Criteo S.A. — Q2 2016 Form 10-Q
Business context and reporting period. Criteo provides performance-based digital advertising using predictive software and consumer-intent data. This unaudited filing covers the three and six months ended June 30, 2016; comparisons are with the corresponding 2015 periods. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2016 | Q2 2015 | H1 2016 | H1 2015 |
|---|---|---|---|---|
| Revenue | $407.2m | $299.3m | $808.5m | $593.5m |
| Revenue growth, reported | 36.0% | — | 36.2% | — |
| Revenue growth, constant currency | 34.5% | — | 36.9% | — |
| Revenue ex-TAC (non-GAAP) | $166.2m | $122.1m | $328.7m | $240.4m |
| Gross profit | $146.0m | $107.8m | $290.1m | $213.1m |
| Gross margin | 35.8% | 36.0% | 35.9% | 35.9% |
| Operating income | $17.9m | $7.8m | $45.7m | $24.7m |
| Net income | $13.3m | $3.9m | $31.9m | $17.5m |
| Net margin | 3.3% | 1.3% | 3.9% | 3.0% |
| Adjusted EBITDA (non-GAAP) | $39.2m | $23.7m | $88.0m | $55.5m |
| Adjusted net income (non-GAAP) | $21.9m | $10.6m | $50.0m | $31.5m |
- Q2 growth and profitability: Reported revenue increased 36.0%; net income rose 239.5% to $13.3m. Operating income increased by $10.0m year over year. Diluted EPS was $0.19, versus $0.05.
- H1 growth and profitability: Revenue increased 36.2%, while net income rose 81.6%. Diluted EPS was $0.45, versus $0.25.
- Costs and margins: Q2 traffic acquisition costs (TAC) increased 36.0% to $241.0m, broadly in line with revenue; other cost of revenue grew 42.4%. Gross margin eased to 35.8%. The company reported a 13.5% increase in average cost per thousand impressions in Q2, citing inventory quality, ad formats and pricing dynamics.
- Regional revenue: Q2 reported growth was 41.2% in the Americas, 21.4% in EMEA and 57.0% in Asia-Pacific. H1 growth was 43.6%, 21.0% and 55.7%, respectively. Q2 constant-currency growth was 42.9%, 21.6% and 46.0%.
Cash, liquidity and debt
- Cash and cash equivalents were $377.4m at June 30, up $23.9m from year-end 2015. Total assets were $915.4m and total equity was $551.7m.
- H1 operating cash flow was $38.2m, down from $52.9m. Investing used $39.0m, including $34.5m of capital expenditures and $5.1m for the Monsieur Drive acquisition. Financing provided $13.0m, including $15.6m from option exercises, partly offset by loan repayments.
- Financial liabilities totaled $8.9m, down from $10.4m at December 31, 2015. The filing reports a positive net cash position. Criteo had drawn $4.5m on its HSBC China revolving facility at June 30.
- Management said existing cash should cover anticipated requirements for at least 12 months. The €250m revolving credit facility contains leverage and indebtedness covenants; Criteo reported compliance with the required leverage ratio.
Material changes, outlook and risks
- Management attributed growth to technology improvements across devices, broader publisher access, more impressions and revenue growth from existing clients. New clients accounted for 54.1% of Q2 year-over-year revenue growth; existing clients accounted for 45.9%. The company added more than 900 net clients in Q2 and more than 1,670 in H1.
- Management prioritizes absolute Revenue ex-TAC growth over maximizing near-term gross margin, and described investments in publisher relationships and advertising exchanges as part of that strategy. Revenue ex-TAC and Adjusted EBITDA are non-GAAP measures and are not substitutes for GAAP results.
- Operating expenses increased, reflecting higher staffing and infrastructure costs. Q2 R&D rose 52.3% year over year; sales and operations rose 15.9%; and general and administrative costs rose 40.2%.
- H1 operating cash flow was pressured by a $27.4m working-capital outflow, including lower payables and higher prepaid expenses and other current assets, and $25.9m of income taxes paid. The doubtful-account allowance increased to $10.1m from $6.3m at year-end; management cited a $2.7m Q2 increase in doubtful-receivable provisions.
- Foreign-exchange effects were mixed: Q2 reported revenue benefited by $4.6m versus constant currency, while H1 reported revenue was $3.8m below the constant-currency comparison. H1 financial expense was $1.4m, primarily reflecting first-quarter foreign-exchange revaluations and hedging, plus credit-facility fees.
- No specific earnings or revenue guidance is provided in the supplied filing text. Management said future funding needs depend on growth, staffing, capital investment and potential acquisitions; additional financing may not be available on acceptable terms.
- Criteo acquired Monsieur Drive on May 31 for $5.1m in cash. Purchase accounting remained in progress; preliminary goodwill was $5.0m. The filing also describes a lawsuit and counterclaims with SteelHouse concerning alleged click fraud and advertising claims; management did not expect a material adverse effect based on information then available.
- Management identified ongoing exposure to privacy regulation, data use and protection, advertising inventory supply, platform and technology changes, competition, international expansion, acquisitions, and system reliability. It reported no material changes to the risk factors in its 2015 Form 10-K and no material changes to market-risk exposure in H1. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether rapid revenue and Revenue ex-TAC growth can continue as TAC and other operating costs rise, and whether gross margin stabilizes.
- How the increase in overdue receivables and doubtful-account allowances develops, and whether working-capital outflows persist.
- Whether strong reported regional growth, particularly in Asia-Pacific, is sustained after accounting for foreign exchange.
- The completion and final purchase-price allocation for Monsieur Drive, and any subsequent acquisition-related impacts.
- Developments in the SteelHouse litigation and counterclaims, and any changes to the company’s privacy, platform, inventory-supply or other disclosed risks.