Good evening, and welcome to the Cardlytics Second Quarter 2021 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 future financial performance or results, our financial guidance and cash position for the third quarter of 2021, our ability to achieve long-term initiatives to drive long-term growth, growth in MAUs or monthly active users, launches by new partners in the coming quarters, the increase in ARPU or average revenue per user, the impact of COVID-19 on our business and the economy as a whole, including the uneven recovery and volatility of the economy.

Q4 being a seasonal high period of ads spending and consumer spending. The increase in stock-based compensation next quarter, continued pressure on our U.K.

results and the anticipated benefits and expections and goals related to the integration of our acquisition of Dosh Holdings, Inc. and Bridg Inc.

For a discussion of this 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 year ended June 30, 2020, and in the subsequent periodic reports that we file 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 and 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 all of the information I've just described on the Investor Relations section of Cardlytics website. Please note that a supplemental presentation to our first quarter results has also been posted to our Investor Relations website.

Joining us on the call today is Cardlytics leadership team, including CEO and Co-Founder, Lynne Laube; and CFO, Andy Christiansen. Following their prepared remarks, we'll open the call to your questions.

With that, let me turn the call over to Lynne. Lynne?

Good evening, and thank you for joining our Q2 2021 earnings call. While we grew Cardlytics platform billings to 111% and adjusted contribution 123% from Q2 2020, we fell below our guidance.

This was driven by us forecasting a faster recovery than was realized in travel, retail, and restaurant. Here are the numbers.

Cardlytics platform billings were $83.2 million, up 111% year-over-year. Cardlytics platform revenue, which is equal to billings, net of consumer incentives was $56.8 million, an increase of 101% from Q2 2020.

And Cardlytics platform adjusted contribution was $27.6 million, up a 123% year-over-year. To provide investors with more transparency into the quarter, we're providing advertiser spending concentration and growth rates for each of our key verticals.

We're also reporting Bridg results as a separate segment to help investors better understand performance and our investments in this business. I want to reiterate that while we're disappointed in the myth our business is performing well.

We believe advertisers spent less than we forecasted for three reasons; First, there were labor shortages. Second, retailers and restaurants had supply chain issues.

And third, there was an increase in consumer demand reducing the need for advertising with several key clients. For example, several of our key client restaurants pause their marketing because they couldn't purchase enough critical ingredients.

A men's clothing client halted all of their marketing spend when they realized their supply chain couldn't deliver the inventory they needed to maintain customer selection. As a result, some marketing budgets across our client pace were actually paused in Q2, something we rarely see in our business and/ or push to Q3.

Additionally, as you can see from the new supplemental information, travel and entertainment, advertising spend are still down about 75% from Q2 2019, and the U.K. is still down about 23 % from Q2 2019.

Our Q3 guidance acknowledges the reality that the pandemic is still affecting our business. Additionally, we're not providing Q4 or full year guidance at this time as we continue to see volatility.

Importantly, we're not reducing internal targets or quotas. While our advertising clients remain committed to the platform.

They are telling us that marketing budgets continue to be uncertain due to macroeconomic events. As we have discussed in the past much of our billings are concentrated with large advertisers and verticals most impacted by COVID, highlighting the importance of self-service capabilities to expand our advertising base.

Our team is facing the markets challenges head on and focused on achieving the goals we laid out at the beginning of the year. With that said, I'm pleased with the progress we've made against the initiatives that will drive our long-term growth.

We are ahead of plan on every single initiative that we have discussed for the last several quarters. Let me highlight some of the key integration, product and client accomplishments.

Dosh integration continues to go exceedingly well, by realizing synergies that we plan during the acquisition and post-acquisition integration process, we're executing against our plan to eliminate the EBITDA loss by the first half of 2022. We are now live with eight neo-banks and fintech platforms including Venmo.

Additionally, we have another 14 neo-bank and fintech platforms coming online over the following quarters. The new partners include a contract with one of the most innovative fintechs in the U.S.

This company selected Cardlytics and Dosh as a strategic loyalty partner to enhance customer adoption, retention and card use by rewarding card holders for everyday spend. With the addition of Dosh we have positioned Cardlytics to be the platform of choice for fast growing fintech and neo-bank sectors.

Bridg integration while much lighter than Dosh is also progressing as planned. We have begun integrating staff functions such as HR, finance and legal.

And we are investing resource and capital to accelerate their efforts to achieve significant scale. Recently we closed a large home improvement client and the business has a strong pipeline with many leading retailers and restaurants.

Client feedback on Bridg has been impressive. One of their key partners had this to say about their product, quote, understanding all of our customers and their engagement levels allows us to deliver a differentiated customer experience.

Bridg has enabled us to complement the deep insights we have around our loyalty members with an understanding of our unknown in-store customer purchase behavior, along with the ability to reach these individuals to develop an optimal customer relationship. We now have a true holistic view into our customer base that was not possible before.

Our Cardlytics platform sales strategy is paying dividends. We continue to see strong year-over-year growth from new industries like D2C, which was up over 120% in Q2 2021 compared with Q2 2019.

In the U.K., we soft-launch Nectar Connect to their online and mobile customers. As a reminder, Nectar is one of the largest loyalty programs in the U.K.

and is run by the grocer Sainsbury. The next step is a phased promotional campaign to all of Nectar's members.

Our focus on open banking is showing positive results as enrollment rates and customer engagement are extremely encouraging and have already outstripped initial expectations. We hired Peter Chan from Amazon as our CTO.

Peter's impact on migrating to the new self-service platform is already evident. We are making great strides and partnering closely with agencies leveraging our platform.

We now have 27 agencies spending money on behalf of 43 clients on the Cardlytics platform. While not all of the agency clients are using our self-service, yet those that aren't are migrating to the new platform.

We have created this momentum as agencies understand the capabilities that we will enable over time. As a reminder, we will break out agencies spend starting in Q3 of this year.

And finally we continue to invest to further strengthen our bank relationships. We are working with each of our bank partners to find more ways to deliver content to their customers and improve overall value delivering 3D programs.

For example, we've established a clear linkage of the program engagement to increases in overall spend, habitual card use and now even increases in savings and investment rates are creating even more support and excitement for our program across our bank partners. Before I hand it over to Andy, I just want to say, that despite the headwinds in the quarter the entire CDLX team is committed to executing against our initiatives.

We're leaving no stone unturned to make sure that we finish the year strong and continue to become a leading advertising platform for our customers and partners.

Thank you, Lynn. As Lynn mentioned, our financial results continue to be impacted by the pandemic.

But I also share Lynn's excitement about the immense progress we've made on our longer term product and technology initiatives. So let me review our Q2 financial results.

Total billings increased to 116% year over year to $85.3 million. Cardlytics platform billings was $83.2 million, an increase of 111%.

Total revenue increased to 109% year-over-year to $58.9 million. Cardlytics' platform revenue was $56.8 million, an increase of 101%.

Our Cardlytics U.S. revenue increased 95% year-over-year and our Cardlytics U.K.

revenue increased 220%. In the U.S.

we saw significant year-over-year growth in each of our industry verticals. When compared to 2019 however, it is clear that we are still being affected by an uneven recovery with lingering challenges across travel and in some cases retail and restaurant.

Our U.K. business continues to be more severely impacted by the pandemic as lockdowns and restrictions are still unwinding.

Consumer spending and ad budget have rebounded significantly from last year We anticipate some continued pressure on our U.K. results over the next few quarters.

As Lynn mentioned, we have provided new information on ad spending on the Cardlytics platform by industry, both retail and restaurant spending were in excess of 110% year-over-year. But we expected both of these industries to rebound at an even faster pace when forecasting at the beginning of the year.

Our stronger than expected results in March reinforced this expectation, specifically our Cardlytics platform revenue with $16 million in January, $15 million in February and $22 million in March. During Q2, our Cardlytics' platform revenue was $17 million in April, $20 million in May and $20 million in June.

These monthly fluctuations reflect the volatility of consumer spending and ad budgets in our key verticals and it presents us with some challenges and accurately forecasted short-term results. Adjusted contribution was $29.6 million, an increase of 139% year-over-year.

Cardlytics platform adjusted contribution was $27.6 million, an increase of 123%. Adjusted EBITDA was a loss of $5.7 million compared to a loss of $7.7 million in Q2 of 2020.

Our adjusted EBITDA loss includes an incremental $10 million of operating expenses related to our recent acquisitions. As mentioned last quarter, we expected a larger EBITDA loss in Q2 than Q1, as our investment in Dosh is reflected for a whole quarter and Bridg is included for roughly half of the quarter.

As Lynn mentioned earlier, we have begun executing on a plan to integrate and rationalize the Dosh operations and representing Bridg is a separate segment within our external reports. Bridg operated at nearly break even adjusted EBITDA in Q2.

But we have an investment plan to support the expected growth in that business. Here are a few other items outside our EBITDA results that are worth mentioning.

First, in Q2, we include $14 million of acquisition and innovation costs and these costs are excluded from adjusted EBITDA. A significant portion of this relates to diligence and transaction costs.

We are incurring a small amount of post acquisition integration costs. So we expect to incur some additional costs throughout the rest of the year.

Second, our stock-based compensation increased from $7 million in Q1 to $13 million in Q2. About half of the increased rates awarded issued in connection with the Dosh acquisition and the assumption of options originally issued by Dosh.

The other half predominantly relates to our annual retention grants to employees. We expect stock-based compensation to go up a couple million dollars next quarter, driven by the Bridg acquisition, the Dosh integration and a few new hires.

We ended Q2 with $251 million cash and cash equivalents compared to $614 million at the end of Q1. The change in cash is largely due to the Bridg acquisition, which closed in May.

Minimum cash earnouts for Bridg shareholders are expected to total $48 million in May of 2022 and $19 million in May of 2023. In addition, we have another $50 million still available to us under our loan facility at this time.

Our balance sheet and liquidity remains strong and while we're always evaluating our capital structure we see no immediate need to raise additional funds. MAUs increased 7% year-over-year and were flat sequentially.

As Lynn mentioned earlier, we have great momentum with neo-banks and fintechs to Dosh including a very innovative client that we just recently signed. We expect many new partners to launch over the next two quarters.

ARPU during the second quarter was $0,34 compared to $0.18 in the prior year. We expect ARPU to increase on a sequential and year-over-year basis throughout the rest of the year, as we continue to grow our revenue at a faster rate than our MAUs.

We earn 32.9 million shares outstanding at the end of Q2 compared with 31.8 million at the end of Q1. Weighted average shares outstanding during the quarter was 33 million compared to 27.1 million during Q2 of 2020.

This largely reflects the equity issuance last March and the shares issued in the Dosh acquisition. Now turning to guidance.

In Q3 we expect total billings of between $85 and $95 million. Total revenue between $57 million and $66 million and adjusted contribution of between $27 million and $32 million.

This is below our prior expectations as we believe we'll still be dealing with an uneven recovery in Q3. We've also lowered our expectations for ad spending to return within travel this year.

Given the volatility we expect in our key industry verticals, we've decided to wait to provide Q4 guidance until we have more visibility. Based on the current macroeconomic climate we expect Q4 to continue being seasonal high point for both head spending and consumer spending.

However, we expect a high level of variability of these market dynamics and each industry we operate in is still working through unique challenges of varying degrees that may result in later decision making on campaign launches. Additionally, several of our largest clients develop their marketing plans during Q3.

So we expect to gain more clarity in the next two months. We remain very excited about the long-term potential Cardlytics and the combined value with Dosh and Bridg.

Our focus is squarely on execution and making sure we have sufficient resources and investments to achieve near-term results and continue our progress on important long-term initiatives. And with that, I'll turn it back over to Lynn.

Thanks Andy. There's still significant uncertainty in the market right now given COVID-19 trends.

But we believe our business will continue trending towards a position of strength through this uneven recovery. We're looking forward to executing on our plan and acquisition integration for the second half of 2021.

With that, I'll open up the call for your questions.

All right. Thank you for taking my questions.

Just a couple of clarification items if you don't mind. So, in terms of the metrics you provided, it looks like MAUs were down about a million quarter over quarter.

Just wondering if there was an explanation on that. And then, when we look at the Q3 guide, obviously, you're providing a wide range of outcomes.

But it looks like the low end of the Q3 guide would actually show a lower sequential movement from the Q2 level. So I'm just trying to understand the logic and kind of the puts and takes that would drive a sequential reduction there?

Hey, thanks. This is Andy.

On your first point on MAUs, while we did add a few million MAUs with the launch of U.S. bank.

We actually did have a few million MAUs also come down from a planned wind down of a processor. We've been working with them for a while trying to get them to do the things that were necessary to really have a successful program.

We actually have had less than $50,000 of revenue from that partner this year. So they were actually unprofitable.

And so -- as we've talked a lot about kind of where we're going as a platform, it just really didn't make any sense. So that's what that was.

And then our point on the Q3 guide, you're right. I mean, we have -- certainly there's a lot of uncertainty.

We decided to keep the guide fairly wide. Still there's just a lot of things that we're trying to work through with visibility.

Certainly, we talked about travel and some of the continuing challenges that we have there that are in the market from a supply and demand perspective. We really just continue to see some struggles there and then in the U.K.

But I think generally speaking, right, when you look at the guidance and look at kind of where we're speaking to a midpoint there, we do anticipate things that continue to progress. We've seen continued increase quarter over quarter.

We expect that to continue. And that wide guys because the lack of visibility that we have right now.

Got it. I appreciate the color Andy.

I want to squeeze in one more just on the more strategic side. But in terms of this enhanced platform that U.S.

bank is rolling out. Just wondering, if you can kind of reset the expectations on where we go from these -- from the current point in time.

Other financial institutions you expect to add there like -- and at what point in time you think you get critical mass where you've got several institutions utilizing that platform?

Yes. Thanks Jason, it's Lynne.

What we've publicly said is there is one very large bank that will be going live on this new platform, a new experience in the back half of this year. So starting next year, we'll have significant MAUs on the platform.

And then what we've also said is we expect most of the rest of the MAUs to adopt the platform over the course of 2022, so that by the time we get into 2023, we will have the majority, probably not all, but the majority of MAUs on a new version of the user experience. And just to add to that.

We are already -- it's very early, U.S. bank is of course a good nice mid-sized bank and it's very early.

But we're already seeing very encouraging results with significantly higher click rates on ads that have pictures. Not a surprise.

As well as significantly higher click rates on ads that are with the categorization features that we've added. So early times, but very exciting.

Perfect. Thank you.

Appreciate the time.

Great. Thanks guys.

Just a couple of questions. One, maybe you can just discuss the advertiser pipeline a little bit.

And maybe specifically D2C trends looks like that may have flattened out, but it looks like they made them because of the recovery and some of the other verticals as a percentage of revenue basis. And just may quickly on that kind of the ARPU calculation.

Just to clarify you excluding Bridg from that. I was off by a penny there just to clarify that?

Thank you.

Yes. I was going to clarity that.

Yes. The Bridg is not included in our ARPU calculations.

The MAU number is really just a Cardlytics only platform number and then the revenue for generate from the Cardlytics platform.

Got it.

Yes. And then on the D2C question, I think it's much more what you observed Aaron, which is other categories are starting to come back.

So D2C is still growing. But as a percentage of the overall business as the other categories are coming back, it looks like D2C is flattening out.

But they are -- it's absolutely still a very, very fast growing category for us.

Got it. And just how do you feel about the advertiser pipeline right now?

Kind of with the salesforce, any further details there?

Yes. I mean, look, I know it's sounds flipped< because we did just have a miss.

But we also grew adjusted contribution, 123% year-over-year, which is higher than I think any other digital platform out there. So, we feel great about the pipeline.

We talked about the momentum we're seeing with agencies, which are bringing in a lot of new logos and new clients. Our current clients are still very excited about the platform.

The pipeline is robust. So, I know it sounds flipped, but there nothing wrong with the core business.

We just over forecasted recovery.

Got it. Great.

Thank you guys.

Hey, good afternoon. Thanks for taking my questions guys.

Just want to see some of the feedback you guys are been getting from some of your clients. Maybe how much of the shortfall this quarter is from some of these kind of labor and supply chain issues?

And how much of it is maybe from some of this pent-up demand kind of creating little bit of narrow pocket. Just want to see from you guys, like, what you guys are hearing?

Yes. I mean, I'll jump in and then Andy certainly free feel to add color.

We certainly would have -- it been in the range probably about midpoint. Had we not seen campaign pause in the middle of the quarter.

And the campaigns that pause in the middle of the quarter were because of very -- like labor issues or lack of chicken or things like that. I do think, we would have been above the high end of the guide.

Had we not seen some advertisers just decide to -- basically not advertisers, because they didn’t meet you because of the demand. So its obviously a bit of both.

But clearly the pausing of campaigns that were already committed budgets is something we have rarely seen. I mean, honestly I don't every remember seeing it.

I'm sure its happened in the past, but I don't remember, have recent memory of it. And it really was because of those issues.

And like I said, we would have been comfortably inside our guidance probably above the midpoint had enough in for those.

Okay. That's helpful.

And then, just a follow-up on Bridg, the ARR breakdown and the revenue breakout in the releases, super helpful. But just wondered if you give us any additional color either on the bookings momentum, that they're seeing or how we should think about -- how that ARR will kind of roll into revenue moving forward?

Yes. I mean, look, you will see a fairly standard I think relationship that is related to some of these other software platforms.

We're going to continue to grow that ARR. And as those become realize, I will see that roll through revenue.

But, I think we have quite a bit of good moment on that side of the business. We talk a lot about.

Really trying to drive that scale. And going in to market and having conversations jointly has already begun.

Karl, just to give you some tangible numbers there. When we acquired Bridg they had one full-time sales person.

They are now up to three. And we're investing heavily.

So we are going to really blow out the pipeline. That's the goal.

That's always been the objective. But obviously going from one sales person to three, and people take time to train et cetera.

So its going to be a multi quarter journey to really some material scale. But we're focused on that right now.

And then the client we're calling. We've identified 25 very high potential clients.

These are clients both that could really benefit from Bridg, but also could benefit from Bridg and Cardlytics combined. And we're going after them pretty aggressively.

All right. That's great color.

Thanks guys.

Hey. This is David on for Dough Anmuth.

Thanks for taking the questions. First one, on the challenges that your -- quarter-over-quarter seeing.

And like, when you just talk to them, what do you think they are in softening those challenging. Do you think they are at least turning the corner?

Or do you think things look a little bit more challenging before it improves? And then, adjusted contribution as a percent of revenue, it suppressed 50% for the first time this quarter.

And even if you exclude the Bridg contribution, that's close to 49%. And it seems like you guys are guiding to that being in the high 48% [ph].

But also just curious what drove the increase? And how we should think about that going forward?

Yes. I'll take the first part and Andy, you can take the second part.

I think, I mean, its hard to predict the future. But I think the supply chain shortages that impacted a couple of clients, those seem to going away.

But I will say, the labor shortages are not. As an example, I try to redeem a Burger King offer.

I was really getting Onion Rings the last couple days. And I send my daughter to go get the Onion Rings.

Two days in a row I just went to Burger King and they were closed. They didn't have enough employees.

So I'm still worried about labor shortages. Supply chain, its hard to predict, but right now those seem to have gone away or at least dramatically declined.

And on your second point. We do have a bit more enhanced incentive this quarter than we've had in recent periods.

We've talked about that right in that dynamic is where neo-banks are helping to fund and enhance offers, right, through the FI share. So what that does?

That will suppress our GAAP revenue, right? But its neutral to adjusted contribution.

So if you're looking at adjusted contribution as a percentage of revenue, that can be distorts a little bit in those periods. But even when you look at adjusted contribution as a percentage of billings.

which is probably a better way to come look at that, you will see it is bit higher than normal. We don't expect to have that be probably high on the [Indiscernible] going forward.

We talk historically about that being about 30% to 32%. And that's where we actually see it going longer term, those little bit under ratio in the quarter, but 30% to 32% is where we see that guidance.

Got it. Thank you.

Helpful.

Good afternoon, and thank you for taking my questions. Few of the companies we follow in the payment space had reported an acceleration in trends in U.K.

during July. And given your exposure, I was wondering if you could comment, if you're seeing anything similar given some of the reopenings in that region?

Yes. I think we've seen actually some nice improvements, significant improvements specially on the year-over-year basis.

As they kind of started to unwind the lockdown, the restrictions, but they're still on process of winding this down. I think a very similar dynamic in the U.K.

that we have in travel here in the U.S. something we would speak to that.

There are couple of different times, where you have just not near enough of a need for demand generation. But as far as the spending, we do see that spending starting to come back.

And I think really now its more about making sure we did the ad budget and the consumer spending which we need both of those.

Okay. And as a follow-up.

I appreciate the color on slide 11 with the 13 rather with the offer activation rates by industry. And we just curious looking across those industries where you see the most potential upside in activation rates?

Yes. It’s a good question.

Sorry, Andy, did you want to take that?

Go ahead.

I would just say, it's a great question. I mean, what we know is first of all, let's start with some basic stuff.

Everybody eats. So we think restaurants are always going to be our highest click rates by far.

I did mention the fact that we're seeing some really nice engagement with U.S., bank with the new UI. Restaurants are some of the key places where we're showing some pictures.

So I think those have -- there's some real potential there. You take something like subscription.

I don't think you're ever going to see it go much higher. Subscription is kind of a low engagement, but high in value.

Offer is the way we think about it. So the more fast, fun and frequent a category is, the higher the click rates are going to go over time.

And the more infrequent the category is, the lower the click rates are going to be, but the higher the revenue generation, is the way to think about it. But restaurant, retail, the kinds of things people do frequently and every day, I think those click rates could go dramatically higher.

Yes. I think especially one thing though too.

I would say, grocery is probably one where as we start talking about skew level offers and those types of things, right? There's probably a significant move that could happen over time in grocery as we walk into that opportunity.

Great. Thank you for the color.

Thanks. So look, we had a miss.

There's no, if answer bugs [ph] about it. We're horribly disappointed.

But at the same time, it was over forecasting in a very uncertain time. There is nothing wrong with the core business.

We still grew adjusted contribution 123%. So we apologize for the miss.

But we are heads down fully focused. If you invested in this business for the long term, all the long-term stuff is still here and even more robust than it was a quarter ago.

Thanks everyone. We appreciate your time.