Earnings Call Transcript - CDLX Q4 2025

Operator, Operator

Good evening, ladies and gentlemen, and welcome to the Cardlytics Fourth Quarter Fiscal Year 2025 Earnings Conference Call. This call is being recorded on Wednesday, March 4, 2026. I would now like to turn the conference call over to Nick Lynton, Chief Legal and Privacy Officer. Please go ahead.

Nick Lynton, Chief Legal and Privacy Officer

Good evening, and welcome to the Cardlytics Fourth Quarter and Full Year 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 around our future financial performance and results, including for the first quarter of 2026, our capital structure, and our 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-K for the year ended December 31, 2025, which has been filed with the SEC. Also, during our 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, 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, David Evans. Following their prepared remarks, we'll open it up for your questions. With that, I'll hand the call over to Amit.

Amit Gupta, CEO

Good evening, and thank you for joining us. Reflecting on 2025, it was a year we successfully reset the company to achieve self-sustainability. We have emerged as a leaner, more focused and financially healthier organization. Our strategic priorities are clear: first, expanding our reach by deepening collaborations with bank partners and integrating new publishers into our network; second, driving revenue growth for advertisers by leveraging our advanced algorithmic capabilities; finally, we will continue to invest in our tech stack to further differentiate our platform and enhance operational efficiency. We have a strong team in place and are continuing to invest in our talent. To this end, we recently welcomed David Evans as our new CFO, along with several other highly skilled individuals joining Cardlytics from strong backgrounds. The strategic decisions made over the past several months have set our balance sheet on a path to controlling our own destiny. Looking ahead, 2026 is a year of execution for us. Our execution is stronger than ever, and we are maturing into a high-performing technology company with a top-notch team capable of producing strong financial results. We have more conviction than ever that our product is relevant and uniquely differentiated in the marketplace. Now moving specifically to Q4. As part of our broader strategic reset, we conducted a comprehensive review of our financial institution relationships to ensure long-term alignment across economics, product direction, and consumer engagement. Our FI partnerships in the U.S. and U.K. remain durable and constructive, and in many instances, are expanding. We are adding new card portfolios with several existing partners, reflecting their confidence in our program's performance and value. We are in active discussions to introduce new growth offerings built on our modernized scalable platform while continuing to roll out new engagement formats designed to increase program awareness and redemption. For example, during our most recent Double Days program with a partner, we saw a 2x increase in redeemers on days with double rewards. We are scaling these initiatives and seeing increased investment from FI partners in both the U.S. and the U.K. In this context, we recently concluded our relationship with Bank of America. While they were a valued partner, the program structure and future direction did not align with our long-term objectives regarding economics, personalization, and consumer engagement. Our momentum in reaching consumers beyond traditional banks continues to grow. We have officially launched with the Philadelphia Flyers and Boston Celtics in the sports category and ATM.com in financial services. As shared earlier, while we do not view these as material from a financial perspective in 2026, it is very encouraging from a proof-of-concept standpoint. While we recognize that the loss of Bank of America creates near-term pressure on supply, we expect this impact to diminish over time. This will be driven by existing partners launching more portfolios, UI enhancements to increase participation, and the addition of new bank and nonbank publishers. We are focused on the long term and are building a stronger network, which requires navigating some near-term challenges. Now moving to our advertiser base. Market traction for our ad format remains robust. Our value proposition is resonating more strongly than ever with sophisticated marketing teams who recognize the unique incrementality we provide. We saw particular strength this quarter in the grocery and convenience sectors. A leading grocery retailer continued to spend with us as a strategic partner. During Q4, we secured increased spend to support targeted efforts for specific customer segments while consistently meeting their performance goals. For one of the fastest-growing discount grocers, our measurable results verified by their team drove an 8x spend increase year-over-year. Our earlier investments in measurement capabilities are paying off as leading advertisers see the direct impact of their spend with Cardlytics on their sales. We received consistent feedback from leading advertisers in the U.S. and the U.K. regarding our superior value proposition compared to competitors. For instance, a large U.S. retail brand chose to double its quarter-over-quarter spend in Q4 despite supply options elsewhere. While we have experienced some recent pressures in our travel and entertainment and subscription services sectors, we are also seeing nice green shoots of opportunity in other areas. For example, advertisers in the fashion and luxury segment increased their spend by 70% quarter-over-quarter, reflecting deeper investment from top consumer brands. As a follow-up to our heavier prioritization on new business, we saw meaningful conversions in Q4. For example, we added the world's largest athletic apparel maker to our advertiser roster. We achieved a 60% quarter-over-quarter increase in new business wins across e-commerce, retail, and restaurants in Q4, and we expect this momentum to continue as the team further scales. Our U.K. business remains a standout performer with Q4 revenue surging over 35% year-over-year. This momentum highlights our omnichannel strength, particularly within the grocery sector. This segment drove more than 40% of our U.K. business for the quarter, headlined by a top 3 grocer that moved from initial pilot programs to a substantial Q4 spend increase. With stable supply and focused execution, we see our growth story realized in the U.K. By applying these execution lessons to our newly settled supply in the U.S., we expect our domestic business to return back to a state of sequential growth. Now to our technology stack. We continue to build a differentiated category-leading technology platform. Key components of this work include platform modernization and the use of AI as a force multiplier. A key part of our reset involved retiring substantial technical debt and strengthening our engineering foundation. We migrated all partners to our ad server, completely deprecating all instances of the offer placement system globally. We also transitioned from our legacy data warehouse to a unified data and AI platform on Databricks. These 2025 technological improvements enabled our engineering team to deliver features 20% faster while reducing infrastructure costs by 40%. Our algorithms are now more advanced, leading to higher predictability and performance. Furthermore, we believe the delivery issues encountered in 2024 and early 2025 are now in the rearview. We are embracing AI as a tool for both efficiency and innovation. Our engineering team utilizes AI for agentic coding and product development, and we have launched multiple AI tools on our platform to enhance operational efficiency. For example, we deployed an agent for customer support that now resolves large quantities of partner and campaign inquiries in minutes rather than days or weeks. We are reimagining our client engagement model to increase our execution velocity, enabling faster campaign projections and builds to shorten the time between contract signature and campaign launch. One of our core strengths is the ability to attribute transactions to specific store locations. We have developed new visualizations within our Ads Manager UI to help clients make strategic decisions based on intuitive local-level data. As we heard from one of our U.S. grocery and gas advertiser CMOs, 'Cardlytics has become one of the most efficient growth channels. We are seeing stellar ROI performance well above our internal benchmarks. And more importantly, the sales are incremental and measurable.' Finally, the Bridg transaction. As part of our commitment to focusing on our core business, we announced in January an agreement with PAR Technology to serve as a new home for the Bridg business. While we believe in the strength of the Bridg product, ongoing bank data connection issues kept it disconnected from our core business. Looking forward, we believe PAR is a better fit, allowing Bridg to be fully integrated with their core operations without the data constraints faced at Cardlytics. We are working with the PAR team on final preparations and expect the closing to occur later this month. Upon the completion of the sale, our balance sheet will be strengthened, improving our path to self-sustainability.

David Evans, CFO

Thank you, Amit, and good evening. It has been a little over a month since I rejoined the company, and it has been nice and reinvigorating to get back involved here at Cardlytics. For fiscal year 2025, our top line billings were $385 million, down 13.3% year-over-year. Our revenue was $233 million, down 16.2% year-over-year, and our annual adjusted EBITDA was $10.1 million, up $7.5 million year-over-year. While we navigated the supply constraints throughout 2025, we were disciplined in how we managed our expenses, driving the third consecutive year of positive adjusted EBITDA. We are committed to attaining self-sustainability and believe this commitment requires balancing investments in growth and disciplined expense management. The rest of my comments will be year-over-year comparisons to the fourth quarter of 2025, unless stated otherwise. In the fourth quarter, we delivered top line as expected across billings, revenue and adjusted contribution while surpassing the high end of our guidance for adjusted EBITDA. In Q4, our total billings were $94.1 million, a 19% decrease year-over-year. Even with the headwinds of supply constraints and content restrictions, we were able to retain the vast majority of our advertisers, which reflects the differentiated value and incrementality we drive. Q4 revenue was $56.1 million, a 24.2% decrease year-over-year. Our U.S. revenue, excluding Bridg, was $40.1 million, decreasing 33.5% year-over-year due to lower billings as well as pricing adjustments, which drove lower billings margins than the prior year. This margin impact was partially due to strategic investments in certain advertisers to drive incremental ROAS, as well as an isolated onetime variance in December delivery as a result of the supply changes to our network. U.K. revenue was $10.8 million, increasing 35.1% year-over-year. This is our U.K. business' largest ever quarter, driven by deepened engagement with advertisers and increased supply. Q4 adjusted contribution was $31.7 million, a 22.1% decrease year-over-year. However, we expanded our Q4 margin as a percentage of revenue to 56.5%, an increase of 1.5 basis points to a more favorable FI partner mix. This margin is the highest we have achieved to date, driven primarily by growth of our newest FI partners. Adjusted EBITDA was positive $8.5 million, an increase of $2.1 million. Total adjusted operating expenses, excluding stock-based compensation, came in at $23.2 million, a reduction of $11.1 million year-over-year due to the reduction in staff in May and October as well as the optimization of our cloud infrastructure. Operating expenses benefited from $2.6 million in onetime benefits from an ERC tax credit. In Q4, operating cash flow was a positive $13 million. Free cash flow was positive $10.5 million, which was an improvement of $11.9 million from the prior year, due primarily to our lower expense base as well as receiving the full $6 million impact of 2 ERC tax credits received in 2025. On the balance sheet, we ended Q4 with $48.7 million in cash and cash equivalents. During the quarter, we had a net payment of $6 million on our line of credit, resulting in $40.1 million currently drawn on the line. The proceeds from the expected Bridg transaction will serve to bolster the balance sheet, further positioning the business for self-sustainability. In the fourth quarter, we had 227 million MQUs, an increase of 18%, driven by the full ramp of our newest FI partners. Excluding these partners, MQUs would have increased 1%. ACPU was $0.12, down 35% year-over-year as a result of content restriction and as we added new MQUs from our newest FI partners. Now turning to our outlook for Q1 2026. For Q1, we expect billings between $57.5 million and $63.5 million, revenue between $35 million and $40 million, adjusted contribution between $20 million and $23 million and adjusted EBITDA between negative $7.5 million and negative $3.5 million. Our billings guidance represents a negative 41% to negative 35% decrease year-over-year. The primary driver of our expected billings decrease is a result of the content restrictions imposed by one of our largest FI partners and the departure of Bank of America. We will endeavor to execute against several strategies with our banks and advertisers that Amit touched on in his previous comments that will allow us to level set and grow sequentially from this point forward. In Q1, we expect to continue to grow in the U.K., driven by continued success with our largest accounts, growing our new clients, and attracting new advertisers to the platform. Revenue as a percentage of billings is expected to be in the low 60% range for Q1. We are making strategic pricing decisions to drive incremental spend from our advertisers to drive higher revenues and to remain competitive in the market, which is funded by our higher-margin bank mix. We expect adjusted contribution as a percentage of revenue to be in the mid- to high 50% range. Even with top line pressure and intentional pricing decisions, we're keeping more of every dollar we generate, which is an important component to our efforts around self-sustainability. A key driver to the improved economics is due to our newest FI partners. That advantage allows us to reinvest in advertiser and consumer incentives to drive incremental budgets. In practice, more compelling rewards translate into better engagement, which strengthens advertiser retention and our ability to scale. For the first quarter, we expect operating expenses to be at or below $27 million, excluding stock-based compensation and severance. This represents a reduction of 27% from the prior year. We remain committed to driving operational efficiency. Our guiding principle is to be laser-focused at executing against our core competencies to drive sequential adjusted contribution growth over the long run.

Amit Gupta, CEO

I'll close by reflecting on the last year. The through line across all these changes has been the resilience and grit of our team. Our people have endured an unusually demanding series of cycles that led to changes that were essential for this company's health. Our team shows up every day with sleeves rolled up to fight for our bank partners, our advertisers, and the end consumer, and I couldn't be prouder of their willingness to persevere. We firmly believe we have the right team, the right tech, and the right focus to deliver strong results for our shareholders in 2026 and beyond. I'll now turn it over to the operator to begin Q&A.

Operator, Operator

And we have our first question from Jacob Stephan with Lake Street Capital Markets.

Jacob Stephan, Analyst

First, I just kind of wanted to touch on the Q1 guidance a little bit. Maybe you could kind of help us think through a little bit on the sequential decline maybe to kind of the $60.5 million midpoint on the billing side. How much of that was BofA? How much of that was potentially the content restrictions that you're seeing at your other large FI partner?

David Evans, CFO

Sure. This is David. I assume you can hear me okay. Jacob, thanks for the question. I would say a large majority of that you could attribute to Bank of America. Their last campaign ran on January 15. So what you're seeing is the impact of that. Obviously, some of the content restrictions play a role as well, but the vast majority is BofA.

Jacob Stephan, Analyst

Okay. And then I got your comments on the growing sequentially moving forward, David, but maybe you can kind of correlate that with future content restrictions at your FI partner. How does that play out through the year?

David Evans, CFO

Yes. And kind of the way I think about the Q1 guide is really around the foundational level setting for how we can optimize and sequentially grow going forward. As you might imagine, losing a partner like that had some impact in recalibrating the platform. But all that being said, when I mentioned sequential growth, we feel pretty confident in our ability to continue to optimize for the platform. If you remember last summer, we had some content restrictions through one of our major FI partners, I think the view there is that we can and should be able to get back to those levels at that point in time from last summer, but that's probably closer to the end of the year. Does that make sense?

Jacob Stephan, Analyst

Yes. Yes, that's helpful. And then maybe just one follow-up. You kind of called out grocery stores being a demand driver or at least a growing customer base for you guys. I'm wondering broader kind of consumer staples. Is that the case? Are you seeing some strong growth out of that segment?

Amit Gupta, CEO

I think that's a good question, Jacob. One of the things we talked about for 2025 is our investment in geocentric capabilities. We’re seeing benefits especially in grocery stores as advertisers utilize both storefront and online channels. Our omnichannel focus and capabilities are helping them perform better compared to our competition. This success isn't confined to grocery stores; it extends to other brands that have omnichannel requirements, where our campaigns are significantly outpacing others in the market. Advertisers will continue to benefit from this. Additionally, even online direct-to-consumer brands gain advantages from our geotargeting, but those with physical stores and omnichannel needs are reaping the most rewards.

Jacob Stephan, Analyst

Got it. If I could ask one more question, David, you're returning to Cardlytics. Could you share what influenced your decision to come back? Also, what are two or three aspects that excite you and that you're focusing on for 2026?

David Evans, CFO

Yes. Given the nature of the call, I'll keep it fairly easy here. But look, I would say this, Cardlytics remains a differentiated platform. I mean, I wrote my own press release when I joined, and that is to say that I have a tremendous amount of affinity to this organization. In learning more about the opportunity during the process, I came away feeling like the team is still very much intact, and we still have an asset that is still unique and differentiated in the marketplace. When you think about even without BofA, we're still seeing 40% of every card swipe in the United States. And I don't know of another company that has the ability to integrate, utilize and act upon that scale of data with rights to do what we do. And I think there's a good chunk of that that really excites me about what we can do from the level that we're at. And I think that's the important thing here is that when we think about where the company is, we still see, hear, and feel the value in what we are providing for our advertisers, and we still are having similar conversations and interactions with our bank partners as well. So hopefully, that helps answer your question.

Operator, Operator

Our next question is from Jason Kreyer with Craig-Hallum.

Jason Kreyer, Analyst

Wondering if you can talk about what factors contributed to the decision to sunset the BofA relationship. Curious if there are any cost benefits or tech benefits that stem from that termination? And then if you can maybe talk about what impact that has on MQUs going forward?

Amit Gupta, CEO

Yes, Jason, thank you for your question. As we mentioned earlier, Bank of America was an important partner, but we had difficulties aligning on the program structure, economics, personalization, and consumer engagement aspects. We are considering how the network can evolve and expand in the future, and there was a misalignment in this regard. That being said, we strongly believe in the robustness of our platform, our advertiser base, and the value we can provide to end consumers. If Bank of America decides to reconsider, we will be prepared to welcome them back. Regarding your second question, there are indeed technological benefits. One of the key issues affecting our long-term partnership was the requirement for Bank of America to transition to our current technology stack, which was a significant challenge for them. We were managing a parallel tech stack on their behalf. In our earlier comments, I noted that we were able to reduce a substantial amount of tech debt, which was partly due to ending our relationship with Bank of America. This transition has provided us with technical advantages and also allowed us to enhance our overall execution speed and contract processes. Overall, I believe we are in a strong position with the network, and if Bank of America re-evaluates their decision, we will be ready to welcome them back.

Jason Kreyer, Analyst

You mentioned earlier in your remarks the potential for adding new card portfolios. I would like to know if you can provide a bit more detail on that.

Amit Gupta, CEO

As we have strengthened our relationships with each of our bank partners, we have gained insights into their specific card portfolios and how they can benefit from our new capabilities. This has led to discussions on a bank-by-bank basis. As we introduce new portfolios, we will keep you updated. Currently, we are in discussions with several bank partners to onboard new segments or sub card portfolios that were not part of the program before. This not only has the potential to increase the market-qualified units but also helps us deepen our relationships with the banks. We will keep you informed as these new portfolios launch and look forward to welcoming them to our network.

Operator, Operator

We have our next question from Kyle Peterson with Needham.

Kyle Peterson, Analyst

I wanted to start off on the BofA, just the timing and mechanics of that. I guess, could you guys just confirm what the exact kind of shutoff date was or roughly? Just want to confirm whether the 1Q guide has a full quarter's impact or if there's any kind of lingering benefit in the first quarter from BofA?

David Evans, CFO

Yes. I mentioned on the question earlier, January 15.

Kyle Peterson, Analyst

Okay. I have a follow-up regarding liquidity and the balance sheet. I believe you mentioned that there will be an infusion into the balance sheet after the Bridg transaction closes. However, considering the structure of the deal, it appears that you received PAR stock. Can you provide more clarity on whether there are any lockup or hold periods, and what your plans are for converting that into liquidity once it's delivered?

David Evans, CFO

Yes. If you read the 8-K from the announcement, we've got just aspects of the deal that we're still kind of on track to close for them. So if you think about just consents and final preparations, everything is on track there. Once that's done, the deal will close and then we use a 15-day calc to determine the number of shares that we will receive. And then once we receive those shares, we will look to quickly liquidate to get cash on our balance sheet. And more likely than not, we'll use those proceeds to pay down a decent amount of the facility.

Kyle Peterson, Analyst

Okay. That's helpful. If I could ask one last question, how should we think about cash flow? I know the first quarter is typically a weaker quarter and it looks like that will be the case based on the guidance. However, with the cost structure significantly lower, I assume there might be some expenses eliminated with Bridg. Is there a possibility for us to return to at least EBITDA positive as early as the second quarter? Also, how are you feeling about the prospect of achieving positive free cash flow going forward?

David Evans, CFO

Yes. Sounds good. Yes, with Bridg going away, you mentioned that, you're absolutely right. We'll get some OpEx benefits from that, call it, $4 million or $5 million of help from that perspective. And then from an adjusted EBITDA perspective, I mean, look, at the end of the day, if adjusted OpEx is kind of low mid-20s, that gives you a good indicator of kind of what we're going to need to achieve from adjusted contribution perspective. And to kind of answer your question, we're pretty close. And so my level of confidence to being able to return back to some form of quarterly positive adjusted EBITDA remains pretty high.

Operator, Operator

Our next question is from Robert Coolbrith with Evercore.

Robert Coolbrith, Analyst

Welcome back, David. I have a couple of quick questions. I wanted to confirm whether Bridg is being treated as discontinued operations in the Q1 guidance. I assume it is, but I haven't seen it confirmed, so I just wanted to double check that. I have a couple more questions as well.

David Evans, CFO

Yes. So if we're kind of targeting a mid-month close at that point, it gives you a sense for how much is going to contribute to Q1 and then it's no longer part of Cardlytics after that.

Robert Coolbrith, Analyst

Okay. So there is revenue contribution from Bridg through the mid-month close that's contemplated. Is that correct?

David Evans, CFO

Correct. Yes. Correct. Thank you for clarifying. That's correct. Yes. Once we close, then we'll take credit for everything up to close.

Robert Coolbrith, Analyst

Okay. Got it. And then just a couple more. Subscription services, you noted, I think, some softness there. I think going back a couple of quarters ago, Amit, you had mentioned that as a source of strength. So I just wanted to maybe ask about materiality. And then also just if you could sort of give us a sense of the trends or any factors influencing what you're seeing from a demand perspective in that category? And then I've got just one last one after that.

Amit Gupta, CEO

Thank you for the question, Robert. Overall, we are seeing a decline in subscription services from one quarter to the next. This decline primarily stems from restrictions imposed by our bank partners. While the platform's targeting and reach capabilities remain strong, these content restrictions, along with the exit of Bank of America, have contributed to the pressure on subscription services. However, we are exploring new formats that encourage user engagement, as they tend to be triggered by events. We're working on new approaches that could help us regain our footing in the subscription services segment with our existing network. In terms of other trends, gas and grocery categories continue to show consistent and robust growth of around 21% year-on-year, while restaurant delivery is experiencing about 13% year-on-year growth. Other categories remain strong, and we're looking forward to introducing new formats with our bank partners, and we'll keep you updated as these roll out throughout the year.

Robert Coolbrith, Analyst

Got it. Great. I wanted to touch on the SKU level targeting or advertising opportunity. You've mentioned this before, and I'm curious if this was specifically enabled by the technology within Bridg, or is it a capability that you can maintain going forward?

Amit Gupta, CEO

Yes, that's the right question, Robert. To summarize, we are going to delay the SKU level offers for now. As you mentioned, they were mainly supported by the data from the Bridg platform. With the discontinuation of Bridg, while we can still implement them, it will involve more complexities and necessitate deeper integration with certain retailers. Therefore, we are putting it on hold for the time being. In the future, once it aligns with our strategy, we will revisit it, but for now, it is on hold.

Operator, Operator

And thank you. As there are no further questions at this time, this concludes today's conference call. We thank you for your participation. Ladies and gentlemen, you may now disconnect.