Good day and thank you for standing by. Welcome to the Q1 2023 Cardlytics, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chief Legal and Privacy Officer, Nick Lynton. Please, go ahead.

Good evening, and welcome to the Cardlytics first 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 second quarter of 2023, the bridge earn-out payments, including the second anniversary earn-out payment, the financial impacts of our various cost savings initiatives, our plans for adding new partners to the network and expanding our monthly active user base in the U.S. and the UK, the timeline for our existing partners to transition to our new ad server, user experience and ad decisioning engine, and the financial impact of these initiatives. The rollout of our new offer constructs, the growth of the Bridge Retail Media Network, our plans and timeline for achieving positive free cash flow, our liquidity and cash position, and the growth and expansion of our advertiser base. 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, 2023, 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. 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 first-quarter results has also been posted on 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?

Good evening and thank you for joining our Q1 2023 earnings call. Today, I will share highlights of our product journey and explain how these foundational changes set a stronger roadmap and direction for the company. But first, given its importance to our business, I'd like to discuss the determination of the bridge first anniversary payout, the important changes to the second anniversary earn-out and our Q1 results. As you read in the 8-K earlier this week, an independent accountant made a determination on the first anniversary payout, finding the payout to be $208.1 million, inclusive of fees. Importantly, based on this determination, we anticipate that the second anniversary payment will be $0 given it is based on the growth of its first anniversary clients. The outcome for the total earn-out and the total cash portion of the earn-out is in line with our expectations, and we believe the monetary shift to the first anniversary is highly beneficial to our stockholders. Here are the key considerations. The total cash for both earn-outs, inclusive of fees, is expected to be $72.6 million. 3.4 million shares are expected to be delivered for the equity portion of the earn-out. Notably, we expect to be able to rely on the favorable $40.15 VWAP to deliver the full equity portion for the earn-outs regardless of the current trading price of the stock. Under this determination, we now expect shareholder dilution to be reduced by nearly half of our original expectation based on our current shares outstanding, and we expect the risk of any additional cash outflow due to the ownership cap provision in the merger agreement to be eliminated. We are thrilled to move past this roadblock, which will allow us to continue to focus our energy and attention on becoming a product-led organization. We appreciate your patience and support throughout this process and look forward to moving ahead with renewed vigor and determination. Now on to our results. We exceeded external expectations in Q1. Billings decreased 2.6% year-over-year to $95.6 million. Revenue decreased 5.3% year-over-year to $64.3 million. Adjusted contribution decreased 5.6% year-over-year to $30.9 million. Bridge revenue grew 34% year-over-year to $5.3 million. Excluding the large clients that exited our channel last year, our total business growth increased 10% year-over-year, and our U.S. billings growth increased 21% year-over-year. Our focus on product and operational initiatives led us to exceed expectations despite real difficulties in the economy and advertising markets. Top line performance benefited from a strong March and better billings efficiency via the product optimizations we have made as a company. We saw particularly solid results in travel and entertainment and gas and grocery. That said, the economic outlook is still challenging, and we are continuing to make prudent financial decisions for the business. Over the past few months, we have improved our cost base immediately and in the long-term, including a $3.9 million one-time reversal of a bonus accrual and renegotiating the lease on our office space in Atlanta. We expect the amended lease to save us $400,000 in total over the next three quarters and $1.9 million in total from January 2024 through April 2025. Even though the economic climate is tough, the metrics underlying our business are strong. I'd like to specifically focus on several key metrics and operational initiatives that show this foundational improvement evident in our business. Unique consumers activating offers increased 4.4% year-over-year in Q1, even with the impact of the large restaurant clients exiting the channel. Adjusting for this client exit, we saw total activations increased greater than 19% year-over-year, and total redemptions increased greater than 74% year-over-year. This is great news. We are increasing the number of active users and our current users are engaging more often. Historically, Q1 is a seasonal low, but we increased the number of advertisers spending more than $50,000 in the channel during Q1 by 8% year-over-year. Advertisers with billings between $500,000 and $5 million increased by 11%, we are focused on increasing our MAU base by signing new partners. Our progress in our pipeline over Q4 is solid. We're in discussions with multiple top 20 U.S. banks and several high upside fintechs, and we believe we will sign at least one of these major partners by the end of 2023. We will continue to update you as we make progress on these potential partnerships. Now I want to move to our strategic product initiatives. When I joined Cardlytics, it was clear that the company had solid foundations. We have a unique and scaled platform that drives significant value for our banking partners, provides great outcomes for consumers with highly relevant offers, and delivers high ROI for markets. Since I joined, we have been conscientiously working to improve every aspect of our foundation. We are becoming partner-obsessed and better supporting their needs, fueling advertising innovation and ultimately stronger consumer engagement in the program and are combining that with greater control of our expenses and operational processes so that we become a strong and profitable business regardless of the economic conditions. All this work is centered around our operating thesis. If we could accelerate and optimize our product teams to drive our strategy while also meeting the needs of bank partners and advertisers, then we could drive long-term growth and profitability for the company. Now just eight months later, we are already benefiting from the speed of change. Cardlytics is transforming into a product-led company. We are enabling product to sit at the forefront of every aspect of our operations, and our teams are aligned and working collaboratively towards common goals. It's allowing us to have clear focus, move at a faster pace and create a better experience for our partners and customers. We believe the benefits will combine with each passing quarter, but we are already seeing results. On our last several calls, we have consistently talked about progress on three important product initiatives for our bank partners and advertisers. The new ad server, our new user experience, and cloud migration. Each of these initiatives complements the other, and we are making great progress on all. For the cloud, all of our major U.S. banks have data in AWS and four have systems in AWS. We expect nearly all of our major banking partners to move to the new ad server and user experience by the end of 2023. I'd like to highlight progress on the new UI. While a new UI creates a superior looking experience for offers, it is more about creating new functionality for both our advertisers and bank partners. For example, we can provide more detailed descriptions of offers and reach a major and categorized offers. The results show more customer engagement, which we're already seeing in our early data. One of our largest bank partners has rolled out the UI to more than 25% of its users. While early, we have seen around a 50% increase in impressions on the rewards summary. We believe this is only the beginning. As the new UI has rolled out, we've observed other engagement metrics on the new UI that are equally promising, and we intend to disclose some of these statistics when we have scaled data across more bank partners. On our last call, I mentioned that we expect our upgraded ad decisioning engine to drive higher monetization and offer relevancy for the business. Most of our smaller banks have now migrated to AADE, and we expect nearly all of our banks to migrate by the end of Q2. Banks that have upgraded to the ad decisioning engine are seeing around a 6% increase in activations. Even better, we estimate the Q2 lift from our ranking and budget pacing optimization to be around $2.2 million for the quarter. To give you a better idea of how this works, here are two new targeting features we released in our Ads Manager. First, share of wallet functionality that allows advertisers to target audiences who shop and spend at competitive brands. A great example is a large restaurant customer that wants to increase breakfast traffic could target only customers of breakfast brands. Second, mean max targeting or the ability to let advertisers target based on minimum or maximum amounts of spend during the same period. This gives advertisers a tool to drive elevated spend from the current customers. Improved targeting is not the only area that is showing progress. Here are a few examples of the new offer developments we are most excited about. We expect to launch an alpha version in Q2 of the spend stretch offers that we discussed on the prior call. As a reminder, spend stretch allows advertisers to incentivize a set of customers spending in a certain range to increase their spending on the next visit. For example, customers who spend $20 on average could receive a $5 cash discount if they spend $40 or more. This offer concept, as well with mid-max targeting. We also expect to launch an alpha version of multi-tier offers in Q2. These offers allow flexibility for advertisers to provide variable incentives based on their objectives. The steering structure also gives customers more choice. For example, a travel client can reward 10% on all stays in Los Angeles and 5% on all other stays in the U.S. Our subscription provider could reward 10% back on annual subscriptions and 5% back on all other purchases. For Bridge, our retail media network product is progressing nicely. We have secured proof of concepts with several large restaurant and convenience clients, which we hope to convert to full-scale relationships later this year. This is important as it is the first step to building our base of smaller retailers on the retail media network. And as a reminder, by building scale for these retailers, we can create a compelling new product for CPGs to gain insights to drive incremental sales and measure campaigns. Turning to market trends. There is no denying that Q1 was a difficult quarter for the economy. Overall, year-over-year spend grew only 1% versus 10% in Q1 of 2022. Restaurant and retail spend both struggled in the quarter, growing 5% and decreasing 2% year-over-year, respectively. Travel spend, which enjoyed a post-pandemic boost in 2021 and 2022, is showing signs of more normalized growth with a growth rate of 12% year-over-year. Given the challenging economy, our focus remains squarely on growing the business responsibly as evidenced by actions since Q3 of 2022. We have decreased our expenses linearly in each quarter since I started, and we will continue to monitor them. Our adjusted EBITDA in Q1 2023 is better by $4.5 million year-over-year despite lower revenue, and we expect a similar or better trend with our adjusted EBITDA in Q2. Given the challenging advertising market, we may be slightly off our free cash flow goal of breakeven in Q3 of 2023, but we remain focused on getting to positive free cash flow as soon as possible. As I have said in prior quarters, success hinges on our ability to execute with a disciplined approach. It also hinges on our teams being laser-focused on how they can support our product initiatives. And most importantly, we remain partner-obsessed. Our relationships with our banks are improved as evidenced by the uptake of our strategic initiatives. Transforming Cardlytics into a product-led company allows a clearer focus and faster pace, which will translate into long-term results. I remain confident that our strategy and priorities are propelling the company towards achieving growth and profitability.

Thank you, Karim. Our results this quarter exceeded expectations. We are still in a very uncertain economy. As Karim said, there are positive signs within our business, but elevated inflation and high interest rates are still pressuring the consumer. There's still an elevated chance of a recession in the near term, so advertisers are being cautious with their budgets, especially with smaller advertising platforms. Here are the numbers for Q1. Billings decreased 2.6% year-over-year to $95.6 million. Revenue decreased 5.3% year-over-year to $64.3 million. Adjusted contribution decreased 5.6% year-over-year to $30.9 million. Bridge revenue grew 34% year-over-year, while strong growth rates quarter-over-quarter decreased due to longer conversion cycles for proof of concepts. Our opportunities within the CDP and stand-alone RMN markets are substantial. But as we continue to grow our RMM business, we expect some fluctuation in our growth rates quarter-to-quarter. Geographically, U.S. revenue decreased 0.9% year-over-year. UK revenue, which comprises approximately 5% of total revenue, decreased 48.2% in U.S. dollars. The decrease in UK revenue is primarily due to the loss of a bank partner in the channel. We've continued to make progress reducing our customer concentration. Our top five customers accounted for 15.1% of revenue this quarter compared to 25% in Q1 of 2022. This will remain a key focus as we continue to grow and expand our advertiser base. Adjusted EBITDA was a loss of $6.1 million this quarter compared to a loss of $10.5 million in Q1 of 2022. Despite the seasonal decline in adjusted contribution from Q4 of 2022 to Q1 of 2023, our adjusted EBITDA loss was $6.1 million in both quarters, which highlights our cost discipline and the actions we've taken to right-size our cost base. As Karim mentioned, while we may not reach our goal of being free cash flow positive in Q3, we remain in control of our costs and are extremely focused on achieving positive free cash flow as soon as possible. Moving to our balance sheet. We ended Q1 with $139.2 million in cash and cash equivalents compared to $121.9 million at the end of Q4 of 2022. During Q1, we used $10.1 million in cash from operating activities and $2.8 million for software development and capital expenditures. During Q1, we also withdrew $30 million against our line of credit and realized a $176,000 favorable impact from a strengthening U.S. dollar. As of the end of Q1, we had $5.5 million of unused available borrowings under our line of credit. Despite this period of economic uncertainty, we believe that our available liquidity, even after the bridge payments, is sufficient to run the business. We continue to focus on cost discipline as well as initiatives to grow our top line and enhance our operational efficiency. While we don't have immediate plans for raising additional capital, we're constantly assessing ways to optimize our capital structure in accordance with proper corporate governance. We had 33.7 million shares outstanding at the end of Q1 compared with 33.5 million at the end of Q4 of 2022. Diluted weighted average shares outstanding during the quarter was 33.7 million compared to 37.2 million for Q1 of 2022. As mentioned earlier, we expect to issue less than 3.4 million shares in connection with the bridge earn-out, which represents approximately 10% dilution based on outstanding shares at the end of Q1. MAUs were 188.8 million, an increase of 5.8% year-over-year. ARPU during the second quarter was $0.34, which is down 5.6% year-over-year. Now turning to guidance. There is still a lot of caution among our advertising clients, and the reductions and delays when committing to ad spending that we've discussed over the last few quarters still exist today. We believe this uncertainty disproportionately affects smaller advertising platforms. With that in mind, for Q2, we expect billings of between $98 million and $109 million, revenue of between $65 million and $74 million, adjusted contribution of between $32 million and $38 million, and an adjusted EBITDA loss of between $6 million and $10 million. A key driver in our guidance is the decline in our UK business, which has a negative mid-single-digit impact on our growth rates. While the performance is disappointing, we are optimistic that we can recover over the next nine months. There are several new initiatives that we expect to increase our MAU base, including an enhancement by one of our large UK partners that will result in users being auto enrolled into our program and the launch of new bank partners that we expect to occur in late 2023. We do not have a lack of advertising demand in the UK, so these MAU growth initiatives are expected to result in positive returns shortly after implementation. As Karim said, we are managing the business responsibly in this difficult economic environment. We are committed to achieving a profile of consistent profitability and looking forward to the second half. Additionally, the bridge earn-out results both reduce dilution for shareholders and make us comfortable that our available liquidity will support the business in the near term during this challenging economic period. On a personal note, I expect this will be my last earnings call with Cardlytics before my planned exit. I have thoroughly enjoyed working with all of you, and I'm confident that this leadership team is moving the business forward in the right direction. I can't wait to see the positive impacts from all the exciting developments we have in the works. And with that, I'll turn it back over to Karim.

Thank you to everyone listening. First, I want to thank Andy for his service to Cardlytics. We all sincerely appreciate his contributions to the company and wish him the best moving forward. We are excited to move past one of our largest short-term issues and to continue focusing on product as the central driver of our strategy. While the economy is still uncertain, we are confident that our unique scale platform drives value for our partners and delivers high ROI for marketers. We're excited about the tremendous opportunity that lies ahead of us. By prioritizing our goals and positioning the company for long-term success, we are setting ourselves up for a bright future. Now I will open the call to questions.

Thank you. At this time, we will conduct the question-and-answer session. Our first question comes from the line of Kyle Peterson of Needham. Your line is now open.

Great, thanks. Good afternoon, guys. Appreciate taking the question. Just wanted to see if you guys could give a little more color on some of the spending with some of our clients on a same-store sales basis. I know there's a lot of moving pieces between some of the migration of the large restaurant client and then you're also onboarding some new logos. But maybe if you could just dive into a little bit in terms of whether it's an average or kind of a cross-sectional view of how spending with some of your key clients is right now on the platform?

Hi. This is Andy. Yes, great question. We really felt in Q1, a lot of the headwind there from the loss of the large restaurant client; that was quite a drag. I mean, certainly, when you remove the impact of that, we actually had a pretty nice quarter there. I mean, the U.S. business grew over 20%. So we're seeing some really nice results in Q1. It's just still a very choppy market. And the longer that we see some of the headwinds for the consumer around interest rates persist and inflation persists, and we just see an environment where it's going to get increasingly difficult. And I think marketers are generally feeling that as well. And so we're certainly guiding towards a bit of a choppy market here. But certainly, in Q1, moving outside the impacts of the large restaurant customer, we had a nice quarter across the board.

Got it. That's really helpful. And then just kind of a follow-up as a housekeeping item here, I saw you guys drew down, it looks like about $30 million on the line of credit this quarter. Could you just confirm where that's being held? I know there's not a lot of concern given some of the headlines about PacWest, but I just want to see where you guys are kind of holding that cash and how you feel about the security of that drawdown at this time?

That’s a good question. So I think we mentioned this here recently in a press release in March. We keep the vast majority of our cash at PacWest, but we use a product that they have where we're utilizing kind of a multi-bank deposit program. And so that really applies to all of our accounts. The $30 million that we drew is actually part of that program as well. And so we think that we've really taken a conservative, appropriate view as to how we're kind of managing that risk. And so all that cash is really sitting in that program.

All right, that’s helpful. Thanks, guys.

Thank you. This now concludes our question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.