Karim Temsamani - Chief Executive Officer Andy Christiansen - Chief Financial Officer Nick Lynton - Chief Legal and Privacy Officer

Hello! And thank you for standing by. Welcome to the Cardlytics Fourth Quarter and Full Year 2022 Financial Results Conference Call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session [Operator Instructions]. I will now like to hand the conference over to Nick Lynton, Chief Legal and Privacy Officer. Sir, you may begin.

Thanks for joining us and welcome to Cardlytics Fourth Quarter and Full Year 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 our future financial performance and results, our ability to achieve our key long term priorities, upgrades to our current products and processes and our rollout of new products. The rollout of our new ad server and user experience; our transition of the cloud, and the deprecation of our on-premise data centers; our sales pipeline; our customer concentration and margin profiles; our timeline for achieving positive free cash flow and our path to profitability. Our cost reduction initiatives and the Bridg shareholder dispute and earn out payments. 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, 2022 which has been filed with the SEC. 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 in 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 not that a supplemental presentation to our fourth quarter and full year results has also been posted to our Investor Relations website. Joining us on the call today is Cardlytics’ CEO, Karim Temsamani 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 Karim. Karim?

Thank you for joining us, and welcome to our fourth quarter earnings call. It has been exactly six months since I joined Cardlytics, and while I would still have some short term issues to resolve, my belief in the incredible long term potential of this business has only been strengthened. Cardlytics is in a unique position at a unique time in the industry. The topics are both performance and brand safe online advertising are top of mind with many of our customers and partners, which aligned squarely with our value proposition. It is rare to see a model that has so many benefits to so many groups. Brands get to offer the customers ads that are relevant based on past purchases. Customers save on the brands they prefer, and financial institutions increase engagement and loyalty. The cycle is virtuous, but to realize the true potential as a business, we needed to improve our operational efficiency, reduce excess costs, and become a company that is led by the products that we are building. It's still early, but we are starting to see the results of these improvements. On the call, I'd like to highlight our financial results; focus on areas where we have demonstrated operational and cost discipline, and give insights into product enhancements that we expect to positively affect our growth for the year. First, some financial highlights. Our fourth quarter performance delivered billings, revenue and adjusted contribution in line with our guidance. We navigated a challenging macro environment where inflation and rising interest rates tampered budgets across the ad tech market. Despite these headwinds for the full year 2022, we once again delivered double digit growth across billings, revenue and adjusted contribution. Additionally, Bridg delivered triple digit revenue growth. For the full year 2022, billings grew 12% to $442.5…

Thank you, Karim. Our Q4 results were within our quarterly guidance ranges, and despite macroeconomic headwinds that impacted consumer spending and ad budgets, we delivered double digit year-over-year growth in 2022. Let me walk through the numbers for Q4. Billings totaled $126.1 million, down 5.9% year-over-year. Revenue totaled $82.5 million, down 8.4% year-over-year. Adjusted contribution totaled $40 million, down 9.2% year-over-year and adjusted EBITDA was a loss of $6.1 million compared to a gain of $2.6 million in Q4 of last year. Additionally, for Q4 year-over-year Bridg revenue grew 74.2% and agency ad spending on the Cardlytics platform grew over 20%. It's also worth noting that core Cardlytics billings was flat year-over-year when excluding the large restaurant clients that left the channel in 2022. For the quarter, billings margin was down 1.8% year-over-year. Part of this was driven by advertiser mix. We typically generate a higher billings margin within the restaurant vertical compared to travel and entertainment. Restaurant ad spending on our channel declined 15% year-over-year, compared to a 75% increase within travel and entertainment. Additionally, there are some temporary drags on billings margin that will phase out by the middle of the year as we transition our tech stack and automate operations. Our expectations returned to historical levels of billing margin over time, we also see opportunities to expand our margins as we grow and diversify our customer base and leverage higher margin revenues from our fast-growing Bridg offerings. Customer concentration improved over the past year as our top five customers accounted for 15% of revenue this quarter compared to 23% in Q4 of 2021. This remains a central focus as we continue to organically grow and expand the depth and breadth of our customer base. Moving to costs. We have completed the cost reduction initiatives we announced in…

We want to thank our shareholders, partners, employees and customers for their ongoing support and trust in the company. We remain focused on driving price innovation and solutions for our partners and advertisers. This focus would create the expanded reach, revenue opportunities and efficiency we need to meet our growth and profitability objectives. We look forward to sharing more updates on our progress during the year. With that, I will open the call to questions.

Thank you [Operator Instructions]. Our first question comes from the line of Kyle Peterson with Needham & Company. Your line is open.

Great! Good afternoon. Thanks guys for talking the questions. I just wanted to start off on the expenses, helpful color you guys gave with kind of roughly $42 million in cash expenses for 1Q, and then there's a couple of moving pieces you mentioned with the full kind of realization of some of those annualized cost savings partly offset by like some merit increases or timing of some of that. So I guess, is that $42 million with some modest adjustments based on those factors. Is that a good run rate to use moving forward or are there additional opportunities for efficiencies and savings without sacrificing your growth opportunities?

Hey! This is Andy. I mean you're exactly right. We wanted to give a little bit of color around the run rate. I mean the run rate we see in Q1 does fully reflect the actions that we took in 2022 and that's a good number to kind of run going forward. Now, I understand we may have a little bit of increases throughout the year, but that is kind of how we're modeling. Now there's certainly opportunities that we have during the year to manage our costs further. But, that kind of is right now kind of the run rate that we're seeing. So that's kind of a good number to model there.

Okay, that's really helpful. And then I wanted to touch on some of these newer products, whether it's some of the bank funded category offers or some of the more kind of incentivizing spending on future trips. I guess how big of a growth opportunity do you guys see for these offers, and could these be a material boost to results in '23 or is this more of kind of a multiyear slowly getting there, but not a big contributor right out of the gate?

Yes, sure. Let me take a swing at that, and Karim probably has some thoughts as well. But I think we've been a bit conservative as we think about these things rolling out this year. I think certainly next year it will be a much bigger impact on the business, and I think it will be one of the items where we're going to get going here in the next few quarters. We'll see it and by the end of the year we'll probably start to feel it, but really it's a big 2024 opportunity. But with upside right in 2023, if we were really able to pull that forward and execute.

Appreciate it. Thanks guys.

Kyle, I would echo Andy's sentiment. I think these are potential opportunities that give us comfort that we can get to some level of growth this year. Some reasonable level of growth this year, but most of the benefits are going to come in, in 2024.

Makes sense. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Douglas Anmuth with JPMorgan. Your line is open.

Thanks for talking the questions. It looks like the two industries where activation rates increased year-over-year were entertainment and travel. Just curious how you're thinking about the shift of consumer spending from things to experiences and how does that impact your business in the go-to-market strategy going forward? And then separately, you talked about one major partner launching the new user experience. Can you just give us some more insight in terms of the benefits of the new user experience? How will that be better for users and for advertisers? Thanks.

Sure. Thanks for the questions. On your first point right, like we've talked a lot about some of the real momentum that we felt in Q4 around travel and entertainment, it’s been a very, very strong industry vertical for us. In fact Q4 of ’22 compared to '21 was up 80%, right. So I think, we're obviously seeing a lot of engagement there, a lot of spend that's happening there. So I think it's top of mind where it's an active area where people are looking to save money as they're traveling. To your second point, you know I'll let maybe Karim chime in on that one, but I think the entertainment and travel is pretty self-explanatory given our spend trends.

Yes. Thanks, Andy. I'll just add to that. Essentially there's obviously, in hardware go-to-market is important with regards to getting us the right base of customers. But the other part that's really important is how we optimize for the right offers to be surfaced to the right customers. And that's where us becoming a much stronger product-led company with a modern Ad Server and the ability to be a lot smarter as to how we how we put this rewards to the right customers at the right time will make a vast difference to our business going forward, both in terms of the engagements that we will see from the ad, but also the revenue that we can derive from these rewards you know. Very important aspects of our business for us going forward.

Thank you.

Thank you. [Operator Instructions]. Please stand by for our next question. Our next question comes from the line of Jason Kreyer with Craig-Hallum. Your line is open.

Great! Thank you guys. Just wanted to see if you can help us bridge the gap from the guide that you gave for Q1 to the commentary on cash flow generation in Q3. It doesn't seem like you're baking any other cost reduction in there, but just wonder if you can help fill in that gap over the next two quarters.

Yes, sure. Happy to help here, right? So our expense run rate, we probably try to give a little bit of color, right, it's kind of where we're at. We certainly – there are certainly opportunities for us to continue to manage our costs. But that's one kind of anchor that we want people to think about. As we get to breakeven here in Q3 from a cash flow perspective, right, we really need to make sure that you're considering the interest payments for the software development costs, right, then be able to kind of back into the adjusted contribution numbers that we would expect, right, to reach breakeven. So Karim spent a lot of time in his prepared remarks talking about all the different factors of growth. And I think when you put those altogether, right, we feel really comfortable about being able to grow the business. One of the pieces too that I think maybe is a bit underappreciated is the growth in the Bridg business, which is a much higher margin business for us, where those dollars are flowing all the way down to just the contribution. So that, combined with many of the savings in the Cardlytics platform that we're talking about with the new user experience, new offers, we offer cost structure [ph] and those are the things that are going to propel us to getting back to that double-digit growth rate in the core business, combined with some pretty impressive growth rates that we're experiencing here with Bridg.

Thanks Andy. And you may have just answered my second question, but you guys were talking about updates to the product suite that are giving you confidence in that return to growth. I mean, what are the near-term product changes that can influence growth here in '23?

Yes. So there's a lot of different angles here. Let me break down a couple of different things, right. Product is certainly one of the things where a new user experience with new offer constructs is certainly on the horizon. Additionally, when you think about our transformation becoming a product-led organization, right, and what the benefits of that even in how we do our business today. How we consume the ad biz, how we optimize campaigns, all those things are upside opportunities for us that we've already seen in a small scale some of our smaller banks, but we're now bringing some of that, some of those new capabilities and automation to our larger banks as well, right. So we certainly have an expectation of being a little more –you know to meaningfully move the needle doing those things, right. And added things like product offers come online, when we expect those to become more meaningful towards the back half, there's an opportunity for us to accelerate those things and realize some of that growth earlier if you will. So there's a couple of different things kind of all going on there. They're all giving us some additional tailwinds.

Okay. And one last one if I can squeeze one in. Karim, I think you did a great job talking about some new product changes and a bunch of different things. There were three product changes you highlighted, and I think the second one was more about kind of offers that were more tied to impression and expanding reach. Just wanted to see if you can give a little bit more clarity around that.

You're talking about pricing models that are more tied to serve and impression events or are you are talking about the merchant category core offers. Those are two of our separate remarks.

The first one, the impression models.

Yes. We essentially are currently as you know, not necessarily optimizing probably with regards to the offers that we saw in customers. So, what we want to ensure is that we are revisiting our pricing models so that while we are continuing to look for the right return on investment for our customers, we are understanding what impression events are driving those purchases and essentially better balancing the reach and performance that each advertiser gets, so that we can surface more of the right ads to the right customers rather than continuously serving the same ads to the same customers. So we have much better control of budget management, because of it we'll have much better control of delivery. So instead of continuously serving the same ads to the same customers, the same rewards to the same customers, we'll be able to select the ads that are more likely to end in the right outcome for those customers. So a much better outcome, both in terms of the engagement and the experience that the customers will have within their banking app, but also a better leverage for us with regards to the budgets that we can consume.

Okay great. Thank you very much.

Thank you. I'm not showing any further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.