Good day, ladies and gentlemen, and welcome to the third quarter 2018 Cardlytics Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and the instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Kirk Somers, Chief Legal and Privacy Officer. You may begin.

Good afternoon, and welcome to Cardlytics third quarter 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 projected 2018 fourth quarter and full-year financial results and operating metrics; 2019 preliminary growth expectations; business strategies; expected long-term growth and profitability; and other forward-looking topics such as: anticipated growth in monthly active users from Chase and Wells Fargo; the impact of anticipated Chase launch; growth in monthly active users and in new verticals including travel, e-commerce, grocery and premium brands; our ability to sell premium inventory at increased prices; growing ARPUs; enabling automated buying and campaign validation; integrating into third-party advertising system; and improving market adoption and customer engagement with real-time and location capabilities. For a discussion of the specific risk factors that could cause our actual results to differ materially from today's discussion, please refer to the Risk Factors section of the company's 10-Q filed August 14, 2018, and in subsequent periodic reports that the company files with the Securities and Exchange Commission. Also during this call, we will discuss non-GAAP measures of our performance. GAAP financial reconciliations and supplemental financial information are provided in the press release issued today and the 8-K filed with the SEC. Today's call is available via webcast and a replay will be available for two weeks. You can find all of the information I've just described on the Investor Relations section of Cardlytics' website. Joining us on the call today are Cardlytics' leadership team, including CEO and Co-Founder, Scott Grimes; COO and Co-Founder, Lynne Laube; and CFO, David Evans. Following their prepared remarks, we'll open the call to you for your questions. With that, let me turn the call over to Scott Grimes, Cardlytics' CEO and Co-Founder. Scott?

Thanks, Kirk. And thank you to everyone for joining us on our third quarter earnings conference call. On today's call, we'll discuss our third quarter 2018 results, provide you with an update on an upcoming bank launch, and discuss our plans for the remainder of 2018. Total revenue for the third quarter was $34.6 million. Our core Cardlytics direct revenue grew 14% year-over-year to $34.4 million, primarily reflecting continued growth with new and existing marketers and early entry into new verticals. David will discuss additional details around our revenue and adjusted EBITDA, along with other financial and operating metrics later in his prepared remarks. While we've beaten the bottom line, we were disappointed that revenue did not meet the guidance we provided there in the Q2 earnings call. This was primarily due to a couple of advertisers' unexpectedly not participating in the platform here in September, creating a gap that we weren't able to fill quickly. On a much more positive note, we are excited to announce that we will be rolling out Cardlytics Direct with Chase in the coming weeks. Once it's fully launched, Chase will extend offers to their credit and debit card customers nationwide via mobile and online banking along with e-mail. While we don't speak to metrics for individual banks, a launch with Chase would significantly increase our MAU base starting in Q4 2018, and continuing into Q1 and Q2 of 2019. Launching this important national bank will further strengthen our ability to deliver impactful and profitable growth for marketers. Lynne and I are proud of our team's hard work and flawless execution in preparing for the Chase launch. But nobody is taking a breather as we continue our efforts to consolidate the U.S. banking market for purchase intelligence. As we have discussed the last few…

Thanks, Scott. I would like to provide some more detail on the accomplishments and the challenges the company faced in Q3 and moving into Q4. As Scott mentioned, launching a national bank is an enormous effort. Chase represents one of the most significant implementation in Cardlytics' history, both in terms of the overall scale and complexity. As we discussed before, we dramatically increased the capacity of our systems and our processes to handle a material increase in MAU, and to manage the distribution of media across a broad range of consumer touch-points. And we are doing this during the biggest quarter of the year for our existing marketers. In 2018, our technology and operations team have been preparing for the launch of two national banks. They have accomplished a tremendous amount, both ahead of schedule and under budget. We can now focus these resources on the investments we need to serve more advertisers in an increasingly effective way. We have been preparing our marketing clients for significant scale in 2019 for the past several months. The overall receptivity to our new scale is encouraging. Marketers are looking for brand-safe ways to invest their marketing dollars. Our platform now brings the significant scale they require and also provides unique benefits. Our platform is a pristine advertising platform. There are no bots, there is no fraud, there are no viewability issues and there is no unsavory content. We are a channel where marketers can reach real customers, who has bank accounts and spend money. And, of course, we have the ability to target people based on actual purchases and then measure the results of their advertising using actual purchases. These are unique advantages of our platform and marketers are engaged. Historically, we've concentrated our efforts on building bank partnerships to grow MAU…

Thanks, Lynne. Revenue within our core Cardlytics Direct business was $34.4 million, representing 14% year-over-year growth over the third quarter of 2017. Our U.S. Direct business was up 20% year-over-year in Q3, partially offset by a temporary decline in our UK business. Revenue for our direct business fell short of our expectations in the third quarter, primarily due to a few anticipated advertisements that were not in the channel. Total revenue for the third quarter was $34.6 million, representing an increase of 10% over the third quarter of 2017. Revenue from other platform solutions was approximately $0.2 million compared to $1.2 million in the third quarter of 2017. Our third quarter core Cardlytics Direct revenue growth reflects growth from new marketers, improved engagement enhancements with our banks and year-over-year growth in MAUs. MAUs grew 7% over the third quarter of 2017 from 55.4 million to 59.3 million. Consistent with our commentary on our last call, we expect significant MAU growth in the first half of 2019 continuing into 2020 as we prepare to launch Wells Fargo in addition to Chase. Our third quarter 2018 ARPU was $0.58, up 6% from $0.55 in the third quarter of 2017, reflecting continued momentum with our marketer base. Total adjusted contribution profit was $17 million in the third quarter, up from $16.2 million in the prior quarter and down slightly from $17.2 million in the third quarter of 2017. To be fair, during the third quarter of 2017, we reversed a non-cash guarantee shortfall growth of $3 million. And during the third quarter of 2018, we recognized a positive impact and true-up from the Lloyds' revenue share contract change of $800,000. Excluding these benefits, total adjusted contribution profit represents 14% year-over-year growth and Cardlytics Direct adjusted contribution profit represents 17% period-over-period growth, when excluding…

Thanks, David. We are excited about the significant investments we have made to expand our MAU scale over the past three quarters. We believe our team's accomplishments, position us well for accelerating and sustained growth for many years. With the addition of two new national banks, we will be able to deliver great value to the majority of bank customers in the United States. We will be able to bring powerful new insights to our marketing partners. And with these insights, we can deliver profitable sales growth at scale, both in-store and online, through our trusted, brand-safe, fraud-free Cardlytics Direct native advertising channel. 2018 was about building MAU scale with largest U.S. banks. In 2019 and 2020, we will focus on monetizing that scale by driving the usage of performance of the inventory across our bank partners. With that, I'll open up the call for your questions. Thank you.

Thank you. [Operator Instructions] Our first question comes from Doug Anmuth of J.P. Morgan. Your line is now open.

Thanks for taking the questions. I just wanted to ask two. I guess, first just on Chase, I know you said that you don't expect much in terms of 4Q. But can you just talk about as you go into 2019 and then maybe even into 2020 as well, just how you think about the path of kind of timing around MAU increases related to Chase and how that can ramp, and then also how ARPU should follow on - and implementation this big? And then secondly, just on 3Q and the advertising, any particular reason why those couple of advertisers pulled that you noted? And then, how can you get the advertiser base to kind of really have that scale and kind of density where a couple of advertisers are not impacting your results to this degree? Thanks.

Okay. Thanks, Doug, and good afternoon. Hey, before I answer your questions, Doug, let me sort of add one clarification to the prepared remarks we had. The launch of Chase is now officially underway with Chase's mobile app users, with e-mail, and online banking to follow. You will be hearing a lot more from Chase about that soon. We'll let them communicate the details of the launch, but we'd whenever I know it's officially underway. Doug, to now go back to your questions, first of all, as we have talked about 2019 and we're certainly not ready to give 2019 guidance today, but as we've talked about it, we believe in 2019 and 2020 our constraint on growth will not be MAUs, will not be our inventory. We have a ton of MAUs and ton of inventory. It would be the rate at which we drive advertiser adoption. And one thing that we're really trying to emphasize on this call is now that we have stood up the infrastructure that we've really worked hard in 2018, we're kind of pointing our guns of the things we need to do to drive that advertiser adoption. To touch, to get to your point about the shortfall we had in Q3, the - every quarter we have some advertisers come in later in the quarter that we didn't project and we have some advertisers come out. Frankly, we just had a few fall out without some of the ones averaging coming at the end of the quarter and that we didn't see it when we gave the guidance. It wasn't anything that'd lot more complicate that. That being said, when we were talking about the investments we're making in 2019 and 2020, we believe as we become more and more part of the automated buying processes that our advertisers use for their other types of digital media, it just makes it easier for more advertisers to buy from us, frankly, for us to cost effectively serve more. And it makes it more efficient for them to use this in kind of an always-on advertising modes and the IO base model we have today. So I think we have our arms around what we need to do to serve more advertisers at scale better than we do today and we're starting to make the investments to go and do that.

Okay. Thank you.

Thank you.

Thank you. And our next question comes from Aaron Kessler, Raymond James. Your line is now open.

Great. Thanks a lot. Couple of questions, maybe just a follow-up on that. You talked about kind of the integration of what's the ad platforms, maybe as you go into 2019. Can you just give little more details on that? It seems like it's a little bit of maybe a different user experience though from a different type of ad, does it work that seamlessly? And then second, if you're going to talk about maybe the organic MAU growth, how are you looking to try that as we go into 2019, especially once you kind of get the larger base of MAUs? Thank you.

Yeah, yeah. Thanks, Aaron. Thanks for the questions. So we see the journey of tying into the ad platforms as definitely a multi-year journey, both in 2019 and 2020. We actually think the way we run the media today we can support it through the automated buying processes. But we also think there is an opportunity to bring, like Lynne mentioned, things like premium ad units into the user experience, which will make the user experience more engaging for users and more engaging for our banks also. So we will kind of talk about these enhancements. We're making kind of quarter-over-quarter as we rolled them out in the market, similar to what we did with Nielsen this quarter. What was the second question?

The MAUs.

Oh, the MAUs, so we obviously talked about the growth at Chase they may use today. We will see that growth both in Q4, and going into Q1 and Q2. We are also tracking on the Wells implementation. And that will, of course, be a big driver of MAUs in 2019 also. And behind all of that is digital banking continues to grow at a high-single-digits growth every year. We benefited from that across all of our banks and that will continue to drive MAU growth. On top of the MAU growth we get from bringing new banks online.

Yeah, and the question just as it relates to organic. I think, we've told people in the past, historically it's just a mid- to single-high-digit type of growth rate that we would get organically. I think we saw that this past quarter. We got 1.5% growth sequentially and I would expect to see us kind of continue to make the same types of enhancements across the board that would translate into continued improved MAU growth.

And then, actually…

Go ahead, Aaron. I'm sorry.

I was going to quickly ask, the lower FI cost we saw in the quarter is about 52% of revenues. Does that be one-time item, some of that, or can you just what the - can you just give us more color on that, why they dropped down sequentially?

Yeah, you've got an $800,000 good guy on FI share. And it was predominantly that.

Okay. Got it. Thank you.

Thank you. And our next question comes from Andy Hargreaves of KBC. And your line is now open.

Thanks. So I what I wanted to see is if you can talk or give any metrics around average engagement per user. Are you seeing any improvements to the products help drive higher frequency? And then, just a follow-up on sort of moving to more of an automated buying process, I guess, two follow-ups on that. Can you give us a little more bit more detail on what your expectations are from a time standpoint? How long will it take to develop tools necessary? And then, just how would it work, because it's not a normal ad unit? You have the sort of discount element that you have to integrate. So can you just talk about how that might work?

Yeah. This is Lynne. I'll take those questions. So in terms of user engagement, you have to look at how long your bank has been online with the program and not how its user engagement close. So a new bank, for example, like Chase is going to have much lower overall engagement in the first month of the program than a bank that's been live for four years. So when you look at any given bank based on its vintage curve of how long it's been live, user engagement grows every month both in terms of new users adopting the program for the first time and in terms of users using it more often, existing users using it more often. We do benchmark that across all of banks based on what their vintage curves are. And a lot of the product enhancements that we make are to drive more frequent and more user adoption. There is still plenty of upside and even our existing banks to drive more user adoption than we have today. What I would say is we track fairly well to other new bank's products that are launched. So for example, our adoption tracks similarly to the adoption of online banking, or the adoption of mobile deposit, or the adoption of bill pay in terms of both the curves and how they look, but also where they ultimately cap out, never going to have a 100% of our MAUs using their program. But when the bank then has maturity, you're going to see users in multiple high-digit use rates. In terms of the automated buying, it's definitely to be a journey. It's similar to what we said today about the automation that we rolled out with Nielsen. We'll be rolling them out quarter-by-quarter over the next - certainly over the full year 2019 and likely going into 2020. And you sort of take these in bite size chunk. The ad units, I want to make sure everyone understands, there are - when you integrate into buying processes, there are ways to create private marketplaces, so you're able to control the type of ad units that someone can actually push into your inventory. That is clearly what we have to do in the early days, so that we're actually able to take their ad units and convert them into a discount through our own network and processes, which is very similar to what we do today with our CPS pricing model. Today with CPS, the advertisers are buying a certain amount of impressions and a return on ad-spend. We take some of the revenue and convert that into a discount. You can do that same concept in a private marketplace with automated buying. And those are the things that we are looking at rolling out.

Okay. Thank you very much.

You're welcome.

Thank you. And our next question comes from Matt Trusz of Gabelli Research. Your line is now open.

Hi, good afternoon. Thank you, guys, for taking my questions. I was wondering, can you discuss where you are in the build out of these four new advertising verticals? What are the different milestones you've achieved or need to achieve just speaking of retail accounts or key hires? Thanks.

Yeah. So I would say, we are in the early stages and focused on the key leaders for each of the verticals. We either announced or just about to announce that we've hired the leader of our travel vertical. I think, we just announced it. And we are bringing leaders for the other three new verticals. So it's in the early days, I think, there are couple of key milestones we're focused on. Number one, making sure that we have our pricing and positioning correct for the new vertical, because the way we sell in retail, for example, should necessarily be the way we sell in travel or for e-commerce. And the second thing, we are very much focusing on is who are the three or four first wins you want to get to sort of have the reference clients as we try to penetrate the vertical.

Okay. Thank you. My other question would just be, are you seeing or did you quantify any sort of like negative revenue churn, you could call it trend with your season advertisers where they keep coming back for more? And how has that just been trending as the platform evolves? Thank you.

David, do you want to take that?

I'm not quite sure, I understand the question with regard to seasoned churn, but we obviously do experience some from time to time. Our top 20 will rotate to some degree, but it's not something we disclose. I don't know if there's any more to add to that.

All I would - this is Lynne. I would just say that, we don't have - if you look at churn across the course of a six to 12 months buying cycle, we have very little of it. We do have, as we've commented before, variability within the quarters and within certain advertisers being inverse and adverse relative to other strategies that they have. So for example, in this past quarter, it was primarily one advertiser in the UK, it was going through some significant internal issue that they were dealing with, and they're now back in. So really you have to look at churn over a longer period of time, which is why we are so very focused on trying to move to less of an IO-based model and more of a kind of an always-on model, which will help in that.

And the reason overall, that we continue to grow budgets with our advertisers is for every dollar they spend with us, we bring him $5 of return, and that's really what we focus on is making sure they understand that and working with them to make sure that they understand how we can do that, not to just drive online sales, but also to get people in the store. So that's our strength, and we think we really continue to show well with advertisers because of that.

Thank you. [Operator Instructions] And this does conclude our question-and-answer session. I would now like to turn the call back over to Scott Grimes for any closing remarks.

Well, everybody, thanks for joining the call today. Look, while we clearly weren't pleased with our top line results in Q3 and we're really focused on keeping those back in line. We are super-excited about the launch of Chase and about the scale this brings us to our advertisers and the impact that we can directly have in their businesses. So we appreciate everybody's time tonight and look forward to talking to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.