Good day, and thank you for standing by. Welcome to the Cardlytics Third Quarter 2024 Financial Results Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [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, Chief Legal and Privacy Officer. You're ready to go.

Good evening, and welcome to the Cardlytics third 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 fourth quarter of 2024, the rollout of new financial institution partners and operational and 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 our 10-Q for the quarter ending September June 30, 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 in 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. On the call today, we have CEO, Amit Gupta; and CFO, Alexis DeSieno. Following their prepared remarks, we'll open the call to your questions. With that, I'll hand the call over to Amit.

Thanks Nick and thank you all for joining us today. As you all know, I stepped into my new role shortly after we released Q2 earnings. Over the last three months as CEO, I have spent time going deeper with our teams and hearing feedback from our advertisers and bank partners and a few things have become clear. Our data continues to be a superpower. Our ability to see approximately 50% of U.S. cardholder transactions, representing nearly $4.7 trillion in annual consumer spend is unparalleled in the industry, and this number will continue to grow as we onboard new partners. It has also become evident that card-linked offers, CLO, have evolved and are becoming a more important differentiator than a year ago. There have been new entrants to the CLO market, increased competition between financial institutions and diversification in the way bank reward programs are run. Some of this is a tailwind due to more focus on CLO programs than ever before, which is good for us and the broader ecosystem. However, as we have seen these market dynamics changing, we have not reacted quickly enough. We rightfully have been focused on evolving our technology and platform from static to dynamic. But as we look to our North Star, driving consumer engagement and rewards, we need to be even more focused on the end consumer. We want to make it easier for our consumers to find and utilize our offers. This means continuing to work to improve our offer relevance in addition to diversifying the channels through which we are engaging with them. More importantly, we get consistent feedback that our platform is unique, not only because of our diverse set of advertisers, but also our innovative offer constructs that meet advertiser KPIs. We must continue to strengthen these key…

Thank you, Amit. This quarter exceeded our expectations as we focused on stabilizing our core platform. We beat the high end of our guide on all metrics, primarily due to higher than expected budgets. Turning to our specific third quarter results. My comments will be year-over-year comparisons to the third quarter of 2023, excluding entertainment, our former subsidiary that we sold in December 2023, unless stated otherwise. In Q3, our total billings were $112 million, a 2% decrease. As expected, our billings were impacted by continued challenges with delivery rather than pipeline weakness. As Amit mentioned, we took decisive action during Q3 and made initial progress in improving delivery, and we saw sequential improvements throughout the quarter. Stabilizing delivery remains an all-hands-on deck priority for us, so that our billings can start to reflect our ability to capture bigger budgets, and we can drive both performance and predictability for our advertisers. As a reminder, our Northstar is consumer rewards, which materialize as consumer incentives in our financials. We believe that consumer rewards are a key indicator that our technology is delivering the most relevant offers to each person and driving value for our advertisers and bank partners. This quarter, consumer incentives increased by 20% to $44.9 million. As we've seen in the last two quarters, revenue, which was $67.1 million in Q3, decreased 13% due to driving more user engagement with our offers. Overdelivery peaked in July and has sequentially improved as our efforts began to take effect, and we do not expect this level of revenue as a percentage of billings to persist at 60%. We continue to believe that adjusted contribution is a better metric for assessing the health and performance of our business as it reflects how much we keep of every dollar we make. In Q3,…

Thank you, Alexis. Overall, we are encouraged by the progress we've made this quarter. Above all, our Q3 results indicate better predictability of our business and our relentless focus on addressing our short-term challenges. Our efforts will take time, but we are focusing on the right priorities to maximize consumer engagement and rewards. I'll now turn it over to the operator to begin Q&A.

Thank you. [Operator Instructions] Our first question comes from Robert Culbreth [ph] with Evercore ISI. Your line is open.

Hi, good afternoon. This is Rob on the call for Mark. It sounds like you're getting a handle on over delivery. Can you talk a little bit about some of the key drivers of under-delivery and sort of the plan to address some of those? And then also with the growth in logos, which I think is encouraging, could you talk about trends in billings per logo, your ability to -- as you continue to improve platform capabilities through AD and the dynamic marketplace, maybe your ability to go back to some of the customers where you've seen churn or budget reduction and sort of reintroduce yourself to some of those and also just organically grow billings per logo over time? Thank you.

Thank you, Robert, and thanks, everyone, again for joining the call. I think thanks -- first of all, thank you for recognizing the progress we've made on overall delivery challenge that we had. And that's something that, as Alexis mentioned in her prepared remarks, that continues to be our all hands-on deck priority. Now we've made delivery improvements sequentially, especially on over delivery, but there's more work to be done on under. So things like ranking under-delivering campaigns differently, better forecasting, using mid-flight changes, testing different reward amounts. All of those are different parts of the product that we're going to test and assess the underdelivering campaigns. And then just like what we did with underdelivery, our typical approach, Robert, is that we'll test a set of things initially and then over time, we'll automate it. And so we're going to follow the same approach on this. In terms of billings per logo, I think as we've mentioned, we're quite happy to see that overall, the advertiser count has steadily grown and continues to increase. And as market conditions start to get better, we also -- we also expect the budgets per logo or budgets per advertiser to continue to grow. And to that end, we are actually working actively with advertisers to map out their 2025 budgets and their 2025 strategies.

Got it. Thank you. If I can ask one quick follow-up just on the issue of underdelivery. As you address some of those issues, are you able to automate those capabilities or create a feedback loop with advertisers? Do they need to master sort of their – the way that they handle the platform to optimize delivery? Or is it fairly sort of an automated or a process of continual optimization? Thank you.

Yes, Robert, that's a good question. I think our typical mantra in this case is that we should take away all friction from the advertiser that it is our internal product teams work to fix that and engineering team's area to fix. So for an advertiser, it would not be something that they need to optimize. Our teams will work with the advertisers to inform and work with them how best to structure the campaign on an ongoing basis.

Great. Thank you.

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

Thank you. I just wanted to see if you can give maybe some details on like contrasting Q3 and Q4. Like it seems like you had a lot of success in Q3 with billings and things like that, but there's a growth step down as we get into Q4. So if you can parse those 2 things out, that would be great.

Hey Jason, thanks for the question. Yes, I think all I really want to point out there is delivery did sequentially improve in Q3. So, we are seeing that continuing into Q4. I think what's different this time is that going into Q4, we are lapping some large accounts that did not reoccur from Q4 2023. If we did not have that happen, the retail sector actually would be up in terms of dollars and brands for Q4. So underlying advertisers are still spending more with us, committing budgets, but we did have a difficult comp, I would say, versus last year. So that is a lot of that driver of some of the performance you're seeing in the pipeline. And then I just wanted to elaborate on something that Amit said in the prior answer, solving under-delivery is really important because it enables us to not over serve people and then open up sees for some of those underdelivering campaigns. So it was really important that we did that first. And so as you can see from the margin guide, delivery has improved, especially on the overdelivery side, going from 60% of revenue as a percent of billings to 62% at the high end of the range, but still more work to do to kind of close the gap on the under-delivery side, and that is part of the reason why you're seeing the, I guess, Q4 guide that we provided today.

Okay. And then just any -- maybe any updates over the last quarter in your conversations with customers just around the CPE pricing solution. I don't know if there's anything in terms of number of customers or just kind of receptivity and what you're hearing.

So I think on pricing, I think we've talked about that we want to move towards engagement based pricing, and that progress has continued to go well. Our advertisers who were engaging, they like it quite a bit and a large number, as I mentioned in my prepared remarks, a large number of the new advertisers are opting for those. And so we continue to see success on that side. And in terms of our billings, I think over time, as I mentioned in my prepared remarks, we continue to expect that we'll have a higher proportion of our advertisers move towards engagement-based pricing.

Our next question comes from Jacob Stephan with Lake Street Capital Markets. Your line is open.

Hey, appreciate you taking my question. Hopping between calls, so sorry if there's double coverage here. On the engagement-based price model, I'm just curious, it sounded like 5% or so of your customer base was using the engagement-based pricing as of last quarter. But maybe could you just kind of help us understand, is this going to be a 5, 6quarter sort of transition? Or is this fully elective by the actual customer?

Yes. Let me just clarify a little bit here. So dynamic pricing was 5%, which is more specifically around CPC or cost per click. Engagement-based pricing is encompassing CPT, which is cost per transaction, cost per redemption and as well as cost per click. So more broadly, we're at 38% of total billings in Q3. That's up sequentially and that continues to grow. So we do expect to be majority on CPE by end of next year. In terms of the dynamic pricing specifically and CPC specifically, that went from 20 brands in Q2 to 58 this quarter. So hopefully, that's a little more clear about the trend. But overall, we're not seeing pushback on pricing from brands. This aligns to industry standards. And again, it improves visibility to us and improves campaign performance. And it's also what the brands are used to buying. And so really, this is where we expect to be by the end of next year.

Okay. Got it. Very helpful. And then Amit, you've been in the CEO seat for three months now. It'd be kind of great to get a sense of what are your kind of top three priorities, maybe near term and just kind of medium-term?

Yes, absolutely. Thanks for that question. I probably want to say at the top level, my belief in the company and our place in the ecosystem continues to be very strong. And that is very much reflected by our team's excitement about what we do and how we're showing up in the market and with our new partners and so on. In terms of priorities, I'll go back to what I mentioned. I've basically centered our teams around the four key pillars. We really are thinking about supply, our partners very differently. We're engaging with partners in a fundamentally different way. And likewise, we're going after our demand, our advertisers' engagement in a much more strategic and a broad-based way. We want to make sure the network performance continues to improve. And to that end, we're really looking at our network from an end-to-end point of view. So we're looking at all the way from the start of the process, which is around forecasting and projections and then we think about delivery and then all the way towards measurement. And then we're bringing closer bridge closer to connect with our core business and the core platform. So those are the four key pillars, as I mentioned earlier. And I think it will -- the transforming of our business takes some time, but we strongly believe that this is the right path for us to grow the company.

Okay. Thank you.

Thank you. [Operator Instructions] And our next question comes from Luke Horton with Northland Capital Markets. Your line is open. Q – Luke Horton: Hi, guys. Thanks for taking the question. Just wanted to touch on -- I know, obviously, you're working through these delivery issues at the moment. But if we look ahead a little bit, if you're -- or once you're able to get the advertisers over to the CPE and kind of work through some of these delivery issues, the rollout of the major US financial institution, is there any sort of kind of ballpark of where you see revenue as a percentage of billings normalizing?

Yes, unfortunately, I'm not giving guidance around 2025 at this time. But I think you should expect -- we're working -- we continue to believe that our North Star is rewards, and we want to continue to drive redemptions and kind of increase that ratio. I think we can only do that to the extent that we can improve our margins over time. And so a little early to say where that's going to land. But driving redemptions is definitely still a key piece of our strategy. And I think we should be able to continue to improve both the bookends of over and under delivery as time goes on. And then once that's stable, we can start to test different reward formats for different reward amounts. But at this time, not ready to give a guide on longer-term margin. Q – Luke Horton: Okay. Fair enough. And then just with the rollout of the major bank partner in the US, I think you had mentioned there's no material impact in 4Q. Just wondering how that sort of plays out over 2025 if we see an initial impact or kind of a tiered approach with the rollout there?

I know. I wish I could give you some more clarity here. Yes, we're doing an initial launch right now, very small, and it will continue to scale over time. So we're not ready to provide additional guidance into 2025, but very optimistic and partnering really well with this large partner. So very excited to see how this plays out over time. Q – Luke Horton: Yeah. Thanks for taking the question.

[Operator Instructions] I'm showing no further questions at this time. So I would now like to turn it back to Amit Gupta for closing remarks.

Thank you all for joining us today. We look forward to discussing our fourth quarter and full year results on the next earnings call. Thank you again for all your questions.

This does conclude today's program. You may now disconnect.