Business Wire | Nov 3, 2021 04:06PM EDT

Quotient Technology Inc. Announces Third Quarter 2021 Results

Nov. 03, 2021

SALT LAKE CITY, Utah--(BUSINESS WIRE)--Nov. 03, 2021--Quotient (NYSE: QUOT), the leading digital media and promotions technology company, today reported financial results for the third quarter ended September 30, 2021. Quotient's complete third quarter 2021 financial results and management commentary can be found by accessing the Company's stockholder letter under Key Resources on the overview page in the Investor Relations section of Quotient's website.

"We delivered a great quarter of revenue growth and a 13% Adjusted EBITDA margin," said Steven Boal, CEO and Founder at Quotient. "We've also made significant progress on scaling our platform and reducing low margin business to set Quotient up for sustainable, long-term, profitable growth."

We have renewed our relationship with Dollar General, and at the same time, our partnership with Albertsons Companies, Inc. ("Albertsons") will be winding down over the next few months. As a result of the wind down, and in accordance with our strategic focus, we are implementing additional cost-cutting measures and eliminating certain activities beginning the fourth quarter of 2021.

"As we stated in our last earnings call, we are focused on growing our overall network of retailers and shoppers, and we are exiting lower-margin, labor-intensive managed services business and shifting towards self-service and platform delivery," said Steven Boal. "We believe that this approach, combined with the transition of Albertsons, will enable us to further scale our platforms and deliver higher margins, which we believe will lead to better outcomes for our retailers, advertisers and shoppers."

As a result of these business and operational changes, a growing portion of our media and promotions business will be moving to a net revenue recognition model beginning in Q4 2021. The Quotient network remains a leading choice for advertisers and retailers looking to address their digital needs. We are pleased to share that AutoZone is now live on the Quotient network, as is Total Wine & More, the largest adult beverage retailer in the US, and another new vertical for Quotient. Additionally, we are very excited to announce that we have launched Promo Amplification with Rite Aid and have additional retailers in the pipeline we expect to launch over the coming months.

Network growth outside of retailers continues to expand, and we have several partners in various stages of integration currently underway that we expect to also be live over the coming months. One great example is our partnership with Redbox. Redbox has 40,000 kiosks at the entrance of major retailers and other high traffic areas. They have a loyal fanbase which frequently visits these kiosks, which makes them a perfect partner for Quotient. We look forward to being able to offer more savings value to more shoppers as they start their shopping trips.

Quotient continues to serve its 2,000+ brand partners in delivering performance-based marketing solutions designed to produce a high return on investment (ROI). The company's focus remains on innovating to deliver further flexibility, automation and personalization to advertisers and retailers-through solutions such as its recently launched, industry-first promotion amplification tool-and on ultimately increasing value to the over 127 million shoppers forecasted to comprise its network after the Albertsons transition.

Outlook

For the fourth quarter of 2021, we expect a portion of our promotions and media revenues to be recognized net of third-party costs. We estimate that this accounting change will reduce revenue and cost of sales by approximately $20 million in Q4 2021. Based on this change, we expect the following:

For the fourth quarter of 2021, we expect:

* Revenue: $114.0 million to $124.0 million * Adjusted EBITDA: $7.0 million to $12.0 million * Operating Cash Flow: $0.0 million to $6.0 million

For the full year 2021, we expect:

* Revenue: $490.0 million to $500.0 million * Adjusted EBITDA: $35.0 million to $40.0 million * Weighted Average Basic Shares Outstanding: ~93.8 million

Had we not made changes to our business and the accounting for a portion of our business, our revenue guidance would have been approximately $20 million higher for the fourth quarter of 2021 and approximately $24 million higher for the full year. This change has no impact on the guidance for Adjusted EBITDA, operating cash flow or weighted average basic shares outstanding.

We expect the changes we are making to our business to improve profitability over the long term and we are currently taking action to reduce expenses and align our operations with these new expectations. Updates to our 2022 outlook will be provided in early February 2022 when we release our Q4 2021 results.

Conference Call Information

The Company has posted a stockholder letter and an earnings presentation on the Investor Relations section of the Company's website at: https://investors.quotient.com/. Management will host a conference call and live webcast to discuss the highlights of the quarter and address questions today at 5:00 p.m. ET/ 2:00 p.m. PT.

To access the call, we encourage you to pre-register to eliminate long wait times using this link: Quotient Q3 2021 Earnings Pre Registration. After registering, a confirmation will be sent via email and will include dial-in details and a unique PIN code for entry to the call. Registration will be open through the live call. We suggest registering at least 15 minutes before the start of the call to receive your unique PIN code. You may also access the call and register with a live operator by dialing (866) 270-1533, or outside the U.S. (412) 317-0797, at least 15 minutes prior to the 2:00 p.m. PT start time. The live webcast and all accompanying materials can be accessed on the Investor Relations section of the Company website at: https://investors.quotient.com/. A replay of the webcast will be available on the website following the conference call.

Use of Non-GAAP Financial Measures

Quotient reports its financial statements in accordance with generally accepted accounting principles in the United States (GAAP) and the rules of the Securities and Exchange Commission (SEC). To supplement its financial statements presented in accordance with GAAP, Quotient provides investors in this press release with Adjusted EBITDA, Adjusted EBITDA margin, gross margin and operating expenses, each a non-GAAP financial measure. Quotient believes that these non-GAAP measures provide investors with additional useful information used by Quotient's management and Board of Directors for financial and operating decision making. In particular, Quotient believes that the exclusion of certain income and expense items in calculating these metrics can provide useful measures for period-to-period comparisons of its core business as well as a useful comparison to peer companies.

Quotient defines Adjusted EBITDA as net income (loss) adjusted for interest expense, provision for (benefit from) income taxes, other (income) expense, net, depreciation and amortization, stock-based compensation, change in fair value of contingent consideration, impairment of certain intangible assets, certain acquisition-related costs, and restructuring charges. In addition, Quotient defines Adjusted EBITDA margin as the ratio of Adjusted EBITDA and revenues; non-GAAP operating expenses as operating expenses adjusted for changes in fair value of contingent consideration, stock-based compensation, amortization of acquired intangible assets, restructuring charges and acquisition related costs; and non-GAAP gross margin as gross margin adjusted for stock-based compensation, amortization of acquired intangible assets, settlement related to a contract dispute, and restructuring charges. Quotient excludes certain GAAP items from these measures because it believes these items are not indicative of ordinary results of operations and do not reflect expected future operating expenses. Additionally, certain items are inconsistent in size and frequency-making it difficult to contribute to a meaningful evaluation of Quotient's current or past operating performance.

There are a number of limitations related to the use of these non-GAAP financial measures. Quotient compensates for these limitations by providing specific information regarding the GAAP amount excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their relevant GAAP financial measures.

These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as superior to the corresponding financial measures prepared in accordance with GAAP. Because of these and other limitations, the non-GAAP financial measures used in this press release should be considered along with other GAAP-based financial performance measures, including various cash flow metrics, net income (loss) and Quotient's other GAAP financial results.

For a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP financial measures, see "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDA Margin," "Reconciliation of Gross Margin to Non-GAAP Gross Margin" and "Reconciliation of Operating Expenses to Non-GAAP Operating Expenses" included in this press release.

A reconciliation of the Adjusted EBITDA guidance metrics, which are non-GAAP guidance measures, to a corresponding GAAP measure is not available on a forward-looking basis without unreasonable efforts due to the high variability and low visibility of certain (income) expense items that are excluded in calculating Adjusted EBITDA.

Forward-Looking Statements

This press release contains forward-looking statements concerning the Company's current expectations and projections about future events and financial trends affecting its business. Forward-looking statements in this press release include progress on scaling the Company's platform and reducing low margin business to set up the Company for sustainable, long-term, profitable growth; the Company's shift away from a lower-margin, labor-intensive managed services business and its movement towards more self-service and platform delivery as leading to, when combined with the transition of Albertsons, cost reductions, higher margins and better outcomes for the Company's retailers and advertisers as well as shoppers in its network; the presence of additional retailer partner customers in the Company's pipeline that it expects to launch in the coming months; the Company's network outside of retailers as continuing to expand, with the Company having several partners in various stages of integration currently underway that it expects also to be live over the coming months; the number of shoppers forecasted to comprise the Company's network over the coming months; the Company's focus on automation-delivering, personalization-delivering and flexibility-delivering innovation, including through solutions such as its recently-launched promotion amplification tool, as ultimately increasing value to shoppers in its network; the future financial performance of Quotient (including the impact of recognizing a portion of its revenue net of third-party costs as well as guidance for the fourth quarter of 2021 and the full year 2022 including an expected significant lowering of revenue results beginning in the first quarter of 2022); our expectation that in the first quarter of 2022 a larger portion of revenues will be recognized on a net basis and that there will be a reduction in revenue related to the termination of the Albertsons business; and the Company's expectation that the changes that it is making to its business will improve profitability over the long term. Forward-looking statements are based on the Company's current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, the Company's ability to increase value to shoppers in its network, generate positive cash flow and become profitable; the amount and timing of digital marketing spend by advertisers (including consumer packaged goods (CPG) companies) and shifts in advertiser spend to digital solutions; the Company's expectations regarding other growth drivers including its ability to expand its relationships with retailers and obtain and maintain retailer support for its platforms, and its ability to maintain and expand the use by consumers of digital promotions on its platforms; the Company's ability to innovate (including its shift away from a lower-margin, labor-intensive managed services business and its movement towards more self-service and platform delivery); the Company's ability to adapt to changing market conditions and data regulations, including the Company's ability to adapt to changes in consumer habits and consumer data privacy concerns; the impacts of the ongoing COVID-19 pandemic, which may continue to impact the Company's business, plans and results of operations, as well as the value of the Company's common stock; and other factors identified in the Company's filings with the SEC, including its Annual Report on Form 10-K filed with the SEC on February 23, 2021 and Quarterly Reports on Forms 10-Q filed with the SEC on May 10, 2021 and August 6, 2021, and future filings and reports by the Company. Quotient disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise and does not assume responsibility for the accuracy and completeness of the forward-looking statements.

About Quotient

Quotient (NYSE: QUOT) is the leading digital media and promotions technology company for advertisers, retailers and consumers. Quotient's omnichannel platform is powered by exclusive consumer spending data, location intelligence and purchase intent data to reach millions of shoppers daily and deliver measurable, incremental sales.

Quotient partners with leading advertisers and retailers, including Clorox, Procter & Gamble, General Mills, Unilever, Albertsons Companies, CVS, Dollar General and Peapod Digital Labs, a company of Ahold Delhaize USA. Quotient is headquartered in Salt Lake City, Utah and has offices across the US as well as in Bangalore, Paris, London and Tel Aviv. For more information visit www.quotient.com.

Quotient and the Quotient logo are trademarks or registered trademarks of Quotient Technology Inc. and its subsidiaries in the United States and other countries. Other marks are the property of their respective owners.

QUOTIENT TECHNOLOGY INC.CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands) September 30, December 31,

2021 2020

(unaudited)AssetsCurrent assets:Cash and cash equivalents $ 244,945 $ 222,752

Accounts receivable, net 156,404 137,649

Prepaid expenses and other current assets 14,437 18,547

Total current assets 415,786 378,948

Property and equipment, net 21,819 17,268

Operating lease right-of-use-assets 20,755 16,222

Intangible assets, net 15,978 44,898

Goodwill 128,427 128,427

Other assets 1,774 1,029

Total assets $ 604,539 $ 586,792

Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable $ 14,997 $ 15,959

Accrued compensation and benefits 19,604 14,368

Other current liabilities 80,978 70,620

Deferred revenues 21,154 12,027

Contingent consideration related to acquisitions 21,655 8,524

Total current liabilities 158,388 121,498

Operating lease liabilities 22,182 15,956

Other non-current liabilities 746 2,358

Contingent consideration related to acquisitions - 20,930

Convertible senior notes, net 185,823 177,168

Deferred tax liabilities 1,853 1,853

Total liabilities 368,992 339,763

Stockholders' equity:Common stock 1 1

Additional paid-in capital 725,401 698,333

Accumulated other comprehensive loss (1,093 ) (1,001 )

Accumulated deficit (488,762 ) (450,304 )

Total stockholders' equity 235,547 247,029

Total liabilities and stockholders' equity $ 604,539 $ 586,792

QUOTIENT TECHNOLOGY INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited, in thousands, except per share data) Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Revenues $ 135,884 $ 121,116 $ 375,080 $ 303,358

Cost of revenues ^(1) 86,535 73,603 240,680 185,445

Gross margin 49,349 47,513 134,400 117,913

Operating Expenses:Sales and marketing ^(1) 29,401 24,555 85,233 73,403

Research and development 11,074 9,744 34,541 28,958 ^(1)General and 12,244 12,099 40,086 39,457 administrative ^(1)Change in fair value of 245 1,562 772 5,788 contingent considerationTotal operating expenses 52,964 47,960 160,632 147,606

Loss from operations (3,615 ) (447 ) (26,232 ) (29,693 )

Interest expense (3,809 ) (3,646 ) (11,306 ) (10,830 )

Other income (expense), (96 ) (59 ) (130 ) 708 netLoss before income taxes (7,520 ) (4,152 ) (37,668 ) (39,815 )

Provision for income 323 66 790 261 taxesNet loss $ (7,843 ) $ (4,218 ) $ (38,458 ) $ (40,076 )

Net loss per share, $ (0.08 ) $ (0.05 ) $ (0.41 ) $ (0.44 )basic and diluted Weighted-average sharesused to compute net loss 94,133 90,585 93,408 90,113 per share, basic anddiluted (1) The stock-based compensation expense includedabove was as follows: Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

Cost of revenues $ 525 $ 442 $ 1,349 $ 1,264

Sales and marketing 1,411 1,187 3,847 3,912

Research and development 1,076 1,003 3,025 2,723

General and 1,678 3,857 8,853 13,122 administrativeTotal stock-based $ 4,690 $ 6,489 $ 17,074 $ 21,021 compensationQUOTIENT TECHNOLOGY INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited, in thousands) Nine Months Ended

September 30,

2021 2020

Cash flows from operating activities:Net loss $ (38,458 ) $ (40,076 )

Adjustments to reconcile net loss to net cash providedby operating activities:Depreciation and amortization 24,425 26,522

Stock-based compensation 17,074 21,021

Amortization of debt discount and issuance cost 8,655 8,203

Impairment of intangible assets 9,086 -

Allowance for credit losses 115 542

Deferred income taxes 790 261

Change in fair value of contingent consideration 772 5,788

Other non-cash expenses 3,236 2,546

Changes in operating assets and liabilities:Accounts receivable (18,871 ) 2,615

Prepaid expenses and other current assets 3,264 158

Accounts payable and other current liabilities 7,952 4,893

Payments for contingent consideration and bonuses (2,901 ) (15,418 )

Accrued compensation and benefits 5,445 (4,334 )

Deferred revenues 9,127 450

Net cash provided by operating activities 29,711 13,171

Cash flows from investing activities:Purchases of property and equipment (10,773 ) (6,648 )

Purchase of intangible assets - (3,000 )

Net cash used in investing activities (10,773 ) (9,648 )

Cash flows from financing activities:Proceeds from issuances of common stock under stock 14,794 1,579 plansPayments for taxes related to net share settlement of (5,286 ) (5,456 )equity awardsPrincipal payments on promissory note and finance (169 ) (100 )lease obligationsPayments for contingent consideration (6,121 ) (14,582 )

Net cash provided by (used in) financing activities 3,218 (18,559 )

Effect of exchange rates on cash and cash equivalents 37 126

Net increase (decrease) in cash and cash equivalents 22,193 (14,910 )

Cash and cash equivalents at beginning of period 222,752 224,764

Cash and cash equivalents at end of period $ 244,945 $ 209,854

QUOTIENT TECHNOLOGY INC.RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN(Unaudited, in thousands) Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

$ % $ % $ % $ %Net Loss ($) / Loss $ (7,843 ) (6 %) $ (4,218 ) (3 %) $ (38,458 ) (10 %) $ (40,076 ) (13 %)Margin (%) ^(2)Adjustments:Stock-based 4,690 3 % 6,489 5 % 17,074 5 % 21,021 7 %compensationDepreciation and 7,287 6 % 10,685 9 % 24,425 7 % 30,020 9 %amortizationAcquisition related 8,720 7 % 387 - 12,453 3 % 991 - costs and other ^(1)Change in fair value 245 - 1,562 1 % 772 - 5,788 2 %of contingentconsiderationInterest expense 3,809 3 % 3,646 3 % 11,306 3 % 10,830 4 %

Other (income) 96 - 59 - 130 - (708 ) - expense, netProvision for income 323 - 66 - 790 - 261 - taxes Total adjustments $ 25,170 19 % $ 22,894 18 % $ 66,950 18 % $ 68,203 22 %

Adjusted EBITDA ($) / $ 17,327 13 % $ 18,676 15 % $ 28,492 8 % $ 28,127 9 %Adjusted EBITDA Margin(%) ^(2) (1) For the three and nine months ended September 30, 2021, "other" includes acharge of $6.5 million and $9.1 million, respectively, related to theimpairment of certain intangible assets due to the termination of ourpartnership with Albertsons, and restructuring charges of $1.8 million and $2.0million, respectively, for such periods. For the three and nine months endedSeptember 30, 2020, "other" includes restructuring charges of zero and $1.5million, respectively, and a $2.0 million loss contingency for both respectiveperiods, related to a contract dispute with Albertsons associated with aguaranteed distribution fee arrangement. (2) Profit (Loss) Margin and Adjusted EBITDA Margin is the ratio of Profit(Loss) to Revenues and Adjusted EBITDA to Revenues.QUOTIENT TECHNOLOGY INC.RECONCILIATION OF GROSS MARGIN TO NON-GAAP GROSS MARGIN(Unaudited, in thousands) Q3 FY 20 Q2 FY 21 Q3 FY 21Revenues $ 121,116 $ 123,880 $ 135,884



Cost of revenues (GAAP) $ 73,603 $ 82,161 $ 86,535

(less) Stock-based compensation (442 ) (401 ) (525 )

(less) Amortization of acquired (6,026 ) (5,276 ) (4,396 )intangible assets(less) Loss contingency related to a (2,000 ) - - contract dispute(less) Impairment of certain intangible - (2,580 ) (6,506 )assets(less) Restructuring charges - - (5 )

Cost of revenues (Non-GAAP) $ 65,135 $ 73,904 $ 75,103





Gross margin (GAAP) $ 47,513 $ 41,719 $ 49,349

Gross margin percentage (GAAP) 39.2 % 33.7 % 36.3 %



Gross margin (Non-GAAP)* $ 55,981 $ 49,976 $ 60,781

Gross margin percentage (Non-GAAP) 46.2 % 40.3 % 44.7 %

* Non-GAAP gross margin excludes stock-based compensation, amortization ofacquired intangible assets, loss contingency related to a contract dispute,impairment of certain intangible assets, and restructuring charges. QUOTIENT TECHNOLOGY INC.RECONCILIATION OF OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES(Unaudited, in thousands) Q3 FY 20 Q4 FY 20 Q1 FY 21 Q2 FY 21 Q3 FY 21Revenues $ 121,116 $ 142,529 $ 115,316 $ 123,880 $ 135,884

Sales and 24,555 31,124 27,365 28,467 29,401 marketingexpenses(less) (1,187 ) (1,399 ) (1,255 ) (1,181 ) (1,411 )Stock-basedcompensation(less)Amortization (866 ) (866 ) (866 ) (866 ) (837 )of acquiredintangibleassets(less) - - - (217 ) (903 )RestructuringchargesNon-GAAP Sales $ 22,502 $ 28,859 $ 25,244 $ 26,203 $ 26,250 and marketingexpensesNon-GAAP Sales 19 % 20 % 22 % 21 % 19 %and marketingpercentage Research and 9,744 11,358 12,056 11,411 11,074 development(less) (1,003 ) (1,108 ) (972 ) (977 ) (1,076 )Stock-basedcompensation(less) - - - - (463 )RestructuringchargesNon-GAAPResearch and $ 8,741 $ 10,250 $ 11,084 $ 10,434 $ 9,535 developmentexpensesNon-GAAPResearch and 7 % 7 % 10 % 8 % 7 %developmentpercentage General and 12,099 14,720 12,833 15,009 12,244 administrativeexpenses(less) (3,857 ) (4,364 ) (3,194 ) (3,981 ) (1,678 )Stock-basedcompensation(less) - - - - (463 )Restructuringcharges(less) (393 ) (1,039 ) (482 ) (453 ) (380 )Acquisitionrelated costsNon-GAAPGeneral and $ 7,849 $ 9,317 $ 9,157 $ 10,575 $ 9,723 administrativeexpensesNon-GAAPGeneral and 6 % 7 % 8 % 9 % 7 %administrativepercentage Non-GAAP $ 39,092 $ 48,426 $ 45,485 $ 47,212 $ 45,508 Operatingexpenses*Non-GAAPOperating 32 % 34 % 39 % 38 % 33 %expensepercentage * Non-GAAP operating expenses excludes changes in fair value of contingentconsideration, stock-based compensation, amortization of acquired intangibleassets, restructuring charges, and acquisition related costs.

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CONTACT: Investor Relations: Marc Griffin ICR for Quotient ir@quotient.com Phone: 646-277-1290