Cardlytics, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; filed November 2, 2021. Amounts below are in U.S. dollars. Cardlytics operates an advertising platform using anonymized financial-institution purchase data; Bridg adds a customer-data platform based on anonymized point-of-sale data.
Financial performance
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $65.0m | $46.1m | $177.1m | $119.8m |
| Billings (non-GAAP) | $98.4m | $62.1m | $260.1m | $169.4m |
| Gross profit | $24.5m | $14.6m | $67.2m | $38.5m |
| Operating loss | $(39.8)m | $(16.1)m | $(106.2)m | $(47.8)m |
| Net loss | $(44.5)m | $(15.4)m | $(116.7)m | $(48.6)m |
| Adjusted EBITDA (non-GAAP) | $(5.2)m | $(0.6)m | $(14.8)m | $(12.3)m |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $(38.0)m | $(13.2)m |
Q3 revenue increased 41% year over year; billings rose 59%. For the first nine months, revenue rose 48% and billings 54%. Revenue is reported net of consumer incentives and gross of Partner Share. Consumer incentives increased 109% in Q3 to $33.5m, faster than billings, mainly reflecting advertiser mix and partner-funded incentives. Gross margin was approximately 37.7% in Q3 versus 31.7% a year earlier, and approximately 37.9% for nine months versus 32.1%. Net losses widened as expenses grew, including acquisition-related costs, amortization, stock compensation and the remeasurement of contingent consideration.
Q3 Cardlytics platform revenue was $62.1m and Bridg platform revenue was $2.9m. Management reported average monthly active users of 170.6m versus 161.6m and Cardlytics ARPU of $0.36 versus $0.29. Bridg ARR was $12.7m at September 30; ARR is a company-defined metric, not GAAP revenue.
Balance sheet, liquidity and debt
- At September 30, 2021, cash and cash equivalents were $237.4m, down from $293.2m at December 31, 2020. Working capital was $61.1m, compared with $304.3m at year-end.
- Cash, cash equivalents and restricted cash declined $55.9m during the first nine months. Operating activities used $38.0m; investing activities used $503.3m, including $494.1m net cash for acquisitions; financing activities provided $485.8m, primarily from the March equity offering.
- Convertible senior notes had $230.0m principal outstanding, with a $181.7m net carrying amount, 1.00% stated interest and September 2025 maturity. The company reported no revolver borrowings and $50.0m of unused availability, subject to borrowing-base terms. It stated it was covenant-compliant.
- Lease liabilities totaled $13.4m. Bridg contingent consideration was valued at $238.7m, including $167.4m classified current and $71.2m long term.
Material changes, outlook and risks
- Acquisitions and financing: Cardlytics acquired Dosh for $277.6m in March and Bridg for $578.9m in May 2021. The acquisitions added $718.9m of goodwill and $130.2m of net acquired intangible assets by September 30. Dosh and Bridg together contributed about 9% of Q3 consolidated revenue. Acquisition and integration costs were $22.9m for nine months; amortization of acquired intangibles was $13.0m.
- Equity issuance: A March public offering generated $484.0m net proceeds and issued 3.85m shares. Common shares outstanding increased to 33.2m at September 30 from 27.9m at December 31, 2020.
- Management outlook: Management expected continued operating losses and cash use while investing in growth, but said available cash was expected to fund operations and capital requirements for at least 12 months from issuance of the financial statements. No specific revenue or earnings guidance is provided in the supplied filing text. Fourth-quarter seasonality has historically reflected higher consumer spending and advertiser budgets.
- Operating environment: Management described continued recovery in consumer spending and client advertising budgets versus the pandemic-affected prior year, while noting merchant labor shortages and supply-chain disruptions. COVID-19 duration and economic effects remain uncertain.
- Key risks and commitments: The business depends substantially on a limited number of financial-institution partners, particularly Chase and Bank of America, and partner agreements may be terminable on short notice. A $10.0m minimum Partner Share commitment begins April 1, 2022. Other significant risks include privacy and data regulation, cybersecurity, advertiser concentration, acquisition integration, ongoing losses, convertible-note cash settlement and dilution, and potential variability in marketing spend.
- Contingent payment exposure: Bridg’s anniversary payments depend on ARR performance and are subject to valuation assumptions; at least 30% must be paid in cash, with remaining amounts payable in cash or stock at Cardlytics’ election. Fair-value changes reduced reported results by $6.3m in Q3 and $7.7m for nine months.
Investor verification points
- Track whether revenue and billings growth persist, and how consumer incentives affect revenue conversion and margins.
- Assess integration progress and standalone performance of Dosh and Bridg, including Bridg ARR, synergies, and the final purchase-price allocations.
- Monitor cash burn, working capital, contingent consideration and the cash-versus-stock settlement of Bridg anniversary payments.
- Review partner retention and concentration, especially Chase and Bank of America, and performance against the $10.0m partner commitment.
- Evaluate operating-loss trends alongside non-GAAP adjusted contribution and adjusted EBITDA, including the effect of stock compensation and acquisition-related expenses.