Cardlytics, Inc. (CDLX) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Cardlytics Second Quarter 2020 Financial Results 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 may be recorded. [Operator Instructions] I would now like to hand the conference over to your host, Chief Legal and Privacy Officer, Kirk Somers. Sir, please, go ahead.

Good evening and welcome to Cardlytics second quarter 2020 financial results call. Before we begin let me remind everyone that today's discussion will contain forward-looking statements based on our current assumptions, expectations and beliefs, including expectations about future financial performance or results, the anticipated impact of key priorities on driving growth, the launch of U.S. Bank, growth in FI MAUs or monthly active users, future ARPU or average revenue per user, the evolution of our platform provides self-service and the potential related benefits to us and our clients, the impact of COVID-19 on our business and the economy as a whole, the impact of our rise, retain and return strategy and the sufficiency of our capital structure. 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 for the quarter ended June 30, 2020, that we filed earlier today and in subsequent periodic reports that we file with the Securities and Exchange Commission. Also during the 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 has been filed with the SEC. Today's call is available via webcast and a replay will be available for one week. You can find all of the information I've just described on the Investor Relations section of Cardlytics' website. Please note that a supplemental presentation to our second quarter 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, Lynne Laube; and CFO, Andy Christiansen. Following their prepared remarks, we'll open the call to your questions. With that, let me turn the call over to Lynne. Lynne?

Thanks, Kirk, and thank you to everyone for joining us on our second quarter 2020 earnings conference call. First, we want to provide an update on the effects of COVID-19 on our business. Cardlytics is doing its part to help ensure the health and safety of our employees and our community. Our employees are working from home and we are evaluating opening our offices to them on a voluntary basis later this year. That said, we're monitoring current events and will adapt depending on the severity of the virus going forward. This is still a difficult time as an advertising business. While we saw signs of increased spend in the U.S. throughout the quarter, consumer spending in the U.K. and some of our key verticals, especially travel and dining, is still dramatically reduced year-over-year. Billings in these areas are down in a similar way. We are also continuously monitoring spend data to make sure we're prepared, as a company, for a potential second wave. Considering the impact of COVID-19, we delivered second quarter results that were in line with the internal forecast. We also saw month-over-month increases in absolute dollars throughout the quarter in all three metrics. Here are some of the numbers. Total billings for the second quarter were $39.5 million, down 46% year-over-year. Total revenue, which is equal to billings net of consumer incentive, was $28.2 million, a decline of 42%; and adjusted contribution was $12.4 million, down 43% year-over-year. Despite the unprecedented environment and the short-term impact to our results, we remain optimistic for the future. We continue to believe that our key long-term priorities of increasing the number of marketers working with us, bringing our solutions to new industries, evolving the Cardlytics platform and demonstrating operating leverage in our business are fully achievable. Our clients are still facing severe swings in spend both up and down and our three-pronged strategy; Rise, Retain and Return discussed on the Q1's earnings call is continuing to produce positive results. Interestingly, we've seen some clients move from Rise to Retain over the past few months. One example is with an online grocer who we helped in Q1 as their sales rose. By sharing custom weekly reports in Q2, Cardlytics helped them quantify the competitive share of wallet loss they were experiencing with those same new customers, particularly, among the heaviest customer segments. Our data uncovered that the most frequent customers were making approximately 50% of their online grocery transactions at other online competitors. These insights motivated our client to invest more aggressively in our platform for the second half of 2020. We also had a new Rise client so impressed with our results that they signed the longest advertising contract in Cardlytics history. This quarter we want to provide several new metrics to help investors understand engagement and the advertising spend potential on the platform. This includes quarterly data on monthly average log in days, offer activation rates across verticals and campaign spend ratios across verticals. We believe this information shows that users are engaged with the platform and that we have significant headroom for revenue growth as we gain access to larger advertising budgets. You can find these metrics in the supplemental presentation located on our Investor Relations website. We continue to rapidly evolve and innovate our platforms. Today, we're really excited to announce that we're externally testing our new self-service platform with several advertisers and agency partners. This self-service ad platform allows campaigns to be created in less than two minutes and is the first step in democratizing the Cardlytics advertising opportunity for all marketers and agencies big and small. Together with our first partner Horizon Media, we launched Lynn's Chocolate as the first advertiser and campaign through the new platform. Horizon is the largest independent agency in the world and this partnership paves the way for many more of their clients to now have access to Cardlytics and our premium channel. Additionally, together with VaynerMedia another large and fast-growing agency partner, we've launched a client under their management. Their agency representative noted that the tool had "Snap-like simplicity, but Google-level quality." Finally direct clients like Forever 21 are also testing the self-service platform to execute campaigns across our channel and scale their business. We're excited about the strides we've made and we see great opportunity for mutual benefit for our clients, direct or agencies. In addition to product advancements, we're continuing to make investments in the right people to lead our organization into the future. Jessica Jensen, CMO of OpenTable and an experienced executive who's worked at several leading digital platforms has recently joined our Board of Directors. And we've hired Farrell Hudzik and Pete Davies to lead our bank team and sales strategy and operation teams, respectively. We look forward to the impact each of these talented leaders will have on our platform. Moving to the bank side of our business. In Q2, we completed our Wells Fargo launch and surpassed 150 million FI MAUs. We believe this scale places us on equal footing with other major U.S. advertising platforms and provides a highly differentiated solution for marketers. We're extremely proud of our team for its work on Wells Fargo. Further, our launch preparations with U.S. Bank are going as planned and we expect to launch them with our version one of the new user experience in the first half of 2021. On a final note, I want to address the events that have caused massive local and national protests over the past few months. Cardlytics as a company stands in unison with all people of color. We have a number of new company goals to support employees in the community including an initiative to run campaigns to support minority-owned businesses. We will continue engaging with our employees and our communities of color to learn how we can best support them. With that, I will turn it over to Andy.

Thanks, Lynne. Q2 is a difficult quarter for our employees, our partners, and our communities. We remain focused on our longer term initiatives, and we're very optimistic about our future prospects. Just like last quarter, I'll give a quick update on liquidity, before covering Q2 results and guidance. We're confident that, our current capitalization and liquidity will provide us the financial flexibility to weather the economic downturn triggered by COVID-19 and continue with prudent strategic investments. We ended the quarter with $98.4 million in cash compared to $102.2 million cash at the end of Q1. We also continue to have access to our undrawn loan facility, which had total availability based on our eligible accounts receivable of $26.4 million as of June 30. We see an improvement in the economy, but there's still a lot of near term uncertainty. So remaining prudent in regards to our cash strategy, while still focusing on achieving our long-term operational and financial goals. For the full quarter, billings decreased 46% year-over-year to $39.5 million and revenue decreased 42% year-over-year to $28.2 million. Our U.S. revenue declined 38% year-over-year in Q2 and our U.K. revenue declined 74% as businesses there have been hit particularly hard by the pandemic. Similar to last quarter, I wanted to give everyone on the call a clear picture of how the quarter unfolded. Year-over-year revenue declined 46% in April, 44% in May, and 38% in June as we saw consumer spending improve throughout the quarter. It's worth noting that May of 2019 was a particularly strong month. So while revenue in May of 2020 was down 44% year-over-year, it was up nearly 40% sequentially from April. While we've seen a pause in year-over-year spending growth the last couple of weeks, we are optimistic that the recovery, while perhaps uneven will continue over the coming quarters. This will materialize in our results as marketers especially those in some of our larger verticals like travel grow more confident in deploying their advertising budgets over time. Adjusted contribution was $12.4 million in the second quarter, down 43% from Q2 of 2019. Adjusted EBITDA was a loss of $7.7 million in the quarter compared to a loss of $600,000 in Q2 of 2019, reflecting the revenue softness and the effects of COVID-19. As we noted last quarter, we are continuing to invest in our business during this time, which alongside the effects of the pandemic may cause fluctuations in our EBITDA over the coming quarters. MAUs grew 31% year-over-year from $120.1 million in the second quarter of 2019 to $157.2 million in Q2 of 2020, reflecting an increase in MAU stemming from growth at Chase and the Wells Fargo launch. ARPU during the second quarter was $0.18 down 55% year-over-year. As we mentioned last quarter, ARPU will create some pressure this year due to our significant MAU growth and revenue softness caused by the pandemic. And as a reminder, we think of MAU growth is typically proceeding associated top line growth. To echo Lynne, we are pleased to have grown our MAU base over 150 million, which is exactly where we expected to be after the launch of Wells Fargo. We had 27.3 million shares outstanding at the end of Q2. Weighted average shares outstanding during the quarter was 27.1 million compared to 22.7 million during Q2 of 2019. Now on to guidance. We are not providing guidance, due to the unpredictable effects of the current global health crisis. While we see signs of the economy is in a more stable position than it was in early Q2, there are concerns around recent infection trends and the pause of the recovery. However, we expect to see sequential improvement in both Q3 and Q4. The best direction we can provide is that we exited the quarter with revenue down 38% year-over-year in June. And barring a deterioration in consumer spending, we expect these declines to continue narrowing as we execute on our Rise, Retain and Return strategy. Despite the unpredictable environment, we continue to focus on achieving our long-term goals. And our liquidity provides us the flexibility to sync and act with a long-term mindset. And this is what feeds our optimism and our confidence in our future success. With that, I'll hand it back to Lynne for her closing remarks, before we open the line for questions. Lynne?

Thanks Andy. Q2 was a solid quarter in many ways, but ultimately it was also a difficult quarter due to the effects of the global pandemic. As we said in the past, we remain excited about our opportunities for growth and feel like our momentum is increasing. We are cautiously optimistic that Q1 and Q2 will be the worst parts of the crisis, but we have plans in place to address any scenario. I remain proud of our team's response in the workplace and the community. And we continue to remain focused on their health and well-being. With that, I'll open the call up for your questions.

Thank you. [Operator Instructions] Our first question comes from Doug Anmuth with JPMorgan. Your line is now open.

Great. Thanks for taking the questions. I have two. First, just based on the data and everything that you can see, just curious when -- how you're thinking about some of the changes in consumer behavior that you're seeing over these last few months and what could be more permanent versus transient? And how that impacts your sales strategy going forward? And then second, I was hoping you could give us some more details on the new user experience that you mentioned coming in the first half of next year at least with one bank? Thanks.

Thanks, Doug. Yes. I do think we're going to see some permanent changes in consumer spending. I think most notably online ordering with in-store or curbside pickup is I think a trend that's here to stay for the long-term. I think also online purchases in some categories, particularly some of the D2C categories is a trend that's probably here to stay for the long-term. But we do believe that consumer spending will come back into brick-and-mortar stores, probably not at the same pace that it was before this, but it will come back into brick-and-mortar stores. As a reminder, all of the advertising content that we sell is good, however, the consumer wants to make the purchase. So whether they want to purchase online or they want to purchase in store, the advertising content works for that consumer desire. Previous the vast majority of the redemptions that we saw were in store. We've definitely seen a pretty dramatic shift to online only. And our Rise, Retain, Return strategy is a part of going after some of the more surging categories in online-only that weren't necessarily as heavy of a focus for us prior to COVID. But I do think we're going to see some partnerships in how people are spending. And our platform is able to accommodate those shifts very easily and already has. In terms of the U.S. Bank, new user experience, I do want to emphasize this is Version 1. So there will be many, many upgrades to come over many banks over time. But it's going to have some very basic things that we can't do today that are going to sound very simple, but are important. It's going to have some pictures. So the ability to show a picture of a product or a picture of the menu or just even whatever it is that the consumer is buying, it's going to have a lot more ability for the user to categorize, filter, organize, search and find the content that they're looking for. And it's going to enable a few different kinds of notifications of the kinds of offers that are available, so that we're able to do something a little bit more differentiated than just a simple percentage off offer. But can start to sort of work our way into more product level offerings kind of day offerings things like that. It will be fairly basic on that to mention, but the underlying foundation will be there to enable more and more of that type of different offering and content variety.

Okay. Great. Thank you.

Thank you. Our next question comes from the Youssef Squali with Truist. Your line is now open.

Great. Thank you, very much. Hey guys. Two questions from me. First, thanks by the way for the clarity around linearity throughout the quarter. I was wondering if you could actually -- the one more month to that and help us maybe with trends you're seeing in July. And then maybe on just the mix of advertisers, we noticed that the percentage of digital advertisers on the platform materially increased versus physical ones which kind of makes sense? Could you help quantify the mix between digital versus physical? I'm assuming you have the majority of digital. But more importantly how do they prepare in terms of spend on the platform relative to each other?

Yes. No it's a great question, Youssef. This is Lynne. Obviously, I think you can all see it. Many of you have relationships with our banks and can see the content. There's definitely a pretty dramatic increase of some of the online-only content that's out there. It is hard for them to overcome or to make up for the loss of some very, very big brick-and-mortar particularly restaurants and also travel plans that we have. But we see a nice rise in just the increase of these online-only brands and these direct-to-consumer brands using our platform. So, I think it sets us up well for when this is over, we're going to have those brands and we're going to have the brick-and-mortar, the travel, the restaurant back. So we definitely, I think are well set in the long run, but they're not going to take-up in the short-term for some of the loss of some later future. In terms of spend that we're seeing in July, you want to touch on that one Andy?

Yes. Well, we have about a two-week lag in data. So, if you remember last quarter, I think we did this about another week out and had a little bit more visibility. But we are seeing better data in July that we certainly believe that our results in July will be better than they were in June. I think it remains to see to the degree but we certainly are seeing a continued improvement.

I guess, if I can just follow-up on that. As you look at the progression of the business, how realistic is it to maybe expect that you guys will get back to flat or maybe even year-on-year growth by the end of the year. Is that realistic at this point?

I think a lot really depends upon some of the areas that Lynne touched on, right? So, some of the areas like travel U.K., brick-and-mortar, we're going to have to see a lot more consumer confidence quite frankly and a lot of that is tied to infections. Infections drive fear, drive change in behavior gains and spend. And so I think, it's very, very difficult for us to be able to provide guidance at this time. But certainly we would need to see some significant improvement to get there.

What I want to say is and I hope we don't sound like we're talking out of both sides of our mouth, it's possible. As we've discussed many, many times over, our platform is capable of consuming a lot more budget than we have today. And obviously, that's compounded with the current situation. But if spend came roaring back tomorrow that is absolutely possible. I think the chances of spend coming roaring back tomorrow are pretty low. But I do want to just highlight that it is entirely dependent on the economy coming back and then the advertisers. We know for a fact the advertisers come back when the spend comes back.

All right. Thank you, guys.

Thank you. Our next question comes from Chris Shutler with William Blair. Your line is now open.

Hi, everyone. Good afternoon. Have you seen many signs – I know it's early days but you've talked about being hopeful that some marketers will kind of come back to your channel before a lot of others. Are you seeing examples of that I think particularly around areas like hotels or nonstandard lodging?

Yes. We absolutely have seen in many cases us being one of the first back on, certainly both in the restaurant industry, as well as in travel. We've actually launched, I want to say probably about a half a dozen clients but we actually know that we are one of the first channels that they come back on.

And in some cases the only one that's on.

That's right.

Okay. And then I also wanted to ask about the – you made a number of hires recently. I think yesterday you announced an EVP of Bank Partnerships. And there were just some interesting comments in that press release about evolving and differentiating the Cardlytics platform for banks and further integrating it within banks beyond their offers programs. So maybe you could just dive into that a little bit more?

Yes. This is Lynne. Look when you serve three of the largest banks in the country and actually more than that we serve I think seven out of the top 10 banks in the country, they all have a different spin that they want to put on to the program. And a big part of the new user experience that we're building enables them to do that. It enables them to have their own sort of optimization for how offers are displayed their ability to enhance the offers their ability to even partner with some of the advertisers maybe they have large co-brand relationships those types of things. So from an advertiser perspective, we're still selling a network but from a bank perspective, they have the ability to customize the program much more so than they do today to meet kind of their look and feel specialization requirements is really what we were talking about there. In terms of expanding the use of the platform, look when you think about it, what we've built is a platform that can inject bank data, make it usable and then do something with it. And there's multiple use cases for that platform sitting inside a bank. Now I'm not going to suggest to you that we're going to have those use cases rolled out next year. And I'm certainly not going to suggest to you that they are in our numbers or as part of any guidance we would be providing in the foreseeable future. But we have a number of ways that we can serve banks with the existing platform that is installed inside their environment and move many of their other types of use well beyond just offers.

Okay. Thank you.

Thank you. Our next question comes from Jason Kreyer with Craig-Hallum. Your line is now open.

Thanks for taking my questions. Can you give any more color on just the pause? You talked a couple of times about a pause that you've seen in recent weeks. Wondering if you have more color on that, if that come back online now or if there's any specific verticals or any drivers to that pause?

Yes, the pause that we're referring to certainly over the last couple of weeks. Again, we're a bit lagged in the data. So of course, you'd have to go back to kind of the first half middle of July right to be able to go back then and see the -- we also have a difficult year-over-year comp in July which is kind of interesting, right? So some of the weakness that we see is that I think the normal kind of spikes in spend you see typically around a holiday were a bit dampened as well, right? So really on a year-over-year basis, you're starting to see a little bit of softness there. But we've seen that in some of the verticals in which we're very active in. But it actually has not been all down, but it has certainly been a bit choppy outside, but not dramatic anyway.

Okay. And then I know retail brick-and-mortar and kind of your fast casual dining have been larger categories for you before the virus hit. Just wondering if you can give any perspective on how you're offsetting that? I mean, I know like e-commerce is obviously a growing category and you pivoted to delivery solutions. But if you can give us any progress updates and how -- what the trajectory is or how long it takes to kind of offset some of those spend in their category? And how well you're doing in these new areas?

Here's what I would say. We're doing a great job attracting new logos that fit into those sort of rise categories, whether it's delivery or direct-to-consumer or e-com only. We're doing a great job attracting the new verticals to platform. But as I said before, it is hard -- they're still in test mode. So the IO might be for 45 days and it might be for a couple of hundred thousand dollars. It takes an awful lot of those to make up for some of our very large clients who had either huge brick-and-mortar footprint or very big in travel. It takes an awful lot of those to make up for that in the short term. So we're obviously not making up for that in the short term. But when I put on my several quarters out hat and the thing is behind us, now we've got the big sort of traditional users of the platform back in and these new verticals that quite frankly weren't even a huge focus of ours before COVID have now been well through the testing cycle and they have the potential to spend quite a bit of money on the platform, particularly because as I said earlier, we are seeing what we think are going to be some permanent changes to some consumer spending habits, I think positions us incredibly well. But it will take multiple quarters for these test budgets to grow to the size of the budgets of some of the bigger clients that we lost. Does that help?

Yes. That's great feedback. Just I'm going to squeeze one more in. You're obviously now testing with some agencies and some brands on the automated platform. Just wondering if you can give any feedback on what you're hearing there and potential for an update to the time line on when this would be more generally available?

Yes. So thank you for asking that, because I'm really surprised that's the first question. We are thrilled with where we are with rolling out the self-service platform well ahead of schedule that we communicated to The Street. We have two very, very progressive agencies testing it. And this should be something that you should pay attention to in the following quarters. Today the agencies it's still very much in beta mode. They're using it to learn and understand the capabilities of our platform. So, I wouldn't expect material revenue to be going through these beta agencies this year and potentially, even through the first half of next year. But as we have repeatedly said this self-service platform is what opens us up to go after the medium and small businesses that we do not call on today. And if you look at every other platform out there, starting with let's just pick on Facebook, 90% of their revenues come from these businesses that we're not even calling on today. And this platform enables that and it's actually launched and live in the hands of two agencies. So, we are super excited about it. But I do want to be cautious. It is still beta and you won't see material money going through the platform for several more quarters. But just to have it in the hands of agencies is a huge step.

All right. Good update. Thank you.

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

Yes, hi guys. You've mentioned several times about the change in luxury retail, restaurants, and travel obviously coming off in the pandemic and switching to more direct-to-consumer e-commerce brands. Is there any way you can give us some more direct color on the percentages from categories and how they change from pre-COVID to post?

Yes. We haven't shared those kind of exact numbers the weightings. I mean everyone I think at this point can appreciate the weightings, the historical vertical have been quite important to us. We do actually have a significant amount of growth in the e-comm area. But at this point right that is definitely being obscured by some of the declines we've seen from some of our larger brick-and-mortar and travel clients. So, I mean there is a very nice growing amount there that -- to Lynne's point, will become meaningful in the future that I think this in some ways is underlining is that there's some healthy diversification that is happening. So, we're actually pretty excited about where that may leave in the future, but it's just going to take some time until that really shows itself.

And Nat what we have in these verticals -- if you go look at the new metrics that we put in the supplemental, we are at least showing you the verticals and some of the performance rates by verticals and the upside potential there which I think will give you some of what you're looking for. So, take a look at this when you get a chance.

Sounds good. Then on a separate note. Well, -- actually I'll let you go. Sorry. I don't need to take a second question. Thanks.

Thank you. Our next question comes from Josh Beck with KeyBanc Capital Markets. Your line is now open.

This is Mattie [ph] on for Josh. I was wondering if we could talk a little bit more about your U.S. engagement metrics. And I was wondering if you could compare specifically your monthly log in days to pre-COVID levels? I'm wondering if you maybe saw an increase in banking activity during COVID and that maybe caused MAUs above expectations. And then my second question is could you maybe talk about the cost savings that you think that you could achieve from the self-service platform later in like 2021? Thanks.

Wait. Can you repeat that second question? Can we talk about the -- what from the self-service platform?

The cost savings you think you could achieve?

So, let me hit on the log-ins because that's a really easy one. While we did see a brief spike in log-ins when the stimulus checks were out, for the most part that metric is pretty consistent, pretty stable and has been for many, many quarters. We're not showing historical data because the other metrics actually because banks are launching will continue to grow from there. But log in there is no unusual spike in that. And you'll see that number grow over time as more people adopt online banking. So that's the answer to that one. In terms of cost savings for the self-service tools there are cost savings. As I mentioned, we can build a campaign in two minutes and that is something that traditionally could take upwards of an hour or more depending on how complicated the campaign was in the past. But really the purpose of the self-service tool is to go after agency spend, small business spend, it's to go after new logos. I think many of our existing advertisers will be a long time if ever before they're using the self-service tool. They're going to want to have the really rich sophisticated capabilities that we have today in the platform. Self-service is intended to go after new logos that don't have the same sophisticated requirements as some of the larger retailers and restaurants in the country. So there will [indiscernible] it's not something you should model. Q – Unidentified Analyst: Okay. Great. Thank you so much.

[Operator Instructions] Our next question comes from Tim Willi with Wells Fargo. Your line is now open.

Hi, thanks and good afternoon, everybody. Two questions. The first one is about I guess sort of the pause that you referenced. If I remember correctly from the first quarter call there was a discussion of certain states that were reopening and beginning to see positive activities. I think you could really pinpoint geographically some of those states open. And obviously we've seen states start to roll things back maybe roll them back open again at some point in time obviously. But I'm curious if the slowdowns you've referenced would really correlate geographically to states that were pulling back or putting restrictions back in, or is there no correlation that you could point to geographically based upon how states are managing case counts and social interactions and things like that?

Yes. So absolutely. I think many of the correlations that we saw early in the pandemic are consistent now. We have seen that some of the states that have taking a bit more of a pause than others are certainly those as I look here in front of the -- some of our own indicators Arkansas, Georgia Tennessee, Alabama you get addressed. It's the Southern states where we're actually starting to see a bit of a spike here in recent weeks. So we absolutely do think it's correlated to infections and consumer behaviors.

Okay. Second question is on expenses. And again, I know that it can be a bit sporadic depending upon what investments you're making and the timing of campaigns and bringing customers on. It looked like sort of all the expense categories relative to adjusted contribution margin and revenue jumped more so than probably like the last four to five quarters maybe not every single one, but a fair amount of them were really sort of probably higher than they've ever been relative to revenue. So I'm just sort of curious if that's a function of anything sort of again maybe finishing up some investments in platform or just sort of holding steady on expenses while revenue obviously struggled a bit this quarter, or up there is again something we should be thinking about in the upcoming quarters about the sort of core run rate for expenses?

Yes. So actually, the increase in OpEx that you're seeing is largely driven by stock compensation. Once you kind of peel out the stock comp which we do have that detail broken out in some of the later materials, but once you do that, you'll actually see a nice decline in OpEx and that's going to be in several different areas. Obviously sales and marketing makes a whole lot of sense right given, a lower performance in revenue. And then we've got -- G&A is down quite a bit as well. We've booked a fairly large bad debt reserve in Q1 when the pandemic first started. So a lot of that is really driven by stock comp. Stock comp is there for a variety of reasons. We have our annual refresher in April equity grants. And we've been filling obviously some executive positions and both of those are likely to continue in the future. We've got some incentive compensation for both -- for all of our employees as we look to try and take care of our most idle assets, we're thinking of ways that we can really try to take care of people. And I think stock comp is going to be one of the ways in which we do that. So we do expect probably that stock comp levels to remain at a similar level over the next couple of quarters.

Okay. I was actually referencing -- I should clarify this is ex-stock comp with expenses as a percentage of revenue. So I know there's some play with the revenue coming down relative to how quickly you could rack expenses down. And maybe that's just what it is, if there's a level of expense you're going to maintain relative to revenue. So that ratio went up ex-stock comp. I just wanted to make sure there wasn't like some final push on product development or something that moved up in R&D or sales and marketing line ex-comp that would then back off in the back half of the year?

Yes. Yes. So you really kind of flip sequentially too when you're looking at the OpEx just because a lot obviously happens quarter-to-quarter. So you should see it go from about 24.8% down to 20.5% ex-stock comp.

Okay. That’s all I have.

The increase in spending or anything going on that's unusual or outside of previous quarters at all. It's more a function of revenues now.

Perfect. Thanks very much.

Thank you. And at this time I'm showing no further questions in the queue at this time. I'd like to turn the call back to Lynne Laube for any closing...

So look it obviously was not the quarter we were all hoping for, but we are still very optimistic about the long-term success that this company is positioned to have. And I know COVID will be over eventually. And when it is we're going to be even stronger for it. So thank you all for attending and for listening. And we'll talk to you all soon.

Ladies and gentlemen thank you for your participation on today's conference. This does conclude your program and you may now disconnect.