Criteo S.A. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results are presented under U.S. GAAP; amounts below are in U.S. dollars unless stated otherwise.
Business context and performance
Criteo operates a commerce media advertising platform. Following its August 1 acquisition of Iponweb, it reports Marketing Solutions, Retail Media and Iponweb segments. Q3 revenue was pressured by foreign-exchange movements, identity and privacy changes, Russia-related suspension of operations, and the transition of Retail Media clients to platform arrangements that recognize revenue net rather than gross.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $446.9m | $508.6m | $1,452.6m | $1,601.0m |
| Gross profit / margin | $179.6m / 40% | $176.0m / 35% | $548.6m / 38% | $537.6m / 34% |
| Contribution ex-TAC (non-GAAP) | $213.4m | $211.0m | $644.8m | $644.6m |
| Operating income (loss) | $4.5m | $32.2m | $(24.4)m | $86.1m |
| Net income (loss) | $6.5m | $24.2m | $(5.2)m | $62.7m |
| Adjusted EBITDA (non-GAAP) | $50.2m | $68.4m | $163.0m | $211.6m |
| Adjusted net income (non-GAAP) | $33.2m | $41.0m | $121.3m | $125.0m |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $130.5m | $154.9m |
Q3 revenue declined 12% reported, but 3% at constant currency; the $46.4m currency impact was significant. Nine-month revenue declined 9% reported and 2% at constant currency. Q3 Contribution ex-TAC increased 1% reported and 14% at constant currency, while Q3 Adjusted EBITDA fell year over year. For the nine months, the net loss included a $63.9m CNIL-related loss contingency, along with higher operating expenses.
At September 30, cash and cash equivalents were $307.3m, plus $100.0m of restricted cash and $10.0m of marketable securities. Cash and restricted cash totaled $407.3m, down $108.2m from year-end 2021. Total assets were $2.12bn and total liabilities $1.05bn. Financial liabilities were $0.3m; operating lease liabilities totaled $108.4m. The company had an undrawn five-year €407.0m ($396.7m) revolving credit facility. It stated existing cash was expected to cover anticipated requirements for at least 12 months.
Material changes and management commentary
- Segments: Marketing Solutions Q3 revenue was $387.3m, down 16% reported and 6% at constant currency. Retail Media revenue was $41.2m, down 18% and 14%, respectively, while Contribution ex-TAC rose 28% reported and 32% at constant currency. Iponweb contributed $18.5m after acquisition.
- Retail Media accounting: About 95% of Q3 Retail Media onsite revenue was recognized net, versus about 63% in the year-ago quarter. Management said the shift temporarily weighs on reported revenue but supports higher Contribution ex-TAC margin; Contribution ex-TAC is not affected by the gross-to-net transition.
- Acquisition: Iponweb purchase consideration was $287.6m, including $61.2m fair value of contingent consideration; additional earn-out payments may reach $100m based on 2022–2023 revenue targets. Preliminary goodwill was $282.3m, and purchase accounting remained in progress. The company also transferred $70.2m of locked-up treasury shares to the founder, to be expensed as share-based compensation over three years.
- Costs and cash: Nine-month investing cash outflow was $133.7m, including $135.5m net cash paid for Iponweb; financing cash outflow was $36.2m, including $59.2m of share repurchases. Capital expenditures were $41.3m for the nine months.
- Outlook: Management expected 2022 capital expenditures to remain at or slightly above 3% of revenue and cited planned data-center capacity and redundancy investment. It said liquidity and expected 2022 cash flow provided financial flexibility. No specific revenue or earnings guidance is provided in the supplied filing text.
Risks, contingencies and unusual items
- CNIL/GDPR matter: CNIL’s August 2022 investigator report alleged GDPR violations and proposed a €60.0m ($65.4m) penalty. Criteo recorded a provision in Q2 2022; the final decision was expected no earlier than 2023 and could differ from the proposed amount.
- Iponweb contingencies: Acquisition accounting included a $32.7m contingency provision and an $18.0m uncertain-tax-position liability. The filing describes seller indemnification and related indemnification assets; the purchase-price allocation was preliminary.
- Business risks: Management cited macroeconomic uncertainty, inflation and interest rates, privacy and platform changes, competition, foreign-exchange movements, and the Russia-Ukraine conflict. Russian advertising activity was suspended; Iponweb transitional services involving personnel or contractors in Russia were expected to continue through June 2023.
- Currency and credit: Foreign-exchange gains materially benefited nine-month financial income, while exchange-rate changes reduced cash by $68.8m. Net trade receivables were $576.1m; the allowance for credit losses was $57.6m, up from $45.4m at year-end 2021.
Important facts for investors to verify
- CNIL proceedings, the final penalty or other outcome, and the adequacy of the recorded provision.
- Final Iponweb purchase-price allocation, acquired liabilities and indemnifications, earn-out outcomes, and share-based compensation expense.
- Underlying growth and profitability by segment, separating constant-currency trends from Retail Media gross-to-net presentation effects.
- Cash conversion, receivables and credit-loss allowance trends, and the liquidity available after restricted cash and acquisition-related commitments.
- Terms and covenants of the undrawn revolving credit facility and the execution of planned data-center investment.