Ibotta, Inc.

Good afternoon and welcome to Ibotta's Q1 2025 earnings conference call. With us today are Brian Leach, founder and CEO, and Valerie Shepherd, interim CFO. Today's press release in this call may contain forward-looking statements. Forward-looking statements include statements about our future operating results, our guidance for Q2 2025, our ability to grow our revenue, factors contributing to our potential revenue growth, our ability to support additional scale, and the capabilities of our offerings and technology, all of which are subject to inherent risks, uncertainties, and changes. These statements reflect our current expectations and are based on the information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release and our 10Q, which are 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. With that, I'll turn it over to Brian.

Thanks, Shalin, and good afternoon, everyone. Thank you for joining us to discuss our first quarter results. I'm pleased to report that we delivered first quarter revenue and adjusted EBITDA above the guidance range we provided on our fourth quarter earnings call. Our interim CFO, Valerie, will have more to say about this in a bit. But first, let me give you my perspective on our industry and Ibotta's place within it based on what I'm hearing out in the market. Right now, CPG companies are searching for new ways to reinvigorate their businesses. More than ever, they need every dollar to work harder, and they're applying a higher bar for measuring the effectiveness of their spending. They know they need to take advantage of new technologies like AI to grow their businesses in bolder and more creative ways, but they haven't found the right solution. Against this backdrop, Ibotta is positioning itself as an invaluable strategic partner that can deliver profitable revenue growth at a scale that moves the needle for their businesses. We're doing this by bringing performance marketing to the CPG industry like never before. The concept of performance marketing isn't new. In fact, it's been one of the main drivers in the growth of digital commerce over the past two decades. Platforms such as Google, Meta, Applovin, and the Trade Desk have proven the power of this model by giving advertisers a simple interface that lets them do three main things. One, set targets. two, measure their performance on an ongoing basis, and three, reach a large and growing population of consumers. Because CPG brands sell most of their products in stores, they haven't had the benefit of cookies, pixels, or SDKs to tell them which ads or promotions are leading to incremental sales. And without those real-time signals of conversion, they haven't been able to harness the power of machine learning to maximize conversion at the lowest possible cost. ibotta is changing all this by bringing the first omni-channel performance marketing platform to the CPG industry. Because of our access to data and our investment in next generation technologies, we believe we are uniquely well positioned to apply the proven best practices of performance marketing to a massive new industry. After a year of speaking directly with senior leaders and CPG companies, I concluded that they all want more or less the same three things. First, incremental sales, meaning sales that would not have happened had they not run a promotion. Second, credible measurement, meaning a compelling system for measuring how many incremental sales have actually been delivered. And third, scale, meaning the ability to move the needle for their businesses. Ibotta's platform delivers all three. For the first time, CPG companies can set specific targets for cost efficiency and volume of incremental sales, measure their cost per incremental dollar, or what we call CPID, on an ongoing basis, and optimize their campaigns based on these results. This remains in pilot mode for now, and only a select few of our top clients have been given access. But as I will explain more below, the early results have been exciting, and they give us confidence in our roadmap over the coming year. Our technology is making it possible for CPG brands to manage their businesses on a day-to-day basis like never before. Once companies realize the power of these new tools, we believe they will embrace our platform like never before, leading to significantly greater revenue for Ibotta. On our fourth quarter earnings call, I referenced two large CPG clients that had recently launched campaigns that would leverage our latest capabilities. We selected these two companies because they are widely regarded as pioneers within the CPG industry. They're known to invest time and money only when they believe a platform has the scale to become material to their business. both taking an especially rigorous approach when it comes to analytics and measurement, and this has made them skeptical of past promotional formats, such as paper coupons. We knew that if we could deliver for these clients and address their concerns, it would accelerate our learnings and allow us to improve product market fit. I'm happy to report that both programs have been successful to date. In general, we've delivered incremental sales at an attractive cost per incremental dollar, while delivering significant volumes of incremental sales. Both clients have analyzed our performance in detail. Both have chosen to expand the number of brands or pack sizes in our program since the last earnings call. Our redemption revenue for one of these clients is expected to almost double year over year through the first half of the year. We have seen this level of growth even though we are only working with a portion of the brands for this client in just one segment of their business. With the other client, our redemption revenue is expected to be up 8x year over year in the first half. Beyond the numbers themselves, there are a few other factors that we find encouraging. First, it's unusual for large CPG companies to ramp up their investment levels this quickly, especially when it requires allocating dollars that were not previously earmarked within their annual budgets. Second, we're actively engaging with leaders at the highest levels of both organizations. That is bringing us into their planning conversations much further upstream and allowing us to contribute more directly to their strategic goals. Finally, both clients have set up meetings designed to encourage their retailer contacts to join the IPN. This kind of direct advocacy is new for us, and it speaks to their strong belief in what we are building together. In addition to our two initial clients, we have now lined up another three CPG clients that are piloting our latest capabilities. We expect this number to increase as we move into the second half of the year. I want to stress that in these initial stages, we are not focused on maximizing the number of companies we're working with. Rather, we are handpicking a small number of industry thought leaders who share our vision for how transformative this can be for the CPG industry and who are committed to providing us with detailed feedback. Their feedback is allowing us to pressure test our systems, standardize our approach, and automate our processes in ways that will lay the groundwork for scaling up to our full client base. Based on recent progress, we've begun to schedule top-to-top meetings with a small number of additional clients with the goal of ramping CPID-related revenue over the next several quarters. We're excited to begin pitching our new capabilities more widely, but we're also cognizant that any true paradigm shift takes time. We are up against decades of entrenched habits and partners who are accustomed to measuring things with very imprecise tools. So far, our clients have been extremely receptive as we have explained to them our vision of bringing well-established concepts from the world of media and digital commerce to the world of CPG. For others, it will take more time and they will need to test the platform before deciding to make it a central part of their strategy going forward. As you can imagine, these efforts have consumed a significant amount of management bandwidth and required us to begin shifting resources across sales and technology. As we begin to allocate more of our sales resources towards CPID-related efforts, we're at the same time trying to make sure that the majority of the sales force continues to service our clients as well as we always have to ensure we maximize the non-CPID promotional dollars flowing onto our network. That provides a good segue to the topic of our sales execution. Since joining us in January, our Chief Revenue Officer, Chris Reedy, has spent significant time with our CPG clients and publishers to determine what we're doing well and where we have room to improve. From a client service perspective, Chris is working to address pain points on certain accounts, while at the same time improving the crispness of account handoffs when they are necessary. Internally, he is working to right-size account assignments, increase seller time on task, reduce administrative burdens on our sellers, improve communication across teams, and standardize our go-to-market processes. The process of streamlining our sales motion takes time and requires a high degree of coordination with other departments to ensure that all our systems internally are operating in harmony, from account mapping all the way through to billing. Over time, organizations outgrow the systems that have worked for them up to that point. Transitioning to new and better systems can be an essential step to unlocking the next phases of growth. We believe tackling these challenges now will pay big dividends for the business over the long run. I'm pleased with the steps we're taking and how our sales team has responded to the challenge. One positive leading indicator is that turnover among sellers has gone down substantially from the fourth quarter of 2024 to the first quarter of 2025. To wrap up my remarks, let me say we are happy with the performance of our initial CPIT campaigns. and with a strong initial client response to these results. We're making progress establishing Ibotta as the first true omni-channel performance marketing platform for the CPG industry. By breaking out of the promotions category, we will be in a stronger position to capture a greater portion of the $200 billion annual addressable spend in the US CPG industry. While the journey may not always be linear, we are excited about the destination and our conviction in this approach is higher than it ever has been. With that, let me briefly introduce Valerie Shepherd, our interim CFO and board member. I've had the great pleasure of working with Valerie over the last four years on our board. She's played an invaluable role both for me and for Ibotta as our former lead independent director and as the former chair of our audit committee. Valerie brings 34 years of financial leadership experience at Procter & Gamble, where she was the treasurer, controller, EVP transition leader, among many other roles. Her devotion to Ibotta and her belief in what we're building is so strong that she volunteered to step in as our interim CFO. On short notice, she temporarily relocated to Denver to work closely with our team in person, and I've been extremely grateful for her support. In addition to stepping in as the leader of Ibotta's finance and accounting functions and helping us search for a permanent CFO, we're also leveraging Valerie's deep subject matter expertise in the CPG industry. As it turns out, that has been especially helpful as we take to market an exciting new set of solutions. I'll hand it over to her now to discuss our first quarter results and second quarter guidance in more detail. Valerie, the floor is yours.

Thank you, Brian. And good afternoon, everyone. As Brian said, I have been a strong supporter of Avada for many years, and I'm pleased to be with you here today in my role as interim CFO. In summary, we delivered revenue and adjusted EBITDA that were 3% and 22% above the midpoint of the guidance range that we provided on our fourth quarter earnings call. Both redemption revenue and ad and other revenue outperformed our expectations. Expenses were largely as forecasted, which resulted in revenue outperformance falling entirely to the bottom line. Let's break down our revenue results in more detail. Revenue in the first quarter was $84.6 million, representing revenue growth of 3% year over year. Within that, redemption revenue was $73.4 million, up 8% year over year. Third-party publisher redemption revenue was $48.2 million, up 38% year over year, while D2C redemption revenue was $25.2 million, down 24% year over year. Ad and other revenues, which now represents 13% of our revenue, were $11.2 million, down 22% year over year. Turning to our key performance metrics, total redeemers were 17.1 million in the quarter, up 37% year over year. We saw healthy growth in third-party redeemers across the IPN on a year-over-year basis, highlighting the continued strength of the demand side of our network. Growth was driven by the launch of Instacart during the fourth quarter of 2024, like-for-like growth of Walmart's audience, and the launch of Family Dollar in the second quarter of 2024. Redeemers were about flat sequentially primarily reflecting the ramp up of Instacart, which offsets the pronounced seasonal decline we typically see in the first quarter. Redemptions per redeemer were 4.8, down 15% year over year, driven primarily by the growth in third-party redeemers, which have a lower redemption frequency as compared to our D2C redeemers. Redemptions per redeemer on our third party publishers were down only 4% year on year in comparison. Redemption revenue per redemption was 89 cents, down 7% year over year, primarily reflecting a mixed shift toward third party redemptions and to a lesser extent from a modest negative mix within CPG. On our third party publishers, this metric was only down 2% by comparison. As a reminder, redemption revenue per redemption can vary quarter to quarter based on seasonal patterns and variation in offer mix. Now let's discuss the cost side of our business. Non-GAAP cost of revenue was up $6 million versus a year ago, driven by an increase in Instacart related costs, revenue sharing agreements with certain other publishers, as well as increased variable technology costs and higher amortization of capitalized software. This resulted in a Q1 non-GAAP gross margin of 81%, down nearly 700 basis points year over year. Non-GAAP operating expenses as a percent of revenue were 65%, an increase of approximately 360 basis points year over year. Within that, non-GAAP sales and marketing expenses decreased by 2% year on year. Non-GAAP research and development expenses increased by 9%. Lastly, non-GAAP general and administrative expenses increased by 29% or $3.7 million. As a reminder, Q1 2024 was the last full quarter prior to our IPO and thus did not contain any public company costs. We delivered Q1 adjusted EBITDA of $14.7 million, representing an adjusted EBITDA margin of 17%. We delivered adjusted net income of $12.1 million and adjusted diluted net income per share of 36 cents. Our adjusted net income excludes $13.8 million in stock-based compensation, $1.6 million in restructuring charges, and includes a $3.8 million adjustment for income taxes. We ended the quarter with $297.1 million of cash and cash equivalents. In Q1, we spent $72.7 million repurchasing 8.1 million shares of our stock at an average price of $39.47. We had 31.3 million fully diluted shares at standing at the end of the quarter. In March, our board authorized $100 million increase to our share repurchase program. As a result, at the end of the quarter, we had $96.1 million remaining under our current authorization. Turning to our Q2 outlook, we currently expect revenue in the range of $86.5 to $92.5 million, representing 2% revenue growth at the midpoint. We expect Q2 adjusted EBITDA in the range of $17 to $22 million, representing about a 22% adjusted EBITDA margin at the midpoint. and a 4% increase in adjusted EBITDA margin relative to the first quarter. This is a byproduct of higher revenue and flattish operating costs consistent with our commentary on our fourth quarter earnings call. I'd like to provide you with a little more color on our Q2 outlook. While we continue to make progress on validating and rolling out CPIT-based campaigns, we are still in the early days. We expect a gradual increase in CPID-related contribution, as well as slow and steady improvements to our sales execution, although there will likely be some short-term disruptions as we continue to refine and enhance our go-to-market processes and incorporate key learnings from our first few CPID-based campaigns. As a result, we expect to continue to be supply constrained in the short term, but expect to drive sequential improvement in offer supply over the course of this year. We now expect our adjusted tax rate to be in the low 20s for the full year. Our full year cash tax expectations are broadly unchanged. And with that, operator, let's please open up the call for Q&A.