Cardlytics, Inc. (NASDAQ:CDLX) has made significant strides in addressing its capital structure and operational challenges, positioning the company for a new phase of sustained growth. With the recent resolution of the SRS dispute, renegotiation of partner agreements, and the strengthening of its balance sheet, Cardlytics is now laser-focused on executing its growth strategy and capitalizing on the favorable industry tailwinds.
In the first quarter of 2024, Cardlytics reported revenue of $67.6 million, up 5% year-over-year, and annual revenue of $309.2 million. The company's net loss for the quarter was $24.3 million, contributing to an annual net loss of $134.7 million. However, the company's operational performance showed promising signs, with adjusted EBITDA turning positive for the first time in the first quarter, reaching $0.2 million. Annually, the company reported operating cash flow of -$185,000 and free cash flow of -$12.6 million.
Business Overview
Cardlytics operates an advertising platform that leverages purchase data from its financial institution (FI) partners to help marketers reach and engage consumers. The company's Cardlytics platform enables marketers to design targeted campaigns that offer incentives to consumers, while the Bridg platform provides a customer data platform that utilizes point-of-sale data to enable targeted loyalty marketing and measurement.The company's FI partners, which include leading banks such as Chase, Bank of America, and Wells Fargo, provide Cardlytics with access to their customers' anonymized purchase data and digital banking channels. Cardlytics then uses this data to create targeted marketing campaigns for its marketer clients, who pay the company a fee based on the performance of these campaigns.
Cardlytics has also expanded its offerings with the acquisition of Bridg, a customer data platform that provides marketers with access to point-of-sale data and advanced analytics capabilities. This acquisition has broadened the company's product suite and positioned it to capitalize on the growing demand for data-driven marketing solutions.
Addressing Capital Needs and Strengthening the Balance Sheet
One of the key highlights for Cardlytics in recent quarters has been its efforts to address its capital structure and strengthen its balance sheet. In the first quarter of 2024, the company raised $50 million in cash through an equity offering and used the proceeds, along with cash on hand, to repurchase $184 million of its outstanding 2020 convertible notes at prices below par value. Additionally, the company issued $172.5 million of new convertible notes due in 2029, further improving its liquidity and reducing the amount of debt that would have been considered current as of September 2024 from $260 million to $46 million.These actions, coupled with the company's positive adjusted EBITDA results for the full year 2023 and the first quarter of 2024, have addressed Cardlytics' capital concerns and provided its bank partners and advertisers with increased confidence in the company's long-term viability.
Operational Momentum and Growth Drivers
Cardlytics' first quarter performance demonstrated strong operational momentum, with billings growing 12% year-over-year, excluding the impact of the Entertainment divestiture. This growth was driven by strength in the travel and everyday spend categories, as well as the company's ability to win back key accounts and reduce churn.A key metric for Cardlytics is redemptions, which the company views as a leading indicator of demand. In the first quarter, redemptions increased by 20% year-over-year, reflecting the company's success in driving consumer engagement through its platform enhancements and partner network.
The company's adjusted contribution, which measures the degree to which revenue generated from marketers exceeds the cost of obtaining purchase data and digital advertising space, grew 27% year-over-year, excluding Entertainment. This expansion in margins was driven by a combination of partner share renegotiations and a shift in the mix of FI partners.
Cardlytics sees several key growth drivers for the business going forward:
1. Favorable Industry Tailwinds: The shift away from third-party cookies and the increasing importance of purchase data-driven marketing solutions have created a favorable environment for Cardlytics' offerings. As marketers seek more precise targeting and measurement capabilities, the company's Cardlytics and Bridg platforms are well-positioned to capitalize on these trends.
2. Investments in Technology and Sales: Cardlytics has been investing in its technology, including upgrades to its Ad Decisioning Engine and the development of a dynamic marketplace. These initiatives are designed to enhance the company's ability to deliver more targeted and effective campaigns for its marketer clients. Additionally, the company is reinvesting in its sales and account management teams to better support its growing advertiser base.
3. Redemptions and Engagement: Cardlytics has been focused on driving deeper consumer engagement through its platform enhancements, which have resulted in a 30 percentage point difference in redemptions between customers of banks on its Ad Decisioning Engine versus those not on the platform. As the company continues to improve offer quality and increase consumer redemptions, significant growth in the scale of outcomes it can deliver to its clients and partners is expected.
4. International Expansion: Cardlytics' international business, particularly in the U.K., has been a bright spot, growing over 50% year-over-year in the first quarter. The company believes it can maintain similar growth levels in the coming quarters, as it continues to expand its presence in international markets.
5. Bridg and Retail Media: Cardlytics' acquisition of Bridg has provided the company with unique identity resolution capabilities that it believes will be crucial in a cookieless advertising landscape. The company is also leveraging Bridg's technology to establish its Rippl retail media network, which it expects to grow to 100 million individual shopper profiles by the end of 2024, making it one of the largest retail media networks in the country.
Guidance and Outlook
For the second quarter of 2024, Cardlytics expects billings between $115 million and $126 million, revenue between $73 million and $81 million, adjusted contribution between $40 million and $45 million, and adjusted EBITDA between negative $3 million and positive $1 million.The company continues to expect double-digit billings growth for the full year 2024 and to be operating cash flow positive on a full-year basis, with both metrics expected to accelerate as the company enters 2025.
Risks and Challenges
While Cardlytics has made significant progress in addressing its capital structure and operational challenges, the company still faces several risks and uncertainties:1. Dependence on FI Partners: Cardlytics is heavily dependent on its FI partners, particularly Chase, Bank of America, and Wells Fargo, which accounted for over 90% of the total partner share the company paid in the first quarter of 2024. The loss of any of these key partners could have a material adverse impact on the company's business.
2. Competitive Landscape: The market for purchase intelligence and data-driven marketing solutions is becoming increasingly competitive, with the company facing competition from a range of players, including online retailers, credit card companies, and enterprise software providers.
3. Regulatory and Privacy Concerns: Cardlytics and its FI partners are subject to stringent and evolving data privacy and security regulations, which could impact the company's ability to collect and use consumer purchase data, a key component of its business model.
4. Integration and Execution Risks: The company's acquisition of Bridg and its ongoing investments in technology and sales may present integration and execution challenges that could impact the company's financial and operational performance.