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OVERVIEW OF BUSINESS AND BASIS OF PRESENTATION | 9 Months Ended
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Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
OVERVIEW OF BUSINESS AND BASIS OF PRESENTATION | OVERVIEW OF BUSINESS AND BASIS OF PRESENTATION 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 financial institutions’ (“FIs”) digital channels, which include online, mobile, email, and various real-time notifications. Our partnerships with FIs provide us with access to their anonymized purchase data and digital banking customers. By applying advanced analytics to this aggregation of purchase data, we make it actionable, helping marketers identify, reach and influence likely buyers at scale, and measure the true sales impact of their marketing spend. We have strong relationships with leading marketers across a variety of industries, including national and regional restaurant and retail chains, large providers of cable satellite television and wireless services, and increasingly, travel and hospitality, grocery, e-commerce and luxury brands. Using our purchase intelligence presents customers with offers to save money at a time when they are thinking of their finances. We also operate in the United Kingdom through Cardlytics UK Limited, a wholly-owned and operated subsidiary registered as a private limited company in England and Wales, and in India through Cardlytics Services India Private Limited, a wholly-owned and operated subsidiary registered as a private limited company in India. Unaudited Interim Results The accompanying unaudited interim condensed consolidated financial statements and information have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. The results for interim periods presented are not necessarily indicative of the results to be expected for the full year due to the seasonality of our business, which has been historically impacted by higher consumer spending during the fourth quarter. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included on our Annual Report on Form 10-K ("Annual Report") for the fiscal year ended December 31, 2019. 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 5—Debt and Financing Arrangements for further details. 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, income taxes, stock-based compensation, allowance for doubtful accounts, income tax 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. Internal-Use Software Development Costs During 2019, we began capitalizing costs related to the development of new technology for building and launching marketing campaigns. During the nine months ended September 30, 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 condensed consolidated statement of operations. Restructuring During the first quarter of 2020, we began a strategic shift within our organization to increase productivity and optimize performance. This plan has resulted in severance and medical benefits totaling $0.4 million and $1.3 million during the three and nine months ended September 30, 2020, respectively. We recognize these costs when the extent of our actions is determined and the costs can be estimated. These charges are reflected on our condensed consolidated statement of operations for the nine months ended September 30, 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. Severance and medical benefits of $0.5 million have been paid to former employees through September 30, 2020. Impacts of COVID-19 Pandemic The COVID–19 pandemic resulted in a global slowdown of economic activity that decreased demand for a broad variety of goods and services and consumer discretionary spending, including spending by consumers with our marketers, and such decreased demand is likely to continue. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. Actual results could differ from those estimates and any such differences may be material to our financial statements. Revenue growth for the three and nine months ended September 30, 2020 was unfavorably affected by the COVID-19 pandemic and its impact on both consumer discretionary spending and marketers' ability to spend advertising budgets on our solution. During the nine months ended September 30, 2020, we deferred $0.3 million of revenue and recorded bad debt expense of $1.3 million associated with billings to marketers that we believe are likely to be materially and adversely affected by the slowdown in economic activity resulting from the COVID-19 pandemic. We expect both a reduction in consumer spending and a reduction in marketing campaigns in the near term, which will result in a decline in our revenue and an increase in our net loss in future periods. The severity and duration of this decline is difficult to estimate given the uncertainty that the impacts of COVID-19 will continue to have on the global economy. The following table summarizes changes in the allowance for doubtful accounts (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2020 |  | 2019 |  | 2020
Beginning balance | $ | 572 |  |  | $ | 1,020 |  |  | $ | 169 |  |  | $ | 255 |
Bad debt expense (reversal) | 414 |  |  | (45) |  |  | 1,066 |  |  | 1,281 |
Write-offs, net of recoveries | (537) |  |  | 15 |  |  | (786) |  |  | (546) |
Ending balance | $ | 449 |  |  | $ | 990 |  |  | $ | 449 |  |  | $ | 990 |

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