Cardlytics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 4, 2023. Cardlytics operates a financial-institution channel advertising platform and the Bridg customer data platform. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $67.9 | $64.3 | -5% |
| Billings (non-GAAP) | $98.2 | $95.6 | -3% |
| Gross profit | $26.2 | $24.5 | -7%; margin 38.1% vs. 38.6% |
| Adjusted contribution (non-GAAP) | $32.8 | $30.9 | -6% |
| Operating income | $35.7 | $12.2 | -66% |
| Net income | $33.0 | $13.6 | -59% |
| Diluted EPS | $0.91 | $0.40 | Lower |
| Adjusted EBITDA (non-GAAP) | $(10.5) | $(6.1) | Loss narrowed |
Q1 2023 operating cash flow was a use of $10.1 million, versus a use of $19.7 million a year earlier. Investing activities used $2.8 million; financing provided $30.0 million, primarily from borrowing on the revolving credit line. Cash and cash equivalents were $139.2 million at quarter-end, and working capital was $55.5 million.
At March 31, 2023, total debt was $256.4 million: $230.0 million principal on 1.00% convertible notes due 2025 (carrying value $226.4 million) and $30.0 million drawn on the line of credit. The credit line had $5.5 million of unused availability and was due to mature April 29, 2024. The company reported compliance with its financial covenants.
Material changes versus the prior-year quarter
- Cardlytics platform revenue fell to $59.0 million from $64.0 million; Bridg revenue rose to $5.3 million from $3.9 million. Cardlytics CPS revenue was broadly steady, while CPR revenue declined.
- Billings decreased $2.6 million, primarily from lower sales to existing marketers, partly offset by new-marketer sales. Consumer incentives increased 3% to $31.3 million, contributing to the decline in reported revenue.
- Average Cardlytics monthly active users increased to 188.8 million from 178.5 million, while ARPU declined to $0.34 from $0.36. Bridg ARR increased to $21.8 million from $14.0 million.
- Net income includes a $34.6 million noncash benefit from a reduction in the estimated fair value of Bridg contingent consideration, compared with a $65.1 million benefit in Q1 2022. The result is therefore not a straightforward measure of underlying operating performance; adjusted EBITDA remained negative.
- Operating expenses were lower, including sales and marketing, general and administration, and depreciation and amortization. Stock-based compensation declined to $8.0 million from $13.6 million, partly due to a reversal associated with performance awards no longer expected to vest and forfeitures following executive departures.
Outlook, risks, contingencies, and unusual items
- Management expects additional operating losses in the near term but stated that available cash was expected to fund operations and capital requirements for at least the next 12 months. This assessment must be considered alongside the Bridg payment and debt obligations.
- After quarter-end, an independent accountant set Bridg First Anniversary ARR at $23.2 million. Cardlytics calculated the First Anniversary Payment at $208.1 million, including fees and bonuses. If it pays the minimum 30% in cash and the balance in shares, the stated amounts are $72.6 million cash and 3,374,383 shares. The company currently estimates the Second Anniversary Payment at zero, but that estimate could be disputed.
- The $4.5 million accrued minimum Partner Share shortfall is expected to be paid quarterly from September 2023 through June 2024. The company recognized $1.3 million of related expense in Q1 2023.
- On May 3, 2023, the company amended its credit facility covenants concerning the maximum cash payment permitted for the Bridg earnouts. Separately, an amended Atlanta office lease reduces space from about 77,000 to 17,000 square feet and provides for a move in 2024.
- Key risks include dependence on a small group of financial-institution partners (including Chase, Bank of America, and Wells Fargo), partner termination rights, uncertain advertising demand amid economic volatility, privacy and data regulation, cybersecurity, and refinancing or servicing debt. The company also cites seasonality, with advertising spending typically higher in Q4 and lower in Q1.
- No material legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Final settlement and timing of the Bridg First Anniversary Payment, including the cash-versus-stock election, share issuance, and any dispute over the Second Anniversary Payment.
- Liquidity after the Bridg cash payment, the line-of-credit maturity in April 2024, available borrowing capacity, and compliance with amended covenants.
- Whether revenue and billings stabilize, particularly Cardlytics platform sales, CPR revenue, and ARPU, while Bridg growth continues.
- Underlying cash generation and operating performance apart from noncash contingent-consideration fair-value gains and other adjustments.
- Financial exposure to minimum Partner Share commitments and continued reliance on a concentrated set of FI partners.