Quotient Technology Inc.
Q2 2018 Earnings Call Transcript

Published:

  • Operator:
    Welcome to the Second Quarter 2018 Quotient Earnings Conference Call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded and will be available for replay from the Investor Relations section of Quotient's website following this call. I will now turn the call over to Stacie Clements, Vice President of Investor Relations. Ms. Clements, you may now begin.
  • Stacie Clements:
    Hello, everyone, and welcome to our second quarter 2018 earnings call. Please note that slides to accompany the remarks on today's call are available on the IR section of our corporate website. On the call with me today are Mir Aamir, our President and CEO; and Ron Fior, our CFO. Steven Boal, our Executive Chairman, is here as well and available for questions after prepared remarks. Before we begin, please note that during this call, you will hear forward-looking statements. These forward-looking statements include projections for our third quarter and full year 2018; our expectations for our Retailer iQ platform and consumer and CPG patterns; the success of expanding our retailer partnerships and media business, including Ahalogy; the company's expectations regarding the use of shopper data for its solutions and effectiveness of these solutions; the company's expectations regarding its go-to-market strategies and pricing; as well as the expected growth of and investments in our business generally. Forward-looking statements are based on information available to and at the good faith beliefs of our management team as of the time of this call and are subject to known and unknown risks and uncertainties that could cause actual performances or results to differ materially. Additional information about factors that could potentially impact our financial results can be found in today's press release and in the risk factors identified in our quarterly report on Form 10-Q filed with the SEC on May 4, 2018. 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 revenues, operating expenses, gross margins and net loss, financial measures discussed today are on a non-GAAP basis and have been adjusted to exclude certain expenses. A reconciliation between GAAP and non-GAAP measures can be found in the financial result press release issued today and on the slide deck posted on the company's website. And with that, I'll now turn the call over to Mir.
  • Mir Aamir:
    Thank you, Stacie, and welcome, everyone. We had a great second quarter, delivering revenue of $89.5 million, up 20% over last year and at the high end of our guidance. Revenue from Retailer iQ and our data-driven media solutions continues to drive the business with a combined growth of over 40% compared to a year ago and already representing 73% of total revenue. Adjusted EBITDA was $12.9 million. As these growth businesses become an even larger percentage of total revenue, our overall revenue growth rate accelerates. Consumer packaged goods companies or CPGs spend an estimated $225 billion a year on marketing, and we are capturing a growing slice of that spend. The 3 key elements of our business, digital promotions, media and data, have become intertwined, with brands increasingly looking to reach consumers by leveraging them all. We developed our strategy to serve this convergence, which we saw as inevitable and uniquely beneficial for Quotient. We're successfully delivering an integrated suite of digital solutions complete with sophisticated reporting and analytics, and we continue to strengthen our digital capabilities. With our recent purchase of Ahalogy, we've added influencer marketing technology and services that we believe are the best in the industry. We're seeing strong results in terms of revenue growth acceleration and believe it's time to further increase our investment in retailer relationships, technology and data to accelerate revenue growth even more and lay the foundation for a very strong 2019. Quotient enables brands and retailers to reach consumers with relevant digital promotions, media, social and influencer campaigns to drive profitable sales at scale. We continue to lead transformational changes for CPG brands and retailers. We now have over 70 million shoppers registered on programs powered by Retailer iQ. Coupons.com has more than 20 million monthly unique visitors on mobile, and Quotient Media platform has a verified buyer audience of over 100 million. All this is possible because of vast and exclusive shopper data, which we leverage to target the right consumers and drive high performance for marketing spend by brands. Our Retailer iQ platform has been the technology foundation for all of this. Total coupon transactions grew 20% over last year as brands added more promotions to the platform. Digital paperless transactions were strong, up 31% over last year, while print transaction, as expected, declined 19%. Shopper demand for digital coupons on our platform continues to exceed the supply of coupons from CPG budgets, the majority of which is still spent offline. We believe this also gives us plenty of runway for growth as brands turn to Quotient to integrate their digital marketing campaigns for greater efficiency and measurable sales lift. Retailer relationships that we initiated and invested in for digital paperless promotions are now expanding into multiyear exclusive partnerships to include targeted media and comprehensive data rights. We are now serving as the exclusive digital media partner for several of our Retailer iQ partners. In June, we announced an expanded partnership with Southeastern Grocers in which Quotient manages all CPG digital media for shopper marketing, from creative to ad delivery to analytics and measurement. This enables CPG brands to use in-store shopper data and online behavior data to deliver targeted digital ads on the retailer's properties across the web and on social media, similar to the ads seen on Facebook and Google. And they can do all this by working with Quotient. Additionally, we signed 2 more retailers for exclusive media partnerships, which we expect to launch soon. We are also in discussions with several more retail partners to similarly expand our already strong relationships. We believe our success in scaling our shopper media business is due to our integrated approach to technology. In addition to shopper data, this includes dynamic mobile creative and media delivery through Crisp and our recently launched Quotient Analytics for marketing measurement. And we continue to add capabilities. In June, we expanded our social media solutions with the purchase of Ahalogy, the leading influencer marketing platform that delivers premium content across social media channels, by tapping into its roster of more than 5,000 influencers. Ahalogy uses 100% paid media, offering transparency while ensuring verified impressions. Points North Group, a third party that analyzes influencer marketing, gave Ahalogy high marks for its approach, which includes measurement and oversight against fraudulent practices within the influencer marketing industry. I'm very proud to say that Points North Group added Ahalogy to its short list of companies they would recommend brands work with. Brands are increasingly turning to influencer marketing to reach a range of shoppers through authentic content. Influencer marketing is projected to reach $10 billion annually by 2020. Ahalogy is a natural fit into our media solutions, leveraging our retailer platform, CPG relationships and exclusive data rights. It significantly enhances our ability to deliver high-performing creative campaigns through channels such as Pinterest and Instagram. We greatly expanded our reach and are seeing tremendous growth. In Q2, media revenue was up 77% over last year. Excluding the Crisp and Ahalogy acquisitions, our organic media revenue increased about 50% from a year ago. This is greatly helped by strong performance on campaigns that we deliver. Brands are seeing up to a $6 return on ad spend, and our retail partners are seeing a lift in store visits of 1.4x on average, all through quality media buys with 74% viewability rates on average. We are rapidly becoming a strong platform for CPG brands to reach shoppers at scale in the mid-to lower funnel, in other words, when shoppers are very close to making their purchase decisions. In the second quarter, we also continued to grow promotion revenue from CPG brands. Total promotions revenue grew 4% year-over-year, impacted by expected headwinds in digital print, specialty retail as well as the seasonally soft time of the year for promotions. However, revenue from Retailer iQ, our growth engine in promotions, grew 20% year-over-year. We believe growth in Retailer iQ will continue at a healthy annual rate as some CPGs have already increased budgets going into their new fiscal years. Additionally, we expect targeted offers and digital coupons for trade promotions to be another catalyst for future growth in promotions revenue. We've also made measurement and analytics front and center for all our clients with the launch of Quotient Analytics, which provides a dashboard that lets brands monitor campaigns in near real time, enabling them to make changes mid-flight. We've seen strong adoption, with over 400 active users running over 20,000 dashboard reports a month. Giving brands the tools they need to optimize their own campaigns is also delivering valuable efficiencies for our operations, sales and analytics teams. In July, we added the ability for brands to measure closed-loop sales for promotion campaigns straight from the dashboard. We continue to bring new analytics features and functionality to our clients with a strong pipeline of innovation for the second half of 2018. Brands and retailers also leverage more than 20 million monthly mobile visitors to Coupons.com. This is a valuable component - which is a valuable component of our network and provides rich consumer data. We continue to drive greater awareness of Coupons.com with promotional campaigns around themes such as back-to-school. We will also roll out more features to our consumer properties, adding ways for shoppers to save even more on grocery and other items. In summary, we've moved quickly to expand our offerings and bring to market our data-driven digital marketing solution for CPG brands and retailers, whether in-store or through e-commerce. In a few short years, we have evolved from a digital coupons company into an integrated digital commerce marketing company with a focus on the $225 billion CPG spend annually in marketing. I'm very proud of everything we've accomplished so far, and our hard work is paying off. We're delivering more digital coupons, more digital media campaigns, more sales and higher ROI, all from a growing set of unique data and targetable consumer segments that already cover more than half of U.S. households. We believe we fit very well into the strategic marketing, digital and data objectives of CPGs and retailers. Major CPGs are increasingly turning to us, interested in forming even deeper partnerships to help them transform their marketing spend for more efficiency and effectiveness, all using data. With the enormous opportunity in front of us, we plan to increase our investment in the back half of 2018 in terms of retail relationships and data relationships, technology, media platform capabilities and go-to-market packages. In the past, we've talked about doing more ROI-based pricing. We're now getting ready to extend - to bring digital promotions, media and data into packaged campaigns for CPG brands like never seen before in the market. And we plan to further grow our shopper data into one of the largest data sets in the marketplace based on actual purchase data and move towards 100% of reachable U.S. households. Through investment and packaged solutions, we believe we have a significant opportunity to meaningfully step up our revenue growth rate in 2019. I will now turn the call over to Ron.
  • Ronald Fior:
    Thank you, Mir, and welcome, everyone. We had a strong second quarter, driven by continued year-on-year growth in media and Retailer iQ promotions. Total revenues in Q2 were $89.5 million, up 20% over Q2 2017. Transactions in the second quarter were $954 million, up 20% over Q2 of last year. We recorded a second quarter GAAP net loss of $4.7 million compared to a GAAP net loss of $5.8 million in Q2 of 2017. The GAAP net loss in the quarter was primarily due to stock-based compensation expense. Adjusted EBITDA, which excludes stock-based comp, restructuring charges, ERP implementation costs, changes in fair value of escrowed shares and contingent consideration and certain acquisition-related costs, was $12.9 million or flat compared to Q2 of 2017. Excluding cash used for the Ahalogy acquisition, our stock buyback program and strategic investments, we generated approximately $10.1 million in cash from operations. Free cash flow, defined as GAAP cash flows from operations less capital expenditures for the quarter, was $9.5 million. Net of the acquisition, buyback and investments just mentioned, we ended the quarter with a cash and short-term investment balance of $358 million, down $23 million from Q1. In summary, we were very pleased with our performance in the second quarter. Revenues. Drilling down into our $89.5 million Q2 revenues, promotions revenue came in at $60.9 million, up 4% over last year, a netting of 20% revenue growth in Retailer iQ, with anticipated declines in specialty retail and digital print of 23% and 10%, respectively. Looking at media. Media revenue in the quarter was $28.6 million, a 77% increase over last year, reflecting increased contribution from our targeted media solutions, Crisp and our focus on shopper marketing. Looking at our growth engines. Retailer iQ and media combined in the second quarter to grow 40% over last year and accounted for approximately 73% of our total revenue. And over the past 5 quarters, this combination has shown an average quarterly year-on-year growth rate of 44%. Looking at our top customers. CPGs continue to spend more on Retailer iQ. Revenue from our top 10 paperless customers grew 24% year-on-year in Q2 while increasing their proportion of total promotions revenues. On the media side, our top 10 media customers grew their spend with us over 160% in Q2 over last year and 142% compared to the first half of last year. Growth drivers include QMX, Crisp and opportunities in shopper marketing, all focused on driving advertising across our expanding network and third-party sites. Let's look at transactions. Total transactions in the second quarter were $954 million, up 20% from a year ago. Retailer iQ transactions, while seasonally down from Q1, grew 31% from a year ago, representing 85% of total transactions in the second quarter. Digital print transactions decreased 19% from the same period last year and 9% sequentially. Moving on to the P&L. Gross margin. GAAP gross margin in the second quarter was 46.7% and reflected the continuing shift in our product mix as a greater proportion of our revenues came from media, which generally has a lower gross margin than promotions. This compares to a gross margin of 53.4% in Q1 of 2018 and 59.7% in Q2 of 2017. Non-GAAP gross margin, which excludes amortization of acquired intangible assets, stock-based compensation expense and restructuring charges, came in at 51.6%. This was down from last quarter and Q2 of 2017, primarily a function of the product mix changes I described previously. Going forward, the strategic investments we are making in multiyear retail partnerships, data relationships, technology, solutions and services will enable us to drive more media revenues, resulting in more gross margin dollars, however, with a lower overall non-GAAP gross margin percentage over the balance of this year. Operating expenses. For the second quarter, GAAP operating expenses were $44.2 million, down both sequentially and as compared to Q2 of last year and included $7.7 million in stock-based compensation expense, $700,000 in acquisition-related costs and $250,000 in restructuring costs. Non-GAAP operating expenses, which excludes stock-based compensation, changes in the fair value of escrowed shares and contingent consideration, acquisition-related costs, amortization of acquired intangible assets, our ERP implementation costs and restructuring charges, were $35.4 million in Q2 of 2018 versus $39.4 million in Q1 of 2018 and $36.3 million in Q2 of 2017. Keep in mind that last year's Q2 non-GAAP operating expenses were prior to absorbing the full quarter impact of Crisp operating expenses. We continue our efforts to be more operationally efficient while expanding our presence across geographies. In percentage terms, non-GAAP operating costs were 40% of revenues in Q2 of 2018, down 5 points from last quarter's 45% level and a significant improvement over last year's 49% level, reflecting a combination of revenue growth and greater efficiencies in our overall operating expenses. Adjusted EBITDA. In the second quarter, adjusted EBITDA came in at $12.9 million or 14% margin. Compared to last quarter, adjusted EBITDA was slightly up in dollars and flat from a margin percentage. As our business evolves, we continue to focus on revenue growth, profitability and cash. As revenue growth accelerates, coupled with continued operating efficiencies and cost management, we are looking at expansion in both EBITDA dollars and margin percentages longer term. Stock buyback. Last quarter, we announced a new 1-year stock buyback program of up to $100 million through a combination of new 10b5-1 plan and an open-window 10b-18 plan. In the second quarter, we repurchased 500,000 shares of common stock for a total of $6.7 million. Let's now talk about guidance. For the third quarter 2018, we expect revenue to be in the range of $101 million to $105 million. We expect adjusted EBITDA to be in the range of $13 million to $15 million. Reflecting the momentum and opportunities we see in the second half of the year, we are increasing our full year 2018 revenue guidance. We expect revenue in the range of $390 million to $405 million or approximately 23% growth at the midpoint. Adjusted EBITDA for the full year 2018 is now expected to be in the range of $58 million to $65 million or approximately 16% of revenue at the midpoint and up 31% over 2017. The EBITDA guidance adjustment is reflective of increased investments and the margin impact of products mix shift, with the proportion of media revenues increasing. We believe there is a significant opportunity for increasing EBITDA in 2019 and longer term as we see increasing revenue growth while managing operating expense growth at a much lower level. Some color on the guidance. On the revenue side, we expect Ahalogy to contribute approximately $5 million in revenue in the back half of this year, weighted more to Q4 due to stronger seasonality within media. Additionally, we expect revenue growth to further increase on an organic basis due to the momentum we're seeing from our expanded solutions and investments in our retail partners. On the EBITDA side, we expect Ahalogy to have minimal impact on the second half as we focus on integration. We do, however, expect it to be accretive in 2019. Additionally, recent actions undertaken to further move employees closer to our customers and to lower-cost geographies will result in significant additional annualized savings in 2019. More significantly, we have been able to generate these efficiencies despite increasing our headcount by approximately 110 since Q2 of 2017 to support our robust business growth. In summary, we expect a strong second half, particularly in media, and are increasing our revenue guidance for the year. We believe the strategy we've put in place set the foundation for longer-term growth opportunities. We continue to be focused on efficient expense management. And as revenue continues to grow, we have set up ourselves for improving EBITDA dollars and margins, thereby, increasing shareholder value. This quarter, we'll be attending Oppenheimer's Annual Technology, Internet & Communications Conference in Boston and the Dougherty Investor Conference in Minneapolis. We look forward to seeing you there. We'll now open the call for questions. Operator?
  • Operator:
    [Operator Instructions] Your first question comes from the line of Mark Mahaney from RBC Capital Markets. Please go ahead.
  • Zachary Schwartzman:
    Hey, guys. This is Zachary Schwartzman on for Mark. Ron, you mentioned in your prepared remarks that we should continue to see a deceleration in gross margins in the second half of the year. Where do you see these going longer term as the business mix changes? I think you had mentioned that EBITDA, there should be some leverage there, but what about gross margins? Thanks.
  • Ronald Fior:
    So for the rest of this year, we expect a further decline of probably 1 to 2 points this year. And as far as 2019 goes, we'll look at that as we get into Q4, and we'll talk to you about that at that point in time.
  • Zachary Schwartzman:
    Okay. Thank you. And one more on the Ahalogy acquisition. Do you have any historical data to share from Ahalogy in terms of the revenue growth uplifts through their influencer marketing platform, specifically for CPG? And what specific, I guess, data points really shined out to you guys when you were looking to make that acquisition? Thanks.
  • Mir Aamir:
    Sure, Zach. It's Mir. We do have results that Ahalogy enables for brands, and it's very good from an ROI standpoint. And there are a number of reasons for that, which you will see us talk about in the future. That's one of the attractive points for Ahalogy. The other one, obviously, was that influencer marketing is a very core component of marketing and digital going forward, and its impact on sales and consumers is very, very significant.
  • Zachary Schwartzman:
    Thanks, Mir. Thanks, Ron.
  • Operator:
    Your next question comes from the line of Jason Helfstein from Oppenheimer. Please go ahead.
  • Jason Helfstein:
    Thanks. Three, but they should be pretty quick. First one, why did Retailer iQ slow on a year-over-year basis in the second quarter relative to first quarter? The second, I mean, more and more, we're hearing packaged campaigns. And just what do the packaged campaign look like? And are you trying to manage that to an aggregate gross margin? And then number three, what are you doing to position the company as a digital marketing company within the media next to Amazon and next-generation platforms such as a Trade Desk since we generally don't see it mentioned that way, more toward the legacy side of the business? Thanks.
  • Mir Aamir:
    Jason, let me go in reverse order here, and then Ron can answer the Retailer iQ question, quarterly sequence question. So what are we doing to position the company? Look, I think you're interpreting it accurately. There is a very strong trend in market towards having marketing overall be integrated and converged with these promotions or media, right, to have that in the digital world, and digital allows for that efficiency, and to have that driven by data on the front end, from an audience-targeting standpoint, efficient delivery of that for the right audiences and actually measurement and analytics in the back end in terms of sales - in terms of actual sales, right? That full loop, which some other players in the market might be doing for the few percent of groceries that are sold online, we are working towards - and we are already doing it for the 90-plus percent of groceries that are sold off-line but influenced very digitally. Do you want to talk about these campaigns?
  • Steven Boal:
    Sure. It's Steven. So we've talked in the past about ROI-based pricing, and we're talking about packaging together. So let me explain specifically what that can and will look like in certain cases. So as we know, we all know CPGs spend tens of billions of dollars a year in digital marketing. And so now that we have brought together or synthesized our platform with promotions, media and data, and that means data for targeting and also data for analytics and measurement, what we're able to do is take to our clients a unified approach of saying, if you're spending - I'm going to use hypotheticals. But if you're spending $20 million or $30 million in media elsewhere and you're spending $2 million or $3 million on our platform in promotions, shift $10 million of your media to our platform, so it's a net neutral to our clients, and we'll package together promotions, media and data together to drive your ROI up higher. And so when we talk about packaging, we mean bringing all of those things together to allow our CPGs to shift their larger parts of the budget, which are their media spend, not their promotion spend, onto our platform, now that we built out the capabilities both with Crisp Mobile and our broader platform and our retail media partners that we've got, with all the retailers that we've brought on board, many of them were exclusive, and now with Ahalogy as well. And so you can look for us to really ramp our media revenue and bring together, as a package, the ability to deliver promotions and analytics to support shifting more and more of those dollars to our platform, which is why, in Mir's prepared remarks, you heard him talk about accelerating revenue growth rates on a go-forward basis. This is one of those effects.
  • Mir Aamir:
    Ron, you were talking about...
  • Ronald Fior:
    Yes. So on the RiQ, the first thing you have to remember is that there's a seasonality that occurs between Q1 and Q2. That occurred again last year also. And then the second impact that we think really had an impact this quarter was the fact that a number of our bigger CPG customers were hitting their fiscal year-end. And at the fiscal year-end, they seemed to have run out of budgets. And one of the things that we often have at this time is that there's the - an additional budget flush at the end, and we did not see much of that at this quarter.
  • Jason Helfstein:
    Okay. Thank you.
  • Ronald Fior:
    I would also - actually, one other point to remember is that we continue to have the situation where we have way more demand than supply. So we can get more. We'll send a lot more out there.
  • Operator:
    Your next question comes from the line of Ralph Schackart from William Blair. Please go ahead.
  • Ralph Schackart:
    Good afternoon. On the revised outlook on EBITDA, you talked about the mix shift to lower-margin media spend but obviously, a larger market opportunity and then investments. Can you maybe give us some perspective or some quantification which of those 2 that you called out had the bigger impact on the revised outlook?
  • Mir Aamir:
    Ralph, this is Mir. There's a few factors going into that scenario. One of them is investments that we're making in the retailer relationship and data partnerships. We need to enable what we're talking about in terms of fueling the growth of a combined packaged media and promotions business. And that's working really well, and we continue to do more of that. I think it's the right time for us to do that and to lean into that so that we can further accelerate our growth rate not only in the back half of this year but in 2019, as I mentioned. That's one effect in that. You will see that. And then the other effect is the investments that we're making - that we will make more on some platform operational capabilities, that we need to scale the significant amount of data from media that we are getting and we will be getting - we anticipate getting. And the third effect is what Steven mentioned earlier in terms of packaged solutions. When that all comes together, that accentuates the mix shift somewhat, and then that has an impact on the gross margin P&L. But again, all of this growth then leverages on the EBITDA side not only in quarter 4 of this year but in going into 2019.
  • Ralph Schackart:
    Okay. And then maybe just some added perspective, if you could. Why is right now the right time to sort of really accelerate those investments? Was it just a matter of sort of getting the platform and the capabilities altogether, and that sort of makes sense? Or any perspective on that will be helpful.
  • Mir Aamir:
    We are seeing very good results, and we are seeing very good demand in the marketplace. I mentioned in my remarks on how we've signed several retailers launch some soon to be - some soon to be launched, in terms of very deep and exclusive media partnerships. And there's more discussions in the way. A lot of things are sort of looking up and already being implemented, and you saw media revenues rose in quarter two. So given that, we think we want to make sure that we take advantage of that as quickly as possible and accelerate our revenue growth rate even more, and we feel now is the right time.
  • Ronald Fior:
    Let me just add one bit of color on there as well. So if you just look historically at the rate of change that's taking place in the market, in 2017, we grew at about 17% - our revenues grew at about 20% - sorry, 17% year-over-year. In 2018, at the midpoint, it looks like about 23% year-over-year. We've got some declining pieces of the business, which we're calling headwinds, and then we've got tailwinds on the fact that there's a faster shift to digital. And we now have a platform that gives us the capability to say to our client, shift to our media dollars over faster. We can handle them. There's no net increase in spend. It's just your dollars that are going to other platforms bring to us, and we'll expand the ROI for you by bundling in together and packaging promotions and analytics, targeting and measurement. And so straight math alone, without accelerations, straight math alone on the continued reduction, the decelerating businesses and the continued growth of our growth businesses puts us in something like a 31% growth rate. Again, this is just math, right? So this is a spreadsheet and math. 31% growth rate in '19 and over 40% growth rate in 2020. And so if we can do something to even accelerate that further, now would be the time to do it. And as Mir said, we see the demand, and it's time to be able to go ahead and capture that to try and grow even faster.
  • Operator:
    Your next question comes from the line of Steven Frankel from Dougherty. Please go ahead.
  • Steven Frankel:
    I'd like to go back to this concept of packaged campaigns. And maybe if you could tell us what the pipeline of those look like between now and the end of the year. And did you have any material packaged campaigns set up for Q3 at this point?
  • Mir Aamir:
    Sure. We do have a pipeline, and now it's early, but the pipeline looks very robust. As you can imagine, asking a brand manager or offering to a brand manager for a large CPG, and this is sort of real examples, right, I can't share the names but - that we take your working media dollars, and we put it to work efficiently in digital. And it helps you save some costs on your promotions, but the overall solution to that is working media dollars spent in a much more efficient way. You get a lot of takers for it, right? And then, of course, we expect to execute that and deliver on that. We've already tested that in the marketplace and so on. So that's sort of the essence and theory of it. But just overall, this is a bit of a trend in the marketplace. Now we're creating this trend in the CPG world, but this whole notion of using actual purchase data for media targeting and a call to action to retailers, where it could be a promotion or coupon or in-store special or what have you, that trend is taking up - getting a lot of attention. I can't take specific names which we look in the marketplace in terms of media revenues that are driven through pipes like this. Especially on the e-commerce side, it's already happening. And the market understands how to buy marketing or to spend marketing this way now. So we're playing right into it and accelerating that.
  • Steven Frankel:
    Okay. And let's go back to this notion of demand keeps outstripping supply, and it seemed like a couple of quarters ago, you thought ROI-based pricing was the way to try to close that gap. Are you now saying you're, in essence, fine-tuning that strategy and it's this more holistic approach around packaged campaigns is what is necessary to materially improve your inventory?
  • Steven Boal:
    No. It's actually all part of the same strategy. So we talked about ROI-based pricing. We never really talk too much about the packaging of all of these things together because we wanted to get into the market with proposals first. And now that those are coming to fruition, we can be a little bit more clear about what our intentions are. And so it is the same strategy. The ROI-based pricing is really the genesis, the beginning of creating an inventory situation that was always available. Remember, we talked about that a couple of quarters ago, but annual planning had already been done for 2018. And so now as we step into Q3, some of our clients are starting their fiscals and with increased budgets, but we won't really see the increased - the really dramatically increased budgets until 2019, when the new fiscal starts for most of our client base. And that's why we're talking now about the growth rate accelerating into 2019 because we see what those numbers are starting to look like and why we're making investment now and making sure that we can capture all of that because if we wait until January to try and make the investment to capture all that, it's a little bit too late.
  • Mir Aamir:
    ROI pricing is still a very core component of us in the marketplace to work towards increasing supply. That is accurate, yes.
  • Steven Frankel:
    Okay. And maybe just some thoughts about what kind of acceleration are we talking about. If the good parts of your business today are up 40%, how much can you accelerate a business that's already growing at 40%?
  • Steven Boal:
    Well, again, if you look at the subtext of that, media grew at, what, 73%...
  • Ronald Fior:
    77%.
  • Steven Boal:
    77%. Media grew at 77%, and media is a much bigger opportunity than promotions, and using promotions to drive more media dollars to our platform accelerates the shift. So the 40% is great, don't get me wrong, 40% is great, but the fastest growing part of our business is growing at 77%.
  • Steven Frankel:
    And again, growing at 77%, but you see an opportunity to grow it faster than that?
  • Steven Boal:
    We see an opportunity to have the entire business grow because the biggest part of our business is growing at such a high rate compared to the parts of the business that have been declining, becoming smaller and smaller. So without forecasting into 2019, just - again, just a straight-line math, without acceleration, would give you an over 30% growth rate in '19 and over 40% in '20. But that's - again, that's just straight-lining off of history without any acceleration.
  • Operator:
    Your next question comes from the line of Scott McConnell from D.A. Davidson. Please go ahead.
  • Scott McConnell:
    So you've had a couple acquisitions recently. Maybe can you talk to us about what you're looking for an M&A going forward? Or more, if there's any updates to what your M&A strategy is?
  • Mir Aamir:
    Sure. M&A strategy is consistent with what we've shared in the past few quarters, which is we're looking for capabilities and companies that fit within our strategy that accelerate then our strategy and go-to-market in 3 areas
  • Scott McConnell:
    Okay. And then as a follow-up, I mean, how should we think about your, guys, effort to maximize your revenue growth versus the number of digital transactions on the platform?
  • Mir Aamir:
    I think our primary goal is revenue growth overall into its various - from its various components, including promotion, which is transaction-driven; and media, which is campaign-driven. There is a relationship, obviously, within transactions and revenue, but as you can see, that we've been working over the years to ensure that we do things to make sure that more offline budget comes to online, okay? How that translates into transaction, there is a relationship there, but our focus is not necessarily to grow or reduce transactions. Our focus is to grow revenue and get more and more budget out of offline to online. And there's various strategies we've employed and various strategies that we will continue to employ to make that happen.
  • Steven Boal:
    And just to put a fine point on that by way of example, to use the ability to drive transaction volume up for CPGs, in order to have more of their media, integrated media and data and analytics spend shift to our platform, that's something that we are actively pursuing. And so again, the capabilities we built allow us to flex between the products, to shift more and more total revenue to our platform. And as Mir said, our focus is revenue growth.
  • Operator:
    Your next question comes from the line of Larry Berlin from First Analysis. Please go ahead.
  • Larry Berlin:
    A couple of things. First, when - a minute ago, when you gave the 23% midpoint for revenue growth, what would be the organic number equate to that [indiscernible] acquisitions?
  • Ronald Fior:
    Yes. So we've actually looked at it. If you take out what we got from Crisp last year and looking at the numbers that we talked to you guys about previously on expectations for them and then you take out the number - the similar numbers for this year, you're going to get over 22%, 23%, the same kind of growth rate, actually.
  • Larry Berlin:
    Okay, okay. Then next thing again. On the ROI pricing, how is - what's the kickback been from the CPG companies? And can you give any metric in terms of adoption? Is it beginning to see - is it 5% or 10% of revenue yet? Or is it still too early to tell?
  • Mir Aamir:
    Not to give a percentage of revenue, but we already are at a percentage of revenue for that from before and current. The adoption - look, the response of CPGs has been very, very, very good. And what happens in CPGs, like Steven mentioned, these things only happen in annual cycles, number one. Number two is there are various different departments within the CPG organizations, such large organizations. They move slowly to get approval across departments and so on. So we're going through all of those processes, right? And we do expect to have a number of large CPGs, starting with a number of their larger brands, more than what we have right now, get onto ROI-based pricing, the caveat being, as we mentioned last time, that they have to commit to always on, okay? And that's starting to happen. Now it may be a bit more slowly than we would have liked, but understandably, these companies are largely working in annual cycles, and we continue to anticipate that that's going to happen.
  • Larry Berlin:
    Great. Last one for me. Quickly, as Amazon and Walmart and everybody else adopts this more delivery and more online grocery shopping, does that provide an opportunity for you? Or how do you guys look at that movement?
  • Mir Aamir:
    There's a whole movement of online buying, whether it's - most of it in groceries happening, online buying and picking up in store, right, versus home delivery. But this home delivery is also increasing. All of that trend is actually very helpful for this. We've solved the harder problem of digitally influencing consumers online to buy offline, digitally influencing them to online - to buy online is much easier than the problem that we have solved, so it's very exciting. If any of their volume shifts online, it really helps us. It's really very good for us.
  • Mir Aamir:
    Thank you all for joining us today. We're having a great year so far, and we expect to finish 2018 with a 23% revenue growth rate, as you heard, up 600 basis points from the 17% growth rate in 2017. Now we also expect to expand our EBITDA margin this year and grow EBITDA dollars by about 30%. We look forward to accelerating this momentum even more in 2019. Thank you.
  • Operator:
    This concludes today's conference call. Thank you for your participation. You may now disconnect.