Cardlytics, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Amounts below are in millions of dollars unless noted. Cardlytics operates a financial-institution-channel advertising platform and the Bridg merchant customer-data platform.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $76.7 | $75.4 | $141.0 | $143.3 |
| Gross profit | $30.5 | $27.0 | $55.0 | $53.2 |
| Operating loss | $(24.3) | $(122.3) | $(12.1) | $(86.7) |
| Net loss | $(23.5) | $(126.3) | $(9.9) | $(93.3) |
| Adjusted EBITDA (non-GAAP) | $(4.1) | $(15.8) | $(10.2) | $(26.3) |
Q2 billings, a non-GAAP measure, rose 2% to $109.4 million; adjusted contribution rose 7% to $37.5 million. For the first half, billings were approximately flat at $205.1 million and adjusted contribution increased 1% to $68.5 million. Q2 gross profit increased 13% year over year, with delivery costs down 14% to $7.0 million.
Q2 Cardlytics platform revenue was $70.7 million, up from $69.3 million; Bridg revenue was $6.0 million, down from $6.1 million. First-half Cardlytics platform revenue declined to $129.8 million from $133.3 million, while Bridg revenue increased to $11.3 million from $10.1 million. Q2 average monthly active users rose to 188.1 million from 179.9 million; ARPU was unchanged at $0.38.
Cash, debt and liquidity
At June 30, 2023, cash and cash equivalents were $92.1 million, down from $121.9 million at December 31, 2022. Working capital was $33.8 million, versus $1.1 million at year-end. First-half operating cash use was $4.3 million; investing cash use was $5.5 million and financing cash use was $20.1 million. Financing included $50.1 million paid toward the Bridg earnout and $30.0 million borrowed on the revolving credit line.
Total debt carrying value was $256.8 million: $30.0 million outstanding on the revolving line and $226.8 million carrying value on the convertible notes ($230.0 million principal). The line had $7.0 million of unused borrowing availability, bore interest at 8.25% as of June 30, 2023, and matures April 29, 2024. The notes bear 1.00% interest and mature in 2025. Management stated that cash should fund operations and capital requirements for at least the next 12 months and in the long term following issuance of the financial statements, while also expecting near-term operating losses and noting possible need for additional capital.
Material changes and unusual items
- Revenue increased 2% in Q2, with $4.0 million of higher sales to new marketers offsetting a $2.3 million decline from existing marketers. First-half revenue fell 2%, as higher consumer incentives and lower billings weighed on reported revenue.
- Net losses narrowed substantially versus 2022, primarily because the prior-year periods included an $83.1 million goodwill impairment. The 2023 periods also benefited from lower operating expenses, including reduced sales and marketing and general and administrative costs.
- Q2 results included an $11.3 million loss from remeasurement of Bridg contingent consideration, partly offset by a $9.9 million acquisition-and-integration benefit. For the first half, the contingent-consideration gain was $23.3 million and the acquisition-and-integration benefit was $8.2 million. These items materially affect GAAP results.
- The company paid $50.1 million in cash and issued 2,740,418 shares for its calculated $160.1 million Bridg first-anniversary payment. It is withholding a disputed portion tied to one contract: $15.2 million and 816,299 shares. The company’s calculation of the second-anniversary payment is zero; the stockholder representative could dispute that calculation.
- Management cited a $4.5 million accrued shortfall under a minimum partner-share commitment, expected to be paid quarterly from September 2023 through June 2024. It also renewed a cloud-hosting agreement with a $13.5 million minimum spend over 12 months.
Outlook, commentary and principal risks
Management expects additional operating losses in the near term. It cited macroeconomic uncertainty, inflation and interest rates as possible pressures on consumer spending and marketers’ advertising budgets. The business is seasonal, with advertising spend historically higher in Q4; the timing of marketer collections and incentive and partner payments can also make cash flows variable. The filing provides no numerical revenue or earnings guidance.
Key risks include dependence on a limited number of financial-institution partners, particularly large banks; the top three partners represented over 85% of first-half 2023 Partner Share. Partner agreements may be terminable on 90 days or less notice. Other material risks include ongoing Bridg earnout litigation and payment uncertainty, debt-service and refinancing needs, persistent losses, advertiser demand, privacy and data regulation, cybersecurity, competition, and execution of platform and cloud migration initiatives. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track the Delaware court outcome and the final cash-and-share obligation for the disputed Bridg earnout; verify whether the estimated zero second payment is challenged.
- Assess liquidity against the April 2024 revolver maturity, limited remaining availability, the 2025 convertible notes, and the $4.5 million partner-share shortfall payments.
- Monitor revenue and billings from existing versus new marketers, consumer incentive levels, and the continued shift in revenue between the Cardlytics and Bridg platforms.
- Evaluate FI partner concentration and retention, especially given short termination notice periods and increased concentration in Partner Share.
- Separate recurring operating performance from contingent-consideration remeasurement, acquisition-related benefits, stock-based compensation and prior-year impairment effects when assessing losses and adjusted EBITDA.