Cardlytics, Inc. (CDLX) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Cardlytics Fourth Quarter and Full Year 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host for today, Mr. Kirk Somers. Please go ahead.

Good evening and welcome to Cardlytics' fourth quarter and full year 2019 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 first quarter 2020 financial guidance, full year 2020 financial outlook, executive changes, future growth of financial measures, the rollout of Wells Fargo, growth in financial institution monthly active users or FI MAUs in 2020, expansion into new verticals, the number of purchase transactions in the United States, the addition of marketers and marketers spend in 2020, the impact of investments on driving revenue and margin growth, achievement of future goals, the evolution of our platform to a highly automated platform, and our expectations regarding 2021 ARPU levels. 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, 2019 that we filed earlier today, and in subsequent periodic reports that we file 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 that we filed with the SEC today. 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. Please note that a supplemental presentation to our fourth quarter and full year 2019 results has also been posted to our Investor Relations website. Joining us on the call today is Cardlytics leadership team, including CEO and Co-Founder, Scott Grimes; COO and Co-Founder, Lynne Laube; CFO, David Evans; and SVP and Controller, Andy Christiansen. Following the 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 on our fourth quarter and full year 2019 earnings conference call. 2019 was a strong year for Cardlytics. I am proud of what our colleagues have accomplished and I'm more confident than ever in our ability to achieve our goals going forward. I'm pleased to announce that we delivered fourth quarter results, which exceeded all key metrics from the guidance in our Q3 earnings call and are consistent with the preliminary results we delivered in January. Here are some of the highlights. Total billings for the fourth quarter were $100.9 million, an increase of 44% year-over-year. Total revenue which is equal to billings net of consumer incentives were $69.3 million, up 45% and adjusted contribution was $31 million, growing 40% year-over-year. And we generated adjusted EBITDA of positive $6.9 million. In the fourth quarter, we continued to grow the reach of our platform. We increased our quarterly average FI MAUs to 133.4 million, up 60% from Q4 2018. We continue to expect to reach 150 million FI MAUs in the first half of this year. And at that point we will see and analyze roughly one out of every two purchase transactions in the U.S. We believe this scale places us on equal footing with other major U.S. advertising platforms and provides a highly differentiated solution for marketers. As marketers continue to adopt and expand the use of our platform, we are increasingly confident in our ability to realize our 2018 ARPU levels by the end of 2021. In addition to announcing our financial results today, we are announcing several senior level executive changes that I have made to position the company for future success. We have built a substantial business and are moving towards our next phase of growth. I've asked several of our most talented senior leaders to take on new and larger roles to help us prepare and scale. Effective May 15, 2020, my Co-Founder, Lynne Laube will assume the role of CEO. I will become the Executive Chairman; and our current Chairman, John Balen will become the Lead Independent Director. 12 years ago Lynne and I founded the company and have taken this amazing journey together. Over the past years, she has increasingly taken on additional responsibility. I truly believe that she is the right leader to drive our next wave of growth as we continue to realize the value of the unique platform we have built. I will continue to be involved with the company focusing on strategy and innovation and most importantly in any way I can. Additionally I've asked several other senior leaders in the organization to take on new roles to build our leadership capacity. Going forward, David Evans will move to a newly created role as Chief Administrative Officer overseeing key corporate functions and driving critical cross-functional change. Four years ago, David stepped into the CFO role, brought us public and did an exceptional job preparing us to be a high-performing public company. I now want his energy and intellect focused on important processes and capabilities we will need as a much larger company. Andy Christiansen, our SVP and Controller will become Chief Financial Officer. Andy has been our Controller for more than five years and was also hugely instrumental in bringing Cardlytics public and delivering results since then. Of course, David will work closely with Andy to ensure a smooth transition. These announcements today formalize a transition that has been underway for some time as part of the Board's long-term succession planning. With these moves, along with a number of senior hires in sales and product over the past few quarters, Cardlytics has never had such great executive bench strength. I'm confident in our plans and I feel these news best position Cardlytics to execute against significant opportunities that we see in the future. I'll now hand the call over to Lynne to provide greater detail on our recent accomplishments and our initiatives for 2020. Lynne?

Thanks Scott. Before I start, I'd like to express how excited I am about the future of Cardlytics and I look forward to assuming the role of CEO after the Q1, 2020 earnings call. Congratulations to Scott, David and Andy on their new roles. These moves further cement the strong leadership team at Cardlytics and I'm thrilled to grow the company with them and our existing talented leaders. For today, I'd like to highlight a few success stories since the last earnings call and will provide an update on some of our 2020 initiatives. We launched Wells Fargo in Q4 2019 and have completed the rollout through 35% of their customers. We expect the Wells Fargo launch to continue into phases into the first half of 2020. Now, I would like to discuss our four key long-term priorities to drive future success. First is to increase the number of marketers we count as Cardlytics' clients and to increase the amount those marketers' spend on our platform. In 2019, we had a 21% increase in the number of marketers with more than $1 million of billings when compared to 2018. These results reaffirm our belief that we will see increased spend for 2020 as marketers fully understand the impact we can have on their business. Second is to expand to new verticals including e-com, travel and entertainment, grocery and luxury. In 2019, we added 30 net new advertisers in our growth verticals. We also made significant investments in our sales team including hiring Ross McNab and several other senior sales executives. Third is to continue evolving Cardlytics' platform. We are making a multiyear investment to move to a highly automated platform, that reduces buying friction extends to third parties and supports richer media. This has been another area of investment and much like our sales team; we brought on numerous hires and leadership positions including Michael Akkerman our new Chief Product and Strategy Officer. We are also extending our platform's reach beyond banking. In the U.K., we recently launched a pilot with Sainsbury's Nectar loyalty program. Via open banking APIs we are analyzing customer purchases to bring targeted cash back offers to Nectar's digital channels. While early the results are promising and we will update you in future quarters on the implications to the U.K. and other international markets. And finally, our fourth priority is continuing to demonstrate operating leverage in the business from investments we've already made for over 200 million FI MAUs. With the addition of new talent on our leadership team and the solid hires they are bringing to our company, we spent the last few months evaluating and honing our strategy to be sure we have the right team and go-forward market plan in place. As a result I feel confident we are positioned incredibly well to execute against our initiatives and will remain focused on strong topline and margin growth over the long term. With that I'll turn it over to David.

Thanks, Lynne. First, I want to say congratulations to Lynne Scott, Andy on their new roles. I've worked directly with Andy for a number of years. He's the right CFO for this next phase of growth for Cardlytics. Personally I'm excited to begin my new role and I look forward to helping Cardlytics realize its growth potential in this new capacity alongside our other leaders. Now on to the results. As Scott mentioned, we delivered excellent fourth quarter and annual results that exceeded our prior guidance. I want to highlight that in the fourth quarter, we saw true incremental budget increase, outpacing the pull forward of budget we saw in Q3. This acceleration in the back half of the year aligns with our comments on guidance at the beginning of 2019. In addition to our results, we are confident that we will reach our long-term operational and financial goals. I'll begin by commenting on our fourth quarter and annual results and then discuss Q1, 2020 guidance and our approach to the full year 2020 financial outlook. Total billings, which is the gross amount billed to marketers inclusive of the consumer incentives for the fourth quarter increased 44% year-over-year to $100.9 million. Total billings for the year were $316.1 million, up 44% year-over-year. Total revenue for the fourth quarter was $69.3 million, representing 45% year-over-year growth over the fourth quarter of 2018. Our U.S. revenue was up 50% year-over-year in Q4 and our U.K. revenue grew 15%. For the full year, total revenue was $210.4 million, an increase of 40% over 2018. Our fourth quarter 2019 ARPU was $0.52, down 9% from $0.57 in the fourth quarter of 2018 primarily reflecting the impact of the Chase and Wells Fargo launches. We'd like to note that ARPU has increased sequentially for three straight quarters post the Chase launch, but we'll likely experience some pressure in 2020 due to the Wells Fargo launch and resulting MAU growth, which proceeds associated top line growth. Full year 2019 ARPU was $1.72 compared to $2.30 in 2018. Total adjusted contribution was $31 million in the fourth quarter of 2019, up from $22.1 million in the fourth quarter of 2018. For the full year 2019, adjusted contribution was $95.2 million up from $69.5 million in 2018. Adjusted EBITDA was a positive $6.9 million in the fourth quarter of 2019 compared to a positive $308,000 in the fourth quarter of 2018. Full year 2019 our positive adjusted EBITDA was $6.1 million, an improvement from a negative $6.6 million adjusted EBITDA in 2018. Our strong adjusted EBITDA improvement in the second half of 2019 is reflective of the operating leverage in our business model. As noted in prior quarters, we expect to see the benefits of operating leverage on our profitability moving forward. But we will also continue to make strategic investments in the business to take advantage of future growth opportunities that present themselves. As a result, there may be fluctuations in our results from quarter to quarter in 2020. Average FI MAUs were 60% from $83.2 million in the fourth quarter of 2018 to $133.4 million in the fourth quarter of 2019, primarily reflecting the launch of Chase and phased launch of Wells Fargo. Consistent with our recent commentary, we expect FI MAUs to grow 150 million in the first half of 2020 once we have fully launched Wells Fargo. We expect additional FI MAU growth through 2020 from the phased Wells launch the natural maturation on our platform our ongoing efforts with FI partners in digital adoption. We ended the quarter with $104.5 million in unrestricted cash and cash equivalents on the balance sheet compared to $95.2 million in unrestricted cash and cash equivalents at the end of Q3, 2019. Our total cash and cash equivalents plus available dollars in our facility as of December 31, 2019 is approximately $144.5 million. We ended the quarter with 26.5 million shares outstanding and quarter-to-date weighted shares outstanding of 26.1 million compared to weighted shares outstanding of 23.6 million in the third quarter. The change in weighted shares outstanding relative to the third quarter reflects exercised options vesting and delivery of restricted stock and ESPP purchases. Before we turn to Q1 2020 guidance, I want to provide an update on full year 2020 guidance. Much like the first quarter of 2019 with Chase, we are still in the early stages of measuring our performance and analyzing what steady state looks like with Wells Fargo. The Wells launch as well as new sales talent continued acceleration of platform investments creates a range of possible scenarios for our 2020 results. Like many companies we are also trying to understand the current and future impact of the coronavirus. We have studied our consumer purchase history closely and can see clear indicators of changes in behavior. We think it's possible that the virus has impacted first quarter results and it's likely that the virus will continue to impact the overall economy into the first half of 2020. As a result of where we are on the Wells Fargo launch and economic uncertainty related to the coronavirus, we are deferring our full year 2020 guidance until we can better gauge impact on our business. We will continue to provide quarterly guidance throughout 2020. Now Q1, 2020 guidance. I want to remind everyone that Q1 is always our seasonal low point, but we have high expectations for this year and are focused on continuing our growth. For the first quarter, we expect billings to grow 9% to 18% year-over-year to between $64 million and $69 million. We expect GAAP revenue to be between $43.5 million and $46.5 million, and we expect adjusted contribution for the first quarter to be between $19 million and $20.5 million, representing 21% to 29% revenue growth and 8% to 16% adjusted contribution growth year-over-year. Finally, we expect adjusted EBITDA for the first quarter to be between negative $4.5 million and negative $3 million. Echoing Scott and Lynne, we are very pleased with our strong fourth quarter and full year 2019 results. We are encouraged by the progress in our business, driven by expansion in the budget with existing advertisers and the growth of new advertisers in our new verticals and continue to expect strong execution against our key growth strategies. While our expectations for Q1 may seem moderated, I feel confident the work that has taken place positions us well to execute against our long-term strategy plans. We are all looking forward to a solid 2020 and beyond. With that I'll hand it back to Scott for his closing remarks, before we open the call to your questions. Scott?

Thanks David. 2019 was without a doubt an exceptional year for Cardlytics. It has been just over two years since we went public. And Lynne and I couldn't be more proud of what our team has accomplished, and we are even more excited about what they will deliver going forward. It has been a true honor to serve as CEO of Cardlytics since founding the company with Lynne 12 years ago. I'm really excited about the breadth and the depth of the leadership we have in place to scale the company going forward and to become one of the most frictionless and effective platforms available to marketers. We have never been more strongly positioned and are squarely focused on delivering strong results in 2020 and beyond. With that, I'll open up the call for questions.

Thank you. [Operator Instructions] Our first question comes from Youssef Squali of SunTrust. Your line is open.

Great. Thank you very much. Hi, guys and congrats for all the new roles. I guess two questions for me. David, maybe starting with you. Could you just peel the onion a little bit more on the Q1 guidance? Just looking at it from a seasonality standpoint relative to Q4, I think last year you saw about a 25% sequential decline. This year you're guiding to about 35%. Is the delta primarily explained by what you just said about the coronavirus? Or is there anything else in Q4 maybe that drove that business that may not be there in Q1? And then Lynne interesting you talked about now looking to expand beyond financial institutions with the Sainsbury's deal. Maybe can you just help us understand your thinking around that opportunity, how aggressive are you going to be pushing it this year and maybe what's baked into your thinking for at least this year on that? Thanks.

Thanks Youssef. I'll take the first one on the Q1 guide. The answer is no, nothing from Q4 that would have sold from Q1 per se. I think a couple of things that I would point to; number one, you mentioned the coronavirus. Obviously, given where we sit we see a tremendous amount of data that comes through our network and platform with regards to changes in spend behavior. As you know we are -- we make money based on that pay for performance based on spend. And so there is a little bit of an approach of not knowing exactly kind of how this thing is going to unfold that is -- that put me in a position of providing a guide that I did. The other thing too that I think is really important for people to understand is that we have brought on half a dozen new senior executive leaders that we are extremely excited about who just got through with their 100-day plans and we are very positive about kind of how we feel about the rest of the year as I reiterated in my prepared remarks. That being said, I think it's also fair to say that when we hit the ground running on January 2, we had a couple of examples of advertisers that were slow to get going in the first quarter. But that being said we're very much managing the business for 2020, 2021 and beyond and we feel really good about that.

Yes. Youssef this is Lynne. I'll just answer the question that you had about open banking. So just everyone understands, open banking is a phenomenon taking place in most of the rest of the world. The premise is essentially consumers own their transaction data. And so in countries in the world where this has been rolled out, if the consumer opts to give permission the banks via APIs need to allow access to their transaction data and it's pretty robust set of transaction data similar to what we get in the U.S. only going back seven years. So we have a pilot with Nectar which is the largest loyalty program in the U.K. where consumers basically think about Nectar as just like another FI. The difference is, we don't have to go through a bank to get access to -- to access the customer. We go through their loyalty program. And the economics are pretty favorable for us. So we're very excited about this. It is early days. Our biggest question was, would consumers actually allow somebody besides the bank to have access to their transaction data? And the early indications are quite frankly super exciting with what we're seeing in terms of adoption rates and take up rates. So to answer your question very specifically about this year, we are going to continue to push this card in the U.K. both with Nectar and potentially some other partners. It's likely, if we continue to see results that we're seeing that we will actually start investing in this, not just in the U.K. but in other countries in the world; Australia and Japan being sort of the next big ones. So I don't want to get too far out over our skis because the pilot has only been live for a couple of months now, but we're pretty excited about what we're seeing.

Thank you very much.

Thank you. Our next question comes from Doug Anmuth of JP Morgan. Your line is open.

This is Dae Lee on for Doug. Thanks for taking our questions. So the first one coming back to the 1Q guide. So your monthly adjusted EBITDA guide suggests margin compression compressing from a year ago period. Just curious what's driving that? And how we should think about the adjusted EBITDA trajectory in 2020 in light of the positive value that you achieved in 2019? And then just secondly, just wanted to get your latest thoughts on starting your testing for automated tool for marketers this year? And what's the -- do you expect to exit 2020 from that perspective?

Sure. Thanks Dae. So on your point around margin compressions, we obviously have two that we pay attention to. One is our billings margins which is ultimately how effectively we're able to drive spend based on the amount of consumer incentives go out. The other margin I look at is, what I refer to as contribution margin which is -- which kind of isolates the FI share. For sure as I've said many times we will see some fluctuation on the contribution margin meaning if you isolate that FI share as a percentage of revenue. I think I've also always maintained that it's a couple of hundred basis points one way or the other. I think going forward what we're going to see some improvement -- we'll see some improvement in and around that area. As it relates to the billings margin I think we found ourselves with Chase in a pretty decent steady state. I think going forward with Wells, it's no different than it was a year ago. We're going to be monitoring this very closely here over the next two to four to six months as Wells comes online in full with regards to how effectively we can continue to run that on an optimal state from a billings margins perspective. So nothing there by way of trend of significance, no different than we've been running in the past.

And can you repeat the second question? I'm sorry.

Just updated thoughts on your plan to start testing automated tool for marketers this year? And then what do you expect to exit the year?

Yes yes. So look we already have an automated tool live in the hand of a couple of our very long-term close advertisers where they're testing the tool and giving us feedback both in the U.S. and the U.K.. Our intention is to get some more feedback on that tool to continue to sort of hone it down. And then as I have said, we expect to have a partner or two or maybe more piloting this from an agency perspective in the back half of the year. The intention of course is always to reduce the friction, enable some self-service so that we can actually start to work with agencies. But we thought it would be best to use this tool first with existing friendly customers. So, it is in basically beta, still needs some work. But we do expect that in the back half of this year, we will have an agency partner or more using this tool in some capacity to do their own analytics and start to run some of their own campaigns.

Got it. Thank you.

Thank you. Our next question comes from Tim Willi, Wells Fargo. Your line is open.

Hey thanks and good afternoon. I had three questions if I could. Let me first just start with, I guess, Scott congrats on everything and it's been great to sort of see the story over the years that I've watched it. I think a logical question from people is just going to be why now right? Things are humming you're still young and I guess, if you can just give a little bit more color about your move? I don't leave any questions to new roles for Lynne, David, et cetera. But I think people have been taken back by seeing you leave so quickly after IPO I can see the success you have.

So, Tim, first of all, thank you for saying I'm still young, I appreciate that. But more seriously the answer why now. There's really sort of two parts to that answer or three. First of all, I think our Board has done succession planning throughout the year and have always thought Lynne was the logical successor to me and I think the company very much agrees to that. Why now? From my point of view is the company has never been stronger. Let's go -- this is a great time to transition to Lynne when we're at a position of strength and she has a ton of energy around driving this next big wave of growth over the next years. And importantly Tim, we've been operating more and more in this mode over the past year. And in a lot of ways what we're kind of doing is finally formalizing the way that we've been operating around the company. But what I'm really emphasizing to everybody is I will go into this Executive Chairman role. I expect to be very, very involved with the company very, very involved with the strategy and our innovation agenda and of course, there's a resource out there available to Lynne and so I'm certainly not going anywhere.

Okay. Thanks. And then my next two questions are around the 1Q guide. And I know this is probably art not science, but you mentioned coronavirus, you mentioned Wells Fargo reminded us about last year at JPMorgan and that variance. Is there any way to just sort of give us some color about as you think about the 1Q guide, how much of that you'd say is a little bit more about the Wells Fargo ramp-up and uncertainty and the timing of that versus what you were seeing in the data around consumer spending that you might point to as being an impact of the virus?

Yes. So, let me tell you what we're seeing sort of in the data and anecdotally and then David might want to add some color to it. Certainly as you guys know our data is pretty granular. So, we can see impacts at the ZIP code level. And we have kind of evaluated travel spend across the country and we are definitely seeing the impact of travel start in the West and move East. It is -- the West is probably a couple of weeks ahead of the East in terms of actually seeing true impact and decreased spend. We are seeing it not just in airline space, but in lots of other travel-related kind of advertisers. And I will tell you that a couple of them have called us and asked us to proactively both help them understand what's happening, see if we can help them sort of stem the tide of cancellations that's the good news. The bad news is they've also asked us if we could give them some relief on bookings that our channel have driven that have resulted in a cancellation. So, we know for a fact that this is impacting some of our clients. What we haven't had a chance to do is study clients where it's impacting to the upside. We all hear the anecdotes of what's happening in the -- at the big box stores the Costco's the Sam's Clubs of the world. So far, we have not seen that materialize in a noticeable way in our data, but we're going to keep watching it. Our guess is it will probably come sort of the stay-at-home part of the spend. But it is definitely something that we see in the data and we are seeing with our clients. So, it is real. The question is to what magnitude and how long will it happen that anyone's guess. And what was there a second question that I've forgotten now?

No, that takes care of it. I'm good. Thanks very much.

Thanks Tim.

Thank you. Our next question comes from Chris Shuttler of William Blair. Your line is open.

Hey good afternoon everyone. Just to confirm the 2018 ARPU levels that you're saying that you expect to get there by the end of 2021. Should we think of that as full year 2021 ARPU should be at least $2.30? Or is there a different way to interpret that?

Yes, it's a fair question. I think to be safe I've always said, as we exit 2021, we should be back to those normalized levels from 2018. So, not the annual average, but in exiting 2021.

Okay, got it. And then the only other one just in your conversation with banks in what areas, capabilities, functionalities, are they telling you that they would like to see Cardlytics invest?

Yes, it's a great question. So, for sure, if I had to answer it in two words, it's the user experience and making the user experience that is more robust than what we have today. I mean if we're honest with ourselves today, we show logos. So, creating a user experience that is both more contextual in terms of being able to sort of find the right offers based on what you're looking for, you can picture a tab for just travel offers, a tab for retail offers, a tab for dining out offers, but then also within each of those sort of contextual experiences, just an overall richer media experience and the fact that we can't show a picture of a hamburger is a little to survey, so we need to work on that. And then also offers that are more relevant for those particular categories. So today most of our offers are just save a certain percentage off. You'd love to be able to offer a free hamburger with the purchase of a coke for example or to be able to sell a particular product at a big box retailer versus just the big box retailer themselves. So in one word, it's a richer user experience. So I guess that's a couple of words. But richer user experience is what they're looking for. They all have different ideas and flavors of that and we're trying to build a very modularized components to the technology so that they can sort of pick and choose the way they want you to display the experience, but yet from an advertiser perspective, it's still one seamless network that they're buying. And so that does take time. But I would say that, our FIs are pretty excited about creating this richer experience and not – while they all have different pains, none of them have said no, most of them, if not all of them are actually pushing forward pretty aggressively.

And you know, what's great about it. The things that we're trying to do from the bank side around a richer user experience, richer media is exactly what our advertisers want us to do for them also. So it's a good example of where we're kind of aligning both the interest of banks and the advertisers together in a way, it's just good for the ecosystem.

And when do you think that some of those capabilities will be I guess ready for prime time where they're rolled out across part of the base?

Yeah. So this – that's a tougher question to answer, because we first have to build it and then the banks have to accept what is going to be a pretty significant technology release and we have to get that into their queue. So we have what I would call an aggressive goal of having the first wave of us having it built by Q4 2020. And then trying to get at least our first bank or bank live with that first user experience upgrade sometime in the first half of 2021. But that is highly reliant on banks and getting into their queue. So we all know there is – that is the more unpredictable part of this business model.

Got it. Thank you.

[Operator Instructions] Our next question comes from Jason Kreyer of Craig-Hallum. Your line is open.

Hey, good afternoon. Just wanted to unpack the commentary that you gave on 2020 you talked about a range of outcomes there and obviously Wells remains somewhat of a wild card. Just curious, if you can give like any qualitative commentary around like a same-store sales or what kind of progression you would expect from the more mature clients like Chase and BofA?

So first of all, Chase and BofA are – all three of these banks are in very different states of maturity. So BofA as you know is a very, very mature bank. They have pretty good user experience. I think they have a program that is running well on – without a lot of marketing without a lot of continued consumer education. I would say, it's a program that is just sort of coming along reasonably nicely. Chase on the other hand still a newer bank. Customers are still finding it still learning about it. Chase is still spending significant dollars marketing and enhancing the program and the offers. So still – it's still very much maturing. And I think there's upside quite frankly quite a bit of upside. Not to say that, there is an upside in some of our more mature banks, but they're just at a more steady state. Wells Fargo, of course by definition is in our lease mature bank. So there is a material and significant upside and we've only rolled out to 35% of the population in terms of full user experience and full UI. So we're not even halfway done yet. And even that 35% have really only had the program for a couple of months, so real upside with Wells Fargo. And so we do monitor each bank both individually and then we monitor the overall network. But individually, each bank is in a very, very different state of rollout and maturity and thus consumer adoption.

I mean, I'd say on the advertiser side, a couple of good soundbites on the prepared remarks. We've – we saw 30 new logos in the new verticals that we're going after. Almost about half of our billings now are our annual commitments, which is an improvement from a year ago. So from where I sit, I'm very encouraged about the remainder of 2020 and us being able to execute against what we told everybody all along.

Yeah to build on what David just said, and to remind everybody, our constraint to growth is really not tied to MAU growth at all. We use a very small amount of our total inventory today. The constraint is the number of advertisers that were sign and the amount they're spending with us. Very few are spending even close to what they could spend in the channel. So that's really our focus is how do we get this new sales team in place and go after just more significant budgets across a broader range of major advertisers.

What we know for a fact is every new material logo that we add creates a reasonably noticeable and measurable change to the good side in engagement. And that's consistent across all the banks, regardless of where they are in their maturity state. So that is absolutely the focus.

On the engagement side, just wondering if you could comment at all on, I guess, maybe on a more mature bank perspective on, what kind of acceptance or utilization rates and how those have progressed within consumers? And like any -- I guess, that is scale at the efforts with the financial institutions to ramp that up. So, like, if we talk about Wells Fargo, which is only a-third of the way into the rollout, at what point do you work with them to start improving consumer adoption and consumer awareness?

Yes, I'll comment and then I'll let Scott and Lynne add on. I mean, certainly from an engagement perspective, it's a question we get often. We are still very much in the same place we were three months ago, which is -- there's a lot of noise right now. For Wells, we're fully rolled out to 35%. We expect that number to continue to ramp up. As that happens, we're going to continue to see a lot of movement, as it relates to engagement, not only at Wells, but across the network. Certain banks are performing better than others at the end of the day. But we also hear people loud and clear. I mean, this is something that we are going to pull us around to provide additional transparency into the performance of the network, with regards to engagement. It's important to keep in mind, however, that it's a high correlation to engagement, as it relates to how we make money, which we make money on the post serve spend. So hear you loud and clear, we're still in a position where we're seeing a lot of noise.

And if I could just add, I mean, if we were -- if we felt comfortable giving you engagement levels per bank, this would not be a problem. And you guys will be able to understand full color of how different banks mature and also how different user experiences and even different marketing efforts of the banks impact the program. We obviously can't do that. So trying to create averages across this very complicated network with all of these massive organizations in different states of maturity is it's not as easy as it might sound. But we are committed to trying to create an engagement stat that we can talk about some time in the course of 2020.

Okay, great. Thank you.

Thank you. Our next question comes from Nat Schindler of Bank of America Merrill Lynch. Your line is open.

Yes. Hi, guys. This question may fall victim to what you've just said, but I want to drill down more on that engagement issue. Specifically, whether or not there's any -- I know there's a difference in maturity and that might be something with how the user interface works with your product itself. But is there any real differences between the major -- your major customer banks in how they -- their mobile presence at all?

Yes.

Yes.

There are dramatic differences directly correlated to, A, how long the customers have the offering available to them but also the quality of the user experience.

And the quality of the marketing that goes beyond the overall program and the consumer education. There are dramatic differences, yes, Nat.

And that, one of the things that we did do is, we look at those differences and then we benchmarked and shared with the other banks to help them mobilize to go and drive engagement. But I want to keep going back to the basic fact very, very few of our advertisers spend even close to what they could, given levels of consumer engagement we have. So it is not a constraint to revenue or growth.

So then going a little deeper into that question, what is holding back advertisers at this point? Yes you could say that getting back to the pre-Chase pre-Wells ARPU super-fast might take a little time if BofA was ahead in how the app interfaces and how people can engage with it. But getting back closer, because you are just getting these ads out to massively more people, what is stopping them from just turning on more budget? What's -- when you tell them I've got triple as many people now how do they respond?

Yes look Nat, it's a great question. What our -- a couple of things. Yes first of all the significant increase in annual budgets contracts is, we think a great sign. It does show that people are like; ah, I need this now as a constant part of my marketing mix. But our experience has been that you can only kind of grow budget so much during the fiscal year. Because every time someone doubles our budget, they almost for sure have taken it out of another budget. And so we do think there is a kind of a -- it's just a certain rate or certain friction of trying to grow budgets too fast. The second thing that we continue to think is really important is, we are an IO-driven model. In every 45 days we're going to get new IOs and turn them back on the channel versus being an always-on model. That's one of the reason we are investing so much to get to that always on automated state because that -- we think that takes out a lot of the friction of how quickly we can grow budgets with advertisers.

Okay. Thank you.

Sure.

I'm showing no further questions at this time. I'd like to turn the conference back over to CEO, Scott Grimes for any closing remarks.

Yes, we are super proud of how our team delivered in 2019 and but like I said what we're really even more excited is how well the company is positioned to grow in 2020 and 2021. We think these leadership changes we are making if you think about what we're really doing, we are expanding the bench of leaders that we can have that can really drive growth in the company. We have super exciting new leaders in the company. And we're just really excited about what we're going to go bring to investors in 2020 and 2021. So we thank everybody for joining the call today and we look forward to our earnings call in May.

Ladies and gentlemen this does conclude today's conference. Thank you for participating. You may all disconnect.