Cardlytics, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CARDLYTICS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 65 Consolidated Balance Sheets 68 Consolidated Statements of Operations 69 Consolidated Statements of Comprehensive Loss 70 Consolidated Statements of Stockholders’ Equity 71 Consolidated Statements of Cash Flows 72 Notes to Consolidated Financial Statements 74 64 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Cardlytics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Cardlytics, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). 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, 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue – Refer to Note 2 and 6 to the consolidated financial statements Critical Audit Matter Description The Company’s revenue generated from its Cardlytics platform in the U.S. and U.K. 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. Because of the nature of the Company’s transaction-based fees, the Company uses automated systems to process and record its revenue transactions. We identified revenue as a critical audit matter because the Company’s systems to process and record revenue are highly automated. This required an increased extent of effort, including the need for us to involve professionals with expertise in information technology (IT), to identify, test, and evaluate the Company’s systems, software applications, and automated controls. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s systems to process revenue transactions included the following, among others: • With the assistance of our IT specialists, we: ◦ Identified the relevant systems used to process revenue transactions and tested the general IT controls over each of these systems, including testing of user access controls, change management controls, and IT operations controls. ◦ 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 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. 65 Table of Contents • 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. Contingent Consideration – Refer to Notes 2, 4, and 12 to the consolidated financial statements Critical Audit Matter Description 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 require substantial judgment and could have a material impact on the amount of contingent consideration expense recorded in any given period. 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. 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 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. 66 Table of Contents 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 Atlanta, Georgia March 1, 2023 We have served as the Company’s auditor since 2012. 67 Table of Contents CARDLYTICS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except par value amounts) December 31, 2021 2022 Assets Current assets: Cash and cash equivalents $ 233,467 $ 121,905 Restricted cash 95 80 Accounts receivable and contract assets, net 111,085 115,609 Other receivables 6,097 4,470 Prepaid expenses and other assets 7,981 7,978 Total current assets 358,725 250,042 Long-term assets: Property and equipment, net 11,273 5,916 Right-of-use assets under operating leases, net 10,196 6,571 Intangible assets, net 125,550 53,475 Goodwill 742,516 352,721 Capitalized software development costs, net 13,131 19,925 Other long-term assets, net 2,406 2,586 Total assets $ 1,263,797 $ 691,236 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 4,619 $ 3,765 Accrued liabilities: Accrued compensation 12,136 10,486 Accrued expenses 19,620 21,335 Partner Share liability 46,595 48,593 Consumer Incentive liability 52,602 53,983 Deferred revenue 3,280 1,751 Current operating lease liabilities 6,028 4,910 Current contingent consideration 182,470 104,121 Total current liabilities 327,350 248,944 Long-term liabilities: Convertible senior notes, net 184,398 226,047 Long-term deferred revenue 173 334 Long-term operating lease liabilities 6,801 4,306 Long-term contingent consideration 49,825 — Other long-term liabilities 4,550 — Total liabilities 573,097 479,631 Stockholders’ equity: Common stock, $0.0001 par value—100,000 shares authorized and 33,534 and 33,477 shares issued and outstanding as of December 31, 2021 and December 31, 2022, respectively 9 9 Additional paid-in capital 1,212,823 1,182,568 Accumulated other comprehensive income 486 5,598 Accumulated deficit ( 522,618 ) ( 976,570 ) Total stockholders’ equity 690,700 211,605 Total liabilities and stockholders’ equity $ 1,263,797 $ 691,236 See notes to the consolidated financial statements 68 Table of Contents CARDLYTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) 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 administration expense 46,532 66,222 81,446 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 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 ) Net loss attributable to common stockholders $ ( 55,422 ) $ ( 128,565 ) $ ( 465,264 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 2.04 ) $ ( 3.99 ) $ ( 13.92 ) Weighted-average common shares outstanding, basic and diluted 27,213 32,202 33,419 See notes to the consolidated financial statements 69 Table of Contents CARDLYTICS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Amounts in thousands) Year Ended December 31, 2020 2021 2022 Net loss $ ( 55,422 ) $ ( 128,565 ) $ ( 465,264 ) Other comprehensive loss: Foreign currency translation adjustments ( 1,504 ) 678 5,112 Total comprehensive loss $ ( 56,926 ) $ ( 127,887 ) $ ( 460,152 ) See notes to the consolidated financial statements 70 Table of Contents CARDLYTICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Amounts in thousands) Additional Paid-In Capital Accumulated Other Comprehensive Income (loss) Accumulated Deficit Total Common Stock Shares Amount 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 convertible notes — — 51,416 — — 51,416 Purchases of capped calls — — ( 26,450 ) — — ( 26,450 ) Other comprehensive loss — — — ( 1,504 ) — ( 1,504 ) Net loss — — — — ( 55,422 ) ( 55,422 ) Balance – December 31, 2020 27,861 $ 8 $ 551,429 $ ( 192 ) $ ( 394,053 ) $ 157,192 Exercise of common stock options 141 — 2,155 — — 2,155 Stock-based compensation — — 50,224 — — 50,224 Issuance of restricted stock 724 — — — — — Issuance of common stock 3,850 1 484,048 — — 484,049 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 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 Net loss — — — — ( 465,264 ) ( 465,264 ) Balance – December 31, 2022 33,477 $ 9 $ 1,182,568 $ 5,598 $ ( 976,570 ) $ 211,605 See notes to the consolidated financial statements 71 Table of Contents CARDLYTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 31, 2020 2021 2022 Operating activities Net loss $ ( 55,422 ) $ ( 128,565 ) $ ( 465,264 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Credit loss expense 1,196 1,702 2,399 Depreciation and amortization 7,826 29,871 37,544 Amortization of financing costs charged to interest expense 312 968 1,595 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 — Stock-based compensation expense 32,396 50,264 44,686 Change in fair value of contingent consideration — 1,374 ( 128,174 ) Other non-cash (income) expense, net ( 1,003 ) 1,343 6,589 Deferred implementation costs 4,598 3,785 — Income tax benefit — ( 7,864 ) ( 1,446 ) Change in operating assets and liabilities: Accounts receivable and contracts assets, net ( 2,396 ) ( 27,936 ) ( 4,546 ) Prepaid expenses and other assets ( 65 ) ( 1,466 ) 535 Accounts payable 16 1,260 ( 893 ) Other accrued expenses ( 1,238 ) ( 905 ) ( 9,516 ) Partner Share liability ( 4,499 ) 9,139 1,721 Customer Incentive liability 4,429 13,211 1,382 Net cash used in operating activities ( 7,598 ) ( 38,523 ) ( 53,904 ) Investing activities Acquisition of property and equipment ( 5,408 ) ( 3,108 ) ( 1,171 ) Acquisition of patents ( 76 ) ( 133 ) ( 175 ) Capitalized software development costs ( 4,633 ) ( 9,323 ) ( 12,140 ) Business acquisitions, net of cash acquired — ( 494,131 ) ( 2,274 ) Net cash used in investing activities ( 10,117 ) ( 506,695 ) ( 15,760 ) Financing activities Principal payments of debt ( 23 ) — ( 35 ) Proceeds from issuance of convertible senior notes, net of issuance costs paid of $6,900 223,100 — — Purchase of capped calls related to convertible senior notes ( 26,450 ) — — 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 (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 ) Net increase (decrease) in cash, cash equivalents and restricted cash 188,762 ( 59,787 ) ( 111,577 ) Cash, cash equivalents, and restricted cash — Beginning of period 104,587 293,349 233,562 Cash, cash equivalents, and restricted cash — End of period $ 293,349 $ 233,562 $ 121,985 See notes to the consolidated financial statements 72 Table of Contents CARDLYTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 31, 2020 2021 2022 Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheet: Cash and cash equivalents $ 293,239 $ 233,467 $ 121,905 Restricted cash 110 95 80 Total cash, cash equivalents and restricted cash — End of period $ 293,349 $ 233,562 $ 121,985 Supplemental schedule of non-cash investing and financing activities: Cash paid for interest $ 63 $ 2,328 $ 2,381 Amounts accrued for property and equipment $ 242 $ 267 $ 67 Amounts accrued for capitalized software development costs $ 68 $ 253 $ 155 See notes to the consolidated financial statements 73 Table of Contents CARDLYTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS Cardlytics, Inc. (“we,” “our,” “us,” the “Company,” or “Cardlytics”) is a Delaware corporation and was formed on June 26, 2008. We operate an advertising platform within our own and our partners' digital channels, which includes online, mobile applications, email, and various real-time notifications (the "Cardlytics platform"). We also operate a customer data platform that utilizes point-of-sale data, including product-level purchase data, to enable marketers, in a privacy-protective manner, to perform analytics and targeted loyalty marketing and to measure the impact of their marketing (the "Bridg platform"). The partners for the Cardlytics platform are predominantly financial institutions ("FI partners") that provide us with access to their anonymized purchase data and digital banking customers. The partners for the Bridg platform are merchants that provide us with access to their point-of-sale data, including product-level purchase data. By applying advanced analytics to the purchase data we receive, we make it actionable, helping marketers reach potential buyers at scale, and measure the true sales impact of their marketing spend. We have strong relationships with leading marketers across a variety of industries, including retail, restaurant, travel and entertainment, direct-to-consumer, grocery and gas. Using our purchase intelligence, we present customers with offers to save money at a time when they are thinking of their finances. We also operate through (1) Dosh Holdings, LLC, a wholly owned and operated subsidiary in the United States, (2) HSP EPI Acquisition, LLC ("Entertainment"), a wholly owned and operated subsidiary in the United States, (3) Cardlytics UK Limited, a wholly owned and operated subsidiary registered as a private limited company in England and Wales, and (4) Cardlytics Services India Private Limited, a wholly owned and operated subsidiary registered as a private limited company in India. 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 On March 5, 2021, we closed a public equity offering in which we sold 3,850,000 shares of common stock at a public offering price of $130.00 per share for total gross proceeds of $ 500.5 million. We received total net proceeds of $ 484.0 million after deducting underwriting discounts and commissions of $ 16.3 million and offering costs of $ 0.2 million. 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 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"). Refer to Note 9—Debt and Financing Arrangements for further details. 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 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. 74 Table of Contents 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 an initial fair value of $ 230.9 million related to additional potential future payments. The potential payment within 30 days of the first anniversary of the acquisition (the "First Anniversary Payment") will be equal to 20 times the difference between the U.S. annualized recurring revenue ("ARR"), based on the month preceding the first anniversary and $ 12.5 million. The potential payment within 30 days of the second anniversary of the acquisition (the “Second Anniversary Payment”) will be equal to 15 times the difference between the ARR for customers as of the first anniversary based on the month preceding the second anniversary, and the prior ARR at the first anniversary. The Second Anniversary Payment is subject to a specified cap. At least 30% of the First Anniversary Payment and the Second Anniversary Payment will be in cash, with the remainder to be paid in cash or our common stock, at our option. If we choose to pay a portion of the First Anniversary Payment or Second Anniversary Payment in our common stock, the number of shares will be determined by dividing the amount of the payment by the trailing 20-day volume-weighted average price ending on the first anniversary date or second anniversary date, as applicable. We also assumed unvested options to purchase Bridg’s common stock and attributed $ 0.8 million of their fair value to the pre-combination service period. ARR is a performance metric defined within Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations". Refer to Note 4—Business Combinations for further information. On March 5, 2021, we completed the acquisition of Dosh Holdings, Inc. ("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. In addition, we assumed unvested options to purchase Dosh’s common stock and attributed $ 3.6 million of their fair value to the pre-combination service period. Refer to Note 4—Business Combinations for further information. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Significant items subject to such estimates and assumptions include revenue recognition, internal-use software development costs, stock-based compensation, allowance for doubtful accounts, valuation of acquired intangible assets 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 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. We recognize these costs when the extent of our actions is determined and the costs can be estimated. 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. 75 Table of Contents 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 The functional currency of our foreign wholly-owned subsidiaries is the local currency. We translate the financial statements of these subsidiaries into U.S. dollars each reporting period for purposes of consolidation. Assets and liabilities are translated at the period-end currency exchange rates, certain equity accounts are translated at historical exchange rates and income and expense amounts are translated at average currency exchange rates in effect for the period. The effect of these translation adjustments is reported in a separate component of stockholders’ deficit titled accumulated other comprehensive income. We are also subject to gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts, both of which are included in other (expense) income, net in the accompanying consolidated statements of operations. We recorded a foreign currency (gain) loss totaling $( 1.6 ) million, $ 1.3 million and $ 6.4 million in 2020, 2021 and 2022, respectively. Partner Share and Other Third-Party Costs 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. 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-related costs of our campaign, data operations and production support teams, including salaries, benefits, bonuses and payroll taxes, as well as stock-based compensation expense. Delivery costs also include hosting facility costs, internally developed and purchased or licensed software costs, outsourcing costs and professional services costs. 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. During the year ended December 31, 2021, we saw continued recovery of both consumer spending as well as the advertising budgets of our clients; however, many merchants continued to be impacted by labor shortages and disruptions in their supply chains. 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. 76 Table of Contents Business Combinations We apply the acquisition method of accounting for business combinations. Under this method of accounting, all assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition. We allocate the purchase consideration to the net tangible and identifiable intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. We recognize costs directly associated with business combinations, including diligence efforts, legal and advisory costs, broker fees and insurance premiums, as acquisition and integration costs on our consolidated statements of operations. Acquired Intangible Assets and Goodwill Acquired intangible assets consist of identifiable intangible assets resulting from our business acquisition. 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. 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. 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 We determine revenue recognition through the following steps: • identification of a contract with a customer; • identification of the performance obligation(s) in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligation(s) in the contract and • recognition of revenue when or as the performance obligation(s) are satisfied. Cardlytics Platform Our revenue generated from our Cardlytics platform consist of transaction-based fees made up of a significant volume of low-dollar transactions, sourced from multiple databases. The processing and recording of revenue are highly automated and are based on contractual terms with marketers, partners, and other parties. Because of the nature of our transaction-based fees, we use automated systems to process and record our revenue transactions. We sell our solutions by entering into agreements directly with marketers or their marketing agencies, generally through the execution of insertion orders. The agreements state the terms of the arrangement, the negotiated fee, payment terms and the fixed period of time of the campaign. We consider a contract to exist when a campaign, which typically lasts 45 days, is published to an FI partner under the terms of an insertion order. With respect to our Cardlytics platform service, our performance obligation is to offer incentives to partners' customers to make purchases from the marketer within a specified period. This performance obligation is a series that represents a stand ready obligation to provide a targeted campaign for the marketer to partners' customers. The Cardlytics platform fees represent variable consideration that is resolved when partners' customers make qualifying purchases during the marketing campaign term. 77 Table of Contents Subsequent to a qualifying purchase, the associated fees are generally not subject to refund or adjustment unless the fees from the marketing campaign exceed a contractual maximum (marketer budget). We have not constrained our revenue because adjustments have historically been immaterial and given the short duration of our marketing campaigns, any adjustments are recognized during the period of the marketing campaign. We recognize revenue for the Cardlytics platform fees over time using the right to invoice practical expedient because the amount billed is equal to the value delivered to marketers through qualified purchases by FIs' customers during that period. Consumer Incentives We report our revenue on our consolidated statements of operations net of Consumer Incentives. We do not provide the goods or services that are purchased by our partners’ customers from the marketers to which the Consumer Incentives relate. Accordingly, the marketer is deemed to be the principal in the relationship with the customer and, therefore, the Consumer Incentive is deemed to be a reduction in the purchase price paid by the customer for the marketer’s goods or services. While we are responsible for remitting Consumer Incentives to our FI partners for further payment to their customers, we function solely as an agent of marketers in these arrangements. We invoice marketers monthly based on the qualifying purchases of partners' customers as reported by our partners during the month. Invoice payment terms, negotiated on a marketer-by-marketer basis, are typically between 30 to 60 days. However, for certain marketing agencies with sequential liability terms, payments are not due to us until such marketing agency has received payment from its marketer client. Accounts receivable is recorded at the amount of gross billings to marketers, net of allowances, for the fees and Consumer Incentives that we are responsible to collect. Our accrued liabilities also include the amount of Consumer Incentives due to FI partners. As a result, accounts receivable and accrued liabilities may appear large in relation to revenue, which is reported on a net basis. Partner Share and Other Third-Party Costs We report our revenue on our consolidated statements of operations 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 are responsible for the fulfillment and acceptability of the services purchased by marketers. We also have latitude in establishing the price of our services, have discretion in supplier selection and earn variable amounts. Partners only supply consumer purchase data and digital marketing space and generally have no involvement in our marketing campaigns or contractual relationship with marketers. Contract Costs Given the short-term nature of our marketing campaigns, all contract costs are expensed as incurred since the expected period of benefit is less than one year. Costs to fulfill a contract include immaterial costs to set up a campaign that we expense as incurred due to the short-term nature of our marketing campaigns. Bridg Platform Contracts with customers are evaluated on a contract-by-contract basis as contracts may include multiple types of subscription-based services. Revenue is generated from the sale of subscriptions to our cloud-based customer data-platform and the related delivery of professional services such as implementation, onboarding and technical support. Our subscription contracts are generally 6 to 36 months in duration and are generally billed in advance on a monthly, quarterly or annual basis, with the option for renewal at the end of the contractual arrangement. We recognize revenue over the period in which such services are performed. Our model typically includes an up-front implementation fee with a proof-of-concept period that begins once implementation has completed. It is followed with a periodic commitment from the customer that commences upon completion of the implementation and/or proof-of-concept period through the remainder of the customer life. The periodic commitment includes, but is not limited to, a fixed periodic fee and/or a transactional fee based on system usage that exceeds committed minimums. If the up-front implementation fee is not distinct, revenue is deferred until the date the customer commences use of our services, at which point the up-front implementation fee is recognized ratably over the life of the customer arrangement. For contracts that contain multiple performance obligations, which include combinations of subscriptions to our cloud-based services and related professional services, we account for individual services as a separate performance obligation if they are distinct. The service is distinct if the service is separately identifiable from other items in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer. If these criteria are not met, the promised services are accounted for as a combined performance obligation. 78 Table of Contents The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring products or services to the customer. We include any fixed charges within our contracts as part of the total transaction price. To the extent that variable consideration is not constrained, we include an estimate of the variable amount, as appropriate, within the total transaction price and update its assumptions over the duration of the contract. As a practical expedient, we do not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of services is expected to be one year or less. Many of our contracts with customers contain some component of variable consideration; however, the constraint will generally not result in a reduction in the estimated transaction price for most forms of variable consideration. We may constrain the estimated transaction price in the event of a high degree of uncertainty as to the final consideration amount owed because of an extended length of time over which the fees may be adjusted. The transaction price, including any discounts, is allocated between separate services in a contract that contains multiple performance obligations based on their relative standalone selling prices. The standalone selling prices are determined based on the market adjusted approach utilizing prices at which we separately sell or historically sold each service. For items that are not sold separately, we estimate the standalone selling prices using available information such as market conditions and internally approved pricing guidelines. In instances where there are no observable selling prices for professional services, we may apply the residual approach to estimate the standalone selling price of the subscription based services. In certain situations we al locate the variable consideration to a series of distinct services within a contract. We allocate variable payments to one or more, but not all, of the distinct services or to a series of distinct services in a contract when (i) the variable payment relates specifically to our effort to transfer the distinct service and (ii) the variable payment is for an amount that depicts the amount of consideration to which we expect to be entitled in exchange for transferring the promised services to the customer. Contract Balances Timing may differ between the satisfaction of contractual performance obligations to our customers and corresponding invoicing and cash inflows. Contract assets primarily relate to amounts for contracts with customers for which the amount of revenue recognized exceeds the amount billed to the customer. Contract assets are transformed to a receivable (billed or unbilled) once the right to payment is unconditional. Contract liabilities, or deferred revenue, are recorded for amounts collected in advance of the satisfaction of contractual performance obligations. Contract balances are reported in a net contract asset or liability position on a customer-by-customer basis at the end of each reporting period. Contract Costs Contract costs are recognized based on the transfer of services to which the asset relates. The recognition period will consider expected customer lives and whether the asset relates to services transferred under a specific anticipated contract. As of December 31, 2022, there are no contract costs subject to capitalization. Accounts Receivable Accounts receivable are carried at the original invoiced amount less an allowance for credit losses (formerly allowance for doubtful accounts), determined based on the probability of future collection. When we become aware of circumstances that may decrease the likelihood of collection, we record a specific allowance against amounts due, which reduces the receivable to the amount that we believe will be collected. For all other accounts receivable, we determine the adequacy of the allowance for credit losses based on historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with specific accounts. The following table presents changes in the allowance for credit losses (in thousands): Year Ended December 31, 2020 2021 2022 Beginning balance $ 255 $ 587 $ 1,327 Credit loss expense 1,196 1,702 2,399 Write-offs, net of recoveries ( 864 ) ( 962 ) ( 1,918 ) Ending balance $ 587 $ 1,327 $ 1,808 79 Table of Contents Unbilled receivables were $ 0.5 million, $ 2.2 million and $ 1.6 million as of December 31, 2020, 2021 and 2022, respectively. An unbilled receivable represents revenue earned and recognized from customer activity that was not billed prior to the end of the reporting period. Unbilled receivables are included in accounts receivable and contract assets, net on our consolidated balance sheets. Leases At the inception or modification of a contract, we determine whether a lease exists and classify it as an operating or finance lease at commencement. Subsequent to commencement, lease classification is only reassessed upon a change to the expected lease term or contract modification. Finance and operating lease assets represent our right to use an underlying asset as lessee for the lease term, and lease obligations represent our obligation to make lease payments arising from the lease. Lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments, net of incentives such as tenant improvement allowances, over the lease term. As our leases generally do not provide an implicit rate, we use our incremental borrowing rates as of the lease commencement date to determine the present value of lease payments. The incremental borrowing rate used is a fully collateralized rate that considers our credit rating, market conditions and the term of the lease at the lease commencement date. We consider a termination or renewal option in the determination of the lease term when it is reasonably certain that we will exercise that option. Leases with an initial expected term of 12 months or less are not recorded in the Consolidated Balance Sheets and the related lease expense is recognized on a straight-line basis over the lease term. We have elected to include non-lease components, such as common-area maintenance costs, with lease payments for the purpose of calculating lease right-of-use assets and liabilities, to the extent that they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments. We record operating lease expense using the straight-line method within General and administration expense and/or Research and development expense dependent upon the individual leased assets. Finance lease expense is recognized as amortization expense within Depreciation and amortization expense, and interest expense within Interest expense, net. For leases with step rent provisions whereby the rental payments increase over the life of the lease, and for leases with rent-free periods, we recognize expense on a straight-line basis over the expected lease term, based on the total minimum lease payments to be made or lease receipts expected to be received. Operating and finance lease assets are reviewed for impairment based on an ongoing review of circumstances that indicate the assets may no longer be recoverable, such as closures of office spaces or data centers, and leased assets that are no longer being utilized in current operations, and other factors. When necessary, we calculate operating and finance lease impairments using a discount rate to calculate the present value of estimated subtenant rentals that could be reasonably obtained for the property or asset, if allowed by the lease. Lease impairment charges for properties or assets no longer used in operations are recorded as a component of Restructuring, acquisition and integration related expenses or General and administrative expenses in t he Consolidated Statements of Operations, dependent upon the qualitative factors surrounding the impairment. The calculation of lease impairment charges may require significant judgments and estimates, including estimated subtenant rentals, discount rates and future cash flows based on our experience and knowledge of the market in which the property or asset is located, previous efforts to dispose of similar assets and the assessment of existing market conditions. Impairments are recognized as a reduction of the carrying value of the right-of-use asset and finance lease assets. Refer to Note 7—Leases for additional information. Property and Equipment Property and equipment are stated at cost. Expenditures for maintenance and repairs are expensed as incurred, while betterments that materially extend the life of an asset are capitalized. The cost of assets sold, retired or otherwise disposed of, and the related accumulated depreciation, are eliminated from the accounts and any resulting gain or loss is recognized. Depreciation of property and equipment is determined using the straight-line method over the estimated useful lives of the applicable assets, which are as follows: Computer equipment: 2–3 years Furniture and fixtures: 5 years Leasehold improvements: Lesser of estimated useful life or life of the lease 80 Table of Contents Other Intangible Assets 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, 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. Intangible assets are as follows (in thousands): December 31, 2021 2022 Deferred patent costs, gross $ 647 $ 102 Less accumulated amortization ( 85 ) — Deferred patent costs, net $ 562 $ 102 Internal-Use Software Development Costs Capitalized software development costs consist of costs incurred in the development of internal-use software, primarily associated with the development and enhancement of our Ads Manager and Ad Server. We capitalize the costs of software developed or obtained for internal use in accordance with ASC Topic 350-40, Internal Use Software . We begin to capitalize our costs upon completion of the preliminary project stage. We consider the preliminary project stage to be complete and the application development stage to have begun when preliminary development efforts are successfully completed, management has authorized and committed project funding and it is probable that the project will be completed, and the software will be used as intended. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. 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 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. Capitalized software development costs are as follows (in thousands): December 31, 2021 2022 Capitalized software development costs, gross $ 19,495 $ 32,895 Less accumulated amortization ( 6,364 ) ( 12,970 ) Capitalized software development costs, net $ 13,131 $ 19,925 Debt Issuance Costs Costs incurred to obtain loans, other than lines of credit, are recorded as a reduction of the carrying amount of the related liability and amortized over the applicable loans’ life using the effective interest method. Costs incurred to obtain lines of credit are capitalized and included in other long-term assets on our consolidated balance sheets and amortized ratably over the term of the arrangement. 81 Table of Contents As described in Note 9—Debt and Financing Arrangements, on September 22, 2020, we issued the Notes with an aggregate principal amount of $ 230.0 million bearing an interest rate of 1.00 % due in 2025, including the exercise in full of the initial purchasers’ option to purchase up to an additional $30.0 million principal amount of the Notes. The net proceeds from this offering were $ 222.7 million, after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by us. In accounting for the $ 7.3 million issuance costs related to the Notes, the allocation of issuance costs incurred between the liability and equity components was based on their relative values. Amortization of debt issuance costs included in interest expense, net totaled $0.3 million, $1.0 million and $1.6 million in 2020, 2021 and 2022, respectively. Deferred debt issuance costs related to our lines of credit included in other long-term assets are as follows (in thousands): December 31, 2021 2022 Debt issuance costs, gross $ 598 $ 791 Less accumulated amortization ( 459 ) ( 593 ) Debt issuance costs, net $ 139 $ 198 Deferred debt issuance costs related to our Notes included in debt are as follows (in thousands): December 31, 2021 2022 Debt issuance costs, gross $ 5,596 $ 7,275 Less accumulated amortization ( 1,092 ) ( 3,319 ) Debt issuance costs, net $ 4,504 $ 3,956 Future amortization of debt issuance costs is as follows (in thousands): Years Ending December 31, Amortization 2023 1,461 2024 1,461 2025 1,034 2026 — Total $ 3,956 Advertising We expense advertising costs as incurred. These costs are included in sales and marketing expense on our consolidated statements of operations. Advertising costs include direct marketing costs such as print advertisements, market research, direct mail, public relations and trade show expenses and totaled $ 1.0 million, $ 3.7 million and $ 4.7 million in 2020, 2021 and 2022, respectively. Stock-Based Compensation We measure and recognize compensation expense based on the estimated fair value of the award on the grant date. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective award, on a straight-line basis when the only condition to vesting is continued service. We recognize the fair value of awards that contain performance conditions based upon the probability of the performance conditions being met. Expense for awards with performance conditions are estimated and adjusted on a quarterly basis based upon our assessment of the probability that the performance condition will be met. We recognize the fair value of awards that contain market conditions over the derived service period. Forfeitures are accounted for when they occur. Refer to Note 10—Stock-based Compensation for additional information regarding our specific award plans and estimates and assumptions used to determine fair value. 82 Table of Contents Fair Value of Financial Instruments 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. Valuation inputs are arranged in a hierarchy that consists of the following levels: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. • Level 2 inputs are inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 inputs are unobservable inputs for the asset or liability. Our nonfinancial assets that we recognize or disclose at fair value on our consolidated financial statements on a nonrecurring basis include property and equipment, intangible assets, capitalized software development costs and deferred implementation costs. The fair values for these assets are evaluated when events or changes in circumstances indicate the carrying value may not be recoverable. Refer to Note 12—Fair Value Measurements for information regarding the fair value of our financial instruments. Contingent Consideration The consideration for the Company’s acquisitions may include future payments that are contingent upon the occurrence of a particular event. The Company records a contingent consideration obligation for such contingent payments at fair value on the acquisition date. The Company estimates 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 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, 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. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period. Refer to Note 12—Fair Value Measurements for information regarding the fair value of our financial instruments. 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. 83 Table of Contents 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. 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. 3. ACCOUNTING STANDARDS Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) to increase the transparency and comparability among organizations as it relates to lease assets and lease liabilities, by requiring lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months, with exceptions. Effective January 1, 2020, we early adopted this guidance using a modified retrospective approach, which was required for all leases that exist at or commence after the date of the initial application with an option to use certain practical expedients. We have elected to use these practical expedients, which allow us to treat all components of our leases as a single component, not to reassess lease classification or whether an arrangement is or contains a lease and not to reassess its initial accounting for direct lease costs. During the first quarter of 2020, we recorded right-of-use assets of $ 10.3 million, lease liabilities of $ 13.5 million and eliminated deferred rent liabilities of $3.2 million. These amounts represent right-of-use assets of $7.4 million, lease liabilities of $10.6 million and deferred rent liabilities of $3.2 million as of the adoption date of ASU 2016-02 and right-of-use assets and lease liabilities of $2.9 million, respectively, for office space entered into during the quarter. The adoption of this guidance did not have a significant impact on our consolidated statements of operations or cash flows. On January 1, 2020, we adopted ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement , to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The adoption of this guidance did not have a material effect on our consolidated financial statements. On January 1, 2020, we adopted ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract , which addresses the accounting for implementation, setup and other upfront costs incurred in a hosting arrangement. The adoption of this guidance did not have a material effect on our consolidated financial statements. 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. 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. The adoption of this guidance did not have a material effect on our consolidated financial statements. 84 Table of Contents 4. BUSINESS COMBINATIONS Our acquisitions were accounted for as business combinations and the total purchase consideration of each was allocated to the net tangible and intangible assets and liabilities acquired based on their fair values on the acquisition dates with the remaining amounts recorded as goodwill. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Annual Report on Form 10-K may be adjusted during the measurement period for each acquisition of up to 12 months from the dates of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. During the 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 the acquisitions of Dosh, Bridg and Entertainment, as applicable, the estimated fair values of merchant relationships, partner relationships, and the card-linked subscriber base were determined using the replacement cost method and lost profits, as applicable, which required us to estimate the costs to recreate an asset of equivalent utility at prices available at the time of the valuation analysis and the lost profits over the period of time to recreate the asset. Trade names were valued using the "relief-from-royalty" approach. This method assumes that trademarks and trade names have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method required us to estimate the future revenues for the related brands, the appropriate royalty rates and the weighted-average costs of capital. Developed technology for Entertainment was valued using the replacement cost method, which required us to estimate the costs to recreate an asset of equivalent utility at prices available at the time of the valuation analysis. Developed technology for Dosh and Bridg was valued using the excess earnings method, an income approach. Under the excess earnings method, the fair value of an intangible asset is equal to the present value of the asset’s projected incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of return on the estimated value of contributory assets (contributory charge) over its remaining useful life. 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 85 Table of Contents 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 On May 5, 2021, we completed the acquisition of Bridg for purchase consideration of $ 578.9 million, as presented below (in thousands): May 5, 2021 Cash paid to common and preferred stockholders, warrant holders and vested option holders $ 337,166 Cash paid to extinguish acquiree debt 1,949 Cash paid to settle pre-acquisition liabilities and acquiree deal-related costs 8,012 Fair value of contingent consideration 230,921 Fair value of assumed options attributable to pre-combination service 841 Total purchase consideration $ 578,889 The following table presents the purchase consideration allocation recorded on our consolidated balance sheet as of the acquisition date (in thousands): May 5, 2021 Cash and cash equivalents $ 1,630 Accounts receivable and other assets 1,989 Intangible assets 64,700 Goodwill 538,271 Accounts payable and other liabilities ( 20,694 ) Deferred tax liabilities ( 7,007 ) Total purchase consideration $ 578,889 86 Table of Contents The goodwill was primarily attributed to the value of future growth expected for the Bridg platform and of synergies created with our current and future offerings. Goodwill is not expected to be deductible for income tax purposes. The following table presents the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands): Fair Value Useful life (in years) Trade name $ 200 2.0 Developed technology 53,500 6.0 Merchant relationships 11,000 5.0 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 On March 5, 2021, we completed our acquisition of Dosh for purchase consideration of $ 277.6 million, as presented below (in thousands): March 5, 2021 Cash paid to common and preferred stockholders, warrant holders and vested option holders $ 136,626 Cash paid to extinguish acquiree debt 16,574 Cash paid to settle pre-acquisition liabilities and acquiree deal-related costs 3,463 Fair value of common stock transferred 117,354 Fair value of assumed options attributable to pre-combination service 3,593 Total purchase consideration $ 277,610 The following table presents the purchase consideration allocation recorded on our consolidated balance sheet as of the acquisition date (in thousands): March 5, 2021 Cash and cash equivalents $ 7,323 Accounts receivable and other assets 6,146 Intangible assets 80,000 Goodwill 205,690 Accounts payable and other liabilities ( 4,146 ) Consumer Incentive liability ( 15,101 ) Deferred tax liabilities ( 2,302 ) Total purchase consideration $ 277,610 87 Table of Contents 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. 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. 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): Fair Value Useful life (in years) Trade name $ 2,500 3.0 Developed technology 37,500 6.0 Merchant relationships 21,000 5.0 Partner relationships 2,000 7.0 Card-linked subscriber user base $ 17,000 5.0 Pro forma consolidated results of operations The following unaudited pro forma financial information presents combined results of operations for the period presented as if the acquisition of Entertainment had been completed on January 1, 2021 and the acquisitions of Dosh and Bridg had been completed on January 1, 2020. The pro forma information includes adjustments to depreciation expense for property and equipment acquired, to amortize expense for the intangible assets acquired, and to eliminate the acquisition transaction expenses recognized in the period. The pro forma financial information is for informational purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisitions actually occurred on January 1, 2021 and January 1, 2020, respectively, or the results of future operations of the combined business. For instance, planned or expected operational synergies following the acquisition are not reflected in the pro forma information. Consequently, actual results will differ from the unaudited pro forma information presented below. Year Ended December 31, 2021 2022 Revenue $ 276,563 $ 298,563 Net loss ( 134,925 ) ( 465,536 ) 88 Table of Contents 5. GOODWILL AND ACQUIRED INTANGIBLES 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 $ — $ — $ — Goodwill additions 205,690 536,826 742,516 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. 89 Table of Contents Acquired intangible assets subject to amortization as of December 31, 2021 were as follows: Cost Accumulated Amortization Net Weighted Average Remaining Useful Life (in thousands) (in years) Trade name $ 2,700 $ ( 753 ) $ 1,947 2.1 Developed technology 91,000 ( 11,026 ) 79,974 5.3 Merchant relationships 32,000 ( 4,900 ) 27,100 4.2 Partner relationships 2,000 ( 235 ) 1,765 6.2 Card-linked subscriber user base 17,000 ( 2,798 ) 14,202 4.2 Total other intangible assets $ 144,700 $ ( 19,712 ) $ 124,988 Amortization expense of acquired intangibles for the twelve months ended December 31, 2021 was $19.7 million. 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. 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. 90 Table of Contents As of December 31, 2022, we expect amortization expense in future periods to be as follows (in thousands): Amount 2023 13,765 2024 13,732 2025 13,228 2026 9,670 2027 2,978 Thereafter — Total expected future amortization expense $ 53,373 6. REVENUE The Cardlytics Platform The Cardlytics platform is our proprietary native bank advertising channel that enables marketers to reach consumers through the FIs' trusted and frequently visited digital banking channels. Working with the marketer, we design a campaign that targets customers based on their purchase history. The consumer is offered an incentive to make a purchase from the marketer within a specified period. We use a portion of the fees that we collect from marketers to provide these consumer incentives to our FIs’ customers after they make qualifying purchases ("Consumer Incentives"). Leveraging our powerful purchase intelligence platform, we are able to create compelling Consumer Incentives that have the potential to increase return on advertising spend for marketers and measure the effectiveness of the advertising. During 2020, 2021 and 2022, Consumer Incentives totaled $ 76.5 million, $ 127.0 million and $ 143.9 million, respectively. We pay certain partners a negotiated and fixed percentage of our billings to marketers less any Consumer Incentives that we pay to partners’ customers and certain third-party data costs ("Partner Share"). Revenue on our consolidated statements of operation is presented net of Consumer Incentives and gross of Partner Share. The Cardlytics platform is priced predominantly in two ways: (1) Cost per Served Sale (“CPS”), and (2) Cost per Redemption (“CPR”). • CPS. Our primary pricing model is CPS, which we created to meet the media buying preferences of marketers. We generate revenue by charging a percentage, which we refer to as the CPS Rate, of all purchases from the marketer by consumers who (1) are served marketing and (2) subsequently make a purchase from the marketer during the campaign period, regardless of whether consumers select the marketing and thereby becomes eligible to earn the applicable Consumer Incentive. We set CPS Rates for marketers based on our expectation of the marketer’s return on spend for the relevant campaign. Additionally, we set the amount of the Consumer Incentives payable for each campaign based on our estimation of our ability to drive incremental sales for the marketer. We seek to optimize the level of Consumer Incentives to retain a greater portion of billings. However, if the amount of Consumer Incentives exceeds the amount of billings that we are paid by the applicable marketer we are still responsible for paying the total Consumer Incentive. This has occurred infrequently and has been immaterial in amount for each of the periods presented. In some instances, we may also charge the marketer the Consumer Incentive, in which case the marketer determines the level of Consumer Incentive for the campaign. • CPR. Under our CPR pricing model, marketers generally specify and fund the Consumer Incentive and pay us a separate negotiated, fixed marketing fee for each purchase that we generate. We generally generate revenue if the consumer (1) is served marketing, (2) selects the marketing and thereby becomes eligible to earn the applicable Consumer Incentive, and (3) makes a qualifying purchase from the marketer during the campaign period. We set the CPR fee for marketers based on our estimation of the marketers’ return on spend for the relevant campaign. The following table summarizes revenue by pricing model (in thousands): Year Ended December 31, 2020 2021 2022 Cost per Served Sale $ 131,045 $ 175,434 $ 180,701 Cost per Redemption 53,838 81,911 87,992 Other 2,009 1,409 8,492 Cardlytics platform revenue $ 186,892 $ 258,754 $ 277,185 91 Table of Contents The Bridg platform 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. For non-recurring services or transactional based fees dependent on system usage, revenue is recognized as services are delivered. Our subscription contracts are generally 6 to 36 months in duration and are generally billed in advance on a monthly, quarterly or annual basis. The following table summarizes revenue from the Bridg platform (in thousands): Year Ended December 31, 2021 2022 Subscription revenue $ 8,207 $ 21,190 Other revenue 155 167 Bridg platform revenue $ 8,362 $ 21,357 The following table summarizes contract balances from the Bridg platform (in thousands): Year Ended December 31, Contract Balance Type Consolidated Balance Sheets Location 2021 2022 Contract assets, current Accounts receivable and contract assets, net $ 52 $ 28 Contract assets, long-term Other long-term assets, net 26 — Total contract assets $ 78 $ 28 Contract liabilities, current Deferred revenue $ 1,627 $ 1,750 Contract liabilities, long-term Long-term deferred revenue 173 334 Total contract liabilities $ 1,800 $ 2,084 The following information represents the total transaction price for the remaining performance obligations as of December 31, 2022 related to contracts expected to be recognized over future periods. This includes deferred revenue on our consolidated balance sheets and contracted amounts that will be invoiced and recognized as revenue in future periods. As of December 31, 2022, we had $ 20.2 million of remaining performance obligations, of which $15.9 million is expected to be recognized in the next twelve months, with the remaining amount recognized thereafter. The remaining performance obligations exclude future transaction revenue of variable consideration that are allocated to wholly unsatisfied distinct services that form part of a single performance obligation and meets certain variable allocation criteria. 7. LEASES We have various non-cancellable operating and finance leases for our office spaces, data centers and operational assets with lease periods expiring between 2023 and 2027. During the year ended December 31, 2021, we recognized additional right-of-use assets and lease liabilities related to our operating leases of $ 5.1 million and $ 5.5 million , respectively. This includes $ 1.8 million of new lease agreements related to data center expansion, $0.6 million related to the renewal or modification of pre-existing data center lease agreements, $ 0.4 million of new lease agreements related to office space expansion and $ 0.9 million related to the renewal or modification of pre-existing office space lease agreements. Additionally, right-of-use assets and lease liabilities of $ 1.4 million and $ 1.8 million , respectively, were recorded related to the acquisitions of Dosh and Bridg and assumption of their existing lease agreements. Refer to Note 4—Business Combinations for further information. 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. 92 Table of Contents 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 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): December 31, Lease Type Consolidated Balance Sheets Location 2021 2022 Operating lease assets Right-of-use assets under operating leases, net $ 10,196 $ 6,571 Finance lease assets Property and equipment, net 86 48 Total lease assets 10,282 6,619 Operating lease liabilities, current Current operating lease liabilities 6,028 4,910 Operating lease liabilities, long-term Long-term operating lease liabilities 6,801 4,306 Finance lease liabilities, current Accrued expenses 36 38 Finance lease liabilities, long-term Other long-term liabilities 50 3 Total lease liabilities $ 12,915 $ 9,257 The following table summarizes activity related to our leases (in thousands): December 31, 2021 2022 Operating lease expense $ 5,632 $ 6,598 Variable lease expense 936 1,294 Short-term lease expense 119 459 Total net operating lease cost $ 6,687 $ 8,351 The following table presents our weighted average borrowing rates and weighted average lease terms: December 31, 2021 2022 Operating leases: Weighted average borrowing rate 3.4 % 4.2 % Weighted average remaining lease term (years) 2.36 2.26 93 Table of Contents The following table summarizes future maturities of lease liabilities as of December 31, 2022 (in thousands): Fiscal Year Operating Leases 2023 $ 5,087 2024 2,409 2025 1,196 2026 599 Thereafter 397 Total lease payments 9,688 Imputed interest 472 Total lease liabilities $ 9,216 8. PROPERTY AND EQUIPMENT Significant components of property and equipment are as follows (in thousands): December 31, 2021 2022 Computer equipment $ 28,848 $ 26,260 Leasehold improvements 7,689 7,863 Furniture and fixtures 1,232 1,273 Construction in progress 29 41 Property and equipment, gross 37,798 35,437 Less accumulated depreciation and amortization ( 26,525 ) ( 29,521 ) Property and equipment, net $ 11,273 $ 5,916 Depreciation expense was $ 5.6 million, $ 6.7 million and $ 5.4 million in 2020, 2021 and 2022, respectively. 94 Table of Contents 9. DEBT AND FINANCING ARRANGEMENTS Our debt consists of the following (in thousands): December 31, 2021 2022 Convertible senior notes, net $ 184,398 $ 226,047 Accrued interest is included within accrued expenses in our consolidated balance sheet. We had accrued interest on debt of $0.7 million and $0.7 million as of December 31, 2021 and 2022, respectively. 2020 Convertible Senior Notes On September 22, 2020, we issued Notes with an aggregate principal amount of $ 230.0 million bearing an interest rate of 1.00 % due in 2025, including the exercise in full of the initial purchasers’ option to purchase up to an additional $30.0 million principal amount of the Notes. The Notes were issued pursuant to an indenture, dated September 22, 2020 (the “Indenture”), between us and U.S. Bank National Association, as trustee. The Notes are general senior, unsecured obligations and will mature on September 15, 2025, unless earlier converted, redeemed or repurchased. The Notes bear interest at a rate of 1.00 % per year, payable semiannually in arrears on March 15 and September 15 of each year, which began on March 15, 2021. The Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding June 15, 2025, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 (and only during such calendar quarter), if the last reported sale price of our common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of common stock and the conversion rate for the Notes on each such trading day; (3) if we call such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events as set forth in the Indenture. On or after June 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Notes may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances. Upon conversion, we may satisfy our conversion obligation by paying and/or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election, in the manner and subject to the terms and conditions provided in the Indenture. We currently intend to settle the principal amount of the Notes with cash. The conversion rate for the Notes will initially be 11.7457 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $ 85.14 per share of common stock. The conversion rate for the Notes is subject to adjustment under certain circumstances in accordance with the terms of the Indenture. In addition, following certain corporate events that occur prior to the maturity date of the Notes or if we deliver a notice of redemption in respect of the Notes, we will, in certain circumstances, increase the conversion rate of the Notes for a holder who elects to convert its Notes in connection with such a corporate event or convert its notes called for redemption during the related redemption period (as defined in the Indenture), as the case may be. We may not redeem the Notes prior to September 20, 2023. We may redeem for cash all or any portion of the Notes, at our option, on or after September 20, 2023 and prior to the 36th scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130 % of the conversion price for the Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes. If we elect to redeem less than all of the Notes, at least $75.0 million aggregate principal amount of Notes must be outstanding and not subject to redemption as of the relevant redemption notice date. If we undergo a Fundamental Change (as defined in the Indenture), then, except as set forth in the Indenture, holders may require, subject to certain exceptions, us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. 95 Table of Contents The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving us after which the Notes become automatically due and payable. The following events are considered “events of default” under the Indenture: • default in any payment of interest on any Note when due and payable and the default continues for a period of 30 days; • default in the payment of principal of any Note when due and payable at its stated maturity, upon optional redemption, upon any required repurchase, upon declaration of acceleration or otherwise; • failure by us to comply with our obligation to convert the Notes in accordance with the Indenture upon exercise of a holder’s conversion right, and such failure continues for three business days; • failure by us to give a fundamental change notice, notice of a make-whole fundamental change or notice of a specified corporate event, in each case when due and such failure continues for one business day; • failure by us to comply with its obligations in respect of any consolidation, merger or sale of assets; • failure by us to comply with any of our other agreements in the Notes or the Indenture for 60 days after written notice of such failure from the trustee or the holders of at least 25% in principal amount of the Notes then outstanding; • default by us or any of our significant subsidiaries (as defined in the Indenture) with respect to any mortgage, agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in excess of $35,000,000 (or its foreign currency equivalent), in the aggregate of us and/or any such significant subsidiary, whether such indebtedness now exists or shall hereafter be created, (i) resulting in such indebtedness becoming or being declared due and payable prior to its stated maturity date or (ii) constituting a failure to pay the principal of any such indebtedness when due and payable (after the expiration of all applicable grace periods) at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise, and in the cases of clauses (i) and (ii), such acceleration shall not have been rescinded or annulled or such failure to pay or default shall not have been cured or waived, or such indebtedness is not paid or discharged, as the case may be, within 30 days after written notice to us by the trustee or to us and the trustee by holders of at least 25% in aggregate principal amount of the Notes then outstanding in accordance with the Indenture; and • certain events of bankruptcy, insolvency or reorganization of us or any of our significant subsidiaries. If certain bankruptcy and insolvency-related events of default with respect to us occur, the principal of, and accrued and unpaid interest on, all of the then outstanding Notes shall automatically become due and payable. If an event of default with respect to the Notes, other than certain bankruptcy and insolvency-related events of default with respect to us, occurs and is continuing, the trustee by notice to us or the holders of at least 25% in principal amount of the outstanding Notes by notice to us and the trustee, may, and the trustee at the request of such holders shall, declare the principal of, and accrued and unpaid interest on, all of the then-outstanding Notes to be due and payable. Notwithstanding the foregoing, the Indenture provides that, to the extent we so elect, the sole remedy for an event of default relating to certain failures by us to comply with certain reporting covenants in the Indenture will, for the first 365 days after the occurrence of such event of default, consist exclusively of the right to receive additional interest on the Notes at a rate equal to 0.25% per annum of the principal amount of the Notes outstanding for each day during the first 180 days after the occurrence of such an event of default and 0.50% per annum of the principal amount of the Notes outstanding from the 181st day to, and including, the 365th day following the occurrence of such event of default, as long as such event of default is continuing (in addition to any additional interest that may accrue as a result of a registration default (as set forth in the Indenture). The Indenture provides that we shall not consolidate with or merge with or into, or sell, convey, transfer or lease all or substantially all of the consolidated properties and assets of our subsidiaries, taken as a whole, to, another person (other than any such sale, conveyance, transfer or lease to one or more of our direct or indirect wholly owned subsidiaries), unless: (i) the resulting, surviving or transferee person (if not us) is a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and such corporation (if not us) expressly assumes by supplemental indenture all of our obligations under the Notes and the Indenture; and (ii) immediately after giving effect to such transaction, no default or event of default has occurred and is continuing under the Indenture. The net proceeds from this offering were $ 222.7 million, after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by us. We used $ 26.5 million of the net proceeds to pay the cost of the capped call transactions described below. 96 Table of Contents The Notes are accounted for in accordance with FASB ASC Subtopic 470-20, Debt with Conversion and Other Options . Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the instrument was computed using a discount rate of 6.50%, which was determined by estimating the fair value of a similar liability without the conversion option using Level 3 inputs. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the instrument. The difference between the principal amount and the liability component represents a debt discount that is amortized to interest expense over the respective term of the Notes using the effective interest rate method. 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. The net carrying amount of the liability component of the Notes is as follows (in thousands): December 31, 2021 2022 Principal $ 230,000 $ 230,000 Minus: Unamortized debt discount ( 41,098 ) — Minus: Unamortized issuance costs ( 4,504 ) ( 3,956 ) Net carrying amount of the liability component $ 184,398 $ 226,044 The net carrying amount of the equity component of the Notes is as follows (in thousands): December 31, 2021 Proceeds allocated to the conversion options (debt discount) $ 53,096 Minus: Issuance costs ( 1,680 ) Net carrying amount of the equity component $ 51,416 Interest expense recognized related to the Notes is as follows (in thousands): December 31, 2021 2022 Contractual interest expense (due in cash) $ 2,300 $ 2,300 Amortization of debt discount 9,513 — Amortization of debt issuance costs 874 1,461 Total interest expense related to the Notes $ 12,687 $ 3,761 Effective interest rate 5.52 % 1.64 % Capped Call Transactions In connection with the issuance of the Notes, we entered into privately negotiated capped call transactions (the "Capped Calls") with an affiliate of one of the initial Note purchasers and certain other financial institutions. The Capped Calls are intended to reduce potential dilution to our common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be. The Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The cost of $ 26.5 million incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheet. 97 Table of Contents The Capped Calls each have an initial strike price of $85.14 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of $128.51 per share, subject to certain adjustments. 2018 Loan Facility On May 21, 2018, we entered into a Loan and Security Agreement with Pacific Western Bank (the “Lender”) consisting of a $ 30.0 million asset–based revolving line of credit ("2018 Line of Credit") and a $ 20.0 million term loan ("2018 Term Loan") (collectively, the “2018 Loan Facility”). We used the entire $ 20.0 million in proceeds from the 2018 Term Loan and an advance of $ 27.4 million under the 2018 Line of Credit to repay all outstanding obligations under our prior line of credit and term loan. On September 17, 2020, we amended our 2018 Loan Facility to allow for the issuance of the Notes. On December 30, 2020, we amended our 2018 Loan Facility to increase the capacity of our Line of Credit, from $40.0 million to $50.0 million. 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. Prior to the December 2020 amendment, the 2018 Loan Facility contained moving trailing 12-month billing covenants, which ranged from $ 210.0 million to $ 255.0 million, during the term of the facility. The former terms of the 2018 Loan Facility also required us to maintain a total cash balance plus liquidity under the 2018 Line of Credit of not less than $5.0 million. Effective with the December 2020 amendment, the former billings and liquidity covenants were removed and were replaced with a requirement to maintain a cash to funded senior debt ratio under the 2018 Line of Credit of 1.25:1.00. 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 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. Future Payments Aggregate future payments of principal due upon maturity are as follows (in thousands): Years Ending December 31, Convertible Senior Notes 2023 $ — 2024 — 2025 230,000 2026 — Total debt $ 230,000 98 Table of Contents 10. STOCK-BASED COMPENSATION Our 2018 Equity Incentive Plan ("2018 Plan") became effective in February 2018. Prior to the 2018 Plan, we granted awards under our 2008 Stock Plan ("2008 Plan"). Any awards granted under the 2008 Plan remain subject to the terms of our 2008 Plan and applicable award agreements, and shares subject to awards granted under our 2008 Plan that are forfeited, canceled or expired prior to vesting become available for use under our 2018 Plan. As of December 31, 2022, there were 405,830 shares of our common stock reserved for issuance under our 2018 Plan. The number of shares of our common stock reserved for issuance under our 2018 Plan will automatically increase on January 1 of each year, beginning on January 1, 2019 and continuing through and including January 1, 2028, by 5 % of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year or a lesser number of shares determined by our board of directors. Accordingly, the number of shares of our common stock reserved for issuance under our 2018 Plan increased by 1,673,858 shares on January 1, 2023. The 2018 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards and other forms of equity compensation, which are collectively referred to as stock awards. 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): Year Ended December 31, 2020 2021 2022 Delivery costs $ 1,181 $ 1,865 $ 2,682 Sales and marketing expense 9,857 13,780 11,935 Research and development expense 4,713 10,328 13,262 General and administration expense 16,645 24,291 16,807 Total stock-based compensation expense $ 32,396 $ 50,264 $ 44,686 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 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 The term of each option to purchase shares of our common stock pursuant to the 2018 Plan is set by our board of directors or a committee thereof. Option awards are generally granted with an exercise price not less than the fair value per share of our common stock at the grant date. Option awards generally vest over four years and expire 10 years following the date of grant. 99 Table of Contents A summary of common stock option activity under our 2018 Plan is as follows (in thousands, except per share amounts): Shares Weighted-Average Exercise Price Per Share Weighted Average Contractual Life (in years) Aggregate Intrinsic Value (1) (in thousands) Outstanding - December 31, 2019 1,000 $ 22.99 Granted — — Exercised ( 467 ) 21.78 $ 29,523 Forfeited ( 19 ) 27.83 Cancelled ( 1 ) 21.89 Outstanding - December 31, 2020 513 $ 23.91 Granted — — Exercised ( 106 ) 19.11 $ 9,710 Cancelled ( 1 ) 22.16 Outstanding - December 31, 2021 406 $ 25.17 Granted — — Exercised ( 16 ) 23.77 $ 335 Cancelled ( 31 ) 23.60 Outstanding - December 31, 2022 359 $ 25.37 1.10 $ — Exercisable - December 31, 2022 359 $ 25.37 1.10 $ — (1) For options exercised during the year, the aggregate intrinsic value represents the total pre-tax intrinsic value received by option holders based on the closing price of our common stock as reported on the Nasdaq Global Market on the exercise date. 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 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. Common Stock Options from Bridg Acquisition In connection with the acquisition of Bridg, each unvested option to purchase shares of Bridg common stock outstanding as of the acquisition date was converted to unvested options to purchase shares of our common stock. These awards were granted under the Ecinity, Inc. 2012 Equity Incentive Plan ("Bridg Plan") and were separately registered with the Securities and Exchange Commission on Form S-8 on August 3, 2021. The maximum aggregate number of shares of our common stock that may be issued upon exercise of these awards is 21,797 shares, and we do not expect to grant any additional awards under the Bridg Plan. The converted awards retain the same terms and conditions as the awards granted by Bridg prior to the acquisition. The awards have remaining vesting periods ranging from less than one year to four years. 100 Table of Contents The following table summarizes changes in common stock options from the Bridg acquisition: Shares (in thousands) Weighted-Average Exercise Price Weighted Average Contractual Life (in years) Aggregate Intrinsic Value (in thousands) (1) Options outstanding — December 31, 2020 — $ — Assumed 22 8.46 Exercised ( 4 ) 8.53 $ 318 Options outstanding — December 31, 2021 18 8.45 9.35 $ 1,023 Assumed — — 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 $ — (1) For options exercised during the period, the aggregate intrinsic value represents the total pre-tax intrinsic value received by option holders based on the closing price of our common stock as reported on the Nasdaq Global Market on the exercise date. 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 per share 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 the twelve months ended December 31, 2022 was $ 0.1 million. As of December 31, 2022, unamortized stock-based compensation expense related to unvested common stock options was $ 0.1 million, and the weighted-average period over which such stock-based compensation expense will be recognized was 1.4 years. The acquisition date fair value of the converted options was determined using the Black-Scholes options pricing model. The fair value identified was then allocated between pre-combination service, attributed to purchase consideration net of a 20% anticipated forfeiture rate, and post-combination service, to be recognized as stock-based compensation expense over the remaining vesting term. The Black-Scholes options pricing model is affected by the estimated fair value of our common stock as well as the following significant inputs: May 5, 2021 Value of Common Stock $ 106.34 Expected Term 7.0 Volatility 56.6 % Risk-free interest rate 1.1 % Exercise Price $6.54 - 9.81 Dividend Rate — % Common Stock Options from Dosh Acquisition In connection with the acquisition of Dosh, each unvested option to purchase shares of Dosh common stock outstanding as of the acquisition date was converted to unvested options to purchase shares of our common stock. These awards were granted under the Dosh Holdings, Inc. 2017 Stock Incentive Plan ("Dosh Plan") and were separately registered with the Securities and Exchange Commission on Form S-8 on April 9, 2021. The maximum aggregate number of shares of our common stock that may be issued upon exercise of these awards is 104,098 shares, and we do not expect to grant any additional awards under the Dosh Plan. The converted awards retain the same terms and conditions as the awards granted by Dosh prior to the acquisition. The awards have remaining vesting periods ranging from less than one year to four years. 101 Table of Contents The following table summarizes changes in common stock options from the Dosh acquisition: Shares (in thousands) Weighted-Average Exercise Price Weighted Average Contractual Life (in years) Aggregate Intrinsic Value (in thousands) (1) Options outstanding — December 31, 2020 — $ — Assumed 104 3.06 Exercised ( 30 ) 3.06 $ 2,492 Forfeited ( 44 ) 3.06 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 (1) For options exercised during the period, the aggregate intrinsic value represents the total pre-tax intrinsic value received by option holders based on the closing price of our common stock as reported on the Nasdaq Global Market on the exercise date. 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 per share 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 the twelve months ended December 31, 2022 was $ 0.9 million. As of December 31, 2022, unamortized stock-based compensation expense related to unvested common stock options was $ 0.8 million, and the weighted-average period over which such stock-based compensation expense will be recognized was 1.37 years. The acquisition date fair value of the converted options was determined using the Black-Scholes options pricing model. The fair value identified was then allocated between pre-combination service, attributed to purchase consideration net of a 20% anticipated forfeiture rate, and post-combination service, to be recognized as stock-based compensation expense over the remaining vesting term. The Black-Scholes options pricing model is affected by the estimated fair value of our common stock as well as the following significant inputs: March 5, 2021 Value of Common Stock $ 128.06 Expected Term 7.0 Volatility 54.6 % Risk-free interest rate 1.1 % Exercise Price $ 3.06 Dividend Rate — % 102 Table of Contents Restricted Stock Units We grant restricted stock units ("RSUs") to employees and our non-employee directors. The following table summarizes changes in RSUs, inclusive of performance-based RSUs: Shares (in thousands) Weighted-Average Grant Date Fair Value Per Share Weighted-Average Remaining Contractual Term (in years) Unamortized Compensation Costs (in thousands) Unvested - December 31, 2019 1,741 $ 18.55 Granted 1,758 43.07 Vested ( 779 ) 28.56 Forfeited/canceled ( 286 ) 23.34 Unvested - December 31, 2020 2,434 $ 32.49 Granted 975 106.24 Vested ( 724 ) 32.51 Forfeited ( 391 ) 51.54 Unvested - December 31, 2021 2,294 $ 60.58 Granted 6,182 24.74 Vested ( 984 ) 49.15 Forfeited ( 1,536 ) 59.94 Unvested - December 31, 2022 5,956 $ 25.43 2.93 $ 116,941 Service-based Restricted Stock Units 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. The immediately vesting awards replaced previously granted RSUs which were cancelled as a result of the modification. As of December 31, 2022, there was approximately $ 116.9 million of unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 2.9 years. The aggregate intrinsic value based on the $ 5.78 closing price of our common stock as reported on the Nasdaq Global Market on December 31, 2022 of unvested RSUs is $ 34.4 million as of December 31, 2022. Subsequent to December 31, 2022, we granted 527,308 RSUs to employees, which have annual vesting periods ranging from two to four years. The unamortized stock-based compensation expense related to all RSUs granted subsequent to December 31, 2022 is $ 3.1 million. Performance-based Restricted Stock Units During 2019, we granted 1,252,500 performance-based RSUs (“2019 PSUs”). The 2019 PSUs are composed of four equal tranches, each of which have an independent performance-based vesting condition. The vesting criteria for the four tranches are as follows: • a minimum growth rate in adjusted contribution over a trailing 12-month period, • a minimum number of advertisers that are billed above a specified amount over a trailing 12-month period, • a minimum cumulative adjusted EBITDA target over a trailing 12-month period, and • a minimum trailing 30-day average closing price of our common stock. 103 Table of Contents The vesting conditions of each of the four tranches must be achieved within four years of the grant date. Upon a vesting event, 50 % of the related tranche vests immediately, 25 % of the related tranche vests six months after the achievement date and 25 % of the related tranche vests 12 months after the achievement date. Adjusted EBITDA and adjusted contribution are performance metrics defined within Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." In August and November 2019, the compensation committee of our board of directors certified that the target minimum trailing 30-day average closing price of our common stock and target minimum cumulative adjusted EBITDA over a trailing 12-month period, respectively, were achieved resulting in the immediate vesting of 50% of the related PSU tranches. In February 2020, 25% of the 30-day average closing price of our common stock PSU tranche vested upon the six-month anniversary of the tranche's achievement date and the remaining 25% of the tranche vested in August 2020 upon the twelve-month anniversary of the tranche's achievement date. In May 2020, 25% of the adjusted EBITDA tranche vested upon the six-month anniversary of the tranche's achievement date, and the remaining 25% of the tranche vested in November 2020 upon the twelve-month anniversary of the tranche's achievement date. In October 2021, the compensation committee of our board of directors certified that the target number of advertisers that were billed over a specified amount during a trailing 12-month period had been achieved resulting in the immediate vesting of 50% of the related PSU tranche. In December 2021, the compensation committee of our board of directors certified that the target growth rate for adjusted contribution during a trailing 12-month period had been achieved resulting in the immediate vesting of 50% of the related PSU tranche. In April 2020, we granted 476,608 performance-based restricted stock units ("2020 PSUs"), of which 443,276 units have a performance-based vesting condition based on a minimum average revenue per user ("ARPU") target over a trailing 12-month period and 33,332 units have the same performance-based vesting conditions as those that unmet at the time under the 2019 PSUs described above. ARPU is a performance metric defined within Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The ARPU vesting condition must be achieved within four years of the grant date. 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. The first tranche consists of 55,118 units that have a performance-based vesting condition based on a minimum revenue target over a trailing 12-month period. The units in this first tranche fully vest upon achievement. The second tranche consists of 55,118 units with a performance-based vesting condition based on a different minimum revenue target over a trailing 12-month period. Half of the units in the second tranche vest upon achievement and the remaining units vest six months after the achievement date, subject to continued service. Each performance-based vesting condition within the two tranches must be achieved within four years of the grant date and are subject to certification by the compensation committee of our board of directors. Additionally, in April 2021, we granted 10,000 performance-based restricted stock units which have the same unmet vesting condition as the 2020 PSUs based on a minimum ARPU target over a trailing 12-month period as described above. In July 2021, we granted 34,344 performance-based restricted stock units ("Bridg PSUs") which have performance-based vesting conditions based on the achievement of a minimum ARR target by the first anniversary of the Bridg acquisition. Vesting is tied to the percentage of the ARR target achieved during the specified period with 50% of the units vesting between 80% - 99.999% achievement and 100% of the units vesting upon 100% achievement. If these percentages are not met, no Bridg PSUs will vest. 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. 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. 104 Table of Contents 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 Our board of directors adopted and our stockholders have approved our 2018 Employee Stock Purchase Plan ("2018 ESPP"). Our 2018 ESPP became effective on February 8, 2018, the date our registration statement in connection with our IPO was declared effective and enables eligible employees to purchase shares of our common stock at a discount. Purchases will be accomplished through participation in discrete offering periods. On each purchase date, eligible employees will purchase our common stock at a price per share equal to 85% of the lesser of the fair market value of our common stock on the first trading day of the offering period or the date of purchase. During 2020, 2021 and 2022, a total of 59,173 , 41,473 and 167,622 shares of common stock were purchased by employees under the 2018 ESPP, respectively. As of December 31, 2022, 878,969 shares of common stock were reserved for issuance pursuant to our 2018 ESPP. Additionally, the number of shares of our common stock reserved for issuance under our 2018 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2019 and continuing through and including January 1, 2026, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (ii) 500,000 shares of our common stock or (iii) such lesser number of shares of common stock as determined by our board of directors. Accordingly, the number of shares of our common stock reserved for issuance under our 2018 ESPP increased by 334,771 shares on January 1, 2023. Shares subject to purchase rights granted under our 2018 ESPP that terminate without having been issued in full will not reduce the number of shares available for issuance under our 2018 ESPP. 11. INCOME TAXES Domestic and foreign components of loss before income taxes are as follows (in thousands): Year Ended December 31, 2020 2021 2022 Domestic $ ( 42,613 ) $ ( 122,087 ) $ ( 455,202 ) Foreign ( 12,809 ) ( 14,342 ) ( 11,508 ) Loss before income taxes $ ( 55,422 ) $ ( 136,429 ) $ ( 466,710 ) The significant components of income tax (expense) benefit are as follows (in thousands): Year Ended December 31, 2020 2021 2022 Current: Federal $ — $ — $ — State — — — Foreign (1) — — — Total current — — — Deferred: Federal 23,062 31,106 38,508 State 3,744 4,942 6,317 Foreign 1,713 2,184 3,075 Change in uncertain tax positions ( 117 ) ( 596 ) ( 587 ) Change in valuation allowance ( 28,402 ) ( 29,772 ) ( 45,867 ) Total deferred — 7,864 1,446 Income tax benefit $ — $ 7,864 $ 1,446 (1) The current income tax (expense) during 2020, 2021 and 2022 excludes Indian income tax expense of less than $0.3 million, $0.2 million and $0.2 million, respectively. 105 Table of Contents The following table summarizes the significant differences between the U.S. federal statutory tax rate and our effective tax rate: Year Ended December 31, 2020 2021 2022 Tax benefit at federal statutory rate 21.00 % 21.00 % 21.00 % State income taxes, net of federal benefit — % 2.08 % 0.08 % Change in federal and state statutory rate 0.35 % ( 0.14 ) % 0.15 % 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 % Valuation allowance ( 28.57 ) % ( 21.75 ) % ( 9.87 ) % Income tax benefit ( 0.48 ) % 5.68 % 0.29 % The significant components of deferred income taxes are as follows (in thousands): December 31, 2021 2022 Net operating loss carry-forwards $ 145,273 $ 155,949 Allowance for credit losses 212 776 Depreciation and amortization ( 42,053 ) 1,485 Stock-based compensation 7,889 7,020 Deferred costs 7,898 6,599 IRC Section 163(j) interest expense limitation 77 — Other tax credit carry-forward 4,249 5,683 Other temporary differences 322 1,936 Valuation allowance ( 123,867 ) ( 179,448 ) Net long-term deferred tax asset $ — $ — 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. 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): Year Ended December 31, 2020 2021 2022 Beginning balance $ ( 70,231 ) $ ( 85,991 ) $ ( 123,867 ) Allowance for domestic and foreign net operating loss carry-forwards ( 26,277 ) ( 51,856 ) ( 13,360 ) Rate change on domestic net operating loss carry-forwards ( 82 ) 419 235 Convertible debt additional paid-in capital tax adjustment - valuation allowance impact 12,642 — ( 9,714 ) Other changes ( 2,043 ) 13,561 ( 32,742 ) Ending balance $ ( 85,991 ) $ ( 123,867 ) $ ( 179,448 ) 106 Table of Contents As of December 31, 2021 and 2022 we have $ 586.2 million and $ 625.5 million, respectively, of gross U.S. federal net operating loss carry forwards that will begin to expire in the 2028 tax year. Additionally, we have $ 243.6 million and $ 254.1 million of gross state net operating loss carry-forwards as of December 31, 2021 and 2022, respectively that will expire between the 2022 and 2042 tax years for states that do not have indefinite carry-forward periods for net operating losses generated in recent years. Ownership changes, as defined by IRC Section 382, may limit the amount of net operating losses that a company may utilize to offset future taxable income and taxes payable. Pursuant to IRC Section 382, an ownership change occurs when the stock ownership of 5% stockholders increases by more than 50% over a testing period of three years. We have experienced ownership changes in the past, and it is possible that we have undergone ownership changes subsequent to April 2, 2020, the date of our most recent evaluation, or that we may undergo such a change in the future. Any such ownership change may limit our ability to utilize net operating losses. Our results during 2020, 2021 and 2022 reflect state tax credits related to hiring and research activities that are utilized through the reduction of state payroll tax withholdings totaling $ 1.4 million, $ 1.3 million and $ 0.9 million, respectively. As of December 31, 2021 and 2022, Cardlytics UK had gross net operating losses of $ 43.0 million and $ 47.8 million, respectively. Foreign net operating loss carry-forwards expire according to the rules of each country. In the U.K., there is an indefinite carry-forward period. As of December 31, 2022, Cardlytics UK held cash and cash equivalents of $3.4 million. While our investment in Cardlytics UK is not considered to be permanently invested, we do not plan to repatriate these funds. Further, although the tax basis of our investment in Cardlytics UK exceeds its book basis, we have not recorded a deferred tax asset since we do not believe that a reversal of this temporary difference will occur in the foreseeable future. The following table summarizes the activity related to our gross unrecognized tax benefits that would affect our effective tax rate, if recognized (in thousands): Year Ended December 31, 2020 2021 2022 Beginning balance $ 185 $ 302 $ 1,128 Increase related to current year tax position 117 826 478 Ending balance $ 302 $ 1,128 $ 1,606 All such positions, if recognized, would impact our effective tax rate. We do not currently anticipate any of our positions to change significantly in the next 12 months. Our tax filings from inception remain subject to income tax examinations. 12. FAIR VALUE MEASUREMENTS We record the fair value of assets and liabilities in accordance with ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. 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: • Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. • Level 3 - unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability at fair value. 107 Table of Contents Contingent consideration for the acquisition of Bridg The contingent consideration for the acquisition of Bridg is composed of the First Anniversary Payment and the Second Anniversary Payment. The fair value of contingent consideration in connection with the Bridg acquisition is as follows (in thousands): December 31, 2021 Level 1 Level 2 Level 3 Total Liabilities: Current contingent consideration $ — $ — $ 182,470 $ 182,470 Long-term contingent consideration — — 49,825 49,825 Total liabilities $ — $ — $ 232,295 $ 232,295 December 31, 2022 Level 1 Level 2 Level 3 Total Liabilities: 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 Increase due to acquisition 230,921 — Unrealized loss due to change in fair value 1,374 ( 128,174 ) Ending balance $ 232,295 $ 104,121 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 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, 2022 Revenue volatility 20.0 % 20.0 % Revenue discount rate 4.7 % 8.7 % Weighted average cost of capital 12.5 % 17.0 % Common stock volatility 69.0 % 156.0 % Portion to be paid in cash 30.0 % 30.0 % 108 Table of Contents 13. COMMITMENTS AND CONTINGENCIES Implementation Costs Agreements with certain partners require us to fund the development of specific enhancements, pay for certain implementation fees, or make milestone payments upon the deployment of our solution. Amounts paid to partners are included in deferred implementation costs on our consolidated balance sheets the earlier of when paid or earned and are amortized over the remaining term of the related contractual arrangements. Amortization and impairment is included in Partner Share and other third-party costs on our consolidated statements of operations and is presented in amortization and impairment of deferred implementation costs on our consolidated statement of cash flows. Certain of these agreements provide for future reductions in Partner Share due to the partner. 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 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. The following table presents changes in deferred implementation costs (in thousands): December 31, 2020 2021 2022 Beginning balance $ 8,383 $ 3,785 $ — Recoveries through Partner Share — — — Amortization ( 3,915 ) ( 2,826 ) — Impairment ( 683 ) ( 959 ) — Ending balance $ 3,785 $ — $ — 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 We lease property and equipment under non-cancelable operating lease agreements. Refer to Note 7—Leases for further details. 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. Refer to Note 9—Debt and Financing Arrangements for further details. In connection with our acquisition of Bridg, we will owe a brokerage fee derived from the amount of the First Anniversary Payment and the Second Anniversary Payment, if any. 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. 109 Table of Contents Litigation 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. We make assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. We record a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range. If no amount within the range is a better estimate than any other amount, we accrue the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, we disclose the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, we disclose the nature and estimate of the possible loss of the litigation. 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. 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 . 110 Table of Contents 14. EARNINGS PER SHARE Diluted net loss per share is the same as basic net loss per share for 2020, 2021 and 2022 because the effects of potentially dilutive items were anti-dilutive, given our net loss during these periods. The following securities have been excluded from the calculation of diluted weighted-average common shares outstanding because the effect is anti-dilutive (in thousands): December 31, 2020 2021 2022 Common stock options 513 454 380 Convertible Senior Notes 2,701 2,701 2,701 Restricted stock units 2,434 2,294 5,956 Common stock issuable pursuant to the ESPP 4 9 95 15. SEGMENTS As of December 31, 2022, we have three operating segments: the Cardlytics platform in the U.S. and U.K. and the Bridg platform, as determined by the information that our Chief Executive Officer, who we consider our chief operating decision-maker ("CODM"), uses to make strategic goals and operating decisions. Our Cardlytics platform operating segments in the U.S. and U.K. represent our proprietary advertising channels and are aggregated into one reportable segment given their similar economic characteristics, nature of service, types of customers and method of distribution. Subsequent to the acquisition of Bridg, our CODM began reviewing Bridg's revenue and operating expenses. Therefore, we consider the Bridg platform to be a separate operating segment. Our CODM allocates resources to, and evaluates the performance of, our operating segments based on revenue and adjusted contribution. Our CODM does not review assets by operating segment for the purposes of evaluating performance or allocating resources. Revenue can be directly attributable to each segment. With the exception of deferred implementation costs, Partner Share and other third-party costs is also directly attributable to each segment. The accounting policies of each of our reportable segments are the same as those described in the summary of significant accounting policies. The following table provides information regarding our reportable segments (in thousands): Year Ended December 31, 2020 2021 2022 Cardlytics platform Adjusted contribution $ 82,182 $ 121,675 $ 122,981 Plus: Adjusted Partner Share and other third-party costs (1) 104,710 137,079 154,204 Revenue $ 186,892 $ 258,754 $ 277,185 Bridg platform Adjusted contribution $ — $ 7,953 $ 20,054 Plus: Adjusted Partner Share and other third-party costs (1) — 409 1,303 Revenue $ — $ 8,362 $ 21,357 Total Adjusted contribution $ 82,182 $ 129,628 $ 143,035 Plus: Adjusted Partner Share and other third-party costs (1) 104,710 137,488 155,507 Revenue $ 186,892 $ 267,116 $ 298,542 (1) Adjusted Partner Share and other third-party costs presented above represents GAAP Partner Share and other third-party data costs less deferred implementation costs, which is detailed below in our reconciliation of GAAP loss before income taxes to adjusted contribution. 111 Table of Contents 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. The following table presents a reconciliation of loss before income taxes presented in accordance with GAAP to adjusted contribution (in thousands): Year Ended December 31, 2020 2021 2022 Adjusted contribution $ 82,182 $ 129,628 $ 143,035 Minus: Deferred implementation costs (1) 4,598 3,785 — 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 administration expense 46,532 66,222 81,446 Change in fair value of contingent consideration — 1,374 ( 128,174 ) 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 Total non-operating (income) expense 1,499 13,830 8,932 Loss before income taxes $ ( 55,422 ) $ ( 136,429 ) $ ( 466,710 ) (1) Deferred implementation costs is excluded from adjusted Partner Share and other third-party costs, which is shown above in our reconciliation of GAAP revenue to adjusted contribution. The following tables provide geographical information (in thousands): Year Ended December 31, 2020 2021 2022 Revenue: United States $ 172,808 $ 246,315 $ 275,256 United Kingdom 14,084 20,801 23,286 Total $ 186,892 $ 267,116 $ 298,542 December 31, 2021 2022 Property and equipment: United States $ 7,750 $ 4,453 United Kingdom 3,423 1,463 India 100 — Total $ 11,273 $ 5,916 112 Table of Contents Capital expenditures within the United Kingdom and India were $ 2.8 million, $ 0.7 million and $ 0.5 million during 2019, 2021 and 2022, respectively. Concentrations of Risk Cash and Cash Equivalents Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. 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. Marketers Our revenue and accounts receivable are diversified among a large number of marketers segregated by both geography and industry. 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. FI Partners Our business is substantially dependent on a limited number of FI partners. We require participation from our FI partners in the Cardlytics platform and access to their purchase data in order to offer our solutions to marketers and their agencies. We must have FI partners with a sufficient number of customers and levels of customer engagement to ensure that we have robust purchase data and marketing space to support a broad array of incentive programs for marketers. Our agreements with a substantial majority of our FI partners have terms of three to seven years but are generally terminable by the FI partner on 90 days or less prior notice. 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 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. 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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.