Cardlytics, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless otherwise noted. Cardlytics uses purchase data from financial-institution partners to run and measure marketing campaigns, primarily through its Cardlytics Direct bank advertising channel. Revenue is reported net of consumer incentives and gross of FI Share payments.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $32.7 million | $36.0 million | +10% |
| Billings (non-GAAP) | $48.8 million | $58.6 million | +20% |
| Consumer incentives | $16.0 million | $22.6 million | +41% |
| Adjusted contribution (non-GAAP) | $14.2 million | $17.6 million | +24% |
| Operating loss | $(9.8) million | $(6.5) million | Loss narrowed |
| Net loss | $(20.1) million | $(6.3) million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $(3.1) million | $(3.2) million | Loss widened slightly |
| Cash used in operating activities | $(0.1) million | $(1.5) million | Higher use |
FI Share and other third-party costs were $19.0 million, or 53% of revenue, versus $21.4 million, or 65%. The prior-year period included a $2.5 million non-cash warrant-vesting charge. Q1 2019 interest expense, net, fell to $0.3 million from $1.7 million, while the prior-year period also included a $9.2 million non-cash loss from changes in warrant fair value. Basic and diluted loss per share were $(0.28) in Q1 2019 and $(1.54) in Q1 2018.
At March 31, 2019, cash and cash equivalents were $36.4 million and restricted cash was $20.3 million; working capital was $67.7 million. Total debt was $46.7 million, including $26.7 million drawn on the revolving line and $20.0 million under the term loan. The company reported $3.3 million of additional available line borrowings and compliance with its financial covenants. The loan facility requires $20.0 million in a blocked account and at least $5.0 million of cash plus line liquidity. Q1 investing cash use was $2.0 million, mainly for equipment and capitalized software.
Material changes and operating developments
- Cardlytics Direct revenue grew 12% to $36.0 million; Other Platform Solutions revenue fell from $0.6 million to zero as the company shifted resources toward Cardlytics Direct.
- Billings growth exceeded reported revenue growth partly because consumer incentives increased. Adjusted contribution rose despite adjusted FI Share and other third-party costs being broadly flat.
- Average FI monthly active users rose to 108.5 million from 58.7 million, largely following Chase launches in mobile banking and email. Average Cardlytics Direct revenue per user fell to $0.33 from $0.55.
- Chase represented 41% of average FI MAUs in Q1 2019 and Bank of America 29%; the banks accounted for 27% and 45% of FI Share payments, respectively. Management expects both to remain significant partners.
Outlook, risks and unusual items
Management gave no numerical revenue or earnings guidance in the supplied filing text. It expects operating losses to continue for the foreseeable future, while stating that available cash and cash equivalents should fund operations and capital requirements for at least 12 months after issuance of the financial statements. Management expects ARPU to decline as Chase and Wells Fargo add users faster than corresponding Cardlytics Direct revenue grows. Wells Fargo’s national program was expected to launch in 2019; delays, limited deployment or termination could affect results.
Key exposures include dependence on Cardlytics Direct and a concentrated group of FI partners and marketers; FI agreements may generally be terminable on 90 days or less’ notice. The company also highlights seasonality, marketer payment and incentive timing, data access and privacy regulation, cybersecurity, competition, foreign-exchange exposure and continued losses. A $10.0 million minimum FI Share commitment depends on milestones not met as of March 31; management did not then expect the partner to complete them in 2019. A separate $9.3 million of 2018 FI development payments was expected to be partly recovered through $4.6 million of FI Share reductions in 2019, of which $1.2 million had been recovered by quarter-end.
The $46.7 million debt facility matures in May 2020 and is secured by substantially all assets. In March 2019, its rolling 12-month covenant was changed from revenue to billings; the March threshold was $210 million. The filing reports no material pending legal proceeding and no off-balance-sheet arrangements. Management said disclosure controls were effective at the reasonable-assurance level. Adoption of the revenue standard in January 2019 had no material effect on revenue timing or amount.
Important facts for investors to verify
- Whether Chase and the expected Wells Fargo launch convert higher user reach into billings and revenue, and how ARPU trends as those users scale.
- Whether revenue growth and adjusted contribution can improve while consumer incentives, delivery costs and operating expenses remain manageable; assess non-GAAP measures alongside GAAP results.
- Liquidity available after accounting for restricted cash, the blocked lender deposit, working-capital seasonality and required incentive payments that may precede marketer collections.
- Debt covenant headroom, the May 2020 maturity and the effect of billings performance on continued compliance and refinancing needs.
- Timing and potential cost of the milestone-linked FI Share commitment and recovery of deferred FI implementation payments.
- Ongoing dependence on major FI partners and large marketers, including termination rights, data access and revenue or receivables concentration.