Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review Item 1A. “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.
Overview
Our company's mission is to make commerce smarter and rewarding for everyone. 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 that utilizes point-of-sale ("POS") 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"), that provide us with access to their anonymized purchase data and digital banking customers. The partners for the Bridg platform predominantly are merchants ("merchant data partners") that 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, reach potential buyers at scale, and measure the true sales impact of their marketing spend. We have strong relationships with leading marketers across a variety of industries, including retail, restaurant, travel and entertainment, direct-to-consumer, and grocery and gas.
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Working with a marketer, we design a campaign that targets consumers based on their purchase history. The consumer is offered an incentive to make a purchase from the marketer within a specified period. We use a portion of the fees that we collect from marketers to provide these consumer incentives to customers after they make qualifying purchases ("Consumer Incentives"). We report our revenue on our consolidated statements of operations net of Consumer Incentives since we do not provide the goods or services that are purchased by customers from the marketers to which the Consumer Incentives relate.
We pay certain partners a negotiated and fixed percentage of our billings to marketers less any Consumer Incentives that we pay to customers and certain third-party data costs ("Partner Share"). We report our revenue gross of Partner Share. Partner Share costs are included in Partner Share and other third-party costs in our consolidated statements of operations, rather than as a reduction of revenue, because we and not our partners act as the principal in our arrangements with marketers.
We run campaigns offering compelling Consumer Incentives to drive an expected rate of return on advertising spend for marketers. At times, we may collaborate with a partner to enhance the level of Consumer Incentives to their respective customers, funded by their Partner Share. We believe that these investments by our partners positively impact our platforms by making their customers more highly engaged with our platforms. However, these investments negatively impact our GAAP revenue, which is reported net of Consumer Incentives.
Revenue, which is reported net of Consumer Incentives and gross of Partner Share and other third-party costs, was $267.1 million and $298.5 million for the years ended December 31, 2021 and 2022, respectively, representing an increase of 12%. 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 $394.1 million and $442.5 million for the years ended December 31, 2021 and 2022, respectively, representing an increase of 12%. Gross profit, which represents revenue less Partner Share and other third-party costs and less delivery costs, was $103.3 million and $112.6 million for the years ended December 31, 2021 and 2022, respectively, representing an increase of 9%. Adjusted contribution, a non-GAAP measure that represents our revenue less our adjusted Partner Share and other third-party costs, was $129.6 million and $143.0 million for the years ended December 31, 2021 and 2022, respectively, representing an increase of 10%.
Billings and adjusted contribution are further defined under the heading "Non-GAAP Measures and Other Performance Metrics" below. We believe these non-GAAP measures, alongside our GAAP revenue and GAAP gross profit, provide useful information to investors for period-to-period comparisons of our core business and in understanding and evaluating our results of operations in the same manner as our management and board of directors.
The following table summarizes our results (dollars in thousands):
Year Ended December 31, Change Year Ended December 31, Change
2020 2021 $ % 2021 2022 $ %
Billings (1)
$ 263,355 $ 394,075 $ 130,720 50 % $ 394,075 $ 442,477 $ 48,402 12 %
Consumer Incentives 76,463 126,959 50,496 66 126,959 143,935 16,976 13
Revenue 186,892 267,116 80,224 43 267,116 298,542 31,426 12
Adjusted Partner Share and other third-party costs (1)
104,710 137,488 32,778 31 137,488 155,507 18,019 13
Adjusted contribution (1)
82,182 129,628 47,446 58 129,628 143,035 13,407 10
Delivery costs 14,310 22,503 8,193 57 22,503 30,403 7,900 35
Deferred implementation costs 4,598 3,785 (813) (18) 3,785 — (3,785) (100)
Gross profit $ 63,274 $ 103,340 $ 40,066 63 % $ 103,340 $ 112,632 $ 9,292 9 %
Net loss $ (55,422) $ (128,565) $ (73,143) 132 % $ (128,565) $ (465,264) $ (336,699) 262 %
Adjusted EBITDA (1)
$ (7,780) $ (12,220) $ (4,440) 57 % $ (12,220) $ (45,169) $ (32,949) 270 %
(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.
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During 2020, 2021 and 2022, our net loss was $55.4 million, $128.6 million and $465.3 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 platforms by FI partners, merchant data partners and marketers. On January 7, 2022, we purchased Entertainment, on May 5, 2021, we acquired Bridg, Inc. ("Bridg") and on March 2021 we acquired Dosh Holdings, Inc. ("Dosh"). During 2022, we incurred a $3.6 million benefit and a $0.8 million cost in connection with the Bridg and Dosh acquisitions, respectively. During 2020, 2021 and 2022, our net loss included stock-based compensation expense of $32.4 million, $50.3 million and $44.7 million, respectively. During the 2022, we received a benefit due to a reduction of the estimated contingent consideration and brokerage fee related to our Bridg acquisition partially offset by an impairment of goodwill. We also initiated a strategic reduction of our forces in our U.S., U.K., and India operations, including the closure of our Indian office, which resulted restructuring charges of $1.3 million, $0.8 million and $8.1 million during 2020, 2021 and 2022, respectively.
FI Partners
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.
Partner Commitments
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 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.
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. This plan resulted in severance and medical benefits totaling $1.3 million during the year ended December 31, 2020. These charges are reflected on our consolidated statement of operations for the year ended December 31, 2020, as follows: $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.
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. Additionally, during the year ended December 31, 2021, we recognized $0.8 million of severance and medical benefits charges related to internal restructuring. These charges are reflected on our consolidated statement of operations as follows: $0.1 million in delivery costs, $0.4 million in sales and marketing expense, and $0.3 million in research and development expense. We recognize these costs when the extent of our actions is determined and the costs can be estimated.
During 2022, we initiated a strategic reduction of our forces in our U.S., U.K., and India operations, including the 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: $2.1 million in delivery costs, $1.6 million in sales and marketing expense, $1.9 million in research and development expense and $2.5 million in general and administrative expense. Our Indian office was closed on December 31, 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.
Acquisitions
On January 7, 2022, we purchased Entertainment for $13.0 million in equity at an agreed-upon price of $66.52 per share, subject to $1.1 million of fair value adjustments based upon our close date, and $2.3 million in cash, subject to $0.4 million of adjustments, for an acquisition date fair value of $14.6 million.
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On May 5, 2021, we completed the acquisition of Bridg for purchase consideration of $578.9 million. The purchase consideration consisted of a $350.0 million cash purchase price, subject to $2.8 million of adjustments and escrows, and contingent consideration with a fair value of $230.9 million 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.
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.”
Non-GAAP Measures and Other Performance Metrics
We regularly monitor a number of financial and operating metrics in order to measure our current performance and estimate our future performance. Our metrics may be calculated in a manner different than similar metrics used by other companies.
Year Ended December 31,
2020 2021 2022
(Amounts in thousands, except ARPU)
Cardlytics MAUs 155,784 170,925 186,682
Cardlytics ARPU $ 1.20 $ 1.51 $ 1.55
Bridg ARR $ — $ 15,282 $ 23,129
Billings $ 263,355 $ 394,075 $ 442,477
Adjusted contribution $ 82,182 $ 129,628 $ 143,035
Adjusted EBITDA $ (7,780) $ (12,220) $ (45,169)
Cardlytics Monthly Active Users ("MAUs")
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 ("ARPU")
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.
Bridg Annualized Recurring Revenue ("ARR")
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.
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Billings
Billings represents the gross amount billed to customers and marketers for services in order to generate revenue. Cardlytics platform billings is recognized gross of both Consumer Incentives and Partner Share. Cardlytics platform GAAP revenue is recognized net of Consumer Incentives and gross of Partner Share. Bridg platform billings is the same as Bridg platform GAAP revenue.
We review billings for internal management purposes. We believe that billings provides useful information to investors for period-to-period comparisons of our core business and in understanding and evaluating our results of operations in the same manner as our management and board of directors. Nevertheless, our use of billings has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Other companies, including companies in our industry that have similar business arrangements, may address the impact of Consumer Incentives differently. You should consider billings alongside our other GAAP financial results.
The following table presents a reconciliation of billings to revenue, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
Year Ended December 31, 2020
Cardlytics Platform Bridg Platform Consolidated
Revenue $ 186,892 $ — $ 186,892
Plus:
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
Plus:
Consumer Incentives 126,959 — 126,959
Billings $ 385,713 $ 8,362 $ 394,075
Year Ended December 31, 2022
Cardlytics Platform Bridg Platform Consolidated
Revenue $ 277,185 $ 21,357 $ 298,542
Plus:
Consumer Incentives 143,935 — 143,935
Billings $ 421,120 $ 21,357 $ 442,477
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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 partners. 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. 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.
We use adjusted contribution extensively to measure the efficiency of our advertising platform, make decisions to manage advertising campaigns and evaluate our operational performance. Adjusted contribution is also used to determine the vesting of performance-based equity awards and is used to determine the achievement of quarterly and annual bonuses across our entire global employee base, including executives. We view adjusted contribution as an important operating measure of our financial results. We believe that adjusted contribution provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors. Adjusted contribution should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP. Adjusted contribution should be considered together with other operating and financial performance measures presented in accordance with GAAP. Also, adjusted contribution may not necessarily be comparable to similarly titled measures presented by other companies. Refer to Note 15—Segments to our consolidated financial statements for further details on our adjusted contribution by segment.
The following table presents a reconciliation of adjusted contribution to gross profit, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
Year Ended December 31, 2020
Cardlytics Platform Bridg Platform Consolidated
Revenue $ 186,892 $ — $ 186,892
Minus:
Partner Share and other third-party costs 109,308 — 109,308
Delivery costs (1)
14,310 — 14,310
Gross profit 63,274 — 63,274
Plus:
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
Minus:
Deferred implementation costs 4,598 — 4,598
Adjusted Partner Share and other third-party costs $ 104,710 $ — $ 104,710
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Year Ended December 31, 2021
Cardlytics Platform Bridg Platform Consolidated
Revenue $ 258,754 $ 8,362 $ 267,116
Minus:
Partner Share and other third-party costs 140,864 409 141,273
Delivery costs (1)
18,111 4,392 22,503
Gross profit 99,779 3,561 103,340
Plus:
Delivery costs (1)
18,111 4,392 22,503
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
Minus:
Deferred implementation costs 3,785 — 3,785
Adjusted Partner Share and other third-party costs $ 137,079 $ 409 $ 137,488
Year Ended December 31, 2022
Cardlytics Platform Bridg Platform Consolidated
Revenue $ 277,185 $ 21,357 $ 298,542
Minus:
Partner Share and other third-party costs 154,204 1,303 155,507
Delivery costs (1)
24,112 6,291 30,403
Gross profit 98,869 13,763 112,632
Plus:
Delivery costs (1)
24,112 6,291 30,403
Deferred implementation costs (2)
— — —
Adjusted contribution $ 122,981 $ 20,054 $ 143,035
(1) Stock-based compensation expense recognized in consolidated delivery costs totaled $2.7 million during 2022.
(2) Deferred implementation costs is excluded from adjusted Partner Share and other third-party costs as follows (in thousands):
Year Ended December 31, 2022
Cardlytics Platform Bridg Platform Consolidated
Partner Share and other third-party costs $ 154,204 $ 1,303 $ 155,507
Minus:
Deferred implementation costs — — —
Adjusted Partner Share and other third-party costs $ 154,204 $ 1,303 $ 155,507
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Adjusted EBITDA
Adjusted EBITDA represents our net loss before income tax benefit; interest expense, net; depreciation and amortization expense; stock-based compensation expense; foreign currency gain (loss); impairment of goodwill and intangible assets; deferred implementation costs; restructuring and reduction of force costs; acquisition and integration costs (benefits); 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 foreign currency (gain) loss, impairment of goodwill and intangible assets, 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. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis. Adjusted EBITDA is not a measure calculated in accordance with GAAP.
We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Nevertheless, use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (1) adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (2) adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation and equity instruments issued to our FI partners; (3) adjusted EBITDA does not reflect tax payments or receipts that may represent a reduction or increase in cash available to us and (4) other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces the usefulness of the metric as a comparative measure. Because of these and other limitations, you should consider adjusted EBITDA alongside our net loss and other GAAP financial results.
The following table presents a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
Year Ended December 31,
2020 2021 2022
Net loss $ (55,422) $ (128,565) $ (465,264)
Plus:
Interest expense, net 3,048 12,563 2,556
Depreciation and amortization 7,826 29,871 37,544
Stock-based compensation expense 32,396 50,264 44,686
Acquisition and integration costs (benefits) — 24,372 (2,874)
Change in fair value of contingent consideration — 1,374 (128,174)
Foreign currency (gain) loss (1,549) 1,267 6,376
Impairment of goodwill and intangible assets — — 453,288
Restructuring and reduction of force 1,323 713 8,139
Income tax benefit — (7,864) (1,446)
Deferred implementation costs 4,598 3,785 —
Adjusted EBITDA $ (7,780) $ (12,220) $ (45,169)
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The following table presents a reconciliation of adjusted EBITDA to adjusted contribution, the most directly comparable segment income measure, for each of the periods indicated (in thousands):
Year Ended December 31, 2020
Cardlytics Platform Bridg Platform Consolidated
Adjusted contribution $ 82,182 $ — $ 82,182
Minus:
Delivery costs 14,310 — 14,310
Sales and marketing expense 45,307 — 45,307
Research and development expense 17,532 — 17,532
General and administration expense 46,532 — 46,532
Stock-based compensation expense (32,396) — (32,396)
Restructuring and reduction of force (1,323) — (1,323)
Adjusted EBITDA $ (7,780) $ — $ (7,780)
Year Ended December 31, 2021
Cardlytics Platform Bridg Platform Consolidated
Adjusted contribution $ 121,675 $ 7,953 $ 129,628
Minus:
Delivery costs 18,170 4,333 22,503
Sales and marketing expense 62,771 3,225 65,996
Research and development expense 35,393 2,711 38,104
General and administration expense 63,379 2,843 66,222
Stock-based compensation expense (47,223) (3,041) (50,264)
Restructuring and reduction of force (713) — (713)
Adjusted EBITDA $ (10,102) $ (2,118) $ (12,220)
Year Ended December 31, 2022
Cardlytics Platform Bridg Platform Consolidated
Adjusted contribution $ 122,981 $ 20,053 $ 143,034
Minus:
Delivery costs 24,112 6,290 30,402
Sales and marketing expense 67,830 6,915 74,745
Research and development expense 47,579 6,856 54,435
General and administration expense 79,069 2,377 81,446
Stock-based compensation expense (43,490) (1,196) (44,686)
Restructuring and reduction of force (8,139) — (8,139)
Adjusted EBITDA $ (43,980) $ (1,189) $ (45,169)
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Components of Results of Operations
Revenue
We sell our Cardlytics platform solution 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 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 and other third-party costs. The Bridg platform generates revenue through the sale of subscriptions to our cloud-based customer-data platform and the delivery of professional services, such as implementation, onboarding and technical support in connection with each subscription. We recognize subscription revenue on a ratable basis over the contract term beginning on the date that our service is made available to the customer.
Cost and Expense
We classify our expenses into the following categories: Partner Share and other third-party costs; delivery costs; sales and marketing expense; research and development expense; general and administrative expense; and depreciation and amortization expense.
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 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
Delivery costs consist primarily of personnel costs of our campaign, data operations and production support teams, including salaries, benefits, bonuses, stock-based compensation and payroll taxes. Delivery costs also include hosting costs, purchased or licensed software costs, outsourcing costs and professional services costs. As we migrate our technology to the cloud, our delivery costs will increase in absolute dollars and if such anticipated revenue growth does not occur, our delivery costs as a percentage of revenue will be adversely affected. Over time, we expect delivery costs will decline as a percentage of revenue.
Sales and Marketing Expense
Sales and marketing expense consists primarily of personnel costs of our sales, account management, marketing and analytics teams, including salaries, benefits, bonuses, commissions, stock-based compensation and payroll taxes. Sales and marketing expense also includes professional fees, marketing programs such as trade shows, marketing materials, public relations, sponsorships and other brand building expenses, as well as outsourcing costs, travel and entertainment expenses and company funded consumer testing expenses for certain marketers that are not current customers. We expect that our sales and marketing expense will increase in absolute dollars as a result of hiring new sales representatives and as we invest to enhance our brand. Over time, we expect sales and marketing expenses will decline as a percentage of revenue.
Research and Development Expense
Research and development expense consists primarily of personnel costs of our information technology ("IT") engineering, IT architecture and product development teams, including salaries, benefits, bonuses, stock-based compensation and payroll taxes. Research and development expense also includes outsourcing costs, software licensing costs, professional fees and travel expenses. We focus our research and development efforts on improving our solutions and developing new ones. We expect research and development expense to increase in absolute dollars as we continue to create new solutions and improve the functionality of our existing solutions.
General and Administrative Expense
General and administrative expense consists of personnel costs of our executive, finance, legal, compliance, IT support and human resources teams, including salaries, benefits, bonuses, stock-based compensation and payroll taxes. General and administrative expense also includes professional fees for external legal, accounting and consulting services, financing transaction costs, facilities costs such as rent and utilities, royalties, bad debt expense, travel expense, property taxes and franchise taxes. 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 our internal support functions to scale with the growth of our business.
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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.
Impairment of Goodwill and Intangible Assets
Intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives. 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. The impairment analysis involves determining whether the estimated fair value of each intangible asset exceeds its carrying amount. Our estimation of the fair value of definite lived intangible assets include the use of discounted cash flow analyses which reflected estimates of future revenue, customer attrition rates, royalty rates, cash flows, and discount rates.
Goodwill represents the purchase consideration of an acquired business that exceeds the fair value of the net tangible and identifiable intangible assets. Goodwill is evaluated for impairment by reporting unit annually in the fourth quarter, specifically October 1, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. 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.
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 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.
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. and most U.S. state income tax jurisdictions. 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.
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Results of Operations
The following table sets forth our consolidated statements of operations (in thousands):
Year Ended December 31,
2020 2021 2022
Revenue $ 186,892 $ 267,116 $ 298,542
Costs and expenses:
Partner Share and other third-party costs 109,308 141,273 155,507
Delivery costs 14,310 22,503 30,403
Sales and marketing expense 45,307 65,996 74,745
Research and development expense 17,532 38,104 54,435
General and administrative expense 46,532 66,222 81,446
Acquisition and integration costs (benefits) — 24,372 (2,874)
Impairment of goodwill and intangible assets — — 453,288
Change in fair value of contingent consideration — 1,374 (128,174)
Depreciation and amortization expense 7,826 29,871 37,544
Total costs and expenses 240,815 389,715 756,320
Operating loss (53,923) (122,599) (457,778)
Other (expense) income:
Interest expense, net (3,048) (12,563) (2,556)
Foreign currency gain (loss) 1,549 (1,267) (6,376)
Total other expense (1,499) (13,830) (8,932)
Loss before income taxes (55,422) (136,429) (466,710)
Income tax benefit — 7,864 1,446
Net loss $ (55,422) $ (128,565) $ (465,264)
Comparison of Years Ended December 31, 2022 and 2021
In this section, we discuss the results of our operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2021.
Revenue
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Billings $ 394,075 $ 442,477 $ 48,402 12 %
Consumer Incentives 126,959 143,935 16,976 13 %
Revenue $ 267,116 $ 298,542 $ 31,426 12 %
% of billings 68 % 67 %
The $31.4 million increase in revenue during 2022 compared to 2021 was comprised of a $48.4 million increase in billings, offset by a $17.0 million increase in Consumer Incentives. The billings increase was comprised of a $6.9 million net increase in sales to existing marketers and a $41.5 million increase in sales to new marketers in 2022. Consumer Incentives grew at a higher rate than billings during 2022 compared to 2021 primarily as a result of changes in advertiser mix and Consumer Incentives funded by partners through a reduction in Partner Share.
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Costs and Expenses
Partner Share and Other Third-Party Costs
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Partner Share and other third-party costs:
Adjusted Partner Share and other third-party costs $ 137,488 $ 155,507 $ 18,019 13 %
Deferred implementation costs 3,785 — (3,785) (100)
Total Partner Share and other third-party costs $ 141,273 $ 155,507 $ 14,234 10 %
% of revenue 53 % 52 %
Partner Share and other third-party costs increased by $14.2 million during 2022 compared to 2021 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 $3.8 million during 2022 compared to 2021 primarily due to the end of the useful lives of certain platform enhancements.
Delivery Costs
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Delivery costs excluding stock-based compensation expense and restructuring and reduction of force $ 20,554 $ 25,860 $ 5,306 26 %
Plus:
Stock-based compensation expense 1,865 2,682 817 44
Restructuring and reduction of force 84 1,861 1,777 n/a
Total delivery costs $ 22,503 $ 30,403 $ 7,900 35 %
% of revenue 8 % 10 %
Delivery costs increased by $7.9 million during 2022 compared to 2021. Delivery costs excluding stock-based compensation and restructuring and reduction of force increased by $5.3 million primarily due to a $2.9 million increase in hosting-related IT costs, a $1.8 million increase due to costs from our acquired businesses , a $0.5 million increase in personnel costs associated with additional headcount and a $0.1 million increase due to facilities expense.
Sales and Marketing Expense
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Sales and marketing expense excluding stock-based compensation expense and restructuring and reduction of force $ 51,849 $ 60,671 $ 8,822 17 %
Plus:
Stock-based compensation expense 13,780 11,935 (1,845) (13)
Restructuring and reduction of force 367 2,139 1,772 n/a
Total sales and marketing expense $ 65,996 $ 74,745 $ 8,749 13 %
% of revenue 25 % 25 %
Sales and marketing expense increased by $8.7 million during 2022 compared to 2021. Sales and marketing expense excluding stock-based compensation and restructuring and reduction of force increased by $8.8 million primarily due to a $6.2 million increase due to costs from our acquired businesses, a $1.0 million increase in travel expenses, a $0.8 million increase in personnel costs associated with additional headcount, a $0.8 million increase in software licensing costs and a $0.3 million increase due to facility expense, offset by a $0.3 million decrease in professional fees.
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Research and Development Expense
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Research and development expense excluding stock-based compensation expense and restructuring and reduction of force $ 27,468 $ 39,573 $ 12,105 44 %
Plus:
Stock-based compensation expense 10,328 13,262 2,934 28
Restructuring and reduction of force 308 1,600 1,292 n/a
Total research and development expense $ 38,104 $ 54,435 $ 16,331 43 %
% of revenue 14 % 18 %
Research and development expense increased by $16.3 million during 2022 compared to 2021. Research and development expense excluding stock-based compensation and restructuring and reduction of force increased by $12.1 million primarily due to a $8.2 million increase in personnel costs associated with additional headcount, a $3.5 million increase due to costs from our acquired businesses, a $1.1 million increase in software licensing costs, a $0.2 million increase due to facility expense, a $0.2 million increase due to travel expenses and a $0.1 million increase due to incentive compensation, partially offset by a $1.2 million decrease in professional fees.
General and Administrative Expense
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
General and administrative expense excluding stock-based compensation expense and restructuring and reduction of force $ 41,931 $ 62,168 $ 20,237 48 %
Plus:
Stock-based compensation expense 24,291 16,807 (7,484) (31)
Restructuring and reduction of force — 2,471 2,471 n/a
Total general and administrative expense $ 66,222 $ 81,446 $ 15,224 23 %
% of revenue 25 % 27 %
General and administrative expense increased by $15.2 million during 2022 compared to 2021. General and administrative expense excluding stock-based compensation and restructuring and reduction of force increased by $20.2 million primarily due to a $6.6 million increase due to costs from our acquired businesses, a $4.6 million increase in personnel costs associated with additional headcount, a $3.0 million increase in professional fees, $2.2 million increase in software licensing costs, a $1.0 million increase in bad debt related to our acquired businesses, a $0.7 million increase in our insurance premiums, a $0.5 million increase in marketing expenses, a $0.5 million increase in tax expense and a $1.1 million increase due to other expenses including travel, facility expense, professional development and professional fees.
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Stock-based Compensation Expense
The following table summarizes the allocation of stock-based compensation in the consolidated statements of operations (dollars in thousands):
Year Ended December 31, Change
2021 2022 $ %
Delivery costs $ 1,865 $ 2,682 $ 817 44 %
Sales and marketing expense 13,780 11,935 (1,845) (13)
Research and development expense 10,328 13,262 2,934 28
General and administrative expense 24,291 16,807 (7,484) (31)
Total stock-based compensation expense $ 50,264 $ 44,686 $ (5,578) (11) %
% of revenue 19 % 15 %
Stock-based compensation expense decreased by $5.6 million during 2022 compared to 2021 primarily due to forfeitures of restricted stock units related to our reduction of force. Refer to Note 10—Stock-based Compensation to our consolidated financial statements for additional information regarding the change in stock compensation expense.
Acquisition and integration costs (benefits)
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Acquisition and integration costs (benefits) $ 24,372 (2,874) $ (27,246) n/a
% of revenue 9 % (1) %
Acquisition and integration costs (benefits) decreased by $27.2 million during 2022 compared to 2021. During 2021 we recognized $24.4 million of expense primarily due to the acquisitions of Dosh and Bridg. During 2022 we recognized a $2.9 million benefit primarily due to a reduction in our estimated broker fee related to the contingent consideration for the Bridg acquisition, partially offset by $0.1 million of costs incurred by the acquisition of Entertainment. 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
2021 2022 $ %
(dollars in thousands)
Change in fair value of contingent consideration $ 1,374 $ (128,174) $ (129,548) n/a
% of revenue 1 % (43) %
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. During 2022 we recognized a $128.2 million gain, respectively, in the fair value of contingent consideration related to our acquisition of Bridg. This gain was driven by the 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 related to the First Anniversary Payment. Refer to Note 12—Fair Value Measurements to our consolidated financial statements for additional information regarding the contingent consideration.
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Impairment of goodwill and intangible assets
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Impairment of goodwill and intangible assets $ — $ 453,288 $ 453,288 n/a
% of revenue — % n/a
During 2022, we recognized $453.3 million of impairment of goodwill and intangible assets related to the Cardlytics and Bridg Platform. The impairment of goodwill and intangible assets resulted from a continued slowdown in the global economy and decreased consumer spend, and a sustained decline in our stock price. Refer to Note 5—Goodwill and Acquired Intangibles to our condensed consolidated financial statements for additional information regarding the goodwill impairment.
Depreciation and Amortization Expense
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Depreciation and amortization expense $ 29,871 $ 37,544 $ 7,673 26 %
% of revenue 11 % 13 %
Depreciation and amortization expense increased by $7.7 million during 2022 compared to 2021 primarily driven by a full year of amortization of intangible assets related to the Dosh and Bridg acquisitions.
Interest Expense, Net
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Interest expense $ (12,860) $ (3,994) $ 8,866 (69) %
Interest income 297 1,438 1,141 384
Interest expense, net $ (12,563) $ (2,556) $ 10,007 (80) %
% of revenue (5) % (1) %
Interest expense, net decreased by $10.0 million during 2022 compared to 2021 primarily driven by reduced amortization of debt discount reflected as interest expense related to the Notes upon the adoption of ASU 2020-06 on January 1, 2022.
Foreign Currency Loss
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Foreign currency loss $ (1,267) $ (6,376) $ (5,109) 403 %
% of revenue — % (2) %
Foreign currency loss increased by $5.1 million during 2022 compared to 2021 primarily due to the decrease in the value of the British pound relative to the U.S. dollar.
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Income Tax Benefit
Year Ended December 31, Change
2021 2022 $ %
(dollars in thousands)
Income tax benefit $ 7,864 $ 1,446 $ (6,418) n/a
% of revenue 3 % — %
Income tax benefit decreased by $6.4 million during 2022 compared to 2021 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.
Liquidity and Capital Resources
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):
December 31,
2021 2022
Cash and cash equivalents $ 233,467 $ 121,905
Restricted cash 95 80
Working capital (1)
31,375 1,098
Accounts receivable and contract assets, net 95 80
Unused available borrowings 50,000 60,000
(1) We define working capital as current assets less current liabilities. See our consolidated financial statements for further details regarding our current assets and current liabilities.
Our cash and cash equivalents are available for working capital purposes. We do not enter into investments for trading purposes, and our investment policy is to invest any excess cash in short-term, highly liquid investments that limit the risk of principal loss. 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 six financial institutions, which we believe are of high credit quality. As of December 31, 2022, our demand deposit accounts earned up to a 0.50% annual rate of interest. As of December 31, 2022, we had $3.4 million in cash and cash equivalents in the U.K. While our investment in Cardlytics UK is not considered indefinitely invested, we do not plan to repatriate these funds.
Through December 31, 2022, we have incurred accumulated net losses of $976.6 million since inception, including losses of $55.4 million, $128.6 million and $465.3 million during 2020, 2021 and 2022, respectively. We expect to incur additional operating losses as we continue our efforts to grow our business. We have historically financed our operations and capital expenditures through convertible note financings, private placements of our redeemable convertible preferred stock, public offerings of our common stock as well as lines of credit and term loans.
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. We have determined the First Anniversary Payment to be $126.4 million and have estimated the Second Anniversary Payment to be $67.8 million, inclusive of brokerage fees and transaction bonuses. We expect our minimum cash requirements, inclusive of contractual cash broker fees and transaction bonuses, for the First Anniversary Payment and Second Anniversary Payment to be $43.3 million and $24.0 million, respectively. 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 to our condensed consolidated financial statements for additional information regarding the dispute.
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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 the global economy. We expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business. We believe that current cash and cash equivalents will be sufficient to fund our operations and capital requirements for at least the next 12 months and in the long-term following the date our consolidated financial statements were issued. However, if our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be materially and adversely impacted. 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 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,
2023 2024 - 2025 2026 - 2028 Thereafter Total
Convertible senior notes (1)
$ 2,300 $ 4,600 $ 230,096 $ — $ 236,996
Finance leases (2)
39 50 — — 89
Operating leases (3)
5,087 3,605 599 — 9,291
Cash portion of contingent consideration (4)
67,290 — — — 67,290
Purchase obligations (5)
25,352 362 — — 25,714
Total $ 100,068 $ 8,617 $ 230,695 $ — $ 339,380
(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, inclusive of $13.8 million of broker fees and transaction bonuses.
(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 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.
Sources of Funds
Proceeds from Issuance 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. 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.
During 2020 and 2021 we also received $2.2 million and $2.4 million respectively, in proceeds from the exercise of options and warrants to purchase shares of common stock, respectively.
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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") related to the Notes.
2018 Loan Facility
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.
Under the 2018 Loan Facility relating to the 2018 Line of Credit, we are able to borrow up to the lesser of $50.0 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 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. 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 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.
The 2018 Loan Facility also includes standard events of default, including in the event of a material adverse change. Upon the occurrence of an event of default, the lender may declare all outstanding obligations immediately due and payable and take such other actions as are set forth in the 2018 Loan Facility and increase the interest rate otherwise applicable to advances under the 2018 Line of Credit by an additional 3.00%. All of our obligations under the 2018 Loan Facility are secured by a first priority lien on substantially all of our assets. The 2018 Loan Facility does not include any prepayment penalties.
We believe we were in compliance with all financial covenants as of December 31, 2022. As of December 31, 2022, we had $60.0 million of unused borrowings available under our 2018 Line of Credit.
Uses of Funds
Our collection cycles can vary from period to period based on the payment practices of our marketers and their agencies. 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’ 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. Further, the timing of payment of commitments and implementation fees to our FI partners may also result in variability of our operating cash flows for any period.
Our operating cash flows also vary from quarter to quarter due to the seasonal nature of our marketers’ advertising spending. Many marketers tend to devote a significant portion of their marketing budgets to the fourth quarter of the calendar year to coincide with consumer holiday spending and reduce marketing spend in the first quarter of the calendar year. Any lag between the timing of our payments to FI partners and our receipt of payment from marketers and their agencies can exacerbate our need for working capital during the first quarter of the calendar year.
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Historical Cash Flows
In this section, we discuss the activity of our cash flows for the year ended December 31, 2021 and the year ended December 31, 2022. For a discussion of the year ended December 31, 2020, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Liquidity and Capital Resources" in our Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2021.
The following table shows a summary of our cash flows for the periods presented (in thousands):
Year Ended December 31,
2021 2022
Cash, cash equivalents and restricted cash at beginning of period $ 293,349 $ 233,562
Net cash used in operating activities (38,523) (53,904)
Net cash used in investing activities (506,695) (15,760)
Net cash received from financing activities 485,998 (39,987)
Effect of exchange rates on cash, cash equivalents and restricted cash (567) (1,926)
Cash, cash equivalents and restricted cash at end of period $ 233,562 $ 121,985
Operating Activities
Historically, we have experienced negative operating cash flows, which reflects our investments to grow our business. Over time, we expect our business to generate positive operating cash flows. Given the seasonal nature of our marketer's advertising spending and our continued investment in our business, we may experience periods of negative operating cash flows from operations.
Operating activities used $53.9 million of cash in 2022, which reflected our net loss of $465.3 million, $422.7 million of which were non-cash charges, and a $11.3 million change in our net operating assets and liabilities. The non-cash charges primarily related to stock-based compensation expense, depreciation and amortization expense, including the amortization of acquired intangible assets, impairment of goodwill and 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 $4.5 million increase in accounts receivable and contract assets, a $9.5 million decrease in other accrued expenses and a $1.7 million decrease in Partner Share liability, partially offset by a $1.4 million increase in our Consumer Incentive liability.
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, 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.
Investing Activities
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 $506.7 million and $15.8 million, in 2021 and 2022, respectively. 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.
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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 stock and payments for costs related to debt issuances and equity offerings.
Financing activities used $40.0 million in cash in 2022, consisting of $40.0 million used to repurchase shares of our common stock, partially offset by proceeds received in connection with the exercise of stock options.
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.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. Our most critical accounting policies are summarized below. Refer to the notes to our consolidated financial statements for additional information.
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 includes 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 until the dates of settlement. 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 12—Fair Value Measurementsto our consolidated financial statements for additional information regarding the fair value of our financial instruments.
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Valuation and Impairment of goodwill and intangible assets
Intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives. The intangible assets are evaluated whenever events or changes in circumstances indicated that we should estimate the fair value of our individual long-lived assets to determine if any impairment charges were present. Our estimation of the fair value of definite lived intangible assets include the use of discounted cash flow analyses which reflected estimates of future revenue, customer attrition rates, royalty rates, cash flows, and discount rates. 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 an estimated 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.
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 that the fair value of a reporting unit is more likely than not less than the carrying amount. 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 the fair value of the reporting unit is not more likely than not less than the carrying amount, 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 the impairment 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.
We performed a quantitative assessment for goodwill in our Cardlytics platform in the U.S. reporting unit and our Bridg platform reporting unit at June 30, 2022, which resulted in a goodwill impairment of $83.1 million recorded to our Bridg platform reporting unit. We performed our annual impairment test as of October 1, 2022, which resulted in goodwill impairment of $313.1 million recorded between our Cardlytics platform in the U.S. and our Bridg platform reporting units. We utilized a discounted cash flow method under the income approach, and to a lesser extent the market approach to value our reporting units. The significant judgments in the discounted cash flow analysis for both our Cardlytics platform in the U.S. and our Bridg platform included the selected discount rate and forecasts of future revenues and cash flows. See Note 5—Goodwill and Acquired Intangibles in our consolidated financial statements for additional information.
We continue to closely monitor developments related to global events and macroeconomic conditions. Changes in market conditions, laws and regulations, and key assumptions made in future quantitative assessments, including forecasted revenues and expected cash flows, competitive factors and discount rates, could negatively impact the results of future impairment testing and could result in the recognition of an additional impairment charge.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. 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 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. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.
Estimates of future taxable income are based on assumptions that are consistent with our plans. Assumptions represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. 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 net deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.
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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. Where applicable, we classify associated interest and penalties as income tax expense. The total amounts of interest and penalties were not material. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
Recent Accounting Pronouncements
Refer to Note 3—Accounting Standards to our consolidated financial statements for additional information.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign exchange rates.
Interest Rate Risk
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 of 7.50%. As of December 31, 2022 the prime rate was 7.5% and a 10% increase in the current prime rate would, for example, result in a $0.4 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
Both revenue and operating expense of Cardlytics UK Limited are denominated in British pounds, and we bear foreign currency risks related to these amounts. For example, if the average value of the British pound had been 10% higher relative to the U.S. dollar during the 2020, 2021 and 2022, our operating expense would have increased by $0.8 million, $1.0 million and $1.1 million, respectively. Our foreign currency risks related to expenses denominated in Indian rupees are insignificant.
Inflation Risk
Historically, we do not believe that inflation has had a material effect on our business, financial condition or results of operations. However, over the last year there has been increased inflationary pressure, and we believe that inflationary pressure has the potential to negatively impact overall consumer spending and advertising budgets as a result of the impact on consumer spend. This could potentially impact our current business products and strategy. We will continue to monitor the impact of inflation in order to reduce its effects through pricing strategies, productivity improvements, and cost reductions. If advertising budgets were to become subject to significant inflationary pressures, we may not be able to fully offset the effects of lower demand through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
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