Cardlytics, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars unless stated otherwise.
Business context
Cardlytics operates an advertising platform within financial institutions’ digital channels. It uses anonymized purchase data to target marketing offers and measure campaign sales impact. Revenue is reported net of consumer incentives and gross of payments to financial institution (FI) partners. The platform generated all billings in 2020. Average monthly active users (FI MAUs) rose as Wells Fargo completed its rollout; average revenue per user (ARPU) declined.
Key financial metrics
| Metric | FY2019 | FY2020 | Change |
|---|---|---|---|
| Revenue | $210.4 million | $186.9 million | Down 11% |
| Billings (non-GAAP) | $316.1 million | $263.4 million | Down 17% |
| Gross profit | $79.5 million | $63.3 million | Down 20% |
| Gross margin | 37.8% | 33.8% | Down 4.0 percentage points |
| Operating loss | $(17.3) million | $(53.9) million | Loss widened |
| Net loss | $(17.1) million | $(55.4) million | Loss widened |
| Adjusted EBITDA (non-GAAP) | $6.1 million | $(7.8) million | Declined |
| Operating cash flow | $11.5 million provided | $7.6 million used | Declined |
| FI MAUs | 122.6 million | 155.8 million | Up 27% |
| ARPU | $1.72 | $1.20 | Down 30% |
Cash and cash equivalents were $293.2 million at year-end, versus $104.5 million a year earlier. Working capital was $304.3 million; accounts receivable was $81.2 million. The company reported $50.0 million of unused revolving credit availability. Year-end debt was $174.0 million on the balance sheet, reflecting the accounting carrying value of $230.0 million principal of 1.00% convertible notes due 2025, net of discount and issuance costs. The notes generated $3.3 million of 2020 interest expense, including non-cash amortization.
Material changes versus FY2019
- Revenue fell $23.5 million. A $42.5 million reduction in sales to existing marketers was partly offset by $19.0 million of growth from new marketers.
- Gross profit decreased by $16.2 million, while gross margin fell from 37.8% to 33.8%.
- Net loss increased by $38.3 million. Stock-based compensation more than doubled to $32.4 million from $15.9 million, contributing to higher operating expenses.
- Cash from operations shifted from $11.5 million provided to $7.6 million used. Investing activities used $10.1 million; financing activities provided $206.4 million, principally from the convertible notes issuance.
- FI MAUs increased by 33.2 million, primarily reflecting Wells Fargo’s completed rollout and Chase’s earlier launch. Lower ARPU offset some of the benefit of expanded reach.
Outlook, risks and unusual items
- Management said COVID-19 significantly affected revenue in the second quarter through reduced consumer spending and advertiser budgets. Both improved in the third and fourth quarters, but the duration and financial effects of the pandemic remained uncertain. No quantified revenue or earnings guidance is provided in the filing.
- Management expected FI MAUs to continue increasing, including from a planned U.S. Bank phased launch in the first half of 2021. It expected ARPU to improve over time as consumer spending and client advertising budgets recover; these are expectations, not guarantees.
- Customer concentration is material: the top five marketers generated 35% of 2020 revenue, up from 27% in 2019. Bank of America and Chase together represented over 75% of FI Share paid in 2019 and 2020. Many FI agreements can be terminated on 90 days’ notice or less.
- COVID-related economic weakness, seasonal advertising patterns, marketer and FI partner concentration, privacy and data regulation, cybersecurity, and competition are key risks. The company has a history of annual losses and expects continued operating losses for the foreseeable future, while stating existing cash was expected to fund operations and capital needs for at least 12 months after the financial statements were issued.
- A $10.0 million minimum FI Share commitment is contingent on an FI partner completing milestones that had not been met by year-end; any expected shortfall penalty would be accrued after milestone completion. The commitment is not included in the contractual-obligations table.
- Unusual 2020 items included $1.3 million of restructuring costs, a $0.7 million write-off of deferred FI implementation costs after an FI partner planned to discontinue certain features, and a $1.0 million write-off of capitalized software costs. The company also raised $230.0 million principal through convertible notes and spent $26.5 million on capped calls intended to reduce potential dilution or cash settlement exposure.
- After year-end, on February 26, 2021, Cardlytics entered an agreement to acquire Dosh for approximately $275.0 million: $150.0 million cash and $125.0 million in Cardlytics shares, subject to adjustments, plus assumption of unvested options and up to $8.0 million in performance stock units for certain executives. Closing remained subject to conditions; the filing does not report the acquisition as completed.
- The independent auditor issued an unqualified opinion on the financial statements and an unqualified opinion on internal control over financial reporting. Management also concluded those controls were effective as of year-end.
Investor verification priorities
- Check the trajectory of revenue, billings, gross margin, operating cash flow, and ARPU after the FY2020 decline, including the pace of recovery from COVID-19 effects.
- Monitor marketer concentration and renewal/spending patterns, as well as the status and terms of major FI relationships and the expected U.S. Bank rollout.
- Review the Dosh acquisition’s closing status, final consideration, integration progress, and effects on cash, share dilution, and operating results.
- Track the $230.0 million notes’ conversion and cash-settlement provisions, capped-call coverage, and the company’s ability to meet debt and liquidity obligations.
- Confirm whether the $10.0 million FI Share commitment milestones are completed and whether any shortfall penalty or other contingent obligation is recorded.
- Assess privacy, data-security, and regulatory developments and their potential impact on access to purchase data and the platform’s business model.