Cardlytics, Inc. — Q2 2020 Form 10-Q
Business context and period: Cardlytics operates an advertising platform in financial institutions’ digital channels, using anonymized purchase data to target and measure marketer campaigns. This unaudited report covers the three and six months ended June 30, 2020; comparisons are with 2019. Amounts below are in millions of dollars unless stated otherwise.
Key financial results
| Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 |
|---|---|---|---|---|
| Revenue | $28.2 | $48.7 | $73.7 | $84.7 |
| Billings (non-GAAP) | $39.5 | $73.8 | $107.3 | $132.3 |
| Gross profit | $7.9 | $17.7 | $23.9 | $31.5 |
| Gross margin | 28.0% | 36.4% | 32.4% | 37.2% |
| Operating loss | $(19.7) | $(5.5) | $(31.7) | $(12.0) |
| Net loss | $(19.8) | $(6.5) | $(33.3) | $(12.8) |
| Adjusted EBITDA (non-GAAP) | $(7.7) | $(0.6) | $(11.7) | $(3.8) |
| Operating cash flow | Not separately provided for Q2 | $(7.6) | $(3.0) |
Q2 diluted loss per share was $0.73, compared with $0.29 a year earlier; H1 diluted loss per share was $1.24 versus $0.57. H1 investing cash outflow was $3.4 million and financing cash inflow was $5.4 million.
Financial position and liquidity
At June 30, 2020, cash and cash equivalents were $98.4 million, net accounts receivable $36.6 million, working capital $103.9 million, total assets $183.0 million and total liabilities $52.6 million. The company had no borrowings outstanding on its revolving credit facility and reported $26.4 million of unused availability, subject to the facility’s borrowing-base limit. The line commitment is $40 million or 85% of eligible receivables, whichever is lower. Operating lease liabilities totaled $13.8 million; these are lease obligations, not outstanding bank borrowings.
Cash, cash equivalents and restricted cash decreased $6.1 million during H1 to $98.5 million. Management said existing cash was expected to fund operations and capital needs for at least 12 months after the financial statements were issued, while noting that further capital could be needed and might not be available on acceptable terms.
Material changes versus comparable periods
- Q2 revenue fell 42% year over year and H1 revenue fell 13%; billings declined 46% and 19%, respectively. Management attributed the downturn primarily to COVID-19’s effect on consumer spending and marketers’ advertising budgets. Sales to existing marketers declined, partly offset by new marketer sales.
- Q2 adjusted contribution fell 43% to $12.4 million; H1 fell 17% to $32.8 million. GAAP gross profit declined 55% in Q2 and 24% in H1.
- Average FI monthly active users rose to 157.2 million in Q2 from 120.1 million, while revenue per user fell to $0.18 from $0.40. H1 figures were 149.0 million versus 114.3 million MAUs, and $0.49 versus $0.74 ARPU. Expanded Chase and Wells Fargo launches increased reach; COVID-related revenue weakness also weighed on ARPU.
- H1 operating cash use increased to $7.6 million from $3.0 million. A $42.5 million decrease in receivables was largely offset by lower FI Share and consumer incentive liabilities, reflecting lower sales.
- Stock-based compensation rose to $9.1 million in Q2 from $3.1 million and to $13.2 million in H1 from $4.8 million. General and administrative expense increased 41% in Q2 and 47% in H1, with stock compensation among the main drivers.
Outlook, commentary, risks and unusual items
- Management expected near-term year-over-year declines in revenue and increases in net loss due to reduced consumer spending and marketing campaigns. The duration and severity were described as uncertain; the filing provides no specific numerical financial guidance.
- During H1, the company deferred $1.2 million of revenue and recorded $1.3 million of bad-debt expense tied to marketers considered vulnerable to the economic slowdown. Management said it might further adjust its allowance for doubtful accounts.
- Cardlytics completed Wells Fargo’s phased platform launch in Q2 2020 and expected U.S. Bank’s phased launch to begin in H1 2021. Management anticipated continued MAU growth but further ARPU pressure.
- A $10 million minimum FI Share commitment depends on a partner completing milestones not met by June 30; management did not believe the milestones would be completed in 2020. Any expected shortfall would be accrued in the 12 months after milestone completion.
- Other notable items: $0.8 million of internal-use software costs were written off in Q1 after a project redesign; restructuring costs were $0.9 million in H1; lease accounting adoption added $10.3 million of right-of-use assets and $13.5 million of lease liabilities at adoption. The company renewed certain data-center leases in Q2.
- Key risks include dependence on a small number of FI partners and marketers, short-notice termination rights in many FI agreements, marketer credit and spending risk, COVID-19 disruption, data privacy and cybersecurity exposure, foreign-exchange volatility, and continued operating losses. Bank of America and Chase together accounted for over 75% of FI Share paid in H1; one marketer represented 17% of H1 revenue and 24% of receivables at June 30.
- The company reported no material pending legal proceeding and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether marketer spending, collections and deferred revenue recover, and how COVID-related bad debt evolves.
- Whether revenue and ARPU stabilize as FI MAUs expand, including the economics and timing of U.S. Bank’s launch.
- Cash burn, available borrowing capacity under the receivables-based facility, and management’s stated liquidity runway.
- Exposure to major FI partners, concentrated marketers and the contingent $10 million FI Share commitment.
- How elevated stock-based compensation and outstanding equity awards affect expenses and dilution; shares outstanding were 27.275 million at June 30, 2020.