Cardlytics, Inc. [CDLX] Filings

10-Q 1 cdlx-20220630.htm 10-Q cdlx-20220630

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 June 30, 2022


☐			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, 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 preceding 12 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 July 31, 2022, there were 32,893,805 shares outstanding of the registrant’s common stock, par value $0.0001.

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CARDLYTICS, INC.

QUARTERLY REPORT ON FORM 10-Q

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		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)	5
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
Item 6.	Exhibits	79
Signatures		80

RISK FACTORS SUMMARY

Our business is subject to a number of risks and uncertainties, including those risks discussed at-length in the section below titled “Risk Factors.” These risks include, among others, the following:

Risks Related to our Business and Industry

•The ongoing COVID-19 pandemic could materially and adversely affect our business, results of operations and financial condition.

•Unfavorable conditions in the global economy or the industries we serve could limit our ability to grow our business and negatively affect our operating results.

•Our quarterly operating results have fluctuated and may continue to vary from period to period, which could result in our failure to meet expectations with respect to operating results and cause the trading price of our stock to decline.

•We may not be able to sustain our revenue and billings growth rate in the future.

•We are dependent upon the Cardlytics platform.

•If we fail to identify and respond effectively to rapidly changing technology and industry needs, our solutions may become less competitive or obsolete.

•We are substantially dependent on Chase, Bank of America, Wells Fargo and a limited number of other FI partners.

•The market in which we participate is competitive, and we may not be able to compete successfully with our current or future competitors.

•If we are unable to successfully integrate Dosh’s, Bridg’s and Entertainment's businesses and employees, it could have an adverse effect on our future results and the market price of our common stock.

•We have identified a material weakness in our internal control over financial reporting, and if our remediation of such material weakness is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.

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Risks Related to our Outstanding Convertible Senior Notes

•Servicing our debt may require a significant amount of cash. We may not have sufficient cash flow from our business to pay our indebtedness, and we may not have the ability to raise the funds necessary to settle for cash conversions of the Notes or to repurchase the Notes for cash upon a fundamental change, which could adversely affect our business and results of operations.

•We are subject to counterparty risk with respect to the Capped Calls.

Risks Related to Regulatory and Intellectual Property Matters

•Legislation and regulation of online businesses, including privacy and data protection regimes, are expansive, not clearly defined and rapidly evolving. Such regulation could create unexpected costs, subject us to enforcement actions for compliance failures, or restrict portions of our business or cause us to change our business model.

•Failure to protect our proprietary technology and intellectual property rights could substantially harm our business, financial condition and operating results.

Risks Related to Ownership of our Common Stock

•The market price of our common stock has been and is likely to continue to be volatile.

•Anti-takeover provisions in our charter documents and under Delaware law could make acquiring us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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CARDLYTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except par value amounts)


	December 31, 2021		June 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	233,467	$	157,038
Restricted cash	95		81
Accounts receivable and contract assets, net	111,085		92,206

Other receivables	6,097		4,955
Prepaid expenses and other assets	7,981		9,658
Total current assets	358,725		263,938
Long-term assets:
Property and equipment, net	11,273		8,619
Right-of-use assets under operating leases, net	10,196		10,304
Intangible assets, net	125,550		121,047
Goodwill	742,516		665,813
Capitalized software development costs, net	13,131		16,680

Other long-term assets, net	2,406		3,106
Total assets	$	1,263,797	$	1,089,507
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	4,619	$	2,810

Accrued liabilities:
Accrued compensation	12,136		9,634
Accrued expenses	19,620		20,963
Partner Share liability	46,595		42,176
Consumer Incentive liability	52,602		42,923
Deferred revenue	3,280		4,654

Current operating lease liabilities	6,028		6,091

Current contingent consideration	182,470		164,277

Total current liabilities	327,350		293,528
Long-term liabilities:
Convertible senior notes, net	184,398		225,314
Long-term operating lease liabilities	6,801		6,382

Deferred liabilities	173		98
Long-term contingent consideration	49,825		—
Other long-term liabilities	4,550		28
Total liabilities	$	573,097	$	525,350



Stockholders’ equity:
Common stock, $0.0001 par value—100,000 shares authorized, and 33,534 and 32,883 shares issued and outstanding as of December 31, 2021 and June 30, 2022, respectively	$	9	$	9
Additional paid-in capital	1,212,823		1,163,126

Accumulated other comprehensive income	486		5,580
Accumulated deficit	(522,618)		(604,558)
Total stockholders’ equity	690,700		564,157
Total liabilities and stockholders’ equity	$	1,263,797	$	1,089,507

See notes to the condensed consolidated financial statements

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CARDLYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2022		2021		2022
Revenue	$	58,853	$	75,405	$	112,083	$	143,333
Costs and expenses:
Partner Share and other third-party costs	29,953		40,280		59,724		75,433
Delivery costs	5,748		8,162		9,686		14,695
Sales and marketing expense	17,063		21,983		30,265		39,631
Research and development expense	8,934		13,581		15,152		25,872
General and administration expense	16,888		20,984		29,063		41,409
Acquisition and integration costs (benefit)	14,182		2,197		21,212		(2,401)
Change in fair value of contingent consideration	1,480		(2,968)		1,480		(68,018)
Goodwill impairment	—		83,149		—		83,149
Depreciation and amortization expense	8,833		10,356		11,898		20,227

Total costs and expenses	103,081		197,724		178,480		229,997
Operating loss	(44,228)		(122,319)		(66,397)		(86,664)
Other (expense) income:
Interest expense, net	(3,078)		(879)		(6,123)		(1,826)



Foreign currency (loss) gain	—		(4,538)		319		(6,208)
Total other expense	(3,078)		(5,417)		(5,804)		(8,034)
Loss before income taxes	(47,306)		(127,736)		(72,201)		(94,698)
Income tax benefit	—		1,446		—		1,446
Net loss	(47,306)		(126,290)		(72,201)		(93,252)

Net loss attributable to common stockholders	$	(47,306)	$	(126,290)	$	(72,201)	$	(93,252)
Net loss per share attributable to common stockholders, basic and diluted	$	(1.43)	$	(3.75)	$	(2.32)	$	(2.77)
Weighted-average common shares outstanding, basic and diluted	32,977		33,635		31,145		33,688

See notes to the condensed consolidated financial statements

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CARDLYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(Amounts in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2022		2021		2022
Net loss	$	(47,306)	$	(126,290)	$	(72,201)	$	(93,252)
Other comprehensive (loss) income:

Foreign currency translation adjustments	(164)		3,727		(460)		5,094
Total comprehensive loss	$	(47,470)	$	(122,563)	$	(72,661)	$	(88,158)

See notes to the condensed consolidated financial statements

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CARDLYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands)

Six Months Ended June 30, 2022:


				Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total
	Common Stock
	Shares	Amount
Balance – December 31, 2021	33,534	$	9	$	1,212,823	$	486	$	(522,618)	$	690,700
Cumulative effect upon adoption of ASU 2020-06	—	—		(51,417)		—		11,312		(40,105)
Exercise of common stock options	23	—		421		—		—		421

Stock-based compensation	—	—		27,859		—		—		27,859
Settlement of restricted stock	504	—		—		—		—		—
Common stock purchase consideration for the acquisition of Entertainment	173	—		11,937		—		—		11,937


Issuance of common stock pursuant to the ESPP	55	—		1,503		—		—		1,503
Repurchase and cancellation of common stock	(1,406)	—		(40,000)		—		—		(40,000)











Other comprehensive income	—	—		—		5,094		—		5,094
Net loss	—	—		—		—		(93,252)		(93,252)
Balance – June 30, 2022	32,883	$	9	$	1,163,126	$	5,580	$	(604,558)	$	564,157

Three Months Ended June 30, 2022:


				Additional Paid-In Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total
	Common Stock
	Shares	Amount
Balance – March 31, 2022	33,790	$	9	$	1,188,076	$	1,853	$	(478,268)	$	711,670

Exercise of common stock options	11	—		226		—		—		226

Stock-based compensation	—	—		13,321		—		—		13,321
Settlement of restricted stock	433	—		—		—		—		—




Issuance of common stock pursuant to the ESPP	55	—		1,503		—		—		1,503


Repurchase and cancellation of common stock	(1,406)	—		(40,000)		—		—		(40,000)




Other comprehensive income	—	—		—		3,727		—		3,727
Net loss	—	—		—		—		(126,290)		(126,290)
Balance – June 30, 2022	32,883	$	9	$	1,163,126	$	5,580	$	(604,558)	$	564,157

See notes to the condensed consolidated financial statements

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Six Months Ended June 30, 2021:


				Additional Paid-In Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total
	Common Stock
	Shares	Amount
Balance – December 31, 2020	27,861	$	8	$	551,429	$	(192)	$	(394,053)	$	157,192

Exercise of common stock options	84	—		1,456		—		—		1,456

Stock-based compensation	—	—		20,937		—		—		20,937
Settlement of restricted stock	303	—		—		—		—		—
Issuance of common stock	3,850	—		484,049		—		—		484,049
Common stock purchase consideration for the acquisition of Dosh	904	—		117,349		—		—		117,349
Fair value of assumed Dosh options attributable to pre-combination service	—	—		3,593		—		—		3,593
Fair value of assumed Bridg options attributable to pre-combination service	—	—		840		—		—		840

Issuance of common stock pursuant to the ESPP	21	—		1,637		—		—		1,637








Other comprehensive loss	—	—		—		(460)		—		(460)
Net loss	—	—		—		—		(72,201)		(72,201)
Balance – June 30, 2021	33,023	$	8	$	1,181,290	$	(652)	$	(466,254)	$	714,392

Three Months Ended June 30, 2021:


				Additional Paid-In-Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
	Common Stock
	Shares	Amount
Balance – March 31, 2021	31,770	$	8	$	1,164,320	$	(488)	$	(418,948)	$	744,892

Exercise of common stock options	53	—		951		—		—		951

Stock-based compensation	—	—		13,542		—		—		13,542
Settlement of restricted stock	275	—		—		—		—		—

Common stock purchase consideration for the acquisition of Dosh	904	—		—		—		—		—
Fair value of assumed Dosh options attributable to pre-combination service	—	—		840		—		—		840

Issuance of common stock pursuant to the ESPP	21	—		1,637		—		—		1,637








Other comprehensive loss	—	—		—		(164)		—		(164)
Net loss	—	—		—		—		(47,306)		(47,306)
Balance – June 30, 2021	33,023	$	8	$	1,181,290	$	(652)	$	(466,254)	$	714,392

See notes to the condensed consolidated financial statements

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CARDLYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)


	Six Months Ended June 30,
	2021		2022
Operating activities
Net loss	$	(72,201)	$	(93,252)
Adjustments to reconcile net loss to net cash used in operating activities:
Credit loss expense	1,156		1,041
Depreciation and amortization	11,898		20,227
Amortization of financing costs charged to interest expense	448		790
Accretion of debt discount and non-cash interest expense	4,680		—

Amortization of right-of-use assets	2,354		2,939
Stock-based compensation expense	20,585		26,427
Goodwill impairment	—		83,149
Change in fair value of contingent consideration	1,480		(68,018)


Other non-cash (income) expense, net	(279)		6,087
Deferred implementation costs	1,612		—
Income tax benefit	—		(1,446)
Change in operating assets and liabilities:
Accounts receivable	10,209		19,663
Prepaid expenses and other assets	(1,896)		(1,885)


Accounts payable	2,021		(1,821)
Other accrued expenses	2,021		(5,770)

Partner Share liability	(8,768)		(4,821)
Consumer Incentive liability	(2,830)		(9,679)
Net cash used in operating activities	(27,510)		(26,369)
Investing activities
Acquisition of property and equipment	(1,790)		(889)
Acquisition of patents	(58)		(57)
Capitalized software development costs	(4,431)		(6,083)
Business acquisition, net of cash acquired	(494,131)		(2,274)
Net cash used in investing activities	(500,410)		(9,303)
Financing activities

Principal payments of debt	(11)		(21)


Proceeds from issuance of common stock	485,690		393
Deferred equity issuance costs	(190)		—
Repurchase of common stock	—		(40,000)
Debt issuance costs	(86)		(174)
Net cash received from (used in) financing activities	485,403		(39,802)
Effect of exchange rates on cash, cash equivalents and restricted cash	(118)		(969)
Net decrease in cash, cash equivalents and restricted cash	(42,635)		(76,443)
Cash, cash equivalents, and restricted cash — Beginning of period	293,349		233,562
Cash, cash equivalents, and restricted cash — End of period	$	250,714	$	157,119

See notes to the condensed consolidated financial statements

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CARDLYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)


	Six Months Ended June 30,
	2021		2022
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet:
Cash and cash equivalents	$	250,603	$	157,038
Restricted cash	111		81
Total cash, cash equivalents and restricted cash — End of period	$	250,714	$	157,119

Supplemental schedule of non-cash investing and financing activities:
Cash paid for interest	$	1,139	$	1,188



Common stock purchase consideration for the acquisition of Dosh	$	117,354	$	—
Common stock purchase consideration for acquisition of Entertainment	$	—	$	11,937
Amounts accrued for property and equipment and capitalized software development costs	$	390	$	—

See notes to the condensed consolidated financial statements

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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 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.

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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.

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2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING STANDARDS

Significant Accounting Policies

There have been no changes to our significant accounting policies, other than the standards adopted below. 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, 2021, 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 Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion Options (“Subtopic 470-20”) and Derivatives and Hedging—Contracts in Entity’s Own Equity (“Subtopic 815-40”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. ASU 2020-06 also improves and amends the related Earnings Per Share guidance for both Subtopics. The ASU is part of the FASB's simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP, as it removes the requirement to bifurcate our Convertible Senior Notes (the "Notes") into a separate liability and equity component. As a result, it more closely aligns the effective interest rate with the coupon rate of the Notes. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2021. On January 1, 2022, we adopted this standard using the modified retrospective method which allowed for a cumulative-effect adjustment to the opening balance sheet without restating prior periods. As we did not elect the fair value option in the process, the Notes, net of issuance costs, are accounted for as a single liability measured at amortized cost. Upon adoption, we recorded a decrease in accumulated deficit of $11.3 million, an increase to convertible senior notes, net of $40.1 million and a decrease to additional paid in capital of $51.4 million. Refer to Note 6, “Debt and Financing Arrangements” for further information about the Notes.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which require an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Topic 606, at fair value on the acquisition date. ASU 2020-08 will be effective for annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in an interim period. On January 1, 2022 we early adopted this standard with no material impact to our financial statements.

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3. BUSINESS COMBINATIONS

Our acquisitions were accounted for as business combinations and the total purchase consideration of each was allocated to the net tangible and intangible assets and liabilities acquired based on their fair values on the acquisition dates with the remaining amounts recorded as goodwill. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q may be adjusted during the measurement period for each acquisition of up to 12 months from the dates of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.

During the three and six months ended June 30, 2021 we incurred $14.2 million and $21.2 million of costs in connection with our acquisitions, respectively. During the three and six months ended June 30, 2022 we incurred $2.2 million cost and $2.4 million of benefit in connection with our acquisitions, respectively. These costs are included in acquisition and integration costs (benefit) on our condensed consolidated statements of operations and primarily represent legal, accounting and broker fees. The results of Entertainment have been included in the consolidated financial statements since its date of acquisition. For the three and six months ended June 30, 2022, Entertainment's combined revenue included in the consolidated statement of operations was approximately 3% of consolidated revenue, respectively. Due to the continued integration of the combined businesses, it was impractical to determine the earnings.

For the acquisitions of Dosh, Bridg and Entertainment, as applicable, the estimated fair values of merchant relationships, partner relationships, and the card-linked subscriber base were determined using the replacement cost method and lost profits, as applicable, which required us to estimate the costs to recreate an asset of equivalent utility at prices available at the time of the valuation analysis and the lost profits over the period of time to recreate the asset. Trade names were valued using the "relief-from-royalty" approach. This method assumes that trademarks and trade names have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method required us to estimate the future revenues for the related brands, the appropriate royalty rates and the weighted-average costs of capital. Developed technology for Entertainment was valued using the replacement cost method, which required us to estimate the costs to recreate an asset of equivalent utility at prices available at the time of the valuation analysis. Developed technology for Dosh and Bridg was valued using the excess earnings method, an income approach. Under the excess earnings method, the fair value of an intangible asset is equal to the present value of the asset’s projected incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of return on the estimated value of contributory assets (contributory charge) over its remaining useful life.

Acquisition of Entertainment

On January 7, 2022, we completed the acquisition of Entertainment for purchase consideration of $14.6 million, as presented below (in thousands):


	January 7, 2022
Fair value of common stock transferred	$	11,937
Cash paid to extinguish acquiree debt	2,053
Cash paid to settle pre-acquisition liabilities and acquiree deal-related costs	624
Cash paid to membership interest holders	24
Cash receivable from membership interest holders pursuant to finalization of net working capital	(61)
Total purchase consideration	$	14,577

The following table presents the preliminary purchase consideration allocation recorded on our condensed consolidated balance sheet as of the acquisition date (in thousands):


	January 7, 2022
Cash and cash equivalents	$	376
Accounts receivable and other assets	1,259
Intangible assets	9,800
Goodwill	5,002
Accounts payable and other liabilities	(1,860)
Total purchase consideration	$	14,577

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The goodwill was primarily attributed to the value of future synergies created with our current and future offerings. Goodwill is not expected to be deductible for income tax purposes. During the second quarter of 2022, we recorded a measurement period adjustment of $0.1 million cash to be received from membership interest holders related to the finalization of net working capital amounts in accordance with the Entertainment membership interest purchase agreement.

The following table presents the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands):


	Fair Value		Useful life (in years)
Trade name	$	800	3.0
Developed technology	700		3.0
Merchant relationships	8,300		4.0

Acquisition of Bridg

On May 5, 2021, we completed the acquisition of Bridg for purchase consideration of $578.9 million, as presented below (in thousands):


	May 5, 2021
Cash paid to common and preferred stockholders, warrant holders and vested option holders	$	337,166
Cash paid to extinguish acquiree debt	1,949
Cash paid to settle pre-acquisition liabilities and acquiree deal-related costs	8,012
Fair value of contingent consideration	230,921
Fair value of assumed options attributable to pre-combination service	841
Total purchase consideration	$	578,889

The following table presents the purchase consideration allocation recorded on our condensed consolidated balance sheet as of the acquisition date (in thousands):


	May 5, 2021
Cash and cash equivalents	$	1,630
Accounts receivable and other assets	1,989
Intangible assets	64,700
Goodwill	538,271
Accounts payable and other liabilities	(20,694)
Deferred tax liabilities	(7,007)
Total purchase consideration	$	578,889

The goodwill was primarily attributed to the value of future growth expected for the Bridg platform and of synergies created with our current and future offerings. Goodwill is not expected to be deductible for income tax purposes. During the three months ended June 30, 2022, management determined that it was necessary to perform an interim impairment test for Goodwill, and as a result of our test, we recognized a goodwill impairment of $83.1 million on the Bridg Platform reporting unit. Refer to Note 4 - Goodwill and Acquired Intangibles for more information. During the second quarter of 2022, we recorded a measurement period adjustment to our income tax provision resulting in $1.4 million income tax benefit reflected on our consolidated statement of operations. Deferred tax liabilities for Bridg primarily related to acquired intangible assets.

As a part of this acquisition, we have agreed to make a First Anniversary Payment equal to 20 times the ARR based on the month preceding the anniversary, less $12.5 million, and a Second Anniversary Payment equal to 15 times the ARR for customers as of the first anniversary based on the month preceding the second anniversary, less the prior ARR at the first anniversary. The Second Anniversary Payment is subject to a specified cap. We have agreed to pay at least 30% of the First Anniversary Payment and the Second Anniversary Payment in cash, with the remainder to be paid in cash or our common stock, at our option. As of June 30, 2022, the fair value of the brokerage fee of the First Anniversary Payment is $6.9 million and the fair value of the brokerage fee of the Second Anniversary Payment is $6.6 million, reflected in accrued expenses on our condensed consolidated balance sheet.

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The following table presents the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands):


	Fair Value		Useful life (in years)
Trade name	$	200	2.0
Developed technology	53,500		6.0
Merchant relationships	11,000		5.0

Acquisition of Dosh

On March 5, 2021, we completed our acquisition of Dosh for purchase consideration of $277.6 million, as presented below (in thousands):


	March 5, 2021
Cash paid to common and preferred stockholders, warrant holders and vested option holders	$	136,626
Cash paid to extinguish acquiree debt	16,574
Cash paid to settle pre-acquisition liabilities and acquiree deal-related costs	3,463
Fair value of common stock transferred	117,354
Fair value of assumed options attributable to pre-combination service	3,593
Total purchase consideration	$	277,610

The following table presents the purchase consideration allocation recorded on our condensed consolidated balance sheet as of the acquisition date (in thousands):


	March 5, 2021
Cash and cash equivalents	$	7,323
Accounts receivable and other assets	6,146
Intangible assets	80,000
Goodwill	205,690
Accounts payable and other liabilities	(4,146)
Consumer Incentive liability	(15,101)
Deferred tax liabilities	(2,302)
Total purchase consideration	$	277,610

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and of future growth expected from the labor force of Dosh. Goodwill is not expected to be deductible for income tax purposes.

The following table presents the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands):


	Fair Value		Useful life (in years)
Trade name	$	2,500	3.0
Developed technology	37,500		6.0
Merchant relationships	21,000		5.0
Partner relationships	2,000		7.0
Card-linked subscriber user base	$	17,000	5.0

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Pro forma consolidated results of operations

The following unaudited pro forma financial information presents combined results of operations for the period presented as if the acquisition of Entertainment had been completed on January 1, 2021 and the acquisitions of Dosh and Bridg had been completed on January 1, 2020. The pro forma information includes adjustments to depreciation expense for property and equipment acquired, to amortize expense for the intangible assets acquired, and to eliminate the acquisition transaction expenses recognized in the period. The pro forma financial information is for informational purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisitions actually occurred on January 1, 2021 and January 1, 2020, respectively, or the results of future operations of the combined business. For instance, planned or expected operational synergies following the acquisition are not reflected in the pro forma information. Consequently, actual results will differ from the unaudited pro forma information presented below.


	Six Months Ended June 30,
	2021		2022
	(in thousands)
Revenue	$	124,511	$	143,354
Net loss	$	(85,428)	$	(93,524)

4. GOODWILL AND ACQUIRED INTANGIBLES

The changes in the carrying amount of goodwill for the six months ended June 30, 2022 are as follows (in thousands):


	Cardlytics Platform		Bridg Platform		Consolidated
Balance as of December 31, 2021	$	205,690	$	536,826	$	742,516
Goodwill additions due to acquisition of Entertainment	5,062		—		5,062
Measurement period adjustments	(61)		1,445		1,384
Goodwill impairments	—		(83,149)		(83,149)
Balance as of June 30, 2022	$	210,691	$	455,122	$	665,813

As a result of the sustained decline in our stock price during the three months ended June 30, 2022, we determined that it was necessary to perform an interim impairment test for goodwill as of June 30, 2022. The impairment test included determining whether the estimated fair value of each reporting unit exceeds its carrying value. If the carrying value exceeds the fair value of the reporting unit, the amount of impairment would equal the excess carrying value. As a result of our impairment test, we determined that the carrying value of the Bridg Platform reporting unit exceeded its fair value, and consequently, we recognized a goodwill impairment of $83.1 million.

The methods of determining fair value of the reporting units includes a combination between the income approach and the market approach. Key assumptions in applying the income approach includes determining appropriate revenue growth rates and margins, the timing of expected future cash flows and applying an appropriate discount rate that addresses the risk associated with the uncertainty of expected future cash flows. Key assumptions in applying the market approach includes determining appropriate guideline peer groups and public transaction revenue multiples. We believe that our procedures for determining fair value for each reporting unit are reasonable and consistent with current market conditions as of the testing date. However, markets are currently volatile and future developments are difficult to predict. If the markets that impact our business deteriorates, we could recognize further goodwill or other impairment charges.

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Acquired intangible assets subject to amortization as of June 30, 2022 were as follows:


	Cost		Accumulated Amortization		Net		Weighted Average Remaining Useful Life
	(in thousands)						(in years)
Trade name	$	3,500	$	(1,349)	$	2,151	1.8
Developed technology	91,700		(18,733)		72,967		4.8
Merchant relationships	40,300		(9,102)		31,198		3.7
Partner relationships	2,000		(378)		1,622		5.7
Card-linked subscriber user base	17,000		(4,503)		12,497		3.7
Total other intangible assets	$	154,500	$	(34,065)	$	120,435

Amortization expense of acquired intangibles during the three and six months ended June 30, 2022 was $7.2 million and $14.4 million, respectively.

Acquired intangible assets subject to amortization as of December 31, 2021 were as follows:


	Cost		Accumulated Amortization		Net		Weighted Average Remaining Useful Life
	(in thousands)						(in years)
Trade name	$	2,700	$	(753)	$	1,947	2.1
Developed technology	91,000		(11,026)		79,974		5.3
Merchant relationships	32,000		(4,900)		27,100		4.2
Partner relationships	2,000		(235)		1,765		6.2
Card-linked subscriber user base	17,000		(2,798)		14,202		4.2
Total other intangible assets	$	144,700	$	(19,712)	$	124,988

As of June 30, 2022, we expect amortization expense in future periods to be as follows (in thousands):


	Amount
2022 (remainder of year)	$	14,379
2023	28,695
2024	27,976
2025	27,336
2026	17,596
Thereafter	4,453
Total expected future amortization expense	$	120,435

5. REVENUE

The Cardlytics Platform

The Cardlytics platform 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 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. Consumer Incentives totaled $26.5 million and $32.3 million during the three months ended June 30, 2021 and 2022, respectively, and totaled $49.6 million and $62.6 million during the six months ended June 30, 2021 and 2022, respectively. We pay certain partners a negotiated and fixed percentage of our billings to marketers less any Consumer Incentives that we pay to partners’ customers and certain third-party data costs ("Partner Share"). Revenue on our consolidated statements of operation is presented net of Consumer Incentives and gross of Partner Share.

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We price our advertising campaigns 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 of all purchases from the marketer by consumers who (1) 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 advertising 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.

•CPR. Under our CPR pricing model, marketers generally specify and fund the Consumer Incentive and pay us a separate negotiated, fixed marketing fee for each purchase that we generate. We generally 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 following table summarizes revenue from the Cardlytics platform by pricing model (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2022		2021		2022
Cost per Served Sale	$	37,903	$	46,417	$	75,475	$	85,132
Cost per Redemption	18,453		20,712		33,760		43,731
Other	407		2,141		758		4,390
Cardlytics platform revenue	$	56,763	$	69,270

Cardlytics, Inc. [CDLX] Filings
10-Q	[2022-08-02]
10-Q	[2022-05-02]
10-K	[2022-03-01]
10-Q	[2021-11-02]
10-Q	[2021-08-03]
10-Q	[2021-05-04]
10-K	[2021-03-01]
10-Q	[2020-11-02]
10-Q	[2020-08-04]
10-Q	[2020-05-11]
10-K	[2020-03-03]
10-Q	[2019-11-12]
10-Q	[2019-08-08]
10-Q	[2019-05-09]
10-K	[2019-03-05]
10-Q	[2018-11-13]
10-Q	[2018-08-14]
10-Q	[2018-05-10]
10-K	[2018-03-19]
S-1	[2018-01-12]