Cardlytics, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; comparisons are to the corresponding 2018 periods. Amounts are USD unless stated otherwise. Cardlytics provides purchase-based marketing through financial institutions’ digital banking channels, principally via Cardlytics Direct. Revenue is reported net of consumer incentives and gross of FI Share.
Financial performance
| Metric | Q3 2018 | Q3 2019 | Change | Nine months 2018 | Nine months 2019 |
|---|---|---|---|---|---|
| Revenue | $34.6m | $56.4m | +63% | $102.9m | $141.1m (+37%) |
| Billings (non-GAAP) | $48.6m | $82.8m | +70% | $148.8m | $215.1m (+45%) |
| Adjusted contribution (non-GAAP) | $17.0m | $24.7m | +46% | $47.4m | $64.2m (+36%) |
| Adjusted EBITDA (non-GAAP) | $(1.7)m | $3.0m | Improved | $(6.9)m | $(0.8)m |
| Operating loss | $(8.7)m | $(6.6)m | Loss narrowed | $(30.1)m | $(18.6)m |
| Net loss | $(8.4)m | $(7.7)m | Loss narrowed | $(41.5)m | $(20.6)m |
Q3 gross profit was $20.9m, or approximately 37% of revenue, compared with $13.6m, or 39%, in Q3 2018. Q3 operating loss was approximately 12% of revenue versus 25% a year earlier. Adjusted contribution was approximately 44% of revenue versus 49%. These non-GAAP measures exclude specified costs and should be considered alongside GAAP results.
Q3 revenue growth reflected a $20.5m increase from existing marketers and $1.5m from new marketers. Cardlytics Direct revenue grew 64% in Q3 and 39% for the nine-month period; Other Platform Solutions revenue was nil in 2019 as the company shifted resources to Cardlytics Direct. Consumer incentives were $26.4m in Q3, up 88%, and $74.0m for nine months, up 61%.
Cash flow, balance sheet and capital
- For the first nine months of 2019, operating activities provided $7.4m, versus $14.3m used in 2018. Investing activities used $6.4m; financing activities provided $35.0m. Cash, cash equivalents and restricted cash ended at $95.4m, including $95.2m unrestricted cash and $0.2m restricted cash.
- At September 30, 2019, working capital was $102.9m and accounts receivable was $61.7m. Total debt was $42,000, consisting of capital leases; there were no borrowings under the revolving line. The company reported $40.0m of available revolver capacity and compliance with financial covenants.
- In September, the company completed a public offering of 1.90m shares at $34 per share, receiving $61.0m net proceeds. It also received $20.5m from option and warrant exercises during the nine-month period. Shares outstanding were 25.664m at quarter-end.
- Accumulated deficit was $342.1m. Stock-based compensation was $7.5m in Q3 and $12.3m for nine months. The company stated it expects further operating losses but believes available cash will fund operations and capital requirements for at least 12 months after issuance of the financial statements.
Outlook, commentary and risks
- Management expected Wells Fargo’s phased Cardlytics Direct launch to begin in Q4 2019 and continue into the first half of 2020. The filing anticipates increased FI monthly active users (MAUs) from the launch, alongside continued year-over-year ARPU decline as the user base expands. No specific revenue or earnings guidance was provided.
- Q3 average FI MAUs rose to 128.3m from 59.3m, while ARPU declined to $0.44 from $0.58. Chase accounted for 46% of Q3 average FI MAUs and Bank of America 27%; the company expects these partners to remain significant. These relationships and access to their data are central dependencies.
- A conditional $10.0m minimum FI Share commitment is tied to a partner completing milestones that had not been met by September 30; milestone timing was uncertain, and management did not expect completion in 2019. Any expected shortfall would be accrued during the 12 months after milestone completion.
- Revenue is concentrated: one marketer represented 11% of nine-month 2019 revenue, and the top five represented 29%. FI agreements are generally terminable by partners on 90 days or less notice, despite typical multi-year terms. Wells Fargo may terminate on 180 days’ notice.
- Management cited seasonality, with marketer spending typically stronger in Q4 and weaker in Q1; payment timing can also make working-capital needs fluctuate. Other material risks include competition, reliance on consumer purchase data, privacy and cybersecurity regulation, foreign exchange exposure, and execution or delays in the Wells Fargo rollout.
- The company reported no material legal proceeding expected to adversely affect it and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at a reasonable-assurance level, with no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track whether Wells Fargo launches on schedule and delivers the expected MAU growth, and assess the effect of lower ARPU on monetization.
- Reconcile reported revenue with billings and consumer incentives; monitor FI Share costs and adjusted contribution against GAAP profitability.
- Review operating cash generation, receivables and incentive/FI Share liabilities, including seasonal cash-flow effects and collection timing.
- Monitor the $10.0m conditional FI Share commitment, milestone status, and recoveries of prior FI implementation payments.
- Assess partner and marketer concentration, renewal/termination terms, and dilution from equity awards and future share issuance.