What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-01 · 307 added, 172 removed, 1169 unchanged (29% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2022, expressed an adverse opinion on the Company’s internal control over financial reporting because of a material weakness.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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Critical Audit Matter Description

The Company’s revenue generated from its Cardlytics platform consists of transaction-based fees made up of a significant volume of low-dollar transactions, sourced from multiple databases.

The Company’s revenue generated from its Cardlytics platform in the U.S.

consists 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.

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◦ Performed testing of initial system set-up and monitoring controls, system interface controls, automated controls, and data monitoring controls within the relevant revenue streams, as well as the controls designed to ensure the accuracy and completeness of revenue.

• We tested internal controls within the relevant revenue business processes, including those in place to reconcile the information from various systems to the Company’s general ledger.

• We tested the operating effectiveness of internal controls within the relevant revenue business processes, including those in place to reconcile the information from various systems to the Company’s general ledger.

• For a sample of revenue transactions, we performed detail transaction testing by agreeing the amounts recognized to source documents and testing the mathematical accuracy of the recorded revenue.

Business Combinations – Refer to Notes 2, 4, and 13 to the consolidated financial statements

Contingent Consideration – Refer to Notes 2, 4, and 12 to the consolidated financial statements

Critical Audit Matter Description

As disclosed in Note 4 to the consolidated financial statements, the Company completed the acquisition of Bridg Inc.

("Bridg") during 2021 for a transaction price of $578.9 million.

This transaction was accounted for as a business combination.

Auditing the Company's accounting for the acquisition of Bridg was complex due to the estimation utilized in the Company's determination of the fair value of the contingent consideration initially valued at $230.9 million on the date of acquisition.

The significant estimation was primarily due to the complexity of the valuation model used by management to measure the fair value of the contingent consideration and the sensitivity of the fair value to the significant underlying assumptions.

In order to determine the fair value of the contingent consideration, the Company simulated forecasted annual recurring revenue ("ARR") using a revenue volatility assumption from comparable market data.

The Company acquired Bridg in the prior year, which included contingent consideration as part of the total purchase consideration.

Auditing the Company's accounting for the contingent consideration was complex due to the estimation utilized in the Company's determination of the fair value of the contingent consideration, which was valued at $104.1 million as of December 31, 2022.

The significant estimation was primarily due to the complexity of the valuation methodology used by management to measure the fair value of the contingent consideration and the sensitivity of the fair value to the significant underlying assumptions.

In order to determine the fair value of the contingent consideration, the Company simulated forecasted annual recurring revenue ("ARR") using revenue volatility from comparable market data.

The Company then determined the appropriate discount rate for the assumed cash component and used a Monte Carlo simulation for the assumed stock component.

The assumptions used in preparing this model include estimates such as revenue volatility, revenue discount rate, weighted average cost of capital, and the Company’s common stock volatility.

The assumptions utilized in the model are forward looking and could be affected by future economic and market conditions.

As contingent consideration is recorded as a liability it is remeasured using a fair value methodology consistent with the one described above and it will continue to be remeasured until the dates of settlement (upon the First Anniversary Payment and Second Anniversary Payment dates.)

We identified contingent consideration as a critical audit matter because of the judgement surrounding projected ARR and the complexity of the valuation model used to value the contingent consideration as well as the material weakness identified.

The assumptions utilized in the model require substantial judgment and could have a material impact on the amount of contingent consideration expense recorded in any given period.

As of December 31, 2022, the remeasurement is relevant for the Second Anniversary Payment date.

We identified contingent consideration as a critical audit matter because of the judgement surrounding forecasted ARR and the complexity of the valuation methodology used to value the contingent consideration.

This required a high degree of auditor judgment and an increased extent of effort, including the need for us to involve professionals with valuation expertise.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Bridg contingent consideration, specifically the projected ARR and valuation model, included the following, among others:

• We tested the projected revenues used in the model by comparing them to historical results, third party industry projections, and the Company’s internal contracted backlog.

Our audit procedures as of December 31, 2022, related to the Bridg contingent consideration included the following, among others:

• We tested operating effectiveness of controls around management’s review of third-party specialist’s report, calculation and reconciliation of the estimated liability to the general ledger, and management’s review of forecasted ARR.

• We tested the forecasted ARR used in the model by comparing the projections to historical results, third party industry projections, and the Company’s internal contracted backlog.

• We evaluated management’s ability to accurately forecast revenues by comparing actual results to management’s historical forecasts of revenue.

• With the assistance of our valuation specialists, we evaluated the valuation methodology and independently recalculated the estimated fair value of the contingent consideration to compare to the Company's recorded amount.

Goodwill – Certain Reporting Units – Refer to Note 5 to the consolidated financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair values of its reporting units, including the Cardlytics platform in the U.S.

reporting unit and the Bridg platform reporting unit, to their respective carrying values as of both June 30, 2022 and October 1, 2022.

The Company used a combination of valuation methodologies including the income approach, and to a lesser extent the market approach, to estimate fair value at each reporting date.

The Company utilizes discounted cash flow models to perform its income approach, which requires management to make significant judgments related to discount rates and forecasts of future revenues and cash flows.

Changes in these assumptions could have a significant impact on either the fair values of the reporting units, the amount of any goodwill impairment charge, or both.

The Company performed an interim impairment test for goodwill as of June 30, 2022 due to a sustained decline in its stock price.

The Company recognized a goodwill impairment charge of $83.1 million in the second quarter of 2022 as the fair value of the Bridg platform reporting unit was determined to be less than its respective carrying value.

The Company performed its annual goodwill impairment assessment as of October 1, 2022.

As a result of a continued slowdown in the global economy and decreased consumer spend, which resulted in further declines in the Company’s stock price, the Company recognized a goodwill impairment charge of $46.3 million for the Cardlytics platform in the U.S.

reporting unit and $266.8 million for the Bridg platform reporting unit, as the fair value for each respective reporting unit was determined to be less than its respective carrying value.

The total goodwill impairments were $396.2 million for the year ended December 31, 2022.

The goodwill balance was $352.7 million as of December 31, 2022, of which $164.4 million was allocated to the Cardlytics platform in the U.S.

reporting unit and $188.3 million was allocated to the Bridg platform reporting unit.

We identified valuation of goodwill for Cardlytics platform in the U.S.

reporting unit and Bridg platform reporting unit as a critical audit matter because of the significant judgments made by management to estimate the fair values of these reporting units.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rate and forecasts of future revenues and cash flows for the Cardlytics platform in the U.S.

reporting unit and the Bridg platform reporting unit.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the valuation methodology, discount rate and forecasts of future revenues and cash flows used by management to estimate the fair value of the Cardlytics platform in the U.S.

reporting unit and Bridg platform reporting unit included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the Cardlytics platform in the U.S.

reporting unit and Bridg platform reporting unit, such as controls related to management’s selection of the discount rate and forecasts of future revenues and cash flows.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate, including testing the source information underlying the determination of the discount rate, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the discount rate selected by management.

• We evaluated management’s ability to accurately forecast future revenues and cash flows by comparing prior year forecasts to actual results in the respective years.

We also compared current revenue and cash flow forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in Company press releases as well as in analyst and industry reports of the Company and companies in its peer group.

/s/ DELOITTE & TOUCHE LLP

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Capitalized software development costs, net 13,131 19,925

Deferred implementation costs, net 3,785 —

Other long-term assets, net 2,406 2,586

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Additional paid-in capital 1,212,823 1,182,568

Accumulated other comprehensive (loss) income ( 192 ) 486

Accumulated other comprehensive income 486 5,598

Accumulated deficit ( 522,618 ) ( 976,570 )

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General and administration expense 46,532 66,222 81,446

Acquisition and integration costs — — 24,372

Acquisition and integration costs (benefits) — 24,372 ( 2,874 )

Change in fair value of contingent consideration — 1,374 ( 128,174 )

Impairment of goodwill and intangible assets — — 453,288

Depreciation and amortization expense 7,826 29,871 37,544

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Operating loss ( 53,923 ) ( 122,599 ) ( 457,778 )

Other income (expense):

Other (expense) income:

Interest expense, net ( 3,048 ) ( 12,563 ) ( 2,556 )

Foreign currency gain (loss) 1,549 ( 1,267 ) ( 6,376 )

Total other income (expense) 181 ( 1,499 ) ( 13,830 )

Total other expense ( 1,499 ) ( 13,830 ) ( 8,932 )

Loss before income taxes ( 55,422 ) ( 136,429 ) ( 466,710 )

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Stock-based compensation — — 32,872 — — 32,872

Issuance of common stock 1,904 1 61,308 — — 61,309

Issuance of ESPP 154 — 2,208 — — 2,208

Issuance of restricted stock 486 — — — — —

Other comprehensive income — — — ( 680 ) — ( 680 )

Net loss — — — — ( 17,144 ) ( 17,144 )

Balance – December 31, 2019 26,547 $ 8 $ 480,578 $ 1,312 $ ( 338,631 ) $ 143,267

Exercise of common stock options 467 — 10,176 — — 10,176

Exercise of common stock warrants 9 — — — — —

Stock-based compensation — — 32,872 — — 32,872

Issuance of common stock under the ESPP 59 — 2,837 — — 2,837

Issuance of restricted stock 779 — — — — —

Issuance of ESPP 59 — 2,837 — — 2,837

Issuance of convertible notes — — 51,416 — — 51,416

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Issuance of common stock 3,850 1 484,048 — — 484,049

Common stock purchase consideration for the acquisition of Dosh 916 — 117,349 — — 117,349

Common stock to be issued for the acquisition of Dosh 916 — 117,349 — — 117,349

Fair value of assumed Dosh options attributable to pre-combination service — — 3,593 — — 3,593

Fair value of assumed Bridg options attributable to pre-combination service — — 841 — — 841

Issuance of ESPP 42 — 3,184 — — 3,184

Issuance of common stock under the ESPP 42 — 3,184 — — 3,184

Other comprehensive loss — — — 678 — 678

Net loss — — — — ( 128,565 ) ( 128,565 )

Balance – December 31, 2021 33,534 $ 9 $ 1,212,823 $ 486 $ ( 522,618 ) $ 690,700

Cumulative effect upon adoption of ASU 2020-06 — $ — $ (51,417) $ — $ 11,312 $ (40,105)

Exercise of common stock options 23 — 418 — — 418

Stock-based compensation — — 46,810 — — 46,810

Issuance of restricted stock 986 — — — — —

Common stock to be issued for the acquisition of Entertainment 173 — 11,937 — — 11,937

Issuance of common stock under the ESPP 167 — 1,997 — — 1,997

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

Other comprehensive income — — — 5,112 — 5,112

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Amortization of right-of-use asset 3,766 5,783 6,196

Impairment of goodwill and intangible assets — — 453,288

Accretion of debt discount and non-cash interest expense 2,486 9,513 —

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Prepaid expenses and other assets ( 65 ) ( 1,466 ) 535

Recovery of deferred implementation costs 4,625 — —

Accounts payable 16 1,260 ( 893 )

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Customer Incentive liability 4,429 13,211 1,382

Net cash received from (used in) operating activities 11,457 ( 7,598 ) ( 38,523 )

Net cash used in operating activities ( 7,598 ) ( 38,523 ) ( 53,904 )

Investing activities

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Proceeds from issuance of common stock 10,185 486,388 379

Repurchase of common stock — — ( 40,000 )

Deferred equity issuance costs — ( 190 ) ( 157 )

Debt issuance costs ( 382 ) ( 200 ) ( 174 )

Net cash received from financing activities 44,179 206,430 485,998

Net cash received from (used in) financing activities 206,430 485,998 ( 39,987 )

Effect of exchange rates on cash, cash equivalents and restricted cash 47 ( 567 ) ( 1,926 )

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Cash paid for interest $ 63 $ 2,328 $ 2,381

Cash paid for income taxes $ — $ — $ —

Amounts accrued for property and equipment $ 242 $ 267 $ 67

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(“we,” “our,” “us,” the “Company,” or “Cardlytics”) is a Delaware corporation and was formed on June 26, 2008.

We operate an advertising platform within our own and our partners' digital channels, which 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 data, including product-level purchase data, to enable marketers, in a privacy-protective manner, to perform analytics and targeted 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 point-of-sale data, including product-level purchase data.

By applying advanced analytics to the purchase data we receive, we make it actionable, helping marketers 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.

We operate an advertising platform within our own and our partners' digital channels, which includes online, mobile applications, email, and various real-time notifications (the "Cardlytics platform").

We also operate a customer data platform that utilizes point-of-sale data, including product-level purchase data, to enable marketers, in a privacy-protective manner, to perform analytics and targeted loyalty marketing and to measure the impact of their marketing (the "Bridg platform").

The partners for the Cardlytics platform are predominantly financial institutions ("FI partners") that provide us with access to their anonymized purchase data and digital banking customers.

The partners for the Bridg platform are merchants that provide us with access to their point-of-sale data, including product-level purchase data.

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

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

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

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

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

Stock Repurchases

On May 11, 2022, our Board of Directors authorized a stock repurchase program to repurchase up to $ 40.0 million of our common stock.

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

Proceeds from Issuance of Common Stock

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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.

We received total net proceeds of $ 61.3 million after deducting underwriting discounts and commissions of $ 3.2 million and offering costs of $ 0.2 million.

Selling stockholders, including certain of our executive officers and entities affiliated with certain of our directors, sold 1,194,365 shares of common stock in the offering at a public offering price of $ 34.00 .

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

During 2019, 2020 and 2021, we received $ 29.7 million, $ 10.2 million and $ 2.2 million, respectively, in proceeds from the exercise of options and warrants to purchase shares of common stock.

During 2020 and 2021, we received $10.2 million and $2.2 million, respectively, in proceeds from the exercise of options and warrants to purchase shares of common stock.

2020 Convertible Senior Notes

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Refer to Note 9—Debt and Financing Arrangements for further details.

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

On May 5, 2021, we completed the acquisition of Bridg for purchase consideration of $ 578.9 million.

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consolidated financial statements.

Significant items subject to such estimates and assumptions include revenue

recognition, internal-use software development costs, stock-based compensation, allowance for doubtful accounts,

valuation of acquired intangible assets of Dosh and Bridg, valuation of contingent consideration for Bridg, income tax including

valuation allowance and contingencies.

We base our estimates on historical experience and on assumptions that we believe are

Significant items subject to such estimates and assumptions include revenue recognition, internal-use software development costs, stock-based compensation, allowance for doubtful accounts, valuation of acquired intangible assets of Dosh and Bridg, valuation of contingent consideration for Bridg, valuation of long-lived assets, goodwill valuation, income tax including valuation allowance and contingencies.

We base our estimates on historical experience and on assumptions that we believe are reasonable.

Changes in facts or circumstances may cause us to change our assumptions and estimates in future periods and it is possible that actual results could differ from our current or revised future estimates

Restructuring

Restructuring and Reduction of Force

During the first quarter of 2020, we began a strategic shift within our organization to increase productivity and optimize performance.

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$ 1.1 million in sales and marketing expense, $ 0.1 million in general and administrative expense and $ 0.1 million in research and development expense.

Severance and medical benefits of $0.9 million had been paid to former employees through December 31, 2020.

As a part of our integration efforts with our acquired companies, we have continued to evaluate the optimal structure of the combined organization.

As a result, during the year ended December 31, 2021 we have recognized $1.2 million in severance and medical benefits related to our acquisitions.

As a part of our integration efforts with our acquired companies, we continued to evaluate the optimal structure of the combined organization.

As a result, during the year ended December 31, 2021 we recognized $ 1.2 million in severance and medical benefits related to our acquisitions.

These charges are reflected on our consolidated statement of operations within acquisition and integration costs.

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We recognize these costs when the extent of our actions is determined and the costs can be estimated.

As of December 31, 2021, $0.6 million of severance and medical benefits related to integration efforts and 2021 restructuring owed to former employees remains unpaid.

During 2022, we initiated a strategic reduction of our forces in our U.S., U.K., and India operations, including the planned closure of our Indian office.

We also began a strategic shift within our organization to migrate certain data and applications to a cloud computing environment.

As part of these initiatives, we recognized severance and medical benefit costs of $ 8.1 million.

These charges are reflected on our condensed consolidated statement of operations as follows:

$ 1.9 million in delivery costs, $ 2.1 million in sales and marketing expense, $ 1.6 million in research and development expense and $ 2.5 million in general and administrative expense.

We recognize these costs when the extent of our actions are determined and the costs can be estimated.

We plan to close our Indian office by the end of 2022.

As of December 31, 2022 , the remaining costs that have been incurred related to our restructuring and reduction of force but not yet paid are $2.4 million.

Foreign Currency

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

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

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

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

To the extent that we use a specific partners' customer’s anonymized purchase data in the delivery of our solutions, we generally 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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Delivery costs also include hosting facility costs, internally developed and purchased or licensed software costs, outsourcing costs and professional services costs.

Impacts of COVID-19 Pandemic

The COVID–19 pandemic resulted in a global slowdown of economic activity that decreased demand for a broad variety of goods and services and consumer discretionary spending, including spending by consumers with our marketers, and such decreased demand is likely to continue.

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.

Macroeconomic Considerations

Unfavorable conditions in the economy both in the United States and abroad may negatively affect the growth of our business and our results of operations.

For example, macroeconomic events, including the COVID-19 pandemic, rising inflation, the U.S.

Federal Reserve raising interest rates and the Russia-Ukraine war, have led to economic uncertainty globally.

Historically, during periods of economic uncertainty and downturns, businesses may slow spending on advertising, which may impact our business and our customers’ businesses.

The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods.

If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed.

For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled “Risk Factors.”

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 solutions.

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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.

During the year ended December 31, 2022, we saw increasing pressure on consumer spending as well as the advertising budgets of our clients due to rising inflation.

Due to continuing uncertainty regarding the severity and duration of the impacts of macroeconomic events on the global economy, we will continue to monitor this situation and the potential impacts to our business.

Business Combinations

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Intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives.

The impairment analysis involves determining whether the estimated fair value of each intangible asset exceeds its carrying amount.

If the fair value of the intangible asset exceeds its carrying amount, then the asset is not impaired.

However, if the carrying amount exceeds the fair value of the asset, the amount of impairment would equal the excess carrying value.

We evaluate the recoverability of our finite-lived intangible assets and other long-lived assets whenever events or substantive changes in circumstances indicate that the carrying amount may not be recoverable .

These considerations are evaluated holistically to assess whether it is more likely than not that a reporting unit's carrying value exceeds its fair value.

During 2022 we recorded an intangible asset impairment of $56.4 million.

Refer to Note 5—Goodwill and Acquired Intangibles for additional information.

Goodwill represents the purchase consideration of an acquired business that exceeds the fair value of the net tangible and identifiable intangible assets.

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Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate or a significant d ecrease in expected cash flows.

No impairment charges were recorded during 2019, 2020 nor 2021 .

No impairment charges were recorded during 2020 and 2021.

During 2022 we recorded impairment charges of $ 396.2 million.

Refer to Note 5—Goodwill and Acquired Intangibles for additional information.

Revenue Recognition

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As of December 31, 2022, there are no contract costs subject to capitalization.

There were no impairment losses recognized during 2021.

Accounts Receivable

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Intangible assets, excluding those acquired from our business combinations, are recorded at cost and consist of costs incurred for software patent applications.

As of December 31, 2021, we had seven issued patents relating to our software.

We received approval for three patents in 2013, one patent in 2018 and three in 2021 and began amortizing the costs of obtaining these patents over the estimated remaining lives of the patents.

As of December 31, 2022, we had eight issued patents relating to our software.

We received approval for three patents in 2013, one patent in 2018, three patents in 2021 and one patent in 2022 and began amortizing the costs of obtaining these patents over the estimated remaining lives of the patents.

If a patent application is rejected or if we abandon efforts to obtain a new patent, all deferred patent costs are expensed immediately.

Deferred patent costs related to patents for which we have not yet obtained approval totaled $ 0.4 million and $ 0.1 million as of December 31, 2021 and 2022, respectively.

In connection with our annual goodwill and intangible asset impairment assessment in the fourth quarter of 2022, we recorded an impairment of $0.7 million related to our software patent applications, which is included in the impairment of goodwill and intangible assets line item in the consolidated statement of operations.

Based on deferred patent costs as of December 31, 2022, the related amortization expense will be less than $0.1 million in each of the next five years.

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Costs incurred in the preliminary project stage and post-implementation operation stages are expensed as incurred and recorded in research and development expense on our consolidated statements of operations.

During 2019, 2020 and 2021, we capitalized development costs for improvements to our platforms, including our Ads Manager Ad Server, totaling $2.6 million, $4.3 million and $10.1 million, respectively.

During 2020, 2021 and 2022, we capitalized development costs for improvements to our platforms, including our Ads Manager and Ad Server, totaling $4.3 million, $10.1 million and $12.8 million, respectively.

During the first quarter of 2020, we redesigned certain elements of this project and wrote off development costs totaling $1.0 million recognized in depreciation and amortization expense on our consolidated statement of operations.

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Total $ 3,956

Deferred Offering Costs

Deferred offering costs consist of incremental costs directly attributable to equity offerings.

Deferred offering costs are included in other long-term assets on our consolidated balance sheets.

Upon completion of an offering, these amounts are offset against the proceeds of the offering.

Deferred offering costs is as follows (in thousands):

Year Ended December 31,

2019 2020 2021

Beginning balance $ — $ — $ —

Deferred costs 196 — 190

Recognized against offering proceeds ( 196 ) — ( 190 )

Ending balance $ — $ — $ —

We expense advertising costs as incurred.

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Changes in the fair value of the contingent consideration obligations are recognized within the Company’s Consolidated Statements of Operations and Comprehensive Loss.

Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to 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.

Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates and assumptions used in preparing these models which include estimates such as revenue volatility, annualized recurring revenue, 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.

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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.

For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures, including software development, as defined under IRC Section 174, in the year incurred.

Instead, taxpayers are required to amortize such expenditures over five years if incurred in the U.S.

and over fifteen years if incurred in a foreign jurisdiction.

This new requirement caused us to utilize significant federal and state tax net operating loss carryforwards in the current year.

The depreciation and amortization deferred income taxes line above was updated to include these capitalized research and development expenses for December 31, 2022.

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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The adoption of this guidance did not have a material effect on our consolidated financial statements.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion Options (“Subtopic 470-20”) and Derivatives and Hedging—Contracts in Entity’s Own Equity (“Subtopic 815-40”) , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity.

ASU 2020-06 also improves and amends the related Earnings Per Share guidance for both Subtopics.

The ASU is part of the FASB's simplification initiative, which aims to reduce unnecessary complexity in U.S.

GAAP, as it removes the requirement to bifurcate our Convertible Senior Notes ("the Notes") into a separate liability and equity component.

ASU 2020-06 will be effective for annual reporting periods beginning after December 15, 2021.

On January 1, 2022 we will adopt this standard using the modified retrospective method which allows for a cumulative-effect adjustment to the opening balance sheet without restating prior periods.

Upon adoption, we expect to initially record a decrease in accumulated deficit of $11.2 million, an increase to long-term debt of $40.2 million and a decrease to additional paid in capital of $51.4 million.

On January 1, 2022 we adopted ASU 2020-06, Debt—Debt with Conversion Options (“Subtopic 470-20”) and Derivatives and Hedging—Contracts in Entity’s Own Equity (“Subtopic 815-40”) , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity.

Upon adoption, we recorded a decrease in accumulated deficit of $11.3 million, an increase to long-term debt of $40.2 million and a decrease to additional paid in capital of $51.5 million.

Refer to Note 9, “Debt and Financing Arrangements” for further information about the Notes.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

On January 1, 2022 we adopted ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which require that an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.

Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Topic 606, at fair value on the acquisition date.

ASU 2020-08 will be effective for annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption of the amendments is permitted, including adoption in an interim period.

On January 1, 2022 we will adopt this standard and apply to prospective business combinations.

The adoption of this guidance did not have a material effect on our consolidated financial statements.

BUSINESS COMBINATIONS

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Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.

During the year ended December 31, 2021 we incurred $ 24.4 million of costs in connection with the acquisitions of Dosh and Bridg.

These costs are included in acquisition and integration costs on our consolidated statements of operations.

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.

The results of Dosh and Bridg have been included in the consolidated financial statements since their respective dates of acquisition.

During the years ended December 31, 2021 and December 31, 2022 we incurred $ 24.4 million of costs and $ 2.9 million of benefit in connection with our acquisitions, respectively.

The benefit was due to a reduction of the estimated brokerage fee related to our reduced estimate of contingent consideration related to our Bridg acquisition.

These costs (benefits) are included in acquisition and integration costs (benefit) on our condensed consolidated statements of operations and primarily represent legal, accounting and broker fees.

The results of Entertainment have been included in the consolidated financial statements since its date of acquisition.

For the year ended December 31, 2021, Dosh and Bridg's combined revenue included in the consolidated statement of operations were approximately 8% of consolidated revenue.

For the year ended December 31, 2022, Entertainment's combined revenue included in the consolidated statement of operations was approximately 3% of consolidated revenue, respectively.

Due to the continued integration of the combined businesses, it was impractical to determine the earnings.

For both the acquisitions of Dosh and Bridg, as applicable, the estimated fair values of merchant relationships, partner relationships, and the card-linked subscriber user base were determined using the replacement cost method and lost profits, as applicable, which required us to estimate the costs to recreate an asset of equivalent utility at prices available at the time of the valuation analysis and the lost profits over the period of time to recreate the asset.

For the acquisitions of Dosh, Bridg and Entertainment, as applicable, the estimated fair values of merchant relationships, partner relationships, and the card-linked subscriber base were determined using the replacement cost method and lost profits, as applicable, which required us to estimate the costs to recreate an asset of equivalent utility at prices available at the time of the valuation analysis and the lost profits over the period of time to recreate the asset.

Trade names were valued using the "relief-from-royalty" approach.

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This method required us to estimate the future revenues for the related brands, the appropriate royalty rates and the weighted-average costs of capital.

Developed technology was valued using the excess earnings method, an income approach.

Developed technology for Entertainment was valued using the replacement cost method, which required us to estimate the costs to recreate an asset of equivalent utility at prices available at the time of the valuation analysis.

Developed technology for Dosh and Bridg was valued using the excess earnings method, an income approach.

Under the excess earnings method, the fair value of an intangible asset is equal to the present value of the asset’s projected incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of return on the estimated value of contributory assets (contributory charge) over its remaining useful life.

During the year ended December 31, 2022 we recognized a goodwill impairment of $ 396.2 million and an intangible asset impairment of $56.4 million.

Refer to Note 5—Goodwill and Acquired Intangibles for further details.

Acquisition of Entertainment

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

January 7, 2022

Fair value of common stock transferred $ 11,937

Cash paid to extinguish acquiree debt 2,053

Cash paid to settle pre-acquisition liabilities and acquiree deal-related costs 624

Cash paid to membership interest holders 24

Cash receivable from membership interest holders pursuant to finalization of net working capital ( 61 )

Total purchase consideration $ 14,577

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

January 7, 2022

Cash and cash equivalents $ 376

Accounts receivable and other assets 1,259

Intangible assets 9,800

Goodwill 5,002

Accounts payable and other liabilities ( 1,860 )

Total purchase consideration $ 14,577

The goodwill was primarily attributed to the value of future synergies created with our current and future offerings.

Goodwill is not expected to be deductible for income tax purposes.

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

Fair Value Useful life (in years)

Trade name $ 800 3.0

Developed technology 700 3.0

Merchant relationships 8,300 4.0

Acquisition of Bridg

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Total purchase consideration $ 578,889

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

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

Cash and cash equivalents $ 1,630

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Goodwill is not expected to be deductible for income tax purposes.

During the fourth quarter of 2021, we recorded a measurement period adjustment to our income tax provision resulting in $5.6 million of additional goodwill.

See Note 11—Income Taxes for further details.

We will owe a brokerage fee derived from the amount of the First Anniversary Payment and the Second Anniversary Payment, if any.

As of December 31, 2021, the brokerage fee of the First Anniversary Payment is expected to be $12.3 million, reflected in accrued expenses on our consolidated balance sheet, and the brokerage fee of the Second Anniversary Payment is expected to be $4.5 million, reflected in other long-term liabilities on our consolidated balance sheet.

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

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Merchant relationships 11,000 5.0

As a part of this acquisition, we have agreed to make a First Anniversary Payment equal to 20 times the annualized recurring revenue ("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.

Refer to Note 12—Fair Value Measurements for further discussion.

As of December 31, 2022, the First Anniversary Payment has not been made and an agreement regarding the amount of the First Anniversary Payment has not been reached.

Per the terms of the Agreement and Plan of Merger, we delivered the First Earnout Statement within thirty days of the end of the First Earnout Period.

We subsequently agreed to extend the Stockholder Representative's review period.

During the third quarter, we received an Earnout Objection Notice from the Stockholder Representative that alleges a material understatement of the First Anniversary Payment amount.

We are continuing the dispute-resolution process specific to the First Anniversary Payment outlined in the Agreement and Plan of Merger, which was filed with the Securities and Exchange Commission as Exhibit 10.1 to a Form 8-K on November 18, 2022.

Acquisition of Dosh

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Total purchase consideration $ 277,610

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

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

March 5, 2021

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Total purchase consideration $ 277,610

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and of future growth expected from the labor force of Dosh.

The goodwill was primarily attributed to the value of synergies created with our current and future offerings and of future growth expected from the labor force of Dosh.

Goodwill is not expected to be deductible for income tax purposes.

the fourth quarter of 2021, we recorded a measurement period adjustment of $1.5 million of additional fair value of developed technology.

During the fourth quarter of 2021, we recorded a measurement period adjustment of $1.5 million of additional fair value of developed technology.

During the fourth quarter of 2021, we recorded a measurement period adjustment to our income tax provision resulting in $2.3 million of additional goodwill.

See Note 11—Income Taxes for further details.

Refer to Note 11—Income Taxes for further details.

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

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Pro forma consolidated results of operations

The following unaudited pro forma financial information presents combined results of operations for each of the periods presented as if the acquisitions of Bridg and Dosh had been completed on January 1, 2020.

The following unaudited pro forma financial information presents combined results of operations for the period presented as if the acquisition of Entertainment had been completed on January 1, 2021 and the acquisitions of Dosh and Bridg had been completed on January 1, 2020.

The pro forma information includes adjustments to depreciation expense for property and equipment acquired, to amortize expense for the intangible assets acquired, and to eliminate the acquisition transaction expenses recognized in the period.

The pro forma financial information is for informational purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisitions of Bridg and Dosh actually occurred on January 1, 2020, or the results of future operations of the combined business.

For instance, planned or expected operational synergies following the acquisitions are not reflected in the pro forma information.

The pro forma financial information is for informational purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisitions actually occurred on January 1, 2021 and January 1, 2020, respectively, or the results of future operations of the combined business.

For instance, planned or expected operational synergies following the acquisition are not reflected in the pro forma information.

Consequently, actual results will differ from the unaudited pro forma information presented below.

Year Ended December 31,

Revenue $ 276,563 $ 298,563

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The changes in the carrying amount of goodwill for the year ended December 31, 2022 are as follows (in thousands):

Cardlytics Platform, U.S.

Bridg Platform Consolidated

Balance as of December 31, 2020 $ — $ — $ —

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Balance as of December 31, 2021 205,690 536,826 742,516

Goodwill additions 5,062 — 5,062

Measurement period adjustments ( 60 ) 1,445 1,385

Goodwill impairment ( 46,262 ) ( 349,980 ) ( 396,242 )

Balance as of December 31, 2022 $ 164,430 $ 188,291 $ 352,721

Goodwill is tested annually for impairment, unless certain triggering events require an interim impairment analysis, including macroeconomic conditions, industry and market considerations, costs factors, overall financial performance, and other relevant entity-specific events and changes.

These considerations are evaluated holistically to assess whether it is more likely than not that a reporting unit's carrying value exceeds its fair value.

Our reporting units consist of the Cardlytics platform in the U.S., the Cardlytics platform in the U.K.

and the Bridg platform .

There is no goodwill recorded within the Cardlytics platform in the U.K.

As a result of the sustained decline in our stock price, we determined that it was necessary to perform an interim impairment test for goodwill as of June 30, 2022.

As a result of our interim impairment test, we determined that the carrying value of the Bridg platform, which is comprised entirely of an acquired business, exceeded its fair value, and consequently, we recognized a goodwill impairment of $83.1 million, with $455.1 million of goodwill remaining .

As a result, the Bridg platform reporting unit had a fair value that is equal to carrying value as of the June 30, 2022 valuation date.

The methods of determining fair value of the reporting units at June 30, 2022 included a combination of the discounted cash flow method under the income approach, and to a lesser extent the market approach.

We performed our annual impairment test as of October 1, 2022 and determined that the carrying value of both the Cardlytics platform in the U.S.

and the Bridg platform exceeded their respective fair values, and we recognized goodwill impairment of $313.1 million.

The decline in the fair values of both the Cardlytics platform in the U.S.

and the Bridg platform reporting units below their respective carrying values resulted from a continued slowdown in the global economy and decreased consumer spend, and a sustained decline in our stock price.

The method of determining fair values of the reporting units at October 1, 2022 was the discounted cash flow method under the income approach, and to a lesser extent the market approach.

The most significant assumptions utilized in the determination of the estimated fair of the Bridg platform and the Cardlytics platform in the U.S.

are the discount rate and forecasts of future revenues and cash flows.

We prepared cash flow projections based on management's estimates of revenue growth rates and earnings growth rates for each reporting unit, taking into consideration the historical performance and the current macroeconomic, industry, and market conditions.

The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure.

Our discount rate may be impacted by adverse changes in the macroeconomic environment and volatility in the equity and debt markets.

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

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Amortization expense of acquired intangibles for the twelve months ended December 31, 2021 was $19.7 million.

Prior to the quantitative goodwill impairment test, we evaluated the recoverability of these long-lived assets for our asset groups.

The evaluation is based on the cash flows generated by the underlying asset groups, including estimated future operating results, trends or other determinants of fair value.

If the total of the expected future undiscounted cash flows were less than the carrying amount of the asset group, we would recognize an impairment charge to the extent the carrying amount of the asset group exceeded its estimated fair value.

In connection with our annual goodwill impairment assessment, in the fourth quarter of 2022, we also recorded impairments of intangible assets that are included in our Cardlytics platform in the U.S.

segment, which primarily related to developed technology and customer relationship intangible assets from a previous acquisition.

These intangible asset impairments totaled $56.4 million and are included in the impairment of goodwill and intangible assets line item in the consolidated statement of operations.

Our impairment analysis at October 1, 2022 incorporated revised forecasts that took into account the continued slowdown in the global economy and decreased consumer spend during the quarter and expected impacts of these disruptions on our results in the near term.

Given the significant level of uncertainty that currently exists, management applied several alternative scenarios for market and company performance over the next several years to determine fair value.

Other key assumptions were updated as appropriate, including the discount rate, which increased as a result of an increase in the equity risk premium, which was partially offset by a decrease in the risk free rate.

Acquired intangible assets subject to amortization as of December 31, 2022 were as follows:

Cost Accumulated Amortization Impairments of Intangible Assets Net Weighted Average Remaining Useful Life

(in thousands) (in years)

Trade name $ 3,500 $ ( 1,744 ) $ ( 1,185 ) $ 571 1.4

Developed technology 91,700 ( 24,882 ) ( 27,630 ) 39,188 3.6

Merchant relationships 40,300 ( 12,301 ) ( 14,385 ) 13,614 1.7

Partner relationships 2,000 ( 450 ) ( 1,550 ) — 0.0

Card-linked subscriber user base 17,000 ( 5,355 ) ( 11,645 ) — 0.0

Total other intangible assets $ 154,500 $ ( 44,732 ) $ ( 56,395 ) $ 53,373

Amortization expense of acquired intangibles for the twelve months ended December 31, 2022 was $25.0 million.

As of December 31, 2022, we expect amortization expense in future periods to be as follows (in thousands):

Thereafter 4,472

Total expected future amortization expense $ 53,373

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Revenue on our consolidated statements of operation is presented net of Consumer Incentives and gross of Partner Share.

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

The Cardlytics platform is priced predominantly in two ways:

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The following table summarizes revenue from the Bridg platform (in thousands):

Period Ended December 31,

Year Ended December 31,

Subscription revenue $ 8,207 $ 21,190

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The following table summarizes contract balances from the Bridg platform (in thousands):

Contract Balance Type Consolidated Balance Sheets Location December 31, 2021

Year Ended December 31,

Contract Balance Type Consolidated Balance Sheets Location 2021 2022

Contract assets, current Accounts receivable and contract assets, net $ 52 $ 28

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Refer to Note 4—Business Combinations for further information.

During 2021, we incurred an impairment of $ 0.6 million to the right-of-use assets under operating leases, related to the discontinued use of office space lease obtained during the Dosh acquisition.

During the year ended December 31, 2022, we recognized additional right-of-use assets and lease liabilities of $2.5 million related to new lease agreements and lease modifications for office space.

During the year ended December 31, 2021, we incurred an impairment of $ 0.6 million to the right-of-use assets under operating leases, related to the discontinued use of office space lease obtained during the Dosh acquisition.

The impairment is reflected in a cquisition and integration costs i n the Consolidated Statements of Operations and was attributable to the Cardlytics platform operating segment.

Refer to Note 15—Segments for more information on our operating segments.

During 2020 and 2021, respectively, we made cash payments of $ 4.0 million and $ 7.3 million for operating leases which are included in cash flows received from (used in) operating activities in our consolidated statement of cash flows.

During the year ended December 31, 2022, we incurred an impairment of $0.9 million to the right-of-use-assets as a result of decommissioning our data centers and the planned closure of our office in India.

During the year ended December 31, 2021 and 2022, respectively, we made cash payments of $ 7.3 million and $ 8.2 million for operating leases which are included in cash flows received from (used in) operating activities in our consolidated statement of cash flows.

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

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Fiscal Year Operating Leases

Thereafter 397

Total lease payments 9,688

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The equity component is recorded in Additional Paid-in Capital and is not remeasured as long as it continues to meet the conditions for equity classification.

On January 1, 2022 we adopted ASU 2020-06, Debt—Debt with Conversion Options which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity.

Upon adoption, we recorded a decrease in accumulated deficit of $11.3 million, an increase to long-term debt of $40.2 million and a decrease to additional paid in capital of $51.5 million.

In accounting for the issuance costs related to the Notes, the allocation of issuance costs incurred between the liability and equity components was based on their relative values.

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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.

This amendment also extended the maturity date of the 2018 Loan Facility from May 21, 2020 to May 14, 2021.

We repaid $ 10.0 million of the principal balance of the 2018 Term Loan upon the execution of the amendment in May 2019 and repaid the remaining $ 10.0 million principal balance in September 2019.

On September 17, 2020, we amended our 2018 Loan Facility to allow for the issuance of the Notes.

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This amendment also extended the maturity date of the 2018 Loan Facility from May 14, 2021 to December 31, 2022.

On April 2022, we amended our 2018 Loan Facility to increase the capacity of our Line of Credit from $50.0 million to $60.0 million with an option to increase to $75.0 million upon syndication.

This amendment also extended the maturity date of the 2018 Loan Facility from December 31, 2022 to April 29, 2024.

As part of this amendment, the former cash covenant, as described below, was removed and was replaced with a requirement to maintain a minimum level of adjusted contribution and a minimum adjusted cash of $25.0 million, which is reduced by eligible accounts receivable in excess of the loan capacity.

On November 29, 2022 we amended our 2018 Loan Facility to modify the eligible account receivable to exclude UK accounts, reduce the ability to borrow up to 85% of the amount of our eligible accounts receivable to 50 % and adjusted the required minimum level of adjusted contribution.

On February 16, 2023 we amended our 2018 Loan Facility to remove and replace the former adjusted contribution covenant with a requirement to maintain a minimum level of adjusted EBITDA.

As of December 31, 2022, we had $60.0 million of unused borrowings available under our 2018 Line of Credit.

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Under the 2018 Loan Facility relating to the 2018 Line of Credit, we are able to borrow up to the lesser of $60.0 million or 50 % of the amount of our eligible accounts receivable.

Interest on advances under the 2018 Line of Credit bears an interest rate equal to the prime rate minus 0.50 %, or 2.75 % as of December 31, 2021.

Interest on advances under the 2018 Line of Credit bears an interest rate equal to the prime rate of 7.50 % as of December 31, 2022.

In addition, we are required to pay an unused line fee of 0.15 % per annum on the average daily unused amount of the $60.0 million revolving commitment.

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Additionally, the 2018 Plan provides for the grant of performance cash awards.

On July 18, 2022, our Board adopted the Cardlytics, Inc.

2022 Inducement Plan ("2022 Inducement Plan").

Our Board also adopted a form of stock option grant notice and agreement and a form of restricted stock unit grant notice and agreement for use with the 2022 Inducement Plan.

We reserved a total of 1,500,000 shares of our Common Stock under the 2022 Inducement Plan.

On January 18, 2023, our Board approved an amendment to the Inducement Plan to reserve an additional 350,000 shares of our common stock.

The following table summarizes the allocation of stock-based compensation on the consolidated statements of operations (in thousands):

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Total stock-based compensation expense $ 32,396 $ 50,264 $ 44,686

During 2019, 2020 and 2021, we capitalized less than $ 0.5 million, $ 0.5 million and $0.7 million, respectively, of stock-based compensation expense for software development.

During 2020, 2021 and 2022, we capitalized $0.5 million, $0.7 million and $1.4 million, respectively, of stock-based compensation expense for software development.

Additionally, during 2021, we recognized $12.5 million expense related to our assumption of unvested options and RSU and PSU grants to employees of our acquired businesses.

As of December 31, 2021, we have accrued $0.8 million of stock-based compensation for bonus in lieu of cash compensation which has not been settled.

As of December 31, 2021, we have accrued $0.8 million of stock-based compensation for bonus in lieu of cash compensation which was not settled by the end of the year.

This amount is presented within accrued compensation on our condensed consolidated balance sheet.

This amount was settled in January 2022.

Common Stock Options

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Outstanding - December 31, 2019 1,000 $ 22.99

Granted 39 20.64

Exercised ( 467 ) 21.78 $ 29,523

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Exercised ( 106 ) 19.11 $ 9,710

Forfeited ( 19 ) 27.83

Cancelled ( 1 ) 22.16

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For options outstanding and exercisable at December 31, 2022, the aggregate intrinsic value represents the total pre-tax intrinsic value based on the $ 5.78 closing price of our common stock as reported on the Nasdaq Global Market on December 31, 2022 that would have been received by option holders had all in-the-money options been exercised on that date.

The total fair value of options vested during 2019, 2020 and 2021 was approximately $4.8 million, $2.3 million and $0.5 million respectively.

The total fair value of options vested during 2020, 2021 and 2022 was approximately $2.3 million, $0.5 million and zero, respectively.

All stock option awards outstanding under our 2018 Plan have vested as of December 31, 2022.

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Options outstanding — December 31, 2021 18 8.45 9.35 $ 1,023

Exercised ( 2 ) 8.61 $ 87

Forfeited (11) 8.37

Canceled (2) 8.28

Options outstanding — December 31, 2022 3 8.67 8.35 $ —

Exercisable — December 31, 2022 3 $ 8.72 8.35 $ —

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Options outstanding — December 31, 2021 30 3.06 9.15 $ 1,847

Exercised ( 5 ) 3.06 $ 230

Forfeited ( 7 ) 3.06

Options outstanding — December 31, 2022 18 3.06 8.18 $ 46

Exercisable — December 31, 2022 9 $ 3.06 8.18 $ 24

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Service-based Restricted Stock Units

During 2021, we granted 769,653 RSUs to employees, executives, and our non-employee directors, which have annual vesting periods ranging from one to four years.

During 2022, we granted 4,441,032 RSUs to employees, executives, and our non-employee directors, which have annual vesting periods ranging from immediately vesting to four years.

We also granted 1,345,261 RSUs to our recently hired Chief Executive Officer, which have a four year vesting period.

During 2021, we additionally granted 30,624 immediately vesting RSUs resulting from the modification of awards through separation agreements.

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Subsequent to December 31, 2022, we granted 527,308 RSUs to employees, which have annual vesting periods ranging from two to four years.

We additionally granted 6,093 RSUs which vest in less than a year and replace previously granted RSUs which were cancelled as a result of the modification of awards due to separation.

The unamortized stock-based compensation expense related to all RSUs granted subsequent to December 31, 2022 is $ 3.1 million.

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Upon the vesting event, 50% of the award vests immediately, 25% of the award vests six months after achievement date and 25% of the award vests 12 months after the achievement date.

During the year-ended December 31, 2022, we reassessed the likelihood of achieving the 2020 PSUs performance-based vesting condition and concluded the achievement is no longer probable.

As a result of the change in estimate, we have recognized the cumulative expense associated with the 2020 PSUs from the grant date as a benefit to stock-based compensation during the year ended December 31, 2022.

In April 2021, we granted 110,236 performance-based restricted stock units ("2021 PSUs") consisting of two tranches.

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In September 2021, we granted 6,666 PSUs which have the same unmet vesting conditions of the 2020 PSUs, 6,667 PSUs which have the same unmet revenue target vesting condition of the 2021 PSUs and 6,667 PSUs which have the same unmet different revenue target vesting condition of the 2021 PSUs as described above.

We believe that the achievement of all of the above referenced performance-based vesting conditions are probable before the awards' respective expiration dates.

In March 2022 and August 2022, we granted 269,202 and 25,248 performance-based restricted stock units ("2022 PSUs"), respectively, consisting of three tranches.

The first two tranches each represent 25% of the grant, and each vest upon the achievement of certain milestones related to the installation of our Ad Server at our FI Partners.

50% of the third tranche vests upon the achievement of a certain number of advertisers purchasing both the Cardlytics and Bridg platforms at a target incremental billings amount over 2021, and the remaining 50% of the tranche vests six months after this target is achieved.

In December 2022, the compensation committee of our board of directors certified that the first tranche's milestone related to the installation of our Ad Server at our FI partners had been achieved, which resulted in the immediate vesting of the first tranche representing 25% of the grant.

In July 2022, we granted 100,990 PSUs which vest on the achievement of specific revenue-based performance metrics ("2022 Bridg PSUs").

With the exception of the 2020 PSUs, we believe that the achievement of all of the above referenced performance-based vesting conditions are probable before the awards' respective expiration dates.

Employee Stock Purchase Plan

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Foreign rate differential ( 0.62 ) % ( 0.19 ) % 0.01 %

Goodwill impairment — % — % ( 17.82 ) %

Contingent liability remeasurement — % — % 5.71 %

Other adjustments 7.36 % 4.68 % 1.03 %

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

During 2021, we released $5.6 million and $2.3 million of our valuation allowance, related to net deferred tax liabilities arising from the acquisitions of Bridg and Dosh, respectively, resulting in a combined income tax benefit of $7.9 million reflected on our consolidated statement of operations.

Deferred tax liabilities for Bridg and Dosh primarily related to acquired intangible assets.

During 2022, we released $1.4 million of our valuation allowance related to net deferred tax liabilities arising from the acquisitions of Bridg resulting in an income tax benefit of $1.4 million reflected on our consolidated statement of operations.

Deferred tax liabilities for Bridg primarily related to acquired intangible assets.

The following table presents changes in our valuation allowance (in thousands):

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Our tax filings from inception remain subject to income tax examinations.

COMMON STOCK WARRANTS

We have granted warrants to purchase shares of our common stock to certain FI partners that include both time-based and performance-based vesting conditions.

These warrants are accounted for under ASC Topic 505-50, Equity-Based Payments to Non-Employees .

Since the performance conditions contained in these warrants are directly related to revenue-producing activities, we incur non-cash expense in Partner Share and other third-party costs on our consolidated statements of operations based on the vesting-date fair value of our common stock underlying these warrants.

A summary of common stock warrant activity, exclusive of the common stock warrants issued in connection with our Series G financing is as follows (in thousands, except per share amounts):

Shares Weighted-average

exercise price

Warrants Outstanding - December 31, 2018 867 21.89

Exercised ( 821 ) 21.89

Forfeited/canceled ( 34 ) 21.29

Warrants Outstanding - December 31, 2019 12 23.64

Exercised ( 9 ) 23.64

Forfeited/canceled ( 3 ) 23.64

Warrants Outstanding - December 31, 2020 — $ —

We were formerly party to a reseller agreement with Fidelity Information Services LLC (“FIS”).

In September 2019, FIS exercised all of their warrants to purchase common stock, resulting in cash proceeds of $15.2 million and the issuance of 644,365 shares of our common stock.

No common stock warrants have been issued or exercised during 2021.

FAIR VALUE MEASUREMENTS

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Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety.

During the year ended December 31, 2022 we recognized a goodwill impairment of $ 396.2 million.

The fair value of our reporting units was classified in Level 3 of the fair value hierarchy due to the significance of unobservable inputs developed using company-specific information.

Refer to Note 5—Goodwill and Acquired Intangibles for further details.

These levels are:

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Total liabilities $ — $ — $ 232,295 $ 232,295

The following table shows a reconciliation of the beginning and ending fair value measurements of our contingent consideration, which we have valued using level 3 inputs:

December 31, 2022

Level 1 Level 2 Level 3 Total

Current contingent consideration $ — $ — $ 104,121 $ 104,121

Long-term contingent consideration — — — —

Total liabilities $ — $ — $ 104,121 $ 104,121

The following table shows a reconciliation of the beginning and ending fair value measurements of our contingent consideration, which we have valued using level 3 inputs:

December 31, 2021 December 31, 2022

Beginning balance $ — $ 232,295

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Ending balance $ 232,295 $ 104,121

In order to determine the fair value of the First and Second Anniversary Payments, we simulated forecasted revenue using a revenue volatility assumption from comparable market data.

As of December 31, 2022, we have determined the First Anniversary Payment to be $126.4 million, inclusive of $118.7 million of contingent consideration and $7.7 million of broker fees and other costs, which is included in accrued expenses on our consolidated balance sheets.

The fair value of the contingent consideration related to the First Anniversary Payment is $47.6 million, which reflects the impact of a $71.1 million mark-to-market reduction in fair value of the 2,068,995 shares of our common stock that we expect to issue to satisfy 70% of the contingent consideration to Bridg shareholders at an agreed-upon volume-weighted average price of $40.15 per share.

These shares have been revalued based on the $5.78 per share closing price of our common stock as reported on the Nasdaq Global Market on December 31, 2022.

As of December 31, 2022, the First Anniversary Payment has not been settled.

Refer to Note 4—Business Combinations for further discussion.

As of December 31, 2022, we have estimated the Second Anniversary Payment to be $67.8 million, inclusive of $62.6 million of contingent consideration and $5.2 million of broker fees and other costs, which is included in accrued expenses on our consolidated balance sheets.

The fair value of the contingent consideration related to the Second Anniversary Payment is $56.6 million.

In order to determine the fair value, we simulated forecasted revenue using a revenue volatility assumption from comparable market data.

We then determined the appropriate discount rate for the assumed cash component and used a Monte Carlo simulation for the assumed stock component.

The assumptions used in preparing these models include estimates such as revenue volatility, revenue discount rate, weighted average cost of capital, and our common stock volatility.

These valuation models use unobservable market inputs, and therefore the liabilities are classified as Level 3.

The assumptions used in preparing this model includes estimates such as revenue volatility, revenue discount rate, weighted average cost of capital, and our common stock volatility.

The following table summarizes key assumptions used for estimating the fair value of the contingent consideration:

December 31, 2021

December 31, 2021 December 31, 2022

Revenue volatility 20.0 % 20.0 %

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These reductions in Partner Share are recorded as a reduction to deferred implementation costs and also result in a cumulative adjustment to accumulated amortization.

During 2018, development payments to a certain 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.

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Ending balance $ 3,785 $ — $ —

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

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

To the extent that this commitment is expected to exceed the amount of Partner Share otherwise payable to such FI partner in the absence of such commitment, we accrue any expected shortfall over the commitment period.

We accrued for zero and $3.2 million of expected minimum Partner Share commitment shortfalls as of December 31, 2021 and 2022, respectively.

Other Commitments

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See Note 4—Business Combinations for further details.

In March 2022, we entered into a cloud hosting arrangement guaranteeing an aggregate spend of $7.2 million over the first twelve months of the arrangement.

In January 2023 we renewed our agreement guaranteeing an aggregated spend of $13.5 million over a twelve month period.

From time to time, we may become involved in legal actions arising in the ordinary course of business including, but not limited to, intellectual property infringement and collection matters.

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We do not disclose information with respect to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material.

Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on our liquidity, results of operations, business or financial condition.

We are currently in a dispute with the Bridg Stockholder Representative regarding the amount of the First Anniversary Payment.

Refer to Note 4—Business Combinations for further discussion.

Other than this dispute, we are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.

Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors .

EARNINGS PER SHARE

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Common stock options 513 454 380

Common stock warrants 12 — —

Convertible Senior Notes 2,701 2,701 2,701

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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 demonstrates how incremental revenue 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.

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Change in fair value of contingent consideration — 1,374 ( 128,174 )

Acquisition and integration costs — — 24,372

Impairment of goodwill and intangible assets — — 453,288

Acquisition and integration costs (benefits) — 24,372 ( 2,874 )

Depreciation and amortization expense 7,826 29,871 37,544

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United Kingdom 3,423 1,463

India 154 100

Total $ 11,273 $ 5,916

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Our revenue and accounts receivable are diversified among a large number of marketers segregated by both geography and industry.

During 2019, 2020 and 2021, our top five marketers accounted for 27%, 35% and 29% of our revenue, respectively, with one marketer accounting for over 10% during each period.

As of December 31, 2020 and 2021, our top five marketers accounted for 31% and 19% of our accounts receivable, respectively, with one marketer representing over 10% and no marketers representing over 10% as of each period, respectively.

During 2020, 2021 and 2022, our top five marketers accounted for 35%, 29% and 17% of our revenue, respectively, with one marketer accounting for over 10% during 2020 and 2021.

No marketer represented over 10% during 2022.

As of December 31, 2021 and 2022, our top five marketers accounted for 19% and 18% of our accounts receivable, respectively, with no individual marketer representing over 10% as of the end of each period, respectively.

Our business is substantially dependent on a limited number of FI partners.

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If an FI partner terminates its agreement with us, we would lose that FI as a source of purchase data and online banking customers.

During 2019, 2020 and 2021, Bank of America, National Association (“Bank of America”) and JPMorgan Chase Bank, National Association (“Chase”) combined to account for over 75% of the total Partner Share we paid to all partners, with each representing over 25%.

During 2020 and 2021, our top two FI partners combined to account for over 75% of the total Partner Share we paid to all partners, with each representing over 25%.

No other partner accounted for over 10% of Partner Share during these periods.

SUBSEQUENT EVENTS

Acquisition of HSP EPI Acquisition, LLC

On January 7, 2022, the Company purchased HSP EPI Acquisition, LLC ("Entertainment") for $ 13.0 million in equity at $ 66.52 per share, subject to $ 1.5 million of escrow, and $ 2.3 million in cash plus or minus any adjustments.

During 2022, our top three FI partners combined to account for over 80% of the total Partner Share we paid to all partners, with the top two FI partners each representing over 20% and third largest FI partner representing over 10% of Partner Share.

No other partner accounted for over 10% of Partner Share during these periods.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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 8. Financial Statements and Supplementary Data