M&A Announcement

Apr 13, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Cardlytics Business Update Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference may be recorded. I would now like to hand the conference With you, our speaker host today, Kirk Sommer's Chief Legal and Privacy Officer. Please go ahead. Good morning, and welcome to Carbolitic's conference call regarding its entry into a definitive agreement to acquire Bridge. Before we begin, let me remind everyone that today's discussion will contain forward looking statements based on our Current assumptions, expectations and beliefs, including expectations about future performance or results, the closing of the anticipated acquisition, anticipated benefits of our acquisition of Bridge, aspects of the Bridge products and integration between Cardlytics and Bridge Solutions. 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 ks for the year ended December 31, 2020, and in subsequent periodic reports that we file with the Securities and Exchange Commission. Today's call is available via webcast and a replay will be available for 1 week. You can find more information about Bridge on the Investor Relations section of Cardlytics' website. Joining us on the call today is Cardlytics' leadership team, including CEO and Co Founder, Lynn Loebi and CFO, Andy Christiansen. Following their remarks, we'll open the call to your questions. With that, let me turn the call over to Lynn. Lynn? Thanks, Kirk. Good morning, everyone. Thanks for joining us. Hopefully, everyone can see the slides. I am having some technology issues today. So I am Not able to see them in the room, but I hope all of you can. Just three simple slides that I'm going to walk you through. Let me sort of describe why we're excited about the Bridge acquisition. In a nutshell, we believe they have created a very compelling and unique technology platform that gives them the ability to aggregate SKU level data at scale. Obviously, if you have SKU level data at scale combined with transaction level data at scale, which we already have, Coupled with our significant reach of 163,000,000 monthly active users, we think this creates a very compelling advertising platform That gives advertisers an unprecedented ability to both understand their customers based on purchase behavior, both inside their stores and outside their stores, and also reach their customers both inside the bank channel, and also outside the bank channel because Bridge has those capabilities today. So at a very high level, what differentiates the Bridge platform is their proprietary ability to integrate easily with over 90% of the point of sale systems in the United States. So they can effectively aggregate SKU level data for just about any retailer. They have developed a very unique fingerprinting process to help that retailer understand all of the consumers at a customer level, not just those who have enrolled in their loyalty program or provided an email. And they have the ability to ingest and clean and categorize this data, making it usable and have access to the open Internet through platforms like Trade Desk, etcetera, to be able to promote offers or advertisements to consumers using a few level data. I'll go into more detail on the uniqueness of their proprietary platform in the next two slides. But in many ways, Bridge is to retailers and View data, what Cardlytics is to banks and transaction data. The 2 companies are almost identical in all respects in terms of What they built, how they built it from a privacy first way, focusing on the unique needs of highly regulated organizations such as banks or retailers who obviously have very unique proprietary data. Bridge started in the retail vertical. They're now expanding into big box Grocery, they have several marquee clients that have been signed. They are a SaaS based platform, so very sticky and strong recurring revenues. There's a lot of reasons we like this acquisition guys and gals. Obviously, it gives us the ability to ingest SKU level data in to our existing platform and publish content at the product level into our bank channel. It also over time with bank gives us the ability to use exactly the reverse, which is take transaction level data combined with SKU level data and use that to target on the broader Internet through Bridge's capabilities. It enables us to think about a measurement business, which I think could compete with the likes of the Nielsen's and the IRIs and the Argus' in a pretty Also interestingly, when you combine our transaction data and BRIDGES SKU label data, which will happen over time and will require bank permission, It gives us the ability to move to an absolute deterministic identification in a privacy safe way of the consumer versus the probabilistic way that Bridge does it today, which I'll get into more details on. And then importantly, guys and gals, This business was built with a privacy first focus. Cardlytics, we've looked at a lot of these CDP platforms and this is one of the only ones that we found that really said, And this is one of the only ones that we found that really said, how do we do this in a way that is going where the industry is going, not where they are. So they are not relying on cookies or pixels or any of the other kinds of processes that are out there. They are uniquely tied to each individual retailer getting access to their data in a proprietary way and cleaning it uniquely for that retailer to use in a proprietary way. The data is never sold and it never leaves the platform. Moving on to Slide 2, I'm going to go into just a little bit more detail about the three things that we think are very unique about their technology. The first is they have a 60 day onboarding process with the ability to ingest, clean and make usable any retailer's transaction data. This is dramatically less time than most other CD platforms that are out there and they have strong line of sight to dramatically reducing this to less than a week. And as I mentioned before, they're able to integrate with over 90% of all the POS systems that are out there and that number of course continues to go up. They have cleaned this data in such a way where it is incredibly usable. Point of sale data is Really messy, it's actually messier than transaction data because there are so many more SKU points, data points if you will, that are out there. And they have cleaned this down to a high degree of reliability of these are the purchases that a given customer has made. Insight into the unknown customer, this is really important. Most retailers only know the Customers that are either enrolled in their loyalty program or have provided an email. So while they have a record of all the transactions, they don't know if it's the same person or not, unless they're enrolled in a loyalty program or have an email. Bridge has developed over years, by the way, a very unique ability to look at transactions at a given retailer and identify a unique fingerprint for those transactions, so that they can with a high degree of confidence, Say this is the same person. They don't know who that person is, but they're able to say to the retailer, this is the same person and these are the 6 transactions And the 17 items they bought with you in the past year or whatever time period it might be. This we think is incredibly unique and incredibly proprietary And I'll show you kind of a visual of this on the next slide. And then the final thing is they've built a really intuitive, super Our Clean merchant platform and interface very similar to our self-service platform that we're building, where any given merchant or retailer can log in, ask any series of questions about their consumers, understand who has recently bought whatever product it might be, and then today target them into the open Internet, hopefully over time target them into our channel as well. It's incredibly intuitive, incredibly easy to use, it works across just about any sort of analytic platform that's out there. So lots of different retailers can use it how they choose. And we think it's just really exciting and we'll show you pictures and visuals of it as we get in to Q1 earnings calls. And then finally moving on to Page 3, this is the point that we're trying to make about helping the retailers really And all of their customers today, they only understand those who are members of the loyalty program, I was provided in email. They have records of all the purchases, but they just don't know if this is the same person or not. With Bridge's very unique fingerprinting process That is we think incredibly proprietary. They can identify 90 plus percent of the transactions associated with a given individual. Like I said, they don't know who that individual is, but they know it's the same person. And importantly, while this is a probabilistic match, it's highly reliable. But over time, as we combine Transaction data with SKU level data, the ability to go from a probabilistic to a deterministic match and With 100 percent degree of confidence, be able to say that 100% of the consumers are a person at an individual level So we think this makes us very, very unique. Now it will take a couple of years to really scale this out. Bridges is still a fairly small company today. They're very sophisticated from a technology perspective, but still in the early stages of working with clients. We obviously believe we can open the doors to a lot of clients for them. We also believe their product can open the doors to a lot of clients For us that we have not successfully penetrated, it will take a couple of years for us to scale it, for us to combine the data and get the permissions we need from the banks. But we do believe 2 years from now, we have built something pretty remarkable here. With that, I will open it up for questions. For questions. And our first question coming from the line of Tim Woolly with Wells Fargo. Your line is open. Hi, thanks. Good morning, Lynn, and congratulations. Good morning, Jim. A couple of questions, I guess, and I apologize if you hit on them in your I jumped on just a little bit late. But the first one was, could you talk a little bit about the revenue model Or how you see it evolving from how it currently may be, so we can just better understand that. And then would this be a product that is An add on to your current offering is sort of a discrete option? Or does it become a more integrated part of just the overall Cardlytics Value proposition, and just wanted to help us sort of think about that and flush that out. Yes, great questions, Tim. Thanks. So, their revenue model, they are a SaaS based platform. So, retailers pay a subscription to get access to this platform that he has built where they can understand and run analytics on their consumers and also publish advertising content to the open Internet. So it's a subscription based kind of base price for a given retailer based on the number of Customers that they have and that Bridge has identified for them. And then there's additional capabilities that they charge for richer analytics, for example, or publishing if they want to build a campaign that they publish to The Trade Desk, they charge additional sort of per use, if you will, Please use for that, but pretty sticky SaaS based business model, which of course we love. In terms of the integration, look, it's a great And I think we're still exactly trying to figure it out. Initially for call it the next year, we're just going to help bridge scale with what they have. And we will have 2 solutions that we go to market with. We will have the Cardlytics solution where you can target based on transaction data inside a bank channel. And we'll have a bridge solution where you can target based on product data outside of bank channel. Over time, we would like to combine those 2. We think the banks will be very receptive to it, but they will want Bridge to have a little bit more scale before we are able to combine those 2. We have been building, as you know, our new user experience for inside the bank channel. That new user experience will enable the ingestion of these product level offers that we can get through the Bridge SKU solution. So we do believe that's where this is going over time, but it will be it will take us at least 12 months, probably a bit longer to have a fully single integrated solution where the vision is we can go to any given retailer and say we can combine SKU and transaction level data and give you a full view of your consumers and where and how they're spending money and allow you then to access those consumers inside of Bank Channel and outside of Bank Channel as you choose. Yes, that's pretty impressive. And just one last follow-up and I'll hop out and get back in the queue. Just sort of thinking about the financial side, Anything you can color you can provide around the current run rate of revenue and then just sort of thinking about The scale that you've mentioned several times throughout your comments since scaling it up, anything we should think about in terms of investment spending and the overall margin story at Cardlytics? Is this something significant or should it not be that material overall to how we think about the margin story at Cardlytics this year and next year? Yes. I'll let Andy answer in more details, but they are still a smaller company. So I don't think it's going to be material to our margin profile this year, but as they scale, they have significantly better margins than we do. But Andy, you want to jump in here? Yes, sure. Yes, so I mean, Bridge has actually managed their investments quite well over the last several years and They haven't had a significant amount of cash burn. But like Lynn mentioned, we believe there are certain areas like sales and marketing where we can certainly help them and invest Accelerate their growth and gain that scale that's going to be critical. So given those investments, we expect Bridge to be dilutive Here in 2021, but potentially accretive by late 2022 depending on the late the level of additional investments that we think are appropriate. We see a long runway of growth. Inspectable will probably be reinvesting any profits there to scale that It is a nice margin profile, like Lynn mentioned, but not overly material here this year, Our 2021 results. Great. Thank you very much. Our next question coming from the line of Jason Krey with Craig Hallum. Your line is open. Great. Good morning. Thank you. You talked about some of the marquee customer contracts that you've already that Bridge has already had signed. Do you want to maybe you can elaborate on that or Give some color on the importance of some of the industries that they're in. Yes. Given the nature of an acquisition, we haven't had a chance to talk to some of their my key clients post acquisition. We've obviously done reference calls with all of them, but in a partnership way. So we don't have permission to use any of their names. We hope by Q1, we'll be able to give you some more color in our Q1 earnings call on the names of some of these marquee clients. But as I said, they did start in the restaurant vertical. So they have a couple of marquee clients there, but they've recently expanded into grocery and retail. And there are a couple really nice wins that they have and are working on in that space. And notably, Some of them are clients that Cardlytics does not currently have, simply because they have always required the ability to Promote products versus overall store level purchases. So we think this is incredibly accretive, not financially yet, but accretive in terms of being able to add net new clients to the Bridge platform, being able to add net new clients to the Cardlytics platform and having both of us be able to go out and add net new clients to both of our platforms. And Tim, you actually asked a question that I forgot to answer, which is on investment. We certainly will invest, but initially, it's really about our sales force and their sales force working together. Their sales force is very small to go penetrate and create scale. So there will be incremental investment, but it's certainly not going to be massive relative to, for example, the overall size of the acquisition price or price. And maybe just a quick follow-up for Andy. Can you give any details on what objectives or what Yes. So we haven't talked about The actual levels, but the way that the deal is structured is that over the next 2 years based on recurring revenue targets, Basic growth in recurring revenue from 1 year out, they'll receive a payment. And then There is a tail in the second year based on continued growth in some of your existing accounts. But we're very, very excited about The fact that we have a business here together with synergies to help them achieve those. So we fully expect Payouts in Q1 and Q2, we haven't discussed those levels externally. Thank you. I think you meant year 1 year 2, Andy. That's right. And our next question coming from the line of Doug Anm with JPMorgan. Your line is open. Great. Thanks for taking the questions. Lynn, I was hoping you could just talk about how this can help your self serve capability and how built out that is for Bridge already. And then secondly, just curious if you've had discussions with The banks already, if you vetted this with them at all or run it by them or if that's really still to come? Thank you. Yes. So on self serve, Bridge, again, a newer technology platform built from the ground up, focused on using cloud, using APIs, using SDKs, Their self serve platform is super slick and super intuitive. Unfortunately, Until we combine the two technologies, it won't really help us accelerate our self-service platform, which is well underway by the way. We are now actively selling our self Service platform, 2 agencies, of course. But it won't really help accelerate our self-service until we integrate those 2 platforms, which as I said, is probably at least a year, maybe more than that out. Yes, I have vetted this generically with the big three banks. I actually went to all big three banks, meaning BofA, Wells and Chase, about 6 months ago and vetted several possible categories of acquisitions with them, including this one, which is sort of SKU level, including Dosh, which was kind of engagement and content capabilities, and including several other types of categories of acquisitions and got their reaction. They were all very excited about key level capabilities. Now, It was very generic. So that's very different from actually going to the banks and saying, okay, no kidding, we actually have it. Can we combine them? But based on their receptivity Generically, I think we're going to easily get them there. It will just take time. Okay. Thank you. Yes. But also importantly for investors and analysts to understand, Bridge is a standalone business model. If it never integrates with us, it's still incredibly compelling. Like I said, they are to banks And Transaction Data what we are to excuse me, they are to retailers and SKU Data what we are to banks and Transaction Data. So Even if the 2 have to stand alone, it's still 2 very compelling offerings to advertisers, but I don't think they will. I'm not showing any further questions. I would now like to turn the call back over Julien will be for closing remarks. All right. Well, thank you everyone for joining. We appreciate your time and certainly available to answer more questions, potentially this week as well as in the Q1 earnings call, which is coming up in just a couple of weeks. Thanks everyone. Bye. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.