Lynne Laube - Chief Executive Officer Andy Christiansen - Chief Financial Officer Nick Lynton - Chief Legal Officer

Hello! Thank you for standing by, and welcome to the Second Quarter 2022 Cardlytics, Inc., Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference may be recorded. I would now like to hand the conference over to your speaker today, Nick Lynton, Chief Legal Officer. Please go ahead.

Good evening and welcome to Cardlytics second quarter 2022 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 the following: Our future financial performance and results, our growth expectations for the second half of 2022, upcoming changes to our management team, our ability to achieve our key long term priorities, the increase in and diversification of our MAUs or Monthly Active Users, as well as the increase in MAUs connected to our ad server, the increase in ARPU or Average Revenue Per User, the performance and growth of Bridg, the impact of inflation and other macroeconomic trends on our business and the economy as a whole, the sufficiency of our capital structure, the use of cash for the Bridg earn-out, our time lines for achieving positive adjusted EBITDA and positive free cash flow, adding new financial institutions and banking partners, our continued partnership with Bank of America, implementation of our cost reduction initiatives and the anticipated benefits of our recent acquisition. 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, 2022, which has been filed 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, as well as the 8-K that has been filed with the SEC. Today’s call is available via webcast and a replay will be available for one week. You can find the information I have just described in the Investor Relations section of the 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 are Cardlytics’ CEO and Co-Founder, Lynne Laube, and CFO; Andy Christiansen. Following their prepared remarks, we’ll open the call to your questions. With that said, let me turn the call over to Lynne. Lynne.

Good evening, and thank you for joining our Q2, 2022 earnings call. Before I get to the numbers, I want to say that Cardlytics’ is excited to have recruited our new CEO, Karim Temsamani. Our Board conducted a thorough and comprehensive search process and interviewed many fantastic candidates. By hiring Karim, I truly believe we found an extremely capable leader with the right skill set to scale Cardlytics into the future. Karim joins us on September 1 from Stripe, a market leader in payment infrastructure for the Internet. At Stripe, Karim served as Head of Global Financial Services partnership, as well as Head of Financial Products. Karim also spent nearly 12 years at Google, where he oversaw all of Google’s sales and operations across the Asia Pacific region, and also served as its Head of Global Mobile, where he was instrumental in the growth of the business worldwide. His extensive financial services and advertising experience align closely with the needs of our company. Like myself, Karim sees the tremendous potential of this business, and he’s excited to take the helm and build on the foundation we laid. Moving on to our second quarter 2022 performance, we delivered a 28% year-over-year revenue growth with solid performance in gas, grocery and travel and entertainment. In addition, our agency business grew in excess of 50%. Here are the numbers: Billings increased 26.3% year-over-year to $107.7 million. Revenue increased 28.1% year-over-year to $75.4 million and adjusted contribution increased 18.5% year-over-year to $35.1 million. Moving on from results, here are the updates on our key platform initiatives. Our bank relationships continue to be strong. We’ve successfully signed a new three year contract with Bank of America last month that contains benefits for both parties. Bank of America is one of our longest standing and most…

Thank you, Lynne. We are pleased with our results this quarter in light of the persistently high inflation pressure in consumer spending. We also faced growing uncertainty in the markets that started constraining digital ad budgets in the back half of the quarter. Despite these headwinds, billings grew 26.3% to $107.7 million, revenue grew 28.1% to $75.4 million and adjusted contribution grew 18.5% to $35.1 million. Bridg revenue grew 55.5% sequentially from Q1 to Q2. We recognized $800,000 of revenue in Q2 from contracts with effective dates in Q1. Excluding these adjustments, Bridg revenue grew 35.2% quarter-to-quarter. These adjustments are not included in Bridg ARR, which was $21.8 million this quarter, a 55.7% increase sequentially from Q1 to Q2. Geographically, U.S. revenue grew 27.8% year-over-year and UK revenue grew 32.3% in U.S. dollars, and 52.8% on a constant currency basis. There are a few notes I want to share regarding industry level and spending on the Cardlytics platform. All of our verticals outside of restaurant performed strongly, especially grocery and gas, and travel and entertainment. We had a solid first half of the year and I want to congratulate these teams on executing on our ambitious growth plans in a difficult environment. Our success in these verticals was partially offset by a major restaurant client decreasing their ad spending, a situation that we mentioned and planned for at the beginning of the year. This client remains in the channel, but they scale back the size of their campaigns in Q2, and we expect lower ad spending on our platform in Q3 as well. Excluding this client, our restaurant vertical grew 31.6% year-over-year, which is more in-line with our expectations. While certainly a headwind, this decrease combined with our efforts to diversify revenue will make the business much less susceptible to…

Thank you, Andy. I’m pleased with our growth in the first half of the year despite the macro conditions, and I’m confident that we will meet our adjusted EBITDA and free cash flow goals next year. We are also pleased with the progress we are seeing in the Bridg acquisition and expect to see further proof points in future quarters. The combination of the Cardlytics and Bridg datasets has us on the cusp of being able to scale up the business beyond our core platform, while our focus on financial goals will allow us to control our own destiny moving forward. I’m truly excited to have Karim come on board. His industry experience, relationships and expertise are perfect for leading the Cardlytics business, and I look forward to working with him on the Board and as a strategic adviser in the months ahead. It has been my honor to help build and lead this company for the past 15 years. Thank you to everyone for supporting our business. With that, I’ll open the call up for your questions.

Thank you. [Operator Instructions] Our first question comes from Kyle Peterson with Needham. You may proceed.

Hey! Good afternoon guys. Thanks for taking the questions. Just, I wanted to start with expenses and particularly some of you know the cost savings initiatives you guys outlined and still being pretty confident you guys can reaccelerate growth when the macro environment improves. So I guess outside of pausing hiring, what are some of the big areas that you guys have outlined at a high level where you think you can reduce the cost structure without impacting long-term growth outlook here?

Yeah, thanks Kyle. It’s Lynne. I’ll start and then I’ll pass it over to Andy. Look, we looked everywhere, and you know like any company with over 600 employees, there’s opportunities for efficiency, there’s opportunities to reduce vendor costs, there’s opportunities to reduce the focus on some of the longer-term growth initiatives, things like open banking, etc. So we’ve – you know we’ve identified, we’ve already booked 15 million and there’s more out there, which is why we’re confident. Yeah, we’re definitely seeing some macro tailwinds. Even if those persist well into 2023, we’re confident that we can maintain the profitability and cash flow goals that we laid out, but you know it’s a little bit from everywhere. It’s the way I would describe it and you’d be surprised how quickly that adds up. Andy, anything to that?

Yes, I’ll just add to that. I think we’ve really been careful not to impact our growth initiatives. We’ve got a lot of really important things going on is what everybody knows with the AWS transition, selling ad server, those things are still obviously very, very top of mind, and this is about giving us flexibility, right. We don’t know what the future holds. There are quite a bit of headwinds out there right now. We’ve got a bunch of very you know reasonable carriers with lower growth, that we feel really comfortable operating in with this plan.

Got it. That makes sense. And I guess just a quick follow-up, I know there was some quite a few headlines you know following some news that Chase bought Figg, which I know among other things has some card linked offer capabilities. Just wanted to see, has there been any changes in the near term of your expectations based on your conversations with Chase on how you see your partnership evolving with them or changing at all moving forward?

Yes. No, great question. Look, we usually don’t try to talk too much about individual banks, but Chase is actually approved to me saying the following: They remain focused on continuing our partnership period. So nothing has changed at all. There are a bunch of reasons why it makes sense for Chase to own Figg and not impact our relationship with them, primarily to go focus on the SMB space, but absolutely nothing has changed. We maintain a huge momentum with them like we always have. They’ve always been a fantastic standout partner of ours, and they continue to be. So I see no reason at all for The Street to read anything into this other than Chase wanted to focus on SMB.

Got it, that’s helpful. Thanks guys.

Thank you. One moment for questions. Our next question comes from Doug Anmuth with JPMorgan. You may proceed.

Thanks for taking the questions. Lynne, I was hoping you could just talk about – you called out the large restaurant partner. So if you could talk a little bit there about, is there anything that you can do in terms of working with them more closely or showing them more data. Are there any kind of steps you can take? So, that’s number one. And then two, I guess also just on the cost side, you can just help us understand. I know you’ve got the steps that you’re chasing in the back half of this year. As you look forward, a little bit more detail on kind of how you think the cost structure can play out going forward?

Yes, so on the large restaurant client, you know Doug we’ve obviously done a lot. I think many people probably know who it is, but I won’t call them out by name, but there’s been a massive CEO change there and so they’re reevaluating everything and their core strategy. We have, with several of our bank partners, including Chase and Bank of America, put our best foot forward on a pretty meaningful proposal for them. I don’t know if we’ll get that over the line, but we certainly haven’t given up. We are however modeling absolute worst case scenario for that relationship. So I want to reiterate that we have taken into effect – I mean, we’re being hyper conservative in terms of modeling macroeconomic conditions that continue to get worse throughout the year and going into next year, looking at worst case scenarios with particularly this client, and still controlling our own destiny with identifying the appropriate cost savings that are required to not materially impact this business, but to still get to profitability in Q2 and free cash flow in Q3. So I’m sure people don’t like the 10% to 15% guide, but we really do believe that that assumes conditions continue to deteriorate, and we can still control our own destiny. Andy, anything you would add to that about cost in the next year?

Well yes, a couple of things. One, on the restaurant client too. I mean this is obviously a situation we’ve mentioned in the past. I think we’ve been accounting for that the whole year and we understand where that’s going in the back half. That’s certainly not the reason why we’ve changed our guide, but that we already saw that. It’s really about the headwinds that we’re seeing across the business. In regards to the $15 million, that is largely run rate costs. So it’s not going to be one-time in the back half of this year. That’s kind of an annualized number. There are certainly a lot of other opportunities that we’re exploring. Some of those might be more one time in nature, but that largely is a run rate cost that we’ll see over time.

Okay. Thank you both.

Thank you. [Operator Instructions] Our next question comes from Jason Kreyer with Craig-Hallum. You may proceed.

Hey! Thanks for taking the questions. Just wondering if you can elaborate on what you’re seeing in the macro. I mean you delivered a Q2 that was within your guidance range, and then you know obviously we’re talking about a back half of the year, and I think you’ve talked about the conservatism baked into that, but quite a bit slower than what we were looking for. So curious if there’s a point in time in which things really started to slow and you saw this change in consumer spending or if all of that has kind of happened in July. Any more details there would be great or any commentary on specific verticals outside of restaurant, which you called out.

Yes. No, thanks Jason, good question. Look, I would describe Q2 as coming in like a lion and going out like a lamb. It deteriorated throughout the entire quarter and fairly rapidly. I mean some of the stats that I rattled off in the earnings script, I mean T&E was up 39% at the start of the quarter and was almost down at the end of the quarter. We saw it in just about every category and we saw kind of multiple dimensions. We saw consumer spend decline. It didn’t necessarily flatten, but it declined in every category. We saw trips in most category also declined, which kind of is the double whammy of, the spends declining and the trips are declining, which means their average ticket is going way up as they are spending less and of course that’s impacting many of our clients. So it happened very rapidly in the quarter, but it happened very steadily as well, and so I really want to reiterate, we have modeled those conditions continue to deteriorate throughout the remainder of 2023. So we’re not even modeling the same. We’re modeling more deterioration in that guide that we’re giving you. Hopefully we’re wrong and that really is a worst case scenario, but that is - that’s what we’re modeling right now.

Thank you. And then on the BofA extension, you called out in the prepared remarks that there are benefits to both parties. So just wondering if you can talk a little bit more about what those benefits are, and then now that that contract has been signed, are there any material changes or are there any particular reasons why it took so long to get that extension done?

So look, I’m not going to be in the business of talking about individual banks and individual bank contracts. It doesn’t serve us any good and quite frankly the banks don’t like it either. What I can tell you is first of all, we’ve never had a bank contract signed on time. So this is not unusual. I told you guys it wasn’t going to get done at the end of the year, I told you it was probably going to get done before the first half of the year and indeed it did. It was exactly what we expected. I talked about a lot of the things we’re trying to get all of our banks to do, not just BofA, Upgrade Technology, AWS, etc. What I can tell you is we’re very pleased with that contract and that’s all I can say. It is a – I think it’s a three year contract, which is very typical for us, so we’re very pleased.

Perfect! Thank you.

Is the operator still there? Are we still on the call? Okay, I’m going to go ahead and close the call. Hopefully, people can hear. I’m not sure if we have technology issues happening or not right now. But I do want to thank everyone for listening. We’re pleased with the quarter that we delivered, and while we are certainly seeing economic tailwinds, we can control our own destiny. I think that’s the big message that I want The Street to understand. We absolutely can control our destiny, and we’re going to, and nothing has fundamentally changed about this business. It’s still a core 30% year-over-year grower. We’re just facing really uncertain times right now, and I don’t think it’s unique to us or to digital advertising. I think it’s the entire economy. The other thing I would say is, I am really thrilled to welcome Karim. I think he is going to be an awesome addition to this team. He has so much, he really – I call him our needle in the hay stack. He has so much experience both with banks and with advertisers, it’s going to be really a good boost for what this company needs going into the future, and I know he’s really excited about the foundation that we built and about the fundamental. So yes, there are some tailwinds right now – sorry, excuse me, headwinds, but we still feel great about the foundation that we’ve laid and the company that we’ve built. So, with that we will end the call. Thank you everyone for joining and listening.