What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-01 · 336 added, 293 removed, 322 unchanged (66% of the section changed)

4 unchanged sentences

“Risk Factors” and “Special Note Regarding Forward-Looking Statements” in this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Cardlytics operates an advertising platform within financial institutions’ (“FIs”) digital channels, which include online, mobile, email, and various real-time notifications.

Our partnerships with FIs provide us with access to their anonymized purchase data and digital banking customers.

By applying advanced analytics to this aggregation of purchase data, we make it actionable, helping marketers identify, reach and influence likely buyers at scale, and measure the true sales impact of their marketing spend.

We have strong relationships with leading marketers across a variety of industries, including retail, restaurant, travel and entertainment, telecommunications, subscription services, direct to consumer, and grocery.

Using our purchase intelligence, we present customers with offers to save money at a time when they are thinking of their finances.

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 the Cardlytics 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 our FIs’ 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 our FIs’ customers from the marketers to which the Consumer Incentives relate.

We generally pay our FI partners a negotiated and fixed percentage of our billings to marketers less any Consumer Incentives that we pay to the FIs’ customers and certain third-party data costs ("FI Share").

We report our revenue gross of FI Share.

FI Share costs are included in FI Share and other third-party costs in our consolidated statements of operations, rather than as a reduction of revenue, because we and not our FI partners act as the principal in our arrangements with marketers.

We 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.

Prior to March 31, 2021, we referred to Partner Share as FI Share.

We run campaigns offering compelling Consumer Incentives to drive an expected rate of return on advertising spend for marketers.

At times, we may collaborate with an FI partner to enhance the level of Consumer Incentives to their respective FIs' customers funded by their FI Share.

We believe that these investments by our FI partners positively impact our platform by making FIs' customers more highly engaged with our platform.

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.

Revenue, which is reported net of Consumer Incentives and gross of FI Share and other third-party costs, was $210.4 million and $186.9 million for December 31, 2019 and 2020, respectively, representing a decline of 11%.

Billings, a non-GAAP measure that represents the gross amount billed to marketers and is reported gross of both Consumer Incentives and FI Share, was $316.1 million and $263.4 million for December 31, 2019 and 2020, respectively, representing a decline of 17%.

Gross profit, which represents revenue less FI Share and other third-party costs and less delivery costs, was $79.5 million and $63.3 million for December 31, 2019 and 2020, respectively, representing a decline of 20%.

Adjusted contribution, a non-GAAP measure that represents our revenue less our adjusted FI Share and other third-party costs, was $95.2 million and $82.2 million for December 31, 2019 and 2020, respectively, representing a decline of 14%.

Revenue, which is reported net of Consumer Incentives and gross of Partner Share and other third-party costs, was $186.9 million and $267.1 million for the years ended December 31, 2020 and 2021, respectively, representing an increase of 43%.

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 $263.4 million and $394.1 million for the years ended December 31, 2020 and 2021, respectively, representing an increase of 50%.

Gross profit, which represents revenue less Partner Share and other third-party costs and less delivery costs, was $63.3 million and $103.3 million for the years ended December 31, 2020 and 2021, respectively, representing an increase of 63%.

Adjusted contribution, a non-GAAP measure that represents our revenue less our adjusted Partner Share and other third-party costs, was $82.2 million and $129.6 million for the years ended December 31, 2020 and 2021, respectively, representing an increase of 58%.

Billings and adjusted contribution are further defined under the heading "Non-GAAP Measures and Other Performance Metrics" below.

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2019 2020 $ % 2020 2021 $ %

Billings $ 218,980 $ 316,053 $ 97,073 44 % $ 316,053 $ 263,355 $ (52,698) (17) %

$ 316,053 $ 263,355 $ (52,698) (17) % $ 263,355 $ 394,075 $ 130,720 50 %

Consumer Incentives 105,623 76,463 (29,160) (28) 76,463 126,959 50,496 66

Revenue 210,430 186,892 (23,538) (11) 186,892 267,116 80,224 43

Adjusted FI Share and other third-party costs (1)(2)

Adjusted Partner Share and other third-party costs (1)

115,211 104,710 (10,501) (9) 104,710 137,488 32,778 31

2 unchanged sentences

Delivery costs 12,893 14,310 1,417 11 14,310 22,503 8,193 57

Non-cash equity expense included in FI Share 2,519 — (2,519) n/a — — — n/a

Deferred FI implementation costs (3)

1,618 2,869 1,251 77 2,869 4,598 1,729 60

Deferred implementation costs 2,869 4,598 1,729 60 4,598 3,785 (813) (18)

Gross profit $ 79,457 $ 63,274 $ (16,183) (20) % $ 63,274 $ 103,340 $ 40,066 63 %

(1) Adjusted FI Share and other third-party costs excludes a non-cash equity expense included in FI Share and deferred FI implementation costs, as detailed below in our reconciliation of GAAP gross profit to adjusted contribution.

(2) Adjusted FI Share and other third-party costs and adjusted contribution include the impact of a $0.8 million gain during 2018 related to the renewal of our agreement with an FI partner, which contains certain amendments that are retroactively applied as of January 1, 2018.

(3) Deferred FI implementation costs for the year ended December 31, 2020 includes the impact of a $0.7 million write off related to certain platform features.

Net loss $ (17,144) $ (55,422) $ (38,278) 223 % $ (55,422) $ (128,565) $ (73,143) 132 %

Adjusted EBITDA (1)

$ 6,052 $ (7,780) $ (13,832) (229) % $ (7,780) $ (12,220) $ (4,440) 57 %

(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 to adjusted EBITDA.

During 2019, 2020 and 2021, our net loss was $17.1 million, $55.4 million and $128.6 million, respectively.

Our historical losses have been driven by our substantial investments in our purchase intelligence platform and infrastructure, which we believe will enable us to expand the use of our platform by both FIs and marketers.

During 2018, 2019 and 2020, our net loss includes stock-based compensation expense of $26.8 million, $15.9 million and $32.4 million, respectively.

In 2018, our net loss also includes a $6.8 million non-cash expense related to the change in fair value of our warrant liabilities and a $2.5 million non-cash expense related to the vesting of warrants issued to an FI partner that accelerated upon our IPO.

Acquisition of Dosh

On February 26, 2021, we entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with DOSH Holdings, Inc., a Delaware corporation (“Dosh”), BSPEARS MERGER SUB I, INC., a Delaware corporation and our wholly owned subsidiary (“Merger Sub 1”), BSPEARS MERGER SUB II, LLC, a Delaware limited liability company and our wholly owned subsidiary (“Merger Sub 2”), and certain other parties named therein.

The Merger Agreement provides for Merger Sub 1 to merge with and into Dosh ( “Merger 1”), with Dosh surviving Merger 1 as our wholly owned subsidiary, immediately followed by the merger of Dosh with and into Merger Sub 2, with Merger Sub 2 surviving Merger 2 as our wholly owned subsidiary, subject to the terms and conditions set forth in the Merger Agreement.

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, at the closing, we are required to pay the former equityholders of Dosh (other than former holders of unvested options to purchase Dosh’s common stock) (collectively, the “Dosh Equityholders”) consideration of $275.0 million, consisting of, and subject to adjustment with respect to, the following:

(A) an amount in cash equal to $150.0 million, subject to adjustments and subject to escrows;

and (B) $125.0 million million of shares of our common stock at an agreed-upon price of $136.33 per share.

In addition, we will assume the unvested options held by the holders of unvested options to purchase Dosh’s common stock and issue up to $8.0 million in our performance stock units to certain key Dosh executives.

The Merger Agreement contains customary representations, warranties, covenants and indemnities of each of us and Dosh.

During the period from the date of the Merger Agreement to the closing, we and Dosh have agreed to carry on their respective businesses in the ordinary course and consistent with past practices and have agreed to certain other operating covenants.

The closing of the Mergers is subject to the satisfaction or waiver of a number of customary closing conditions in the Merger Agreement, including, among others, the absence of certain governmental restraints and the absence of a material adverse effect on Dosh.

The Merger Agreement may be terminated prior to the closing date by mutual written agreement of us and Dosh.

In addition, the Merger Agreement may be terminated by either we or Dosh in certain circumstances, including if the Acquisition has not been closed on or before May 31, 2021, or if the other party has materially breached any representation, warranty, covenant, obligation or agreement such that certain of the conditions to closing cannot be satisfied.

On March 5, 2021, we acquired Dosh Holdings, Inc.

("Dosh"), and on May 5, 2021, we acquired Bridg, Inc.

During 2021, we incurred $9.8 million and $14.6 million of costs in connection with these acquisitions, respectively.

During 2019, 2020 and 2021, our net loss included stock-based compensation expense of $15.9 million, $32.4 million and $50.3 million, respectively.

Our FI partners include Bank of America, National Association ("Bank of America"), JPMorgan Chase Bank, National Association (“Chase”) and Wells 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.

Wells Fargo began a phased launch of our platform in the fourth quarter of 2019 that was completed in the second quarter of 2020.

For December 31, 2019 and 2020, our average FI monthly active users ("FI MAUs") were 122.6 million and 155.8 million and our average Cardlytics platform revenue per user ("ARPU") was 1.72 and 1.20, respectively.

FI MAU and ARPU are performance metrics defined under the heading "Non-GAAP Measures and Other Performance Metrics" below.

The increase in FI MAUs is largely due to Wells Fargo completing their phased launch in the second quarter of 2020 and Chase launching our Cardlytics platform for its online banking channel in the second quarter of 2019.

We expect U.S.

Bank to begin a phased launch of the Cardlytics platform in the first half of 2021, which will also impact FI MAU growth.

We expect a continued increase in FI MAUs year over year as a result of the launch of Wells Fargo and U.S.

Over time, we expect year-over-year increases in ARPU as both consumer spending and the advertising budgets of our clients recover from the negative impacts of the COVID-19 pandemic.

FI Partner Commitments

Bank, National Association began a phased launch of the Cardlytics platform in the first quarter of 2021 that was completed in the third quarter of 2021.

Partner Commitments

Agreements with certain FI partners require us to fund the development of specific enhancements, pay for certain implementation fees, or make milestone payments upon the deployment of our solution.

Certain of these agreements provide for future reductions in FI Share due to the FI partner.

During 2018, development payments to a certain FI partner totaled $9.3 million which was partially offset by recoveries through FI Share payment reductions of $4.6 million in 2019.

During 2020, one of our FI partners notified us of plans to end the use of certain platform features prior to the end of our contractual arrangement with the FI partner.

As a result, we wrote off deferred FI implementation costs totaling $0.7 million to FI Share and other third-party costs on our consolidated statements of operation.

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 December 31, 2020.

Any expected shortfall penalty will be accrued during the 12-month period following the completion of the milestones.

Certain of these agreements provide for future reductions in Partner Share due to the FI partner.

During 2018, development payments to a certain FI partner totaled $9.3 million which was partially offset by recoveries through Partner Share payment reductions of $4.6 million in 2019.

During 2020 and 2021, we recognized write offs of deferred implementation costs totaling $0.7 million and $1.0 million, respectively, in Partner Share and other third-party costs on our consolidated statements of operations, upon the notification from one of our partners about plans to end the use of certain platform features prior to the end of our contractual arrangement with the partner.

We have a minimum Partner Share commitment to a certain FI partner totaling $10.0 million over a 12-month period beginning on April 1, 2022.

Impacts of COVID-19 Pandemic

We remain focused on supporting our marketers, FIs partners, employees and communities during the COVID-19 pandemic.

The impact of COVID-19 on the global economy and on our business continues to be a fluid situation.

We responded quickly to adopt a virtual corporate strategy to enable all of our employees to work productively from home, guard the health and safety of our team, support our marketers and FI partners, mitigate risk and maximize our financial performance.

We are focused on ensuring continuity for our marketers and FI partners.

Revenue for the year ended December 31, 2020 was unfavorably affected by the COVID-19 pandemic and its impact on both consumer discretionary spending and marketers' ability to spend advertising budgets on our solution.

Revenue during the second quarter of 2020 was significantly affected by the COVID-19 pandemic and its negative impact on both consumer spending and marketers' ability to spend advertising budgets on our solution.

During the third and fourth quarters of 2020, we saw a recovery of both consumer spending as well as the advertising budgets of our clients.

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.

During the year ended December 31, 2021, we saw continued recovery of both consumer spending as well as the advertising budgets of our clients;

however, many merchants continued to be impacted by labor shortages and disruptions in their supply chains.

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.

The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on industry events, and its effect on consumer spending, our marketers, FI partners, suppliers and vendors and other parties with whom we do business, all of which are uncertain and cannot be predicted at this time.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel, employee work locations, and cancellation of marketing events.

We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take actions that alter our business operations, including those that may be required by federal, foreign, state or local authorities, or that we determine are in the best interests of our employees, marketers, FI partners, suppliers, vendors and stockholders.

At this point, the extent to which the COVID-19 pandemic may impact our business, results of operations and financial condition is uncertain.

See “Risk Factors” for further discussion of the adverse impacts of the COVID-19 pandemic on our business.

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 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 4—Business Combinations to our consolidated financial statements 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.

Non-GAAP Measures and Other Performance Metrics

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(Amounts in thousands, except ARPU)

FI MAUs 65,012 122,586 155,784

ARPU $ 2.30 $ 1.72 $ 1.20

Cardlytics MAUs 122,586 155,784 170,925

Cardlytics ARPU $ 1.72 $ 1.20 $ 1.51

Bridg ARR $ — $ — $ 15,282

Billings $ 316,053 $ 263,355 $ 394,075

Adjusted contribution $ 95,219 $ 82,182 $ 129,628

$ 69,450 $ 95,219 $ 82,182

Adjusted EBITDA $ 6,052 $ (7,780) $ (12,220)

$ (6,595) $ 6,052 $ (7,780)

(1) Adjusted contribution and Adjusted EBITDA includes the impact of a $0.8 million gain during 2018 related to the renewal of our agreement with an FI partner, which contains certain amendments that are retroactively applied as of January 1, 2018.

Monthly Active Users

We define FI MAUs as targetable customers or accounts of our FI partners that logged in and visited the online or mobile banking applications of, or opened an email containing our offers from, our FI partners during a monthly period.

We then calculate a monthly average of these FI MAUs for the periods presented.

We believe that FI MAUs is an indicator of our and our FI partners’ ability to drive engagement with the Cardlytics platform and is reflective of the marketing base that we offer to marketers through the Cardlytics platform.

Average Revenue per User

We define ARPU as the total Cardlytics platform revenue generated in the applicable period calculated in accordance with generally accepted accounting principles in the United States ("GAAP"), divided by the average number of FI MAUs in the applicable period.

Cardlytics Monthly Active Users

We define MAUs as targetable customers or accounts that have logged in and visited online or mobile applications containing offers from, opened an email containing offers from, or redeemed an offer from the Cardlytics 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 the Cardlytics 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 in the 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 FI partners with respect to the Cardlytics platform.

Billings represents the gross amount billed to marketers for advertising campaigns in order to generate revenue.

Billings is reported gross of both Consumer Incentives and FI Share.

Our GAAP revenue is recognized net of Consumer Incentives and gross of FI Share.

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 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.

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Year Ended December 31, 2019

2018 2019 2020

Cardlytics Platform Bridg Platform Consolidated

Revenue $ 210,430 $ — $ 210,430

1 unchanged sentence

Billings $ 316,053 $ — $ 316,053

Year Ended December 31, 2020

Cardlytics Platform Bridg Platform Consolidated

Revenue $ 186,892 $ — $ 186,892

Consumer Incentives 76,463 — 76,463

Billings $ 263,355 $ — $ 263,355

Year Ended December 31, 2021

Cardlytics Platform Bridg Platform Consolidated

Revenue $ 258,754 $ 8,362 $ 267,116

Consumer Incentives 126,959 — 126,959

Billings $ 385,713 $ 8,362 $ 394,075

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 deferred FI implementation costs, which are non-cash costs.

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 partners.

Adjusted contribution demonstrates how incremental marketing spend on our platforms 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 Partner Share and other third-party costs exclusive of deferred implementation costs, which is a non-cash cost.

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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Year Ended December 31, 2019

2018 2019 2020

Cardlytics Platform Bridg Platform Consolidated

Revenue $ 210,430 $ — $ 210,430

FI Share and other third-party costs (1)

85,371 118,080 109,308

Partner Share and other third-party costs 118,080 — 118,080

Delivery costs (1)

1 unchanged sentence

Gross profit 79,457 — 79,457

54,681 79,457 63,274

Delivery costs (1)

12,893 — 12,893

Non-cash equity expense included in FI Share (3)

Deferred FI implementation costs (3)

Deferred implementation costs (2)

2,869 — 2,869

Adjusted contribution $ 95,219 $ — $ 95,219

(1) Stock-based compensation expense recognized in consolidated delivery costs totaled $0.7 million during 2019.

(2) Deferred implementation costs is excluded from adjusted Partner Share and other third-party costs as follows (in thousands):

Year Ended December 31, 2019

Cardlytics Platform Bridg Platform Consolidated

Partner Share and other third-party costs $ 118,080 $ — $ 118,080

Deferred implementation costs 2,869 — 2,869

Adjusted Partner Share and other third-party costs $ 115,211 $ — $ 115,211

Year Ended December 31, 2020

Cardlytics Platform Bridg Platform Consolidated

Revenue $ 186,892 $ — $ 186,892

Partner Share and other third-party costs 109,308 — 109,308

Delivery costs (1)

14,310 — 14,310

(1) FI Share and other third-party costs, gross profit and adjusted contribution include the impact of a $0.8 million gain during 2018 related to the renewal of our agreement with an FI partner, which contains certain amendments that are retroactively applied as of January 1, 2018.

(2) Stock-based compensation expense recognized in delivery costs totaled $0.6 million, $0.7 million and $1.2 million during 2018, 2019 and 2020, respectively.

(3) Non-cash equity expense included in FI Share and deferred FI implementation costs are excluded from adjusted FI Share and other third-party costs as follows (in thousands):

Gross profit 63,274 — 63,274

Delivery costs (1)

14,310 — 14,310

Deferred implementation costs (2)

4,598 — 4,598

Adjusted contribution $ 82,182 $ — $ 82,182

(1) Stock-based compensation expense recognized in consolidated delivery costs totaled $1.2 million during 2020.

(2) Deferred implementation costs is excluded from adjusted Partner Share and other third-party costs as follows (in thousands):

Year Ended December 31, 2020

Cardlytics Platform Bridg Platform Consolidated

Partner Share and other third-party costs $ 109,308 $ — $ 109,308

Deferred implementation costs 4,598 — 4,598

Adjusted Partner Share and other third-party costs $ 104,710 $ — $ 104,710

Year Ended December 31, 2021

Cardlytics Platform Bridg Platform Consolidated

Revenue $ 258,754 $ 8,362 $ 267,116

Partner Share and other third-party costs 140,864 409 141,273

Delivery costs (1)

18,111 4,392 22,503

FI Share and other third-party costs $ 85,371 $ 118,080 $ 109,308

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

Deferred FI implementation costs (1)

Gross profit 99,779 3,561 103,340

Delivery costs (1)

18,111 4,392 22,503

Adjusted FI Share and other third-party costs $ 81,234 $ 115,211 $ 104,710

(1) Deferred FI implementation costs for the year ended December 31, 2020 includes the impact of a $0.7 million write off related to certain platform features.

Deferred implementation costs (2)

3,785 — 3,785

Adjusted contribution $ 121,675 $ 7,953 $ 129,628

(1) Stock-based compensation expense recognized in consolidated delivery costs totaled $1.9 million during 2021.

(2) Deferred implementation costs is excluded from adjusted Partner Share and other third-party costs as follows (in thousands):

Year Ended December 31, 2021

Cardlytics Platform Bridg Platform Consolidated

Partner Share and other third-party costs $ 140,864 $ 409 $ 141,273

Deferred implementation costs 3,785 — 3,785

Adjusted Partner Share and other third-party costs $ 137,079 $ 409 $ 137,488

Adjusted EBITDA

3 unchanged sentences

stock-based compensation expense;

foreign currency gain;

deferred FI implementation costs;

costs associated with financing events;

loss on extinguishment of debt;

restructuring costs;

change in fair value of warrant liabilities, net;

and a non-cash equity expense recognized in FI Share.

foreign currency gain (loss);

deferred implementation costs;

restructuring costs, acquisition and integration costs and change in fair value of contingent consideration.

We do not consider these excluded items to be indicative of our core operating performance.

The items that are non-cash include change in fair value of warrant liabilities, Other (expense) income, net, deferred FI implementation costs, depreciation and amortization expense, stock-based compensation expense and a non-cash equity expense included in FI Share.

Notably, any impacts related to minimum FI Share commitments in connection with agreements with certain FI partners are not added back to net loss in order to calculate adjusted EBITDA.

The items that are non-cash include foreign currency (gain) loss, deferred implementation costs, depreciation and amortization expense, stock-based compensation expense and change in fair value of contingent consideration.

Notably, any impacts related to minimum Partner Share commitments in connection with agreements with certain FI partners are not added back to net loss in order to calculate adjusted EBITDA.

Adjusted EBITDA is a key measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans, make strategic decisions regarding the allocation of capital and invest in initiatives that are focused on cultivating new markets for our solution.

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Year ended December 31, 2019

2018 2019 2020

$ (53,042) $ (17,144) $ (55,422)

Income tax benefit — — —

Cardlytics Platform Bridg Platform Consolidated

Net loss $ (17,144) $ — $ (17,144)

Interest expense, net 548 — 548

1 unchanged sentence

Stock-based compensation expense 15,851 — 15,851

Foreign currency (loss) gain 1,172 (781) (1,549)

Deferred FI implementation costs 1,618 2,869 4,598

Costs associated with financing events 118 123 —

Foreign currency loss (781) — (781)

Loss on extinguishment of debt 51 — 51

Costs associated with financing events 123 — 123

Deferred implementation costs 2,869 — 2,869

Adjusted EBITDA $ 6,052 $ — $ 6,052

Year ended December 31, 2020

Cardlytics Platform Bridg Platform Consolidated

Net loss $ (55,422) $ — $ (55,422)

Interest expense, net 3,048 — 3,048

Depreciation and amortization expense 7,826 — 7,826

Stock-based compensation expense 32,396 — 32,396

Foreign currency gain (1,549) — (1,549)

Deferred implementation costs 4,598 — 4,598

Restructuring costs 1,323 — 1,323

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

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

Adjusted EBITDA $ (7,780) $ — $ (7,780)

$ (6,595) $ 6,052 $ (7,780)

(1) Net loss and adjusted EBITDA include the impact of a $0.8 million gain during 2018 related to the renewal of our agreement with an FI partner, which contains certain amendments that are retroactively applied as of January 1, 2018.

Year ended December 31, 2021

Cardlytics Platform Bridg Platform Consolidated

Net loss $ (121,455) $ (7,110) $ (128,565)

Income tax benefit (2,302) (5,562) (7,864)

Interest expense, net 12,563 — 12,563

Depreciation and amortization expense 22,485 7,386 29,871

Stock-based compensation expense 47,222 3,042 50,264

Foreign currency loss 1,267 — 1,267

Deferred implementation costs 3,785 — 3,785

Restructuring costs 713 — 713

Acquisition and integration costs 24,380 (8) 24,372

Change in fair value of contingent consideration 1,374 — 1,374

Adjusted EBITDA $ (9,968) $ (2,252) $ (12,220)

Components of Results of Operations

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The agreements state the terms of the arrangement, the negotiated fee, payment terms and the fixed period of time of the campaign.

We invoice marketers monthly based on the qualifying purchases of the FIs' customers as reported by our FI partners during the month.

We report our revenue net of Consumer Incentives and gross of FI Share.

We invoice marketers monthly based on the qualifying purchases of our partners' customers as reported by our partners during the month.

We report our revenue net of Consumer Incentives and gross of Partner Share.

Cost and Expense

We classify our expenses into the following categories:

FI Share and other third-party costs;

Partner Share and other third-party costs;

delivery costs;

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and depreciation and amortization expense.

FI Share and Other Third-Party Costs

FI Share and other third-party costs consist primarily of the FI Share that we pay our FI partners, media and data costs, deferred implementation costs incurred pursuant to our agreements with certain FI partners and a $2.5 million non-cash expense in 2018 related to the vesting of warrants issued to an FI partner that accelerated upon the consummation of our IPO.

To the extent that we use a specific FI customer’s anonymized purchase data in the delivery of our solutions, we pay the applicable FI partner an FI Share calculated based on the relative contribution of the data provided by the FI partner to the overall delivery of the services.

We expect that our FI Share and other third-party costs will increase in absolute dollars as a result of our revenue growth.

Partner Share and Other Third-Party Costs

Partner Share and other third-party costs consist primarily of the Partner Share that we pay our partners, media and data costs, deferred implementation costs incurred pursuant to our agreements with certain partners.

To the extent that we use a specific partners' customer’s anonymized purchase data in the delivery of our solutions, we pay the applicable partner a Partner Share calculated based on the relative contribution of the data provided by the partner to the overall delivery of the services.

We expect that our Partner Share and other third-party costs will increase in absolute dollars as a result of our revenue growth.

Delivery Costs

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We expect that general and administrative expenses will increase on an absolute dollar basis but decrease as a percentage of revenue as we focus on processes, systems and controls to enable the our internal support functions to scale with the growth of our business.

Acquisition and Integration Costs

Acquisition costs primarily represent diligence efforts, legal and advisory costs, broker fees and insurance premiums.

Integration costs primarily represent integration-related employee compensation, advisory costs, and travel costs.

Change in Fair Value of Contingent Consideration

Our acquisition of Bridg includes a component of contingent consideration to be paid to the sellers if certain performance levels are achieved by Bridg over a specific period of time.

Contingent consideration is initially recorded at fair value on the acquisition date based, in part, on a range of estimated probabilities for achievement of these performance levels.

The fair value is periodically adjusted as actual performance levels become known and updates are made to the estimated probabilities for future performance.

A gain or loss is recognized in the income statement for fair value adjustments.

If we make additional acquisitions, it is possible that we will incur gains or losses in the future due to the change in the fair value of contingent consideration.

Depreciation and Amortization Expense

Depreciation and amortization expense includes depreciation of property and equipment over the estimated useful life of the applicable asset as well as amortization of deferred patent costs and capitalized internal-use software development costs.

Depreciation and amortization expense includes depreciation of property and equipment over the estimated useful life of the applicable asset as well as amortization of acquired intangible assets, deferred patent costs and capitalized internal-use software development costs.

Interest Expense, Net

Interest expense, net consists of interest incurred on our debt facilities, as well as related discount amortization and financing costs, partially offset by interest income on our cash balances.

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities represents adjustments to the fair value of certain warrants to purchase either preferred or common stock based upon changes in the fair value of the underlying stock.

Other (Expense) Income, Net

Other (expense) income, net consists primarily of gains and losses on foreign currency transactions and expenses recorded in connection with the extinguishment of debt.

Foreign Currency Gain (Loss)

Foreign currency gain (loss) consists primarily of gains and losses on foreign currency transactions.

Income Tax Benefit

We have generated losses before income taxes in the U.S., U.K.

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state income tax jurisdictions.

We have generated historical net losses and recorded a full valuation allowance against our deferred tax assets.

We expect to maintain a full valuation allowance in the near term.

Due to our history of losses and our expectation of maintaining a full valuation allowance, we have not recorded an income tax provision or benefit during the periods presented.

Realization of any of our deferred tax assets depends upon future earnings, the timing and amount of which are uncertain.

We have generated historical net losses and recorded a full valuation allowance against our net deferred tax assets, and we expect to maintain a full valuation allowance in the near term.

Realization of any of our net deferred tax assets depends upon future earnings, the timing and amount of which are uncertain.

For the periods presented, income tax benefit represents the release of a portion of our valuation allowance in connection with deferred tax liabilities arising from our acquisitions of Dosh and Bridg.

Results of Operations

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Costs and expenses:

FI Share and other third-party costs 85,371 118,080 109,308

Partner Share and other third-party costs 118,080 109,308 141,273

Delivery costs 12,893 14,310 22,503

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General and administrative expense 36,720 46,532 66,222

Depreciation and amortization expense 3,282 4,535 7,826

Total costs and expenses 191,601 227,755 240,815

Operating loss (40,917) (17,325) (53,923)

Non-operating (expense) income:

Interest expense, net (3,264) (548) (3,048)

Change in fair value of warrant liabilities, net (6,760) — —

Other (expense) income, net (2,101) 729 1,549

Total non-operating (expense) income (12,125) 181 (1,499)

Loss before income taxes (53,042) (17,144) (55,422)

Income tax benefit — — —

Net loss $ (53,042) $ (17,144) $ (55,422)

The following table sets forth our consolidated statements of operations expressed as a percentage of revenue (percentages may not sum due to rounding):

Year Ended December 31,

2018 2019 2020

Revenue 100 % 100 % 100 %

Costs and expenses:

FI Share and other third-party costs 57 56 58

Delivery costs 7 6 8

Sales and marketing expense 28 21 24

Research and development expense 11 6 9

General and administration expense 23 17 25

Acquisition and integration costs — — 24,372

Change in fair value of contingent consideration — — 1,374

Depreciation and amortization expense 4,535 7,826 29,871

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Operating loss (17,325) (53,923) (122,599)

Non-operating (expense) income:

Non-operating income (expense):

Interest expense, net (548) (3,048) (12,563)

Change in fair value of warrant liabilities, net (4) — —

Other (expense) income, net (1) — 1

Total non-operating (expense) income (8) — (1)

Foreign currency gain (loss) 729 1,549 (1,267)

Total non-operating income (expense) 181 (1,499) (13,830)

Loss before income taxes (17,144) (55,422) (136,429)

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Net loss $ (17,144) $ (55,422) $ (128,565)

Comparison of Year Ended December 31, 2019 and 2020

Comparison of Years Ended December 31, 2021 and 2020

In this section, we discuss the results of our operations for the year ended December 31, 2021 compared to the year ended December 31, 2020.

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(dollars in thousands)

Billings $ 263,355 $ 394,075 $ 130,720 50 %

Consumer Incentives 76,463 126,959 50,496 66 %

Revenue $ 186,892 $ 267,116 $ 80,224 43 %

The $23.5 million decrease in revenue during 2020 compared to 2019 was comprised of a $42.5 million decrease in sales to existing marketers, partially offset by a $19.0 million increase in sales to new marketers.

During the third and fourth quarters of 2020, we saw a recovery of both consumer spending as well as the advertising budgets of our clients.

% of billings 141 % 148 %

The $80.2 million increase in revenue during 2021 compared to 2020 was comprised of a $130.7 million increase in billings, offset by a $50.5 million increase in Consumer Incentives.

The billings increase was comprised of a $65.0 million increase in sales to existing marketers and a $65.7 million increase in sales to new marketers.

Revenue during 2020 was significantly affected by the COVID-19 pandemic and its negative impact on both consumer spending and marketers' ability to spend advertising budgets on our solution.

During 2021, we saw a recovery of both consumer spending as well as the advertising budgets of our clients.

Consumer Incentives grew at a higher rate than billings during 2021 compared to 2020 primarily as a result of changes in advertiser mix and an increase in Consumer Incentives funded by partners through a reduction in Partner Share.

Costs and Expenses

FI Share and Other Third-Party Costs

Partner Share and Other Third-Party Costs

Year Ended December 31, Change

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(dollars in thousands)

FI Share and other third-party costs:

Adjusted FI Share and other third-party costs $ 115,211 $ 104,710 $ (10,501) (9) %

Deferred FI implementation costs 2,869 4,598 1,729 60

Total FI Share and other third-party costs $ 118,080 $ 109,308 $ (8,772) (7) %

Partner Share and other third-party costs:

Adjusted Partner Share and other third-party costs $ 104,710 $ 137,488 $ 32,778 31 %

Deferred implementation costs 4,598 3,785 (813) (18)

Total Partner Share and other third-party costs $ 109,308 $ 141,273 $ 31,965 29 %

% of revenue 58 % 53 %

FI Share and other third-party costs decreased by $8.8 million during 2020 compared to 2019 primarily due to decreased revenue from sales of the Cardlytics platform.

Deferred FI implementation costs increased by $1.7 million during the 2020 compared to the 2019 primarily due to a write off of deferred FI implementation costs totaling $0.7 million relating to the discontinued use of certain platform features.

We believe the near-term fluctuations in revenue caused by the economic impact of COVID–19 would also result in similar percentage fluctuations in adjusted FI Share and other third-party costs in future periods.

Partner Share and other third-party costs increased by $32.0 million during 2021 compared to 2020 primarily due to increase in billings partially offset by an increase in Consumer Incentives funded by partner through a reduction of Partner Share.

Deferred implementation costs decreased by $0.8 million during 2021 compared to 2020 primarily due to a write off of deferred implementation costs totaling $0.7 million in 2020.

Delivery Costs

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% of revenue 8 % 8 %

Delivery costs increased by $1.4 million during 2020 compared to 2019 primarily due to a $0.7 million increase in hosting-related IT costs, a $0.5 million increase in stock-based compensation expense and a $0.2 million increase in personnel costs associated with additional headcount to host the Cardlytics platform for certain new FI partners.

Delivery costs increased by $8.2 million during 2021 compared to 2020 primarily due to increased costs from our acquired businesses of $5.5 million, inclusive of $0.3 million of stock-based compensation expense.

The remaining increase related to a $1.2 million increase in hosting-related IT costs, a $1.1 million increase in personnel costs associated with additional headcount to host the Cardlytics platform for certain FI partners and a $0.4 million increase in stock-based compensation expense.

Sales and Marketing Expense

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% of revenue 24 % 25 %

Sales and marketing expense increased by $1.5 million during 2020 compared to 2019 primarily due to a $5.6 million increase in stock-based compensation expense, partially offset by a decrease of $3.0 million in incentive compensation and a $1.1 million decrease in travel and entertainment expense.

Sales and marketing expense increased by $20.7 million during 2021 compared to 2020 primarily due to increased costs from our acquired businesses of $10.5 million , inclusive of $2.8 million of stock-based compensation expense.

The remaining increase related to $6.8 million in personnel costs associated with additional headcount, a $1.7 million increase in marketing expenses, a $1.1 million increase in stock-based compensation expense and a $0.6 million increase in professional fees.

Research and Development Expense

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% of revenue 9 % 14 %

Research and development expense increased by $5.8 million during 2020 compared to 2019 primarily due to a $3.1 million increase in stock-based compensation expense, a $3.0 million increase in personnel costs associated with additional headcount, a $0.9 million increase in professional fees, partially offset by a $1.0 million decrease in personnel costs due to higher capitalization and a $0.2 million decrease in travel and entertainment.

Research and development expense increased by $20.6 million during 2021 compared to 2020 primarily due to increased costs from our acquired businesses of $9.2 million , inclusive of $1.9 million of stock-based compensation expense.

The remaining increase is due to $6.2 million in personnel costs associated with additional headcount, a $3.7 million increase in stock-based compensation expense and a $0.9 million increase in professional fees and a $0.6 million increase in software license costs.

General and Administrative Expense

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% of revenue 25 % 25 %

General and administrative expense increased by $9.8 million during 2020 compared to 2019 primarily due to a $7.4 million increase in stock-based compensation expense, a $1.7 million increase in software licensing costs, a $0.9 million increase in professional fees, a $0.5 million increase in facility costs, partially offset by a $0.7 million decrease in travel and entertainment.

General and administrative expense increased by $19.7 million during 2021 compared to 2020 primarily due to increased costs from our acquired businesses of $12.9 million , inclusive of $7.5 million of stock-based compensation expense.

The remaining increase is due to $2.5 million in personnel costs associated with additional headcount, a $2.3 million increase in professional fees, $1.8 million increase in software licensing costs, a $0.1 million increase in facility costs and a $0.1 million increase in stock-based compensation expense.

Stock-based Compensation Expense

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% of revenue 17 % 19 %

Stock-based compensation expense increased by $16.5 million during 2020 compared to 2019 primarily due to an increase in expense relating to RSUs.

During 2020, we recognized $19.0 million of expense related to RSUs compared to $4.4 million of expense in 2019 due to a change in mix between RSUs and PSUs and increased hiring activity throughout the organization.

We also recognized $4.1 million of expense related to RSUs that were granted in lieu of cash-based incentive compensation.

Stock-based compensation expense increased by $17.9 million during 2021 compared to 2020 primarily due to $12.5 million expense related to our assumption of unvested options and grants of restricted stock units to employees of our acquired businesses.

The remaining increase is due to grants of restricted stock units to current employees and new hires during 2021.

Acquisition and integration costs

Year Ended December 31, Change

2020 2021 $ %

(dollars in thousands)

Acquisition and integration costs $ — 24,372 $ 24,372 n/a

% of revenue — % 9 %

During 2021 we incurred $24.4 million of costs in connection with the acquisitions of Dosh and Bridg.

For the year ended December 31, 2021, these amounts include $9.4 million of broker and insurance fees, $8.0 million of legal and accounting fees, $6.3 million of severances and incentive compensation and $0.7 million of travel costs.

Refer to Note 4—Business Combinations to our consolidated financial statements for additional information regarding these

acquisitions.

Change in fair value of contingent consideration

Year Ended December 31, Change

2020 2021 $ %

(dollars in thousands)

Change in fair value of contingent consideration $ — $ 1,374 $ 1,374 n/a

% of revenue — % 1 %

During 2021, we recognized $1.4 million of expense due to an increase in the fair value of contingent consideration related to our acquisition of Bridg.

Refer to Note 13—Fair Value Measurements to our consolidated financial statements for additional information regarding the contingent consideration.

Depreciation and Amortization Expense

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% of revenue 4 % 11 %

Depreciation and amortization expense increased by $3.3 million during 2020 compared to 2019 primarily due to additional hardware and software placed in service in 2020 and the suspension of certain development efforts that resulted in a $1.0 million write off of capitalized internal-use software development costs during the first quarter of 2020.

Depreciation and amortization expense increased by $22.0 million during 2021 compared to 2020 primarily driven by the increase of amortization of intangible assets related to the Dosh and Bridg acquisitions.

Interest Expense, Net

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% of revenue (2) % (5) %

Interest expense, net increased by $2.5 million during 2020 compared to 2019 primarily driven by an increase in interest expense related to the Notes, partially offset by a decrease in the amount outstanding on our 2018 Line of Credit and 2018 Term Loan.

Interest income decreased $0.4 million during 2020 compared to 2019 due to moving cash into fully FDIC-insured demand deposit accounts, which have lower interest rates.

Other (Expense) Income, Net

Interest expense, net increased by $9.5 million during 2021 compared to 2020 primarily driven by an increase in interest expense, including contractual interest expense, amortization of debt issuance costs and amortization of debt issuance costs, related to the Notes which were issued on September 22, 2020 and have an aggregate principal amount of $230.0 million bearing interest of 1.00%.

Foreign Currency Gain (Loss)

Year Ended December 31, Change

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(dollars in thousands)

Foreign currency gain $ 781 $ 1,549 $ 768 98 %

Loss on extinguishment of debt (51) — 51 (100)

Other expense (1) — 1 (100)

Other (expense) income, net $ 729 $ 1,549 $ 820 112 %

Foreign currency gain (loss) $ 1,549 $ (1,267) $ (2,816) (182) %

% of revenue 1 % — %

The change in foreign currency gain was primarily due to the decrease in the value of the British pound relative to the U.S.

During 2019, we also recognized a less than $0.1 million loss on extinguishment of debt related to the unamortized discount and unamortized debt issuance costs associated with our prior line of credit and prior term loan.

Critical Accounting Policies

Foreign currency gain (loss) decreased by $2.8 million during 2021 compared to 2020 primarily due to the decrease in the value of the British pound relative to the U.S.

Income Tax Benefit

Year Ended December 31, Change

2020 2021 $ %

(dollars in thousands)

Income tax benefit $ — $ 7,864 $ 7,864 n/a

% of revenue — % 3 %

Income tax benefit increased by $7.9 million during 2021 compared to 2020 due to the release of a portion of our valuation allowance in connection with deferred tax liabilities arising from our acquisitions of Dosh and Bridg.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP.

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Refer to the notes to our consolidated financial statements for additional information.

Revenue Recognition

Our revenue generated from our platform consist of transaction-based fees made up of a significant volume of low-dollar transactions, sourced from multiple databases.

The processing and recording of revenue is highly automated and is based on contractual terms with marketers, FIs, and other parties.

Because of the nature of our transaction-based fees, we use automated systems to process and record our revenue transactions

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 platform, 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.

The Cardlytics platform 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 the Cardlytics platform 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 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.

During 2018, 2019 and 2020, Consumer Incentives totaled $68.3 million, $105.6 million and $76.5 million, respectively.

FI Share and Other Third-Party Costs

We report our revenue on our consolidated statements of operations gross of FI Share.

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.

Business Combinations

We estimate the fair value of assets acquired and liabilities assumed in a business combination.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement.

Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology, useful lives, and discount rates.

Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

During the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

On the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

Fair Value of Contingent Consideration

When required by GAAP, assets and liabilities are reported at fair value on our consolidated financial statements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The consideration for our acquisition of Bridg may include future payments that are contingent upon the results of Bridg's operations.

We recorded a contingent consideration obligation for such contingent payments at fair value on the acquisition date.

We estimate the fair value of contingent consideration obligations through valuation models designed to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates.

Estimated payments are discounted using present value techniques to arrive at an estimated fair value at the balance sheet date.

Changes in the fair value of the contingent consideration obligations are recognized within our consolidated statements of operations.

Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to forecasts, the discount rates and assumptions used in preparing these models which include estimates such as revenue volatility, revenue discount rate, weighted average cost of capital, and our common stock volatility.

Substantial judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.

Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense in our records in any given period.

Refer to Note 13—Fair Value Measurements for information regarding the fair value of our financial instruments.

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination.

We evaluate our goodwill for impairment annually during the fourth quarter and whenever events or changes in circumstances indicate the carrying value of a reporting unit may not be recoverable.

Our reporting units are one level below the operating segments at which level our segment management conducts regular reviews of the operating results.

Our impairment evaluation consists of a qualitative assessment.

If this assessment indicates that it is more likely than not the estimated fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired.

Otherwise, a quantitative impairment test is performed by comparing the fair value of a reporting unit to its carrying value, including goodwill.

We can bypass the qualitative assessment for any period and proceed directly to the quantitative impairment test.

If the carrying value of the net assets associated with the reporting unit exceeds the fair value of the reporting unit, goodwill is considered impaired and will be determined as the amount by which the reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

Income taxes are accounted for using the asset and liability method.

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Valuation allowances are provided when we determine that it is more likely than not that all of, or a portion of, deferred tax assets will not be utilized in the future.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets.

Significant judgment is required in determining any valuation allowance recorded against net deferred tax assets.

In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies.

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If actual amounts differ from our estimates, the amount of our tax expense and liabilities could be materially impacted.

We have recorded a full valuation allowance related to our deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.

We have recorded a full valuation allowance related to our net deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.

We recognize the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date, and then, only in an amount more likely than not to be sustained upon review by the tax authorities.

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Liquidity and Capital Resources

The following table summarizes our cash and cash equivalents, restricted cash, accounts receivable, working capital, total debt and unused available borrowings (in thousands):

The following table summarizes our cash and cash equivalents, restricted cash, working capital, accounts receivable and contract assets, net and unused available borrowings (in thousands):

Cash and cash equivalents $ 293,239 $ 233,467

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304,317 31,375

Accounts receivable, net 81,452 81,249

Total debt (2)

Accounts receivable and contract assets, net 81,249 111,085

Unused available borrowings 50,000 50,000

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See our consolidated financial statements for further details regarding our current assets and current liabilities.

(2) Total debt as of December 31, 2020 includes finance leases liabilities and convertible senior notes, which is presented net of unamortized issuance costs of $5.4 million and unamortized debt discount of $50.6 million.

Our cash and cash equivalents are available for working capital purposes.

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A majority of our cash and cash equivalents are held in fully FDIC–insured demand deposit accounts that distribute funds, and credit risk, over a vast number of financial institutions.

Our remaining cash and cash equivalents are held in treasury obligation funds and money market accounts with three financial institutions, which we believe are of high credit quality.

Our remaining cash and cash equivalents are held in treasury obligation funds and money market accounts with six financial institutions, which we believe are of high credit quality.

As of December 31, 2021, our demand deposit accounts earned up to a 0.50% annual rate of interest.

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Through December 31, 2021, we have received net proceeds of $222.7 million from the issuance of convertible senior notes, net proceeds of $196.2 million from the issuance of preferred stock and convertible promissory notes and net proceeds of $611.1 million from public equity offerings.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the enhancement of our platform, the introduction of new solutions, the continued market acceptance of our solutions and the extent of the impact of COVID-19 on our operational and financial performance.

On May 5, 2021, we completed the acquisition of Bridg.

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.

Our other future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, our merger and acquisition efforts, the continued expansion of sales and marketing activities, the enhancement of our platforms, the introduction of new solutions, the continued market acceptance of our solutions and the extent of the impact of COVID-19 on our operational and financial performance.

We expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business.

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In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all.

Sources of Funds

Sources of Material Cash Requirements

The following table summarizes our material cash requirements for future periods (in thousands):

Material Cash Requirements Due by the Year Ended December 31,

2022 2023 - 2024 2025 - 2026 Thereafter Total

Convertible senior notes (1)

In September 2020, we issued convertible senior notes with an aggregate principal amount of $230.0 million bearing an interest rate of 1.00% due in 2025 (the "Notes").

The net proceeds from this offering were $222.7 million, after deducting the initial purchasers' discounts and commissions and the estimated offering expenses payable by us.

We used $26.5 million of the net proceeds to pay the cost of capped call transactions (the "Capped Calls") described under the Financing Activities section below.

$ 2,300 $ 4,600 $ 232,396 $ — $ 239,296

Finance leases (2)

Operating leases (3)

6,334 6,392 611 — 13,337

Cash portion of contingent consideration (4)

53,617 13,879 — — 67,496

Broker fee on contingent consideration 12,300 4,500 — — 16,800

Purchase obligations (5)

4,616 2,807 — — 7,423

Total $ 79,206 $ 32,228 $ 233,007 $ — $ 344,441

(1) Convertible senior notes were issued on September 22, 2020 and have an aggregate principal amount of $230.0 million bearing interest of 1.00%.

(2) Finance leases represent principal and interest payments.

(3) Operating lease obligations represent future minimum lease payments under our non-cancelable operating leases with an initial term in excess of one year.

(4) Amount represents the estimated fair value of the 30% cash portion of the Bridg First and Second Anniversary Payments.

(5) Purchase obligations include all legally binding contracts such as hardware, software, licenses and legally binding service contracts.

Purchase orders that are not binding agreements are excluded from the table above.

The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.

The table above does not include obligations under agreements that we can cancel without a significant penalty.

We have a minimum Partner Share commitment to a certain FI partner totaling $10.0 million over a 12-month period beginning on April 1, 2022.

Sources of Funds

Proceeds from Issuance of Common Stock

On February 13, 2018, we closed our initial public offering (“IPO”), in which we issued and sold 5,400,000 shares of common stock at a public offering price of $13.00 per share, resulting in gross proceeds of $70.2 million.

On February 14, 2018, pursuant to the underwriters’ partial exercise of their over-allotment option to purchase up to an additional 810,000 shares from us, we issued and sold an additional 421,355 shares of our common stock, resulting in additional gross proceeds to us of $5.5 million.

In total, we issued 5,821,355 shares of common stock and raised $75.7 million in gross proceeds, or $66.1 million in net proceeds after deducting underwriting discounts and commissions of $5.3 million and offering costs of $4.3 million.

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.

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.

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.

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We did not receive any proceeds from the sale of common stock by the selling stockholders.

During 2018, 2019 and 2020, we also received $2.0 million, $29.7 million and $10.2 million in proceeds from the exercise of options and warrants to purchase shares of common stock, respectively.

During 2019, 2020 and 2021, we also received $29.7 million, $2.2 million and $2.4 million, respectively, in proceeds from the exercise of options and warrants to purchase shares of common stock, respectively.

2020 Convertible Senior Notes

In September 2020, we issued convertible senior notes with an aggregate principal amount of $230.0 million bearing an interest rate of 1.00% due in 2025 (the "Notes").

The net proceeds from this offering were $222.7 million, after deducting the initial purchasers' discounts and commissions and the estimated offering expenses payable by us.

We used $26.5 million of the net proceeds to pay the cost of capped call transactions (the "Capped Calls") described under the Financing Activities section below.

2018 Loan Facility

On May 21, 2018, we entered into a Loan and Security Agreement with Pacific Western Bank (the “Lender”) consisting of a $30.0 million asset–based revolving line of credit ("2018 Line of Credit") and a $20.0 million term loan ("2018 Term Loan") (collectively, the “2018 Loan Facility”).

We used the entire $20.0 million in proceeds from the 2018 Term Loan and an advance of $27.4 million under the 2018 Line of Credit to repay all outstanding obligations under our prior line of credit and term loan.

On May 14, 2019, we amended our 2018 Loan Facility to increase the capacity of our Line of Credit, from $30.0 million to $40.0 million, and decrease the capacity of our 2018 Term Loan from $20.0 million to $10.0 million.

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Interest accrued on the 2018 Term Loan at an annual rate of interest equal to the prime rate minus 2.75%, or 2.00% 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;

The 2018 Loan Facility includes customary representations, warranties and covenants (affirmative and negative), including restrictive covenants that prohibit 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.

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We are generally obligated to pay Consumer Incentives between one and three months following redemption, regardless of whether we have collected payment from a marketer or its agency.

We are generally obligated to pay our FI partners’ FI Share by the end of the month following our collection of payment from the applicable marketer or its agency.

We are generally obligated to pay our FI partners’ Partner Share by the end of the month following our collection of payment from the applicable marketer or its agency.

As a result, timing of cash receipts from our marketers can significantly impact our operating cash flows for any period.

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Cash, cash equivalents and restricted cash at beginning of period $ 104,587 $ 293,349

Net cash provided by (used in) operating activities 11,457 (7,598)

Net cash used in operating activities (7,598) (38,523)

Net cash used in investing activities (10,117) (506,695)

Net cash provided by financing activities 44,179 206,430

Net cash received from financing activities 206,430 485,998

Effect of exchange rates on cash, cash equivalents and restricted cash 47 (567)

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Operating activities used $38.5 million of cash in 2021, which reflected our net loss of $128.6 million, $96.7 million of which were non-cash charges, and a $6.7 million change in our net operating assets and liabilities.

The non-cash charges primarily related to stock-based compensation expense, depreciation and amortization expense, amortization of right–of–use assets, deferred FI implementation costs and bad debt expense.

The change in our net operating assets and liabilities was primarily due to a $2.4 million increase in accounts receivable, a $1.2 million decrease in other accrued expenses and a $4.5 million decrease in FI Share liability, partially offset by a $4.4 million increase in our Consumer Incentive liability.

These changes were primarily a result of significantly lower sales during 2020, primarily caused by the COVID–19 pandemic, compared to 2019.

Operating activities provided $11.5 million of cash in 2019, which reflected our net loss of $17.1 million offset by $24.0 million of non-cash charges and a $4.6 million change in our net operating assets and liabilities.

The non-cash charges primarily related to stock-based compensation expense, depreciation and amortization expense and deferred FI implementation costs.

Changes in our net operating assets and liabilities were significantly impacted by the growth of the business as reflected by increases in revenue, Consumer Incentives and FI Share.

The net change in our accounts receivable, Consumer Incentive liability and FI Share liability, including the impact from recoveries of development payments to a certain FI partner through FI Share payment reductions, was a positive cash flow impact of $1.4 million.

This reflects our efforts to negotiate longer payment terms with our FI partners.

Other changes in our net operating assets and liabilities include a $2.2 million increase in prepaid expenses and other assets, offset by a $5.6 million increase in accounts payable and accrued expenses.

The non-cash charges primarily related to stock-based compensation expense, depreciation and amortization expense, including the amortization of acquired intangible assets, amortization of right–of–use assets, deferred implementation costs, changes in the fair value of our contingent consideration, credit loss expense and income tax benefit.

The change in our net operating assets and liabilities was primarily due to a $27.9 million increase in accounts receivable and contract assets, a $0.9 million decrease in other accrued expenses and a $9.1 million decrease in Partner Share liability, partially offset by a $13.2 million increase in our Consumer Incentive liability.

Operating activities used $7.6 million of cash in 2020, which reflected our net loss of $55.4 million, $51.6 million of which were non-cash charges, and a $3.8 million change in our net operating assets and liabilities.

The non-cash charges primarily related to stock-based compensation expense, depreciation and amortization expense, amortization of right–of–use assets, deferred implementation costs and bad debt expense.

The change in our net operating assets and liabilities was primarily due to a $2.4 million increase in accounts receivable and contract assets, a $1.2 million decrease in other accrued expenses and a $4.5 million decrease in Partner Share liability, partially offset by a $4.4 million increase in our Consumer Incentive liability.

These changes were primarily a result of significantly lower sales during 2020, primarily caused by the COVID–19 pandemic, compared to sales in 2019.

Investing Activities

Our cash flows from investing activities are primarily driven by our investments in, and purchases of, property and equipment and costs to develop internal-use software.

Our cash flows used for investing activities are primarily driven by our acquisitions of Dosh and Bridg, our investments in, and purchases of, property and equipment and costs to develop internal-use software.

We expect that we will continue to use cash for investing activities as we continue to invest in and grow our business.

Investing activities used cash totaling $10.1 million and $506.7 million, in 2020 and 2021, respectively.

Our investing cash flows during these periods primarily consisted of purchases of technology hardware and the capitalization of costs to develop internal-use software.

Our investing cash flows during these periods primarily consisted of funds used for the acquisitions of Dosh and Bridg, purchases of technology hardware and costs to develop internal-use software.

Financing Activities

Our cash flows from financing activities have primarily been composed of borrowings and repayments under our debt facilities, proceeds from the issuance of common and preferred stock and payments for costs related to debt issuances and equity offerings.

Our cash flows from financing activities have primarily been composed of borrowings and repayments under our debt facilities, proceeds from the issuance of common stock and payments for costs related to debt issuances and equity offerings.

Financing activities provided $486.0 million in cash in 2021.

During 2021, we raised total gross proceeds of $500.5 million, or net proceeds of $484.0 million after deducting underwriting discounts and commissions of $16.3 million and offering costs of $0.2 million from our public equity offering in which we sold 3,850,000 shares of common stock at a public offering price of $130.00 per share.

Financing activities provided $206.4 million in cash in 2020.

Our financing activities during this period primarily consisted of $223.1 million of net proceeds from our issuance of the Notes, of which we used $26.5 million to purchase the Capped Calls and proceeds from the exercise of options to purchase shares of common stock.

The Capped Calls are intended to reduce potential dilution to our common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be.

Financing activities provided $44.2 million in cash in 2019.

We raised net proceeds of $61.3 million from our public equity offering and received $29.7 million in proceeds from the exercise of options and warrants to purchase shares of common stock.

We also reduced our outstanding borrowings under our 2018 Line of Credit by $26.7 million and 2018 Term Loan by $20.0 million.

Contractual Obligations and Commitments

The following table summarizes our commitments to settle contractual obligations as of December 31, 2020 (in thousands):

Less than 1 Year

(2021) 1 to 3 Years

(2022 - 2023) 3 to 5 Years

(2024 - 2026) More than

(thereafter) Total

Convertible senior notes (1)

$ 2,159 $ 4,600 $ 234,696 $ — $ 241,455

Finance leases (2)

$ 13 $ — $ — $ — $ 13

Operating leases (3)

5,097 7,373 2,418 — 14,888

Purchase obligations (4)

3,484 3,141 — — 6,625

Total $ 10,753 $ 15,114 $ 237,114 $ — $ 262,981

(1) Convertible senior notes includes total interest due of $11.5 million.

(2) Finance leases represent principal and interest payments.

(3) Operating lease obligations represent future minimum lease payments under our non-cancelable operating leases with an initial term in excess of one year.

(4) Purchase obligations include all legally binding contracts such as hardware, software, licenses and legally binding service contracts.

Purchase orders that are not binding agreements are excluded from the table above.

The table above does not include obligations under agreements that we can cancel without a significant penalty.

We have a minimum FI Share commitment with a certain FI partner totaling $10.0 million over a 12-month period following the completion of certain milestones, which were not met as of December 31, 2020.

The table above does not include these obligations.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

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Interest Rate Risk

The interest rates under the 2018 Line of Credit are variable.

The interest rate under the 2018 Line of Credit is variable.

Interest on advances under the 2018 Line of Credit bears an interest rate of the prime rate minus 0.50%, or 2.75%.

As of December 31, 2021 the prime rate was 3.25% and a 10% increase in the current prime rate would, for example, result in a $0.2 million annual increase in interest expense if the maximum borrowable amount under the 2018 Line of Credit were outstanding for an entire year.

The interest rate on the Notes is fixed at 1.00%.

Foreign Currency Exchange Risk

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Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations.

Historically, we do not believe that inflation has had a material effect on our business, financial condition or results of operations.

During the last year our partners have been faced with inflationary pressure.

This could potentially impact our current business products and strategy.

We continue to monitor the impact of inflation in order to reduce its effects through pricing strategies, productivity improvements, and cost reductions.

If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis