Criteo S.A. quarterly report, Q1 FY2022

Criteo S.A. — Q1 2022 10-Q Summary

Reporting period: Three months ended March 31, 2022; unaudited U.S. GAAP results. Criteo operates a commerce media advertising platform through Marketing Solutions and Retail Media.

Financial performance

MetricQ1 2022Q1 2021Change
Revenue$510.6 million$541.1 millionDown 6% reported; down 1% at constant currency
Gross profit / margin$184.0 million / 36%$178.7 million / 33%Gross profit up 3% reported
Operating income / margin$27.7 million / 5.4%$34.2 million / 6.3%Down 19%
Net income$21.3 million$23.5 millionDown 9%
Diluted EPS$0.32$0.35Down 9%
Adjusted EBITDA (non-GAAP)$62.8 million$75.9 millionDown 17%; margin 12.3% vs. 14.0%
Contribution ex-TAC (non-GAAP)$216.9 million$213.4 millionUp 2% reported; up 6% constant currency
Cash from operating activities$74.9 million$77.4 millionDown 3%

Segments: Marketing Solutions revenue was $463.9 million, down 4% reported but up 1% at constant currency; Contribution ex-TAC was $186.1 million, down 3%. Retail Media revenue was $46.7 million, down 19% reported and 18% constant currency, while Contribution ex-TAC rose 46% to $30.8 million. Management attributed much of Retail Media’s reported revenue decline to clients shifting to a platform where revenue is recognized net rather than gross; it said Contribution ex-TAC is not affected by this accounting transition.

Financial position and liquidity

  • Cash and cash equivalents were $589.3 million at March 31, 2022, versus $515.5 million at year-end; marketable securities were $31.4 million.
  • Total financial liabilities were $3.8 million. The company reported no borrowings under its $326.4 million revolving credit facility at quarter-end. Operating lease liabilities totaled about $116.1 million.
  • Total assets were $1.92 billion, total liabilities $712.8 million, and total equity $1.20 billion.
  • Investing cash flow was positive $16.9 million, primarily due to maturity of investments; financing cash flow used $1.4 million, including $8.3 million for share repurchases. The MD&A reports capital expenditures of $5.6 million for the quarter.
  • Management stated that cash, marketable securities, the undrawn credit facility and other resources provided liquidity in excess of $1.0 billion, and that existing cash should cover anticipated needs for at least 12 months.

Material changes, outlook and risks

  • Revenue was negatively affected by $25.6 million of currency translation. At constant currency, total revenue declined 1%; reported revenue fell 6%.
  • Gross margin improved to 36% from 33%, helped by lower traffic acquisition costs. Operating expenses rose 8%, with higher research and development and sales and operations costs; sales and operations expense also reflected increased bad-debt expense and headcount costs.
  • Management said 88% of quarterly revenue came from existing clients and reported 971 net new clients year over year. It expects capital expenditures to remain at or slightly above 4% of revenue in 2022, reflecting data-center capacity and infrastructure-redundancy investment. No specific revenue or earnings guidance is stated in the supplied filing text.
  • The company suspended advertising activity in Russia. Russia and Ukraine represented less than 2% of 2021 Contribution ex-TAC. The filing cites potential macroeconomic, currency, cybersecurity, employee and execution impacts; a $2.7 million bad-debt reserve was recorded in Q1 associated with the adverse economic effects of the invasion.
  • Privacy and identity changes remain business risks, including regulatory developments and changes to industry platforms. A CNIL investigation under GDPR was ongoing; Criteo had not accrued a loss contingency because the claim was unasserted and the potential loss could not be reasonably estimated.
  • The board extended its share-repurchase authorization to a total of $280 million. Criteo repurchased 303,342 shares in March at an average price of $27.37; approximately $271.7 million remained authorized at quarter-end. The company said it does not anticipate cash dividends in the foreseeable future.

Important facts for investors to verify

  • How much of the reported revenue decline reflects currency and the Retail Media gross-to-net transition versus underlying demand.
  • Whether Retail Media’s Contribution ex-TAC growth and platform migration progress continue as expected, particularly as most legacy clients were expected to transition by the second half of 2022.
  • The effects of privacy and identity changes, the Russia-related suspension and credit exposure, including any subsequent changes to bad-debt reserves.
  • Whether operating cash flow remains resilient and planned 2022 capital spending stays near or above 4% of revenue.
  • Developments in the CNIL investigation and any resulting costs, required actions or change in contingency assessment.