Ibotta, Inc.

Good afternoon, and welcome to Ibotta's Q4 2025 earnings conference call. With us today are Brian Leach, founder and CEO, and Matt Puckett, CFO. Today's press release and this call may contain forward-looking statements. Forward-looking statements include statements about our future operating results, our guidance for Q1 2026, our ability to grow our revenue, factors contributing to our potential revenue growth, 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 gap measures are available in today's earnings press release and our 10K, 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.

Good afternoon, everyone. Thank you for joining our discussion of fourth quarter results. We're pleased to report fourth quarter revenue and adjusted EBITDA that are both above the top end of the guidance range we provided on our third quarter earnings call. This represents an improvement in year over year revenue trends when compared to the third quarter. Based on the trends we saw in our business in the second half of Q4 and quarter to date, we are also guiding to first quarter 2026 results that are above our previous expectations. There were three main drivers of our fourth quarter outperformance, improved execution, the strengthening of our core product, and the continued expansion of LiveLift. Let me give you an update on each. In terms of improved execution, here are a few specific things we've been focused on. First, we leveled up our sales leadership, bringing in elite talent from the digital media space. Second, we restructured and reorganized our sales organization. This included rebalancing our account loads and verticalizing our teams to better speak the language of our clients' industries. Third, we emphasize the consultative approach that ensures our team is providing a solution that meets our clients' needs. We're doing a better job of getting further upstream in client strategic planning and budgeting cycles. This involves building relationships not just with the procurement department and promotion centers of excellence, but also with brand leaders and senior executives such as CEOs, CMOs, and CCOs, Chief Commercial Officers. Fourth, we overhauled our B2B marketing function. That team is enabling our sellers to be more timely, relevant, and proactive in their outreach. For example, when the Snap program underwent significant changes for millions of U.S. consumers, our B2B marketing team developed a fourth-quarter playbook, which allowed our sellers to quickly communicate how clients could respond using the Ibotta Performance Network. This initiative generated additional revenue, solved a real problem for our clients and helped consumers in a time of need. Fifth, we addressed the concern that CPGs have never had access to independent third-party measurement. For the first time, we made it possible for our clients to purchase sales lift studies just as they would for other forms of digital media. In the third quarter, we announced our partnership with Circona. And then last quarter, we added ABCS Insights, giving our clients another choice of measurement partner. Based on early feedback, it appears that the availability of third-party measurement is helping our sellers build trust with our clients. In addition to better sales execution, we strengthened our core product offering in important ways. Here are some examples of the improvements we made. One, setting clearer goals for each campaign in advance. Two, focusing on the incremental sales our campaigns deliver. Three, improving the profitability metrics that we use to measure our campaigns. And four, revisiting our approach to pricing, including tying our fees more clearly to the price of the products being promoted. I want to stress that these things I just mentioned are not live lift per se. They are simply an evolution of our industry-leading core product. We are now seeing clients lean into these core capabilities, which is improving offer supply and driving the recent trends we've seen in our redemption revenue. LiveLift is best understood as a set of next-generation capabilities that allow clients to see the projected incremental sales and cost per incremental dollar, CPID, at various intervals during their campaigns, thereby enabling them to better optimize the performance of those campaigns. A helpful way to think about LiveLift is using the following analogy. Our core product is like a best-in-class luxury car. It's already seen as the leading performance vehicle in the category. Each year, there's a new and improved model, making it even better, higher-performing car. LiveLift is like a powerful new feature that is added on to the vehicle for certain customers, say, for instance, like Autopilot. That feature enhances the car's performance, and it also generates buzz and excitement. It continues to improve as well over time until it more closely resembles something like fully autonomous driving, which holds the potential to transform how we think about driving itself. So the operative question is not how fast can Ibotta transition clients away from its core product and into LiveLift, but how much can Ibotta grow revenue based on the strength of its continually improving core product? And then how much can LiveLift further accelerate that growth and ultimately transform the category? Clients whose campaigns meet certain criteria, for instance, they're spending a certain amount and the campaign is running for a certain duration, are eligible to pilot and adopt these exciting new LiveLift capabilities. As we continue to improve the models that power LiveLift and work towards greater automation, we expect that more and more clients will take advantage of these features over time. In terms of the limited number of clients who've already piloted LiveLift, the feedback has been extremely positive. As we shared on our last earnings call, we launched more LiveLift campaigns in the fourth quarter than we did in the first, second, and third quarters combined. We also exceeded our revenue forecast associated with LiveLift for the fourth quarter. Of the clients that have executed a LiveLift campaign, we expect to see about 80% expand or renew their campaigns. In summary, we believe our performance in fourth quarter and our continued momentum in the first half of the first quarter confirms that, thanks to our team's hard work, we are very much on the right track. As we look out to the future, we envision our CPG clients allocating resources in a manner that more closely resembles that of digitally native companies. Today, most still rely heavily on the annual planning process and budgeting process, whereby they agree to place certain bets over the course of the upcoming year, then measure the outcome of those bets six to 12 months after the fact. We believe this way of working is fundamentally incompatible with the goal of harnessing the full power of artificial intelligence. Instead, we see the CPG industry moving into what has been called the outcomes era. Going forward, we believe CPG clients will determine what their desired outcomes are and input any constraints or conditions that are important to them. For instance, they might want to gain three points of market share, but they want to do so without eroding profitability. Or they might want to put in place a standing rule that they want every incremental dollar they can get as long as it doesn't cost them more than $0.35 per incremental dollar. Once these goals are outlined, what constitutes a winning outcome will be clear, and it will be possible to test a larger number of offer permutations and solve for whichever combinations yield the best results. This is what artificial intelligence is especially good at doing. We expect that the faster a CPG company transitions away from annual, discrete allocations of dollars to outcomes-driven, rule-based resource allocation, the more agile it will become and the better it will be able to translate its investments into market share gains. In closing, we remain focused on delivering unrivaled value to our CPG partners. By bringing the proven principles of performance marketing to the CPG industry, we believe we can capture a greater portion of the total addressable market for CPG marketing spend beyond what has historically been available to promotions. We're confident that the combination of a stronger core offering alongside more LiveLift campaigns will help ibotta return to year-over-year revenue growth later this year. We're beginning to see the fruits of all the hard work our team put in during 2025, and we look forward to what lies ahead in 2026.

With that, let me turn it over to Matt. Thank you, Brian, and good afternoon, everyone. Jumping straight into Q4 results, we delivered revenue and adjusted EBITDA that were respectively 7% and 31% above the midpoint of the guidance range we provided on our third quarter earnings call. To unpack our top line results in the quarter, Revenue was $88.5 million, a decline of 10% versus last year. Within that, redemption revenue was $78.5 million, down 5% year-over-year. We saw broad-based sequential progress in our year-over-year redemption revenue trends throughout the quarter. In addition, live lift revenue was better than projected, and the SNAP program that Brian referenced in his remarks also resulted in incremental revenue versus our forecast. I'll just add, when we talk about improving execution, the SNAP program is a great example of that in action. From ideation, to the building of the program, to selling it in, to the marketplace and having an impact on business performance, great work by our team. Third-party publisher redemption revenue was $56.4 million, up 8% versus last year, while direct-to-consumer redemption revenue was $22.2 million, down 26% year-over-year. We're, as anticipated, we've continued to see more redemption activity shift to our third-party publishers. Add in other revenues, which represented 11% of our revenue in the quarter, were $10 million, down 38% versus last year, due primarily to continued pressure on direct-to-consumer redeemers. Turning now to the key performance metrics supporting revenue. Total redeemers were 20.4 million in the quarter, up 19% year over year. We saw continued growth in third-party redeemers across the IPN versus last year, highlighting the health of the demand side of our network. Growth was driven by the launch of DoorDash in the second quarter of 2025, organic growth at our existing publishers, and the launch of Instacart in November of 2024. Redemptions per redeemer were 4.6, down 16% versus last year, where the decline continues to be driven by both the quantity and quality of offers available to each redeemer, as well as the growth in third-party redeemers, which have a lower redemption frequency as compared to our direct-to-consumer redeemers. It is worth noting this represents an improvement in trend versus Q3, where redemptions per redeemer were down 28% year over year. Redemption revenue per redemption was 83 cents, down 5% versus last year, driven primarily by slightly lower like-for-like fees and the mix of redemption activity. Now shifting to the cost side of our business. As anticipated, non-GAAP cost of revenue was up 3.6 million versus a year ago, driven by an increase in publisher-related and technology costs. This resulted in Q4 non-GAAP gross margin of 79%, down approximately 570 basis points versus last year. Over the course of 2025, we've seen a meaningful increase in costs related to new publishers, as well as an increase in technology-related costs within cost of revenue, which is reflective of an increased investment in product development. Non-GAAP operating expenses were up 1% versus last year and slightly above our expectations due to higher professional fees and variable compensation. This resulted in non-GAAP operating expenses being 65% of revenue, an increase of approximately 700 basis points year over year due to the lower revenue. Within that, non-GAAP sales and marketing expenses were flat as lower marketing spend offset higher labor and the cost of third-party lift studies. Non-GAAP research and development expenses decreased by 11%, primarily a result of higher capitalization of software development costs. This is due to more of our investment in R&D being directly focused on product development. Lastly, non-GAAP general and administrative expenses increased by 16%, reflecting higher professional fees and temporarily higher facilities costs in the quarter. Similar to last quarter, while overall non-GAAP operating expenses changed minimally year over year, our investments in areas related to our transformation, inclusive of both the P&L and what is being capitalized to the balance sheet, were up in the quarter. This increase was approximately 15% and again was headlined by higher labor costs in both the sales and technology organizations. We delivered Q4 adjusted EBITDA of $13.7 million, representing an adjusted EBITDA margin of 15%. adjusted net income of 8.1 million, and adjusted diluted net income per share of 29 cents. Our adjusted net income excludes 12.9 million in stock-based compensation and includes a 3.8 million adjustment for income taxes. We ended the quarter with 186.6 million of cash and cash equivalents. In Q4, we spent approximately 55 million purchasing approximately 2.1 million shares of our stock at an average price of $25.78. We had 26.1 million fully diluted shares outstanding as of 12-31. And as of the end of the quarter, we had 34.9 million remaining under our current share repurchase authorization. Now, turning to Q1 guidance. We currently expect revenue in the range of 78 to 82 million, representing a 5% year-over-year decline at the midpoint. And we expect Q1 adjusted EBITDA in the range of 6 to 8 million, representing about a 9% adjusted EBITDA margin at the midpoint. With that, let me provide a little more color on what we anticipate the shape of revenue for 2026 to look like. First off, we are pleased with the improvement in execution, the upgrades to our product capabilities and our core business, and the growing contribution of LiveLift. We expect that this will gradually translate into improving revenue trends, just as we began to experience in Q4. Beyond our specific Q1 revenue guidance, we anticipate low single-digit sequential revenue growth in Q2 versus Q1, and then to generate slight year-over-year revenue growth in Q3. We believe the anticipated improvement in our revenue trajectory will primarily show up in redemption revenue, while add and other revenues will remain under pressure. Part of the story here is that add and other revenue continues to shrink as a percentage of total revenue, meaning the drag on the aggregate business should become smaller. In addition, within Add Another, the data business is expected to grow and become a larger percentage of that total. While we are working hard to improve the offer supply to the point that direct-to-consumer redeemers stabilize, we haven't assumed that in our planning for 2026. As it relates to the cost side of the equation, there are a few things to note. While in some aspects we outperformed on costs in 2025, it's important to recognize that we faced greater vacancy rates than we would typically see, particularly within the sales team, where we expect to be more fully staffed for the entirety of 2026 across that organization. In addition, we saw lower variable compensation expense during 2025. As we mentioned last quarter, we are committed to investing in areas critical to our transformation, which will show up in both higher year-over-year cost of revenue and non-GAAP operating expenses in 2026. From a modeling standpoint, you should expect to see a modest sequential increase in quarterly non-GAAP cost of revenue and operating expenses throughout the course of the year. However, we expect to have substantially less growth in publisher-related costs within cost of revenue as compared to what we saw in 2025. It's not going to be zero growth, but it likely won't be nearly the headwind we faced last year. We also expect higher technology costs in cost of revenue, which is partially a function of where these costs are allocated relative to last year, to have approximately a negative 100 basis point impact on gross margins. As it relates to non-GAAP operating expenses, one area I would reiterate where we are investing is third-party measurements. We expect to purchase, on behalf of our clients, a significant number of third-party lift studies from our measurement partners that will allow them to independently validate the incremental sales lift of our platform. This number could approximate 1% of revenue in the near term, but would likely moderate over time as we substantiate the benefits of our platform, and in some cases, shift the cost of these studies to our clients. A few other data points to mention as it relates to the full year 2026. We expect stock-based compensation expense to be approximately $10 million higher than 2025. And as it relates to cash generation, we expect free cash flow to be approximately 65% of adjusted EBITDA. And finally, and importantly, we exit 2025 with a healthy balance sheet and no debt. And that, in conjunction with continued free cash flow generation, gives us the flexibility to continue investing in the organic growth and strategic priorities of the business, and at the same time return cash to shareholders. As I hope you can tell, we are energized by what lies ahead. In 2026, we expect to move from a year of transition and learning to a year of greater consistency and execution. While there's still significant work ahead, we feel good about the progress we're making today, optimistic about our trajectory moving forward, and confident we'll see an inflection to revenue growth later this year. With that, operator, let's please open up the call for Q&A.