Cardlytics ($CDLX): Clifford Sosin of CAS Seeks CDLX Board Seat
Clifford Sosin of CAS Investment Partners LLC just filed a 13D, requesting one seat on the Cardlytics board.
Market Cap as of 6.26.2023: ~$5.78 / Share x 33.9M Shares ~ $196M Market Cap.
On Friday, June 23rd, 2023, Clifford Sosin of CAS Investment Partners LLC filed a 13D with CDLX.
In the post below I discuss:
Why Clifford Sosin filed a 13D
Why now
What others are saying
My thoughts
More info on Clifford Sosin
More info on Cardlytics
Why Clifford Sosin Filed a 13D
From what I’ve heard from large shareholders, Cliff is seeking one board seat with CDLX, while fully supporting CEO Karim Temsamani.
Even in the 13D, under the “Purpose of Transaction”, it says Cliff / CAS…
admire and are supportive of Chief Executive Officer Karim Temsamani and believe his business expertise and history of building growth-oriented technology businesses will enable him to execute on much needed change at the Issuer.
Related to seeking a board seat, the 13D states,
The Reporting Persons intend to engage in communications with the Issuer’s Board of Directors (the “Board”) and management regarding opportunities to enhance stockholder value, including by improving operating performance, capital allocation matters and composition of the Board."
Here is the related section from the 13D filing:
Why Now?
A common question so far with respect to Cliff seeking a CDLX board seat is “why now?”
Based on what I’ve gathered from those shareholders, it sounds like this isn’t a new thought of his wanting a board seat. Therefore, there wasn’t one recent item or event that suddenly led to this decision and recent 13D filing.
Rather, it sounds like it was the accumulation of company actions / board approvals that have led to where we are today (low stock price + tighter liquidity + higher dilution).
Some potential recent examples include:
Poorly structured Bridg earnout (for instance, should have had floors or collars)
Approved buybacks before completing the Bridg earnouts (which put the company at risk from a liquidity standpoint)
Likely didn’t need to acquire Entertainment (likely could of just partnered with them for the content, like they do with other 3rd party content providers, which would have preserved liquidity)
High dilution from stock based comp (I am not referring to Karim or Amit Gupta, since they were both very much needed)
Related to the last point above, it sounds like the straw that broke the camel’s back may have been the stock-based pay to the board at the currently very low stock price, leading to higher dilution at the expense of shareholders.
(Please note, the points above are strictly my thoughts)
But why not try to get a board seat earlier? For one, sounds like he didn’t want to rock the boat when Karim was just starting last year. As stated in the 13D, Cliff supports and even admires CEO Karim Temsamani, and believes he is the right person for CDLX.
Another element of “why today?” is simply due to the timing of when there are votes for board members.
Related, on November 11, 2022, Scott Grimes and Lynne Laube were no longer on the board. Karim filled one of those seats, but that has left one seat open. From what I hear, this is why Cliff is being friendly and reasonable with only requesting that single open seat, rather than going after say 3 seats.
I think there is also just the general restlessness of shareholders and displeasure with some of the board (as even seen with recent votes for some of the board members, where it is likely if CAS + one other fund instead voted against those board members they would have instead lost).
What Others Are Saying
Positive
The vast majority of the feedback / view on Cliff joining the CDLX board has been positive.
In terms of the more positive things some are saying publicly:
I have also heard quite positive feedback from other shareholders in my private conversations, with many saying comments along the lines of:
They would be happy if he joined
View this as a positive
Cliff would add value to the board / Cardlytics
They respect / admire / know Cliff is extremely smart and capable
He would look out for the CDLX shareholders
And much more
Negative
While the vast majority of feedback thus far has been positive, there have been a few negative remarks.
One I believe is from some giving more weight to CAS’s recent investment returns to judge his capital allocation skills. However, I believe Cliff still has a good track record overall since inception, where I believe he is still beating the SPY since inception despite very large drawdowns on some current holdings. This speaks to his investment ability over the long term. I also believe if we look at his track record within the next few years, there is a high probability he will be once again outpacing the SPY be a large margin given his current holdings.
There have also been some individuals who have separately said they have seen this not work out in the past, when shareholders join the board. My thought is if I look at the past events and decisions that were made and approved as well as the current low stock price at Cardlytics, I have a strong sense that adding someone like Cliff can only help going forward (at least for shareholders).
My Thoughts
Supportive of Cliff Joining the Board
If it isn’t already apparent, I am strongly supportive of Cliff joining the board.
The following are just a few of my reasons:
1. Supporting Karim
I personally have always been a strong supporter for Karim, and believe he is a great fit for Cardlytics. Having someone like Cliff on the board that supports Karim and wants to see Karim succeed is a strong benefit.
Beyond other positive remarks by Cliff about Karim, and what was said in the 13D, I think Cliff waiting to seek a board seat to not disrupt Karim when he was just starting is further evidence of Cliff looking to support Karim.
2. Looking Out for CDLX Shareholders
Cliff understands the business and its potential just as well, if not better, than anyone.
As one of the largest shareholders, I believe he wants to increase the odds of seeing that potential come true and look out for the CDLX shareholders.
(For more information on Cliff’s thoughts and views on Cardlytics, see the linked interviews below)
3. Improved Capital Allocation
Another area I believe he would add value is capital allocation (this was also mentioned in the 13D).
With Cliff on the board, it decreases the likelihood of CDLX making more poor capital allocation decisions in the future, which could possibly include those listed above. If Cliff was previously on the board, maybe at least one of these would have turned out differently, which would have been a positive for the company and the shareholders, with the stock most likely not being where it is today.
The Board’s Decision
It will be interesting to see what the board decides.
The board accepting Cliff for the single seat would show good decision making on their part, given Cliff is only asking for one seat which is very reasonable + would be fast + not wasting time or resources.
But if they instead fight or resist, it may be another point of evidence of poor decision making and not looking out for the best interests of CDLX shareholders. This may even highlight there needs to be further change, and could be a good reason for Cliff to instead go after 3 seats.
Impact on CDLX Shareholders
More then anything, if Cliff Sosin obtains even a single CDLX board seat like he is requesting, I believe it improves the odds of success for CDLX shareholders (by supporting Karim, looking out for shareholders, improving capital allocation, and more).
I am not sure how this could be anything other than great news for CDLX shareholders if Cliff joins the board.
More Info On Clifford Sosin
If you are looking for more information on Cliff, including his thoughts on Cardlytics, or his background or investment process, check out the following resources:
Podcasts discussing Cardlytics:
Business Breakdowns:
Yet Another Value Channel / Podcasts:
“Clifford Sosin on Cardlytics” (9/10/2020)
Interviews discussing his background, investment process, and more:
Graham & Doddsville:
Interview (Spring 2017)
Value Hive Podcast:
Good Investing Talks:
Twitter:
Website:
More Info on Cardlytics
If you’re looking for more info on Cardlytics, check out the CDLX Research Notes.
In general, Research Notes contain information I have collected while researching, investigating, analyzing, and thinking through businesses, such as CDLX.
This is where I continue to add additional notes, observations, and thoughts.
Some of the notes have never been made, nor will be made, into official posts that are public to read.
Upgrading your subscription will give you access to all the Research Notes below (including CDLX, CVNA, General, Portfolio Updates, and more to come):
Cardlytics ($CDLX) Research Notes:
For all of you with a paid subscription, you can read some of the recent updates:
#178 (6.13.2023): Chase & Figg Updates
#177 (5.23.2023): "1,000 Bagger" Valuation Scenarios
#174-176 (5.11.2023): Thoughts After Q1 2023 Earnings
#172-173 (5.4.2023): New & Improved Feature, Final Thoughts Before Today's Earnings Call
#171 (5.1.2023): First Thoughts on Bridg Dispute Outcome
#170 (4.27.2023): Updated VWAP Projections + Additional Bridg Earnout Payment Possibility
#166-169 (4.25.2023): Updated Bridg VWAP Projections, Thoughts on Timing of Earnings and the Bridg Resolution
#164-165 (4.19.2023): Bridg VWAP Projections (12 and 13 trading days remaining of 20)
#162-163 (4.12.2023): Potential Stock Price After the Bridg Resolution, Potential Bridg Clients
160-161 (4.7.2023): Timing of Announcements, Convertible Senior Notes, Updated Projections
#158-159 (4.4.2023): Updated Guidance + Updated Liquidity Analysis and Projections
#156-157 (4.3.2023): Potential for New Banks Signing Soon and/or Remaining Banks Moving to the New Ad Server Ahead of Schedule, Possibilities and Potential Impact of Images
#154-155 (3.30.2023): How Bridg Can Lower FI Revenue Share, My Latest Large Purchases of CDLX with Leverage
#150-153 (3.27.2023): Possible Upcoming Announcements that Could Increase the Stock Price, New User Experience on My Chase Account, Less-Considered Liquidity Resources
#145-149 (3.24.2023): PacWest Deposits and LOC, Bridg Dispute, Resignation of CFO
#140-144 (3.20.2023): Why I Bought More
#133-139 (3.12.2023): Liquidity Analysis, Prior Use of SVB, 22Q4 Earnings, and More
I have also added a page to keep track of these updates as well.
Carvana ($CVNA) Research Notes:
General Research Notes on Businesses, Investments, and CEOs (Historical to Current):
Portfolio Updates:
Current holdings and allocations, and reasons behind recent buy / sell / hold decisions.
Reviews on the Research Notes
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Closing
I will continue to add more to the CDLX Research Notes, especially as new information is released and discovered. (There are actually quite a few notes in my draft that I plan to release soon).
In the meantime:
If you haven’t already, check out my interview on the After Dinner Investor podcast discussing Cardlytics, on the episode, “Will Cardlytics Be a 1,000 Bagger?”.
Or check out the latest updates within the CDLX Research Notes.
Thanks,
Austin Swanson
Swany407 Investment Research
Disclaimer: This content is not investment advice. Before making any investment, you should do your own analysis. Please see the Disclaimer page for more details. Also please note, my thoughts shared are my own thoughts and opinions.