Quotient Technology Inc.

Hello and welcome to the Quotient Q4 2022 earnings call. My name is Elliot and I'll be coordinating your call today. If you'd like to register a question during the presentation, you may do so by pressing star one on your telephone keypad. And I'd like to hand over to Drew Harrelson. The floor is yours. Please go ahead.

Thank you, operator. Good afternoon and welcome to our fourth quarter and fiscal year 2022 earnings call. With me on the call today are the company's CEO, Matt Krepsik, and Yuneeb Khan, our CFO. The company's press release and earnings presentation have been posted to the IR section of the company's corporate website, investors.quotient.com. Before we begin, please note that during this call, you will hear forward-looking statements, including the guidance we will be providing for the company's first quarter and full year. These forward-looking statements are based on information available to and the good faith beliefs of the company's 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 the related risks and uncertainties are set forth in the earnings presentation slides located in the company's investor relations website. Additional information about factors that could potentially impact the company's financial results can be found in the risk factors identified in our filings to the Securities and Exchange Commission, including on our annual report on Form 10-K, filed with the SEC on March 1, 2022, as amended by our 10-K-A, filed with the SEC on April 29, 2022, our quarterly reports on Form 10-Q, filed with the SEC on May 5, 2022, August 9, 2022, and November 9, 2022, and future filings and reports by us. We disclaim any obligation to update information contained in these forward-looking statements whether it was a result of new information, future events, or otherwise. Please note that operating expenses, gross margins, gross profit, and net income slash adjusted EBITDA financial measures discussed today are on a non-GAAP basis, each having been adjusted from the corresponding GAAP measure to exclude certain expenses. A reconciliation of GAAP and non-GAAP measures can be found in the financial results section of the press release and earnings presentation that we put out today on the company's website. With that, let me turn the call over to Matt.

Good afternoon, and thank you for joining us today for Quotient's fourth quarter and full year 2022 earnings call. Joining me on today's call is our CFO, Yaneem Khan. 2022 was a transformational year for Quotient as we took the necessary steps to simplify our product strategy reline our cost base, and solidify our capital structure, bringing it in line with our business needs. The fourth quarter was a challenging one across the digital marketing sector, as the industry saw a pullback in advertising spend, impacting the media part of our business and putting pressure on revenue for the quarter. However, our promotions business was resilient and continued to grow sequentially. Despite these industry headwinds, we believe The steps we took enabled us to establish a more robust operating model as evidenced by our ability to deliver sequential improvement in non gap gross margin of 58% sequential improvement in non gap adjusted EBITDA of 13 million generating positive operating cash flow of 6.2 million and delivering net income for the first time since 2017. Our results in Q4 and full year 2022 speak to the transformation journey that we started in Q2 of 2022, and the strength and durability of the new quotient. As you need, and I have discussed on our prior earnings calls, our primary focus has been to build a stable and durable foundation that puts quotient in a position to deliver profitable growth in the coming years. Over the course of 2022, in our opinion, we have made the company stronger. First, We have focused our product and go to market around our key strengths our network our first and second party data and our technology that together comprise our programmatic platform. This shift has allowed us to adapt our business model from being a full service agency to a technology based solution designed to provide greater value to brands and retailers, as well as deliver a superior margin profile for quotient second. Our shift in focus towards being a technology provider, as well as our efforts to simplify our technology and integrate acquisitions, has enabled us to materially lower our cost structure. Over the course of 2022, we established plans to reduce our operating costs by approximately $50 million, which has allowed us to improve our margins and reinvest in our growth initiatives for 2023, which Anib and I will discuss. Third, we made it our priority to improve our capital structure by retiring our $200 million convert with $55 million of debt and a $50 million credit facility. We believe our new capital structure provides enough liquidity to operate the business and strengthens our balance sheet for the opportunity in front of us. We have built a new management team and brought a new talent across the organization. I am pleased with our execution to transform our operating model and position our company to deliver consistent earnings and profitable growth. With this foundation in place, we believe we are well positioned for future growth, both organic and through a series of defined initiatives, a few of which I will highlight today. In Q4 of 2022, We delivered a total of $2.8 billion of savings to consumers due to the reach of our network and the power of our programmatic platform. With overall retail sales on promotions growing by 2.9% in Q4 2022 versus the same period the prior year, as reported by NielsenIQ, we saw our savings delivered grow by 13% over the same time period. We believe this represents a strong signal on the shift towards programmatic digital promotions and our ability to continue to capture share of the overall promotions TAM. In the quarter, we also started to see a shift in the market that is favorable to our promotions business. With the backdrop of improving supply chains and consumers facing pressure from an inflation rate that averaged 8% in 2022, our promotions business again grew sequentially quarter over quarter. Looking forward, we believe these trends will continue to put pressure on price conscious consumers. In addition, the reported growth of private label ahead of national brands will continue to place further pressure on brands to maintain market share and move volume. Volume growth will be important for both retailers and brands in 2023. and we expect this will lead to increased levels of promotional activity across the CPG and retail industry. We are closely monitoring these trends, and we believe that these shifts could yield a positive environment to drive profitable organic growth for our promotions business. Focusing on our promotions business, we were able to grow the reach and scale of our network by 7% in 2022 through the addition of new partners and endpoints which enabled us to reach more activators. Throughout 2023, we expect to continue to grow our digital promotions network as retailers recognize the value of our programmatic platform capabilities and the ability to guarantee time on the network. This ability is critical for our retail partners to plan and schedule merchandising events aligned with the digital promotions. More importantly, we believe this enables digital promotions to continue to capture share of the larger $200 billion-plus CPG promotion spent. In addition, we are also focused on adding more content to our network. Historically, we have worked with the largest brands and products with the widest distribution. And now, with the programmatic capabilities of our platform, we can more easily support new content for smaller brands, regional players, and new consumer purchase occasions, as well as new categories that require additional verification for digital offers. We need to expand our relationships with brands and agencies as we bring our new exciting capabilities to market. As we announced in January, Alison Metcalf has joined the team as our Chief Revenue Officer. In this role, Allison will be focused on driving net new growth as we look to engage more brands and more agencies across our product capabilities and bring more content onto our promotions network. We plan to continue to innovate our promotions product capabilities, and we believe the enhancements we are making to our platform will generate more content for our retail partners, more engagement for our publisher partners, move units for our brands, and deliver more savings to the consumer, which is ultimately what drives our revenues. In addition to our organic growth, we are also investing in strategic growth initiatives built around our existing platform. We are able to make these investments today due to the structural changes made to our business over the past year, bringing our costs in line with our objectives. Digital at a Home and Shopmium are expansions of strong products, with a growing TAM where our legacy cost model did not provide the funds to drive a properly scaled go-to-market effort. The launch of our retail ad network comes from the dialogue we've been having with our retail partners and brands over the past year as they see a need for an easy button across the countless standalone networks in the market today. Starting with Shopmium, we believe Our direct-to-consumer product is an important extension of our promotions business, as it provides incremental reach for our network and allows Quotient to establish a first-party data relationship with shoppers. Building on the success of our European Shopmium app, in late October, we launched Shopmium in the United States. Early signals have been strong, with Shopmium driving a more engaged user acquired at a lower cost than we anticipated. The user engagement has exceeded our expectations. We have also seen favorable demographics, with over 75% of the Shopmium user base being in the key age demographic of 18 to 54. The engagement levels and the age demographics has created greater monetization opportunities for Quotient, faster and more efficiently than our pre-launch estimates. Our next initiative is Digital at a Home, where the market is expected to grow at 15% through 2025. With access to over 500,000 screens and over 150 million mobile devices, our digital at-home product is a powerful industry-recognized demand-side platform that allows for planning and targeting to programmatically reach consumers on digital screens wherever they are and wherever they shop. As part of our strategy to grow our digital at-home business, In Q4 of 2022, we announced a partnership with HiveStack, a leading global independent programmatic digital at-home supply-side platform. HiveStack's extensive access to global supply provides our agency partners and brands with access to more digital screens as we plan to expand to international markets in 2023. In addition to the opportunity of working directly with brands and agencies as a demand-side platform, We are also seeing the opportunity to work with retailers as a technology partner for their retail media businesses. Our Digital Ottawa Home location-based demand-side platform has the ability to extend audience reach for a retailer and create access to inventory and consumers in and around their stores. Over the past quarter, we signed up two retailers to this capability. And we believe we have the opportunity to sign more deals over the course of the year as we evolve our role in retail media as a technology platform and partner. In December, we also announced the launch of a retail ad network to tackle the fragmentation across the ecosystem. The Quotient Network aggregates individual in-house retail media networks to enable advertisers to target, manage, execute, and measure campaigns across multiple retailers through one central transparent platform with scale. In addition, our retail ad network has a unique solution to combine media campaigns with promotions and deliver a call to action to drive sales. We have seen positive reception both from brands facing challenges presented by the fragmented landscape of retail media networks, and from retailers looking to compete with the scale of the largest networks. In our view, all the work we've done in 2022 has set a strong foundation for the business moving forward with organic and new growth potential for our products. As part of this journey, we are bringing on board new talent and expanding our senior leadership team to help drive execution. In addition to hiring Allison as our Chief Revenue Officer to focus on brands and agencies, we felt it was also critical to elevate the strategic importance of our incredible retail partners by creating a Chief Retail Officer role at Quotient. As we announced today, Jeff Williams will be joining the Quotient leadership team as our Chief Retail Officer. With his decades of experience in CPG retail, his role will focus on strengthening our strategic relationships with our retail clients and growing our retail client base across the product portfolio. Finally, we have spent a lot of our effort this past year building a robust operating model that has created operational leverage for the company and enabled us to invest in our growth initiatives. In addition to Yanib's duties as CFO, he will also be taking on the role of Chief Operating Officer and will continue to focus on improving the operational efficiencies of the company, improving our margins and cash generation. Over the course of 2022, we have done the work to simplify our product strategy and align our cost base and capital structure to meet our business objectives. We believe our fourth quarter shows early results from these efforts as we demonstrated measurable improvement across all profitability metrics. As we move into 2023, we look to build on top of our new foundation, leveraging the organic growth and emerging tailwinds in the promotions market and our strategic growth initiatives that we believe position the company to grow our top line and continue to deliver profitability at a faster rate. I'd like to now turn the call over to Neib to review our financial results and guidance.