Criteo S.A. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing also reports unaudited fourth-quarter results; it is an annual report, not a standalone Q4 filing. Financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
Business context and reporting period
Criteo operates a commerce media and digital advertising platform that uses commerce data, publisher and retailer relationships, and AI to connect advertisers with consumers and help retailers and media owners monetize advertising. Its 2023 reportable segments were Marketing Solutions, Retail Media and Iponweb. The company served approximately 18,000 clients, with quarterly client retention averaging about 90%.
Management said new solutions represented more than half of the business in 2023. In Q4, they accounted for approximately 56% of Contribution ex-TAC, versus 47% in Q4 2022. Beginning in Q1 2024, Criteo plans to report two segments: Retail Media and Performance Media, combining former Marketing Solutions and Iponweb.
Financial results and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $1,949.4 million | $2,017.0 million | Down 3% reported and at constant currency |
| Gross profit | $863.0 million | $795.2 million | Up 9%; gross margin approximately 44%, versus 39% |
| Operating income | $77.2 million | $24.3 million | Up from prior year |
| Net income | $54.6 million | $10.9 million | Up 402%; diluted EPS was $0.88 versus $0.14 |
| Contribution ex-TAC (non-GAAP) | $1,022.6 million | $928.2 million | Up 10% reported; 11% at constant currency |
| Adjusted EBITDA (non-GAAP) | $301.8 million | $267.3 million | Up 13%; approximately 30% of Contribution ex-TAC |
| Cash from operating activities | $224.2 million | $256.0 million | Down $31.7 million |
Annual traffic acquisition costs fell 15% to $926.8 million, while other cost of revenue rose 20% to $159.6 million, including higher hosting costs. R&D expense increased 29% to $242.3 million; sales and operations expense rose 7% to $406.0 million. G&A expense declined 33% to $137.5 million, mainly reflecting a partial reversal of the prior-year CNIL-related loss contingency.
By segment, Marketing Solutions revenue declined 8% to $1,618.0 million and Contribution ex-TAC declined 3% to $696.7 million. Retail Media revenue increased 3% to $209.0 million, while Contribution ex-TAC rose 26% to $203.5 million. Iponweb revenue and Contribution ex-TAC were each $122.5 million, up from $52.2 million in 2022, which included only a partial year after acquisition.
For Q4 2023, revenue was $566.3 million versus $564.4 million in Q4 2022. Gross profit was $276.6 million versus $246.6 million; operating income was $88.3 million versus $48.6 million; and net income was $62.1 million versus $16.0 million. These quarterly figures are unaudited.
At year-end, cash and cash equivalents were $336.3 million, restricted cash was $75.0 million, and marketable securities were $22.5 million. Criteo reported approximately $837.4 million of financial liquidity, including cash, short-term investments, its undrawn revolving facility and treasury shares available for acquisitions. No amount was drawn on the €407 million ($450 million) revolving credit facility, due September 2027; the company said it was in compliance with its leverage covenant. Operating lease liabilities were $118.4 million. Operating cash flow was supported by $66.2 million of working-capital inflows, including seasonal increases in payables.
Capital expenditures were $114.3 million in 2023, versus $55.8 million in 2022. Financing cash use included $125.5 million for share repurchases and $22.0 million of Iponweb contingent consideration payments. Criteo repurchased $125 million of ADSs during 2023 and increased its repurchase authorization to $630 million in February 2024.
Material changes versus prior periods
- Total revenue continued to contract, mainly because of reduced Marketing Solutions spending, particularly retargeting, amid macroeconomic uncertainty. Growth in Retail Media and Iponweb partly offset the decline.
- Retail Media revenue growth was affected by client migration to Criteo’s platform and the resulting shift to net revenue recognition. Management said Contribution ex-TAC better reflected the segment’s underlying growth.
- Profitability improved: gross profit, operating income, net income and Adjusted EBITDA all increased versus 2022. Management attributed the improvement to higher Contribution ex-TAC, cost actions and lower income taxes.
- Cash from operations declined despite higher net income, while capital expenditures increased substantially from 2022.
- The client count was 18,197 versus 18,990. Criteo changed its counting methodology in Q1 2023, consolidating some accounts; it said this did not change underlying activity or trends.
Outlook, commentary, risks and unusual items
- Outlook: No specific full-year 2024 revenue or earnings guidance is provided in the supplied filing text. Management expects new solutions to remain more than 50% of the business in 2024, plans continued investment in Retail Media and addressability, and expects 2024 capital expenditures to be at or slightly below 5% of revenue. It believes available funds and expected cash generation can cover needs for at least 12 months.
- Management commentary: Management cited $70 million of cost savings in 2023 and plans further organization and operating-model optimization while continuing growth investment. It also noted that uncertain economic and geopolitical conditions had weighed on advertising demand and client planning.
- Privacy matter: In June 2023, France’s CNIL imposed a €40 million ($43.3 million) GDPR-related penalty, reduced from €60 million; Criteo paid it in Q3 2023 and appealed to the Conseil d’État. The decision concerns past matters and, according to the filing, does not require changes to current practices. The company also reported a Doe v. GoodRx claim and said it could not predict its outcome.
- Other unusual items: Net income and Adjusted EBITDA comparisons were affected by the CNIL contingency, which was accrued in 2022, partly reversed and paid in 2023. Adjusted EBITDA excludes specified items, including equity compensation, restructuring and certain regulatory charges; it is a non-GAAP measure. Equity awards compensation expense was $99.2 million in 2023.
- Key risks: Advertising budget sensitivity to economic conditions and seasonality; competition; dependence on access to data, publishers and retailer partners; privacy regulation and browser/device changes, including planned Chrome third-party-cookie deprecation; execution of the business transformation and acquisitions; foreign exchange exposure; and cybersecurity or system disruptions. The filing says past cybersecurity incidents had not materially affected the company.
Important facts for investors to verify
- Track underlying Marketing Solutions demand separately from Retail Media growth, including the effect of platform migration and net revenue presentation on reported revenue.
- Review the CNIL appeal, contingent-liability accounting and any related developments; the penalty has been paid.
- Assess whether Contribution ex-TAC and Adjusted EBITDA growth converts into durable GAAP earnings and cash flow, accounting for equity compensation and restructuring costs.
- Monitor working-capital seasonality, elevated capital expenditures, share repurchases and the use of liquidity for growth or acquisitions.
- Confirm 2024 operating trends and the segment-reporting transition; the filing provides no numerical 2024 revenue or earnings guidance.