will pay off with our structure with a cost structure rebalance, we can now dedicate our time to returning to the higher growth rates we should expect from this business our Q4 results and projected Q1 progress give us confidence that we can do this. And just as I said last quarter, we are in the midst of a transformation that will spur growth. In addition to adding a new large banking partner, we're working towards a broader and deeper datasets, more sophisticated audience targeting targeting better analytics and reporting and a variety of ad formats that will drive increased engagement as we move past the core transformation that needed to happen in the business. Our belief in our long-term growth prospects continues to strengthen.
Now I'll hand it over to Alexis to discuss our financial results.
Alexis Desieno
Thank you, Karim. Before moving on to Q4, I want to echo Karim sentiments about 2023 as a turnaround year for Cardlytics with most of the acceleration occurring in the second half of the year. In 2023, we generated $453.4 million in billings representing 2% growth, and we generated 309.2 million in revenue, representing 4% growth, both versus the prior year. Adjusted contribution was 158.6 million at 11% growth versus the prior year. With the second half of the year, a 20% growth alone, adjusted EBITDA was positive for the first time since 2019 at 3.8 million and nearly $50 million better than in 2022. As Cary mentioned, we've made fundamental changes to our cost structure that will enable us to drive positive adjusted EBITDA and invest strategically in the future.
Let's move on to our Q4 results. We performed in line or better than expected with billings revenue and adjusted contribution. Consistent with our Q4 guidance and adjusted EBITDA exceeding expectations, we had our third consecutive quarter of positive operating cash flow and our second consecutive quarter of positive adjusted EBITDA. We continue to show momentum in driving top line after rightsizing our business. My comments will be year-over-year comparisons for the fourth quarter unless stated otherwise. In Q4, billings reached $131.9 million, a 5% increase due to continued success in everyday spend as well as travel. Our restaurateur restaurant category turned slightly positive in Q4 as the efforts of rebuilding our sales team are beginning to pay off. Revenue was $89.2 million, up 8%, partially driven by a onetime revenue related benefit of $2.2 million. Our top five customers accounted for 16% of revenue this quarter compared to 12% last year. And we continue to land new customers and expand existing customers. Geographically, U.S. revenue increased 8%. UK showed growth for the first time in several quarters at 4%. We re-signed Lloyds to a three year contract and started the implementation of our auto enrollment program. This means customers no longer have to opt into our offers, which has allowed our sales team to sell and deliver larger budgets. We expect to see continued sequential improvement and very strong double digit growth in the UK in Q1. As a result of these initiatives and our new leadership brands, revenue grew 12% due to an existing customer, expanding its contract as well as a new larger restaurant joining the platform. We will soon have over 70 million profiles in the database, and we believe we now have the scale to be relevant to CPG customers.
Adjusted contribution increased 18% to 47.3 million, with a margin calculated off of revenue of 53% compared to 48% one year ago. Adjusted contribution growth is partially due to the benefit of our partner share renegotiation. Adjusted EBITDA exceeded the high end of guidance, a positive $10 million, the largest in Cardlytics history business operating expenses came in lower than expected at 37.3 million and bridge was profitable for the third quarter in a row. Operating cash flow was 2.9 million and as previously mentioned, positive for the third consecutive quarter on the balance sheet, we ended Q4 with $91.8 million in cash and cash equivalents, and we had $16.7 million of unused available borrowings under our line of credit. This does not reflect the amendment to our line of credit, which we completed in February, which now allows us to borrow up to 75% of our eligible accounts receivable, up from 50% previously. We also confirmed the extension of the maturity on our line of credit by one year to April 2025. As a reminder, we paid $20 million at the end of January as part of our settlement with SRS. and we issued 3.6 million shares in February. We believe that our available liquidity is sufficient to support our long-term plans. However, our amendment to the line of credit is one of many steps we are taking to improve our balance sheet. Lastly, MAUs were $168 million and RPU was $0.53 for the fourth quarter, an increase of 3% and 8%, respectively.
Before I turn to guidance, I want to note that we added a new non-GAAP metric to our 10 K, which is free cash flow. We believe free cash flow is useful to measure the funds generated in a given period, but are available to invest in the business in Q4, free cash flow was negative $0.8 million and for the year, we were nearly $55 million better. And then 2022, to remind you. Q1 is seasonally weak due to consumer spending habits, which lead to decreased marketing budgets for most of our clients. Despite that, we are expecting double digit top-line growth in Q1 for Q1, we expect billings between 105 and $109 million, revenue between 70 and $73 million, adjusted contribution between 37 and 39 million, adjusted EBITDA between negative one and positive $1 million at the midpoint of our range for adjusted EBITDA. This would be the first time we would be breakeven in Q1. Excluding the sale of entertainment, our billings guidance represents 12% to 16% growth and a meaningful acceleration from Q4. I'd like to provide some additional color on what we are seeing in the top line, billings are being driven by continued success in the everyday spend and travel categories. We continue to see our largest clients spending more with us. The majority of our growth is from existing accounts, increasing their spend with us, and we are continuing to focus on getting new brands onto the platform in winning back lapsed brands. In fact, we are seeing good momentum and momentum in restaurants with the return of two major clients back on the platform over the next few quarters.
2023 was an instrumental year as we built the foundation for future growth and positive adjusted EBITDA. Our Q1 guidance implies further acceleration and shows we are making progress towards our long-term goals. As we look forward to 2024. We expect the momentum to continue, and we expect to make progress on our capital structure. We are excited about the addition of a large new bank partner and we'll provide more details about the launch when we are able to do so for fiscal year 2024, we expect to continue to operating leverage and our expectation moving forward is to have double digit billings growth for 2024 and to be operating cash flow positive on an annual basis. We are focused on our North Star redemptions and continue to drive consumer engagement, top line growth and adjusted EBITDA.
Now I'll turn it back to Karim for closing remarks.
Karim Temsamani
Thank you, Alexis. With each passing quarter, we have delivered additional progress in the business. The trajectory of our financials continues upward. We have signed a new large bank partner, and the transformation of our platform is well underway. I'd like to thank our teams for their dedication to the business. And I'd like to thank our investors for their patience over the last several years. I am excited about 2024 and Cardlytics long-term prospects.
Thank you for your support.
Question and Answer Session
Operator
(Operator Instructions) Kyle Peterson, Needham.
Kyle Peterson
Great. Thanks, guys. Good afternoon. Thanks. Second question I want to start off with the news on the new FI partner, and it's great to see. I just want to see if you guys could give us any color on the timing of the ramp in both in terms of billings and revenue contribution, but also will that require any sizable upfront expenses or CapEx for us?
Karim Temsamani
So keep in mind the squeezing of our models this year, happy to start and Alexis can can chime in as well.
I can we can tell you anything more outside of what we have referenced in the eight K with regards to timing on with regard to expenses, there's no major expenses upfront that you need to take into account. And obviously, as as soon as we can, we can talk more about the timing for the launch, we will we will talk to the market.
Alexis Desieno
Yes, I'll just add to that. On the full year comments I made, it does not include any material impact from the signing of this agreement, like many of our other bank partners implementation will take time. So we'll keep you posted on lunch, lunch, state and other information.
Kyle Peterson
Got it. That's really helpful. And then just a follow up on liquidity and cash. Some of you guys have you've done a really good job with expense structure of the credit facilities extended. But I guess what are some of the other kind of near term priorities? Are you guys are thinking about with regards to whether it's just liquidity or the longer-term cap structure for the business Okay.
Alexis Desieno
I'm sorry.
Yes, things.
And so obviously, we're focused on rightsizing our capital structure. It's priority for us, and we needed to address it in stages. First, we've needed to improve the business. So we've reaccelerated revenue and we've right-sized our cost structure and the next we needed to resolve SRS. Nothing would happen in a way that protected shareholders without these being addressed. So this is done and both of these have allowed us to extend the revolver and increase the amount that we can borrow giving us further flexibility.
So in terms of next steps. We're working hard on this and we have a clear strategy in place. And although I can't talk about specifics yet, I'm confident in our path forward. And again, we'll keep you keep you updated as we can. Does that answer your question?
Kyle Peterson
Yes, it looks certainly are perfect for us this quarter.
Operator
Jacob Stephan, Lake Street Capital Markets.
Jacob Stephan
Yes, hey, guys.
Congrats on the quarter and the guidance and the new partner win there. Just touching on the guidance here, I'd like to get your thoughts on how you're thinking about and, you know, the upside to billings growth. You're guiding to kind of mid 10s growth from, you know, is that being driven by increased customer spend? Or is that how much of that coming from increased engagement as well?
Karim Temsamani
Onshore?
And I'll let Chris chime in at the end, we're confident the steps we're taking to re-accelerate revenue growth at the midpoint and top of the range. I want to reiterate that we're going to be breakeven or positive adjusted EBITDA for the first time in Q1, which is really exciting. So our initiatives are really paying off and we're executing against our plan. And so we're focused on increasing inventory with new banks, improving our tech and product, investing in our teams to get great content and reduce churn. And our international business is growing double digits. So some of these initiatives are taking time, but very confident in the guide and excited for the quarter.
Yes.
Jacob Stephan
Okay.
Maybe just kind of touching on the multi-tier offers program.
And maybe it sounds like you've had good success with your airline partner, but maybe you could talk about where you are in the process of rolling this out to kind of the broader on client base.
Karim Temsamani
Yes, I'm happy to take that, Jacob. So obviously, these are sort of still tests that we're doing with a number of clients, and we're continuing to ramp that up with any client that's interested in has a relevant use case. We will update the market when we have a view of the sizing of this across the whole of the network. But importantly, those new product initiatives are not only positive benefits for the bank's customers, the advertisers and the clients, but they also allow our sales teams to have a normal discussions about the range of offerings that we have across the network. So even if some clients are not adopting them, it allows us to have a discussion about I bring more budgets to the platform so that so there's there are several benefits to these initiatives.
Jacob Stephan
Got it. I'll hop back in the queue here. Congrats, guys.
Operator
Jason Kreyer, Craig-Hallum.
Jason Kreyer
Thank you, guys, and we've seen a pretty nice uptick recently just in terms of new logos and the offer kind of bigger names coming into offers. And I'm just curious, can you talk about like in and some of those include and vendors that are coming back to the platform that have left in the past. And so just curious what you think is different right now, what's driving them or what's changed where you're getting audience with what appears to be larger marketers say, I mean, I want to stress the larger marketers have always been a focus.
So we are continuing to make strides with some of these clients and going back to on what happened last couple of years. Some of those customers that we had lost were not because of the performance of the platform, but because mostly of exchanges of strategy at these customers and some of the customers we also lost because we it did not have the right activity at the sales level and we fixed that now we know I talked about it in the last call that we were investing in sales teams and we are we have made a couple of changes and we've seen those changes essentially allow us to have stronger relationship with many of our customers now that there's plenty more that we want to do, and obviously now having new product initiatives that we can talk to customers about, including the risk level offers that we mentioned before also enable us to open doors and showcase our great benefits to customers. So I'm very confident that our strategy is really starting to pay off.
Karim Temsamani
And I know I'm very, very keen to continue to see this growth moving forward and accelerating LNR ADE. fund.
Jason Kreyer
It seems like I mean, you've been talking the last couple of quarters about it, getting all the right validation points that this is certainly working and providing better offers. What do you think is causing some FI partners not to migrate to that in a quicker way.
And so again, the vast majority of our network is now energy. So we were very pleased with that. And then subsequent improvements that we made to reduce just require a little bit amount of work at each of the partners, but it's very minimal. What we have is 24 seven network that's not yet on a die are mostly because there's larger tech changes that are required for these partners to move from on-premise, which was essentially our whole stack to and on cloud solution and now we are having promising discussions with these partners, but it just takes time for the larger lift to occur. So again, positive discussions, we'll hopefully update the market as soon as we can with regards to the timing for those banks to move.
Kyle Peterson
Okay.
Jason Kreyer
And then just one last one for me, please, on discovery. Yes, I think we've talked in the past about how as some FIs have moved, it offers around in different areas of their applications. It seems like they're there at least historically hasn't been as much volatility in consumer uptake or consumer activation. So I'm just curious if you can maybe talk about what things you can influence in terms of discovery or accessibility inside of an application that you think can can change consumer behavior and increase those activation rates?
Karim Temsamani
Yes, that's a great question.
I mean, what we haven't had in the past is a proper playbook and the right discussions with our bank partners to really discuss different placements for the widgets and different types of offers and different places where we can surface the offer.
Not only we're having discussions now with creating those playbooks.
But we also have an ability to provide some level of detail on how these are working for the bank customers that are that are using them. And again, as I mentioned earlier in the call, we've made it basically seeing in, for instance, with regard to line item transactions in a customer bank statement, we're seeing a five times higher activation than the normal attrition that you see and in the network. So we can go back to more bank partners and tell them this is what we see and then work with them with regards to implementing it also on the platform side, we feel much more confident that we have the right structure now that we're really basing those discussions on data rather than own sort of our view of what banks should be doing. And that's allowing us to have much, much better discussion.
Jason Kreyer
All right. Thank you, guys, and congrats on the new bank partner nCUBE.
Karim Temsamani
Thanks, Jason.
Operator
And I'm showing no further questions in the Q&A queue at this time. I will now turn the call back over to Mr. Karim Temsamani for closing remarks.
Karim Temsamani
Thank you very much, and this concludes our call. As I mentioned, we remain committed to positioning the business for future success. Thank you for your continued support and I look forward to our next discussion.
Operator
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and you may now disconnect.
