[Start Miss] Quarter and Full Year 2018 Financial Results Conference Call. Currently, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] At this time, I'd like to turn the call over to your host to Kirk Somers, Chief Legal and Privacy Officer. Please go ahead.

Good afternoon and welcome to Cardlytics' Fourth Quarter and Full Year 2018 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 2019 first quarter financial results and operating metrics; business strategies and other forward-looking topics such as anticipated growth in direct with new and existing customers, including those from Chase and Wells Fargo; the reduction in average revenue per user; the growth in monthly active users; expansion in new verticals, including travel, entertainment, grocery and e-commerce; expanding marketing budgets; consolidating the U.S. banking market for purchase intelligence data; improving marketer adoption; delivering sustained growth, expanding our media capabilities, reducing friction and increasing automation and buying Cardlytics Direct; FI investments and consumer incentives; future revenue and profitability; and average length of our contracts with marketers. 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 filed today, March 5th, 2019 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 and the 8-K filed with the SEC today and in the company's 10-K also filed. Today's call is available via webcast and a replay will be available for two weeks. You can find all the information I've just described on our 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 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 in our fourth quarter and full year 2018 conference call. We've been a public company for just over one year and today, we are excited to announce that we delivered strong fourth quarter results that exceeded guidance from our Q3 earnings call and are consistent with our results announced on January 14th. Here are some highlights. Total revenue for the fourth quarter was $47.8 million and our core Cardlytics Direct revenue grew 23% year-over-year to $47.7 million. Our strong topline performance was driven by growth with existing marketers and from adding new marketers. Adjusted EBITDA in Q4 was a positive $300,000 and we added significant scale to Cardlytics Direct with 42% year-over-year growth in quarterly FI MAUs from 58.7 million to 83.2 million. Cardlytics Direct reached 99 million FI MAUs for the month of December 2018. Our strong fourth quarter results cap off an exciting and transformational year for Cardlytics. Most notably, we've partnered with the three largest national banks in addition to many other financial institutions to deliver Cardlytics Direct to their customers. This is important to our marketing clients. We offer a brand-safe, privacy-protected channel that profitably drives online and in-store sales with scale that is in line with other leading digital advertising solutions. And we believe we are well-positioned to consolidate the U.S. banking market for purchase intelligence, further strengthening our ability to drive, move the needle growth for brands across the range of verticals. What's clear is that during 2018 our team's efforts along with our investments build the foundation and the scale to support the opportunity to deliver sustained growth for years to come. In 2018, we scaled our infrastructure and processes to serve 150 million FI MAUs to support our new national bank partners…

Thanks Scott. As Scott mentioned, I'd like to highlight a few success stories since the last earnings call and provide an update on some of our 2019 initiatives. We launched Chase mobile channel in November. We have seen strong initial engagements with the program and have been extremely pleased with the implementation. We remain on target to complete both the national bank launches in 2019. Once done, we expect to deliver marketing to 150 million monthly active users. At that point, we will analyze about one out of every two card swipe [Indiscernible]. But as a reminder, a national bank launch takes many months to scale and deliver results consistent with the network. We continue to invest in the partnership post-launch to ensure customers and advertisers engage with the platform. For example, we are allowing some advertisers who have significant relationships with national banks to trial the network without cost for a period of time post-launch. There is another exciting development with our national banks. Some are now taking a portion of the revenue we pay them and reinvesting it back into Cardlytics Direct. There are various ways they do this, including increasing the consumer incentive associated with an offer or rewarding purchases in a certain category like first [Indiscernible]. This is a positive for bank partners and our advertisers. It drives increased user engagements and strengthens the return on marketers' investments. Our promise with advertisers is legally binding. This is especially important because generally marketers will not budget for increased scale until new customers are fully online. One of the key reasons ARPU growth lags MAU growth because of marketers immediate planning cycle. So, early increases in commitments by marketers indicate how they are shifting budgets over time to Cardlytics Direct. Let me give a couple of examples. First,…

Thanks Lynne. Total revenue for the fourth quarter was $47.8 million. Revenue within our core Cardlytics Direct business was $47.7 million, representing a 23% year-over-year growth rate over the fourth quarter 2017. Our U.S. direct business was up 26% year-over-year in Q4 and our U.K. direct business grew 11% at constant currency. For the full year, total revenue was $150.7 million with an increase of approximately 16% over 2017, while our core direct revenue of $149.3 million was up 22% over prior year. Average FI MAUs were approximately 42% from 58.7 million fourth quarter 2017 to 83.2 million in Q4 2018. Consistent with our recent commentary, we expect that FI MAU growth to continue to grow this year, driven by the national bank launches providing additional tailwind in 2020. Our fourth quarter 2018 ARPU was $0.57, down 14% from $0.66 in the fourth quarter of 2017, primarily reflecting the impact of rapid growth in average FI MAUs. Full year 2018 ARPU was $2.30 compared with $2.23 in 2017. As we've discussed, new MAUs have a maturation period before they reach their ARPU potential and expect this dynamic to play out for the foreseeable future going forward, and especially in 2019 where material FI MAU growth from national bank launches to cause a decrease of ARPU. As Scott mentioned earlier, we would expect to return to more normalized historical levels of ARPU in 2021, with revenues in excess of $300 million, coupled with consistent profitability. Longer term, we continue to believe this ramp in FI MAUs supports our revenue growth. Total adjusted contribution profit was $22.1 million in the fourth quarter of 2018, up from $17.4 million in the fourth quarter 2017. For the full year 2018, adjusted contribution profit was $69.5 million, up from $58.7 million in 2017. And Cardlytics…

Thanks David. 2018 really was a transformational year for Cardlytics. Cardlytics Direct is a brand-safe, precision-targeted, native advertising channel that profitably grows in-store and online revenues for advertisers at a scale comparable to other digital marketing solutions. I've spent a lot of time with our marketing clients over the past quarter. It is really exciting to see how we are one of the most important tools in their marketing mix. In addition, our larger marketers increasingly rely on our analytics and insights to support their business overall. As we expand our client roster, we can really have an impact on the effectiveness of Congress going forward. David is exactly right. We are laser-focused on growing our marketer clients and budgets to achieve 2018 ARPUs of $2.30, once again in 2021. But importantly, we will achieve these ARPU levels with a customer reach of 150 million FI MAUs delivered by adding two new national banks to Cardlytics Direct. And we believe we're making the investments now to sustain strong growth well beyond 2021 by developing richer media capabilities, entering new verticals and evolving to frictionless always-on business model. Lynne and I are really proud of what our team accomplished in 2018. And we are confident in their ability to achieve our goals going forward. With that, I'll open up the call for your questions. Thank you.

Thank you. [Operator Instructions] Our first question comes from Doug Anmuth from J.P. Morgan. Please go ahead.

Hi, this is Dae Lee on for Doug. Thanks for taking our question. Appreciate the color you guys provided on your Q1 guidance. The fact that guys are pushing up 2019 guide to 1Q because of uncertainties. But I mean, 1Q guidance is a little bit -- those signals lumpy sales from 4Q level. So can you talk a little bit more about the drivers behind that? And how that could potentially compare to your full year number? Any color would be appreciated there. And then secondly on Chase, realized it's still early, but can you talk about -- talk a little bit more about that, the performance of that channel and your progress towards activating all of Chase channel, the app that you launched in 4Q?

Yes. Daniel, this is Scott Grimes. First of all, thanks for joining the call. Appreciate it. Let me touch on both of those questions. One of the things that is -- that we -- a number that we don't guide on is our overall billings. And what we are seeing right now are very -- our billing is in line with what you guys would've expected and what we've expected. And a lot of the noise that makes it feel like a deceleration in Q1 is actually good news is some of the things that David touched on. Both in terms of our FIs reinvesting their FI share into consumer incentives. And also, some of the work we're doing to bring some big advertisers into the network. And the reason we believe both of those things are good news is when we were making investments it's causing two things to happen. First is causing customers to engage with the channel sooner and more aggressively; and then second, a lot of why we're making these investments with the advertisers is we estimate very important large advertisers into the networks for the very first time. We are doing that without media fees, but we're doing that to secure these and fill up these advertisers testing network, see the return on their network and hopefully become very large advertisers over the next year or two as we work with them. So, as much as you're seeing is anything, is that's taken some fairly bold actions since part of that launch to really sort of set this channel up for a great performance over the next decade. And that is specifically on the Chase launch and then David I'll let you talk to the specifics. We're really pleased with the Chase launch. We have seen customer engagement levels certainly beyond expectations. We are seeing advertiser performance in the channel at levels that we hope to achieve. So, overall, we're still very much the middle of launch and we -- I don't want to speak more to individual banks. But we are tracking in a way that it gives us a lot of confidence, in a way that gives us a lot of confidence of how the channel will perform. With 150 million that may use that line over the next few years. Okay, David, do you want to add to that?

Yes. Sure, Scott. Thanks. I think you had asked -- what was the question --. I think you had asked the question about the sequential decline. That's usually fairly typical with the business obviously going from Q4 to Q1, so that's nothing of surprise there. Scott touched it on a little bit. I think as I look at -- I think Doug may be one of the few guys out there that kind of had a billings number out there for Q1. We're not that far off from that, but as Scott mentioned, there's a couple of things that we're doing to ensure a very strong bank launch here in this quarter. Some of that is through the enhanced consumer incentive route, which has netting effect. There are other things that we are doing that will compress all the numbers a little bit, but you'll see in the Q1 guide as well. But again, I think all of this comes down to ensuring that we have a very successful launch with Chase. On that same front, Scott made a couple comments around some of the positive trends we're seeing. We're seeing longer contract terms. We're seeing more million dollar budgets in the pipeline. So, a lot of good sound bytes out of the quarter so far.

Got it. Appreciate the color. Thank you.

Thank you. Our next question comes from Tim Willi from Wells Fargo. Please go ahead.

Hi thanks. Good afternoon. A couple of questions. First, if I remember correctly, you have said that SunTrust is a customer. I'm curious, is BB&T currently a customer? Is there any comment you can make around that?

Hey Tim, this is Scott Grimes. Thanks for joining the call today. The answer is yes. BB&T and SunTrust are both customers. They both are great bank partners and we're really glad they're in the network. And I'm sure they'll continue thinking about the program as they drive the consolidation over the next couple of years.

Okay. And then another question I had was going back to Lynne's comments about the marketers that you've signed up in the billings. Did that exceed expectations? Was it more in line with what you were thinking? Just sort of curious how that played out versus your expectation for signing up and expanding budgets.

Yes, so are you specifically referring to the increase in marketer spending $1 million?

Yes, that. And I think even the eight-digit ones where you went from $1 million to $3 million?

Yes, yes. That not only exceeded our expectations, specifically in the ones that are spending more than $1 million, that is nearly double the increase that we saw 2016 to 2017 versus the increase 2017 to 2018. So significant acceleration in the number of new logos that are spending enough dollars in the channel that they are taking it seriously. We know that they usually have to spend between $0.5 million and $1 million to really get a good read on the channel. So, we are very excited about that. It is a very good early sign of what is to come. Same thing with the eight-digit clients. We went from $1 million to $3 million. So, obviously whilst a small number, a significant increase. And we are continuing to really push on signing large deals, annual plus level contracts with advertisers once they understand the power of the channel. It is a good predictor of what is to come.

Tim, just to add to what Lynne said, advertisers sort of don't really budget for the volume until they know it's real, because they don't want to run the risk of not spending their money. And we, of course, launched in the middle of the Christmas season, which is a really busy time for advertisers. I've been with a ton of CMOs over the past couple of months, right; it's really January and February. And when you go in there and we can talk about how we can really move the needle and drive growth in their business with the scale we have, it's a very different discussion. So, while it's hard for you guys to see in Q1 results, what we can tell you from where we said, walking in with the scale now and where the scale's going to be over the short period and what it does to the business. It's a higher level discussion and a much more impactful discussion, so we're pretty bullish in what we said.

Great. And just I had one last one and I'll hop off, but sort of on the topic of the bigger contracts, is there a discussion at all about any kind of incremental customization or scope or, say, would have an impact around near term profitability and margin targets? I mean, it's all good long-term, fully onboard with that. I just want to make sure we're not missing something around scalability, if you really start to see big contracts like this really start to gain momentum.

Yes. This is David. Tim, it's a good question. And certainly, there's a couple of things that are going to help drive operating leverage: One, is just the size of the contract. The incremental effort that goes into running a significantly larger contract is minimal relative to being able to go out and secure a larger deal. The other piece is part of what Scott and Lynne talked about in their -- at the beginning, in the outset here is around reducing some of the friction and we are making some headway there and that will only help paint a picture for better operating leverage in the future as well.

Great. That's all I had. Thanks so much.

Thanks Tim.

Thank you. Our next question comes from Andy Hargreaves from KeyBanc. Please go ahead.

Thanks. So, qualitatively, everything sounds pretty good, but the -- just general revenue has been lower than what we expected, say, a year or 18 months ago. So, I'm wondering if you can comment at all, is there user engagement at sort of existing banks that's just not lived up to your expectations because there have been product changes with the banks? So, can you just comment on what sort of the gap is between what we thought a year ago and where we are right now?

So, Andy, I'll take it at a high-level and then David and Lynne can add to this. For the overwhelming majority of our advertisers, MAU growth -- user engagement is not the constraint to the growth. The constraint is the number of advertisers that are in the network and the size of budgets that we're securing from those. And that's one of the reasons ramping the scale is so important is, because we know especially in the digital world, advertisers buy scale. We are now a few months into giving them that kind of level of scale that they really would want. And so when I think about where we end up in 2021, to me, it's simply a function of how many advertisers are in the channel or how big of way are they using the channel, which is why we focus so much on bringing the $1 million advertisers because we know those are kind of land and expand, that's the land. And then the expand is how quickly can we get them from a seven-digit budget to an eight-digit budget.

Yes. And Andy, it's a good question. I think it's something worth reiterating. I think back to a large part of the conversation, we talked about at the IPO and what the long-term plan look like five to six years out, which will be 2023 and what that looks like is call it a $0.5 billion business with 20% EBITDA margin. I am -- as I look at our model today, I am right on track. We are right on track with what exactly what we said we're going to do. And it's partly why we alluded to returning to normalized ARPU levels by 2021. Just by looking at the model and you assume something north of $2 on ARPU, on $150 million MAU, we're now consistently profitable and we're now somewhere around $300 million of revenue, which then gets us directly on track with what we talked about the IPO.

And just positioned to really keep accelerating growth.

And then just a follow-up on sort of the ad phasing sales side that you guys have made a couple of hires, it sounds like. Can you comment on what the total size of that salesforce is? And where you would like to get as you try to land more advertisers and bigger budgets?

Yes, I mean, Scott alluded to this a little bit. I mean, so much of what we are doing is elevating the dialogue with our advertisers. When you're talking about making the ads that we're talking about from six-figure to seven-figure to eight-figure, you can imagine that the dialogue changes. And then therefore, as we think about our sales force and our go-to-market, that naturally has to evolve as well. We have made three or four significant hires at the senior ranks in the sales force. We probably have a couple of more to go. As we laid out in November, we have laid out a pretty specific game plan for, call it, six to eight months, we're right on track. We still have some things that we still need to go execute on, but as I sit here today, everything is as we laid it out.

Okay. Thanks.

Thank you. Our next question comes from Nat Schindler from Bank of America. Please go ahead.

Yes, hi guys. Can you just walk me through a little bit the process -- the typical or at least the historical, I don't know, it's not a whole lot, behavior as a new advertiser comes on and how they work with the system early and how they evolve?

Yes. Nat, this is Lynne. Let me take a shot at that. Our typical new advertiser is going to always start with the test IO. That test IO is usually 45 days in length. What we have seen pre versus post national -- the latest national bank launch is that IO size has gone up. So, in the past, it was maybe in the couple of hundred thousand dollar range and now we're seeing it in the $0.5 million to $1 million range, simply because they are really wanting to make sure they understand the full scale and potential of the network. Then after the 45-day IO runs, it usually takes another 45 to 90 days for the results to be sort of processed and absorbed by the organization, and vetted and sort of validated for lack of a better term. And as Scott has mentioned, our Nielsen partnership is really helping with that and also accelerating that time line a little bit. And then it just depends where we are in their annual or biannual media buying processes. Most advertisers budget once a year with a kind of midyear course correction and their fiscal years can often be different than typical December to January year-end. So, depending on where we are in this budgeting cycle, it can take another couple of months for us to get to a point where they're ready to actually put us in as a line item. So, while we are excited by the number of new logos that are in the channel, we still kind of reiterate, it's going to take six months on average, maybe longer, nine months, for new logos to start significantly expanding their spend. And as we mentioned in the very beginning, these new logos also don't tend to test until they actually see the volume that's really there. So, that is why the stats that we introduced about what we're seeing with new logos, with $1 million budgets, and with eight-digit budgets, in January are really important precursors of what's to come.

Okay. Just can you walk me through a little bit historically why have some of your advertisers be is that you have for quite a while become eight-digit guys and others haven't? What were the -- what was the differences between a Starbucks and a smaller advertiser?

The -- one of the really important parts is making sure that we connect with the analytics organization and the client. And I think where we work best with our bigger advertisers is when our analytic team is embedded with their analytic team. They've really understood the return in our advertising investment. At the highest level I'd say, really believe like for $1 they're paying as we're giving them $5 incremental revenue back. And I think every day; we're getting better and better at doing that. I think the other thing that really drives the adoption by advertisers is when they use our analytics as part of their broader business, that's also when we're just frankly simply more top of mind and more -- the increment part of the monthly mix. And this is why it's so important, why as we focus on things like taking the friction out of the price process, enabling self-service to make it just easier to use Cardlytics as part of what we do every day.

Okay. Thank you.

Thanks Nat.

Thank you. Out next question comes from Matt Trusz from G. Research. Please go ahead.

Good morning -- I'm sorry good afternoon and thank you for taking the questions. So, to tie up the discussion on marketer budgets, as we see here in March, how big are your marketer budgets for the full year, given the dynamic timing of the ramp and how much flexibility is there generally for them to go up and down over the next six or nine months?

Yes, that's a great question, Matt and I'm going to add to this. The one thing that we're trying to explain is, marketing budgets for the first half of year were set probably late half of the year or I mean, early last half of the year in 2018. So, there is some flexibility in those, but those are largely nail down. That being said, we -- in the back half of 2019, we think there is a lot of ability to go and grow budgets. But they tend to operate in about a six-month cycle. So, you go get in there, you test, you prove the scale, and you're working to get that budget increase in the next six months. And that's a journey, because every time a marketer is shifting significant dollars to us, it probably means they're moving it out another one of their digital channels. So, they don't do that as a step function versus a series of increments over time. One of the 10- digit clients that Lynne was talking about, they've been working with us -- the eight-digit clients, when the eight-digit clients Lynne was speaking to started working with us five years ago, spent about $250,000 in that first year. Today, they're spending significantly more, but that took several years of growing that budget.

But the flip side is, another one of those eight-digit clients that I was referring to went from sort of zero to eight-digit in about year and a half. So, we are seeing that the sales cycle is accelerating from where it was sort of the pre-significant scale, but I still think it is wise to assume that the sales cycle is going to take, as I said, sort of six to nine months depending on where you are in their media planning cycles from when they do that initial $500,000 to $1 million IO.

And it's why we think of accelerating growth, because we know we're putting the foundation in place right now with the series of testing, and we understand the rate at which we can go and grow that over time.

Got it. Thank you. And then can you just discuss which product innovations are highest priority or most impactful for you in 2019? Thank you.

Yes. It's the broad set of capabilities around taking friction out of the buying process. And if you sort of map out how organizations buy, there is a series of touch points, starting from how they do their media mix modeling, how they set their media strategy, how they actually execute the media and how they report on it. And so we have a whole series of initiatives going against those different touchpoints, which by the way, is a couple of years of work to where we are today to where we want to be. And each quarter, we'll talk to you about how we're releasing against that schedule.

Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Youssef Squali from SunTrust. Please go ahead.

Hi, this is Sagar on for Youssef. I just want to make sure that I got a couple of numbers correct. First, that December had 99 million MAUs and second, that there was no time line associated with that 150 million number. And also some other way, could there be a revenue noise with Wells Fargo when that starts ramping similar to what we're seeing now to ensure a good experience for advertisers? And lastly, can you explain on that $5 million to $6 million number you gave around the FI shortfall commitment?

Yes, sure. I got four questions there. So, let me do my best here to repeat this. The first on Wells...

99 million.

Yes, so on Wells, you talked about any change in the revenue outlook. I think what you would see there is just a change in campaign consumption more than anything and an adjustment from that. As I sit here today, to again, 99.3 million in December, 150 million MAUs by the end of this next year, we've got plenty of headroom to go out and run campaigns and consume budgets. It just changes and adjusts how we go about doing that with regards to the timing of the Wells rollout. The $5 million to $6 million shortfall, that is something we've been talking about and I'll give -- and even apologies for that for the last three quarters or so. That particular bank will start in the second quarter, so we'll start that accrual of that $5 million to $6 million. That won't be due until 12 months later. So, April-ish of 2020, but that is correct. And I think those are the four questions. The 99 million--

Yes, that's perfect. Yes, and I just want to make sure that the $5 million to $6 million is basically as you're saying, three quarters this year and one quarter next year?

That's right, three quarters of that this year and one quarter in 2020.

Okay, got it. Thanks.

I show no further questions in the queue at this time. I would like to turn the call over to Scott Grimes, CEO and Co-Founder for closing remarks. Please go ahead.

Thank you. Well, awesome everybody. We really appreciate you joining the call today. Hopefully, you hear the excitement in our voice is about we had a great Q4 and we were really excited how we ended the year. And more importantly, we really think 2018 lays the foundation for sustained and accelerating growth for many years to come and we're just at the very beginning of that journey, but we're really excited internally about have we're positioned and we're really excited about how our marketing clients are thinking about exactly how they incorporate us into how they run their business to drive their sustainable long-term growth. So, once again, thanks for joining the call and we look forward to talking to you, again, next quarter.

Thank you, ladies and gentlemen for attending today's conference. This concludes the program. You may all disconnect. Good day.