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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 September 30, 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_logoa23.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
Georgia
30308
(Address of principal executive offices, including zip code)
(888)
792-5802
(Registrant’s telephone number, including area code)
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
NASDAQ
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 
As of October 31, 2019, there were 25,711,713 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
 
September 30, 2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
39,623

 
$
95,184

Restricted cash
20,247

 
246

Accounts receivable, net
58,125

 
61,691

Other receivables
2,417

 
3,634

Prepaid expenses and other assets
3,956

 
5,320

Total current assets
124,368

 
166,075

Long-term assets:


 


Property and equipment, net
10,230

 
12,125

Intangible assets, net
370

 
375

Capitalized software development costs, net
1,625

 
3,099

Deferred FI implementation costs, net
15,877

 
10,235

Other long-term assets, net
1,293

 
1,338

Total assets
$
153,763

 
$
193,247

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

 
$
1,946

Accrued liabilities:
 
 
 
Accrued compensation
5,936

 
6,944

Accrued expenses
4,388

 
3,906

FI Share liability
27,656

 
33,697

Consumer Incentive liability
11,476

 
15,873

Deferred billings
346

 
745

Current portion of long-term debt
21

 
23

Total current liabilities
51,922

 
63,134

Long-term liabilities:
 
 
 
Deferred liabilities
3,173

 
2,773

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

 
19

Total liabilities
101,788

 
65,926

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value—100,000 shares authorized and 22,466 and 25,664 shares issued and outstanding as of December 31, 2018 and September 30, 2019, respectively
7

 
8

Additional paid-in capital
371,463

 
466,737

Accumulated other comprehensive income
1,992

 
2,634

Accumulated deficit
(321,487
)
 
(342,058
)
Total stockholders’ equity
51,975

 
127,321

Total liabilities and stockholders’ equity
$
153,763

 
$
193,247


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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2019
 
2018
 
2019
Revenue
$
34,582

 
$
56,419

 
$
102,865

 
$
141,137

Costs and expenses:
 
 
 
 
 
 
 
FI Share and other third-party costs
17,982

 
32,470

 
59,149

 
79,094

Delivery costs
3,007

 
3,070

 
7,509

 
9,686

Sales and marketing expense
9,452

 
11,074

 
27,915

 
31,458

Research and development expense
4,097

 
3,018

 
12,444

 
8,741

General and administration expense
7,925

 
12,218

 
23,486

 
27,558

Depreciation and amortization expense
777

 
1,167

 
2,471

 
3,181

Total costs and expenses
43,240

 
63,017

 
132,974

 
159,718

Operating loss
(8,658
)
 
(6,598
)
 
(30,109
)
 
(18,581
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(254
)
 
(218
)
 
(2,995
)
 
(860
)
Change in fair value of warrant liabilities, net
801

 

 
(6,760
)
 

Other expense
(257
)
 
(931
)
 
(1,612
)
 
(1,130
)
Total other income (expense)
290

 
(1,149
)
 
(11,367
)
 
(1,990
)
Loss before income taxes
(8,368
)
 
(7,747
)
 
(41,476
)
 
(20,571
)
Net loss
(8,368
)
 
(7,747
)
 
(41,476
)
 
(20,571
)
Adjustments to the carrying value of preferred stock

 

 
(157
)
 

Net loss attributable to common stockholders
$
(8,368
)
 
$
(7,747
)
 
$
(41,633
)
 
$
(20,571
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.40
)
 
$
(0.33
)
 
$
(2.29
)
 
$
(0.90
)
Weighted-average common shares outstanding, basic and diluted
20,970

 
23,561

 
18,150

 
22,936


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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2019
 
2018
 
2019
Net loss
$
(8,368
)
 
$
(7,747
)
 
$
(41,476
)
 
$
(20,571
)
Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
202

 
565

 
574

 
642

Total comprehensive loss
$
(8,166
)
 
$
(7,182
)
 
$
(40,902
)
 
$
(19,929
)

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)

Nine Months Ended September 30, 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
215

 

 
2,850

 

 

 
2,850

Exercise of common stock warrants
821

 

 
17,659

 

 

 
17,659

Stock-based compensation

 

 
12,292

 

 

 
12,292

Settlement of restricted stock
164

 

 

 

 

 

Issuance of common stock
1,904

 
1

 
61,308

 

 

 
61,309

Issuance of common stock pursuant to the ESPP
94

 

 
1,165

 

 

 
1,165

Other comprehensive income

 

 

 
642

 

 
642

Net loss

 

 

 

 
(20,571
)
 
(20,571
)
Balance – September 30, 2019
25,664

 
$
8

 
$
466,737

 
$
2,634

 
$
(342,058
)
 
$
127,321


Three Months Ended September 30, 2019:
 
 
 
 Additional Paid-In-Capital
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit
 
Total
 
Common Stock
 
 
Shares
 
Amount
 
Balance – June 30, 2019
22,828

 
$
7

 
$
378,773

 
$
2,069

 
$
(334,311
)
 
$
46,538

Exercise of common stock options
104

 

 
1,502

 

 

 
1,502

Exercise of common stock warrants
821

 

 
17,659

 

 

 
17,659

Stock-based compensation

 

 
7,495

 

 

 
7,495

Settlement of restricted stock
7

 

 

 

 

 

Issuance of common stock
1,904

 
1

 
61,308

 

 

 
61,309

Other comprehensive income

 

 

 
565

 

 
565

Net loss

 

 

 

 
(7,747
)
 
(7,747
)
Balance – September 30, 2019
25,664

 
$
8

 
$
466,737

 
$
2,634

 
$
(342,058
)
 
$
127,321
















See notes to the condensed consolidated financial statements

5

Table of Contents

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

Nine Months Ended September 30, 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
329

 

 
1,799

 

 

 
1,799

Exercise of common stock warrants
1,142

 

 

 

 

 

Stock-based compensation

 

 
16,968

 

 

 
16,968

Settlement of restricted stock
37

 

 

 

 

 

Issuance of common stock
5,821

 
1

 
66,100

 

 

 
66,101

Vesting of common stock warrants

 

 
17,774

 

 

 
17,774

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 income

 

 

 
574

 

 
574

Net loss

 

 

 

 
(41,476
)
 
(41,476
)
Balance – September 30, 2018
21,411

 
$
7

 
$
359,501

 
$
1,640

 
$
(309,921
)
 
$
51,227


Three Months Ended September 30, 2018:
 
 
 
 
 
 Additional Paid-In-Capital
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit
 
Total
 
Common Stock
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Balance – June 30, 2018
20,316

 
$
7

 
$
336,874

 
$
1,438

 
$
(301,553
)
 
$
36,766

Exercise of common stock options
265

 

 
1,655

 

 

 
1,655

Exercise of common stock warrants
793

 

 

 

 

 

Stock-based compensation

 

 
5,717

 

 

 
5,717

Settlement of restricted stock
37

 

 

 

 

 

Vesting of common stock warrants

 

 
15,255

 

 

 
15,255

Other comprehensive income

 

 

 
202

 

 
202

Net loss

 

 

 

 
(8,368
)
 
(8,368
)
Balance – September 30, 2018
21,411

 
$
7

 
$
359,501

 
$
1,640

 
$
(309,921
)
 
$
51,227





See notes to the condensed consolidated financial statements

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Table of Contents

CARDLYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
 
Nine Months Ended September 30,
 
2018
 
2019
Operating activities
 
 
 
Net loss
$
(41,476
)
 
$
(20,571
)
Adjustments to reconcile net loss to net cash used in operating activities:

 

Depreciation and amortization
2,471

 
3,181

Amortization of financing costs charged to interest expense
255

 
72

Accretion of debt discount and non-cash interest expense
2,326

 

Stock-based compensation expense
16,968

 
12,266

Change in fair value of warrant liabilities, net
6,760

 

Other non-cash expense, net
4,136

 
2,434

Amortization of deferred FI implementation costs
1,136

 
2,173

Settlement of paid-in-kind interest
(8,353
)
 

Change in operating assets and liabilities:
 
 
 
Accounts receivable
10,883

 
(5,789
)
Prepaid expenses and other assets
(1,797
)
 
(1,368
)
Deferred FI implementation costs
(5,750
)
 

Recovery of deferred FI implementation costs
4,036

 
3,469

Accounts payable
221

 
(401
)
Other accrued expenses
24

 
1,453

FI Share liability
(3,728
)
 
6,041

Customer Incentive liability
(2,412
)
 
4,397

Net cash (used in) from operating activities
(14,300
)
 
7,357

Investing activities
 
 
 
Acquisition of property and equipment
(3,190
)
 
(4,561
)
Acquisition of patents
(14
)
 
(14
)
Capitalized software development costs
(981
)
 
(1,836
)
Net cash used in investing activities
(4,185
)
 
(6,411
)
Financing activities
 
 
 
Proceeds from issuance of debt
47,435

 

Principal payments of debt
(52,475
)
 
(46,692
)
Proceeds from issuance of common stock
72,179

 
81,922

Equity issuance costs
(1,949
)
 
(38
)
Debt issuance costs
(48
)
 
(143
)
Net cash from financing activities
65,142

 
35,049

Effect of exchange rates on cash, cash equivalents and restricted cash
(107
)
 
(435
)
Net increase in cash, cash equivalents and restricted cash
46,550

 
35,560

Cash, cash equivalents, and restricted cash — Beginning of period
21,262

 
59,870

Cash, cash equivalents, and restricted cash — End of period
$
67,812

 
$
95,430



See notes to the condensed consolidated financial statements

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CARDLYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
 
Nine Months Ended September 30,
 
2018
 
2019
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet:
 
 
 
Cash and cash equivalents
$
47,812

 
$
95,184

Restricted cash
20,000

 
246

Total cash, cash equivalents and restricted cash — End of period
$
67,812

 
$
95,430

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Cash paid for interest
$
9,158

 
$
1,259

Amounts accrued for property and equipment
$
1,697

 
$
991

Amounts accrued for capitalized software development costs
$
9

 
$



See notes to the condensed consolidated financial statements

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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, and in India through Cardlytics Services India Private Limited, a wholly-owned and operated subsidiary registered as a private limited company in India.
Proceeds from Issuance of Common Stock
On September 13, 2019, we closed a public equity offering in which we sold 1,904,154 shares of common stock, which included 404,154 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $34.00 per share. We received total net proceeds of $61.0 million after deducting underwriting discounts and commissions of $3.2 million and offering costs of $0.5 million.
Selling stockholders, including certain of our executive officers and entities affiliated with certain of our directors, sold 1,194,365 shares of common stock in the offering at a public offering price of $34.00. We did not receive any proceeds from the sale of common stock by the selling stockholders.
During the three and nine months ended September 30, 2019, we also received $19.2 million and $20.5 million in proceeds from the exercise of options and warrants to purchase shares of common stock, respectively.
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.     RECENT ACCOUNTING STANDARDS
Recently Adopted Accounting Pronouncements
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.


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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.
Recently Issued Accounting Pronouncements
In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. If a cloud computing arrangement includes a license to internal-use software, then the software license is accounted for by the customer in accordance with Subtopic 350-40. This generally means that an intangible asset is recognized for the software license and, to the extent that the payments attributable to the software license are made over time, a liability also is recognized. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. This generally means that the fees associated with the hosting element (service) of the arrangement are expensed as incurred. For public entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For non-public entities, this ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period, for all entities. 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, and therefore we will be required to adopt this ASU for annual reporting periods beginning after December 15, 2020. We plan to early adopt this ASU on January 1, 2020 on a prospective basis. We do not expect the adoption to have a material effect on our consolidated financial statements.
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 requires lessees 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 annual periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. On October 16, 2019, the FASB "tentatively affirmed" its decision issued on August 15, 2019, to change the effective date of ASC Topic 842 for private entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The final ASU regarding the change in effective date is pending. 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, and therefore we will be required to adopt this ASU for annual reporting periods beginning after December 15, 2019. 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.     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 have not and 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 purchase intelligence platform, we are able to create compelling Consumer Incentives that have the potential to increase return on advertising spend for marketers and measure the effectiveness of the advertising. 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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2019
 
2018
 
2019
Cost per Served Sale
$
25,320

 
$
40,000

 
$
67,775

 
$
94,558

Cost per Redemption
8,236

 
15,611

 
29,447

 
43,851

Other
1,026

 
808

 
5,643

 
2,728

Revenue
$
34,582

 
$
56,419

 
$
102,865

 
$
141,137




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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 FIs' customers. Cardlytics Direct fees represent variable consideration that is resolved 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 FIs' 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 $14.0 million and $26.3 million during the three months ended September 30, 2018 and 2019, respectively, and totaled $45.9 million and $73.9 million during the nine months ended September 30, 2018 and 2019, respectively.
FI Share and Other Third-Party Costs
We report our revenue on our condensed consolidated statements of operations gross of FI Share. FI Share costs are included in FI Share and other third-party costs in our condensed 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


12

Table of Contents

4.     DEBT
Our debt consists of the following (in thousands):
 
December 31, 2018
 
September 30, 2019
Lines of credit
$
26,677

 
$

Term loans(1)
19,980

 

Capital leases
57

 
42

Total debt
46,714

 
42

Less current portion of long-term debt
(21
)
 
(23
)
Long-term debt, net of current portion
$
46,693

 
$
19


(1)
Net of unamortized debt issuance costs of $20 and $0 as of December 31, 2018 and September 30, 2019, respectively.
2018 Loan Facility
On May 14, 2019, we amended our loan facility with Pacific Western Bank ("2018 Loan Facility") to increase the capacity of our asset-based revolving line of credit (“2018 Line of Credit”), from $30.0 million to $40.0 million, and decrease the capacity of our term loan (“2018 Term Loan”) from $20.0 million to $10.0 million. This amendment also extended the maturity date of the 2018 Loan Facility from May 21, 2020 to May 14, 2021. We repaid $10.0 million of the principal balance of the 2018 Term Loan upon the execution of the amendment in May 2019 and repaid the remaining $10.0 million principal balance in September 2019. In September 2019, we reduced our outstanding borrowings under our 2018 Line of Credit by $26.7 million. The 2018 Loan Facility does not include any prepayment penalties.
On March 27, 2019, we amended the 2018 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, during the term of the facility. The moving 12-month billings covenant was $225.0 million for September 2019. The 2018 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.
Under the amended terms of the 2018 Loan Facility relating to the 2018 Line of Credit, we are able to borrow up to the lesser of $40.0 million or 85% of the amount of our eligible accounts receivable. Interest on advances under the 2018 Line of Credit bears an interest rate equal to the prime rate minus 0.50%, or 4.50% as of September 30, 2019. In addition, we are required to pay an unused line fee of 0.15% per annum on the average daily unused amount of the $40.0 million revolving commitment. Interest accrued on the 2018 Term Loan at an annual rate of interest equal to the prime rate minus 2.75%, or 2.50% at the date of repayment in September 2019.
The 2018 Loan Facility includes customary representations, warranties and covenants (affirmative and negative), including restrictive covenants that prohibits mergers, acquisitions and dispositions of assets, incurrence of indebtedness and encumbrances on our assets and the payment or declaration of dividends; in each case subject to specified exceptions.
The 2018 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 2018 Loan Facility and increase the interest rate otherwise applicable to advances under the 2018 Line of Credit by an additional 3.00%. All of our obligations under the 2018 Loan Facility are secured by a first priority lien on substantially all of our assets.
As of September 30, 2019, we had $40.0 million of unused available borrowings under our 2018 Line of Credit. We were in compliance with all financial covenants as of September 30, 2019.
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)
$

 
$
5

 
$
5

2020

 
24

 
24

2021

 
13

 
13

Total debt
$

 
$
42

 
$
42

 


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5.     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
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2019
 
2018
 
2019
Delivery costs
$
203

 
$
176

 
$
471

 
$
539

Sales and marketing expense
1,939

 
1,432

 
5,550

 
3,091

Research and development expense
915

 
638

 
3,141

 
1,204

General and administration expense
2,666

 
5,240

 
7,806

 
7,432

Total stock-based compensation expense
$
5,723

 
$
7,486

 
$
16,968

 
$
12,266


During each of the nine months ended September 30, 2018 and 2019, we capitalized less than $0.1 million of stock-based compensation expense for software development.
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:
 
Shares
(in thousands)
 
Weighted-Average Exercise Price
 
Weighted Average Remaining Vesting Period (in years)
 
Aggregate Intrinsic Value(1)
(in thousands)
Options outstanding — December 31, 2018
1,774

 
$
20.55

 
2.01
 
$
1,214

Granted
39

 
20.64

 
 
 
 
Exercised
(215
)
 
13.25

 
 
 
 
Forfeited
(28
)
 
23.82

 
 
 
 
Canceled
(65
)
 
22.36

 
 
 
 
Options outstanding — September 30, 2019
1,505

 
21.46

 
1.33
 
$
18,871

Exercisable — September 30, 2019
1,195

 
$
20.70

 
 
 
 

(1)
The aggregate intrinsic value represents the total pre-tax intrinsic value based on the $10.83 and $33.52 per share closing price of our common stock as reported on the Nasdaq Global Market on December 31, 2018 and September 30, 2019, respectively, that would have been received by option holders had all in-the-money options been exercised on that date.
The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2018 and 2019 was $10.00 and $0.47 per share, respectively. The total fair value of options vested during the nine months ended September 30, 2018 and 2019 was approximately $5.0 million and $3.2 million, respectively. As of September 30, 2019, unamortized stock-based compensation expense related to unvested common stock options was $3.6 million, and the weighted-average period over which such stock-based compensation expense will be recognized was 1.3 years.


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Restricted Stock Units
We grant restricted stock units ("RSUs") to employees and our non-employee directors. A summary of RSU activity, inclusive of performance-based RSUs, is as follows:
 
Shares
(in thousands)
 
Weighted-Average Grant Date Fair Value
 
Weighted-Average Remaining Vesting Period (in years)
 
Unamortized Compensation Costs
(in thousands)
Unvested — December 31, 2018
381

 
$
18.11

 
2.42
 
$
4,536

Granted
1,792

 
15.86

 
 
 
 
Vested(1)
(324
)
 
14.65

 
 
 
 
Forfeited
(112
)
 
19.02

 
 
 
 
Unvested — September 30, 2019
1,737

 
$
16.38

 
3.06
 
$
21,519


(1)
Includes 160 RSUs that have vested but have not been settled.
During the nine months ended September 30, 2019, we granted 539,523 RSUs, exclusive of performance-based RSUs, to employees and non-employee directors, which have annual vesting periods ranging from one to four years.
Subsequent to September 30, 2019, we granted 186,309 RSUs to employees. The unamortized stock-based compensation expense related to these RSUs is $6.8 million.
Performance-based RSUs
In February 2018, we granted 875,000 performance-based restricted stock units ("2018 PSUs"). We recognized $6.9 million in stock-based compensation expense during the nine months ended September 30, 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.
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. Adjusted EBITDA and adjusted contribution are performance metrics defined within Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." In August 2019, the Compensation Committee of our Board of Directors certified that the target minimum trailing 30-day average closing price of our common stock was achieved resulting in the immediate vesting of 50% of the related PSU tranche.
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 are accomplished through participation in discrete offering periods. On each purchase date, participating employees 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. During the nine months ended September 30, 2019, 93,584 shares of common stock were 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.


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6.    COMMON STOCK WARRANTS
We have granted warrants to purchase shares of our common stock to certain FI partners that include both time-based and performance-based vesting conditions. These warrants are accounted for under ASC Topic 505-50, Equity-Based Payments to Non-Employees. Since the performance conditions contained in these warrants are directly related to revenue-producing activities, we incur non-cash expense in FI Share and other third-party costs on our consolidated statements of operations based on the vesting-date fair value of our common stock underlying these warrants.
A summary of common stock warrant activity is as follows (in thousands, except per share amounts):
 
Shares
 
Weighted-average
exercise price
per share
Warrants outstanding — December 31, 2018
868

 
$
21.89

Exercised
(821
)
 
21.89

Forfeited/canceled
(34
)
 
21.29

Warrants outstanding — September 30, 2019
13

 
$
23.64


7.     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.
In September 2019, FIS exercised all of their warrants to purchase common stock, resulting in cash proceeds of $15.2 million and the issuance of 644,365 shares of our common stock.
8.     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 FI 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, $3.5 million of which has been recovered through September 30, 2019.


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The following table presents changes in deferred FI implementation costs (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2019
 
2018
 
2019
Beginning balance
$
12,425

 
$
12,181

 
$
13,625

 
$
15,877

Deferred costs
3,500

 

 
5,750

 

Recoveries through FI Share
(1,344
)
 
(1,157
)
 
(4,036
)
 
(3,469
)
Amortization
(378
)
 
(789
)
 
(1,136
)
 
(2,173
)
Ending balance
$
14,203

 
$
10,235

 
$
14,203

 
$
10,235


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 September 30, 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.
9.     EARNINGS PER SHARE
Diluted net loss per share is the same as basic net loss per share for the three and nine months ended September 30, 2018 and 2019 because the effects of potentially dilutive items were anti-dilutive, given our net loss during these periods. The following securities as of September 30, 2018 and September 30, 2019 have been excluded from the calculation of diluted weighted-average common shares outstanding because the effect is anti-dilutive (in thousands):
 
September 30,
 
2018
 
2019
Common stock options
1,862

 
1,505

Common stock warrants
868

 
13

Unvested restricted stock units
1,200

 
1,737

Common stock issuable pursuant to the ESPP
151

 
49


10.     SEGMENTS
As of September 30, 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 have not and 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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2019
 
2018
 
2019
Cardlytics Direct:
 
 
 
 
 
 
 
Adjusted contribution
$
16,906

 
$
24,738

 
$
47,368

 
$
64,216

Plus: Adjusted FI Share and other third-party costs(1)
17,514

 
31,681

 
54,271

 
76,921

Revenue
$
34,420

 
$
56,419

 
$
101,639

 
$
141,137

Other Platform Solutions:
 
 
 
 
 
 
 
Adjusted contribution
$
72

 
$

 
$
3

 
$

Plus: Adjusted FI Share and other third-party costs(1)
90

 

 
1,223

 

Revenue
$
162

 
$

 
$
1,226

 
$

Total:
 
 
 
 
 
 
 
Adjusted contribution
$
16,978

 
$
24,738

 
$
47,371

 
$
64,216

Plus: Adjusted FI Share and other third-party costs(1)
17,604

 
31,681

 
55,494

 
76,921

Revenue
$
34,582

 
$
56,419

 
$
102,865

 
$
141,137


(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 adjusted contribution.

Adjusted Contribution
Adjusted contribution measures the degree by which revenue generated from our marketers exceeds the cost to obtain the purchase data and the digital advertising space from our FI partners. Adjusted contribution demonstrates how incremental marketing spend on our platform generates incremental amounts to support our sales and marketing, research and development, general and administration and other investments. Adjusted contribution is calculated by taking our total revenue less our FI Share and other third party costs exclusive of a non-cash equity expense and amortization of deferred FI implementation costs, which are non-cash costs. Adjusted contribution does not take into account all costs associated with generating revenue from advertising campaigns, including sales and marketing expenses, research and development expenses, general and administrative expenses and other expenses, which we do not take into consideration when making decisions on how to manage our advertising campaigns.


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The following table presents a reconciliation of loss before income taxes presented in accordance with GAAP to adjusted contribution (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2019
 
2018
 
2019
Adjusted contribution
$
16,978

 
$
24,738

 
$
47,371

 
$
64,216

Minus:

 

 

 

Non-cash equity expense included in FI Share(1)

 

 
2,519

 

Amortization of deferred FI implementation costs(1)
378

 
789

 
1,136

 
2,173

Delivery costs
3,007

 
3,070

 
7,509

 
9,686

Sales and marketing expense
9,452

 
11,074

 
27,915

 
31,458

Research and development expense
4,097

 
3,018

 
12,444

 
8,741

General and administration expense
7,925

 
12,218

 
23,486

 
27,558

Depreciation and amortization expense
777

 
1,167

 
2,471

 
3,181

Total other expense (income)
(290
)
 
1,149

 
11,367

 
1,990

Loss before income taxes
$
(8,368
)
 
$
(7,747
)
 
$
(41,476
)
 
$
(20,571
)

(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 adjusted contribution.
The following table provides geographical information (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2019
 
2018
 
2019
Revenue:
 
 
 
 
 
 
 
United States
$
30,884

 
$
50,997