Ibotta, Inc. Price & Performance (IBTA)

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 This is due to an update we made in 2023 to fix a 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 33 in the appendix for more detail. With that, I'll turn it over to Brian.

Thanks, Sean. Good afternoon, everyone. Thank you for joining us to discuss our fourth quarter results. We reported revenue and adjusted EBITDA below the guidance range we provided on our third quarter earnings call. We're also guiding to a softer than anticipated outlook in the first quarter. We are disappointed in this performance. We believe we've taken steps to improve our near term execution and we're beginning to see that we have not secured enough offer supply from CPG brands relative to the rapid growth of redeemers across our network. As a result, our redemptions per redeemer are lower than anticipated and that is flowing through to lower redemption revenue. Through the end of 4Q, we continued to face the same challenge we discussed on our last Entering 2025, as expected, many of our top clients increased their ibotta budgets to take advantage of our larger audience of redeemers, Others continued to have always on content with us. Nonetheless, we have still yet to see the overall increase in spending that we anticipate And in this economic climate, our growing Redeemer base remains hungry for On our network, We attribute this to three main factors. First, at the higher levels of investment we're now seeking, CPG brands increasingly expect a greater level of rigor when it comes to measuring the ROI of our campaigns.

This is especially true in an environment where downward pressure on top line sales has caused some CPG companies to reflexively cut or pause growth in marketing spend across the board. As I mentioned on our last call, we're in the process of overhauling and upgrading our approach to both measurement and targeting. And as you'll hear, we've made significant progress on both fronts. But we are only just now taking these exciting new solutions to market and we haven't had them in time to materially affect [indiscernible] Second, we fell short of our expectations when it comes to sales execution, plain and simple. As we've been upgrading our sales organization, at times there was an inadequate account coverage and there were account handoffs that could have been CRISPR. This disrupted our ability to secure offer supply in the short term. At the December, we announced the hiring of Chris Reedy as our new Chief Revenue Officer. Chris spent eleven years at Twitter, ultimately overseeing all global revenue. More recently, he was Chief Revenue Officer at TV Scientific, which is a leader in the connected television space. Chris' deep experience running a larger sales organization combined with his ability to move quickly in a smaller and more nimble startup environment, are exactly what ibotta needs for the next stage of our growth.

Chris' onboarding has highlighted additional opportunities to improve our sales operations, sales enablement, and account prioritization as well as continuing to streamline our offer setup process. Despite the disruptions we've seen, I'm confident that Chris' arrival the changes he is already bringing about are positioning us for long term success. Finally, we're not yet fully on cycle with certain CPG clients. In some cases, we've been unable to persuade our client rather than a full planning cycle after they have seen it. Compounding that challenge some clients have separate e commerce budgets that we anticipate tapping into but which were finalized prior to our announcement of Instacart and DoorDash joining our publisher network. These considerations inform our broader I'll say more on this in a moment. Let me take a moment to address the cost side of our business. As we look at our strategic priorities for 2025, we have identified several opportunities to streamline our operations and better allocate our resources to align with our key initiatives. As part of this effort, last week, we reduced the size of our work force by 8% This decision was necessary to maximize our potential and advance our mission. For the employees who were impacted, however, it was difficult news to receive.

And I want to take this opportunity to thank them and all our employees for their tireless effort on behalf of Ibada Ibotta. To be clear, we are not implementing a hiring freeze. We will continue hiring and investing heavily in R and D and sales. Soon it will discuss what we're expecting for our full year operating expenses later. What we've heard from top clients is remarkably consistent. Our clients are happy with the service Ibotta Ibotta, and we are seen as a leader within the promotions industry. We continue to see very high rates of client retention overall, That said, to unlock the much higher levels of investment from our clients that we aspire to, it has become clear that we need to bring to market a more rigorous form of measurement that goes beyond the industry standard return on ad spend or ROAS framework. With this in mind, we're pursuing two main strategic goals. Goal number one, establish the unrivaled value of what we sell. Last quarter, began unveiling a new framework for measuring incremental sales lift, This framework will allow us to demonstrate that targeted promotions drive profitable revenue growth and close key sales gaps. Goal number two, change the way clients buy on our network.

This means getting away from annual promotions budgets and evolving our network into a more programmatic interface for buying performance based media through our Campaign Manager product. On goal number one, our approach looks at millions of shopping trips and takes into account the actual incremental dollars generated by a campaign relative to an otherwise statistically identical population of who are not exposed to our campaign. We've begun shifting our product and go to market toward the concept of cost per incremental dollar, which I will refer to as CPID for simplicity, CPID. We then calculate a CPID using the fully loaded cost of the campaign inclusive of our fees, any consumer rewards, any setup costs. If a campaign costs $3,000,000 to run, [indiscernible] the CPID would be $0.33 This is a simple concept but in the offline world, CPG brands have generally been unable to measure true sales lift in near real time. For the first time, CPG brands will be able to log into a dashboard and track the volume of incremental revenue they have generated. The CPID and decide how to optimize their campaigns. We believe we're in a unique position to be able to bring this important new capability to market due to our data and large network of publishers.

With regard to goal number two, we also in the process of upgrading Campaign Manager to support a more rich programmatic buying experience. Including the automatic configuration of offers, and more self-service features. In the future, anticipate that our clients will be able to more easily sign up [indiscernible] Set up measure, and optimize campaigns with us all without needing the same level of time intensive back and forth with our sellers and account managers. Over the course of the year, our progress against these goals will allow us to tap into budgets that are much larger than what we have today and move us to an always on, performance marketing model. We believe this will improve the forecastability of our business and with annual promotional budget planning cycles. So far, we've only implemented our new go to market strategy with two CPG companies, which happen to be among the largest food and beverage companies in the world, We're pleased to announce that within just the last week, based on the success of pilots completed during the fourth quarter, both clients have decided to green light campaigns. By measuring incremental sales and tracking CPID with our latest technology, We are helping these partners drive profitable revenue growth and close key sales gaps with optimized promotional strategies all at a scale we believe will move the needle for their brands.

These two programs represent exactly the kind of performance advertising model we're moving towards. These dollars are being sourced from a purpose dedicated Ibotta a budget that has been created at this direction of senior executives within each company. Executives who share our broader vision. Give you a sense for the potential we see here, the amount of money that is is being invested by these two companies is several times higher on an average daily basis than what we observed [indiscernible] In the coming months, we plan to build on our early success with these two large CPG clients by bringing our new measurement and targeting capabilities to all our remaining clients. Lastly, let me touch briefly on D2C ads. While we saw seasonal strength in Q4, we expect some ongoing weakness in the first half of this year. Our D2C Ads functionality has not historically been a priority area of investment given that one, it functioned well for many years, and two, was not a core focus of growth for the business. That being said, given the deterioration we observed in the ads business in 2024, believe we have opportunities to improve performance meaningfully. For example, today our ads business is only capable of flat fee pricing.

Meaning it's not CPM based. Over the course of 2025, we intend to serve display ads through a new third party ad server and use CPM pricing for banners while making it easier for advertisers to tap into run of site and remnant inventory. We believe this will allow our clients to buy ads on our D2C platform similarly to how they buy media elsewhere which should result in much higher fill rates We'll have more to say on this topic later this year as we make progress on this initiative. [indiscernible] Although the focus of my remarks has been on how we unlock greater offer supply, we continue to make progress in terms of adding new publishers. In January, we announced that DoorDash will be going live on our network later this year. We also introduced alcoholic beverage offers on Instacart in February, which we believe will help us attract greater investments from beer, wine and spear companies over time. To wrap up, let me clearly say that I recognize it's been a bumpy couple of quarters for Ibotta and our investors Ibotta. We know we need to deliver consistent results in the near term to get investor confidence back and we anticipate being able to do so.

The way we will get there is through remaining focused on innovation and improved and breaking out of the promotions category. As our new measurement tools allow us to demonstrate that we're delivering incremental revenue growth that is also contribution margin positive on every transaction we believe our clients will grow their investments on the platform. In this way, we believe our company can follow a similar trajectory to other performance has been established. By introducing a more programmatic media buying interface, we will also make it easier for brands and their agencies to invest on our network, and that in turn should help us get better at forecasting our business. As I mentioned, we've begun to see clear validation of our newer go to market strategy and we look forward to keeping you updated on our progress. In terms of execution, we brought in a new Chief Revenue Officer, and he's helping us upgrade our sales execution and better position ourselves for long term success. Hand the call over to Suneet to discuss our fourth quarter results and first quarter guidance in greater detail. Suneet?

Thank you, Brian, and good afternoon, everyone. We delivered revenue and adjusted EBITDA of 413% below the midpoint of the guidance range provided on our third quarter earnings call, respectively. Our revenue was below our guidance range as a result of a shortfall in redemption revenue driven by a lack of sufficient offer supply. Fell below our guidance range as our expenses were largely as we forecasted, the revenue shortfall fell almost entirely to our bottom line. We generated free cash flow of $19,400,000 in the quarter, which brings our full year 2024 to $105,700,000 We saw healthy growth in third party redeemers across the IPN on both a year over year and quarter over quarter basis highlighting the continued strength of the demand side of our network. Revenue in the fourth quarter was $98,400,000 representing a non GAAP revenue decline of 0.5% year over year exclusive of $800,000 in onetime breakage revenue in the prior year period. We delivered Q4 adjusted EBITDA of $27,800,000 representing an adjusted EBITDA margin of 28%. Adjusting for the $800,000 in one time breakage revenue, this compares to 33% in Q4 of twenty twenty three. And represents a 14% decline in adjusted EBITDA. In Q4, our redemption revenue was 82,400,000.0 up 7% year over year on a non GAAP basis. [indiscernible] now 16% of our revenue, were $16,000,000 down 27% year over year.

Our total redeemer growth continues to be healthy and we continue to see strong growth in our third party publisher business offset by softer performance in our D2C segment. Third party publisher redemption revenue was 52,300,000.0 up 39% year over year while D2C redemption revenue was $30,100,000 down 24% on a non GAAP basis excluding the one time breakage benefit in Q4 last year. Turning to our key performance metrics. Total redeemers was $17,200,000 in the quarter, up 27% year over year and 13% quarter over quarter. Down 20% year over year. Driven by the growth in third party redeemers which have a significantly lower redemption frequency, as compared to our D2C redeemers in addition to a lack of sufficient offer supply which impacted both D2C and third party. Redemption revenue per redemption was $0.87 up 6% year over year on a non GAAP basis. Primarily reflecting a mix shift within our CPG portfolio and a growing contribution from higher MSRP general merchandise. As a reminder, redemption revenue per redemption can vary quarter to quarter based on seasonal patterns, but also due to variations in offer mix. Q4 non GAAP gross margin was 85%. Adjusting for the one time breakage revenue benefit in Q4 of twenty twenty three, non GAAP gross margin would have been down by approximately two sixty basis points Year over year, Non GAAP gross margins were down approximately 300 basis points sequentially driven by a $3,000,000 sequential increase in cost of revenue, which as we discussed last quarter was a function of both the Instacart contract going live for a partial quarter as well as increased technology related personnel costs.

Non GAAP operating expense as a percent of revenue was 58% Adjusting for the one time breakage revenue benefit in the prior year period, non GAAP operating expenses as a percent of revenue would have increased by approximately two fifty basis points. Non GAAP sales and marketing increased by 1%. Non GAAP research and development expenses increased by 3%. Lastly, non GAAP general and administrative expenses increased by 11%. And adjusted diluted net income per share of $0.67 Our adjusted net income excludes $12,900,000 in stock based compensation and has a $66,700,000 adjustment for income taxes. As I previewed in our third quarter earnings call, during the fourth quarter, we recognized a one time GAAP tax benefit of $58,600,000 reflecting the release of our valuation allowance against deferred tax assets. We ended the quarter with $349,300,000 of cash and cash equivalents. In Q4, we spent approximately $15,600,000 repurchasing approximately 244,000 shares of our stock at an average price of $64.12 In Q4, our weighted average fully diluted shares outstanding were $33600000.068800000.0 dollars remaining under our current authorization. Turning to our Q outlook. We currently expect revenue in the range of $80,000,000 to $84,000,000 representing flat revenue growth. We expect Q1 adjusted EBITDA in the range of $10,000,000 to $14,000,000 representing about a 15% adjusted EBITDA margin at the midpoint.

I'd like to provide you a little more color on our Q1 outlook as well as some thoughts on 2025 as a whole. We continue to face near term supply constraints impacting our revenue growth in Q1. We believe that this is driven by the factors Brian discussed earlier including sales execution and the fact that we are still early in bringing our new measurement breakthroughs and the CPID framework to our clients. We believe our guidance for Q1 captures the headwinds we have described. We expect add another revenue of about $10,000,000 in Q1 However, we expect the year over year rate of decline to moderate as we roll out our ad infrastructure improvements the middle of the year. Underlying D2C ad revenue trends are expected to improve when we see improvement in D2C redeemer trends which itself is a function of offer supply. Our total year over year revenue growth dipped into negative territory in the second half of the fourth quarter before troughing in January. The year over year growth rate is improving sequentially in February and is positive. And we anticipate further sequential improvement in March. We're expecting overall revenue growth rates to continue to gradually improve over the course of the year driven by better execution driving offers supply recovery the ramp of Instacart and DoorDash the launch of alcoholic beverage campaigns at our third party publishers, and continued progress in winning more CPID based campaigns with our clients.

As it relates to total redeemers, we are expecting a small seasonal decline from Q4 to Q1 but we expect this decline to be smaller than last year given the ongoing ramp of Instacart which was only live for a portion of Q4. Compared to Q4, our adjusted EBITDA outlook in Q1 is principally driven by a sequential decline in revenue as well as an increase in cost of revenue. Separately, and excluded from adjusted EBITDA, we anticipate taking a small one time GAAP restructuring cost of less than $2,000,000 in conjunction with our efficiency efforts that Brian discussed. In Q1, we are expecting non GAAP cost of revenue to increase by $2,000,000 sequentially from Q4 primarily reflecting a full quarter of Instacart related costs. That should be a decent quarterly run rate to model for the rest of the year with a very slight sequential increases driven by revenue growth. Total non GAAP operating expense excluding any restructuring charges in Q1, should decline sequentially from Q4 by $3,000,000 driven by a decline in sales and marketing partially offset by growth in R and D and G and A. Non GAAP operating expenses should be flattish from Q1 levels through the course of the year.

Our adjusted EBITDA margin should show improvement every quarter as we grow revenue given our flattish expense guidance for the rest of the year. We anticipate our GAAP income taxes to be de minimis in Q1 to be in the high teens for the full year. We expect our adjusted tax rate to be in the low teens in Q1 and mid teens for the full year. With regards to free cash flow, we anticipate a step up in cash taxes in 2025. We paid approximately $13,000,000 in cash taxes in 2024, which represented 12% of 2024 adjusted EBITDA, In 2025, we expect that cash tax rate to be in the mid to high teens as a percentage of adjusted EBITDA. We also expect a one time cash outflow of approximately $6,000,000 related to our new office space, This will show up as a $20,000,000 increase in capital expenditures offset by approximately $14,000,000 of tenant improvement allowance that'll flow through working capital. Working capital excluding the tenant improvement allowance, will also be a use of cash in 2025. In summary, we we expect free cash flow as a percent of adjusted EBITDA in the 60% to 65% range. Lastly, on stock based comp, for the full year 2025, we are now expecting stock based comp between $50,000,000 and $60,000,000 dollars which captures both the cost of the Walmart warrants and employee based stock comp expense.

The end of twenty twenty four and the start to 2025, has been challenging on several fronts, including offer supply and add another revenue. That being said, are focused on improving near term sales execution and we are seeing early signs of success in in our CPID based sales effort, we should drive a recovery in our offer supply. We expect to see good margin expansion sequentially over the balance of the year driven by revenue growth and flattish expenses. With that operator, let's open up the call for Q and A. Today's Q and A session, we will be utilizing the raise hand feature. Once prompted, please unmute yourself and begin with your question. We ask that you limit it to one question and one follow-up. Thank you. Our first question comes from Andrew Maric with Raymond James. Please unmute your line and ask your question.

Hi, thanks for taking my question. Wanted to go back to the three issues that you called out at the top of the call. The measurement framework, sales execution and the CPG client cycle. I guess if you could give us an idea over what timeframe you believe that each of those three issues can be addressed and kind of what are some of the mile markers, especially on the measurement framework things that we can use to kind of assess your progress from the outside? Yes. Thank you, Andrew. I think that's a very good question. So let's tackle the first one.

First, which is the measurement framework. We've got that now in market. We've run pilots on that already, that methodology. We've had a multi month back and forth with these two clients that I mentioned that have gone beyond the pilot stage towards substantial green lit programming that's live right now. This is not a concept that we have. This is something that is live in the market and getting very positive feedback as evidenced by the investment There will continue to be ongoing investment in that approach. The more data that we're able to capture by adding more redeemers, the more publishers we add to our network, And then of course, we're training these models based on running ultimately thousands and ultimately even more than that different campaigns. And so the models get more and more effective in terms of their ability to not only observe, but also predict the level of cost per incremental dollar or the level of volume that a given advertiser could achieve at a a constraint of a certain target CPID. So I think that in terms of the metrics that you could look at, to continue to see if that's working, I think certainly following up, we'll want to make sure that we give you a brief on how these two First clients are doing in terms of follow on continued investment in this product and give you a sense for what their gross billings look like in terms of compared to prior years?

What kind of a step up is this in terms of access to a different level of budget And then additional brands that are piloting and converting those pilots into a full time programming. I think those are things that would be evidence of continued traction there. And we will come up with a set of metrics that I think makes sense based on what we're observing. So that may be some way of understanding how many of our clients are using these automated tools like Campaign Manager in the future. So I think it's a slow and steady rollout over the course of the rest of this year. We spent the last six to nine months really bringing this to a place where we think we have clear product market fit and now it's about rolling that out, expanding and evangelizing that. On the second question about execution on sales execution, I believe that we've identified most of the issues how you would know we're making progress there. I think there would be we would know internally that there are fewer handoffs happening between a seller and a new seller, for example, that we have Less friction would show up in the fact that we would have resumed growth in the accounts where we've had that turnover within our sellers.

I think this is just a lot of small things that we need to do better. So being able to have Chris on board and bring in people from his network to do things like sales operations, sales enablement, better than we've done them in the past. I think I can give you a qualitative update on those in the future. I think ultimately that's going show up in the form of the quality of the depth of offer supply that we have and that's going to be best way to objectively measure that. But I do believe we're well down the path in terms of identifying the problems. I do think it's going to take some time for us to get to a place where those With the new go to market that's more analytical, we have a different type of sale. We have a larger client analytics component. To that sale. We need to make sure our sellers are trained to be effective in that sale. We're selling into much more senior people within the organizations that we're speaking with. We're talking we're much more upstream in the strategic planning process. Of those clients. And so to do that is a little bit different than what we've done as sort of the the go to partner within the tactical zone of promotions in the past.

And so those are some things that will take us I think perhaps a quarter or two to iron out from this point. As far as the third issue of getting on cycle, that is something that we are doing every day. I think that we are starting to see even in the second quarter there should be some companies that say, well, we now have had enough time to set aside e commerce budgets. That we can participate in DoorDash, for example, That rollout will happen over the course of the rest of this year. But I think that by the time we are it's because Instacart was our first e commerce player a pure marketplace player and DoorDash, our second. We're now on radar with a number of these marketplaces and for those brands that have separate dedicated budgets for that kind of thing, I think it should be a matter of a couple of quarters until we can start to see really getting on to cycle with those. I think that's the by far the least important factor of the three, however. Hopefully, that's directly responsive to your question, Andrew.

I appreciate the color. Thank you.

Our next question will come from Andrew Boone with JMP Securities.

Thanks so much for taking my question.

I wanted to understand targeting in terms of some of the newer grocers that are available and the difference versus Walmart's kind of everyday low price strategy. So can you guys help us just better understand the unlock that maybe a DoorDash or maybe an Instacart and some of the newer platforms that may be available in terms of creating more of that incrementality in that targeting? Thanks so much.

Thank you, Andrew. I think it's a terrific question and I didn't touch on it. But we're excited that DoorDash, for example, is going to allow the full scope of and functionality of targeting that that we think is so valuable in terms of delivering a maximum amount of incremental dollars, ultimately delivering volume with a low CPID. So that means we'll be able to we'll be able to target there the same way we can on Ibotta a D2C and the same way we can on Instacart. So I think these are just two examples that you raised. But generally speaking, we're finding the new publishers are excited about the idea of personalization. And so that's continues to be an important part of why we're And then, I wanted to ask about just the cost savings you initiated. Can you provide any additional details in terms of where we should be thinking about those savings taking place, which organizations? How do we think about that kind of rolling through the P and L terms of '25? Thanks so much.

Yes. The cost savings primarily focus on a couple of areas. [indiscernible] first of all, D2C. That is not as much of a strategic priority as it was two years ago. And so we were overweighted in terms of our investment areas there. Across the organization relative to the R and D that we want to put into things like this new go to market approach We are also focused on the marketing side. So as we think about things like B2B marketing, we had took a hard look at that and said it's more important for us to focus on the R and D and on having as many of these conversations with our clients that we've had with these clients I mentioned, and less important for us to do a bunch B2B marketing and trade publications and things like that. So we're scaling that back substantially both in terms of the labor cost and some cost terms of the B2B side of the marketing budget. And then there's also just streamlining operations across the organization.

But But what I want to make clear is that we're not cutting any strategic areas that relate to these key innovations that I'm talking about. In fact, we're leaning in. We're hiring more people. In those areas. So we're leaning into client analytics. We're leaning into real time measurement of incremental sales, we're leaning into being able to use machine learning in the future so that we're really applying principles of artificial intelligence to promotions in novel ways Some of the areas of our business that are [indiscernible] areas are areas that we targeted in that reduction in force and also in some adjacent areas that are no longer needed when we reduce that. Part of the order. Thank you. Our next question comes from Eric Sheridan Goldman Sachs. Please unmute your line and ask your question.

Thanks so much for taking the question. Maybe just two if I could. First, just following up on the first question. Is there any way to frame out how reset [indiscernible] from Q1 to Q4. When we go out and talk to advertisers in that part of the ecosystem, they typically are a little slow to move and they only revisit product initiatives once or twice a year. So I just want to make sure we understand better how quick receptivity might be to implementation That would be number one. Number two, I thought it was interesting. I think you implied that Redeemer growth could be impacted right now by the lack of offer supply. Is there a way to quantify that as well or things you're seeing that could prove out headwinds to growth beyond just monetization side of the equation, but even slowing some of the redeemer growth? Thank you.

Thanks, Eric. Taking your questions in turn, how do you tell how quick [indiscernible] I think it's a great question. I think what we did was ran pilots in fourth quarter with these companies. And now here we are within the last week, so halfway through the first quarter, standing up programming that's based on the success of Of those pilots. And so that should give you some sense of the rough frame it could take when it's a sort of happy path That's the only path we've seen so far. Obviously, with any innovation, I don't want to be out in front of my skis here. I don't want to overpromise and underdeliver. So I'm encouraged by the timeline and the ability to find frankly, in period budgets that are material for these companies tells you the level of interest they have in the way we're now approaching this question. Which I think is encouraging But what I found is that the more senior you are in the organization, the more quickly that sort of in period budget can be found. This is going to be kind of an exceptional process in this first year where we're going and saying, look, this is an opportunity when you're light on top line growth, when you're having year over year misses brands, to both close those gaps in a reliable way and also do that in responsible and profitable way The impression I get is there are not a lot of folks coming and offering them that at scale.

Which is why they've been as sort of biased to action as I've seen. I've not seen this level of bias to action in the time that we brought things like this to market up to this point. So that's exciting. At the same time, they also say things to us like, well, we've already got this in the budget and this is accrued for and so we need to burn through this planned expenditure in this less efficient area so we can then turn to this, which we're very excited Ibotta, but you need to give us a quarter or two to get through those other commitments. The way we're positioning this is if it's profitable growth, it doesn't necessarily need to come from It is generating incremental EBIT And that's the whole point of having a CPID that's below your contribution margin threshold As far as the second question, Yes, look, there is an interrelationship in both directions between offer supply and and intensity of usage in particular. What we're finding though is that notwithstanding that, we're still growing the redeemers at a very good clip and anything putting more pressure on the offer supply. In the D2C product in particular, we have seen some of our power savers, the most intense users of our app, when they don't have an offer live for as long or as many offers as they were accustomed to at one point, they may go away for a cycle and come back.

But what we found historically at least what we've seen is that when we've exited periods of lower inventory, and entered periods of higher inventory such as in the fourth quarter of twenty twenty three, we see that snap back relatively quickly. And so we're hopeful that will happen again. But for sure, we do know that as we build the offer supply back, in the manner that we're describing, do think that will have knock on benefits in terms of redeemers. And in the short term, the longer it goes where we're dissatisfied with the offer supply the more that's, as you say, a break on what would otherwise be, especially redemptions Yes, I'll just underline what Brian is saying on that. I mean, on the D2C side, you're right. We did see our Redeemer count went from about $1,900,000 at the beginning of last year and we ended up at 1.8 On the other hand, on the third party publisher side, our redeemer count [indiscernible] pretty good strength on the third party side [indiscernible] Great. Thank you.

Thanks, Eric.

Our next question comes from Ron Josey with Citi.

Great. Thanks for taking the question. Brian, I wanted to understand a little bit more or maybe you can help us understand the changes that are needed to sales force. I think you've the new leader announced, you talked [indiscernible] adding maybe sales operations and enablement functions and maybe one to two quarters we start seeing this, but talk to us specifically do we need to hire more sales? Is it retooling sort of feet on the street that currently exists today? Any more insights on the go to market would be would be helpful. And then on the measurement side and the CPIT, I think in the past we've talked about you know, upwards of 50% of offers are personalized and targeted to users. And so you know, I'm assuming that goes back to the CPG over time. So we'd love to hear more just about how measurement is improving for these CPGs so they can make these decisions at a at a faster pace? Thank you.

Tackling the first one, it's a 100 small optimizations in the way our operations work. I think it's one thing when you're going out and asking someone for a $10,000,000 budget.

It's very different when you're going out and asking for a hundred or $200,000,000 budget.

And so the ability to do that, it requires you to lead with a clear alignment on measurement, and that measurement has to be very analytically rigorous and pass muster with the entire finance organization. The entire measurement organization, perhaps a third party measurement partner. So it's a matter of putting in place the tools, the raw tools to give to our sellers and then making sure they know how to sell in the way we want to sell based on our new go to market, which is really focused on this point you're making about incrementality In the course of that, that means a lot of things have to be different. The collateral that you're using to enable your sellers to win the training, the onboarding, folks that have that type of experience selling at that level You may also, in some cases, be talking to a different kind of buyer at an agency, for example, and there are people with that kind of I think it's a matter of better prioritization of accounts, so making sure that if we have an account that we think is potentially as big as one of these two, that we're putting our best people on that and in some cases, we've gotten that wrong I think it's a matter of simple things in sales operations like having a proper playbook so everyone's on the same sheet every week, understanding, looking at the data, and spending more of their time selling and less of their time sort of consultative functions.

So things like the campaign manager tool should free up our own ability so that we're not spending a bunch of time going back and forth. Well, I think campaign could be configured this way or that way. [indiscernible] no, no, no. This tool is going to automatically configure these parameters based on the goal of CPID or incremental dollars that you've set And that whole idea means that the function of the sellers is much more elevated and much more focused on selling in that grander opportunity and vision. And so I think those are things I'm confident Chris has experienced doing. He comes from an organization in Twitter with a $4,000,000,000 roughly revenue and understood from running their entire EMEA business and then their entire global revenue business, how you operate at scale. I think we got to a point where what got us here won't get us there and in terms of execution, and that's ultimately my responsibility to fix. I think that those that gives you hopefully a little bit of color on what we're going to be doing in terms of the day to day to upgrade that. In terms of your second question, yes, look, I mean, this is a really big deal.

If you think about ROAS, what that is, is basically in period one, were this many sales of your product. And then in period two, we ran a promotion there were this many sales of your product. Ergo your products sold more because of our campaign. Well, the question that naturally begs is, well, did it sell more because of your campaign or were there other lurking variables going on at the same time? I also ran this or that execution with merchandising or I had a Super Bowl ad going or whatever, to be able to look in the same period of time at two otherwise [indiscernible] that's the gold standard. That really is like the scientific method applied to measurement And what's different is that instead of a snapshot or what's called a lift study, you can now see that in a real time way, which is valuable to brands. And so yes, the personalization and the targeting are how you then tweak the program parameters so that they achieve the target CPID so that something is always contribution margin positive and you know that it's profitable growth. So you're not talking about sales, you're talking about their actual takeaway profit comparing that to the fully loaded cost, which is the honest to goodness this sucker should turn on and never turn off And that's what the industry has never really had.

The promotions industry hasn't really concerned itself adequately with that. Because promotions serve a lot of different purposes. They have a strategic purpose in driving sales on a short period of time. Support innovation launches, They're traded in exchange for merchandising and so forth. What we're doing is taking it to a level of legitimacy in terms of ROI that makes the claim that this is actually the single one of the most efficient ways in which you can allocate A dollar Very helpful. Thank you, Brian.

Our next question comes from Kurt Nagel with Bank of America.

Looks like we've lost Kurt. So our next question comes from Chris Guntage with UBS Great.

Thanks for taking the question.

Maybe just one Prasunet on growth visibility throughout the year.

Think you indicated that there should be some acceleration here that you were kind of hitting the trough and December, January, you just talk about your supply visibility at this point into 2Q? Are there enough commitments at this point that you should be accelerating in 2Q. And I have one follow-up. Thanks. [indiscernible] Yes. I mean, clearly, we have good visibility into March sitting where we sit here. About the second quarter. And then some of it, as Brian was saying, as we run these campaigns with these clients in the new measurement framework, that could help us too. But probably still too early to have very firm view in the whole quarter, but the tone feels good, but we will have to see how it goes. But we feel very good about [indiscernible] Yes. Look, I mean, I would say that there's the normal business where we still face we're still cleaning up these same issues. That I mentioned. These three issues are not going to just be solved by the beginning of the second quarter and that's going continue to be a headwind. On the other hand, we have these new clients that we're really excited about.

So I would say best to think about it as a gradual improvement and rebound in the course over the course of the year. But depending on how these continue to go, we think that there's there's going to be upside as more and more companies follow that path. And that that is also important because it will lead to a level of predictability that it is obviously frustrating that we are not providing. So if I can get a company to conclude, look, this is contribution margin positive, we're going to leave it on the way we leave on our Google campaign, because we know it's contribution margin positive. That leads to a level of stable forecastable commitment that is much more attractive than having to kind of rely on the annual promotion cycle. But yes, so we are going out and making the baseline argument. Look, our redeemer base has grown. You therefore need to allocate commensurately more content and we believe we'll have success. There's also some seasonal improvement generally from the first to the second and then the third quarter.

But we're climbing out as we retool. And look, our focus is on the long term. So we as a company are retooling to be something far greater than we are right now. And that can be painful in the public market context, but we're really excited when you're in these meetings and you're having these conversations, we feel like we're really on the right track for the the long term vision that we've been pursuing.

Yes. I mean, the only one thing I would add to what Brian said is remember, our redemptions revenue are growing. What has hurt us on the margin has been the ad revenue as we talked about our outlook for the first quarter. So as we said, we expect to see gradual improvement, both driven by over the course of the year, driven both by better job on sales execution and as some of these new measurement methodologies are taking grip with our plans.

I would also add, I think to the extent that these ad product improvements do help us improve reverse the deterioration of that. I would expect that to manifest later in the year.

Got it. And just kind of one on the migration of clients to CPID. Is this something that we should be thinking about adding kind of two clients per quarter or there an opportunity for that process to scale in and of itself? And do you have any kind of goals as far as we should be thinking about you potentially exiting the year as far as clients that would be migrated over?

Yes, I think I'll have to tell you more about that later. I mean, it's it's so early in the process Chris, that for me to say we're going to have 16 clients are going to be here And frankly, these clients that we have are are so large and so significant that their continued investment and participation would be by itself very exciting development. So is partly about the number and breadth of clients. It's also about the depth [indiscernible] and number of brands within a client that are ultimately investing. So it's about getting more money from those partners and delivering results. So they want build more and more and more trust and more and more and more investment I think that's probably more important than you know, spray and pray and have a bunch of clients all trying it at the same time. We're certainly on a very steep learning curve over the last six months from how how different this is from what folks have ever seen in this space before. And so daily, we are gaining, gleaning some information and refining our our tools. So I think in the next quarter, perhaps in a quarter from now, I could have a more intelligent answer to that question.

Very helpful. Thank you.

Our next question comes from Kurt Nagel with Bank of America. Please unmute your line and ask your question.

Good afternoon. Can you guys hear me?

Yes.

Perfect. Hey, Brian. Okay. Maybe just, let's see, First one, I don't think we heard too much in terms of Instacart, in terms of how that's scaling. Maybe an update in terms of progression relative to expectations, growth of the year, like that? That'd be very helpful. That's my question.

Great.

We're very pleased with the fundamentals of that program. The issue is that we aren't seeing the financial contribution that we want because we don't have the offer supply that we have had in the past. So if you were to look at the offer supply we had in 2023, for example, and you flow that through the user base of Instacart, it would be Very, very exciting. Right now, we're in a depleted posture, and therefore, we're not maximizing the potential of that audience, But if you look at the quality of the experience, the implementation that Instacart has done, the the redemption rates, things of that, that's all very healthy. So we are very confident that as we recover on offer supply, we should see that continue to ramp over time. I would say that that's why I focused all my remarks on offer supply. That is really the other side of the flywheel. We've got really high level of confidence that these places, especially the ones with marketplaces with high redemption rates, are just going to continue to grow in size. You're intercepting people who are searching for a category boom, they see the offer It's pretty intuitive, how to use it, how to check out with it.

All we have to do is get more categories covered with these offers. The launch of beer, wine and spirits or Outbev is one example of doing that. So, you know, Instacart is the first of those companies that will support that. DoorDash will be the next one and we hope that Walmart will be another one. And so those are examples of how we're going to do a better job in terms of redemptions per redeemer in those environments. But no, we're happy with the ramp [indiscernible] terms of transitioning the 800 clients that they had off of their self-service tool onto our self-service tool.

In the fourth quarter there was some press around that and I'll acknowledge we could have done a better job of that. But I think we're smoothing those out and that's going to contribute to continued ramp as long as we solve the other side of the equation.

Okay. Thank you.

Our last question will come from Bernie McTernan with Needham. Great. Thanks for taking the question. Just given the concerns on offer supply, I think one of the implications that we should probably increasingly our model will be looking at like, that total redemptions number instead of maybe looking at the other building blocks. And so I think guidance for 1Q implies about $80,000,000 redemptions versus the two prior quarters were mid-90s, high-90s. Again, is there yes, I understand they're getting close to like the end of the offer content, but is there a reason why couldn't produce at the same levels or fulfill the same number of as 3Q and 4Q?

Yes. Thanks. I mean, as you know, Q1 is seasonally our slowest quarter, but there is no lack of demand. The Redeemer base continues to do really well. So some of that is just seasonal Q3 as back to school, Q4 as Thanksgiving and Christmas, And so Q1 is always a little bit slower that way. But your point is right, which is that the total number of redemptions is the whole key. And I think that on that front, usually the first quarter is our lowest point. So for example, if you look at last year, the total number of redemptions we had in the first quarter was 71,500,000. We ended the fourth quarter at 94.6%, which was a little lower than 97.4% in the third quarter. So I think Q1 of this year while higher than last year in terms of redemptions, is usually the low point and then it goes up over the course of the year, driven both by continued offer supply growth and redeemer growth.

Yes. I would just add panning back, Bernie. I think if you're a brand and you think of a promotion as essentially a tactical marketing expense, that you will do from time to time in your calendar to support a new product launch or to essentially trade in exchange for merchandising credit with some of your key retailers That is episodic and it's vulnerable in the sense that when you're cutting back to protect your bottom line because you're not doing well on your top line, there can be some bumps there. We've done relatively well, I think, compared to a lot of other marketing tactics that have been slashed because people know that consumers really want these price adjustments and it's really important for them to combat the encroachment of private label. But if instead of thinking of it that way, you think of this as a way to buy a bundle of incremental dollars, in a way that costs less than the incremental profit you get, That's a machine you want to turn on and leave on. And that's not a tactic, that's not reserved for a launch of this product or that or that Curry favor with this person or that.

That's just straight up profitable growth. Right? And so what's so interesting about this corner we're turning right now is that we're getting folks to really question the conventional wisdom and to see it as performance marketing. And because performance marketing is a well established paradigm in the online world, where people can see through a pixel or SDK what's converting and whether or not that's ultimately profitable. We believe that the analogy to that, if you could bring that idea to the the world of goods that are sold in the physical world, is going to be a quantum leap type of thing over time. But it's, you know, these are large organizations that have been doing it this way for decades. So getting in and changing these perceptions takes a little bit of time. And so we understand that. So I'm actually really kind of surprised at how quickly we've gotten really senior within these organizations. I think their support and their vouching for this will ultimately inspire other companies to say, I wonder what they're on to over there. But first, we have to prove it to them, and so we're heads down doing that.

Got it. Understood. And just one last one for me. And sorry to harp on this point, but Are you hearing any feedback? I know that we're talking about expectations and guidance relative to what our expectations are. But are you hearing any feedback from publishers on this content point or is it pretty quiet on that front? [indiscernible] Publishers still know that this is the largest source of content that they can get anywhere. We're still multiples better in terms of offer content than our competitors. That is, I think, Just my point, which is that we're not content to be better than our competitors. In the narrow sense of the promotions industry. We're playing for something completely different. And I think that publishers are rooting for us in that regard because that's one of the reasons why I think we'll get more and more publishers to join because they realize okay, these folks are really innovating. They're the player in the space putting the most money into true innovation, has the largest investment in R and D and they're going to break this thing open, and I want to be there when they do.

Got it. Makes sense. Thanks for taking the questions. Thank you, Brian.

This now concludes the Q and A section of the call. Would now like to turn the call back to your host, Shaolin, for closing remarks.

Yes. I just want to thank everyone for joining the call today. I want to thank all of the folks who asked us questions. We really appreciate it. We look forward to our conversation in mid May and to updating you on our progress. You again.