CARDLYTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and management's discussion and analysis of financial condition and results of operations for the fiscal year endedDecember 31, 2021 included in our Annual Report on Form 10-K, filed with theSEC onMarch 1, 2022 . This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "will," "would" or the negative or plural of these words or similar expressions or variations, and such forward-looking statements include, but are not limited to, statements with respect to our business strategy, plans and objectives for future operations, including our expectations regarding our expenses; continued enhancements of our platform and new product offerings; our future financial and business performance; anticipated benefits of our acquisitions of Dosh,Bridg and Entertainment ; potential payments under the Merger Agreement with Bridg; anticipated Partner Share commitment shortfall penalty; and the uncertain negative impacts that COVID-19 may have on our business, financial condition, results of operations and changes in overall level of spending and volatility in the global economy. The events described in these forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled "Risk Factors," set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our otherSEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
Our company's mission is to redefine marketing by using data for good. We work to accomplish this mission by operating an advertising platform within our own and our partners' digital channels, which include online, mobile applications, email, and various real-time notifications (the "Cardlytics platform"). We also operate a customer data platform which utilizes point-of-sale ("POS") data, including product-level purchase data, to enable marketers, in a privacy-protective manner, to perform analytics and target loyalty marketing and also enable marketers to measure the impact of their marketing (the "Bridg platform"). The partners for theCardlytics platform are predominantly financial institutions ("FI partners") who provide us with access to their anonymized purchase data and digital banking customers. The partners for the Bridg platform are merchants ("merchant data partners") who provide us with access to their POS data, including product-level purchase data. By applying advanced analytics to the purchase data we receive, 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 have strong relationships with leading marketers across a variety of industries, including retail, restaurant, travel and entertainment, direct-to-consumer, and grocery and gas. Working with a marketer, we design a campaign that targets consumers 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 customers after they make qualifying purchases ("Consumer Incentives"). We report our revenue on our consolidated statements of operations net of Consumer Incentives since we do not provide the goods or services that are purchased by customers from the marketers to which the Consumer Incentives relate. We pay certain partners a negotiated and fixed percentage of our billings to marketers less any Consumer Incentives that we pay to customers and certain third-party data costs ("Partner Share"). We report our revenue gross of Partner Share. Partner Share costs are included in Partner Share and other third-party costs in our consolidated statements of operations, rather than as a reduction of revenue, because we and not our partners act as the principal in our arrangements with marketers. We run campaigns offering compelling Consumer Incentives to drive an expected rate of return on advertising spend for marketers. At times, we may collaborate with a partner to enhance the level of Consumer Incentives to their respective customers, funded by their Partner Share. We believe that these investments by our partners positively impact our platforms by making their customers more highly engaged with our platforms. However, these investments negatively impact our GAAP revenue, which is reported net of Consumer Incentives. 30
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Revenue, which is reported net of Consumer Incentives and gross of Partner Share and other third-party costs, was$53.2 million and$67.9 million during the three months endedMarch 31, 2021 and 2022, respectively, representing an increase of 28%. Billings, a non-GAAP measure that represents the gross amount billed to marketers and is reported gross of both Consumer Incentives and Partner Share, was$76.3 million and$98.2 million during the three months endedMarch 31, 2021 and 2022, respectively, representing an increase of 29%. Gross profit, which represents revenue less Partner Share and other third-party costs and less delivery costs, was$19.5 million and$26.2 million during the three months endedMarch 31, 2021 and 2022, respectively, representing an increase of 34%. Adjusted contribution, a non-GAAP measure that represents our revenue less our adjusted Partner Share and other third-party costs, was$24.3 million and$32.8 million during the three months endedMarch 31, 2021 and 2022, respectively, representing an increase of 35%. Billings and adjusted contribution are further defined under the heading "Non-GAAP Measures and Other Performance Metrics" below. We believe these non-GAAP measures, alongside our GAAP revenue and GAAP gross profit, provide useful information to investors for period-to-period comparisons of our core business and in understanding and evaluating our results of operations in the same manner as our management and board of directors.
The following table summarizes our results (dollars in thousands):
Three Months Ended
March 31, Change
2021 2022 $ %
Billings(1) $ 76,317 $ 98,225 $ 21,908 29 %
Consumer Incentives 23,087 30,297 7,210 31
Revenue 53,230 67,928 14,698 28
Adjusted Partner Share and other third-party costs(1) 28,889 35,153 6,264 22
Adjusted contribution(1) 24,341 32,775 8,434 35
Delivery costs 3,938 6,533 2,595 66
Deferred implementation costs 882 - (882) (100)
Gross profit $ 19,521 $ 26,242 $ 6,721 34 %
Net (loss) income $ (24,895) $ 33,038 $ 57,933 (233) %
Adjusted EBITDA(1) $ (3,944) $ (10,537) $ (6,593) (167) %
(1)Billings, adjusted Partner Share and other third-party costs, adjusted contribution and adjusted EBITDA are non-GAAP measures, as detailed below in our reconciliations of GAAP revenue to billings, GAAP gross profit to adjusted contribution and GAAP net (loss) income to adjusted EBITDA.
During the three months endedMarch 31, 2021 our net loss was$24.9 million and during the three months endedMarch 31, 2022 our net income was$33.0 million . Our historical losses have been driven by our substantial investments in our purchase intelligence platform and infrastructure, which we believe will enable us to expand the use of our platform by both our partners and marketers. During the three months endedMarch 31, 2022 we received a benefit due a reduction of the estimated contingent consideration and brokerage fee related to our Bridg acquisition. OnMarch 5, 2021 , we acquiredDosh Holdings, Inc. , onMay 5, 2021 , we acquiredBridg, Inc. and onJanuary 7, 2022 , we acquiredHSP EPI Acquisition LLC ("Entertainment"). During the three months endedMarch 31, 2021 and 2022, we incurred$7.0 million of costs and$4.6 million of benefit in connection with these acquisitions, respectively. During the three months endedMarch 31, 2021 and 2022, our net (loss) income included stock-based compensation expense of$7.2 million and$13.6 million , respectively.
Our FI partners includeBank of America, National Association ("Bank of America "),JPMorgan Chase Bank, National Association ("Chase") andWells Fargo Bank, National Association ("Wells Fargo"), as well as many other national and regional financial institutions, including several of the largest bank processors and digital banking providers to reach customers of small and mid-sized FIs. For the three months endedMarch 31, 2021 and 2022, our average monthly active users ("MAUs") were 168.6 million and 178.5 million, respectively, and our average revenue per user ("ARPU") for each period was$0.32 and$0.36 , respectively. MAUs and ARPU are performance metrics defined under the heading "Non-GAAP Measures and Other Performance Metrics" below.
Partner Commitments
We have a minimum Partner Share commitment to a certain FI partner totaling
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Table of Contents 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, 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. Acquisitions OnJanuary 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 upon our 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 . OnMay 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. OnMarch 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 to our consolidated financial statements for further information.
Public Offering of Common Stock
OnMarch 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 .
Non-GAAP Measures and Other Performance Metrics
We regularly monitor a number of financial and operating metrics in order to
measure our current performance and estimate our future performance. Our metrics
may be calculated in a manner different than similar metrics used by other
companies.
Three Months Ended
March 31,
2021 2022
(in thousands, except ARPU)
Cardlytics MAUs 168,621 178,510
Cardlytics ARPU $ 0.32 $ 0.36
Bridg ARR $ - $ 14,017
Billings $ 76,317 $ 98,225
Adjusted contribution $ 24,341 $ 32,775
Adjusted EBITDA $ (3,944) $ (10,537) Cardlytics Monthly Active Users
We define MAUs as targetable customers or accounts that have logged in and visited online or mobile applications containing offers, opened an email containing an offer, or redeemed an offer from theCardlytics platform during a monthly period. We then calculate a monthly average of these MAUs for the periods presented. We believe that MAUs is an indicator of theCardlytics platform's ability to drive engagement and is reflective of the marketing base that we offer to marketers.
Cardlytics Average Revenue per User
We define ARPU as the total revenue generated in the applicable period calculated in accordance with generally accepted accounting principles inthe United States ("GAAP"), divided by the average number of MAUs in the applicable period. We believe that ARPU is an indicator of the value of our relationships with our partners with respect to theCardlytics platform. 32
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Bridg Annualized Recurring Revenue
Consistent with the Bridg merger agreement, we define ARR as the annualized GAAP revenue of the final month in the period presented for the Bridg platform. ARR should not be considered in isolation from, or as an alternative to, revenue prepared in accordance with GAAP. We believe that ARR is an indicator of the Bridg platform's ability to generate future revenue from existing clients.
Billings
Billings represents the gross amount billed to customers and marketers for advertising campaigns in order to generate revenue.Cardlytics platform billings is recognized gross of both Consumer Incentives and Partner Share.Cardlytics platform GAAP revenue is recognized net of Consumer Incentives and gross of Partner Share. Bridg platform billings is the same as Bridg platform GAAP revenue. We review billings for internal management purposes. We believe that billings provides useful information to investors for period-to-period comparisons of our core business and in understanding and evaluating our results of operations in the same manner as our management and board of directors. Nevertheless, our use of billings has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Other companies, including companies in our industry that have similar business arrangements, may address the impact of Consumer Incentives differently. You should consider billings alongside our other GAAP financial results.
The following table presents a reconciliation of billings to revenue, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
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