Loyalty Ventures Inc.

Good afternoon and welcome to Loyalty Ventures first quarter 2022 earnings conference call. At this time, all parties have been placed on a listen-only mode. Following today's presentation, the floor will be open for your questions. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that this call is being recorded. If you require any further assistance, please press star 0. It is now my pleasure to introduce Ms. Blinn Morgan of Advisory Partners. Ms. Morgan, the floor is yours.

You may begin. Thank you, Operator.

Copies of the slides we will be reviewing and the earnings release can be found on the investor relations section of our website. Hosting today's call, are Charles Horn, President and Chief Executive Officer of Loyalty Ventures, and Jeff Chestnut, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Royalty Ventures has no obligation to update the information presented on the call. Also on today's call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. Reconciliation of those measures to GAAP will be posted on the investor relations website at loyaltyventures.com. With that, I would like to turn the call over to Charles Horne. Charles?

Thank you, Lynn. And thank you all for joining us today to review our first quarter results. Let's start with page three. Our consolidated performance was in line with our internal expectations for what has historically been a seasonally slow period in our business. As anticipated, our model redemption patterns begin to normalize with the pickup and post-pandemic travel aided by the launch of phase one of our next generation travel platform at the end of 2021. Brand loyalty continued to expand its client base, which has positioned us to execute on the greater number of contracted programs we have scheduled for later in 2022. Additionally, I'm very pleased to welcome both Sean Stewart and Rick Newman to the AirMiles leadership team. Sean and Rick are accomplished executives from leading Canadian retailers with deep knowledge of the loyalty landscape in Canada. More on what this means to AirMiles in a moment. Finally, we remain committed to the capital allocation priorities that we outlined earlier this year, which are designed to deliver stronger marketing, ROIs, and top-line growth for our sponsors and partners, and in turn, drive growth in both air miles and brand loyalty. Slide four highlights the key financial metrics for the first quarter. Total revenue for the quarter was $155 million, and adjusted EBITDA was $25 million. Consistent with our internal forecast, both Air Miles and Brand Loyalty posted lower year-over-year comparisons. At Air Miles, revenue decreased due to a decline in miles issued over the prior two years, as well as from the increase in the collector value proposition implemented in late 2021. An adjusted EBITDA decline due to low revenue, but also from key additions to the business development and technology teams. Brand Loyalty's revenue and adjusted EBITDA were each down compared to the year-ago quarter due to the timing of programs and markets. Or said another way, our larger programs are scheduled for later in 2022. For the quarter, we reported net income per share of $0.04, which included our first full quarter of interest expense. Slide five provides more detail on the experience and capabilities that Sean and Rick are bringing to our team at AirMoss. Sean is rejoining AirMoss from Canadian Tire, which is a $16 billion revenue multi-brand retailer with over 1,700 stores nationwide. Sean led his in-house loyalty program, Triangle Rewards, which used first-party data to develop deeper insights into shopper behavior, stronger consumer engagement, and personalization of scale. Since our founding in 1992, AirMouse has pioneered the strategy of leveraging the power of first-party data to deepen the relationship between the retailers and consumers. Sean's focus on analytics and personalization will be the perfect complement to our data assets and partner relationships. In addition to Sean's industry knowledge and technical capabilities, his authentic and collaborative leadership style and ability to be a change agent will be further Aramoff's transformation. Rick comes to us most recently from Flip and before that, Walmart Canada, and he serves as Chief Technology Officer at both. As Aramoff's CTO, Rick has a critical leadership role in developing, implementing, and managing our technology strategy and roadmap. His experience with companies undergoing digital transformation will help AeroMiles move forward quickly and efficiently. Rick is insightful and decisive, and we're delighted to have him as part of our team. Both Rick and Sean share a commitment to the strategy we've outlined, which is built on near-term investments to drive long-term growth through innovation for our sponsors and personalization for our collectors. Their expertise will help us accelerate our initiatives by delivering quick wins while guiding the longer-term investments that will differentiate us in the market. Slide six provides an update on several key developments at AirMiles since the start of the year. First, we're pleased to announce that we renewed our partnership with American Express, a longtime member of the program for more than 25 years. American Express is a top five sponsor for AirMiles, and we're excited about partnering with their team to develop new ways to spur carholder acquisition growth. This quarter, we also added retailers like H&R Block to airmilesshops.ca, our e-commerce shopping portal where collectors can earn AirMiles reward miles for shopping online. Looking ahead, we are devoting significant organizational energy into our business development efforts. Beyond Sean and Rick, we have recently added talent with strong industry relationships and deep knowledge of key verticals. Our new team members and the compelling investments we are making bring a renewed momentum behind our partnership discussions. Further, Sean's addition is a clear signal to the Canadian market that AirMiles is thinking differently and creatively about how we work with our partners to help improve the marketing ROIs and accelerate their growth. Recently, AirMiles celebrated its 30th anniversary. Since its founding in 1992, AirMiles has issued over 100 billion miles and provided about 1,200 flat rewards per day for 30 years. Along the way, AirMiles has become a fabric of the Canadian culture. As part of our ongoing celebration, we are doing more of what we've always done, rewarding Canadians for shopping with our sponsors through promotions, including free models, epic trips, and merchandise from top brands. Moving to slide seven, let's discuss the collector activity for the first quarter. As we discussed last quarter, we made a strategic decision to invest 20 to 25 million towards improving the collector value proposition as a bridge to engage consumers until the CapEx investments come online next year. We communicated that investment to existing and prospective collectors through national campaigns on both traditional and digital channels. A portion of that messaging is being delivered through our partnership with Canada's Got Talent. As CGT's official travel partner, we are using that national platform to emphasize the travel opportunities available to collectors through our program. Importantly, this channel will help us reach collectors and potential collectors of all ages and demographics. The CGD tie-in is aligned well with our collector's renewed interest in redeeming for travel rewards. As Canada and other key destinations have reopened, we have seen a surge in demand for travel-related redemptions. In the year-ago quarter, travel represented a single-digit percentage of total redemptions. This quarter, we've seen travel return traditional levels of about half of all redemptions. Collectors have been focused on destinations including Vancouver, Las Vegas, and London internationally. While we are continuing to monitor COVID-related restrictions in different jurisdictions, based upon current visibility, we expect travel will continue to be a collector preference going forward. Page 8 highlights the air miles, reward miles, issuance, and redemption trends over the past nine quarters. Air miles, reward miles issued in the first quarter were consistent with the year-ago quarter after adjusting for non-redoubles, and redemptions were flat with Q4 of 2021 and slightly higher than the first quarter of 2020, which was impacted by the start of the pandemic. The burn rate appears elevated partly due to lower issuance level in Q1 driven by non-renewals I just mentioned. We expect the burn rate to revert to a normalized level as the pent-up demand for travel subsides and as we add new partners and earnings opportunities for our collectors. This period of elevated redemptions is the natural offset to the last few quarters when we saw historically low redemptions due to pandemic-related limitations on travel. Our redemption settlement assets account has a balance of $700 million at quarter end. Funded by cash, we routinely set aside for redemptions. We are confident that the redemption settlement assets will cover periods of elevated redemptions without an impact to our liquidity position or operating cash flow. Turning to slide nine, let's review the key developments for brand loyalty in the first quarter. Brand loyalty continues to compete and innovate. Most recently, we launched a pilot program to make personalized offers for consumers when they were logged into our Grocer Partners app environments. A regular anonymized visit would represent the grocer's normal content, but under this pilot program, a logged-in visit will highlight to the consumer a curated list of offers that will help that shopper accelerate the reward opportunity with that retailer during the campaign. This approach was designed to be GDPR compliant, and we're looking forward to a successful pilot that helps us learn, refine, and optimize the program for all of our retail partners. I'm also pleased to share that Brand Loyalty has continued to invest in its toolkit for running campaigns with virtual rather than fiscal rewards. These campaigns are independent of the fiscal supply chain, as well as environmentally friendly, and we're planning to be in market with a Disney anchored program later this year. The conflict between Russia and Ukraine resulted in our decision to pause operations in Russia after existing campaigns concluded. We are not soliciting new business in Russia, and we have stopped shipping reward merchandise into the country. We estimate that this will result in a $16 million reduction in Brand Loyalty's projected revenue for 2022. Our approach on conducting business in Russia is shared by our key partners and suppliers, and we collectively hope that there's a peaceful resolution in the near future. Slide 10 illustrates the broad geographic area that Brand Loyalty serves, as well as the selection of campaigns currently underway. Geographically, MEA continues to represent the largest market for Brand Loyalty, followed by the Asia-Pacific region. Our team is working to expand our footprint in the Americas, as we believe this area represents an important growth opportunity for the company over time. In terms of active campaigns in the first quarter, a selection is highlighted here. At Albert Heijn, a top grocer in the Netherlands, ran a loyalty-runner program featuring Bredi Knives. Carrefour in France featured a campaign with Saboteur Knives. In Germany, we leveraged our Disney relationship to run a program with Nat Geo-branded camping gear at Rayvay. In the Asia Pacific region, we partnered with Izumi and run a program featuring Zwilling Kitchenware Rewards. Brand Loyalty's combination of global grocery relationships and exclusive supplier partnerships results in compelling rewards and sustainable growth for its clients. On slide 11, we provide a progress update on the investment roadmap we introduced last quarter that is designed to drive accelerated growth in 2023 and beyond. In particular, we are focused on engaging our collectors through the enhancements we've made to the collector value proposition, as well as through the upgrades we've made to our travel redemption program. Given the heightened consumer interest in travel opportunities, we believe this initiative is well-timed to capitalize on the market's expectations. Our digital innovation efforts are focused on both how and why our collectors interact with us. AirMile's core platform is how consumers interact with us, and this represents the look and feel, features, functionality, and the securities of the website, app, and mobile world experience. Once collectors are logged in, we start to address the reasons why they're looking through our content optimization initiatives. They're typically looking for relevant experiences, self-service objectives, and personalized offers. These upgrades represent a welcome leap forward in capabilities to serve our collectors better. Finally, our investments in data and analytics will help our sponsors identify their best customers and their highest-performing promotions, meaning they can drive stronger ROIs from their marketing dollars. With our new approach on data access, our partners can leverage the data directly and rely upon our enhanced delivery capabilities across a variety of communication channels. Collectively, we believe these investments will strengthen our standing as a leading coalition loyalty platform in Canada and position Aramouse for a strong and vibrant future. While the investment focus in 2022 will be concentrated on air miles, we will remain vigilant for optimistic acquisitions that would help granularity at clients, suppliers, and capabilities to spur sustainable growth. As we move to slide 12, we provide more specifics on the enhancements we've made to our travel program than what is on the drawing board. Over the past year, we've already made a number of meaningful changes to the air miles flat redemption process. We expanded the number of airline partners and cabin classes available for booking. We retired the prior zone-based pricing model in favor of the dynamic, market-based approach that reflects sales and promotions on a timely basis. And we added payment options that stretch beyond miles-only redemptions. But those changes are just the beginning. We're entering new features, functionality, sales collectors find their next trip rather than just book their next trip. With our unique perspective on consumer behaviors, both observed and inferred, we can offer personalized recommendations and experience tailored on an individual basis. And with those recommendations, we're working to become a one-stop shop for flight, hotel, transportation, and destination reservations. These self-service options and the intended experience will draw prospective travelers to our program and to our site and represent an opportunity for travel providers to reach that audience in the very moment they're evaluating destinations and travel options. And as we invite and center collectors to share their post-trip travel stories, it will inspire other collectors as they research and book their own upcoming travel plans. On slide 13, let's explore how our digital innovations are elevating the collector experience for the AirMiles Reward Program. Our new CTO, Rick Newman, is working with both internal and external teams to reassess our core mobile platform which represents how collectors interact with AirMiles on their phones, either through the app or the mobile device. Rick and his team are focused on removing friction from common tasks, upgrading existing capabilities, and adding next-generation features and security. More specifically, this includes improving our mobile enrollment process, adding a more comprehensive collector dashboard, and building out more self-service capabilities for tasks like profile changes and missing AirMiles reward miles inquiries. These represent two of the top reasons collectors call our care center. So offering the ability to handle these tasks directly will not only improve collector satisfaction, but also reduce the call volumes at our care centers. And finally, these upgrades will also unlock the ability to deliver more personalized offers to collectors directly through the app, driving recurring usage, repeat visits, and stronger engagements with the program. This content optimization represents the key reasons why our collectors interact with us. and our research indicates that active mobile app users are nearly three times more likely to earn AIRMILES reward miles is non-mobile app users. Moving to slide 14, let's discuss the areas of investment in our data analytics capabilities. As we noted last quarter, AIRMILES has always used first-party data and insights from consumers' behavior to deliver personalized offers on behalf of our partners and sponsors. The investments we are making now will enable our sponsors to leverage this data and their own marketing platforms as well. The AirMiles Data Lake houses all the Plectra genomes, and historically, we've analyzed these genomes for patterns and insights to power marketing campaigns for our partners. Recently, though, we've added a secure front door to the Data Lake by leveraging a leading data share platform called Snowflake. No matter what marketing platform our CRM or clients are using, Snowflake represents a common interface that enables them to securely access collector data without creating complicated, expensive, or custom access channels. However, there are some sponsors that may not want to actively import collector data into their own systems, but they're interested in reviewing the core data directly. With Snowflake and other data visualization tools, our error models data analytics team can offer them a way to review the data without actually pulling it over. This makes it easier for our analytics team to work directly with our sponsors when reviewing the insights from our data sifting and analytics work. And once we're aligned on the opportunities we have collectively mined from the data, we are ready to put those insights to work through personalized communications with our collectors. On slide 15, you can see how this work comes together. It starts with gathering profile and demographic information from collectors. then adding the SKU level or category level data that we receive from both online and in-store shopping activity. Embedded within those shopping patterns are marketing signals about the consumer's lifestyle and life stage. Our data scientists look for those signals and translate them into personalized messages so our sponsors can make targeted, highly relevant offers to those shoppers in the moment. We will deliver automatic communications through Adobe's real-time customer data platform, or CDP, which integrates within our data warehouse and enables Eramos to reach collectors with the right message at the right time. And because we are leveraging AI and machine learning in concert with Adobe CDP, we can deploy and refine those messages in real time and at a scale across millions of collectors. These personalized, highly relevant offers give collectors more opportunities to be rewarded and provide partners with more ways to help their shoppers experience the brand in a way that fit their lifestyle. As you can see, we're fully committed to elevating the collector experience within the coalition and building our capability to support real-time personalization at scale for our sponsors. We believe this is the way to drive sustainable growth going forward. I will now turn it over to CFO Jeff Chestnut for the financial review.

Thanks, Charles. Slide 16 presents our results for the first quarter of 2022 compared to the corresponding period of 2021. Revenue in the quarter was down 12% due to a 6% decrease at air miles and a 16% decrease at brain loyalty. Net income and diluted EPS were both down quarter over quarter as a result of the margin loss from revenue declines, investment in our employee base, and a full quarter of interest expense. I'll provide more details on our results on the next slide. Slide 17 presents our segment level results for the first quarter of 2022. In the first quarter, revenue for both air miles and brand loyalty declined from the year-ago period. Air miles revenue declined approximately $5 million, with about half driven by a decline in service revenue representing the flow-through impact of lower miles issuance in 2020 and 2021. The balance of the decline was associated with higher cost of redemptions, which are netted out from gross revenues to arrive at our revenue presentation. The margins on redemptions contracted in connection with the enhancements we made last quarter to the collector value proposition. Brand loyalties revenue declined by $17 million due to the timing of larger campaigns, which can vary significantly year over year. Air miles adjusted EBITDA declined 19% or $7 million as compared to the first quarter of 2021 due to the revenue impact combined with the addition of key hires to help advance our business development and technical capabilities. These costs were partially offset by savings in occupancy and marketing costs, and we will remain cost-conscious as we invest thoughtfully in the right areas to drive growth. Brand loyalty's adjusted EBITDA in the first quarter declined from the year-ago period due primarily to the decrease in revenue. We continue to project that brand loyalty's top-line performance will strengthen across the year and provide more scale to offset the fixed cost base at the business. Slide 18 provides our financial outlook for the year, which we originally presented last quarter. Based on our current visibility and due to developments in Russia, we expect full-year 2022 revenue to be at the lower end of our $775 million to $800 million guidance range. This incorporates the increased investment we have outlined for 2022 to drive accelerated growth in 2023 and beyond. Similar to last year, we expect AirMiles quarterly revenue and adjusted EBITDA to be fairly consistent across 2022, subject to foreign exchange developments. Our outlook for brand loyalty sees a sequential pickup in the second quarter as we progress toward the fourth quarter, which is seasonally our strongest based on the number of campaigns planned and the associated rewards mix. For brand loyalties, U.S. dollar forecasts were closely monitoring the impact of the current geopolitical circumstances on the Euro to USD FX rate. We have the ability to flex our marketing and capital investment dollars up or down as needed to align with market conditions and our outlook. At this time, given our cautious optimism on a continued recovery, we're maintaining our investment plan across the coming quarters. In fiscal year 2022, we expect the tax rates for the two segments to range from about 25% to about 28%. After considering the currently non-deductible U.S. expenses, we expect cash taxes for 2022 to range from $30 to $37 million. We're focused on reducing the consolidated tax rate, and initiatives are underway to leverage or redistribute the currently non-deductible U.S. expenses. As we undertake the investments discussed today, we're mindful of our liquidity and our capital structure. Slide 19 highlights that our liquidity is strong at over $270 million at quarter end exclusive of the redemption settlement assets. We ended the first quarter with no borrowings on our revolver, and we reduced our gross debt by $13 million, consistent with our focus on deleveraging. On a net debt basis, we finished the quarter at about $520 million. Besides debt reduction, we prioritized investing in the business through our strategic capital projects. Our capex spending reflects the initial stage of our strategic investments, which has been focused on the planning phase. As we transition to subsequent stages, including development and deployment, we anticipate that our capex spend will increase in line with our prior guidance. Overall, we have ample liquidity to support the strategic objectives we've outlined with capacity to react quickly on inorganic opportunities as appropriate. As we move to the last page, we're confident that the strategic priorities we outlined today will enable us to strengthen the leadership positions of both Airmiles and Brand Loyalty by building upon our relationships with existing clients, attracting new sponsors and clients, and driving enhanced collector and consumer engagement with our loyalty programs. Ultimately, these initiatives will transform Airmiles and Brand Loyalty and will help us continue to drive sustained profitable growth for our clients and for loyalty ventures. Operator, we're now ready to open the lines for questions.

And thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from Tony Kaplan from Morgan Stanley. Your line is now open.

Thank you so much. I wanted to ask about, you talked about revenue being at the low end of the guidance range, but adjusted EBITDA guidance was reiterated. Are you expecting that you can sort of flex the investment down to stay, you know, more towards the middle of that range? Or do you just have reduced cushion here? Or, you know, is there something offsetting it that maybe I'm not appreciating?

Hey, Tony, it's Jeff. Yeah, so we reiterated the guidance range that we put out towards the lower end, of course, because of the impact in particular of the Russian developments from an EBITDA standpoint, similar expectation there. But as we mentioned on the call, we have the opportunity to flex those investment dollars as we move through the year.

Okay, got it. And for brand loyalty, you talked about you know, the sequential increase into 2Q and continuing through the year, just given 4Q is going to be the strongest. And one, I guess, is that because of the number of programs that are being launched then, and also, I guess, previously you had expected double-digit growth for brand loyalty for the year. Do you have an update on that as well?

From a brand loyalty standpoint, you're right. We are expecting to see a leg up in the second quarter as we come off what's typically one of our smallest quarters in Q1. And then the mix of programs, we had a little different shift or a different mix of programs this year relative to last year, where last year we started off with some of the larger programs. So this year, those are going to be scheduled for later in the year. And then to your point, Q4, we do have larger programs and more programs scheduled for Q4 in particular because that's the holiday season.

Got it. And last one from me. Could you just give us an update on supply chain and how much of an impact that's having on BRIN loyalty?

Yeah, that continues to be an issue for us. You see what's going on in the South China ports, and you see how Shanghai has gone into lockdown. You're not seeing Beijing. So one of the things you'll see in our cash flow is we did order our inventory early. make sure we get it in for running the programs later in the year. So it's put a little squeeze in our working capital early this year, but it basically was prudent on our part to go ahead and start shipping inventory, get ahead of it, even though we're carrying a little bit more inventory than we'd like right now. We needed to get ahead of the fourth quarter.

So it's still there, but we anticipated and we just got ahead of it.

All right. Thank you. And thank you.

And our next question comes from Kyle Peterson from Needham.

Your line is now open. Hey, good afternoon, guys. Thanks for taking the questions. Just wanted to touch a little bit on your thoughts on normalization, especially with the burn rate in air miles. Appreciate the pent-up demand and some noise with consumer spending on the issuance side. Do you guys have any visibility on how long the normalization process should take or would normally take it in a period like this? Is it, you know, one to two quarters? Is it the rest of the year? Like, I guess, how should we handicap when the, especially on the air mile side, starts to look a little more normal post-COVID?

Yeah, hey Kyle, it's Jeff. So if you think back to 2020, we saw a burn rate at that point of around 63% moving to 75% last year. So this elevated burn rate, our expectation is we'll see that across the balance of this year, and then we'll start normalizing into next year. Okay, that's helpful.

I guess just a follow-up, did you guys see any notable headwinds, particularly in Canada from the Omicron outbreak, kind of in one queue? I know there were some restrictions, particularly things like sporting event attendance and such, kind of during the first quarter in Canada. I just want to see if you guys noticed that, and particularly if that might have been part of the headwinds on some of the issuance of new miles with air miles.

If Kyle was Charles, I'd say I really don't think it was much of a headwind for us. I think we're confident against two programs that are no longer with us, and so it makes it look like it's a little bit weaker than what it is. But I'd say nothing from Omicron.

That's fair. And then I guess just last housekeeping one for me, particularly on the Russia, the headwind, appreciate you guys calling out the revenue issue. impact from those campaigns. Is it fair to assume that the EBITDA margin on that business is comparable to the rest of Brain Loyalty? It is, yep.

So from a go-forward perspective, we would expect to see that line up with the balance of the business over there. All right. Thanks, guys.

Thanks, Colin. And thank you. And our next question, comes from Mark Riddick from Sedoti. Your line is now open. Good evening, everyone.

Hey, Mark.

Hey, Mark.

So I was wondering if we could start with around some of the things that you're working on and some of the introductions. And actually, maybe we'll start on the digital side. So I was wondering if you could talk a little bit about some of the early learnings that you've had with the digital reward campaign. Are there any things that you've seen so far there that are surprising, positive or negative, and then sort of, you know, how that can sort of, you know, what kind of tweaks that you've had so far, if any.

Yeah, you bet, Mark. As we indicated, you know, we're rolling this out on a pilot program basis. We want to make sure that we have the you know, the technical integration with our clients. And then we want to make sure that the offers that we're putting through there are going to be compelling enough to continue to draw our shoppers and consumers back to the app the way that they would normally be physically in the store. And so, you know, we continue to monitor the activation rates and the usage rates and optimize the offers that we're putting in there to try to drive, you know, the maximum amount of engagement that we can. And I think once, of course, once you have that figured out for one market, you've got to see if it works in other markets. And we'll be focused on that across the next couple of quarters.

Okay. I can imagine that's a moving target here and there, so that's understandable. I was wondering if we could maybe, you started to touch on this a little bit around brand loyalty, but I was wondering if we could talk a bit about the type of visibility that you have with the programs on brand loyalty. I understand that you made mention of, you know, obviously the fourth quarter is the largest, but I was wondering as far as your communications with customers, maybe the kind of feedback that you're getting from them, has their seasonality changed at all and maybe what, the visibility looks like for you maybe versus prior years, though, maybe prior years might not be a great comparison, even the pandemic, but I just wanted for you to talk a little bit about that and the feedback that you're getting from, from customers there.

Yeah, so the visibility is pretty good.

We have the ability, usually from a sales cycle of about six months, to know what program is going to run by quarter with at least a forward view of six months. Now, there's two things that create a little bit of flexibility to it. Number one, our programs are success-based. Meaning if we get 90% success rate versus 70% success rate, that's going to drive a difference in the revenue recognized. The second point is there's some discretion with the clients to push it out of a quarter. If the pandemic kicks back in, they don't see the need for it in a particular quarter, they can defer it for a quarter or two. So there is a flexibility the way these programs work for the client to defer it out.

So we'd say good visibility into it, but there are some variables that can come into play.

Okay, gotcha. And then, I'm sorry, what was that there? I thought somebody else was saying something. Okay.

So I want to go back a little bit. I think one of the prior questioners asked a little bit around the supply chain and what have you. I just wanted to talk a little bit about the adjustments that you made last year and maybe how those prior adjustments and the prior challenges have maybe either helped or how those might play into what we're seeing going forward given the current shutdowns. Are there any things that you could share there, whether it's particular learnings or some of the benefits that you saw in the past with prior adjustments that might help you now or vice versa?

Yeah. So, Mark, if you think back to our last call, you know, we highlighted a couple of things. One was one was pre-booking container capacity early rather than trying to secure it on the spot market. And, of course, back then, spot market prices were six times what the traditional rate had been. And that was if you could find capacity. So for us, not only booking the containers and booking the routes, gave us more certainty that we could get the, you know, the rewards to our retailers in time to run the programs. And then the other, you know, the other initiative that we took to de-risk the supply chain last year was standing up more local sourcing. So rather than going, you know, predominantly out of Southeast Asia, especially given the zero COVID policy that's in place today, we stood up those programs, uh those incremental uh local and regional sourcing options and again then you're going over the road instead of over the water for delivery so you've got more reliability uh although the um you know of course the uh the conflict in the ukraine has introduced uh has introduced a new element of um uh variability into that uh you know into the regional sourcing that we established

Yeah, the only point I'd add to that would be learning from last year. We know we need longer lead times coming out of Asia, South China ports and so forth. That's why you saw more of the inventory bump in the first quarter than what historically you would see us do. We're just trying to get ahead of it, especially if it's coming out of the Asian ports. Right, that makes sense.

I wanted to talk a little bit about some of the – given some of the changes and investments that you're making on both sides of the house through the year, why don't you talk a little bit about the timing and visibility of those rollouts? Because it seems as though you've kind of got laid out quite a few things going forward. So does that pretty much take you through the remainder of this year, or – Should we expect sort of new introductions to be announced throughout the year that could still begin to be implemented this year, or are we now beginning to get into next year as to new products and projects and strategic ideas?

Yeah, you know, Mark, Charles highlighted that. on our last call that as we started off on that process for the investments, we started with the analysis and assessment phase in Q1, and then you would start to see the CapEx ramp across the course of the year as we moved into the development and the deployment phases. But you're spot on that those campaigns won't all be delivered simultaneously. And in fact, we've got you know, a focus on quick wins right now that we want to have in the market over the next, call it eight to 10 weeks to show immediate progress, not only to our collectors, but also to our sponsors. And then the balance of those, some of those more substantial investments, you know, will come online towards the end of the year and the beginning of next year.

Okay, great.

And then the last thing for me today, I was wondering if you could talk a little bit about maybe what your views are on spending and budgeting appetite within – and this is more on the brand logic side, but spending and budgeting appetite of your customers. And maybe it's kind of a bigger, broader sort of ad spending growth kind of question, but I was wondering if you've got sort of a general view as to the willingness and appetite of customers to – to invest more to drive revenue growth on their end.

Yes, what's unique about the brand loyalty program, again, goes back to is primarily success-based. If we're not delivering top-line growth for the retailer, we're not really getting paid, and the product is coming back to us. So it really de-risks the programs for our clients, and that's why good times, bad times, if they're trying to drive traffic in-store or online, we're a nice fit for them if we succeed. We get paid if we don't succeed.

We generally don't get paid. So it's really a de-risk program for our clients. Great. Thank you very much.

You bet, Mark. And thank you. And I am showing no further questions. I would now like to turn the call back over to Charles Horn for closing remarks.

Thanks, Justin, and appreciate all of you taking the time today to listen to us and to go over a quarter. We think that there's a lot of good things on the horizon for us. As Jeff said, we're looking for small quick wins. Show that we're taking this serious, that we're evolving this program, we're taking it to the next level. And that's where we're committed to show our clients, our collectors, as well as you as investors, that we're taking this program and we're evolving it from more of a cash cow that over time erodes to a top-line growth business. And that's going to take a period of time. So every quarter we're going to look at some ways to show how we're making progress, and that's a commitment we're making to you. So I appreciate your time today. This concludes today's conference call. Thank you for participating. You may now disconnect.