Criteo S.A. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited financial statements prepared under U.S. GAAP. Criteo operates a commerce media advertising platform across Marketing Solutions, Retail Media and Iponweb.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $469.2M (+5%; +2% constant currency) | $446.9M | $1,383.1M (-5%; -4% constant currency) | $1,452.6M |
| Gross profit / margin | $205.1M / 44% | $179.6M / 40% | $586.4M / 42% | $548.6M / 38% |
| Contribution ex-TAC / revenue | $245.4M / 52% | $213.4M / 48% | $706.2M / 51% | $644.8M / 44% |
| Operating income (loss) | $11.4M | $4.5M | $(11.1)M | $(24.4)M |
| Net income (loss) | $6.6M; $0.12 diluted EPS | $6.5M; $0.10 diluted EPS | $(7.4)M; $(0.14) diluted EPS | $(5.2)M; $(0.11) diluted EPS |
| Adjusted EBITDA (non-GAAP) | $68.4M (+36%) | $50.2M | $163.2M (approximately flat) | $163.0M |
Cash, liquidity and capital allocation
- Nine-month operating cash flow was $62.9M, down from $130.5M; Q3 operating cash flow was $19.6M versus $41.6M. Management attributed the decline principally to the regulatory penalty payment.
- At September 30, cash and cash equivalents were $194.9M, restricted cash $75.0M, and marketable securities $37.0M. Cash, cash equivalents and restricted cash totaled $269.9M, down $178.3M from year-end 2022.
- Management cited total liquidity above $747M, including the undrawn €407M revolving credit facility, cash, marketable securities and treasury shares. The balance sheet shows only $0.7M of current and non-current financial liabilities; operating lease liabilities totaled $118.3M.
- Nine-month investing cash outflow was $104.2M, including $94.6M of capital expenditures; financing cash outflow was $124.9M, including $103.4M of share repurchases and a $22.0M Iponweb earn-out payment. Capital expenditures were expected to remain around 5% of 2023 revenue. The filing states existing cash should cover anticipated needs for at least 12 months.
Changes and operating trends
- Q3 revenue growth reflected Iponweb and Retail Media, while Marketing Solutions was flat as reported and down 4% at constant currency. Retail Media grew 19% and Iponweb 79% at constant currency. For the first nine months, Marketing Solutions declined 9% and Retail Media declined 7% at constant currency; Iponweb contributed $87.8M of reported revenue.
- Management said Retail Media revenue growth was temporarily affected by clients moving to Criteo’s platform and the resulting net presentation of revenue. Retail Media Contribution ex-TAC rose 29% at constant currency in Q3 and 24% for the nine-month period.
- Q3 revenue was positively affected by $13.7M of currency movements; nine-month reported revenue was negatively affected by $9.1M. Q3 revenue from existing clients was 92%; client count was down 3% year over year, mainly among small businesses.
- Q3 gross profit and Contribution ex-TAC increased partly because traffic acquisition costs fell. Operating expenses included higher R&D costs, including headcount and Iponweb-related amortization. Nine-month G&A was substantially lower mainly because of a partial release of a regulatory loss contingency recorded in 2022.
Outlook, risks and unusual items
- The filing provides no explicit revenue or earnings guidance. Management expects capital expenditures around 5% of 2023 revenue and says historical seasonality typically makes Q4 the busiest advertising quarter.
- Management reported that inflation, high interest rates and geopolitical uncertainty have weighed on advertising demand and make forecasting difficult. It also highlighted privacy regulation, signal loss and Google Chrome’s planned third-party-cookie changes, with staged deprecation beginning in 2024. Criteo described a multi-pronged addressability strategy.
- The French CNIL imposed a €40M ($43.3M) GDPR penalty, reduced from the proposed €60M. Criteo paid it in Q3 and is appealing the decision. The filing says the decision concerns past matters and does not require changes to current practices.
- Iponweb acquisition consideration includes contingent payments of up to $100M tied to 2022 and 2023 revenue targets; the $22.0M 2022 earn-out was paid in Q1 2023. A further earn-out liability remained on the balance sheet. Criteo also recorded a $31.9M provision for certain Iponweb-related non-income-tax matters, with a corresponding indemnification asset.
- Other notable items include $21.9M of nine-month restructuring charges and $76.4M of equity-award compensation expense. Foreign exchange remains a key market exposure, although the company reported using currency hedges. Management reported effective disclosure controls and no material change in risk factors.
Investor verification priorities
- Reconcile reported and constant-currency revenue trends, particularly the drivers of Marketing Solutions weakness and Retail Media’s net revenue presentation during platform migrations.
- Assess whether Retail Media and Iponweb growth and Contribution ex-TAC can offset ongoing pressure in Marketing Solutions.
- Review cash conversion, elevated capital spending, share repurchases and the composition of management’s stated $747M-plus liquidity figure.
- Monitor the CNIL appeal, remaining Iponweb earn-out exposure, and the recoverability and timing of the related tax indemnification asset.
- Track the effects of cookie deprecation, other privacy and platform changes, client-count trends, and the company’s ability to sustain profitability amid restructuring and elevated share-based compensation.