Ibotta, Inc.

Greetings and welcome to the Ibotta Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Shalyn Patel, Vice President, Investor Relations. Thank you, Shalin. You may begin.

Good afternoon and welcome to Ibotta's Q3 2024 earnings conference call. With us today are Brian Leach, founder and CEO, and Sunit Patel, CFO. Today's press release and this call may contain forward-looking statements, including our guidance for Q4 2024, implementation of our Instacart relationship, and the potential impact of our product development efforts that are subject to inherent risks, uncertainties, and changes, and reflect our current expectations and 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 discussions 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 which is available on our investor relations website at investors.ibata.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. Lastly, references to non-GAAP revenue growth reflect the exclusion of one-time breakage revenue benefits in 2023. This is due to... to an update we made in 2023 to fix the software error to correctly charge maintenance fees to inactive direct-to-consumer redeemers which resulted in a short-term benefit to GAAP revenue last year. Please see slide 24 in the appendix for more detail. With that, I will turn it over to Brian.

Good afternoon, everyone. Thank you for joining us to discuss our third quarter results. We delivered revenue and adjusted EBITDA above the high end of the guidance range we provided on our second quarter earnings call. We are making progress in increasing the value we deliver to our three key constituencies, consumers, publishers, and clients. The total number of redeemers on the IPN continues to grow at a rapid pace, increasing 63% year over year and 12% sequentially from the second quarter. We successfully rolled out our digital offers on Schnucks properties in the third quarter, setting a new company record for shortest time to deploy. Subsequent to the quarter, we also successfully integrated our offers with their electronic shelf labels, providing a glimpse into the future of in-store shopping and offer redemption, which I will cover briefly later in my remarks. We also deployed our digital offers on Instacart as part of a testing phase and expect offers to be available to 100% of Instacart customers by the end of the year. Overall, our redemption revenue grew 32% year-over-year on a non-GAAP basis, evidence of the traction we saw with our CPG brand clients. I'll dive into all three of these areas in more detail. First, regarding consumers, the IPN is continuing to reach more and more consumers, setting a new record for redeemers at 15.3 million in Q3. Our redeemers redeem more than six times per quarter on average, resulting in nearly 100 million total redemptions in the third quarter, exceeding the record we previously set in Q4 of last year. According to a Bank of America Institute report published last month, approximately half of all Americans describe themselves as living paycheck to paycheck, while nearly a third of consumers are, in fact, spending 90% of their income on necessities. Both of these metrics have consistently trended up as compared to pre-COVID for all household income cohorts. While necessity is clearly a strong driver prompting consumers to seek value, even those consumers who are in relatively better financial health are impacted by higher prices. While the rate of inflation has slowed, according to the Bureau of Labor Statistics, food at home prices are still up 27% over the last five years, outpacing overall CPI. Once a consumer is lost to another brand or to private label, the cost to reacquire them is very high, which suggests that brands are almost always better off using promotions to retain price-sensitive consumers than letting them churn. We're expanding the surface area of our network and growing savings opportunities for consumers by making it easier to find and use our offers on our existing publishers, adding new publishers, and onboarding new CPG brand partners while at the same time deepening the offer budgets we have with our existing partners. Moving to publishers, I'm very proud of our teams for fully launching Schnucks and deploying Instacart in a test phase. I'm also grateful to these publishers for being such excellent partners throughout the implementation process. Our rollout of Schnucks took less than 90 days, which set a new record for time to market with a new publisher. This highlights our growing efficiency in helping bring publishers onto the network, even when they're switching from another provider, as was the case here. Our partnership with Schnucks is focused not only on increasing savings available to their shoppers, but also on innovation related to in-store technologies, such as our recent integration of Ibotta offers with their electronic shelf labels or ESLs. Now at all 115 Schnucks locations, consumers can quickly and easily see which products have an associated Ibotta offer and scan a digital QR code to unlock that offer. We're excited to experiment with new ways of intercepting consumers in the aisle where the majority of purchase intent arises as this opens up new vistas for CPG brand marketers and should increase redemption rates for our offers, particularly in-store. As it relates to Instacart, we are still in the initial testing and piloting stage, and we're working to have our offers rolled out to all Instacart customers by the end of the year. With all publisher rollouts, we anticipate a gradual ramp in revenue over the first 12 months of our offers being live. First, the implementation of certain technical capabilities and marketing best practices generally occurs in phases, with some of the most important components becoming live within 180 days after the full launch. Second, in order to expedite initial launch, we often withhold certain types of offers, such as beer, wine, and spirits offers, until after the launch of grocery offers. Until now, beer, wine, and spirits offers have only been a small category for us, as they've only been available on our D2C properties. But we expect these offers to become available to multiple publishers in the coming quarters, and we regard the addition of Instacart as an important catalyst to this category. Finally, when a publisher has an existing digital offers business that we are taking over, either from the publisher themselves or another third-party provider, there is a gradual transition process to migrate over hundreds of customers to our own sales teams and self-service platform, and this transition can take some time to finalize. With regard to our existing publishers, we've been pleased with our progress in growing Redeemers and Redemptions, as well as making progress on our joint punch list items. Initiatives we have successfully tackled include implementing UX enhancements, including offer-led clipping, implementing a new offer recommender that has lifted redemption activity, and gaining access to shopper marketing offers at one of our publishers in the Dollar Channel. We expect to see continued progress along these lines in 2025. Now let's turn to our CPG clients. This year we've seen a 65% increase in gross billings in our CPG redemption business year-to-date. This is the result of a lot of hard work by our sellers and account managers who've worked with our CPG clients to rapidly step up their investments in our fast-growing network. In many cases, when a new marketing channel is expected to scale rapidly, CPG brands take a wait-and-see approach, meaning they prefer to see that scale demonstrated before they allocate budgets large enough to take advantage of that scale. This can create temporary imbalances between the supply and demand for offers. This year, with our network capacity growing by such a large percentage relative to the prior year, our sellers have often found themselves sourcing incremental budgets midway through the year before the next planning cycle has come around. During the third quarter, we were successful in doing just that, unlocking major investments from several CPG brands that had previously invested only lightly on our platform. Within our existing clients, some of our biggest year-over-year increases have occurred in laundry, pet food, yogurt, snacks, cleaning supplies, and protein, among others. In addition, some of our biggest category wins outside of grocery include general merchandise such as toys, household essentials, office supplies, and pet supplies. We continue to make progress in these areas, with general merchandise redemption revenue as a percent of total redemption revenue almost doubling today. as compared to the same quarter last year, and increasing sequentially as well. We also began to see greater investments from private label brands at a handful of leading retailers, reflecting their recognition that the IPN can be a useful platform for growing their market share. We anticipate that trend will continue, further increasing the need for national brands to participate in their categories. As we look out onto 2025, there are several exciting initiatives on our roadmap. These are designed to do three things. One, improve the rigor and credibility of our measurement framework, allowing our clients to track how many incremental sales they're delivering in near real time. Two, increase the efficiency of our campaigns by delivering the right offer to the right consumer at the right time. Three, making it easier for our clients to do business with us. Based on early feedback from some of our largest clients, we are optimistic that these innovations will will continue to help us attract more dollars from annual promotions budgets, as these budgets are reset in the strategic planning processes, and break out of the promotions category, allowing us to earn more continuous investments from larger national marketing budgets. By doing these things, we believe we can improve our ability to keep up with the growth in Redeemer demand that shows no signs of abating. Let's start with measurement. It's clear that brands desire a more rigorous way to measure the return on investment of their advertising spend. Ibotta's unique data set allows us to measure incremental sales, meaning sales compared to a baseline of what would have occurred without a live promotion. This helps us evaluate the true lifetime value of a campaign in relation to its fully burdened cost. In 2025, for the first time, our clients will have the ability to see in near real time exactly how many incremental sales their campaigns are delivering and the predicted cost per incremental unit sold or cost per incremental dollar achieved. Instead of relying on lagging indicators of how certain forms of marketing spend are performing, now brand managers will be able to see exactly how hard their marketing dollars are working, set scale and efficiency goals, and see the immediate results of their sales figures. This kind of measurement represents a major breakthrough, not just for the promotions category, but for the CPG industry more broadly. Turning to the efficiency or ROI of our campaign, we're leaning further into our targeting capabilities. with an ambitious plan to upgrade how promotional campaigns operate. By moving beyond one-size-fits-all promotions toward promotions that can be tailored based on the observed purchase behaviors of each consumer, we can dramatically reduce unnecessary subsidization and deliver more incremental sales. Lastly, in terms of making us easier to work with, I'd like to highlight the recent beta launch of our new campaign manager tool during the fourth quarter. Our campaign manager tool streamlines offer setup, and allows us to focus more time on selling. While some clients will always want white glove service, plenty of others, particularly in the long tail of emerging brands, will prefer a self-serve model. Campaign Manager is available to a limited number of clients today and will be rolled out broadly in 2025. I'd now like to briefly address some of the dynamics we've seen in our business more recently. As you can see from our Q3 results, we had a very strong end to the third quarter, moving through CPG promotional budgets faster than anticipated. As we look at the current quarter, however, despite it being our seasonally strongest quarter in the past, the rapid growth in our redeemer base, coupled with intense demand for savings on everyday items, has caused us to exhaust 2024 budgets faster than anticipated. This has put short-term downward pressure on our redemption revenue in Q4, resulting in our guidance. We believe this downward pressure is temporary because we continue to see extremely high rates of client retention indicating our clients are happy with the quality of what we are delivering. We have received indications from many of our top clients that they intend to increase their investment levels as their annual budgets reset in 2025. As Instacart rolls out, we believe we will benefit from e-commerce-specific budgets to supplement the offer supply. And the macro environment for CPG in 2025 will continue to favor marketing channels that can demonstrate that they deliver incremental sales at scale, at lower cost, in a way that can be measured with precision and in near real time. Over time, we will continue to lead a paradigm shift in this industry, away from fixed annual promotions budgets and toward a way of buying smarter promotions on our network, much the same way brands buy ads on the trade desk or on the walled garden sites today. To wrap up, We believe our initiatives to add new publishers on the IPN, implement best practices with our existing publishers, improve our targeting and measurement, and increase automation and self-service capabilities to meet our clients' strategic and tactical objectives all support our runway for growth. While we are dealing with what we believe to be near-term supply constraints, we are confident that we are taking the right steps to alleviate them and accelerate revenue growth. With that, I'll hand the call over to Sunit to discuss our third quarter results and fourth quarter guidance.