Cardlytics, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2021, compared with Q1 2020. Cardlytics operates an advertising platform using anonymized purchase data and financial-institution digital channels. It completed its acquisition of cashback platform Dosh on March 5, 2021; Dosh contributed $0.5 million of revenue and $2.4 million of net loss after acquisition.
Financial performance and position
| Metric | Q1 2020 | Q1 2021 |
|---|---|---|
| Revenue | $45.5 million | $53.2 million, up 17% |
| Billings (non-GAAP) | $67.8 million | $76.3 million, up 13% |
| Gross profit | $16.0 million | $19.5 million, up 22% |
| Gross margin | 35.1% | 36.7% |
| Operating loss | $11.9 million | $22.2 million |
| Net loss | $13.5 million | $24.9 million |
| Adjusted contribution (non-GAAP) | $20.4 million | $24.3 million, up 19% |
| Adjusted EBITDA (non-GAAP) | $(4.0) million | $(3.9) million |
| Cash used in operating activities | $3.4 million | $12.5 million |
At March 31, 2021, cash and cash equivalents were $613.5 million, working capital was $610.5 million, and accounts receivable was $75.3 million. The company had $230.0 million principal amount of 1.00% convertible notes due 2025, carried at $176.5 million net of discount and issuance costs. Its $50.0 million revolving credit facility was undrawn, with $50.0 million available. Management said existing cash was expected to fund operations and capital requirements for at least 12 months after the financial statements were issued.
Material changes and drivers
- Revenue increased $7.7 million; management attributed the billings increase to $6.1 million more sales to existing marketers and $2.4 million to new marketers. Consumer incentives rose 4%, less than billings, partly due to advertiser mix.
- Average monthly active users increased to 168.6 million from 140.8 million, largely reflecting completion of Wells Fargo’s phased launch. Average revenue per user remained $0.32.
- Operating loss widened, including $7.0 million of Dosh and planned Bridg acquisition and integration costs. Stock-based compensation increased to $7.2 million from $4.1 million, and research and development expense increased 61%.
- Interest expense increased, principally reflecting the convertible notes. Adjusted EBITDA was roughly flat despite the higher GAAP net loss.
- Cash rose from $293.2 million at year-end 2020, primarily following a March public offering that generated $484.0 million net proceeds. Financing cash inflow was $484.7 million; investing cash outflow was $152.0 million, including $148.6 million for the Dosh acquisition, net of acquired cash.
Outlook, risks and unusual items
No specific numerical financial guidance is provided in the filing. Management said it expected continued operating losses and cash use as it invests in growth, and identified seasonality, ongoing COVID-19 uncertainty, and marketing-spend trends as factors affecting results. Q1 2021 showed continued recovery in consumer spending and client advertising budgets, but management said impacts of the pandemic remained uncertain.
On April 12, 2021, after quarter-end, Cardlytics agreed to acquire Bridg for $350 million cash at closing, subject to adjustments, plus performance-linked anniversary payments; at least 30% of those later payments must be cash, with the balance payable in cash or stock at Cardlytics’ option. Closing was subject to customary conditions, including regulatory approval. The filing cautions that failure to complete the transaction could leave the company with substantial costs and adversely affect results.
Key risks include dependence on Chase and Bank of America, which together represented over 75% of Partner Share paid, and marketer concentration: the top five marketers generated 38% of Q1 2021 revenue. Partner agreements may generally be terminable on 90 days’ notice or less. A $10 million minimum Partner Share commitment to one FI partner had not yet been triggered because specified milestones were unmet. Other material risks include integration of Dosh and Bridg, privacy and data regulation, cybersecurity, COVID-19 impacts, and liquidity needs related to cash settlement of convertible-note conversions or repurchases. The notes were convertible at holders’ option in Q2 2021 under the stock-price condition; Cardlytics said it currently intended to settle principal in cash.
Important facts for investors to verify
- Whether Dosh integration delivers expected benefits and how its results, costs, and preliminary purchase-price allocation develop.
- Whether the Bridg transaction closes, its final consideration and financing, and the amount and form of any contingent anniversary payments.
- Revenue and cash-flow trends excluding the effects of seasonality, acquisitions, and the equity offering; assess the persistence of operating losses and cash burn.
- Retention and terms of major FI partners, marketer concentration, and the status and potential cost of the $10 million Partner Share commitment.
- Convertible-note conversion, settlement, and potential dilution or cash requirements, including the capped-call protections and their limits.