Cardlytics, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts below are in millions unless noted. Cardlytics operates a financial-institution-channel advertising platform and the Bridg customer data platform.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $75.4 | $58.9 | $143.3 | $112.1 |
| Billings (non-GAAP) | $107.7 | $85.3 | $206.0 | $161.7 |
| Gross profit | $27.0 | $23.2 | $53.2 | $42.7 |
| Gross margin | 35.8% | 39.3% | 37.1% | 38.1% |
| Operating loss | $(122.3) | $(44.2) | $(86.7) | $(66.4) |
| Net loss | $(126.3) | $(47.3) | $(93.3) | $(72.2) |
| Adjusted EBITDA (non-GAAP) | $(15.8) | $(5.7) | $(26.3) | $(9.6) |
- Q2 revenue increased 28% year over year; billings increased 26%. For the first half, both revenue and billings increased 28% and 27%, respectively. Management attributed billings growth mainly to existing marketers, with a smaller contribution from new marketers.
- Q2 adjusted contribution was $35.1 million, up 19%; first-half adjusted contribution was $67.9 million, up 26%. These non-GAAP measures exclude certain costs and should be considered alongside GAAP results.
- Cash and cash equivalents were $157.0 million at June 30, down from $233.5 million at year-end 2021. Working capital was negative $29.6 million. Operating cash use was $26.4 million in the first half; investing cash use was $9.3 million and financing cash use was $39.8 million.
- Convertible notes have $230.0 million principal, a 1.00% coupon and a 2025 maturity; carrying value, net, was $225.3 million. The $60.0 million revolving credit facility was undrawn at quarter-end. Cardlytics said it was covenant-compliant and believed cash on hand was sufficient for at least 12 months after issuance of the statements.
Material changes and unusual items
- Q2 included an $83.1 million goodwill impairment charge for the Bridg reporting unit, following a sustained decline in the share price. Management cautioned that volatile markets could lead to further impairment.
- For the first half, a $68.0 million gain from a reduction in the estimated fair value of Bridg contingent consideration partly offset the impairment and other losses. The contingent consideration liability was $164.3 million at June 30, versus $232.3 million at December 31, 2021.
- Cardlytics repurchased and canceled 1.406 million shares for $40.0 million, averaging $28.44 per share, completing its authorized repurchase program.
- Bridg contributed $6.1 million of Q2 revenue and $10.1 million for the first half. Entertainment, acquired in January 2022, contributed approximately 3% of consolidated revenue in each period.
- First-half results reflect adoption of convertible-debt accounting guidance, which increased the opening carrying value of the notes and reduced reported interest expense compared with the prior accounting treatment.
Outlook, risks and contingencies
- No specific numerical revenue or earnings guidance is provided in the filing. Management expects operating losses to continue in the foreseeable future and notes that results are seasonal, with historically higher consumer spending in Q4.
- After quarter-end, the company planned cost-saving measures expected to result in approximately $4.0 million of one-time costs. A cloud-hosting arrangement commits the company to $7.2 million of spend over its first 12 months; a Q2 shift to cloud hosting also resulted in $1.0 million of severance and medical costs.
- A minimum Partner Share commitment to one financial-institution partner totals $10.0 million over the year beginning April 1, 2022; $0.9 million of expected shortfall was accrued at June 30. The company also generally pays consumer incentives and partner shares before or irrespective of collection from marketers, creating working-capital timing risk.
- A July 2022 Bank of America agreement continues cash-back offers through July 31, 2025, but the bank may terminate on 90 days’ notice.
- Key risks include dependence on a limited number of financial-institution partners, macroeconomic and inflationary pressures on marketer spending, COVID-19 uncertainty, privacy and data regulation, foreign-exchange exposure, acquisition integration and debt-related cash requirements. The first-half foreign-currency loss was $6.2 million, primarily related to the British pound.
- Management concluded disclosure controls were ineffective at June 30 because of an unremediated material weakness in review of third-party valuation specialists’ work, including valuations related to acquisitions. Remediation was ongoing and had not yet been demonstrated effective.
Investor verification priorities
- Assess whether revenue and billings growth can continue and whether gross-margin pressure and adjusted EBITDA losses improve.
- Review the assumptions, timing, settlement mix and potential cash demands of Bridg contingent consideration, including the remaining anniversary payments.
- Monitor cash burn, negative working capital, the $25.0 million adjusted-cash covenant, and liquidity needs alongside the $230.0 million notes due in 2025.
- Track Bridg goodwill and other asset valuations, further impairment risk, and completion and testing of internal-control remediation.
- Verify execution and cost impact of the cloud migration and planned savings, and monitor the financial-institution partner commitment and Bank of America relationship.