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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 001-38386
cardlytics_logoa12.jpg
CARDLYTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
26-3039436
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
675 Ponce de Leon Ave. NE, Ste 6000, Atlanta, GA 30308
(888) 798-5802
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
 
  
Accelerated filer
 
Non-accelerated filer
 
 
  
Smaller reporting company
 
 
 
 
 
 
Emerging growth company
 
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
CDLX
The Nasdaq Stock Market LLC
As of April 30, 2019, there were 22,569,519 shares outstanding of the registrant’s common stock, par value $0.0001.
 


Table of Contents

CARDLYTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
 
Page
PART I.
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II.
OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 6.



1

Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CARDLYTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except par value amounts)
 
December 31, 2018
 
March 31, 2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
39,623

 
$
36,428

Restricted cash
20,247

 
20,260

Accounts receivable, net
58,125

 
53,245

Other receivables
2,417

 
2,328

Prepaid expenses and other assets
3,956

 
5,037

Total current assets
124,368

 
117,298

Long-term assets:
 
 
 
Property and equipment, net
10,230

 
11,351

Intangible assets, net
370

 
367

Capitalized software development costs, net
1,625

 
2,015

Deferred FI implementation costs, net
15,877

 
14,067

Other long-term assets, net
1,293

 
1,369

Total assets
$
153,763

 
$
146,467

Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,099

 
$
1,896

Accrued liabilities:
 
 
 
Accrued compensation
5,936

 
4,734

Accrued expenses
4,388

 
3,743

FI Share liability
27,656

 
23,369

Consumer Incentive liability
11,476

 
15,217

Deferred billings
346

 
574

Current portion of long-term debt
21

 
22

Total current liabilities
51,922

 
49,555

Long-term liabilities:
 
 
 
Deferred liabilities
3,173

 
3,044

Long-term debt, net of current portion
46,693

 
46,691

Total liabilities
101,788

 
99,290

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value—100,000 shares authorized and 22,466 and 22,570 shares issued and outstanding as of December 31, 2018 and March 31, 2019, respectively
7

 
7

Additional paid-in capital
371,463

 
373,351

Accumulated other comprehensive income
1,992

 
1,620

Accumulated deficit
(321,487
)
 
(327,801
)
Total stockholders’ equity
51,975

 
47,177

Total liabilities and stockholders’ equity
$
153,763

 
$
146,467


See notes to the condensed consolidated financial statements

2

Table of Contents

CARDLYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share amounts)
 
Three Months Ended
March 31,
 
2018
 
2019
Revenue
$
32,713

 
$
35,988

Costs and expenses:
 
 
 
FI Share and other third-party costs
21,420

 
19,004

Delivery costs
1,943

 
3,246

Sales and marketing expense
8,216

 
9,337

Research and development expense
3,459

 
2,941

General and administration expense
6,582

 
7,000

Depreciation and amortization expense
910

 
961

Total costs and expenses
42,530

 
42,489

Operating loss
(9,817
)
 
(6,501
)
Other (expense) income:
 
 
 
Interest expense, net
(1,749
)
 
(304
)
Change in fair value of warrant liabilities, net
(9,172
)
 

Foreign currency gain
683

 
491

Total other (expense) income
(10,238
)
 
187

Loss before income taxes
(20,055
)
 
(6,314
)
Income tax benefit

 

Net loss
(20,055
)
 
(6,314
)
Adjustments to the carrying value of preferred stock
(157
)
 

Net loss attributable to common stockholders
$
(20,212
)
 
$
(6,314
)
Net loss per share attributable to common stockholders, basic and diluted
$
(1.54
)
 
$
(0.28
)
Weighted-average common shares outstanding, basic and diluted
13,093

 
22,503


See notes to the condensed consolidated financial statements

3

Table of Contents

CARDLYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(Amounts in thousands)
 
Three Months Ended
March 31,
 
2018
 
2019
Net loss
$
(20,055
)
 
$
(6,314
)
Other comprehensive loss:
 
 
 
  Foreign currency translation adjustments
(508
)
 
(372
)
Total comprehensive loss
$
(20,563
)
 
$
(6,686
)

See notes to the condensed consolidated financial statements

4

Table of Contents

CARDLYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
(Amounts in thousands)

Three Months Ended March 31, 2019:
 
 
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Total
 
Common Stock
 
 
Shares
 
Amount
 
Balance – December 31, 2018
22,466

 
$
7

 
$
371,463

 
$
1,992

 
$
(321,487
)
 
$
51,975

Exercise of common stock options
31

 

 
173

 

 

 
173

Stock-based compensation

 

 
1,715

 

 

 
1,715

Settlement of restricted stock
73



 

 

 

 

Other comprehensive loss

 

 

 
(372
)
 

 
(372
)
Net loss

 

 

 

 
(6,314
)
 
(6,314
)
Balance – March 31, 2019
22,570

 
$
7

 
$
373,351

 
$
1,620

 
$
(327,801
)
 
$
47,177


Three Months Ended March 31, 2018:
 
 
 
 
 
 Additional Paid-In-Capital
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit
 
Total
 
Common Stock
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Balance – December 31, 2017
3,439

 
$

 
$
58,693

 
$
1,066

 
$
(268,445
)
 
$
(208,686
)
Exercise of common stock options
26

 

 
108

 

 

 
108

Exercise of common stock warrants
297

 

 

 

 

 

Stock-based compensation

 

 
2,906

 

 

 
2,906

Issuance of common stock in connection with our IPO
5,821

 
1

 
66,100

 

 

 
66,101

Vesting of performance-based common stock warrants

 

 
2,519

 

 

 
2,519

Conversion of preferred stock to common stock
10,643

 
6

 
196,588

 

 

 
196,594

Conversion of preferred stock warrants to common stock warrants

 

 
1,736

 

 

 
1,736

Accretion of redeemable convertible preferred stock to redemption value

 

 
(157
)
 

 

 
(157
)
Other comprehensive loss

 

 

 
(508
)
 

 
(508
)
Net loss

 

 

 

 
(20,055
)
 
(20,055
)
Balance – March 31, 2018
20,226

 
$
7

 
$
328,493

 
$
558

 
$
(288,500
)
 
$
40,558




See notes to the condensed consolidated financial statements

5

Table of Contents

CARDLYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
 
Three Months Ended
March 31,
 
2018
 
2019
Operating activities
 
 
 
Net loss
$
(20,055
)
 
$
(6,314
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
910

 
961

Amortization of financing costs charged to interest expense
140

 
27

Accretion of debt discount and non-cash interest expense
1,500

 

Stock-based compensation expense
2,900

 
1,708

Change in fair value of warrant liabilities, net
9,172

 

Other non-cash expense (income), net
1,809

 
(235
)
Amortization of deferred FI implementation costs
412

 
653

Change in operating assets and liabilities:
 
 
 
Accounts receivable
8,623

 
4,740

Prepaid expenses and other assets
(1,520
)
 
(1,173
)
Deferred FI implementation costs
(250
)
 

Recovery of deferred FI implementation costs
1,344

 
1,157

Accounts payable
(408
)
 
(691
)
Other accrued expenses
(1,836
)
 
(1,770
)
FI Share liability
(2,538
)
 
(4,287
)
Customer Incentive liability
(293
)
 
3,741

Net cash used in operating activities
(90
)
 
(1,483
)
Investing activities
 
 
 
  Acquisition of property and equipment
(418
)
 
(1,492
)
  Acquisition of patents
(2
)
 

  Capitalized software development costs
(374
)
 
(489
)
Net cash used in investing activities
(794
)
 
(1,981
)
Financing activities
 
 
 
Principal payments of debt
(26
)
 
(5
)
Proceeds from issuance of common stock
70,490

 
173

Equity issuance costs
(1,232
)
 

Debt issuance costs

 
(6
)
Net cash from financing activities
69,232

 
162

Effect of exchange rates on cash, cash equivalents and restricted cash
175

 
120

Net increase (decrease) in cash, cash equivalents and restricted cash
68,523

 
(3,182
)
Cash, cash equivalents, and restricted cash — Beginning of period
21,262

 
59,870

Cash, cash equivalents, and restricted cash — End of period
$
89,785

 
$
56,688

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Amounts accrued for property and equipment
$
1,155

 
$
1,146

Amounts accrued for capitalized software development costs
$
141

 
$


See notes to the condensed consolidated financial statements

6

Table of Contents

CARDLYTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.OVERVIEW OF BUSINESS AND BASIS OF PRESENTATION
Cardlytics, Inc. (“we,” “our,” “us,” the “Company,” or “Cardlytics”) is a Delaware corporation and was formed on June 26, 2008. We make marketing more relevant and measurable through our purchase intelligence platform. Using one of the largest aggregations of purchase data through our partnerships with banks and credit unions, we have a secure view into where and when consumers are spending their money. By applying advanced analytics to this massive aggregation of anonymized purchase data, we make it actionable, helping marketers identify, reach and influence likely buyers at scale, and measure the true sales impact of their marketing spend.
We also operate in the United Kingdom through Cardlytics UK Limited, a wholly-owned and operated subsidiary registered as a private limited company in England and Wales.
Unaudited Interim Results
The accompanying unaudited interim condensed consolidated financial statements and information have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. The results for interim periods presented are not necessarily indicative of the results to be expected for the full year due to the seasonality of our business which has been historically impacted by higher consumer spending during the fourth quarter. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included on our Annual Report on Form 10-K ("Annual Report") for the fiscal year ended December 31, 2018.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Significant items subject to such estimates and assumptions include revenue recognition, internal-use software development costs, income taxes, stock-based compensation, derivative instruments, income tax valuation allowance and contingencies. We base our estimates on historical experience and also on assumptions that we believe are reasonable. Changes in facts or circumstances may cause us to change our assumptions and estimates in future periods and it is possible that actual results could differ from our current or revised future estimates.
2.     SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING STANDARDS
On January 1, 2019, we early adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method, as permitted under ASU 2014-09. The adoption of ASU 2014-09 did not result in a material change in the timing or amount of revenue recognized, nor did it result in the capitalization of incremental contract costs. Accordingly, there was no cumulative effect adjustment recorded in the condensed consolidated financial statements upon adoption.
On January 1, 2019, we adopted ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The adoption of this guidance had no impact on our condensed consolidated financial statements.
Except for the adoption of ASU 2014-09 and ASU 2016-01, there have been no changes to the Company’s accounting policies and these unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare our audited annual consolidated financial statements for the year ended December 31, 2018, and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements.


7

Table of Contents

Revenue
We have generated revenue through the sale of two categories of solutions that leverage our intelligence platform: (1) our proprietary native banking channel Cardlytics Direct and (2) our Other Platform Solutions. We have generated substantially all of our revenue from sales of Cardlytics Direct since inception.
Our Other Platform Solutions enabled marketers and marketing service providers to leverage the power of purchase intelligence outside the bank channel. We have shifted the majority of our efforts and resources to support the growth of Cardlytics Direct. As a result, we do not expect to generate substantial, if any, revenue from Other Platform Solutions for the foreseeable future.
Cardlytics Direct
Cardlytics Direct is our proprietary native bank advertising channel that enables marketers to reach consumers through the FIs' trusted and frequently visited online and mobile banking channels. Working with the marketer, we design a campaign that targets customers based on their purchase history. The consumer is offered an incentive to make a purchase from the marketer within a specified period. We use a portion of the fees that we collect from marketers to provide these consumer incentives to our FIs’ customers after they make qualifying purchases ("Consumer Incentives"). Leveraging our powerful predictive analytics, we are able to create compelling Consumer Incentives that have the potential to increase return on advertising spend for marketers. We generally pay our FI partners an FI Share, which is a negotiated and fixed percentage of our billings to marketers less any Consumer Incentives that we pay to FIs’ customers and certain third-party data costs.
Cardlytics Direct is priced predominantly in two ways: (1) Cost per Served Sale (“CPS”), and (2) Cost per Redemption (“CPR”).
CPS. Our primary pricing model is CPS, which we created to meet the media buying preferences of marketers. We generate revenue by charging a percentage, which we refer to as the CPS Rate, of all purchases from the marketer by consumers (1) who are served marketing and (2) subsequently make a purchase from the marketer during the campaign period, regardless of whether consumers select the marketing and thereby becomes eligible to earn the applicable Consumer Incentive. We set CPS Rates for marketers based on our expectation of the marketer’s return on spend for the relevant campaign. Additionally, we set the amount of the Consumer Incentives payable for each campaign based on our estimation of our ability to drive incremental sales for the marketer. We seek to optimize the level of Consumer Incentives to retain a greater portion of billings. However, if the amount of Consumer Incentives exceeds the amount of billings that we are paid by the applicable marketer we are still responsible for paying the total Consumer Incentive. This has occurred infrequently and has been immaterial in amount for each of the periods presented. In some instances, we may also charge the marketer the Consumer Incentive, in which case the marketer determines the level of Consumer Incentive for the campaign.
CPR. Under our CPR pricing model, marketers specify and fund the Consumer Incentive and pay us a separate negotiated, fixed marketing fee, which we refer to as the CPR Fee, for each purchase that we generate. We generate revenue if the consumer (1) is served marketing, (2) selects the marketing and thereby becomes eligible to earn the applicable Consumer Incentive and (3) makes a qualifying purchase from the marketer during the campaign period. We set the CPR Fee for marketers based on our estimation of the marketers’ return on spend for the relevant campaign. The CPR Fee is either a percentage of qualifying purchases or a flat amount. In some instances, we may solely charge the marketer the CPR Fee, in which case we determine the level of Consumer Incentive for the campaign.
The following table summarizes revenue by pricing model (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
Cost per Served Sale
$
18,445

 
$
21,009

Cost per Redemption
11,755

 
13,964

Other
2,513

 
1,015

Revenue
$
32,713

 
$
35,988




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Revenue Recognition
We determine revenue recognition through the following steps:
identification of a contract with a customer,
identification of the performance obligation(s) in the contract,
determination of the transaction price,
allocation of the transaction price to the performance obligation(s) in the contract, and
recognition of revenue when or as the performance obligation(s) are satisfied.
We sell our solutions by entering into agreements directly with marketers or their marketing agencies, generally through the execution of insertion orders. The agreements state the terms of the arrangement, the negotiated fee, payment terms and the fixed period of time of the campaign. We consider a contract to exist when a campaign, which typically lasts 45 days, is published to an FI partner under the terms of an insertion order.
With respect to our Cardlytics Direct service, our performance obligation is to offer incentives to FIs' customers to make purchases from the marketer within a specified period. This performance obligation is a series that represents a stand ready obligation to provide a targeted campaign for the marketer to FI customers. We recognize revenue for Cardlytics Direct fees, which represents variable consideration, at a point in time when FIs' customers make qualifying purchases during the marketing campaign term.
Subsequent to a qualifying purchase, the associated fees are generally not subject to refund or adjustment unless the fees from the marketing campaign exceed a contractual maximum (marketer budget). We have not constrained our revenue because adjustments have historically been immaterial and given the short duration of our marketing campaigns, any adjustments are recognized during the period of the marketing campaign. We recognize revenue for Cardlytics Direct fees over time using the right to invoice practical expedient because the amount billed is equal to the value delivered to marketers through qualified purchases by FI customers during that period.
Consumer Incentives
We report our revenue on our condensed consolidated statements of operations net of Consumer Incentives. We do not provide the goods or services that are purchased by our FIs’ customers from the marketers to which the Consumer Incentives relate. Accordingly, the marketer is deemed to be the principal in the relationship with the customer and, therefore, the Consumer Incentive is deemed to be a reduction in the purchase price paid by the customer for the marketer’s goods or services. While we are responsible for remitting Consumer Incentives to our FI partners for further payment to their customers, we function solely as an agent of marketers in these arrangements.
We invoice marketers monthly based on the qualifying purchases of FIs' customers as reported by our FI partners during the month. Invoice payment terms, negotiated on a marketer-by-marketer basis, are typically between 30 to 60 days. However, for certain marketing agencies with sequential liability terms, payments are not due to us until such marketing agency has received payment from its marketer client. Accounts receivable is recorded at the amount of gross billings to marketers, net of allowances, for the fees and Consumer Incentives that we are responsible to collect. Our accrued liabilities also include the amount of Consumer Incentives due to FI partners. As a result, accounts receivable and accrued liabilities may appear large in relation to revenue, which is reported on a net basis. Consumer Incentives totaled $16.0 million and $22.6 million during the three months ended March 31, 2018 and 2019, respectively.
FI Share and Other Third-Party Costs
We report our revenue on our consolidated statements of operations gross of FI Share. FI Share costs are included in FI Share and other third-party costs in our consolidated statements of operations, rather than as a reduction of revenue, because we and not our FI partners act as the principal in our arrangements with marketers. We are responsible for the fulfillment and acceptability of the services purchased by marketers. We also have latitude in establishing the price of our services, have discretion in supplier selection and earn variable amounts. FI partners only supply consumer purchase data and digital marketing space and generally have no involvement in the marketing campaigns or contractual relationship with marketers.
Contract Costs
Given the short-term nature of our marketing campaigns, all contract costs are expensed as incurred since the expected period of benefit is less than one year. Costs to fulfill a contract include immaterial costs to set up a campaign that we expense as incurred due to the short term nature of our marketing campaigns.


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Concentrations of Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Our cash and cash equivalents are held with three financial institutions, which we believe are of high credit quality. We believe that our accounts receivable credit risk exposure is limited as a result of being diversified among a large number of marketers segregated by both geography and industry. Historically, we have not experienced significant write-downs of our accounts receivable. One marketer represented 12% of our accounts receivable as of March 31, 2018. During the three months ended March 31, 2019, a different marketer accounted for 11% of our revenue. No other marketer accounted for over 10% of revenue or accounts receivable during the periods presented.
Our business is substantially dependent on a limited number of FI partners. We require participation from our FI partners in Cardlytics Direct and access to their purchase data in order to offer our solutions to marketers and their agencies. We must have FI partners with a sufficient number of customers and levels of customer engagement to ensure that we have robust purchase data and marketing space to support a broad array of incentive programs for marketers. Our agreements with a substantial majority of our FI partners have terms of three to seven years but are generally terminable by the FI partner on 90 days or less prior notice. If an FI partner terminates its agreement with us, we would lose that FI as a source of purchase data and online banking customers.
During three months ended March 31, 2018 and 2019, Bank of America, National Association ("Bank of America") accounted for 69% and 45% of the total FI Share we paid to all FIs, respectively. JPMorgan Chase Bank, National Association (“Chase”) accounted for 0% and 27% of the total FI Share we paid to all FIs during the three months ended March 31, 2018 and 2019, respectively. No other FI partners accounted for over 10% of FI Share during the three months ended March 31, 2018 and 2019.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash held in checking accounts, upon which we earn up to a 1.05% annual rate of interest as of March 31, 2019. Restricted cash primarily represents deposits held in an account controlled by our lender as additional security for our payment obligations under our 2018 Term Loan, upon which we earn a 1.35% annual rate of interest as of March 31, 2019. Refer to Note 3—Debt, for additional information regarding our 2018 Term Loan.
Cash, cash equivalents and restricted cash as presented on our condensed consolidated statements of cash flows consists of the following (in thousands):
 
December 31,
 
March 31,
 
2017
 
2018
 
2018
 
2019
Cash and cash equivalents
$
21,262

 
$
39,623

 
$
89,785

 
$
36,428

Restricted cash

 
20,247

 

 
20,260

Cash, cash equivalents and restricted cash
$
21,262

 
$
59,870

 
$
89,785

 
$
56,688


Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes ASC Topic 840, Leases. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term on operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting under the ASU is largely unchanged from the previous accounting standard. In addition, the ASU expands the disclosure requirements of lease arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which provides the option of applying the requirements of the new lease standard in the period of adoption with no restatement to comparative periods. For public entities, this ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For non-public entities, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We have made the election to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act, therefore we will be required to adopt this ASU for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Although we are currently evaluating the impact of this guidance on our consolidated financial statements, we expect that most of our operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the new guidance.


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3.     DEBT
Our debt consists of the following (in thousands):
 
December 31, 2018
 
March 31, 2019
Lines of credit
$
26,677

 
$
26,677

Term loans(1)
19,980

 
19,983

Capital leases
57

 
53

Total debt
46,714

 
46,713

Less current portion of long-term debt
(21
)
 
(22
)
Long-term debt, net of current portion
$
46,693

 
$
46,691


(1)
Net of unamortized discount and debt issuance costs of $20 and $17 as of December 31, 2018 and March 31, 2019, respectively.
Interest payments during the three months ended March 31, 2018 and 2019 totaled $0.2 million and $0.5 million, respectively.
New Loan Facility
On May 21, 2018, we entered into a new loan facility with Pacific Western Bank (the "New Loan Facility") consisting of a $30.0 million asset-based revolving line of credit ("2018 Line of Credit") and a $20.0 million term loan ("2018 Term Loan") maturing on May 21, 2020. We used the entire $20.0 million in proceeds from the 2018 Term Loan and an advance of $27.4 million under the 2018 Line of Credit to repay all outstanding obligations under our 2016 Line of Credit and 2016 Term Loan. Upon repayment, both the 2016 Line of Credit and the 2016 Term Loan were terminated. We deferred $0.1 million of debt issuance costs associated with obtaining the New Loan Facility and deferred $0.1 million of unamortized debt issuance costs attributed to our 2016 Line of Credit and 2016 Term Loan.
Under the terms of the New Loan Facility relating to the 2018 Line of Credit, we are able to borrow up to the lesser of $30.0 million or 85% of the amount of our eligible accounts receivable. Interest on advances under the 2018 Line of Credit varies depending on the amount of unrestricted cash deposits we maintain with the lender on the last day of the month. The interest rate is equal to the prime rate minus 0.75% if our unrestricted deposits exceed $40.0 million, the prime rate minus 0.50% if our unrestricted deposits are between $40.0 million and $20.0 million, and the prime rate if our unrestricted deposits are below $20.0 million. As of March 31, 2019, the indicative rate for advances on the 2018 Line of Credit was the prime rate minus 0.50%, or 5.00%. In addition, we are required to pay an unused line fee of 0.15% per annum on the average daily unused amount of the $30.0 million revolving commitment. Interest accrues on the 2018 Term Loan at an annual rate of interest equal to the prime rate minus 2.75%, or 2.75% as of March 31, 2019.
All of our obligations under the New Loan Facility are also secured by a first priority lien on substantially all of our assets. Under the terms of the New Loan Facility, we are required to maintain a deposit of $20.0 million in a blocked account in favor of the lender as additional security for our payment obligations. The New Loan Facility also requires us to maintain a total cash balance plus liquidity under the 2018 Line of Credit of not less than $5.0 million.
The New Loan Facility includes customary representations, warranties and covenants (affirmative and negative), including restrictive covenants that include restrictions on mergers, acquisitions and dispositions of assets, incurrence of indebtedness and encumbrances on our assets and a prohibition from the payment or declaration of dividends; in each case subject to specified exceptions.
The New Loan Facility also includes standard events of default, including in the event of a material adverse change. Upon the occurrence of an event of default, the lender may declare all outstanding obligations immediately due and payable and take such other actions as are set forth in the New Loan Facility and increase the interest rate otherwise applicable to the 2018 Term Loan or advances under the 2018 Line of Credit by an additional 3.00%.
In March 2019, we amended the New Loan Facility to replace moving trailing 12-month revenue covenants with moving trailing 12-month billing covenants, which range from $210.0 million to $255.0 million. The moving 12-month billings covenant was $210.0 million for March 2019.
As of March 31, 2019, we had $3.3 million of unused available borrowings under our 2018 Line of Credit. We were in compliance with all financial covenants as of March 31, 2019.


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Future Payments
Aggregate future payments of principal and interest due upon maturity are as follows (in thousands):
Years Ending December 31,
Debt            
 
Capital leases    
 
Total debt        
2019 (remainder of year)
$

 
$
16

 
$
16

2020
46,677

 
24

 
46,701

2021

 
13

 
13

Total principal payments
46,677

 
53

 
46,730

Less unamortized debt issuance costs
(17
)
 

 
(17
)
Total debt
$
46,660

 
$
53

 
$
46,713

 
4.     STOCK-BASED COMPENSATION
Our board of directors has adopted and our stockholders have approved our 2018 Equity Incentive Plan ("2018 Plan"). Our 2018 Plan became effective on February 8, 2018, the date our registration statement in connection with our initial public offering ("IPO") was declared effective. We do not expect to grant any additional awards under our 2008 Stock Plan ("2008 Plan"). Any awards granted under the 2008 Plan will remain subject to the terms of our 2008 Plan and applicable award agreements.
Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2018 Plan is the sum of (i) 1,875,000 shares plus (ii) 61,247 shares reserved, and remaining available for issuance, under our 2008 Plan at the time our 2018 Plan became effective and (iii) the number of shares subject to stock options or other stock awards granted under our 2008 Plan that would have otherwise returned to our 2008 Plan (such as upon the expiration or termination of a stock award prior to vesting). The number of shares of our common stock reserved for issuance under our 2018 Plan will automatically increase on January 1 of each year, beginning on January 1, 2019 and continuing through and including January 1, 2028, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. Accordingly, in January 2019, the number of shares of our common stock reserved for issuance under our 2018 Plan automatically increased by 1,123,312 shares, representing 5% of the total number of shares of our capital stock outstanding on December 31, 2018.
The following table summarizes the allocation of stock-based compensation in the consolidated statements of operations (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
Delivery costs
$
85

 
$
164

Sales and marketing expense
943

 
707

Research and development expense
470

 
203

General and administration expense
1,402

 
634

Total stock-based compensation expense
$
2,900

 
$
1,708


During the three months ended March 31, 2018 and 2019, we capitalized less than $0.1 million of stock-based compensation expense for software development.


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Common Stock Options
Options to purchase shares of common stock generally vest over four years and expire 10 years following the date of grant. A summary of common stock option activity is as follows (in thousands, except per share amounts):
 
Shares
 
Weighted-Average Exercise Price     
Options outstanding — December 31, 2018
1,774

 
$
20.55

Granted
39

 
20.64

Exercised
(31
)
 
5.54

Forfeited
(7
)
 
24.28

Canceled
(45
)
 
21.59

Options outstanding — March 31, 2019
1,730

 
$
20.78


The weighted-average grant-date fair value of options granted during the three months ended March 31, 2018 and 2019 was $10.00 and $0.47, respectively. The total fair value of options vested during the three months ended March 31, 2018 and 2019 was approximately $1.2 million and $1.2 million, respectively. As of March 31, 2019, unamortized stock-based compensation expense related to unvested common stock options was $5.4 million, and the weighted-average period over which such stock-based compensation expense will be recognized was 1.8 years.
Restricted Stock Units
A summary of restricted stock unit ("RSU") activity, inclusive of performance-based RSUs is as follows (in thousands, except per share amounts):
 
Shares
 
Weighted-Average Grant Date Fair Value
Unvested — December 31, 2018
381

 
$
18.11

Granted
101

 
17.68

Vested
(73
)
 
18.41

Forfeited
(66
)
 
20.19

Unvested — March 31, 2019
343

 
$
17.52


During the first quarter of 2019, we granted 100,570 RSUs to employees, which have annual vesting periods ranging from two to four years. As of March 31, 2019, there was approximately $4.4 million of unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 2.76 years.
Subsequent to March 31, 2019, we granted 316,291 RSUs to employees and our non-employee directors, which have annual vesting periods ranging from one to four years. The unamortized stock-based compensation expense related to these RSUs is $5.3 million.
Performance-based RSUs
In February 2018, we granted 875,000 performance-based restricted stock units ("2018 PSUs"). We recognized $0.7 million in stock-based compensation expense during the three months ended March 31, 2018. The performance targets were achieved during the fourth quarter of 2018, resulting in the issuance of 850,000 shares of our common stock to fully settle the 2018 PSUs. During 2018, 25,000 of the 2018 PSUs were forfeited prior to the performance targets being reached.
In April 2019, we granted 1,252,500 performance-based restricted stock units (“2019 PSUs”). The 2019 PSUs are composed of four equal tranches, each of which have an independent performance-based vesting condition. The vesting criteria for the four tranches are as follows:
a minimum growth rate in adjusted contribution over a trailing 12-month period,
a minimum number of advertisers that are billed above a specified amount over a trailing 12-month period,
a minimum cumulative adjusted EBITDA target over a trailing 12-month period, and
a minimum trailing 30-day average closing price of our common stock.


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The vesting conditions of each of the four tranches must be achieved within four years of the grant date. Upon a vesting event, 50% of the related tranche vests immediately, 25% of the related tranche vests six months after achievement date and 25% of the related tranche vests 12 months after the achievement date. The unamortized stock-based compensation expense related to the 2019 PSUs is $18.1 million. Adjusted EBITDA and adjusted contribution are performance metrics defined within Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Employee Stock Purchase Plan
Our 2018 Employee Stock Purchase Plan ("2018 ESPP") enables eligible employees to purchase shares of our common stock at a discount. Purchases will be accomplished through participation in discrete offering periods. On each purchase date, eligible employees will purchase our common stock at a price per share equal to 85% of the lesser of the fair market value of our common stock on the first trading day of the offering period or the date of purchase. As of March 31, 2019, 177,238 shares of common stock had been purchased by employees under the 2018 ESPP.
Initially, the aggregate number of shares of our common stock that may be issued pursuant to our 2018 ESPP was 375,000 shares. Additionally, the number of shares of our common stock reserved for issuance under our 2018 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2019 and continuing through and including January 1, 2026, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (ii) 500,000 shares of our common stock or (iii) such lesser number of shares of common stock as determined by our board of directors. Accordingly, on January 1, 2019, the number of shares of our common stock reserved for issuance under our 2018 ESPP increased by 224,662 shares, representing 1% of the total number of shares of our common stock outstanding on December 31, 2018.
5.     RELATED PARTIES
Agreements with Fidelity Information Services, LLC
We are party to a reseller agreement with Fidelity Information Services LLC (“FIS”). Pursuant to the reseller agreement, FIS markets and sells our services to financial institutions that are current or potential customers of FIS in exchange for a revenue share percentage.
In 2013, FIS purchased shares of our redeemable convertible preferred stock and we also granted performance-based warrants to purchase preferred stock with accelerated vesting upon an IPO. Since FIS did not participate in a subsequent financing, their warrants to purchase preferred stock were converted to warrants to purchase common stock. The warrants vested upon the completion of our IPO in February 2018, resulting in a non-cash expense of $2.5 million based on the vesting-date fair value of our common stock underlying these warrants. Since the performance-based vesting conditions of the warrants were directly related to revenue-producing activities, we recognized this expense in FI Share and other third-party costs on our condensed consolidated statement of operations. This expense is presented in other non-cash expenses on our condensed consolidated statement of statement of cash flows.
6.     COMMITMENTS AND CONTINGENCIES
FI Implementation Costs
Agreements with certain FI partners require us to fund the development of user interface enhancements, pay for certain implementation fees, or make milestone payments upon the deployment of our solution. Amounts paid to FI partners are included in deferred FI implementation costs on our condensed consolidated balance sheets the earlier of when paid or earned and are amortized over the remaining term of the related contractual arrangements. Amortization is included in FI Share and other third-party costs on our condensed consolidated statements of operations and is presented in amortization of deferred FI implementation costs on our condensed consolidated statement of cash flows. Certain of these agreements provide for future reductions in FI Share due to the FI partner. These reductions in FI Share are recorded as a reduction to deferred implementation costs and also result in a cumulative adjustment to accumulated amortization. During 2018, development payments to a certain FI partner totaled $9.3 million which is expected to be partially offset by recoveries through FI Share payment reductions of $4.6 million in 2019, $1.2 million of which has been recovered through March 31, 2019.


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The following table presents changes in deferred FI implementation costs (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
Beginning balance
$
13,625

 
$
15,877

Deferred costs
250

 

Recoveries through FI Share
(1,344
)
 
(1,157
)
Amortization
(412
)
 
(653
)
Ending balance
$
12,119

 
$
14,067


We have an FI Share commitment to a certain FI partner totaling $10.0 million over a 12-month period following the completion of certain milestones by the FI partner, which were not met as of March 31, 2019. Any expected shortfall will be accrued during the 12-month period following the completion of the milestones.
Litigation
From time to time, we may become involved in legal actions arising in the ordinary course of business including, but not limited to, intellectual property infringement and collection matters. We make assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. We record a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range. If no amount within the range is a better estimate than any other amount, we accrue the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, we disclose the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, we disclose the nature and estimate of the possible loss of the litigation. We do not disclose information with respect to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on our liquidity, results of operations, business or financial condition.
7.     EARNINGS PER SHARE
Diluted net loss per share is the same as basic net loss per share for the three months ended March 31, 2018 and 2019 because the effects of potentially dilutive items were anti-dilutive, given our net loss during these periods. The following securities have been excluded from the calculation of diluted weighted-average common shares outstanding because the effect is anti-dilutive (in thousands):
 
March 31,
 
2018
 
2019
Common stock options
2,379

 
1,730

Common stock warrants
927

 
868

Common stock warrants issuable pursuant to Series G Stock financing
1,286

 

Restricted stock units
1,208

 
343

Common stock issuable pursuant to the ESPP
36

 
75


8.     SEGMENTS
As of March 31, 2019, we have two operating segments: Cardlytics Direct in the U.S. and U.K., as determined by the information that both our Chief Executive Officer and our President and Chief Operating Officer, who we consider our chief operating decision makers, use to make strategic goals and operating decisions. Our Cardlytics Direct operating segments in the U.S. and U.K. represent our proprietary native bank advertising channels and are aggregated into one reportable segment given their similar economic characteristics, nature of service, types of customers and method of distribution.


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Prior to 2019, we offered Other Platform Solutions, which was deemed to be a separate operating segment. Our Other Platform Solutions enabled marketers and marketing service providers to leverage the power of purchase intelligence outside the bank channel. We have shifted our efforts and resources to support the growth of Cardlytics Direct. As a result, we do not expect to generate substantial, if any, revenue from Other Platform Solutions for the foreseeable future.
Revenue and FI Share and other third-party costs can be directly attributable to each segment. Our chief operating decision makers allocate resources to, and evaluate the performance of, our operating segments based on revenue and adjusted contribution. The accounting policies of each of our reportable segments are the same as those described in the summary of significant accounting policies.
The following table provides information regarding our reportable segments (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
Cardlytics Direct:
 
 
 
Adjusted contribution
$
14,222

 
$
17,637

Plus: Adjusted FI Share and other third-party costs(1)
17,899

 
18,351

Revenue
$
32,121

 
$
35,988

Other Platform Solutions:
 
 
 
Adjusted contribution
$
2

 
$

Plus: Adjusted FI Share and other third-party costs(1)
590

 

Revenue
$
592

 
$

Total:
 
 
 
Adjusted contribution
$
14,224

 
$
17,637

Plus: Adjusted FI Share and other third-party costs(1)
18,489

 
18,351

Revenue
$
32,713

 
$
35,988


(1)
Adjusted FI Share and other third-party costs presented above represents GAAP FI Share and other third-party data costs less a non-cash equity expense included in FI Share and amortization of deferred FI implementation costs, which are detailed below in our reconciliation of GAAP loss before income taxes to non-GAAP adjusted contribution.
Adjusted Contribution
Adjusted contribution represents our revenue less FI Share and other third-party costs excluding a non-cash equity expense included in FI Share and amortization of deferred FI implementation costs.
The following table presents a reconciliation of loss before income taxes presented in accordance with GAAP to adjusted contribution (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
Adjusted contribution
$
14,224

 
$
17,637

Minus:
 
 
 
Non-cash equity expense included in FI Share(1)
2,519

 

Amortization of deferred FI implementation costs(1)
412

 
653

Delivery costs
1,943

 
3,246

Sales and marketing expense
8,216

 
9,337

Research and development expense
3,459

 
2,941

General and administration expense
6,582

 
7,000

Depreciation and amortization expense
910

 
961

Total other expense (income)
10,238

 
(187
)
Loss before income taxes
$
(20,055
)
 
$
(6,314
)

(1)
Non-cash equity expense included in FI Share and amortization of deferred FI implementation costs are excluded from adjusted FI Share and other third party costs, which is shown above in our reconciliation of GAAP revenue to non-GAAP adjusted contribution.


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The following table provides geographical information (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
Revenue:
 
 
 
United States
$
28,987

 
$
31,348

United Kingdom
3,726

 
4,640

Total
$
32,713

 
$
35,988

 
December 31, 2018
 
March 31, 2019
Property and equipment:
 
 
 
United States
$
9,794

 
$
10,907

United Kingdom
436

 
444

Total
$
10,230

 
$
11,351


Capital expenditures within the United Kingdom were less than $0.1 million during both the three months ended March 31, 2018 and 2019.


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Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10–Q and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2018 included in our Annual Report on Form 10-K, filed with the SEC on March 5, 2019.
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations, and such forward-looking statements include, but are not limited to, statements with respect to our business strategy, plans and objectives for future operations, including our expectations regarding our expenses and tax position; continued enhancements of our platform and new product offerings; our future financial and business performance; anticipated launch of the Cardlytics Direct program by Wells Fargo; the anticipated decline in ARPU as Chase and Wells Fargo launch the Cardlytics Direct program due to the anticipated growth of average FI MAUs exceeding the corresponding growth in revenue; anticipated reductions to FI Share payments; and anticipated FI Share commitment shortfalls. The events described in these forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
Cardlytics makes marketing more relevant and measurable through our purchase intelligence platform. Our partnerships with financial institutions ("FIs") provide us with access to their anonymized purchase data and digital banking customers. By applying advanced analytics to this aggregation of purchase data, we make it actionable, helping marketers identify, reach and influence likely buyers at scale, and measure the true sales impact of their marketing spend.
Cardlytics Direct is our proprietary native bank advertising channel that enables marketers to reach consumers through the FIs' trusted and frequently visited digital banking channels. Working with a marketer, we design a campaign that targets customers based on their purchase history. The consumer is offered an incentive to make a purchase from the marketer within a specified period. We use a portion of the fees that we collect from marketers to provide these consumer incentives to our FIs’ customers after they make qualifying purchases ("Consumer Incentives"). We report our revenue on our condensed consolidated statements of operations net of Consumer Incentives since we do not provide the goods or services that are purchased by our FIs’ customers from the marketers to which the Consumer Incentives relate.
We generally pay our FI partners a negotiated and fixed percentage of our billings to marketers less any Consumer Incentives that we pay to the FIs’ customers and certain third-party data costs ("FI Share"). We report our revenue gross of FI Share. FI Share costs are included in FI Share and other third-party costs in our consolidated statements of operations, rather than as a reduction of revenue, because we and not our FI partners act as the principal in our arrangements with marketers.
We run campaigns offering compelling Consumer Incentives to drive an expected rate of return on advertising spend for marketers. At times, we may collaborate with an FI partner to enhance the level of Consumer Incentives to their respective FI customers funded by their FI Share. We believe that these investments by our FI partners positively impact our platform by making FI customers more highly engaged with our platform. However, these investments negatively impact our GAAP revenue, which is reported net of Consumer Incentives.
Billings represents the gross amount billed to marketers and is reported gross of both Consumer Incentives and FI Share. We believe this new non-GAAP measure, alongside our GAAP revenue and adjusted contribution, provides useful information to investors for period-to-period comparisons of our core business and in understanding and evaluating our results of operations in the same manner as our management and board of directors. Billings and adjusted contribution are non-GAAP measures further defined under the heading "Non-GAAP Measures and Other Performance Metrics" below.


18

Table of Contents

Revenue (reported net of Consumer Incentives and gross of FI Share) was $32.1 million and $36.0 million for the three months ended March 31, 2018 and 2019, respectively, representing a growth rate of 10%. Billings (reported gross of both Consumer Incentives and FI Share) was $48.8 million and $58.6 million for the three months ended March 31, 2018 and 2019, respectively, representing a growth rate of 20%. Adjusted contribution (reported net of both Consumer Incentives and FI Share) was $14.2 million and $17.6 million for the three months ended March 31, 2018 and 2019, respectively, representing a growth rate of 24%.
The following table summarizes our results during the periods indicated (dollars in thousands):
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$
 
%
Billings
$
48,762

 
$
58,550

 
$
9,788

 
20
 %
Consumer Incentives
16,049

 
22,562

 
6,513

 
41

Revenue
32,713

 
35,988

 
3,275

 
10

Adjusted FI Share and other third-party costs(1)
18,489

 
18,351

 
(138
)
 
(1
)
Adjusted contribution
$
14,224

 
$
17,637

 
$
3,413

 
24
 %
(1)
Adjusted FI Share and other third-party costs presented above excludes a non-cash equity expense included in FI Share and amortization of deferred FI implementation costs, which are detailed below in our reconciliation of GAAP revenue to adjusted contribution.
During the three months ended March 31, 2018 and 2019, our net loss was $20.1 million and $6.3 million, respectively. Our historical losses have been driven by our substantial investments in our purchase intelligence platform and infrastructure, which we believe will enable us to expand the use of our platform by both FIs and marketers. During the three months ended March 31, 2018, our net loss included $2.9 million of stock-based compensation expense, a $9.2 million non-cash expense related to the change in fair value of our warrant liabilities and a $2.5 million non-cash expense related to the vesting of warrants issued to an FI partner that accelerated in February 2018 upon our initial public offering ("IPO"). During the three months ended March 31, 2019, our net loss included $1.7 million of stock-based compensation expense.
FI Partners
We are a partner to FIs, including Bank of America, National Association ("Bank of America"); JPMorgan Chase Bank, National Association (“Chase”); PNC Bank National Association ("PNC"); Branch Banking and Trust Company, ("BB&T"); SunTrust Banks, Inc., ("SunTrust"); Lloyds Bank plc ("Lloyds"); Santander UK plc, ("Santander"); and several of the largest bank processors and digital banking providers, such as Digital Insight Corporation, a subsidiary of NCR Corporation ("NCR"), which enable us to reach customers of small and mid-sized FIs. Additionally, in the third quarter of 2018, we entered into an agreement with Wells Fargo Bank, National Association (“Wells Fargo”), pursuant to which we have agreed to a national roll-out of Cardlytics Direct to Wells Fargo customers. We expect Wells Fargo to launch the Cardlytics Direct program in 2019.
For the three months ended March 31, 2018 and 2019, our total average monthly active users ("FI MAUs") were approximately 58.7 million and 108.5 million and our average Cardlytics Direct revenue per user was $0.55 and $0.33, respectively. FI MAU and average revenue per user ("ARPU") are performance metrics defined under the heading "Non-GAAP Measures and Other Performance Metrics" below. The increase in FI MAUs is largely due to Chase launching our Cardlytics Direct program for its mobile banking channel in November 2018 and for its email channel in January 2019. Chase completed the launch of our Cardlytics Direct program for its online banking channel in May 2019.
We believe that the number of FI MAUs contributed by any FI partner is indicative of our level of dependence on such FI partner since the size of marketing budgets that can be consumed by Cardlytics Direct is a function of the number of active users on our FI partners’ digital banking platforms targeted by our campaigns. During the three months ended March 31, 2018 and 2019, Bank of America contributed 51% and 29% of our average FI MAUs, respectively. Chase contributed 0% and 41% of our average FI MAUs during the three months ended March 31, 2018 and 2019, respectively. NCR contributed 11% and 8% of our average FI MAUs and PNC contributed 10% and 6% of our average FI MAUs during the three months ended March 31, 2018 and 2019, respectively. We anticipate that Chase and Bank of America will contribute a significant portion of our average FI MAUs for the foreseeable future.


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Table of Contents

FI Partner Commitments
Agreements with certain FI partners require us to fund the development of specific enhancements, pay for certain implementation fees, or make milestone payments upon the deployment of our solution. Certain of these agreements provide for future reductions in FI Share due to the FI partner. During 2018, development payments to a certain FI partner totaled $9.3 million, which is expected to be partially offset by recoveries through FI Share payment reductions of $4.6 million in 2019, $1.2 million of which has been recovered through March 31, 2019.
We have a minimum FI Share commitment with a certain FI partner totaling $10.0 million over a 12-month period following the completion of certain milestones by the FI partner, which were not met as of March 31, 2019. The timing of the completion of the milestones is uncertain; however we do not currently believe the FI partner will complete the milestones in 2019. Any expected shortfall will be accrued during the 12-month period following the completion of the milestones.
Non-GAAP Measures and Other Performance Metrics
We regularly monitor a number of financial and operating metrics in order to measure our current performance and estimate our future performance. Our metrics may be calculated in a manner different than similar metrics used by other companies.
 
Three Months Ended
March 31,
 
2018
 
2019
 
(in thousands, except ARPU)
FI MAUs
58,684

 
108,468

ARPU
$
0.55

 
$
0.33

Billings
$
48,762

 
$
58,550

Adjusted contribution
$
14,224

 
$
17,637

Adjusted EBITDA
$
(3,076
)
 
$
(3,179
)
FI Monthly Active Users
We define FI MAUs as targetable customers or accounts of our FI partners that logged in and visited the online or mobile banking applications of, or opened an email containing our offers from, our FI partners during a monthly period. We then calculate a monthly average of these FI MAUs for the periods presented. We believe that FI MAUs is an indicator of our and our FI partners’ ability to drive engagement with Cardlytics Direct and is reflective of the marketing base that we offer to marketers through Cardlytics Direct.
Average Revenue per User
We define ARPU as the total Cardlytics Direct revenue generated in the applicable period calculated in accordance with generally accepted accounting principles in the United States ("GAAP"), divided by the average number of FI MAUs in the applicable period. We believe that ARPU is an indicator of the value of our relationships with our FI partners with respect to Cardlytics Direct.
We expect a decline in ARPU as Chase and Wells Fargo launch the Cardlytics Direct program due to the anticipated growth of FI MAUs exceeding the corresponding growth in Cardlytics Direct revenue.
Billings
Billings represents the gross amount billed to marketers for advertising campaigns in order to generate revenue. Billings is reported gross of both Consumer Incentives and FI Share. Our GAAP revenue is recognized net of Consumer Incentives and gross of FI Share.
We review billings for internal management purposes. We believe that billings provides useful information to investors for period-to-period comparisons of our core business and in understanding and evaluating our results of operations in the same manner as our management and board of directors. Nevertheless, our use of billings has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Other companies, including companies in our industry that have similar business arrangements, may address the impact of Consumer Incentives differently. You should consider billings alongside our other GAAP financial results.


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Table of Contents

The following table presents a reconciliation of billings to revenue, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
Revenue
$
32,713

 
$
35,988

Plus:
 
 
 
Consumer Incentives
16,049

 
22,562

Billings
$
48,762

 
$
58,550

Adjusted Contribution
Adjusted contribution represents our revenue, which is reported net of Consumer Incentives, less our adjusted FI Share and other third-party costs. Adjusted contribution is not a measure calculated in accordance with GAAP.
We review adjusted contribution for internal management purposes and believe that the elimination of our primary cost of revenue, adjusted FI Share and other third-party costs can provide a useful measure for period-to-period comparisons of our core business. We believe that adjusted contribution provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors. Nevertheless, our use of adjusted contribution has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Other companies, including companies in our industry that have similar business arrangements, may address the impact of adjusted FI Share and other third-party costs differently. You should consider adjusted contribution alongside our other GAAP financial results.
Refer to Note 8—Segments to our condensed consolidated financial statements for further details on our adjusted contribution by segment.
The following table presents a reconciliation of adjusted contribution to revenue, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
Revenue
$
32,713

 
$
35,988

Minus:
 
 
 
Adjusted FI Share and other third-party costs(1)
18,489

 
18,351

Adjusted contribution
$
14,224

 
$
17,637

(1)
Adjusted FI Share and other third-party costs is a key measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans. Non-cash equity expense included in FI Share and amortization of deferred FI implementation costs are non-cash costs excluded from adjusted FI Share and other third-party costs, which is shown above in our reconciliation of GAAP revenue to adjusted contribution. The following table presents a reconciliation of adjusted FI Share and other third-party costs to FI Share and other third-party costs, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
FI Share and other third-party costs
$
21,420

 
$
19,004

Minus:
 
 
 
Non-cash equity expense included in FI Share
2,519

 

Amortization of deferred FI implementation costs
412

 
653

Adjusted FI Share and other third-party costs
$
18,489

 
$
18,351




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Table of Contents

Adjusted EBITDA
Adjusted EBITDA represents our net loss before income tax benefit; interest expense, net; depreciation and amortization expense; stock-based compensation expense; foreign currency (gain) loss; amortization of deferred FI implementation costs; costs associated with financing events; loss on extinguishment of debt; change in fair value of warrant liabilities; and a non-cash equity expense recognized in FI Share. We do not consider these excluded items to be indicative of our core operating performance. The items that are non-cash include change in fair value of warrant liabilities, change in fair value of convertible promissory notes, foreign currency (gain) loss, amortization of FI implementation costs, depreciation and amortization expense, stock-based compensation expense and a non-cash equity expense included in FI Share. Notably, any impacts related to minimum FI Share commitments in connection with agreements with certain FI partners are not added back to net loss in order to calculate adjusted EBITDA. Adjusted EBITDA is a key measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans, make strategic decisions regarding the allocation of capital and invest in initiatives that are focused on cultivating new markets for our solution. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis. Adjusted EBITDA is not a measure calculated in accordance with GAAP.
We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Nevertheless, use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (1) adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (2) adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation and equity instruments issued to our FI partners; (3) adjusted EBITDA does not reflect tax payments or receipts that may represent a reduction or increase in cash available to us; and (4) other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces the usefulness of the metric as a comparative measure. Because of these and other limitations, you should consider adjusted EBITDA alongside our net loss and other GAAP financial results.
The following table presents a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
 
Three Months Ended
March 31,
 
2018
 
2019
Net loss
$
(20,055
)
 
$
(6,314
)
Plus:
 
 
 
Interest expense, net
1,749

 
304

Depreciation and amortization expense
910

 
961

Stock-based compensation expense
2,900

 
1,708

Foreign currency gain
(683
)
 
(491
)
Amortization of deferred FI implementation costs
412

 
653

Change in fair value of warrant liabilities
9,172

 

Non-cash equity expense included in FI Share
2,519

 

Adjusted EBITDA
$
(3,076
)
 
$
(3,179
)


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Table of Contents

Results of Operations
The following table sets forth our condensed consolidated statements of operations:
 
Three Months Ended
March 31,
 
2018
 
2019
 
(in thousands)
Revenue
$
32,713

 
$
35,988

Costs and expenses:
 
 
 
FI Share and other third-party costs
21,420

 
19,004

Delivery costs(1)
1,943

 
3,246

Sales and marketing expense(1)
8,216

 
9,337

Research and development expense(1)
3,459

 
2,941

General and administrative expense(1)
6,582

 
7,000

Depreciation and amortization expense
910

 
961

Total costs and expenses
42,530

 
42,489

Operating loss
(9,817
)
 
(6,501
)
Other (expense) income:
 
 
 
Interest expense, net
(1,749
)
 
(304
)
Change in fair value of warrant liabilities, net
(9,172
)
 

Foreign currency gain
683

 
491

Total other (expense) income
(10,238
)
 
187

Loss before income taxes
(20,055
)
 
(6,314
)
Income tax benefit

 

Net loss
$
(20,055
)
 
$
(6,314
)
(1)Includes stock-based compensation expense as follows:
 
Three Months Ended
March 31,
 
2018
 
2019
 
(in thousands)
Delivery costs
$
85

 
$
164

Sales and marketing expense
943

 
707

Research and development expense
470

 
203

General and administrative expense
1,402

 
634

Total stock-based compensation expense
$
2,900

 
$
1,708


Comparison of Three Months Ended March 31, 2018 and 2019
Revenue
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$
 
%
 
(dollars in thousands)
Revenue by solution:
 
 
 
 
 
 
 
Cardlytics Direct
$
32,121

 
$
35,988

 
$
3,867

 
12
 %
Other Platform Solutions
592

 

 
(592
)
 
(100
)
Total revenue
$
32,713

 
$
35,988

 
$
3,275

 
10
 %


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Table of Contents

The $3.9 million increase in Cardlytics Direct revenue during three months ended March 31, 2019 compared to the three months ended March 31, 2018 comprised a $3.3 million increase in sales to existing marketers and a $0.6 million increase in sales to new marketers.
Revenue from Other Platform Solutions decreased by $0.6 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 due to our strategic shift to focus the majority of our efforts and resources to support the growth of Cardlytics Direct.
Costs and Expenses
FI Share and Other Third-Party Costs
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$
 
%
 
(dollars in thousands)
FI Share and other third-party costs by solution:
 
 
 
 
 
 
 
Cardlytics Direct
$
17,899

 
$
18,351

 
$
452

 
3
 %
Other Platform Solutions
590

 

 
(590
)
 
(100
)
Other components of FI Share and other third-party costs:
 
 
 
 
 
 
 
Non-cash equity expense included in FI Share
2,519

 

 
(2,519
)
 
(100
)
Amortization of deferred FI implementation costs
412

 
653

 
241

 
58

Total FI Share and other third-party costs
$
21,420

 
$
19,004

 
$
(2,416
)
 
(11
)%
% of revenue
65
%
 
53
%
 
 
 
 
Cardlytics Direct FI Share and other third-party costs increased by $0.5 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to increased revenue from sales of Cardlytics Direct.
Other Platform Solutions FI Share and other third-party costs decreased during by $0.6 million the three months ended March 31, 2019 compared to the three months ended March 31, 2018 due to our strategic shift to focus the majority of our efforts and resources to support the growth of Cardlytics Direct.
Warrants to purchase shares of common stock vested upon the completion of our IPO in February 2018, resulting in a non-cash expense of $2.5 million based on the vesting-date fair value of our common stock underlying these warrants. Since the performance conditions were directly related to revenue-producing activities, we recognized this non-cash expense in FI Share and other third-party costs on our condensed consolidated statement of operations.
Delivery Costs
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$      
 
%      
 
(dollars in thousands)
Delivery costs
$
1,943

 
$
3,246

 
$
1,303

 
67
%
% of revenue
6
%
 
9
%
 
 
 
 
Delivery costs increased by $1.3 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to a $1.0 million increase in personnel salary, benefits, payroll taxes, stock and incentive compensation costs associated with additional headcount to host Cardlytics Direct for certain new FI partners and a $0.3 million increase in hosting-related software licensing costs.


24

Table of Contents

Sales and Marketing Expense
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$      
 
%      
 
(dollars in thousands)
Sales and marketing expense
$
8,216

 
$
9,337

 
$
1,121

 
14
%
% of revenue
25
%
 
26
%
 
 
 
 
Sales and marketing expense increased by $1.1 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to a $1.4 million increase in personnel salary, benefits, payroll taxes and incentive compensation expense associated with additional headcount, partially offset by lower stock-based compensation.
Research and Development Expense
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$
 
%
 
(dollars in thousands)
Research and development expense
$
3,459

 
$
2,941

 
$
(518
)
 
(15
)%
% of revenue
11
%
 
8
%
 
 
 
 
Research and development expense decreased by $0.5 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to a $0.3 million increase in capitalized software development and a $0.2 million decrease in other personnel salary, benefits, payroll taxes, stock and incentive compensation expenses.
General and Administrative Expense
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$
 
%
 
(dollars in thousands)
General and administration expense
$
6,582

 
$
7,000

 
$
418

 
6
%
% of revenue
20
%
 
19
%
 
 
 
 
General and administrative expense increased by $0.4 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to a $0.4 million increase in professional fees, a $0.5 million increase in software licensing costs and a $0.3 million increase in bad debt expense, partially offset by a $0.8 million decrease in stock-based compensation expense.
Depreciation and Amortization Expense
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$
 
%
 
(dollars in thousands)
Depreciation and amortization expense
$
910

 
$
961

 
$
51

 
6
%
% of revenue
3
%
 
3
%
 
 
 
 
Depreciation and amortization expense increased by $0.1 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 due to depreciation of additional assets to host Cardlytics Direct for certain new FI partners.


25

Table of Contents

Interest Expense, Net
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$
 
%
 
(dollars in thousands)
Interest expense
$
(1,889
)
 
$
(489
)
 
$
1,400

 
(74
)%
Interest income
140

 
185

 
45

 
32
 %
Interest expense, net
$
(1,749
)
 
$
(304
)
 
$
1,445

 
(83
)%
% of revenue
(5
)%
 
(1
)%
 
 
 
 
Interest expense, net decreased $1.4 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to lower interest rates under our New Loan Facility.
Change in Fair Value of Warrant Liabilities
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$
 
%
 
(dollars in thousands)
Change in fair value of warrant liabilities
$
(9,172
)
 
$

 
$
9,172

 
n/a
% of revenue
(28
)%
 
%
 
 
 
 
Change in fair value of warrant liabilities reflects the mark-to-market adjustments for warrants to purchase our redeemable convertible preferred stock and common stock, which we account for as derivative liabilities due to the terms of the warrants and related agreements, based upon changes in the underlying value of our redeemable convertible preferred stock and common stock. Upon the consummation of our IPO, all of the outstanding warrants to purchase shares of redeemable convertible preferred stock were automatically converted into warrants to purchase shares of common stock and were subsequently exercised in August 2018.
Foreign Currency Gain
 
Three Months Ended
March 31,
 
Change
 
2018
 
2019
 
$
 
%
 
(dollars in thousands)
Foreign currency gain
$
683

 
$
491

 
$
(192
)
 
(28
)%
% of revenue
2
%
 
1
%
 
 
 
 
Foreign currency gains were recognized during the three months ended March 31, 2018 and 2019 primarily due to a decrease in the value of the British pound relative to the U.S. dollar.
Liquidity and Capital Resources
The following table summarizes our cash and cash equivalents, restricted cash, accounts receivable and working capital, as of the periods indicated (in thousands):
 
December 31, 2018
 
March 31, 2019
Cash and cash equivalents
$
39,623

 
$
36,428

Restricted cash
20,247

 
20,260

Accounts receivable, net
58,125

 
53,245

Working capital
72,446

 
67,743



26

Table of Contents

We define working capital as current assets minus current liabilities. Our cash and cash equivalents as of March 31, 2019 are available for working capital purposes. We do not enter into investments for trading purposes, and our investment policy is to invest any excess cash in short term, highly liquid investments that limit the risk of principal loss; therefore, our cash and cash equivalents are held in demand deposit accounts upon which we earn up to a 1.05%<