Quotient Technology Inc.

Good afternoon, everyone, and welcome to Quotient's third quarter 2021 earnings conference call. During the conference call, all participants will be in a listen-only mode. After the presentation, we will conduct a question and answer session. At that time, anyone with a question should lift their phone receiver and press the star key followed by 1 on their telephone keypad. To cancel a question, you may press star, then 2. If at any time during the conference you need to reach an operator, please press star followed by zero. As a reminder, this conference call is being recorded and will be available for replay from the investor relations section of Quotient's website following the call. At this time, I would like to hand the call over to Mark Griffin, investor relations. You may now begin.

Thank you, operator. Good afternoon and welcome to our third quarter 2021 earnings call. I am Mark Rippon, investor relations for Quotient Technology. And on the call with me today are our CEO, Steve Ball, Pam Strayer, our CFO, as well as Scott Raskin, our president. The company's stockholder letter has been posted on the IR section of our corporate website, investors.quotient.com, alongside our press release and earnings presentation. Before we begin, please note that during the call, you'll hear forward-looking statements, including the guidance we will be providing for the fourth quarter and full year 2021. These forward-looking statements are based on information available to and the good faith beliefs of our management team as of the time of this call and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These forward-looking statements and their related risks and uncertainty are set forth in the earnings presentation slides located on our Investor Relations website. Additional information about factors that could potentially impact our financial results can be found in our stockholder letter issued today and the risk factors identified in our annual report on Form 10-K filed with the SEC on February 23, 2021, and quarterly reports on Form 10-Q filed on May 10 and August 6, 2021, and in future files with the SEC. We may disclaim any obligation to update information contained in these forward-looking statements. whether as a result of new information, future events, or otherwise. Please note that operating expenses, gross margins, and net loss financial measures discussed today are on a non-GAAP basis, each having been adjusted from the corresponding GAAP measure to exclude certain expenses. The reconciliation between GAAP and non-GAAP measures can be found in the financial results section of the stockholder letter issued today and in the earnings presentation slides posted on the website. With that, let me turn it over to Stephen. Stephen?

Thank you, Mark. Hello, everyone, and welcome to our Q3 2021 earnings call. As you've seen from our release and stockholder letter, we had an outstanding Q3, delivering revenue of $135.9 million and adjusted EBITDA of $17.3 million which is starting to demonstrate the leverage in our business as we scale up our platform, migrate away from lower margin, higher cost to deliver services, and keep our continued focus on reducing operating expenses. We also started to scale up our national cashback rebate platform, which is providing an exciting opportunity for both retailer and non-retailer network partners, delivering the largest set of national offers in the industry. Turning to retail network growth, we are pleased to share that AutoZone is now live on the Quotient network, as is Total Wine & More, the largest adult beverage retailer in the U.S., and another new vertical for Quotient. Additionally, we are very excited to announce that we have launched promo amplification with Rite Aid and have additional retailers in the pipeline we expect to launch over the coming months. Network growth outside of retailers continues to expand, and we have several partners in various stages of integration currently underway that we expect will also be live over the coming months. One great example is our partnership with Redbox. Redbox has 40,000 kiosks at the entrance of major retailers and other high-traffic areas. They have a very loyal fan base which frequently visits these kiosks, which makes them a perfect partner for Quotient. we look forward to being able to offer more savings value to more shoppers as they start their shopping trips. At the same time, we're hearing about supply chain issues and some out-of-stock situations in parts of the country, not as severe as during the peak of the pandemic, but impacting CPG spending to a degree. Last quarter, we highlighted that we had two retailer renewals underway and that we expected to have closure on both by end of year. We have renewed our partnership with Dollar General, and we are winding down our long-term partnership with Albertsons. As of now, we expect to wind down that relationship over the next few months and are taking actions to remove costs in this quarter and decommissioning systems in areas of operations that supported this account. We believe the exiting of this business will have a positive effect on our long-term margins and on our network performance overall. Pam will get into more of the details, but our continued attention on moving from managed services to self-service is starting to produce the desired outcomes we expected. And broadly speaking, we now expect to see gross margins in the neighborhood of 55% in Q1, with growth up from there over 2022. As I mentioned last quarter, as we continue to grow our network and with our business shifting to deliver promotions on a fixed calendar rather than on a volume basis, brands can more accurately align with their overall merchandising schedules and budgets, paving the way for the remainder of the offline FSI dollars to move to digital. This new way of engaging with quotient is being endorsed by CPGs, and we look forward to steady growth in this business over 2022. Smaller CPGs continue to be a growth driver for us, with revenue in this area 109% up over Q3 of 2020. The recent launch of our cashback rebates platform enables these smaller CPGs to offer this exciting alternative way of rewarding shoppers. As I mentioned earlier, our rebates platform continues to be met with strong demand. We are implementing cashback rebates with both retailers and with non-retailer network partners. Quotient has the largest number of national promotions, and now that cashback rebates are being added as another shopper option, our network partners have the widest possible number of available offers to engage with their shoppers. With regard to national promotions, although we are seeing some slowdown due to increasing supply chain and some out-of-stock situations, we continue to expect the bulk of the offline, primarily freestanding insert spend, will move to digital over the course of 2022, and we believe Quotient will be a primary beneficiary of the transition. Periods of price increases for consumer goods and overall inflationary pressures tend to be higher promotion spending environments, and we expect to see this swing back early in 2022. In retail performance media, or RPM, we saw growth of approximately 59% in bookings dollars from our CPG customers in the third quarter over last year. Additionally, RPM retailers saw approximately 9% increase in alternative revenue streams on pure play retail media delivered through this platform. Looking at our digital out-of-home business, at the end of Q3, we had inventory of over 287,000 screens nationwide, up over 45,000 screens from Q3, and access to over 75,000 in-store screens. We continue to see momentum for this product, which leverages our proprietary shopper data and measurement capabilities. In sponsored search at the end of Q3, we had over 344 CPGs using quotient sponsored search, up from 325 last quarter. We continue to experience consistent sequential quarters of growth in CPGs and bookings on this platform. Moving on to our outlook for Q4. While we are seeing strong bookings in most of our business and have a robust pipeline for the rest of the year, at the same time, we are also seeing some pullback on national promotions due to some of the out-of-stock situations and supply chain pressures. Due to these potential impacts and with some uncertainty around how the Albertsons' wind down will transpire, we're taking a slightly cautious approach to Q4, which should be a minimal approximately $5 million of revenue impact. As we head into the final months of the year and turn our attention to 2022, I'd like to thank our team, our network partners, and our advertisers for their part in helping to deliver essential services to shoppers over the course of the pandemic. We have done our part to help shoppers save when they need it most and continue to be a key strategic partner to advertisers and retailers, helping them reach shoppers at scale in an increasingly efficient way. And with that, I will now turn the call over to Pam. Pam?