OVERVIEW OF BUSINESS AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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 operate an advertising platform within our own and our partners' digital channels, which includes online, mobile applications, email, and various real-time notifications (the "Cardlytics platform"). We also operate a customer data platform that utilizes point-of-sale data, including product-level purchase data, to enable marketers, in a privacy-protective manner, to perform analytics and targeted loyalty marketing and to measure the impact of their marketing (the "Bridg platform"). The partners for the Cardlytics platform are predominantly financial institutions ("FI partners") that provide us with access to their anonymized purchase data and digital banking customers. The partners for the Bridg platform are merchants that provide us with access to their point-of-sale data, including product-level purchase data. By applying advanced analytics to the purchase data we receive, we make it actionable, helping marketers reach potential buyers at scale, and measure the true sales impact of their marketing spend. We have strong relationships with leading marketers across a variety of industries, including retail, restaurant, travel and entertainment, direct-to-consumer, and grocery and gas. Using our purchase intelligence, we present customers with offers to save money at a time when they are thinking of their finances.

We also operate through (1) Dosh Holdings, LLC, a wholly owned and operated subsidiary in the United States, (2) HSP EPI Acquisition, LLC ("Entertainment"), a wholly owned and operated subsidiary in the United States, (3) Cardlytics UK Limited, a wholly owned and operated subsidiary registered as a private limited company in England and Wales, and (4) Cardlytics Services India Private Limited, a wholly owned and operated subsidiary registered as a private limited company in India.

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. During the three and six months ended June 30, 2021, a charge of $1.5 million was previously recognized in Change in fair value of contingent consideration and classified below Operating Loss in the Company’s Condensed Consolidated Statements of Operations. The classification of the charge has been corrected, such that the Change in fair value of contingent consideration is now classified within Operating Loss in the Company’s Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021. These corrections did not impact Loss before income taxes, Net loss and Net loss attributable to common stockholders in the Condensed Consolidated Statement of Operations and had no impact on the Company's Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Comprehensive Loss, Condensed Consolidated Statements of Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows. 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") and Form 10-K/A for the fiscal year ended December 31, 2021.

Stock Repurchases

On May 11,2022, our Board of Directors authorized a stock repurchase program to repurchase up to $40.0 million of our common stock. From May 11 to June 30, 2022, we paid $40.0 million to repurchase 1,405,655 shares of our common stock at an average cost of $28.44 per share and immediately canceled the repurchased shares.

Restructuring

During the three months ended June 30, 2022, we began a strategic shift within our organization to migrate certain data and applications to a cloud computing environment. This transition resulted in severance and medical benefits totaling $1.0 million, as a result of a headcount reduction because cloud hosting improved data management efficiencies. This expense is included in Delivery costs on our Consolidated Statement of Operations.

Acquisitions

On January 7, 2022, we purchased Entertainment for $13.0 million in equity at an agreed-upon price of $66.52 per share, subject to $1.1 million of fair value adjustments based on the acquisition close date, and $2.3 million in cash, subject to $0.4 million of adjustments, for an acquisition date fair value of $14.6 million.

On May 5, 2021, we completed the acquisition of Bridg for purchase consideration of $578.9 million. The purchase consideration consisted of a $350.0 million cash purchase price, subject to $2.8 million of adjustments and escrows, and contingent consideration with a fair value of $230.9 million at the time of the acquisition related to additional potential future payments. At least 30% of the potential future payments will be in cash, with the remainder to be paid in cash or our common stock, at our option.

On March 5, 2021, we completed the acquisition of Dosh for purchase consideration of $277.6 million in a combination of cash and common stock. The total purchase consideration consisted of a $150.0 million cash purchase price, subject to $6.6 million of adjustments and escrows, and $125.0 million of shares of our common stock at an agreed-upon price of $136.33 per share, subject to $7.6 million of fair value adjustments based upon our close date, for an acquisition date fair value of $117.4 million.

Refer to Note 3 - Business Combinations for further information.

Public Offering of Common Stock

On March 5, 2021, we closed a public equity offering in which we sold 3,850,000 shares of common stock at a public offering price of $130.00 per share for total gross proceeds of $500.5 million. We received total net proceeds of $484.0 million after deducting underwriting discounts and commissions of $16.3 million and offering costs of $0.2 million.

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, stock-based compensation, allowance for doubtful accounts, valuation of acquired intangible assets, valuation of contingent consideration for Bridg, goodwill impairment, income tax including valuation allowance and contingencies. We base our estimates on historical experience and 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.

Leases

We have various non-cancellable operating and finance leases for our office spaces, data centers and operational assets with lease periods expiring between 2022 and 2025.

Lease assets and liabilities, net, are as follows (in thousands):


Lease Type	Consolidated Balance Sheets Location	December 31, 2021		June 30, 2022
Operating lease assets	Right-of-use assets under operating leases, net	$	10,196	$	10,304
Finance lease assets	Property and equipment, net	86		66
Total lease assets		10,282		10,370

Operating lease liabilities, current	Current operating lease liabilities	6,028		6,091
Operating lease liabilities, long-term	Long-term operating lease liabilities	6,801		6,382
Finance lease liabilities, current	Accrued expenses	36		37
Finance lease liabilities, long-term	Other long-term liabilities	50		28
Total lease liabilities		$	12,915	$	12,538

Impacts of COVID-19 Pandemic

The COVID-19 pandemic resulted in a global slowdown of economic activity that disrupted supply and demand for a broad variety of goods and services and consumer discretionary spending, and increased inflationary pressure, including spending by consumers with our marketers. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. Actual results could differ from those estimates and any such differences may be material to our financial statements. Due to continuing uncertainty regarding the severity and duration of the impacts of COVID-19 on the global economy, we will continue to monitor this situation and the potential impacts to our business.