Criteo S.A. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Criteo operates a commerce media advertising platform, reported in Marketing Solutions and Retail Media. Figures below are U.S. dollars; financial statements are unaudited.
Financial results
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Revenue | $495.1m | $551.3m | $1,005.7m | $1,092.4m |
| Gross profit | $185.0m | $182.9m | $369.0m | $361.6m |
| Gross margin | 37% | 33% | 37% | 33% |
| Operating income (loss) | $(56.5)m | $19.7m | $(28.8)m | $53.9m |
| Net income (loss) | $(33.0)m | $15.0m | $(11.7)m | $38.5m |
| Adjusted EBITDA (non-GAAP) | $50.0m | $67.3m | $112.8m | $143.2m |
| Operating cash flow | Not separately presented for Q2 | $88.9m | $103.7m |
Q2 diluted loss per share was $0.54, versus diluted earnings per share of $0.23 a year earlier; H1 diluted loss per share was $0.21, versus earnings per share of $0.58. Adjusted net income was $23.0m for Q2 and $56.8m for H1, compared with $40.9m and $84.0m, respectively, in 2021.
At June 30, cash and cash equivalents were $562.5m, with $10.0m in marketable securities. Total financial liabilities were $0.6m; operating lease liabilities totaled approximately $115.1m. Current assets were $1,190.9m and current liabilities $666.4m. H1 capital expenditures were $21.0m. The company repurchased $29.3m of shares during H1.
Material changes versus prior year
- Reported revenue declined 10% in Q2 and 8% in H1. At constant currency, declines were 3% and 2%, respectively; foreign exchange reduced reported revenue by $38.5m in Q2 and $63.7m in H1.
- Marketing Solutions revenue fell 10% in Q2 and 7% in H1 as reported, but was down 2% and 0.4% at constant currency. Management cited identity and privacy changes and the suspension of Russia operations, partly offset by travel recovery and client upselling.
- Retail Media revenue fell 14% in Q2 and 17% in H1 as reported, reflecting the shift of clients to the platform’s net revenue presentation. Retail Media Contribution ex-TAC grew 36% in Q2 and 40% in H1 as reported; management said the underlying platform business strengthened.
- Operating performance was pressured by higher sales and operations expenses and a $65.7m CNIL-related loss contingency recorded in general and administrative expenses. The contingency drove most of the increase in G&A.
- Foreign exchange gains contributed $16.4m of financial and other income in Q2 and $20.4m in H1, versus expenses in the comparable 2021 periods.
Outlook, risks and unusual items
- Management expected capital expenditures to remain at or slightly above 3% of 2022 revenue and believed existing cash would cover anticipated requirements for at least 12 months. It said cash, available facilities and expected cash generation provided financial flexibility.
- Most clients using legacy Retail Media solutions were expected to transition to the platform by the second half of 2022. Management cautioned that reported Retail Media revenue could decline during the transition while Contribution ex-TAC margin was expected to increase.
- On August 3, 2022, after quarter-end, the CNIL investigator alleged GDPR violations and proposed a €60m ($65.4m) sanction. Criteo recorded a $65.7m provision in the June 30 statements; the final outcome and penalty could be lower or higher, with a decision expected no earlier than 2023.
- Criteo completed its IPONWEB acquisition on August 1, 2022. Consideration included approximately $180m cash and $70m in treasury shares, subject to adjustments, plus potential cash consideration of up to $100m tied to 2022 and 2023 revenue targets. The company drew $51.1m under its revolving credit facility on July 29 for one month to support closing; the facility was undrawn at June 30.
- Key risks include privacy regulation and consent requirements, identity and platform changes, foreign-exchange volatility, macroeconomic and retail trends, competition, and the Russia-Ukraine conflict. Russia and Ukraine represented less than 2% of 2021 Contribution ex-TAC; certain IPONWEB functions were to be supported by Russia-based contractors or employees under a transition arrangement through June 2023.
Investor verification points
- Review the CNIL proceeding, the basis and measurement of the $65.7m provision, and any subsequent decision or change in estimated exposure.
- Track IPONWEB purchase accounting, integration costs and performance, including whether contingent-payment revenue targets are met.
- Separate currency effects and Retail Media gross-to-net transition effects from underlying demand and Contribution ex-TAC trends.
- Assess the sustainability of cash generation and liquidity after acquisition funding, share repurchases, capital spending and any further revolving-credit-facility use.
- Compare GAAP losses with non-GAAP adjusted measures, noting that the company excludes the CNIL contingency and other items from its adjusted results.