Great. Thank you, operator.

Hello, everyone and welcome to our fourth quarter and full year 2020 earnings call. On the call with me today are; CEO, Steven Boal; Pam Strayer, our CFO; and Scott Raskin, our President.

The company's Stockholder Letter was posted almost an hour ago 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 this call, you will hear forward-looking statements.

These forward-looking statements include, projections for our first quarter and full year 2021, our ability to manage our business and liquidity and to capture marketing dollars during and after the global pandemic, expansion of our retail partnerships, launch of our National Rebates platform, CPGs and retailers shift to Digital, growth in eCommerce and Retail Performance Media, the effectiveness of our cost control measures, and our ability to leverage investments and operating expenses, as well as the expected growth of and investments in our business turnover. Forward-looking statements are based on information available to and, in good faith, beliefs or management team as of the title of this call, and are subject to known and unknown risks, and uncertainties that could cause actual performance as a result to differ materially.

Additional information about factors that could potentially impact our financial results can be found in our Stockholder Letter issued today and risk factors are identified in our quarterly report on Form 10-Q filed with the SEC on November 6th, 2020 and our future filings with the SEC. We 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 with the exception of revenue, operating expenses, gross margin and net loss financial measures, discussed today are on a non-GAAP basis, and has been adjusted to exclude certain expenses. A reconciliation between GAAP and non-GAAP measures can be found in the Financial Results section of the Stockholders' Letter issued today, and in the earnings presentation, slides posted on the company's website.

With that, I will now turn it over to Steven.

Thank you, Christine. Hello, everyone and welcome to our Q4 and full year 2020 earnings call.

As we reflect on the past year, 2020 has been a year unlike any other, and we are thankful for our customers and partners who relied on us to help them navigate this challenging and shifting landscape. And I would like to thank our world-class team who rose to the occasion.

On that note, I would like to start with an example that I think demonstrates the collaboration between Quotient, our customers, retail partners and ultimately, consumers. Back in March, when stay at home orders began, many of our CPG customers reduced budgets on Promotions due to the unpredictability of the growing pandemic.

We all witnessed consumers stockpiling groceries, and shifting to make more meals at home. Items like cleaning products, paper goods and cereal started flying off the shelves as people generally stayed at home except for grocery and drugstore runs.

Beverage manufacturers and beauty companies started making in-demand health care items. The challenges grew greater almost every day.

One of our customers went from being the go-to products and brand in their market segment to losing a significant market share as new entrants flooded the market. This is where we stepped in.

They look to Quotient to help them pivot and define a comprehensive program to gain back market share and reestablish themselves as the category leader. They utilized a number of our solutions, both strategic and tactical, including National Promotions, National Media, Social and Sponsored Search and got themselves back on retailer shelves and in the hands of shoppers.

That scenario became repeatable, and it's not a trend that is likely to go away when this pandemic subsides. It is also something that we are proactively speaking to our customers about as we anticipate more changes ahead in a post-pandemic world, where shopper preferences will change again, as we start going back to restaurants and socializing outside the home.

Our full suite of solutions enables us to help our customers and partners adapt to both short-term and longer-term changing and challenging consumer habits and lifestyles. Now, I'd like to highlight some of the important progress we made with our business and certain offerings during 2020.

Small CPGs, one of our focus areas and growth drivers discussed at our Investor Day is the long tail or smaller CPGs. Despite this being more of a forward-looking metric as we expect more growth here in the upcoming quarters and years, we saw an increase of approximately 26% year-over-year growth in bookings on a dollar basis for this customer category.

National Promotions. Although we saw a decline in this segment annually due to the overall Promotions market being down as a result of the pandemic.

We ended the year roughly flat in terms of the number of CPGs deploying National Promotions campaigns, and are already seeing an uptick in this area of bookings in the early months of 2021, leaving significant room for growth, especially with our newly restructured sales organization. Retail Performance Media or RPM.

We saw an increase of over 66% in bookings dollars from our CPG customers in 2020 versus the 2019. In turn, our RPM retailers saw approximately a 58% increase in alternative revenue streams, something that has been and will continue to be increasingly important to retailers, especially in a post-pandemic environment, that they could face price margin pressure, and will be looking for additional revenue sources to help mitigate this.

Digital Out-of-Home. At the end of 2020, we have inventory of over 174,000 screens nationwide.

And this number continues to grow as we onboard screens with our partners in 2021. Our customers see the addition of Digital Out-of-Home as an important part of an end-to-end omnichannel strategy, fueling continued demand for this offering.

National Rebates Solution. Since our launch last November, we saw over 60 CPGs sign up for this offering and momentum continues to build in this exciting channel as we announced some exciting partnerships in this area over the next several quarters.

Self-Service Sponsored Search. We continue to see demand for this platform as CPGs and especially, the agencies they work with have been requesting more engagement in search.

As of the end of 2020, we have approximately 150 of our customers using this service. And finally, I'm pleased to share that we recently signed our first retailer in the automotive vertical, the first non-core vertical for Quotient with more planned.

We are looking for further expansion in non-core verticals and though we can't provide more details at this time on our newly signed retailer, we look forward to continuing to diversify across other verticals in retail. Digital Media and Promotions Technology continue to be an important focus for us.

And although eCommerce and online has taken center stage recently, in-store is still very much an important part of our business. And I'm thrilled to share that we recently hired Henri Lellouche as Vice President of In-Store Solutions at Quotient.

In this newly created role, Henri will be focusing on two key areas of opportunity. One, collaborating with the product, retail and sales teams to enhance our strategy and drive growth of our in-lane marketing solutions, and two, developing a strategy and business model for Quotient's expansion of in-store marketing solutions.

Henri brings to Quotient a wealth of experience and knowledge relating to in-store marketing solutions, and a vast retail relationship network built on many years of delivering results. Henri began his career at Actmedia, where he helped launch ShelfTalk, ShelfTakeOne, Instant Coupon Machine, and many other line extensions of those products.

Henri later joined News Corp, where he led the Development and Deployment of Printable Coupon Technologies, direct-to-consumer coupon programming networks, receipt scanning incentives net programming, email programming, programmatic Digital Media and finally, in-store Digital Media. As you can tell, Henri is a passionate leader and an expert within the in-store marketing arena.

And he believes Quotient has more than earned its right to win in this space with its suite of integrated advertising and incentive solutions, along with the best-in-class sales team. We are excited to have him on board.

One more administrative detail before I turn to the outlook. We're excited to share that we have signed a lease for our new office in Salt Lake City, Utah, and we will be relocating our headquarters there by mid 2021 once construction has been completed.

Moving on to our outlook for 2021. We typically see some seasonality coming off year end and the holiday season, resulting in Q1 being a slower quarter.

While we expect this to be the case again in 2021, we saw strong bookings momentum in January as CPGs continued to drive Promotion and Media spend to ensure their brands stay relevant, and in some cases gained back market share as shopper buying behaviors evolve during the continued unprecedented environment. We believe market tailwinds, especially the shift to Digital and the growth drivers we outlined through 2020 will continue to drive momentum in 2021 and beyond.

Our annual revenue guidance for 2021 represents 13% growth over 2020 at the midpoint. And our adjusted EBITDA guidance for the growth for the year is approximately 20% growth at the midpoint.

I'm proud of our team's resilience and hard work through the past challenging year and believe Quotient is well positioned in the current environment. And I'm optimistic about our growth trajectory for the future.

And with that, I'll turn the call over to Pam. Pam?

Thank you, Steven and good afternoon, everyone. I'll keep my remarks brief and focused on our financial highlights.

I encourage you all to read the full prepared financial results in our Stockholder Letter posted on the Investor Relations page of our website. Because of the record high revenue results for Q4 as our customers start to deploy effective marketing budgets to generate high ROI for their brands, strengthen Media and new Media offerings such as Digital Out-of-Home and Sponsored Search experienced significant quarter-over-quarter growth, highlighting their rapid acceptance in the market as solutions that offer closed-loop measurement and impactful results.

There was very little pullback in CPG spending during the quarter as we had initially thought possible. As a result, we exceeded our guidance and delivered revenue of $142.5 million, 20% growth over the prior year and 18% over the prior quarter.

If you exclude approximately $10 million from a portion of our Media business that we exited in Q3 2020, Q4 2020 revenue would have been up 31% compared to the prior year. We ended 2020 with annual revenues of $445.9 million or 2% growth rate over the prior year.

Our second quarter of 2020 revenues were hit particularly hard as CPGs pull back on marketing spend to just due to supply chain disruptions in COVID. The revenue in Q2 fell below levels we haven't seen since 2017.

However, with supply chains repo CPGs return to more normalized marketing spend in the second half of the year, with a focus on the best ways to deploy their budgets in light of extended quarantines, and the cancellation of large advertising events such as the Olympics. Our revenue in the second half of the year increased by 45% over the first half of 2020.

Media revenue for Q4 was 50% of our total revenue, surpassing Promotion revenues for the first time in our company's history, and increasing 34% year-over-year with growth across almost all of our Media Solutions offset by the elimination of the Media business we exited in Q3 2020. If you exclude approximately $10 million from the portion of the Media business we exited, Q4 Media revenue would have been up 63% for the fourth quarter of 2020 compared to the prior year.

Promotion revenue increased 8% year-over-year, primarily driven by Digital Paperless up 11% over Q4 2019. Additionally, spending was postponed from early quarters in 2020 was utilized with year-end budgets in the fourth quarter.

Consistent with historical trends, revenues and Digital Connected Home and Specialty Retail continued to decline with Q4 revenue in these two categories down about 5% in the prior year. GAAP gross margin for Q4 was 35.1%, down 400 basis points compared to the same quarter last year.

This decrease was primarily due to a one-time charge of $6.8 million federal contract dispute with a retailer. Performance under the contract was negatively impacted in part by COVID disruption.

Non-GAAP gross margin in the quarter was 45.1%, an 80 basis point improvement over last year, driven by product mix towards higher margin Media Solutions, along with the elimination of a portion of our Media Business that had low margin. Non-GAAP gross margin as a percent of revenue declined in Q4 compared to Q3 as a result of the historically high mixed Media revenues, which generally tend to carry lower gross margins.

We delivered $17.9 million of adjusted EBITDA in the fourth quarter of 2020, an increase of $6.4 million over the prior year, given by increased revenues, while operating expenses remained low due to savings in travel and variable compensation. Q4 non-GAAP operating expenses came in higher than previously guided by approximately $4 million.

Roughly half that difference is related to an increase in variable compensation and sales accelerators earned on a high revenue quarter. Marketing expenses were proximately $1 million higher, including about $0.5 million on search engine marketing and higher spend for our launch of our redesigned coupons.com website and our National Rebates Solution.

The remaining $1 million consisted of various other costs associated with employee benefits and software licenses. On the net cash, we delivered cash flow from operations of $13.3 million in the fourth quarter.

This was driven primarily by an increase in accounts payable and strong collection. We ended the fourth quarter in year with approximately $222.8 million in cash and cash equivalents, up $12.9 million from the prior quarter.

Now turning to guidance. As Steven noted, we believe the shift to Digital and our growth drivers outlined last year will continue to drive momentum in 2021 and beyond.

Although Q1 is generally a slower quarter due to seasonality, we saw strong bookings in January and believe we will see pipeline expansion throughout the year. Therefore, we expect revenue for the full year of 2021 to be in the range of $490 million to $520 million, with first quarter revenue in the range of $105 million to $113 million or approximately 10% growth over Q1 last year at the midpoint.

Q1 2020 revenues include approximately $9 million in revenue from a portion of our Media business that we exited in Q3 2020. Excluding those revenues, the midpoint of our Q1 2021 guidance over the prior year would reflect a growth rate of 21%.

Due to macro trends, revenue mix between Promotions and Media for the year is harder to predict. However, Media tends to have more seasonality with the first quarter, generally being the slowest quarter of the year for Media sentiment.

As a result, we are seeing our bookings net coming back stronger towards Promotions in January. So that helps as we move into the later stages of the pandemic, and brands look to stay relevant.

As outlined at our Investor Day last November, we remain focused on improving non-GAAP gross margin rates over time and believe longer-term will benefit from a higher mix of self-service offerings, growth in revenue from national budgets and automation of processes been possible. Additionally, as a result of the introduction of new product offerings in automation, we expect certain product revenues will be shifting over time with gross revenue recognition to net revenue recognition, which will not impact gross margin dollars, but generally result in higher gross margin percentages.

For the first quarter of 2021, we expect non-GAAP operating expenses to be approximately $46 million to $48 million. Adjusted EBITDA is expected to be in the range of 0 to $10 million for Q1.

For the full year of 2021, adjusted EBITDA is expected to be in the range of $45 million to $65 million. We expect continued positive cash flow in Q1 due to the tailwind from a strong adjusted EBITDA results in Q4.

The weighted average diluted shares outstanding we accept approximately 94.5 million for 2021. If I can do my full fiscal year with Quotient, I can easily say that I'm more excited about the company's future now than I've ever been.

We are executing well and although we are still in the beginning month, 2021 is looking like it would be a good year for Quotient, especially with the strategic focus and momentum we built in 2020. Our new retailer partnership signed, our restructured sales team focused on National Promotions, significant growth in our broad Media offering and our team improved the operational and financial infrastructure all bode well for future sustainable growth.

We look forward to sharing our progress throughout the whole year. And with that, we will now take your questions.

Operator?

Great. Thanks for taking my question.

Great job on the quarter, it's good to see things accelerate significantly on both sides of the business. I guess in terms of how you think about the TAM or Steven, for that matter, just the kind of magnitude so to speak of the Promotions business coming back, you know, everything we look at out there, you know, whether it's CPG commentary or just independent work we do is, you know, you saw a significant pickup, you know, in the year-end kind of month-to-month, month and I don't know, if Steven chatted about that on the prepared remarks.

But, you know, the commentary is, you're going to continue to see kind of a more normalization in the first half of the year, assuming, you know, everything opens up. And you know, second half, you know you could actually see a real kind of pre-COVID acceleration on that side of the business.

I guess how are you kind of viewing that for the year? And what's implied in your guidance in kind of the relative comeback with the Promotions business to pre-COVID levels?

Yeah, this is Pam I'll take that one. Steven can chime in with additional commentary if he has it.

I would say that - generally speaking, we do expect the Promotions business to get back to pre-pandemic level certainly by the second half of the year. The Promotions business is good.

And we can see that it's strong in Q1 from our January bookings. I would say, you know you look at our revenue mix from Q4, Media is growing really, really rapidly.

And as we said, Q4 revenue mix was heading towards Media, Media being 52% of total revenues for the first time, above 50%. I think the highest we've had in the past, Media has done like 48% of revenues.

So it was a real strong mix for Media. I think that speaks to a couple of things.

Number one, you heard us talk in the Investor Day about the collaborative spend program, a lot of that's happening on RPM. And RPM is a very popular solution right now.

So that's growing really rapidly. We have a couple of CPGs that, you know, they're spending especially around Promotions are not going to be back to pre-pandemic levels until the second half of the year.

But I think that's just a couple other CPGs who were really negatively impacted, you know, cleaning supplies and paper products and the like. You know, I think that Q1 is just from seasonality, Media tends to be much slower in the first quarter.

Promotions is a lot more steady throughout the year and consistent, so I would expect a stronger mix towards Promotion in our Q1 solution. But I think generally speaking, it's going to be back to pre-pandemic levels for the most part.

If not in - it's not in the first half and certainly by the second half.

Right. Yeah, let me just add in there, you know that's exactly right.

And the other piece is that, you know, with scale continuing to grow on our platform, which it clearly has been, there is, you know, there is the accelerated move of dollars out of the FSI. And so, and to echo what Pam said, I think in the back half of this year, you're going to see a much stronger move out of the analog products into Digital, that's a pretty big driver of the growth for us.

And in addition, we've reformatted and refactored the way our go-to market team is structured, and we have separate teams against separate parts of the industry now. And the focus on smaller CPGs, as I said in my prepared remarks, is also a big growth driver for us this year, particularly in the back half, because those CPGs could never participate in Promotions before, they couldn't get into vehicles like the freestanding inserts.

And they can freely operate on our platform. And so, I would expect more significant growth from that group as well.

Yeah, you know that's great color. And then just maybe one quick follow-up for me, just, you know, I mean, the guide looks good, you know, on the top line and you know, especially considering the beat you just put up in the fourth quarter.

But if I kind of dig into it, and look at it, especially in the first half, right, you're going against the Media comp that is pretty sure was down year-over-year, first half of 2020 versus first half of '19. And in terms of dollars of revenue, you know, I mean, that business, you know, again, Chad's words, right.

I mean, that should be up significantly year-over-year in the first half of the year, your Promotion business was also down year-over-year in the first half of '20. And so, you know, I appreciate, you know, we obviously, you know, we're getting back to normal here from kind of an execution and just overall world's standpoint.

But, I mean, it just seems like a scenario where, you know, 20% plus top line growth at a minimum for the first half of the year should be feasible. And, you know, even into the third quarter and second half with the momentum you have in terms of partners and in traction and within your RPM partners and national budgets and Sponsored Search, you know, I don't want to get the cart in front of the horse, but, you know, do you believe there's, you know, kind of, you know, potential to outperform maybe is the best way to put it on the outlook you put out there?

Yeah, I would say there's a potential to outperform. I would say, you know, your comments on the first half are true, although just to refine that a little bit.

I think our Q1, although it was negatively impacted by COVID, it wasn't impacted as tremendous amount, Q2 was really that was really painful.

Hello?

I think it sounds like Pam may have dropped off.

Okay -

Yeah, I think she may have to redial. And so, just to pick up what she was saying.

Yeah.

Look, the potential is there to outperform. Look Chad you noticed for a while, we've spent the last 16 months since I've been back and Scott's been there and Pam's been there for - been with us now for a year, just getting everything in shape so that we could forecast with rigor.

And we could, you know, we could set ourselves and you know everybody else up to expect us to deliver and then, you know, give us an opportunity that to do a better job. So there is certainly an element of conservatism given our historical you know, performance record.

Fair enough. Thanks so much.

Nice job.

Thank you.

Hey, great. Steve thanks for taking my questions.

Just, Steve, just back on that last comment around guidance. I mean, it is sort of the magnitude that we had here in 4Q and given the environment, I mean, are you baking in an extra amount of conservatism, just given the 1Q guide where we are seeing some decel and then maybe even in the back half?

I mean, I think it's sort of in-linish with what you called out at your Investor Day relative to your longer-term growth rates. Just are you taking a different approach to guidance this year?

Yeah, look Pam is having some technical trouble dialing in with the, you know, the product of everybody working from home. But the answer to that question is yes.

You know, we've taken a different approach to, you know, to guiding than we have in the past, it's now fact-based and gives us some, you know, gives us a little bit of room to, you know, to do a better job than we had expected to. So no material changes from our Analyst Day, you're absolutely right, the back half, you know, is in line with what we talked about at our Analyst Day.

And but you remember we did say at the Analyst Day, if things materially change, you know, if we add something special to the platform, we would go ahead and revise those numbers out. But yeah, we're taking a different approach, we're, you know, we're trying to be as conservative and responsible as possible so that we can deliver on what we say we're going to do.

Got it. And then in your Shareholder Letter, I think you called out, there's 250 billion of groceries that are expected to be delivered to US households by 2025.

I mean, just how should we frame your opportunity in that sort of like what's the revenue opportunity there for Quotient?

Sure, absolutely. So, if you recall what we've said in the past, every eCommerce experience is a digitally engaged experience.

And so, you know, while we certainly are benefiting from a shift to Digital, and engagement with shoppers digitally, as shoppers move to an eCommerce model or an omnichannel model, every one of those experiences tied to a credential, a user identification, a logged in state, and an opportunity to put Sponsored Search in front of the Media, recommended products, promotional opportunities, both on a national level and also on a shopper level or retailer level. So, you know, for us, the more eCommerce the better, you know, the pandemic accelerated eCommerce engagement by shoppers much faster than it has been anticipated, we should stabilize sort of 9% to 12%.

And then, you know, post-pandemic, the natural rise that we were on before. And just to be clear, when I say and it doesn't mean 9% to 12% of households are doing eCommerce shopping, it means that, in most cases now, it's an eCommerce plus physical commerce experience.

And so it's omnichannel per household. And that's even better for us, because we tie those two experiences together.

And so now it's a completely, you know, well rounded view of what that shopping household looks like both online and in-store. And that just makes the modeling better, the targeting better and the connectedness and Media better.

Got it. And then just one more question just on Pam's comment on gross margins.

I mean where should we see the net revenue benefit margins start to kick in? Do you have any idea will we see that more in the second half of the year?

Yeah, can you hear me now? Am I back on?

Okay, looks like I'm back on. So, yeah, it's going to kick in - it's going to be gradually over time.

So, you know, I would say, for this Q4 we had, you know, a small portion of our revenue from a net revenue recognition basis. So it was about 2%.

And we expect that to grow over time as more of our customers do self-service. And, you know, we improved some of the functionality there, we go after customers who prefer self-service approach to things.

So it'll grow gradually over time. I do think that second half of this year we'll have even more net revenue recognition, but then in the 2022, we'll continue to grow.

And that's 2% on Media or is that 2% of total?

2% of total.

Thank you.

Good afternoon. Steven, you provided the new metrics on this new National Rebate platform in terms of monthly average users or downloads, just how should we judge the progress today?

Well, I guess the progress by engagement. And so we did a lot of user group and vocal testing going into the process.

We have over 70 CPGs that have signed out for the platform at this point. And I would say, from a progress and acceptability perspective, I feel like we're doing better than we had anticipated from a CPG engagement and a shopper engagement.

So I'm happy with the progress of the product. I think it's an example of something that we've done very, very well, as a company and looking forward to that becoming a very big part of our National platform in the very near future.

We have some additional experiences that we're bringing to bear on that some partnerships that we'll be announcing those in the near future. But I think very highly of that platform right now.

Okay, and then one big picture question. How should investors think about Walmart's digital advertising strategy that was announced a week or so ago?

What does that mean to you? What does that mean to the industry?

You know, it's a great question. And I think you probably come to the same conclusion that many people in the industry have reached out to us, but it's clearly validation of our strategy.

You know, it's very difficult to do these things alone. It's even harder if, you know, if you've got a strategy that aligns with your on-site property and your off-site property and you've got to deliver one, one way and deliver on the other way.

And so just generally speaking, and not talking about Walmart specifically, but the notion of their announcement, it just validates what we've been saying all along. And that's that CPGs want access to a broad platform of capabilities across retailers and retailers need to extend beyond their four walls in order to get out to all the shoppers.

And retailers are very good at reaching their shoppers. But if they want to reach shoppers outside of their four corners, it really requires a partnership to do that.

Okay. And then one more big picture question.

All the upcoming changes in tracking cookies and the like, is that industry change that Quotient can use to its advantage, given the reliance on more first-party data? And do CPGs get over it?

Yeah, absolutely. So we're a first-party and second-party data company.

And so, to the extent CPGs need to reach shoppers and reach them in a, you know, in a defined narrow segment way, first-party and second-party data carriers today. And so, to the extent that the industry moves away from third-party cookies, and IDFA tracking and things of that nature, that's actually a benefit to Quotient.

Great, thank you.

Thank you, Steve.

Thank you, operator and thank you all for joining us today. We are very pleased with the strong close to 2020.

And we look forward to continuing to capture our share of the large and growing opportunity in front of us. In closing, we look forward to what 2021 brings and providing you with continued proof points of our progress in this dynamic business and space.

Thank you, again. Stay safe.

We'll see you all soon.