Cardlytics, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are to the same 2022 periods. Amounts are in U.S. dollars. Cardlytics operates a bank-channel advertising platform and Bridg, a merchant point-of-sale data and marketing platform.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $79.0m | $72.7m | $220.0m | $216.0m |
| GAAP net income (loss) | ($24.0m) | $6.3m | ($33.9m) | ($87.0m) |
| Gross profit | $35.8m | $26.0m | $90.9m | $79.2m |
| Adjusted contribution | $42.9m | $35.1m | $111.3m | $103.0m |
| Adjusted EBITDA | $3.9m | ($12.7m) | ($6.2m) | ($39.0m) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | ($3.1m) | ($40.8m) |
Q3 gross margin was approximately 45.4%, versus 35.8% a year earlier; nine-month gross margin was approximately 41.3%, versus 36.7%. Billings, a non-GAAP measure that includes Consumer Incentives, rose 5% to $116.4m in Q3 and 2% to $321.5m for nine months. Q3 average monthly active users increased 4% to 162.5m; ARPU was $0.49, up from $0.47.
Q3 revenue comprised $73.1m from the Cardlytics platform and $5.9m from Bridg. Nine-month amounts were $202.8m and $17.2m, respectively. Q3 revenue growth reflected higher billings and slightly lower Consumer Incentives; nine-month growth was partly offset by higher Consumer Incentives.
At September 30, cash and cash equivalents were $90.1m, restricted cash $0.1m, and working capital $26.1m. Cash and restricted cash declined $31.8m from year-end 2022. Total debt was $257.1m: $30.0m drawn on the revolving credit line and $227.1m net carrying value of convertible notes ($230.0m principal). The line had $4.3m of unused availability and matures April 29, 2024; the notes bear 1% interest and mature September 2025. Management said it believed cash would fund operations and capital requirements for at least 12 months, while also expecting near-term operating losses and noting possible need for additional capital.
Material changes and unusual items
- Revenue increased 9% in Q3 and 2% for nine months. Gross profit rose 38% in Q3 and 15% for nine months, supported by lower partner costs and delivery costs. Sales and marketing, R&D, and general and administrative expenses were also lower, largely reflecting reduced headcount and other cost reductions.
- GAAP results were materially affected by Bridg earnout fair-value remeasurement: Q3 2023 included an $8.3m loss, compared with a $46.1m gain in Q3 2022; the nine-month periods included gains of $15.0m and $114.1m, respectively. These changes are distinct from underlying operating performance.
- Cash used in financing activities included $50.1m paid for the Bridg first-anniversary earnout, partly offset by $30.0m borrowed on the credit line. Cardlytics also issued 2.74m shares for the earnout by September 30.
- The company recorded no goodwill impairment in the 2023 periods. It had recorded $83.1m of goodwill impairment in the first nine months of 2022; total goodwill impairments reached $396.2m in 2022.
Outlook, risks, and contingencies
The filing provides no specific numerical revenue or earnings guidance. Management cited seasonality, including historically higher marketer spending in Q4, and said near-term operating losses were expected. Cash flows may vary with campaign billing and payment timing and seasonal advertising budgets.
Bridg earnout amounts remain disputed. Cardlytics has paid $50.1m and issued 2.74m shares based on its $160.1m calculation of the first-anniversary payment, but is withholding $15.2m and 816,299 shares tied to a disputed contract while pursuing a Delaware court action. The former Bridg stockholder representative disputes the company’s calculation of a second-anniversary payment, which Cardlytics currently calculates as zero. An adverse outcome could increase cash obligations and dilute shareholders.
Other key risks include reliance on a small number of financial-institution partners—its top three represented over 85% of Partner Share paid—advertising demand and macroeconomic conditions, privacy and data regulation, platform and cybersecurity risks, and the April 2024 credit-line maturity. The company reported compliance with its financial covenants at September 30, 2023. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Progress and potential financial impact of both Bridg earnout disputes, including the court case and any revised payment or share obligations.
- Liquidity, credit-line renewal or repayment plans ahead of the April 2024 maturity, and the assumptions behind management’s cash-sufficiency assessment.
- Whether revenue and billings growth can be sustained, and whether improved gross profit and adjusted EBITDA translate into durable GAAP profitability and positive operating cash flow.
- Retention and terms of major FI-partner relationships, including the concentration of Partner Share and the minimum-partner commitment shortfall.
- Future dilution from equity awards, earnout shares, and the convertible notes; the filing reports 38.5m shares outstanding at September 30, 2023 and 39.3m at October 31, 2023.