Good day and thank you for standing by. Welcome to the Q2 2023 Cardlytics, Inc. Earnings 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'd now like to hand the conference over to your speaker today, Nick Lynton, Chief, Legal and Privacy Offices.

Good evening and welcome to the Cardlytics second quarter 2023 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, including for the third quarter of 2023, adding new partners to the network and increasing our MAUs, our partners' transitions to the new ad server and user experience, the growth and expansion of our advertiser base, the impacts of our new product initiatives, including our retail media network, our liquidity, and our growth and profitability, including expectations related to achieving positive operating cash flow, free cash flow and adjusted EBITDA on an annual basis. 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 factor section of the company's 10-Q for the quarter into June 30, 2023, which has been filed with the SEC. Also during this call, we will discuss non-GAAP measures of our performance, GAAP financial reconciliation 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 note that a supplemental presentation to our second quarter results has also been posted on our Investor Relations website. Joining us on the call today is Cardlytics CEO, Karim Temsamani and Director of Corporate Development and Investor Relations, Robert Robinson. Following their prepared remarks, we'll open the call to your questions. With that said, let me turn the call over to Karim.

Good evening, and thank you for joining our Q2 2023 earnings call. This was a solid quarter for Cardlytics. Our billing, revenue and adjusted EBITDA, all exceeded our expectations for the quarter, the results reflect that this hard work in transforming the business during a difficult period for the economy and advertising market. Adjusted EBITDA performance in Q2 improved by $11.7 million year-over-year, as our efficiency measure and our new product initiative took hold. And our operating cash flow for the quarter was positive $5.7 million. These are great outcomes delivered ahead of schedule. While we are excited about the positive changes on the way, and the early momentum we have in driving new customer-facing product innovation, we have much more to accomplish in the business. Every transformation has challenges, but we are making the right long-term decisions for Cardlytics, and as our numbers demonstrate, we are clearly making progress. Here are results for Q2. Billings increased $1.6 per year-over-year to $109.4 million. U.S. billings increased 7% year-over-year. Revenue increased 1.7% year-over-year to $76.7 million. Adjusted contribution increased 6.8% year-over-year to $37.5 million. Bridge revenue decreased 3% year-over-year to $6 million. This is in line with our expectations of short-term viability in the business, given our focus on Bridge Retail Media Network products. Our focus on sales effectiveness, delivering new products, and making operational improvement, led us to exceed expectations, despite the lukewarm consumer spend in advertising synergy. While restaurants and retail categories are still in the performing versus last year, given these trend, the travel and payment vertical continues to outperform for us, even as consumer spending in that category slows. On the expense side, we continue to make the right financial decisions for the business. We renegotiated several contracts in the quarter and implemented cost optimizations across AWS…

Thank you. Like Karim said, we are excited about our results in Q2. I've seen the considerable effort from our teams in the past few months, and this outcome is well deserved. Our financials are under control, and we are focused on positioning the business for long-term success. The numbers are a great sign that the business is moving in the right direction, but we want to stress that the near-term economy and advertising environment are still uncertain. The chance of a severe to moderate recession has decreased but consumer spend is go uneven, causing advertisers to continue to review costs and exercise caution with their budgets. We expect some variability in our quarter-to-quarter results moving forward. Here are the numbers for Q2. Billings increased 1.6% year-over-year to $109.4 million. Revenue increased 1.7% year-over-year to $76.7 million. Adjusted contribution increased 6.8% year-over-year to $37.5 million. Bridg revenue decreased 3% year-over-year. Like we mentioned last quarter and earlier in the call, the transformation of the business will cause fluctuations in our growth rates quarter-to-quarter. As we begin to convert proof of concepts, we expect growth rates to increase and normalize in the future. Geographically, U.S. revenue increased 7% year-over-year. U.K. revenue decreased 35% year-over-year. U.K. revenue is still affected due to the loss of a bank partner in the channel but we have opportunities in the pipeline to increase our supply of U.K. MAUs to historical levels. We expect growth rates in the U.K. business to normalize in future quarters. Moving to customer concentration. Our top 5 customers accounted for 15.7% of revenue this quarter compared to 15.8% in Q2 of 2022. Concentration will remain a key focus as we continue to grow and expand our advertiser base. Adjusted EBITDA was a loss of $4.1 million this quarter compared to a…

We are committed to running the business with a disciplined focus and closing out the year strong. And I'm looking forward to discussing the new capabilities we are providing to our advertisers and partners with all of you. I will now open the call to questions.

[Operator Instructions] Our first question comes from the line of Kyle Peterson with Needham & Co. Please proceed.

Hey guys. This is Sam on for Kyle today. Thanks for taking the question. Nice results here. I was wondering if you guys could talk a bit more about how ad budgets progressed throughout the quarter and maybe parse that out across some of the core verticals you guys are in.

Sure. Thanks for the question. So we've seen that overall, as we mentioned, consumer is definitely slowing overall. So as we mentioned during the call, the spend from consumer is down in retail by 3%, for instance, and only slightly up in travel when it was up quite dramatically over the last several quarters. So overall spend is only up 2% year-on-year, which means that, obviously, it has some level of impact on advertising budgets as well. Having said that, there are two factors that are positive for us. One, we're seeing some of the products that we're driving to market starting to have an impact. And two, we're really driving more efficiency with our sales teams. Our sales teams are spending more time in market, and we are seeing more demand from advertisers as a result of that. The results have actually been, to some degree, are contraintuitive versus what we have seen on the consumer side, where some of the areas where we've seen a little slowness on the consumer side, again, namely travel versus the growth that we've seen before and restaurants where and retail where we've seen slowdown have started to come back for us. So a positive trend in this area for our business.

Got it. That's helpful. Appreciate the color there. And then just thinking about the back half of the year, how are you guys thinking about ad budgets there? And maybe how does that stack up relative to your expectations from last quarter?

Yes. I think we're still seeing some choppiness and that's why we are being cautious with regards to the back half of the year. But there's definitely some positive sign as well that are starting to be showcased both because of, again, the two items I mentioned before, the continued efficiency drives within our sales teams and some of our products coming through. But we're also seeing some positive signs from some of our clients who want to drive additional spend in the back half of the year. So there's positive discussions occurring there. Again, we need to be cautious with regard to what we're seeing, but there are definitely some positive signs of what we might see in the economy overall.

Our next question comes from the line of Jason Kreyer with Craig-Hallum. Please proceed.

I just wanted to ask on your FI partner contract negotiations. I'm curious if you can maybe talk about what would -- what new products or services that you're providing that would encourage bank partners to want to renegotiate with terms that would be more favorable to Cardlytics. And then do you think that you can replicate the contract revisions that you've already seen with either existing FI partners or new FI partners that you're looking to onboard?

Thanks for the question. Listen, the important thing here, as I think I mentioned in the first call that we had when I moved to Cardlytics is that, we really are obsessed about our partners. I'm sure that we listen to their needs and that we provide the right level of tech and services to what they want to do to achieve better results for our partners and obviously, the consumers as well. I think we are making great improvements and strides towards that. We have excellent engagement and more senior engagement than we've ever had. We are better listening to what our partners want and creating products that mirror that. You can see some of these improvements, both in terms of the UI changes that we have made, but also in several of the new product trials that I've mentioned that are essentially driving benefits for both our partners, the consumers and advertisers. So I mentioned receipt-level offers that are coming through. We, again, have launched a spend -- target return on that spend, pricing pilot, which also will be helpful. And all of these things are essentially contributing to us having a better program that enables the banks to feel comfortable that we are the long-term partner for them and continue to invest in those changes with us. So it's an overall effort that we're making, but I have to commend the team both on the tech side, but also obviously on the partner side for enhancing the engagement that we have with our key banking partner.

And Karim, since you've been there, you've talked a lot about product and making the right investments. You talked about a little bit of these in the last response here. But can you maybe highlight a few specific product improvements that you've rolled out? And more so curious, how are these manifesting in the numbers? You put up a really nice quarter today. Are we seeing those result in new bookings or new share? Or where should we see that in the numbers today and going forward?

Yes. I think you are definitely starting to see that in the numbers to some degree, although obviously not at scale yet. But stepping back and to answer your question, the first thing that is really important that has changed is that the UI of the product is different to what it was before. And when you look at this UI that has rolled out 100% on Chase, the look and feel of the program is entirely different. And the look and feel of the program itself is driving more engagement at consumer level, which is really important for the program overall and obviously for the banks and for the advertisers. So that's the core thing already that is really important. The second area is that as we think about new product initiatives that are helping enabling new product constructs some of them that I've just mentioned, so I won't go back into it. But enabling new product construct that create more interesting consumers, more engagement in the program are really critical as well to driving further engagement and activation. And that essentially is what is starting to be reflected in numbers. But I think as you'll see over the coming quarters, as we gain more scale with more of our banking partners, you should see an even deeper impact across the whole of the business.

And I'm going to sneak in a third, sorry, but you mentioned Chase being fully rolled out. I'm just curious what with Chase have you seen that really clicks or that maybe clicks with Chase or your advertisers to prove or to validate this new user experience?

Well, again, we are seeing all of our key numbers, whether you're thinking about activations or redemptions or engagement in the program overall continue to improve. So these are very, very positive signal for us but we're making the right changes in the business.

Our next question comes from the line of Doug Anmuth from JPMorgan.

This is Wes on for Doug. Great quarter, guys. I just kind of wanted to touch on the EBITDA guide, breakeven for 3Q at the midpoint. Just curious what that assumes in terms of investments into these newer products and kind of what you would see in each to kind of reach the upper end of that and kind of in flat-positive in 3Q?

Thanks for the question. To a great degree, this is a continuation of the scaling of the products that we believe will happen across the quarter as well as continued discipline from a cost perspective. We are continuing to be cautious with regards to how we look at the advertising market in general, as we mentioned, and therefore, we are, again, being cautious with regards to how we guide based on what we see in the advertising market. But as we continue to roll out products as we continue to see improvements in the economy, we have potential to continue to do better from a financial perspective as well and the guide is essentially based on what we see now and the continued progress we're making both at product level and with advertising customers.

Great. I believe you kind of guided to around like $40 million, $42 million in cash OpEx before. Is that run rate -- quarterly run rate is still safe to assume here? Or is there any changes to that number?

Yes. I'll let Rob take that on and add something, but that's essentially roughly the current trend in our expenses line. I don't know, Rob, if you want to add anything?

No. You certainly answered the question. It is no change from what we've told you guys in the past few quarters.

At this time, I am showing no further questions. I would now like to turn the conference back over to Karim for closing remarks. Please proceed.

Thank you. Obviously, this brings the call to a close. I want to leave you all with this. Product is at the forefront of our strategy and it is helping us build stronger partnerships and new capabilities that will attract more advertisers to our business. And as you know, we are highly focused on the long-term financial health of the business. Our expectation is positive annual adjusted EBITDA and operating cash flow for 2024. We'll continue to be disciplined as we make investments to reach our full potential. Thank you for your continued support, and I look forward to speaking with you all soon.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.