Criteo S.A. — FY2020 Form 10-K summary
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited results for the fourth quarter ended December 31, 2020; this is an annual report, not a standalone quarterly filing. Amounts are in U.S. dollars unless noted.
Business context
Criteo operates a commerce media and digital advertising platform, using commerce data and AI to deliver marketing services and help retailers monetize advertising inventory. It reported one operating segment. At year-end, it served 21,460 clients across 104 countries; average quarterly client retention was approximately 90%.
Key financial metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $2,072.6 million | $2,261.5 million | Down 8% |
| Revenue ex-TAC (non-GAAP) | $825.0 million | $946.6 million | Down 13% |
| Gross profit / gross margin | $688.0 million / 33% | $829.0 million / 37% | Margin down about 4 points |
| Operating income / margin | $108.8 million / 5.3% | $141.2 million / 6.2% | Down 23% |
| Net income | $74.7 million | $96.0 million | Down 22% |
| Diluted EPS | $1.16 | $1.38 | Down 16% |
| Adjusted EBITDA (non-GAAP) | $251.0 million | $299.0 million | Down 16% |
| Operating cash flow | $185.4 million | $222.8 million | Down 17% |
| Capital expenditures | $65.5 million | $97.9 million | Down 33% |
FY2020 free cash flow was reported as $120 million. Cash and cash equivalents were $488.0 million at year-end, versus $418.8 million a year earlier; marketable securities were $41.8 million. The company reported approximately $960 million of total financial liquidity, including cash, marketable securities and its revolving credit facility. The €140 million facility draw made in May 2020 was repaid in November; no amount was drawn at year-end. Financial liabilities on the balance sheet were $3.3 million.
Fourth-quarter results
Q4 revenue was $661.3 million, up about 1% from $652.6 million in Q4 2019. Revenue ex-TAC was $253.2 million, down about 5% from $266.3 million. Gross margin was 33.0%, compared with 36.0%; operating income was $67.2 million versus $58.9 million, and net income was $46.8 million versus $41.5 million. Adjusted EBITDA was $103.4 million versus $109.5 million. Q4 results reflect the company’s seasonal pattern, with retail and Retail Media advertising typically stronger in the fourth quarter.
Material changes and management commentary
- Management estimated COVID-19 reduced FY2020 revenue by approximately $262 million, or about 12 percentage points of year-over-year growth. The most affected areas included travel, classifieds and some large brick-and-mortar retailers; management said midmarket retail and Retail Media benefited from stronger ecommerce activity.
- Revenue ex-TAC fell 13% for the year, while reported revenue declined 8%. Management attributed the constant-currency revenue decline to lower average advertiser pricing and changes in revenue mix, partly offset by more impressions and clicks.
- Traffic acquisition costs declined 5%, while other cost of revenue increased 17%. Operating expenses fell, including R&D by 23%, sales and operations by 12%, and general and administrative expenses by 17%.
- Revenue retention was 92% in 2020, excluding Retail Media; the comparable figures were 94% in 2019 and 101% in 2018. Client count grew 4%, with 1,213 net new clients added during 2020.
- Retail Media represented more than 10% of consolidated revenue. New solutions outside retargeting were nearly 20% of business on a Revenue ex-TAC basis in 2020, including 24% in Q4. Omnichannel grew close to 120% on that basis for the year.
Outlook, risks and unusual items
- For 2021, management expected Adjusted EBITDA margin as a percentage of Revenue ex-TAC to be approximately flat versus 2020, and capital expenditures at or slightly below 3% of revenue. It expected new solutions to approach 30% of business in 2021, measured on a Revenue ex-TAC basis. These are management expectations, not guarantees.
- Management intends to invest in Retail Media, first-party media relationships, contextual advertising, video, connected TV and commerce insights, while pursuing expense efficiency and automation. It also expects traffic acquisition costs to rise in absolute terms and potentially as a percentage of revenue.
- Key risks include ongoing COVID-19 effects and advertiser spending, browser and device restrictions on third-party cookies and advertising identifiers, privacy regulation and consent requirements, competition, access and pricing of ad inventory, client credit and collections, and execution of the business transformation. The filing specifically notes Google’s planned Chrome third-party-cookie phaseout and Apple’s planned IDFA opt-in requirement.
- Credit-loss provision expense was $30.8 million in 2020, versus $11.1 million in 2019; management cited the expected-credit-loss accounting model and pandemic-related customer payment risk. A $4.6 million cost was incurred to terminate the Palo Alto lease early. Restructuring and transformation costs were $20.0 million for the year.
- CNIL opened a formal investigation in January 2020 following a complaint regarding ad-tech privacy practices; the filing states there is no assurance that no action will be required. The company reported no legal proceeding expected to have a material adverse effect. Management and the auditor concluded internal control over financial reporting was effective; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether revenue ex-TAC and advertiser pricing stabilize, and whether growth in Retail Media and other newer solutions offsets weakness in retargeting.
- How COVID-related demand, client collections and the elevated credit-loss provision develop.
- Whether the company can sustain margins and cash generation while funding strategic investments; compare non-GAAP metrics with GAAP results and their reconciliations.
- Exposure to cookie, mobile identifier and privacy-law changes, including outcomes or required changes arising from the CNIL investigation.
- Liquidity composition and availability: the approximately $960 million figure includes an undrawn revolving facility, not only cash and securities; confirm facility terms, covenants and future obligations.