Good day, and thank you for standing by. Welcome to the Cardlytics Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Nick Lynton.

Good evening, and welcome to the Cardlytics First Quarter 2024 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 regarding our future financial performance and results, including for the second quarter of 2024, our capital structure and various product initiatives and improvements. 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 March 31, 2024, 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 and the 8-K that has been filed with the SEC, which you can find on the Investor Relations section of the Cardlytics website. Today's call is available via webcast, and a replay will also be available on our website. Joining us on the call today is Cardlytics' CEO, Karim Temsamani' and CFO, Alexis DeSieno. 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 Q1 2024 earnings call. On our last earnings call, I highlighted the progress we made in 2023 and early 2024. We rebalanced our cost structure, resolved the SRS dispute, invested in our tech and products, renegotiated partner agreements and signed a new bank partner. I also discussed how we could now fully focus on execution and growth, as well as addressing our capital needs. Since the call, we made significant steps to remove the capital concerns around the company. We raised $50 million in cash and repurchased the majority of our outstanding 2020 convertible notes at prices below par and issued new convertible notes not due until 2029. Coupled with our positive adjusted EBITDA results for full year 2023 and now also in Q1 2024, we believe we have fully addressed our balance sheet issues, ensuring our bank partners and advertisers have confidence to work with us in the long term. As we have completed these transactions and find ourselves on a path to sustained profitability, we are starting a new period for Cardlytics. We have slowly rebuilt the foundation of the business over the past 18 months, so we can now turn to our longer-term growth prospects. I am confident we have the technology, products and the team to make significant growth a reality. While the full transition will take some more time and there will be some noise along the way, we are making the necessary progress to ensure we finish 2024 with even stronger momentum. Our first quarter performance has us off to a good start to 2024. Excluding Entertainment, which we sold at the end of 2023, billings grew 12% over the first quarter of 2023, indicating strong interest from advertisers. Redemptions, which, as we said last earnings…

Thank you, Karim. We are pleased with our financial results for the first quarter, driven by strength in redemptions, which indicates that our product initiatives are working, as well as the material improvement to our balance sheet. For the first quarter, we performed in line with our guidance and delivered the third consecutive quarter of positive adjusted EBITDA, and we saw meaningful acceleration in billings from Q4. Given Q1 is a seasonally weak quarter for the company, this result is a testament to the work we have done to re-engineer our cost base. Now, turning to our first quarter results, my comments will be year-over-year comparisons for the first quarter, excluding Entertainment, which we sold in December 2023, unless stated otherwise. In Q1, billings reached $105.2 million, a 12% increase. On a category basis, we continued to see strength in travel and everyday spend. The restaurant category also grew once again this quarter after rebuilding our sales team. More than half of our growth came from our top accounts spending more with us, winning back key accounts and reducing churn. Our North Star, redemptions, which drives consumer incentives on our income statement were up 20% to $37.6 million. Revenue, which is billings net of consumer incentives but before partner share, was $67.6 million, up 8%. As we continue to refine ADE, we are getting more effective at driving redemptions, and we believe redemption should be seen as a leading indicator of demand. In the short term, we may see outsized rewards as engagement accelerates beyond top line growth due to our targeting and ranking improvements. We feel good about this dynamic, especially given adjusted contribution was $37.1 million, up 27%. Margin increased from 47% to 55% as a percentage of revenue and 31% to 35% as a percentage of billings.…

[Operator Instructions] Our first question comes from Kyle Peterson at Needham.

Wanted to start off, I guess, on some of the billings trends you guys saw throughout the quarter. I guess just given the timing of kind of reporting towards the end of the first quarter, I was a little surprised to see you guys be a little closer to the low end of the guidance. So did you guys have any larger -- whether it was like cancellations or delays or anything that you saw in the last 2 weeks of March?

Yes. Thanks for the question. Look, we're still growing 12% on the top line and our adjusted contribution was 27%. So this is pretty good performance on a historically weak quarter and a pretty good acceleration from Q4, which was less than 5% growth. But to answer your question more specifically, yes, we're making a lot of changes to our network and our tech, all at the same time, and some of our partners are also making changes to their UX, which you're probably seeing. That's all leading to higher engagement, which is why I say that rewards are really a leading indicator of demand. And so, as Karim said in his remarks, we're consuming budgets more quickly, which is driving those higher redemptions. But in some cases, we can't bill for all of that demand yet. And we also had a few campaigns that didn't come through. So again, we're happy with the adjusted contribution growth of 27% and adjusted EBITDA still being positive, even while we're paying out more rewards than we expected.

Okay. That's helpful. And then, I guess, just a follow-up on some of the moving pieces with the higher redemption rates. Is the 1Q consumer incentives kind of as a percentage of billings, is that a good proxy to use going forward? Or as redemption rates increase, should we expect that percentage to continue to go up? Just trying to get some sense as to kind of what the mix and redemption rates is going to be on the P&L in the near term.

Yes. At least for Q2, we're expecting it to be similar, as you can see from the guidance ranges. Continuing to focus on our North Star, redemptions, is really the main focus right now. And those tech initiatives are really paying off. So we continue to convert accounts to our new pricing models and excited to have this increased engagement that is higher than we've typically seen. And then, the other portion of that is from the renegotiation of certain bank contracts, which will annualize in June. So we'll continue to see similar margins, but the growth rate may not be quite as high as we annualize that. And that starts in Q3, obviously.

Our next question comes from Jason Kreyer at Craig-Hallum.

I just want to focus a little bit more on the redemptions that we're talking about. Historically, if we look at the model, the proportion of incentives has been in a pretty tight band. That moved out of that band in this quarter. You're optimistic that redemptions is the positive leading indicator. I'm curious at how that number moves so much in a quarter and if we need to rethink the ratio of redemption versus billings going forward.

Yes. So, similar answer to prior. I think for Q2, at least, I would consider similar model of redemptions to billings as a percentage. So this is really a testament to the product changes we're making on ADE, better targeting and optimization of our ranking capabilities. And so, as people are making changes to the UX in terms of our bank partners and the widget moving up, this is really driving higher engagement. It's all good for the future, but it may take a while for us to get those budgets to match the engagement that we're seeing.

Okay. And if you're consuming budgets at a more rapid pace, I think you've talked about that a couple of times, it would seem that if you're driving successful campaign performance, you're delivering on those campaigns at a more rapid pace. It would seem a pretty easy argument to go back to those marketers and be able to fill budgets after those campaigns end more quickly. Am I wrong to think that?

No. We agree. Obviously, Q1, we had low transparency into this. But we now are understanding how our models are working better. I think we're investing in our sales team significantly more to try to capture more of these budgets and focus more on selling and less on account management. So we are investing in the sales team and also on agency to capture more budgets as we're opening up more engagement for our brands in general. Karim, I don't know if you have anything you want to add.

No. This is a good question, Jason. And clearly, it's a very positive thing that we're driving more engagement in the program, which is driving more redemptions. It's obviously good for our bank partners. It's good for advertisers. There's a timing difference here with regards to our teams being able to go back and get the budgets in the time frames that we're talking about. But longer term, it's very healthy for the program.

On the surface, it kind of seems like you're driving more redemptions, but you're driving more redemptions at a greater cost to the model. So that's the part of this that I'm kind of struggling with. And I'm struggling to gain an understanding of is that just a near-term issue or is it a longer-term evolution?

No, I think it's very clearly a longer-term evolution. And I would say, we have been signaling this for a very long period of time. From the first call since I joined 18 months ago, we basically said that it was really important for us to drive further engagement in the program. The engagement rates were low and that driving engagement is positive for our bank partners, that it's much more aligned with what they want, much more aligned with providing consumers with the benefits they should have for the program. It's better aligned with driving additional budget for advertisers. What needs to come with it is us continuing to negotiate rev share agreements with our banking partners to ensure that the gains that they're getting from people consuming more and therefore spending more on their cards is a net benefit for us as well. So I think longer term, you would see that as we continue to grow billings, we're going to hopefully continue to drive a lot more redemptions, but we should keep more in adjusted contributions. So you're going to see some differences in the economics of the business as a whole, but we think that we can manage that in a very healthy manner going forward.

Our next question comes from Jacob Stephan at Lake Street Capital Markets.

Maybe, Karim, if you could just kind of help us think about where you're investing in kind of the agency side of the business? Is that directly related to headcount? Or maybe just kind of help us think about some of those investments.

Yes. As Alexis mentioned in the call -- and thanks, Jacob, for the question. As Alexis mentioned in the call earlier, there's several areas in which we're investing in the business. As I mentioned as well in my remarks, we are investing in our tech and product just to ensure that we're continuing to innovate and providing the right products to our banks and to our advertisers. But what we have also identified are the several areas in terms of our sales teams in which we needed to reinvest. We talked about in the last quarter about our investments in the restaurant and retail sectors. And at present, we continue to invest in our account management team so that we can service our clients better but also service more customers. And one area which we had not invested for a while was agency team. We think that agency is going to be a big driver for growth for us in the future where we can get many more accounts. So it's mostly a headcount investment here that you're talking about, but we definitely want to be able to gain more budgets via ad agencies in the future.

Okay. That's helpful. And then, maybe just kind of talk about the self-serve platform. How far along are we in kind of the development of that platform? Is that ready to go? Or is there still some work to be done there?

Can you be more specific? Are you talking about what we mentioned last quarter, which was an automated dashboard or sort of the longer-term plans for self-serve platform for advertisers to book...

Yes, just looking more at the longer-term kind of tech enablement in the self-serve side, which caters more to the agency.

Yes. So I'll cover both just in case. On the first one, the automated dashboard side, which I think is really important to [ surface ] insights to our customers, which will be also very important for agency customers. We'll essentially have about 10% of our customers having access to automated insights by the end of Q2, and we plan a full rollout by the end of the year. Self-serve overall, with regards to the ability to book budgets without intervention for our team, will take longer. That's part of the reason why we're also investing in account management because this is, obviously, on our road map longer term, but it's probably not something that we'll get to this year.

Okay. Got it. Maybe just switching over to Bridg, the last quarter, I think we talked about a large new restaurant customer joining the platform. It sounds like you might add some customer churn. But what can we kind of expect as a growth rate here in 2024?

So, just to be clear, the large restaurant customer we mentioned last time was on Cardlytics, not with regards to Bridg. With regards to Bridg, obviously, we are reinvesting in the product. We feel very confident that we have a long-term asset in Bridg. However, we have to rebuild a lot of the technology that was there from a Bridg perspective, and importantly, as we've discussed over the last several quarters, we're investing in Rippl, which is our retail media network as well to provide not only the ability to get the insights that our customers want, but also have the ability to target customers across the broader landscape. And so, we're making the investments now. I don't want to give you growth rates with regards to Rippl, as we don't report specifically on this. We don't give guidance specifically on this. But again, we're very confident that we're playing in a very large market there, an area that's really expanding, that we have the right foundational elements with regards to the engineering infrastructure. We have the go-to-market resourcing now. We've onboarded a number of regional grocers that give us line of sight to 100 million profiles by the end of the year, and therefore, that we have the scale to drive significant growth. But I won't give you a specific number on the growth rates we expect.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Karim for closing remarks.

Thank you very much. And thank you, everyone, for joining us today. We look forward to discussing our second quarter results on the next earnings call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.