Cardlytics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparative period is Q1 2019. Cardlytics operates a purchase-data-driven advertising platform in financial institutions’ digital channels. The unaudited statements are prepared under U.S. GAAP. Amounts below are in U.S. dollars; financial statement figures are shown in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $36.0m | $45.5m | +26% |
| Billings (non-GAAP) | $58.6m | $67.8m | +16% |
| Gross profit | $13.7m | $16.0m | +16% |
| Gross margin | 38.2% | 35.1% | Down 3.1 percentage points |
| Operating loss | $(6.5)m | $(11.9)m | Loss increased |
| Net loss | $(6.3)m | $(13.5)m | Loss increased |
| Net loss per share, diluted | $(0.28) | $(0.51) | Loss per share increased |
| Adjusted contribution (non-GAAP) | $17.6m | $20.4m | +16% |
| Adjusted EBITDA (non-GAAP) | $(3.2)m | $(4.0)m | Loss increased |
Revenue growth reflected an $8.9m increase from existing marketers and $0.6m from new marketers. Cost growth outpaced revenue in several areas: FI Share and other third-party costs rose 38% to $26.1m, and general and administrative expense rose 53% to $10.7m. Stock-based compensation increased to $4.1m from $1.7m.
Operating cash used was $3.4m, versus $1.5m in Q1 2019. Investing activities used $1.4m; financing activities provided $3.1m, mainly from option exercises. Cash, cash equivalents and restricted cash totaled $102.3m at quarter-end, including $102.2m of cash and cash equivalents. Working capital was $111.6m. The company reported no borrowings on its $40m revolving credit facility, with $40m of unused availability reported, subject to borrowing-base limits. It said cash on hand was expected to fund operations and capital requirements for at least 12 months after issuance of the statements.
There was no term-loan balance at quarter-end. Operating lease liabilities were $12.6m on the March 31 balance sheet. Total liabilities were $67.7m and stockholders’ equity was $138.4m.
Material changes and notable items
- Average FI monthly active users grew to 140.8m from 108.5m, mainly reflecting Chase’s launch and Wells Fargo’s phased rollout. Average revenue per user declined to $0.32 from $0.33.
- Adjusted contribution increased 16%, while its underlying adjusted FI Share and third-party costs increased 37%; gross margin declined.
- Foreign currency results shifted from a $0.5m gain to a $1.9m loss, primarily due to the decline in the British pound against the U.S. dollar.
- Depreciation and amortization expense included a $0.8m write-off of capitalized software development costs after the company redesigned part of a project. A sales-force restructuring generated approximately $0.5m of charges.
- The company early adopted lease accounting guidance on January 1, 2020. The balance sheet reports operating lease right-of-use assets of $9.4m and lease liabilities, current and long-term, totaling about $12.6m.
Outlook, risks and contingencies
Management said COVID-19 had already adversely affected Q1 revenue growth through lower consumer discretionary spending and marketers’ reduced ability to spend on advertising. The company deferred $0.7m of revenue and recorded $1.5m of bad-debt expense associated with marketer billings it viewed as at risk. Management expected reduced consumer spending and fewer marketing campaigns in the near term, resulting in lower revenue and increased net loss in future periods. It warned that the pandemic’s severity and duration were difficult to estimate and expected a material adverse impact on Q2 financial results, potentially continuing beyond Q2. No numerical revenue or earnings guidance is provided in the supplied filing text.
Key business exposures include reliance on Cardlytics Direct; concentration in a limited number of FI partners and marketers; FI partners’ ability to terminate agreements on relatively short notice; marketer credit and collection risk; and the sensitivity of advertising demand to economic conditions. Chase represented 48% of average FI MAUs in Q1 2020, and Bank of America 24%. The top five marketers generated 31% of Q1 revenue. The company also cited privacy and data regulation, cybersecurity, foreign-exchange and execution risks for the Wells Fargo rollout.
A $10m minimum FI Share commitment to one FI partner was contingent on milestones not met as of March 31, 2020; management did not believe the milestones would be completed during 2020. Any expected shortfall would be accrued during the 12 months following milestone completion. The filing states that ordinary-course legal matters were not expected to have a material adverse effect. No off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- How COVID-19 affected subsequent-quarter billings, revenue, marketer collections, bad-debt reserves and the timing of deferred revenue.
- Whether the $102.3m cash balance and stated 12-month liquidity outlook remained adequate as operating losses and working-capital needs evolved.
- Whether Wells Fargo’s phased launch and the new U.S. Bank agreement progressed as expected, and how customer growth affected ARPU and profitability.
- The impact of rising FI Share costs, stock-based compensation, the software write-off and restructuring on underlying expense trends and margins.
- The timing and potential financial effect of the $10m FI Share commitment, including whether milestone-related accruals became necessary.
- The lease adoption disclosure: the notes report adoption-date right-of-use assets and liabilities of $10.3m and $13.5m, while MD&A separately cites $9.0m and $12.1m; investors should verify the correct amounts and reconciliation.