Cardlytics, Inc. 2017 10-K Filing Summary
Business Context and Reporting Period
Company: Cardlytics, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2017
Business Overview: Cardlytics operates a purchase intelligence platform that aggregates transaction data from over 2,000 financial institutions (FIs) to help marketers target consumers and measure campaign effectiveness. The company primarily generates revenue through "Cardlytics Direct," a native advertising channel within FI digital banking platforms, and "Other Platform Solutions," which provide analytics outside the banking channel. As of December 31, 2017, the company had 342 employees and had not yet achieved profitability.
Key Financial Metrics (Year Ended Dec 31, 2017)
| Metric | 2017 | 2016 | 2015 |
|---|---|---|---|
| Revenue | $130.4 million | $112.8 million | $77.6 million |
| Net Loss | $(19.6) million | $(75.7) million | $(40.6) million |
| Operating Loss | $(17.1) million | $(56.2) million | $(39.6) million |
| Adjusted EBITDA | $(7.2) million | $(17.0) million | $(34.8) million |
| Cash and Cash Equivalents | $21.3 million | $22.8 million | $27.6 million |
| Total Debt | $57.0 million | $111.9 million | N/A |
| Working Capital | $32.5 million | $28.7 million | N/A |
Note: Revenue excludes consumer incentives paid to customers. Net loss in 2017 includes a $5.0 million non-cash gain related to the change in fair value of convertible promissory notes.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 16% year-over-year to $130.4 million, driven by a 25% increase in Cardlytics Direct revenue ($122.4 million). This growth was offset by a 47% decline in Other Platform Solutions revenue ($8.0 million) following the discontinuation of the managed service offering in July 2017.
- Profitability Improvement: Net loss narrowed significantly from $75.7 million in 2016 to $19.6 million in 2017. This improvement was largely due to the absence of the $25.9 million one-time non-cash charge for the termination of the U.K. agreement with Aimia recorded in 2016, as well as a $5.0 million non-cash gain on convertible notes in 2017.
- Debt Reduction: Total debt decreased from $111.9 million in 2016 to $57.0 million in 2017. This reduction resulted from the conversion of $27.0 million in convertible promissory notes into Series G preferred stock in May 2017.
- Operating Expenses: Sales and marketing expenses remained relatively flat in absolute dollars ($31.9 million) but decreased as a percentage of revenue (24% vs. 28% in 2016). Research and development expenses decreased by 13% to $12.2 million.
Guidance, Outlook, and Risks
Outlook and Strategy:
- The company expects to continue deriving substantially all revenue from Cardlytics Direct in the foreseeable future.
- Management plans to expand its network of FI partners and increase engagement with existing partners to drive revenue growth.
- The company anticipates incurring additional operating losses as it invests in R&D, sales, and marketing to scale the business.
Key Risks and Contingencies:
- Concentration Risk: The company is heavily dependent on Bank of America, which contributed approximately 51% of total FI Monthly Active Users (MAUs) and 63% of total FI Share payments in 2017. Loss of this partner would significantly harm operations.
- Contractual Commitments: The company has minimum FI Share commitments totaling $10.0 million over a 12-month period following June 30, 2018, contingent on milestones. Failure to generate sufficient revenue to offset these commitments could harm financial condition.
- Debt Covenants: The company is subject to financial covenants under its Term Loan and Line of Credit, including minimum cash balance and revenue requirements. A breach could result in an event of default.
- Regulatory and Privacy: The business model relies on the aggregation of consumer purchase data. Changes in privacy laws or regulations (e.g., GDPR, CCPA) could restrict data usage and increase compliance costs.
Investor Verification Checklist
- Bank of America Dependency: Verify the status of the General Services Agreement (GSA) with Bank of America and any potential changes to the FI Share percentage or contract terms.
- Debt Covenants Compliance: Confirm that the company remains in compliance with the minimum cash balance ($5.0 million) and trailing twelve-month revenue covenants under its Line of Credit.
- Other Platform Solutions Viability: Assess the progress of new "Other Platform Solutions" initiatives, given the discontinuation of the managed service revenue stream.
- Wells Fargo Pilot: Monitor the results of the Cardlytics Direct pilot program launched with Wells Fargo in early 2018 to gauge potential for expansion beyond the current FI network.
- Capital Requirements: Review the company's cash burn rate and the sufficiency of its $21.3 million cash balance plus $13.4 million available borrowing capacity to fund operations for the next 12 months without additional financing.