good afternoon ladies and gentlemen and welcome to the second quarter 2025 carlytics inc earnings conference call at this time all lines are in listen only mode following the presentation we will conduct a question and answer session if at any time during this call you require immediate assistance please press star zero for the operator this call is being recorded on wednesday august 6th of 2025. I would now like to turn the conference over to Nick Linton. Please go ahead.

Good evening and welcome to the Cardlytics second quarter 2025 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 third quarter of 2025, our capital structure, increasing our supply, the growth of new partners, advertiser churn, and operational and product initiatives. 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 our 10-Q for the quarter ended June 30, 2025, 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 issue today, 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. On the call today, we have CEO Amit Gupta and CFO Alexis D. CNO. Following their prepared remarks, we'll open it up for your questions. With that, I'll hand the call over to Amit.

Good evening, and thank you for joining our second quarter 2025 earnings call. Q2 marked another quarter of steady progress against our strategy. As I look back over the past year since stepping into the CEO role, we significantly improved the product and tech challenges facing us over past several quarters, diversified our ecosystem, and set a foundation for growth. With the work we've accomplished, we are now deepening our efforts in key areas that will be most critical for the next stage of our business. I'd like to share details on the progress we've made last quarter to advance our four business pillars. First, increasing and diversifying our supply to meet consumers where they are. Our publisher base is what makes our network unique and growing and diversifying this foundation continues to be a top priority for us we're focused on growing our partnerships with both financial institutions and merchants from other verticals we are pleased with the early progress with our newest bank partners and we have a robust pipeline of prospective fi and non-fi partners in both the us and uk we are not only focused on adding more publishers with large user bases but also working with our bank partners to maximize user engagement with our offers when our partners are fully committed to our shared goal of maximizing value for consumers we see a substantial difference in results as an example we've been working with a top five bank partner who has been investing in their program and increasing their marketing and merchandising activities around cashback offers and through these efforts this partner is seeing a significant lift across key metrics including a 92% increase in activations and a 48% increase in redemptions year-over-year. We plan to continue these efforts with several bank partners who are interested in working with us to increase engagement and bring more demand. Now turning to the retail side of our CLO network. On our last call, we announced the launch of the Cardlytics Rewards platform, which strategically diversifies our publisher base beyond FIs. We are now collecting data from our pilot, making refinements to the platform and optimizing for the best consumer experience. In parallel, we are progressing many active conversations with leading merchants in the U.S. and U.K. We look forward to sharing more partner updates in due time. While we continue our efforts to expand our supply, we are also working through a notable change with our largest FI partner. This partner, who built their program with our offers over the last several years, has recently decided to restrict a large amount of content from running on their channels starting July 1st. While we expected some level of this, we did not anticipate brand restrictions at this scale. The implications are that this partner's users will likely receive significantly less content and less value. We have also heard from numerous advertisers that they are equally concerned about the negative impacts to the efficacy of their programs if restricted from running on the trusted and proven Cardlytics platform. This change is posing significant limitations for our business. Despite our attempts to find a better path forward for us and their customers, we are now focused on mitigating the impact of this bank's decision. First, we will continue to invest in efforts to meet consumers where they are, and we expect to increase and diversify our supply. Second, we are improving our relevancy and targeting tools, which we expect will allow us to shift our content to other publishers that are focused on leveraging the Cardlytics platform to deliver value to consumers. Third, our shift to engagement-based pricing is helping advertisers see our platform as a real performance media ad format. Four, we are working with our advertisers to blend TBC reporting, incrementality results, and MMM readings for a more comprehensive view of performance, which we believe will continue to position Cardlytics as a trusted and immeasurable growth channel. For clarity, the restrictions imposed by this bank are unique to this partner, as no other FI partner of ours has imposed restrictions of any similar magnitude, nor do we expect them to. In fact, our other bank partners are leaning into our platform to deliver more value to their users and are growing their share on our network. We are committed to ensuring that our business is sustainable and on a path to profitability. Alexis will discuss more about the financial impact these changes will have. We believe that our network capabilities are a real market differentiator that cannot be easily replicated. Competitors have generally not been successful in capturing budgets from advertisers with multi-unit chains or more sophisticated CLO needs. We hear this time and time again from our advertisers that only Cardlytics has the scale and ability to run the type of novel ad formats that they want. Since these restrictions were imposed, we've seen negligible churn with our restricted brands. The vast majority of them have stayed on our platform so far. Now moving on to our second pillar, strengthening and growing advertiser demand. in light of supply limitations doubling down on demand is of utmost importance our uk business continue to show strong growth with the highest billings quarter in history driven by strength in categories like everyday spend subscription services and retail we signed over 20 new logos about half of which are top 150 brands in the uk and we are focused on growing these accounts and securing longer-term commitments. With more pressures on performance, we are helping our advertisers demonstrate results and working closely with them to develop longer-term CLO strategies. In the U.S., we also saw increased performance expectations from our advertisers. Advertiser churn was mostly concentrated in mid- to small-sized brands, which have been more susceptible to budget reductions. We saw strength in everyday spend and specialty retail, consistent with trends from the previous quarter. Travel and restaurant categories experienced softness in the first half of the year, as we've seen across the industry. We are encouraged by signing new top-tier brands in the U.S. as well, including a leading rideshare player, top retailer, and national restaurant chains. These enterprise accounts are where we see the highest potential for growth and scaling in the second half of this year. In the light of the changes with our largest FI partner, we are focused on reinforcing our relationship with our top advertisers and ensuring their content is effectively delivered across our spectrum of publishers. We have reorganized our sales organization under our new chief business officer and are accelerating our go-to-market efforts with intensity. We have been seeing success with our vertical-focused go-to-market initiatives, and we will enhance and expand on this strategy. We are also leading with proven performance, which remains a true differentiator in the market against our competitors. And while we diversify our supply, we are also adding new demand to our network. We expect to attract new brands and verticals to fuel our growth strategy with CRP. Furthermore, by aligning US and UK under one leader, we are able to work with leading brands and support their marketing spend across these markets contiguously. Our third pillar, maximizing the performance of our network. We are seeing the benefits of our focused efforts to stabilize and optimize our platform over the past few quarters. Our network is performing effectively and efficiently, bringing more confidence to our partners and advertisers. As recently announced, we launched new dashboards within the Cardlytics Insights portal to bring the full power of our network data to our advertisers. The new dashboards are focused on customer insights, which have historically been generated by our analytics team rather than self-serve and in real time. With the Insights portal, our advertisers can access market data and customer intelligence on demand whenever they need them. One client noted, we are sharing these insights internally to highlight Cardlytics, not just as a media partner, but a partner that provides real value to our business through data. Lastly, we continue to make progress with the migration to engagement-based pricing models, which are now implemented for 79% of our advertisers. In Q2, 96% of our new business ran on engagement-based pricing, reinforcing the fact that this pricing model is aligned with what our advertisers are looking for as it provides lower funnel signals that are valuable to them. Engagement-based pricing has also helped us compress deal cycles, align with internal brand measurement models, and we believe it will make us more resistant to churn over time. and our final pillar, accelerating our growth in bridge. Last quarter, we saw strong and steady client interest for our identity resolution capability, including a long-term renewal with a high-end beauty brand. We also signed a new partnership with a popular restaurant chain that is using our advanced analytics and business intelligence for deeper customer insights. For Ripple, we're encouraged by the positive trends that helped us more than double our revenue quarter over quarter. We recently welcomed Hy-Vee Red Media to Ripple as our newest partner, which will further expand our current scale of over 140 million unique shopper profiles. Building on our efforts to scale supply over the past year, we are now continuing to focus on the demand side. In Q2, there has been strong traction with the adoption of our Ripple audiences across different platforms. In fact, we're seeing 10% growth week over week on Trade Desk alone. We are continuing to work with new and existing platform partners to accelerate this momentum and drive broader adoption and more revenue diversification. On our last call, I shared that we launched a pilot for CPG offers with one of our large retail clients and bank partners. I am pleased to report that initial results from this pilot are encouraging. Not only did we validate the feasibility of connecting our bridge and cardlytics data, the pilot demonstrated a positive impact on both shopper behavior and basket size. Among Redeemers, we saw a 30% increase in the rate of baskets containing the specific product, as well as a 2% increase in basket size or transactions containing the product and a 13% increase for all other transactions. Overall, we continue to move forward, taking a deliberate and thoughtful approach to growing our business. There are undoubtedly challenges that we did not anticipate a year ago, but we believe that over the medium term, the strategic shifts we initiated earlier this year will position us for profitable growth. We are operating efficiently and effectively, and we believe these shifts will ensure that we continue to deliver on our promise to our partners, advertisers, consumers, and investors. I'll now turn it over to Alexis to discuss the financials.

Thank you, Emmett. In the second quarter, we delivered results above the midpoint of our guidance for most metrics, and we surpassed the high end of our guidance for adjusted EBITDA. My comments will be year-over-year comparisons to the second quarter of 2024, unless stated otherwise. In Q2, our total billings were $104 million, a 5.7% decrease. We achieved our billings guidance by continuing to expand billings with many of our top accounts in the grocery and gas category, which grew 41%. We also had success in the retail category, growing our largest retail advertiser by $2.8 million in billings year-over-year. We continue to see weakness in the travel category, which declined across a few key accounts. On new business, we are encouraged by the high quality of brands and momentum, with 45 total new logos signed in Q2 and a strong potential to scale. Consumer incentives of $40.8 million were flat to prior year, and revenue decreased 9.2% to $63.2 million, driven by a decrease in billings. Our revenue to billings margin was 2.3 points lower than prior year due to pressures on advertiser performance. Looking at our segment revenue results, our U.S. revenue, excluding Bridge, decreased 13% due to lower billings and pricing pressure, as previously discussed. In the U.K., we saw 29% revenue growth, driven by higher billings and increased supply. We grew billings with all of our top five clients in the quarter and launched a new advertiser whose billings were in the top five. Bridge revenue decreased 8% due to the loss of a major account in previous quarters. Adjusted contribution was $36.1 million, down 0.6% from the prior year. However, we expanded our margin as a percentage of revenue to 57.1%, an increase of 5 points due to a more favorable partner mix. This margin is the highest we have experienced to date, driven primarily by growth of our newest bank partners. Adjusted EBITDA was positive $2.7 million, an increase of $5 million. Total adjusted operating expenses, excluding stock-based compensation, came in at $33.4 million, a reduction of $5.2 million, primarily due to our previously discussed reduction in staff and a reduction to incentive compensation. In Q2, operating cash flow was positive $1.2 million. Free cash flow was negative $3.4 million, which was $3 million less than the prior year, due to interest on our 2029 convertible notes and severance payments that was partially upset by improved working capital. Free cash flow improved from the prior quarter by $7.4 million. On the balance sheet, we ended Q2 with $46.7 million in cash and cash equivalents. This week, we drew $50 million on our line of credit, leaving us with $10 million of unused available borrowings. We have $106.7 million of liquidity, including the undrawn amount, or $81.7 million after accounting for our minimum cash covenant of $25 million. As previously shared, we plan to use the funds to pay for our upcoming 2025 convertible maturity, as well as to give us extra flexibility as we navigate the upcoming quarters while keeping our cash on hand at a comfortable level. Lastly, in Q2, we paid the final $2 million of of our settlement with SRS, fully closing this matter. As a reminder, last quarter, we introduced monthly qualified users or MQUs to drive consistent reporting across our FI and non-FI publisher partners. In the second quarter, we had 224.5 million MQUs, an increase of 19%, driven by full ramp of our newest FI partners. Excluding these partners, MQUs would have been up 1%. ACPU reflects how efficiently we convert advertiser budgets to the value that the company can retain. In the second quarter, ACPU was 14 cents, down 50% year-over-year as the MQU base of our newest large FI partner has not yet been fully monetized. ACPU expanded 10% in the second quarter versus the prior quarter. Now turning to our outlook for Q3. Our expectations reflect the change with our largest FI partner, which Amit explained earlier. For Q3, we expect billings between $87 and $95 million, revenue between $52.2 and $58.2 million, adjusted contribution between $30.3 and $34.3 million, and adjusted EBITDA between negative $2.3 and positive $2.7 million. Our billings guidance represents a negative 15% to negative 22% decrease year over year. Despite this top-line weakness, we still expect adjusted EBITDA to be break-even, and we further expect to have the highest contribution as a percentage of billings and revenue to date. The primary driver of our expected billings decrease is a result of the content restrictions and reduced supply available to specific brands. As Amit mentioned, our largest FI partner is restricting certain content from running on its channels starting on July 1st. While this option has always existed per the terms of our agreement, this is the largest restriction we have experienced. We are discussing this change with our advertising partners and working to shift as much of this volume as possible to other channels. We are still learning how to optimize projections and targeting based on these changes. While we are undertaking a range of actions to help mitigate this as Amit discussed, we expect to see some impact to our results, which you will see reflected in our guide. We are still in the early days of this optimization and are modeling conservatively. This change underscores the importance of our diversification strategy across banks and non-banks, as well as continuing to diversify our demand. While we navigate the impacts of the expected reduction in billings, we are prudently slowing the pace of some of our investments and focus on overall expense management. We continue to make progress with our newest large financial institution partner. We had twice as many unique advertisers live with this partner in Q2 than in Q1. We expect this momentum to continue and are pleased to see engagement rates similar to our most established partners, and in some cases, higher AOVs and redemption values for certain premium types of advertisers that do well with this unique demographic. We continue to believe there is significant upside as engagement deepens. We are encouraged by our recent run rate in billings, which is now similar to one of our top five U.S. banks, and we believe there continues to be upside as this partner scales. Our newest digital banking partner also helps to expand our reach with a different demographic and supports long-term diversification. Consistent with our last call, we are not assuming any material financial impact in 2025 from either Cardlytics Rewards platform or CPG offers. Lastly, the UK continues to be a bright spot as we expect continued strong positive growth in Q3, driven by a healthy pipeline of quality advertisers and continued supply growth. Revenue as a percentage of billings is expected to be in the low 60% range for Q3 as well as for the full year. We have made strategic decisions to drive incremental performance in billings. We expect adjusted contribution as a percentage of revenue to be in the mid to high 50% range. This continues to be among the highest we have seen and reflects our improved economics with our new and ramping bank partners. Despite top-line weakness, we are keeping more of every dollar we make and we remain focused on driving profitability. We continue to expect this metric to improve sequentially as we diversify our supply. Our adjusted EBITDA guidance is a reflection of our reset operational cost base following the reduction in staff that we completed in May. We continue to hire in our lower-cost technology hub so we can continue to invest in key product areas. Operating expenses are expected to be sustained at or below $33 million per quarter for the remainder of the year, excluding stock-based compensation. Given the changes to our top line, we remain committed to driving operational efficiency and we will make further changes as needed.

As we stated last quarter, we believe we have sufficient liquidity to satisfy all of our financial obligations, including the repayment of our outstanding convertible note given our expected top line results we are further narrowing our focus and slowing investments until we can show sustained improvement i'll now turn it back to amit for closing remarks thank you alexis we remain confident in our ability to navigate the headwinds and focus on our strategy to grow and diversify our platform we've made meaningful progress on our turnaround over the past year and we are committed to delivering continued success despite the challenging near-term dynamics. Before moving on to Q&A, I want to thank our teams for their effort and commitment, our partners and advertisers for the opportunity to serve them, and our investors for their patience. I'll now turn it over to the operator to begin Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 1 on your touchtone phone. you will hear a prompt that your hand has been raised should you wish to decline from the polling process please press star two if you're using a speaker phone please lift the handset before pressing any keys one moment please for your first question your first question comes from jacob stefan of lake street your line is already open i appreciate you taking my questions um maybe just First, starting on the kind of Q3 outlook, the billings decrease, you know, help me understand a little bit better on the content restrictions.

Is this mostly brands that your FI partner is already doing business with and Cardlytics platform may be competing with them or maybe just kind of help us think through this and their decision?

Yeah, thank you, Jacob. Thank you for the question. So this is goes broader than the restriction is broader than the brands that the FI partner is currently engaged with or the content you see. We were obviously not expecting this level of content restriction that's gotten, it is beyond that what our expectation was and that's why it's reflected in the guide.

But we are actively working with our bank partners and advertisers to make sure we minimize the impact of this. okay and um maybe you could just kind of talk a little bit more on the uh the credit line uh sounds like you guys are you know drew 50 million dollars of that in q3 here um have had the debt pay down um already occurred or is that going to be um prior to q3 end or will that be in q4 thanks um no so we drew the line of credit yesterday for 50 million dollars the intent is to pay that at maturity for the notes that are due in September.

So certainly not waiting until Q4. That's consistent with what I've said in the past, right? We've always intended to draw the line to repay our notes and also have maintained an operating cash balance between 40 and 50 million. So all of this is consistent with what I've said in terms of using it to pay the debt and maintaining a comfortable cash balance and then giving us sufficient flexibility to navigate the near-term headwinds that we're experiencing.

And sorry, just maybe back to the outlook, if I could ask in a different way. You know, the concern from advertisers versus what your kind of FI partner is restricting content, you know, how much of the billings decrease sequentially is kind of from each bucket there.

I think in the past you had said, you know, billing should grow sequentially throughout the remainder of the year. but you know the the shortfall there what what's kind of in each bucket yeah um i'll take that so we we did not anticipate this um when i made the comment about sequential billings growth um i would say a large portion of this decrease is due to this the supply change um that we're seeing uh this partner represents a large portion of our network in terms of billings um that's actually disproportionate to the number of MQUs that it has. So we do believe we can shift some of this volume to other partners. We're only a few weeks into the change, and so still learning how much we actually can shift. So I do think there is room to do better than what I've guided, but being conservative and still learning on how we expect this volume to shift. So I would say majority is related to this partner. You know, we learn, we're still learning this over the next couple of weeks. Amit, do you want to add anything?

Yeah, no, I think that's exactly right. You know, this is, this is an unexpected change. But at the same time, I think what Alexa said, I'll underscore, and our bank partner's initial response and our advertising partner's initial response has been very much a leaned in response and so that's what uh you know that's what we're engaging with them on okay thanks i appreciate all the color your next question comes from luke horton of northland capital market your line is already open hi thank you uh this has been on for luke last quarter you announced for cartilage rewards platform to diversify with non-bank partners uh just wondering how that initial digital sports partnership has been going and how the build out of platform is going or if there's any other updates on new partners thank you luke um so we completed the pilot of uh you know that we mentioned in the previous quarter uh and are now collecting data and the initial market feedback so we can optimize customer experience uh even though it was a pilot but we saw a very uh positive and promising rates customer linking their cards and redeeming offers so based on the initial results we believe that there is a large potential for us to grow this part of the platform and obviously now we're focused on iterating and scaling this this area we're also very encouraged by the interest we're seeing with a long pipeline of prospective partners both across US and UK that we're engaged with so So active conversations with the pipelines of several leading brands across verticals, including Telecom, Rideshare, and FinTech. And as soon as we have updates that we can share, we'll bring it back to you. But we're pretty positively, it's very promising that the initial pilot has done well.

Thank you. That's a great caller. And then also postcardlytics leveraging AI throughout the platform. and what areas of the business do you think can benefit the most from that adoption, either internally or externally with partners and customers?

Yeah, it's a great question. I mean, something that we've been thinking and starting to bring on board recently. So, you know, the three areas that we've been debating and starting down this path, first of all, is within our dev team, our engineering team, to use the typical tools which can help in code dev, code generation snippets, so on and uh and qa uh so those are things those elements are in progress already uh the other area which obviously as you can imagine is uh you know is a big area of opportunity is in our analytic space uh we have a treasure trove of data with close to six trillion dollars of uh spend that we have inside into we absolutely expect to think about models that can actually connect the dots identify patterns that can bring new capabilities to our advertisers. But given these changes from this bank partner, we are now thinking about how to prioritize these initiatives. But these are things that we've been talking about, but they might slow down given our reprioritization that we might need to undertake.

Thank you so much. I will return to the queue.

Your next question comes from Jason Crayer of Craig Hallam Capital Group. Your line is already open.

Thank you. This is Cal. On for Jason. So maybe first, you know, we've been noticing an increase of local offers on some of your partner platforms. So just wondering if you can speak to any ad attraction that you've seen with scaling local offers.

Yeah, thank you, Cal. I think we mentioned this in our last earnings call as we've continued to invest in creating a high performance network one of the areas that we've invested and honed our capability is very much focused on geo-targeted offers so we can now differentiate where an individual lives and where do they shop so this has allowed us to actually bring in more geo-targeted content more local offers we continue to plan to increase those. You can imagine leading cross multi-unit chains in QSRs. They're excited about it. Multi-unit, multi-line retail stores are excited about it. So we are definitely seeing benefits in everyday spend in QSRs, in general restaurant category, and we plan to continue to bring these local offers where it makes sense across our network.

Great, thank you. And then second, you know, good to hear all the traction that you're seeing with Ripple. Just on the Hy-Vee partnership, you know, can you just speak to the drivers for the win? And, you know, as you continue to build more referenceable wins like Hy-Vee, are you starting to see that accelerate interest in adoption of Ripple?

Yeah, that's a great question. I think you heard in our prepared remarks that, you know, the traction in Ripple has definitely increased substantially, especially over the recent weeks? And the quick answer to that is yes. As we bring on high-quality partners that we had before, like the Wegmans and the Giant Eagles, and the new ones that we had, like Hy-Vees and others, advertisers are getting more excited about the kind of scale that they see, and also the quality of data that they see. So we're seeing at the typical DSPs like Trade Desk, there's a large volume increased. A lot of advertisers are actually coming and approaching us for custom work as well. So we're excited about the prospect that Ripple has and the continued progress as more and more retailers are choosing to come and join the Ripple network.

Great. Thank you. Appreciate the call.

Ladies and gentlemen, as a reminder, if you have a question, please press star one your next question comes from Robert cool berries of ever core your line is already open all right thank you very much I think you tell us about the MQU impact I know you said that the it sounds like the buildings impact is bigger than the MQU impact but just anything more you can tell us that anyway if you're more precisely characterizing the extent of the restriction that's in place and whether that could ramp up sort of further related to that what is the nature of the basis of the restriction? Are there opportunities to substitute in something else that may not violate the restriction of whatever type? And then the comment about the level of concern from brands, I just wanted to clarify that. I mean, so is the concern about running on that FBI partner without the benefit of the Cardlytics platform and technology. It's not about, you know, a broader concern about the Cardlytics platform. I just wanted to make sure that I understood that correctly. Thank you very much.

Thank you for the multi-set question, Robert. I want to make sure we address all the parts of it. The first one was around MQUs. So, you know, just to give you a sense, our broader set of bank partners represent more than 50% of our MQUs, right? So, and they represent a lower a lower percentage in billings, but the broader set of our bank partners in the U.S. represent more than 50% of our NKU. So hopefully this gives you a sense of, it is a large scale, but the network, overall network continues to be scaled and resilient. And I think as we mentioned, I think your second question was around ability to replace and the concern about the brand. You know, frankly, the concern that brands has, it's mostly driven by the frustration that now that because of these restrictions, it limits their ability to come to one platform for all their CLO needs. And so some of them have actually expressed their dissatisfaction to us and the bank partner. But that said, our view is that our value proposition continues to resonate. We continue to make sure that brands have access to the largest financial media network, regardless of this bank's decision. And the areas that are resonating a lot with the brands as we've interacted with them, engaged with them. First of all, they appreciate our progress on all the measurement efforts. We're blending in TBC reporting, incrementality results and MMM readings so they can really get a clear view of ROAS. So even from Q1 to now, advertisers have seen more than 25% growth in ROAS on the Cardlytics platform. So their trust and belief in Cardlytics platform remain consistent and increases from what we see. The move to engagement based pricing has been welcomed by our advertisers they are now able to look at TLO spend on Cardlytics as a true true performance media buy and we recently also reorganized our sales team under our new chief business officer so vertical focus efforts increase the velocity we've brought us and uk under this leader so that we can actually have marketing strategies geographies across the two geographies run contiguously. And lastly, just to say the obvious, we very much plan to compete aggressively in the market and make sure we bring the best of our capabilities to our advertisers and to the network.

Got it. Thank you.

There are no further questions at this time. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.