Cardlytics, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2022. Cardlytics operates a bank-channel advertising platform and the Bridg customer-data platform. Results include Entertainment, acquired in January 2022; Bridg and Dosh were acquired in 2021.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $72.7M | $65.0M | $216.0M | $177.1M |
| Billings (non-GAAP) | $110.4M | $98.4M | $316.4M | $260.1M |
| Gross profit | $26.0M | $24.5M | $79.2M | $67.2M |
| Gross margin | 35.8% | 37.7% | 36.7% | 37.9% |
| Net income (loss) | $6.3M | ($44.5M) | ($87.0M) | ($116.7M) |
| Adjusted EBITDA (non-GAAP) | ($12.7M) | ($5.2M) | ($39.0M) | ($14.8M) |
| Cash used in operating activities | Not stated for quarter | Not stated for quarter | $40.8M | $38.0M |
- Q3 revenue and billings each rose 12% year over year; nine-month revenue rose 22%. Q3 adjusted contribution increased 11% to $35.1M, while nine-month adjusted contribution rose 20% to $103.0M.
- Cardlytics platform revenue was $67.3M in Q3; Bridg revenue was $5.4M. Average monthly active users increased to 184.7M from 170.6M, while quarterly ARPU was unchanged at $0.36. Bridg ARR was $22.1M.
- Q3 GAAP net income contrasts with an adjusted EBITDA loss. A $46.1M gain from remeasuring Bridg contingent consideration and a $1.9M acquisition/integration benefit materially affected Q3 results.
- For the nine months, operating loss was $75.1M and net loss was $87.0M. Results included an $83.1M Bridg goodwill impairment, partly offset by a $114.1M contingent-consideration fair-value gain. Foreign-currency losses were $10.9M.
- At September 30, cash and cash equivalents were $138.5M, versus $233.5M at December 31, 2021. Working capital was negative $5.8M. Total liabilities were $485.8M.
- Convertible notes have $230.0M principal, a 1.00% coupon and 2025 maturity; carrying value was approximately $225.7M. The $60.0M revolving credit facility was undrawn, with $60.0M available. The company reported covenant compliance.
Material changes, outlook and risks
- Revenue growth reflected increased sales to existing and new marketers. Consumer incentives increased 13% in Q3, faster than billings, primarily due to advertiser mix. Delivery costs rose 43% in Q3 and 48% year to date; nine-month R&D expense rose 51%.
- The company repurchased and canceled 1.4M shares for $40.0M, an average $28.44 per share. It also adopted ASU 2020-06, changing convertible-note accounting and increasing the reported note liability.
- Management initiated workforce reductions in the U.S., U.K. and India and planned to close its India office by year-end 2022, alongside a shift toward cloud computing. Nine-month severance and benefit costs were $8.5M; $5.2M remained unpaid at quarter-end.
- The amount of the Bridg first anniversary payment is disputed. Cardlytics estimated the payment at $126.4M and the second anniversary payment at $69.5M; minimum expected cash requirements, including fees and bonuses, were $43.5M and $24.9M, respectively. The final first-payment amount had not been agreed.
- Management expects operating losses to continue for the foreseeable future, but believes cash on hand will 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 filing. Fourth-quarter seasonality typically reflects stronger holiday-related marketer spending.
- Principal risks include dependence on a small group of financial-institution partners, marketer spending and consumer activity; macroeconomic and inflationary pressure; privacy and data regulation; execution of the cloud migration and acquisitions; possible further goodwill impairment; and potential cash, dilution or refinancing needs related to the notes and Bridg earnouts. The company also disclosed a $10.0M minimum partner-share commitment over a 12-month period and a $7.2M first-year cloud-hosting spend commitment.
- Management stated disclosure controls were effective and that remediation of a previously disclosed material weakness concerning oversight of third-party valuation specialists was complete as of September 30, 2022.
Investor verification priorities
- Track the Bridg earnout dispute, final payment amount, cash-versus-stock settlement and resulting liquidity impact.
- Assess operating cash burn and working-capital needs, including seasonal timing of marketer collections, consumer incentives and partner payments.
- Separate recurring operating performance from contingent-consideration remeasurement, goodwill impairment, restructuring costs and stock-based compensation.
- Monitor Cardlytics’ ability to control delivery and other operating costs as revenue grows, and whether adjusted EBITDA improves.
- Check continued access to major FI partners, marketer retention and concentration, privacy compliance, and progress and costs of cloud migration.
- Review the notes’ conversion and cash-settlement exposure, revolving-credit availability and covenant requirements.