Bridg Inc. (CDLX) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Cardlytics Business Update Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your speaker host today, Kirk Somers, Chief Legal and Privacy Officer. Please go ahead.

Good morning, and welcome to Cardlytics' conference call regarding its entry into a definitive agreement to acquire Bridg. 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 Bridg, aspects of the Bridg products and integration between Cardlytics and Bridg 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-K 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 Bridg on the Investor Relations section of Cardlytics website. Joining us on the call today is Cardlytics' leadership team, including CEO and Co-Founder, Lynne Laube; and CFO, Andy Christiansen. Following their remarks, we'll open the call to your questions. With that, let me turn the call over to Lynne. Lynne?

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 3 simple slides that I'm going to walk you through. Let me sort of describe why we're excited about the Bridg 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 million 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 Bridg has those capabilities today. So at a very high level, what differentiates the Bridg 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 e-mail. 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, et cetera, to be able to promote offers or advertisements to consumers using SKU-level data. I'll go into more detail on the uniqueness of their proprietary platform in the next 2 slides. But in many ways, Bridg is to retailers and SKU 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. Bridg 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. And there's a lot of reasons we like this acquisition guys and gals. Obviously, it gives us the ability to ingest SKU-level data into our existing platform and publish content at the product level into our bank channel. It also, over time, with bank permission, gives us the ability to do exactly the reverse, which is take transaction-level data combined with SKU-level data and use that to target on the broader Internet through Bridg's capabilities. It enables us to think about our measurement business, which I think could compete with the likes of the Nielsens and the IRis and the Arguses in a pretty meaningful way. Also, interestingly, when you combine our transaction data and Bridg's SKU-level 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 Bridg does it today, which I'll get into more details on. And then importantly, guys and gals, this is -- this business was built with a privacy-first focused. Cardlytics, we've looked at a lot of the CDP platforms. 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 practices 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 3 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. Insights 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 e-mail. 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 e-mail. Bridg 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've 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 superclean 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's 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 into Q1 earnings call. And then finally, moving on to Page 3. This is the point that we're trying to make about helping the retailers really understand all of their customers. Today, they only understand those who are members of the loyalty program or have provided an e-mail. They have records of all the purchases, but they just don't know if this is the same person or not. With Bridg'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 a 100% degree of confidence, be able to say that 100% of the consumers are a person at an individual level is high. So we think this makes us very, very unique. Now it will take a couple of years to really scale this out. Bridg 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.

[Operator Instructions] And our first question coming from the line of Tim Willi with Wells Fargo.

Congratulations. A couple of questions, I guess, and I apologize if you hit on them in your opening comments. 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 as sort of a discrete option? Or does it become a more integrated part of just the overall Cardlytics' value proposition? And just sort of help us sort of think about that and flush that out.

Yes. Great questions, Tim. Thanks. So the 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 Bridg 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 published to the Trade Desk, they charge additional sort of per use, if you will, fees for that. But pretty sticky SaaS-based business model, which, of course, we love. In terms of the integration, look, it's a great question, 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 Bridg 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 Bridg 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 Bridg 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 Bridg 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 a bank channel and outside of bank channel as you choose."

It's pretty impressive. 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. I mean Bridg 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 Lynne mentioned, we believe there are certain areas like sales and marketing, where we can certainly help them in invest and accelerate their growth and gain that scale that's going to be critical. So given those investments, we expect Bridg to be dilutive here in '21, but potentially accretive by late '22, depending on the late -- the level of additional investments that we think are appropriate, we see a long runway of growth. I expect we'll probably be reinvesting any profits there to scale that business. It is a nice margin profile, like Lynne mentioned, but not overly material here this year on our '21 results.

Our next question coming from the line of Jason Kreyer with Craig-Hallum.

You talked about some of the marquee customer contracts that you've already -- that Bridg has already had signed. Just wondering if 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 marquee 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 Bridg 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 prize or price.

And maybe just a quick follow-up for Andy. Can you give any details on what objectives or what earnouts are targeting over time?

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 their 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, but we haven't discussed those levels externally.

I think you meant year 1 and year 2, Andy?

That's right.

[Operator Instructions] And our next question coming from the line of Doug Anmuth with JPMorgan.

Lynne, I was hoping you could just talk about how this can help your self-serve capability? And how built out that is for Bridg already? And then secondly, just curious if you've had discussions with the banks already, if you've vetted this with them at all or run it by them or that's really still to come?

Yes. So on self-serve, Bridg, again, a newer technology platform built from the ground up, focused on using cloud, using APIs, using SDKs, their self-serve platform is superslick and super-intuitive. Unfortunately, until we combine the 2 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 to 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 3 banks. I actually went to all big 3 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 SKU-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. But also importantly, for investors and analysts to understand, Bridg is a stand-alone 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, there'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 to Lynne Laube 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.