Cardlytics, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
Business context
Cardlytics operates an advertising platform delivered through financial institution partners’ digital channels and the Bridg customer-data platform, which provides merchant purchase-data analytics and loyalty marketing. The advertising platform generates most revenue. The filing notes that results are seasonal, with marketers typically spending more in the fourth quarter and less in the first quarter.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $67.6 million | $64.3 million |
| Billings (non-GAAP) | $105.2 million | $95.6 million |
| Gross profit | $30.9 million | $24.5 million |
| Net income (loss) | $(24.3) million | $13.6 million |
| Adjusted EBITDA (non-GAAP) | $0.2 million | $(6.1) million |
| Adjusted net loss (non-GAAP) | $(4.1) million | $(9.2) million |
| Cash flow from operations | $(17.6) million | $(10.1) million |
| Free cash flow (non-GAAP) | $(22.4) million | $(12.9) million |
- Revenue grew 5%; billings grew 10%. Consumer incentives rose 20% to $37.6 million, outpacing billings growth and reducing revenue as a share of billings to 64% from 67%.
- Gross margin was approximately 45.7%, compared with 38.1% in Q1 2023. Adjusted Contribution, a non-GAAP operating measure, increased to $37.1 million from $30.9 million.
- GAAP operating loss was $22.8 million, versus operating income of $12.2 million. Results included a $5.8 million loss from the change in Bridg contingent consideration; Q1 2023 included a $34.6 million gain from that item. The prior-period gain materially affects the year-over-year earnings comparison.
- Cardlytics platform revenue was $62.2 million, up from $59.0 million; Bridg revenue was $5.4 million, up from $5.3 million. Cardlytics MAUs increased 7% to 168.5 million, while Cardlytics ARPU declined to $0.40 from $0.41.
- Cash and cash equivalents were $97.8 million at March 31, 2024; working capital was $115.7 million. Cash increased from $91.8 million at year-end, while operating cash use was higher than in the prior-year quarter. The company attributed working-capital movements in part to seasonality and timing of incentive and partner payments.
- Quarter-end debt was $257.9 million: $227.9 million carrying value of the 1.00% convertible notes due 2025 and $30.0 million drawn on the revolving credit facility. The facility had $29.5 million of unused available borrowing; the company reported covenant compliance.
Material changes and unusual items
- On March 18, Cardlytics completed a $50.0 million at-the-market offering, selling 3.91 million shares for $48.3 million net proceeds. It also issued 3.6 million shares in February under the Bridg settlement. Shares outstanding were 48.174 million at March 31 and 48.783 million at April 30.
- The Bridg acquisition dispute was settled for $25.0 million cash and 3.6 million shares. Cardlytics paid $20.0 million cash in January; remaining stated payments are $3.0 million by January 2025 and $2.0 million by June 2025. The related Delaware lawsuit is to be dismissed. The filing reports no other legal proceedings expected to have a material adverse effect.
- After quarter-end, on April 1, Cardlytics issued $172.5 million of 4.25% convertible notes due 2029, with estimated net proceeds of $166.8 million. Together with cash on hand, approximately $169.3 million was used to repurchase approximately $183.9 million principal amount of the 2020 notes in privately negotiated transactions below par. The company also reports that the $30.0 million revolving-credit borrowing was paid down after quarter-end.
Outlook, risks and contingencies
- No specific numerical revenue, earnings or cash-flow guidance is provided in the supplied filing text. Management expects additional operating losses in the near term, while stating that cash and cash equivalents should fund operations and capital requirements for at least the next 12 months from issuance of the financial statements.
- Key disclosed risks include economic uncertainty and potential reductions in advertising budgets; dependence on a limited number of financial institution partners; privacy, data-security and regulatory obligations; competition and technology changes; seasonality and working-capital timing; and potential dilution or cash demands related to convertible notes.
- Partner concentration is significant: the three largest FI partners represented over 90% of Partner Share paid in Q1 2024, and the largest alone represented over 50%. Agreements are generally terminable by the partner on 90 days or less notice. No single marketer represented over 10% of revenue, although the top five represented 21%.
- The company had a $4.5 million accrued shortfall under a minimum Partner Share commitment and expected to pay it through June 30, 2024; $2.4 million had been paid by March 31. It also renewed a cloud-hosting commitment of $17.0 million annually for three years.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing also identifies goodwill impairment, revenue recognition, stock-based compensation and contingent-consideration valuation as areas involving significant estimates.
Important facts for investors to verify
- Whether billings growth converts into sustainable revenue and improved profitability, particularly as consumer incentives grow faster than billings.
- The sources of the Q1 GAAP loss and the effect of the unusual Bridg contingent-consideration charge; compare reported results with non-GAAP measures and their reconciliations.
- Post-quarter debt balances and liquidity after the 2029 note issuance, 2020 note repurchase and revolving-credit paydown, including associated interest, conversion and dilution terms.
- Actual timing and amount of remaining Bridg settlement and Partner Share shortfall payments, and whether operating cash use improves beyond the seasonally weak first quarter.
- Retention and terms of major FI partner relationships, given the disclosed partner concentration and termination rights.