Earnings Call Transcript - IBTA Q2 2025

Operator, Operator

Good afternoon, and welcome to Ibotta’s Q2 2025 Earnings Conference Call. With us today are Bryan Leach, Founder and CEO; and Valerie Shepphard, Interim CFO. Today's press release and this call may contain forward-looking statements. Forward-looking statements include statements about our future operating results, our guidance for Q3 2025, our ability to grow our revenue, factors contributing to our potential revenue growth and the capabilities of our offerings and technology, all of which are subject to inherent risks, uncertainties and changes. These statements reflect our current expectations and are based on the information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release and our 10-Q, which are available on our Investor Relations website at investors.ibada.com. Also, during the call today, we'll be referring to the slide deck posted on our website. Unless otherwise noted, revenue and adjusted EBITDA comparisons to prior periods are provided on a year-over-year basis. With that, I'll turn it over to Bryan.

Bryan W. Leach, CEO

Thanks, Sean, and good afternoon, everyone. Thank you for joining us to discuss our second quarter results. I'm pleased to welcome our new Chief Financial Officer, Matt Puckett. Matt most recently served as CFO of VF Corporation, a multibillion-dollar public company that is a global leader in apparel and footwear. Over his 23-year tenure at VF, Matt held multiple operating CFO roles, led a global finance team of over 1,000 professionals and oversaw Investor Relations, capital allocation, M&A and strategic planning. He brings deep expertise in stakeholder management, Board and Investor Relations and aligning financial strategy with business objectives. Matt will officially start with Ibotta on August 25. I'd also like to take this opportunity to thank our Interim CFO and Board member, Valerie Sheppard. Valerie stepped in earlier this year when we needed her, and she's done a terrific job leading our finance team during a time of transition. We're grateful that she will be returning to the positions of Lead Independent Director and Chair of our Audit Committee. Turning to our most recent financial performance. We reported revenue below the guidance range we provided on our first quarter earnings call, while adjusted EBITDA was in the lower half of the range. We are also guiding to third quarter results that are significantly below our prior expectations. These disappointing results can be explained by short-term headwinds, but I think it's important to first pan back and provide context on the broader transformation we are undertaking. At the end of the day, those short-term headwinds are almost all related to that transformation. At Ibotta, we face a classic innovator's dilemma. Should we focus on preserving our status as a leader in the CPG promotions industry by making relatively small refinements to our product offerings and going to market in largely the same way, even though that might limit our long-term upside as a business? Or should we instead implement a bold new strategy designed to capture a significantly greater portion of the total addressable market for CPG marketing spend and potentially deliver a much higher return for our shareholders over the medium to long term, even if that means introducing temporary disruptions to our business. We chose the second path and committed ourselves to a broader business transformation. We did this because we believe it's the best and fastest way for us to break out of the promotions category and tap into much larger media budgets. The first step has been changing how promotions are measured and purchased to more closely resemble other forms of digital performance media, where advertisers turn on campaigns and leave them on as long as they're delivering positive incremental returns on investment. We are in the process of bringing our clients a powerful new set of tools that we believe will allow them to buy and measure their promotions like never before. Simultaneously, we are rethinking how we can make our service more client-friendly. We're streamlining and automating internal operations to allow our sellers to spend more time selling. Finally, we're continuing to bring in new talent and training our current team to help us improve overall execution. Thus far, I'm pleased with our progress on these fronts. We've seen clear signs that our new value proposition is resonating in a very different way with clients, and we believe this will cause them to really lean into our service. In recent months, we've gained access to higher-level decision-makers within several key clients. And in those cases, we are talking about future investments on a much larger scale. Based on these responses and the early results we've been delivering in our pilots, we are confident that we're on the right track. Transformation on this scale is never easy, especially in the public markets. Even though we're receiving stronger and more enthusiastic buying signals, our clients still need time to find budgets for pilots, review their results and make sure they have the resources allocated in upcoming budget cycles. It can be difficult to predict the precise time lines for when these things will happen and to what degree. Now that I provided that context, let me turn to the quarter itself. There are two key factors that explain our lower-than-anticipated performance and our guidance for the current quarter. Both of these are related to the broader transformation in our business. First, our two initial pilot partners for our new performance marketing model decided not to run additional campaigns in the second half of the second quarter, contrary to our expectations. Had this not happened, we believe our results would have come in above consensus. As of now, neither client has reactivated their campaigns in Q3. Based on our most recent conversations, we believe both are happy with our initial results and planning to resume their programming. That said, given our experience in Q2, the Q3 guidance we're giving today does not assume any participation in our latest performance marketing model from either client. With our first partner, they chose to hold off on further programming until they had a chance to review third-party validation of our Q1 results. Given the magnitude of the investment we are now proposing, we understand why they want to ensure that our new measurement methodology is corroborated by independent sources. We've been working on obtaining third-party validation for several months, but the process has taken longer than expected. Formalizing partnership agreements, setting up the pipes and getting the data to these third parties has taken time. I'm happy to report that recently, we've received third-party validation from a leading media measurement company. Their study shows that our campaign results are better than the data we reported using our own more conservative methodology. Based on these initial results, we are in active dialogue with our client about resuming and expanding their programming on the Ibotta performance network. We believe that having the ability to offer these periodic sales lift studies will build trust and help us more quickly drive alignment with other large CPGs in the future. I want to underscore that our strategic partnership with this first client has continued to deepen even as we work through this temporary obstacle together. They continue to run non-CPID-related programming with us and cooperate with us on national marketing campaigns relating to those offers. With our second client, the challenges have been more administrative. They agree that our results have been strong across the board but have needed more time to align all the necessary stakeholders and unlock additional budgets. Getting their attention has been particularly challenging in this political and economic environment, which is causing them to proceed with more caution when it comes to any net new expenditure, no matter how promising the ROI. The bottom line is this: progressing from initial enthusiasm about a pilot to rolling campaigns on a much larger scale requires navigating complex matrix organizations that can't always move as quickly as we would like. Chris Reidy and his team are doing everything possible to get this back up and running as soon as we can. To summarize, as I discussed during our Q1 earnings call, we delivered attractive cost per incremental dollar or CPIDs, and incremental sales for both clients that were broadly in line with the results we had projected. The clients have been pleased with our performance, and they have already demonstrated a willingness to ramp up their investments on our network. As we went to take the next steps, we encountered process obstacles that postponed our efforts to turn on rolling campaigns with these clients. This is the reality of trying to shift a decades-old paradigm and launch a new product that is designed to provide capabilities that we do not believe exist within the CPG industry today. It takes time to become accepted as a new performance marketing channel and to tap into new and larger budgets even with senior executive support. The good news is that what we are providing has received very positive reactions across the industry, and we believe it's only a matter of time until that begins to flow through to our financial performance. The second key factor affecting our short-term performance has been our ongoing commitment to improving sales execution and strengthening our go-to-market motion. In Q3, we're implementing our reorganization of the sales department. We shifted from a territory-based model to one grouped by industry sub-vertical, which is more akin to how sales teams operate in other areas of digital media. In addition, we have meaningfully reduced the account load for our enterprise sellers. We believe these changes will enable a much more consultative and client-centric sales motion. We are now organized into two channels, enterprise and emerging, each of which has a leader. Enterprise is subdivided into four industry verticals: food, beverage, health and beauty, and household and general merchandise. The roles of our outside and inside sales teams have been clarified, and our quota system has been refined and improved. Chris Reidy has assumed responsibility for our B2B marketing function, which previously reported up to our CMO, Rich Donahue. David Parisi joined as SVP of Enterprise Sales in June, bringing with him valuable experience in the promotions industry as well as experience at Twitter. Christopher Boyd joined us as SVP of Business Marketing from Seeker in April, leading all of our sales enablement and training. Andrew Altman joined us as SVP of Sales Operations from LinkedIn in August, leading our revenue operations function, something that we did not previously have at Ibotta. What these new leaders all share in common is that they've all seen excellent sales execution at scale and operated successfully in the digital media industry. They are helping us raise the bar across the board. At the same time, we are continuing to learn each day about both the product capabilities and go-to-market processes we need to make this business transformation successful. Each top-to-top meeting yields new learnings, which we are continuously incorporating into our roadmap and pitch materials. These kinds of organizational changes can be disruptive in the short term and have resulted in turnover. Our new employees are coming up to speed and ramping to be in a position to maximize revenue from their clients. In addition, our reorganization has caused us to transition a significant number of accounts from one seller to another. Many of our top 50 clients have or are anticipated to have a new client partner rep by the start of the fourth quarter. Over the past year, accounts that have had a rep handoff have generated a change in revenue that is 16% lower than accounts that have not had a sales rep change. As our new structure takes hold, we expect to see much greater continuity here, reducing disruption in sales execution. Despite the revenue challenges we faced over the last two quarters, the top-to-top conversations we've had since we last reported earnings have only strengthened our conviction that Ibotta is on a very exciting trajectory. We have held approximately 20 top-to-top meetings over the last few months with some of our largest clients, while at the same time reaching out to about 100 of our smallest emerging clients. Out of those 20 conversations, we've signed pilot agreements with six clients and another eleven are moving toward a pilot in 2H. Our outreach on the emerging side has been much more light touch, but our progress there has been similar in terms of the number of clients that have agreed to pilots and those that are moving toward one. Now that we have third-party validation from an industry-leading measurement provider, we're able to provide timely lift studies for pilots. We believe this will be a big unlock with our existing clients and new clients. In some cases, we believe that even just knowing that a third-party measurement tool is available will help move our conversations down the funnel faster. On the publisher side of our business, we rolled out our offers to a majority of DoorDash customers during the second quarter. We are also working more effectively with existing publishers like Walmart to drive greater program awareness and increase adoption of digital manufacturer offers amongst in-store shoppers. Examples of how we've done this in the last quarter include Walmart rolling out the ability to self-ID using a phone number at checkout in Walmart stores all across the U.S. and a stronger call-out of manufacturer offers and Walmart Cash on all self-checkout screens. In summary, we're excited to begin rolling out our new capabilities more widely. But as I said on the last call, a paradigm shift like this takes time. We're working to reshape entrenched habits and change the minds of clients who are accustomed to measuring promotions with very imprecise tools. So far, those we have approached have been very receptive to our new performance marketing solutions. We're encouraged by this early traction and believe the transformation we're undertaking will create value for our shareholders, clients, publishers, and consumers. I'll now turn it over to Valerie to review our Q2 results and Q3 guidance in more detail. Valerie?

Valerie L. Sheppard, Interim CFO

Thank you, Bryan, and good afternoon, everyone. I would also like to welcome Matt Puckett to our team. In summary, we delivered revenue and adjusted EBITDA that were 4% and 8% below the midpoint of the guidance range we provided on our first quarter earnings call. Redemption revenue underperformed our expectations, while operating expenses were slightly lower than forecasted. Let's break down our revenue results in more detail. Revenue in the second quarter was $86 million, a decline of 2% year-over-year. Within that, redemption revenue was $73.2 million, down 1% year-over-year. Third-party publisher redemption revenue was $48.6 million, up 17% year-over-year, while D2C redemption revenue was $24.7 million, down 24% year-over-year. Ad and other revenues, which now represent 15% of our revenue, were $12.8 million, down 8% year-over-year. Turning to our key performance metrics. Total redeemers were 17.3 million in the quarter, up 27% year-over-year. We saw healthy growth in third-party redeemers across the IPN on a year-over-year basis, highlighting the continued strength of the demand side of our network. Growth was driven by the launch of Instacart during the fourth quarter of 2024, the launch of offers to the majority of DoorDash customers in the second quarter and like-for-like growth at our existing publishers. Redemptions per redeemer were 4.6, down 21% year-over-year, driven by the quantity and quality of offers available to each redeemer as well as the growth in third-party redeemers, which have a lower redemption frequency as compared to our D2C redeemers. Redemptions per redeemer on our third-party publishers were down 15% year-over-year in comparison. Redemption revenue per redemption was $0.91, down 1% year-over-year, primarily reflecting a mix shift toward third-party redemptions. On our third-party publishers, this metric was up 4% by comparison. As a reminder, redemption revenue per redemption can vary quarter-to-quarter based on seasonal patterns and variations in offer mix. Now let's turn to the cost side of our business. Non-GAAP cost of revenue was up $5.4 million versus a year ago, driven by an increase in publisher-related costs, higher amortization of capitalized software, and increased variable technology costs. This resulted in Q2 non-GAAP gross margin of 80%, down nearly 660 basis points year-over-year. Non-GAAP operating expenses as a percent of revenue were 61%, an increase of approximately 180 basis points year-over-year. Within that, non-GAAP sales and marketing expenses increased by 1%. Non-GAAP research and development expenses decreased by 9%. Lastly, non-GAAP general and administrative expenses increased by 10% or $1.5 million. We delivered Q2 adjusted EBITDA of $17.9 million, representing an adjusted EBITDA margin of 21%. We delivered adjusted net income of $14.9 million and adjusted diluted net income per share of $0.49. Our adjusted net income excludes $13.6 million in stock-based compensation, $0.6 million in restructuring charges and includes a $1.8 million adjustment for income taxes. We ended the quarter with $250.5 million of cash and cash equivalents. In Q2, we spent approximately $67.5 million, repurchasing approximately 1.4 million shares of our stock at an average price of $46.59. We had 29.9 million fully diluted shares outstanding at the end of the quarter. In June, our Board authorized a $100 million increase to our share repurchase program. As a result, at the end of the quarter, we had $128.6 million remaining under our current authorization. Turning to our Q3 guidance. We currently expect revenue in the range of $79 million to $84 million, representing a 17% revenue decline at the midpoint. We expect Q3 adjusted EBITDA in the range of $9.5 million to $13.5 million, representing about a 14% adjusted EBITDA margin at the midpoint and a 7% decrease in the adjusted EBITDA margin relative to the second quarter. I'd like to provide you a little more color on our Q3 outlook. Combined with the short-term challenges in scaling up our new performance marketing clients as well as the disruption caused by the sales reorg that Bryan discussed, we are guiding to a year-over-year decline in revenue in the third quarter. We continue to make improvements to our performance marketing platform with regards to product, go-to-market and measurement, but we are still in the early days and thus are not building in any performance marketing campaigns into our guidance that are not already in flight. A few other housekeeping items to mention. We anticipate that operating expenses in the fourth quarter will increase sequentially by several million dollars, driven by our investment in our sales organization and seasonal marketing expenses. We are now anticipating de minimis cash taxes driven primarily by our expectation for lower full year performance as well as due to impacts from the new tax legislation. With that, operator, let's please open it up for Q&A.

Operator, Operator

Our first question will come from Ron Josey with Citi.

Ronald Victor Josey, Analyst

Bryan, I wanted to understand maybe a little bit more on just the rollout of CPID and I would love to hear the better results of the third-party data provider suggested were coming in better than your results. Talk to us more about what they were seeing and sort of what this means going forward. And then on the six new pilots that I think you mentioned are coming on here in the back half, how do they compare to the pilots that you were seeing earlier on in the year as CPID continues to evolve?

Bryan W. Leach, CEO

Thank you, Ron. I appreciate your questions. Let me address them quickly. Regarding the rollout of CPID and the results we've observed, the key advancement here is the capability to statistically measure the difference between an exposed audience and an unexposed audience during the same time frame. This has been the gold standard for media measurement for years but has not been available in the promotions industry, especially not in near real-time. What we did was approach third-party companies that conduct media list studies and asked them to replicate that method for digital promotions. They employed their own independent data and methodologies, utilizing their statisticians. Their findings indicate there is a statistically significant increase, allowing us to assert that promotions contribute to substantial incremental sales. They further analyze this by net new households gained, increased buy rates, and larger basket sizes. With their independent analysis, they can calculate total incremental sales and CPI. The results show more favorable outcomes, suggesting that Ibotta's estimates are conservative. We've consistently observed this across multiple studies with the provider I mentioned earlier. As for the six new pilots, we have a mix of smaller, nimble companies alongside some of the largest CPG companies worldwide, which is a shift from our previous discussions. Our dialogues, especially with larger companies, have shifted from just promotions teams to those managing multibillion-dollar sales organizations and P&Ls, who are often not familiar with Ibotta. However, when we introduced our new capabilities, the response has been enthusiastic, leading to pilots that are set to launch. We'll need to see how these perform. We have 2,200 brands and nearly 1,000 clients, so we have a substantial journey ahead to broaden this rollout, but we continue to select partners from whom we believe we can gain valuable insights and where the potential impact is significant.

Operator, Operator

Our next question will come from Eric Sheridan with Goldman Sachs.

Eric James Sheridan, Analyst

When considering the rest of this year, what elements of your strategy still need to be implemented as you transition from 2025 to 2026, particularly those aspects within your control? Additionally, how does the timing of these elements align with the budget decisions that typically occur between November and February, when organizations are establishing their budget priorities for the upcoming year? This understanding will help us align the usual rhythm of marketing expenditures with the strategic elements that are under your control.

Bryan W. Leach, CEO

Thank you, Eric. For the remainder of the year, there are three main areas we need to focus on. First, we must solidify the benefits of our sales execution and the completed reorganization. There are still some positions that need to be filled, and we need to train people on the new go-to-market strategies and products. This is something we can manage and complete by the end of the year. Second, we need to implement the new go-to-market approach more broadly than just the few clients we've introduced it to. We will learn from this process, though it’s uncertain how long it will take. It could go smoothly, allowing us to establish our approach for 2026, or we may need to make adjustments based on our insights. This aspect is also manageable. Lastly, we face some challenges with our products and tools. While we can create calculations for predicted sales and CPIs, automating this at scale across our entire business is crucial. It’s important that our reporting is automated, so our sales team and client analytics team can focus on selling and understanding our clients’ needs rather than spending time on manual calculations. We hope to make significant progress in this area by the year’s end, but, being a product-related issue, the outcome is uncertain. We have a clear understanding of what needs to be done. We also have to consider budget allocations, particularly between November and February. You’re right; many of our partners operate on various fiscal calendars, often midyear to midyear rather than following the calendar year. However, the companies we are currently approaching indicate that this is a good time for discussions, especially as they begin to plan for their 2026 operating budgets. Realistically, though, we might not reach all clients before their next budget cycle. From our experience, it has taken between 9 to 12 months to see results. For the initial two major companies we started working with last October, we are nearing 9 months and are not yet live with them. This process involves introducing the opportunity, running a pilot, interpreting results, and possibly getting a third-party study done to support internal resource allocation. This interim support might come from their existing budgets. I anticipate that each client will take around a year to scale up significantly compared to their previous efforts. We aren't reaching out to all clients at once, so this will be staggered. However, I believe some clients who have engaged with us are further along in this process, giving me optimism that we will have tangible outcomes to present within a year.

Operator, Operator

Our next question will come from Mark Mahaney with Evercore.

Mark Stephen F. Mahaney, Analyst

Okay. Let's see here. Hopefully, you can hear me. I want to go back to some of the original relationships you had, particularly Walmart, and just give us a sense of how the retention you've had with those, the rollouts you've had in terms of the loyalty programs with them and just some of the core things that we looked at when we first looked at Ibotta how those are faring.

Bryan W. Leach, CEO

Thanks, Mark. The publisher side of our business is a real bright spot, especially with our existing publishers, we've picked up steam and gained momentum in terms of the tightness of our collaboration and the efforts they're making to increase awareness and decrease friction in terms of using the programs that feature our digital manufacturer offers. With Walmart, for example, we've been collaborating ever more closely across the board, ranging from how they communicate with their customers at every touchpoint digitally and in the store beyond just search results. You'll now see that there are certain display ads that have a reference to a relevant digital manufacturer offer that wasn't true before. They're badging other forms of digital media with something that indicates that there's a digital manufacturer offer. We're collaborating with them on routine communications that can notify people of personalized savings, decreasing friction in using the phone number instead of the app, putting it on the self-checkout, thinking through how we can be helpful with other strategic priorities of theirs, which will make these bubble up much more in the store. That's been a real commitment that's been noticeable from Walmart. I think we've hit a major milestone in how much Walmart cash has been earned. I think it's clearly helping them drive loyalty online and in-store, and they're leaning into it more. So I'm very pleased with how that's going. I think with regard to the adoption of it, it continues to grow very nicely and be cited as a bright spot in the shopping experience at Walmart. With regard to other publishers, we continue to see those roll out and grow and contribute to the redeemer base. Broadly, the third-party redeemers are growing nicely. Of course, D2C is not growing as much. And that is, we think, purely a function of the low number of redemptions per redeem. And when that inventory of offers increases again, we've seen that be very resilient. But I think the pipeline of publishers is also strong. I have nothing to announce right now, except to say that we have terrific momentum, we believe, internally. And that is not our problem right now. We feel like the scale of our network is unparalleled. There is not another tool that you can use to drive more incremental sales if you were a CPG brand manager full stop. We are out in front and widening that lead. What we need to do is unlock offer supply. And I think that's why the focus of my remarks was there. But it is true that this has been a bright spot.

Operator, Operator

Our next question will come from Ken Gawrelski with Wells Fargo.

Kenneth James Gawrelski, Analyst

Could you provide more insight into the overall environment beyond the CBID side, particularly regarding the traditional IPN? What feedback are you receiving from the supply side related to promotions? Are you observing any hesitation among suppliers to increase their offerings? In previous years, we saw new budgets emerge for the latter half of the year around this time, so I'm interested in your perspective on that. Additionally, how do you determine the appropriate level of investment for marketing over the next 12 to 18 months to support the validation of the CBID approach and enhance market adoption?

Bryan W. Leach, CEO

Yes, those are the right questions for sure, Ken. Thank you. I think on the first one, the environment, I didn't spend much time on that in my remarks, but it's true that the macro is not helping us right now. There are a few of our larger clients who have taken an approach of pausing on promotional spend in the back half, taking a wait-and-see approach, having to do with the economic climate, the tariffs, the political climate, in some cases, sort of food regulation on the horizon. I think that they also face just difficult growth trajectories, a lot of these CPG companies, and there have been efforts to be really careful on the bottom line of their business by cutting and pausing costs. And I think traditionally, promotions have been seen as a discretionary cost. We hope to convince them, and we are convincing them that, in fact, we are one of the best ways to inflect top and bottom line growth and that they should lean in now more than ever into our platform. But at a time when they are pulling back on discretionary spending, they're demanding more rigor and more credibility and measurement and clear ROI. And so I think that we started this journey late last summer, and I think it's good that we did because we're now kind of closing in on a year of real aggressive R&D, and we find ourselves being able to respond to all the things that we're hearing on the supply side with direct new fresh products that address those concerns. So typically, when someone says, I can't give you a multiple of what I've given you in the past, their explanation is that they don't believe that the promotion is delivering profitable revenue growth, may fear that it might be subsidizing people who already would have bought the product. And they have not seen a credible form of measurement that is graded by a third party ever in the past. And so when we go in and hear that complaint or valid criticism rather, we say that's exactly right. And that's why we spent the last year innovating and bringing you something that can give you control. So it's not a binary question. It's not are promotions profitable? It's how profitable would you like them to be? The more profitable they are, the lower the scale they can deliver in terms of top line revenue, the less efficient and less profitable are going to deliver more top line revenue. And so educating them on that has been very helpful. I think being able to show them, hey, this is how many dollars of incremental sales you can come get from us at this cost. Do you want to buy that bundle of incremental sales really reframes the conversation. And without overpromising because we truly don't know how this will roll out across our entire client base, I can tell you that the tenor of these conversations, Ken, is categorically different than anything I've seen in my last 14 years. And that is because we are starting by thinking about what their problems are and bringing a solution that is much more credible and saying, don't take our word for it, you can measure it. And those things are really landing and resonating. And I think we're just going to have to wait to see that flow through. With regard to investment levels over the next 12 to 18 months, I think we are investing very, very heavily in R&D. I mean we are spending the overwhelming majority of our time on the technology side of our business, thinking about what's next at BA and this whole new paradigm and building tools and building systems that allow our sellers to be more efficient, internal go-to-market systems, things that also are client-facing tools that are client-facing. And I feel like the rate-limiting step on innovation at this point is not the number of dollars or the number of people working on that at BA, but just the amount of noncompressible time it takes to incorporate learnings in an iterative product cycle. And we're moving very fast. I think I described this as feeling like we're on a vertical learning curve last quarter. It continues to feel like that. And I think that's exciting, and we're getting more and more proof points. The one place we may look to continue to augment is in the analytics, client analytics function. As we automate some of the processes we have, we should be able to get our people focused more on truly client-facing analytical assignments rather than sales support functions. This is just an example of where resolving tech debt pays off later. And so we're taking this pain right now in the short term, I think it will really begin to bear fruit.

Operator, Operator

Our next question will come from Chris Kuntarich with UBS.

Christopher Louis Kuntarich, Analyst

I just want to touch on general merchandise here for a second. Anything that you're seeing here that would indicate that this part of the client base is reacting differently to the current environment versus your CPG brands? And same question, just as it relates to the CPI offering, are they requiring a similar amount of pilot period and third-party testing? That would be it for me.

Bryan W. Leach, CEO

Thanks, Chris. The impact of tariffs has been more significant in this area, especially due to greater exposure to international supply chains compared to American food and fast-moving consumer goods brands. Some of the trends I mentioned earlier show broader hesitation regarding discretionary spending. However, we have introduced our performance marketing product to several general merchandise brands, and the response has been very positive. We still need to validate how it performs with a larger number of pilots, as there are many categories where we haven't initiated trials yet. A sufficient amount of data is required for real-time measurement to work effectively and to be statistically valid. More purchase cycles provide better opportunities for follow-on purchases that aren't on offer. For example, if there's a promotion on a Barbie Dreamhouse, we can't rely on someone purchasing another Dreamhouse right away, but we can track whether they return to buy other non-discounted Barbie products and measure how much that adds to the overall program's value relative to its cost. There are some uncertainties about how this model will adapt to different formats. Generally speaking, we remain enthusiastic about general merchandise, as this industry has not previously experienced digital promotions. Introducing such an innovative concept as their first exposure generates even more eagerness to try it out. Additionally, we're enhancing our credibility by providing real-time updates rather than sending a recap deck afterward, which allows clients to see how the campaign is performing in real time and make adjustments and optimizations as needed. This capability has generated considerable excitement from both general merchandise and the broader market.

Operator, Operator

Our next question will come from Bernie McTernan with Needham.

Bernard Jerome McTernan, Analyst

Two for me. Maybe just to start, Bryan, just interested if you had any knee-jerk reactions on Amazon moving to free same-day delivery on perishable items for grocery, what it means for the category more broadly and impacts on Ibotta potentially? And then second, also in your prepared remarks, Bryan, you mentioned how you would have beat consensus in the quarter had it not been those two accounts that stopped spending in the second half of the second quarter. I mean does that imply that the CI clients were on track to spend like a high single-digit millions of dollars in the quarter?

Bryan W. Leach, CEO

Thanks, Bernie. I appreciate those questions. Regarding the first one, I believe the entire industry considers same-day and speedy delivery as essential at this point. Walmart has made significant progress in offering many products for delivery within 20 minutes, which is quite impressive. Our solution is fully omnichannel, and we are excited about the industry’s shift towards e-commerce and the buy ahead, pick up in store model. We are integrated into those experiences, which is a positive for us. As more marketplaces like DoorDash and Instacart adopt same-day delivery, we believe others will recognize the benefits of our offerings, contributing to consumer adoption of free same-day delivery. For the second question, yes, we missed expected targets by a small percentage. I mentioned we would have surpassed consensus, and you can calculate that. We only provided our guidance when we had strong confidence it would hold. Unfortunately, after giving guidance, circumstances changed in unpredictable ways. It may seem unconvincing, but that’s the truth of the matter. Having learned from this experience, we plan to take a more cautious approach for the current and fourth quarters.

Operator, Operator

Our next question will come from Andrew Boone with JMP Securities.

Andrew M. Boone, Analyst

I wanted to go back to your answer for Ron's question and really double-click in terms of measurement and automating processes with third parties. Can you help us specifically understand what you need to do there to unlock incrementality measurement that's more automated? And then what kind of timeline should we expect before that really gets mature and fully implemented across your guys' processes? And then, Bryan, just going back to some of your comments earlier, it sounds like there may be a 6, 9, maybe even a year-long lag in terms of kind of the comfort of a CPG brand. If I kind of extrapolate that across the model and kind of this transition, should we not expect growth to really start to reaccelerate for this to get going until 2027? Is that fair? Or is it sooner than that?

Bryan W. Leach, CEO

Thanks, Andrew. Let's begin with your initial set of questions about measurement automation. I want to clarify two topics: the measurement we offer through Ibotta’s tools provides an essentially free rolling lift study. This initiative is well-developed, and we currently provide it to several clients regularly, complete with color-coded performance indicators and optimization opportunities. However, expanding this to all of our clients will require further development along our roadmap in the latter half of this year. We are optimistic about rolling it out to all clients by 2026. Regarding your inquiry about third-party measurement and how we can expedite or automate that process, it involves significant upfront efforts to engage with them, clarify that the promotions sector has never been regarded as media, and has not had a third-party lift study. It’s essential to outline the potential financial opportunities and ensure they comprehend our data assets, allowing them to customize their approaches based on industry standards applied to Ibotta's specific context. This process has taken time, but once established, conducting studies becomes faster and should ideally take only a few weeks. Ultimately, we aim to shorten this period so that a study can be generated in a day or even mid-campaign. This level of immediacy is uncommon in the media sector. What's crucial is to think innovatively, as we possess a powerful tool for optimizing pricing, which is immensely valuable. The sooner we obtain insights, the more we can develop models to address cost per increment or sales growth. Ibotta serves as a real-time indicator of sales lift in the CPG industry, which is notable since this concept has yet to be widely adopted there. In contrast, most other industries, particularly digital sales, have immediate knowledge of whether an ad leads to a conversion. In these sectors and across various media platforms, investing becomes a reliable process with ongoing insights. In the CPG sector, worth over a trillion dollars, approximately 200 billion is allocated to marketing and trade with annual or biannual measurements that lack performance marketing capacity. We believe we are following a well-established approach, and we are genuinely excited about this. Speeding up third-party measurement isn't currently a high priority for our clients, so it's not an urgent short-term focus, but it's something we periodically evaluate. As for your second question, determining the timeline for a significant increase in revenue amid a paradigm shift is challenging, and I prefer not to speculate on that. However, it’s significant that we are noticing it takes 9 to 12 months to move from initial discussions with clients to substantial testing and going big on implementation. We need to consider how impactful those early adopters will be in terms of their investment and whether that will significantly drive business growth. Alternatively, we might need to wait until we reach a more significant portion of the market adoption curve before witnessing notable growth benefits. We'll need to approach this situation flexibly. What I can assure you is that we are prioritizing and investing in this effort because we believe it will lead to a meaningful change in investment levels. Whether that happens in one quarter or another, there will eventually be a point where we see a substantial impact due to these investments.

Operator, Operator

Our last question will come from Andrew Marok with Raymond James.

Andrew Jordan Marok, Analyst

On the CPI framework, so with some of these budgets that you might have had maybe being a little bit knocked loose in the transition, do you have a sense of where they're going? Are CPGs maybe allocating them to other performance channels requiring a win back at some point? Or are they just kind of being parked in the meantime?

Bryan W. Leach, CEO

Thanks, Andrew. I believe it's a mix of factors. There are definitely instances where budgets are on hold, and we've been informed it's not about us, but rather their freeze on discretionary spending temporarily. Occasionally, they may lift that freeze, leading to substantial investments. Last year's third quarter was notable for significant expenditures that created a tough comparison for us. The intense competition in the chicken product market last year saw leading companies invest heavily during that quarter. Additionally, one of our top clients increased their spending by about 50% compared to their usual quarterly budget. This creates some irregularities that can work in our favor. For example, in last year's third quarter, we lowered our guidance, but ultimately exceeded it by $7 million to $8 million due to unexpected spending in the latter part of the quarter. One reason we're shifting our business model is to achieve better predictability and clarity. When companies invest consistently, it helps us forecast more accurately for future quarters. However, I must acknowledge that there were opportunities we missed because we lacked personnel on certain accounts or weren't fully prepared during requests for proposals. Many of these issues arose in November and December, and we are only now recognizing their impact on securing available budgets. Building relationships over several months could have helped us win more business. Despite some disruptions, many accounts are still growing. Just yesterday, a partner expressed frustration about having multiple client representatives for Ibotta and the challenge of bringing them up to speed, even as they increased their spending with us year-over-year. It’s clear we need to focus on stability in our teams, processes, products, and messaging. We must become more client-focused, improving our understanding of their needs and being proactive. It's essential to shift from seeing ourselves merely as vendors for specific tasks to presenting ourselves as solutions that can drive both top and bottom-line growth. As we refine how they perceive our value, I believe we can surpass the current challenges.

Operator, Operator

This concludes the Q&A section of the call. I would now like to turn the call back to Bryan Leach for closing remarks.

Bryan W. Leach, CEO

Thank you very much to everybody for participating in today's call. We'll continue to be as transparent as we possibly can regarding the transformation of our business. We're super excited about the future of Ibotta. We have a lot of conviction that we're on the right track. I'm incredibly proud of our team that has had the courage to lean into this paradigm shift. And I think that is ultimately what's going to separate our company from the other companies that have not had success breaking out of this category. The things we're doing and trying now and bringing to market have never been done and tried and brought to market before. The responses are really clear and consistent. And as an entrepreneur and founder who's been doing this for now nearly 13.5, 14 years, I believe that we're seeing something that is going to be a much more strategically valuable asset and tool and partner for America's leading CPG brands and emerging brands. Thank you very much, and we appreciate your time and attention.

Operator, Operator

Thank you for joining today's session. The call has now concluded.