Criteo S.A. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited U.S. GAAP financial statements; amounts below are U.S. dollars unless noted.
Business context
Criteo operates a commerce media platform serving marketers and media owners. It reports one operating segment and presents revenue across Marketing Solutions and Retail Media. The filing highlights continued client migration to its Retail Media Platform (RMP), which recognizes revenue net of inventory costs, unlike legacy arrangements that were generally reported gross.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First nine months 2021 | First nine months 2020 |
|---|---|---|---|---|
| Revenue | $508.6 million | $470.3 million | $1,601.0 million | $1,411.3 million |
| Revenue growth, reported | 8% | 13% | ||
| Revenue growth, constant currency | 8% | 11% | ||
| Revenue ex-TAC (non-GAAP) | $211.0 million | $185.9 million | $644.6 million | $571.9 million |
| Gross profit | $176.0 million | $151.3 million | $537.6 million | $469.5 million |
| Gross margin | 34.6% | 32.2% | 33.6% | 33.3% |
| Operating income | $32.2 million | $8.1 million | $86.1 million | $41.6 million |
| Net income | $24.2 million | $5.3 million | $62.7 million | $27.9 million |
| Diluted EPS | $0.37 | $0.09 | $0.94 | $0.43 |
| Adjusted EBITDA (non-GAAP) | $68.4 million | $49.5 million | $211.6 million | $147.6 million |
Q3 operating margin was 6.3% versus 1.7% a year earlier; net margin was 4.8% versus 1.1%. Revenue ex-TAC grew 13% reported in Q3 and 13% for the nine-month period; constant-currency growth was 14% and 10%, respectively. Non-GAAP measures are defined by Criteo and should be assessed alongside GAAP results.
Revenue mix and material changes
- Q3: Marketing Solutions revenue rose 11% to $458.6 million; Retail Media revenue fell 14% to $50.0 million. Retail Media revenue ex-TAC nevertheless grew 65%, reflecting RMP economics and underlying activity.
- Nine months: Marketing Solutions revenue rose 13% to $1,429.3 million; Retail Media revenue rose 16% to $171.7 million. Retail Media revenue ex-TAC increased 73%.
- RMP accounted for about 62% of Retail Media revenue in Q3 and 39% for the first nine months, compared with less than 5% in the year-ago periods. The shift to net revenue recognition depresses reported revenue and TAC as clients migrate, but management says revenue ex-TAC is not affected.
- Q3 regional revenue was flat in the Americas, up 12% in EMEA, and up 18% in Asia-Pacific, as reported. Management cited U.S. softness partly associated with RMP migration, strength in EMEA retail, and an Asia-Pacific retail recovery.
Cash, debt and liquidity
- Cash and cash equivalents were $497.5 million at September 30, 2021, versus $488.0 million at December 31, 2020. Marketable securities totaled $56.3 million.
- Nine-month operating cash flow was $154.9 million, compared with $141.3 million. Investing cash outflow was $66.2 million; financing cash outflow was $55.8 million.
- Financing outflows included $72.6 million of share repurchases; $21.7 million of option-exercise proceeds partly offset these outflows. The company repurchased 980,368 shares in Q3 under its $100 million program.
- Financial liabilities totaled $0.9 million at quarter-end. Criteo had not drawn on its €350 million revolving credit facility (approximately $405.3 million) or its short-term credit and overdraft facilities. Management reported total liquidity above $1.0 billion including cash, securities, the facility and treasury shares.
- Total assets were $1.814 billion, total liabilities $663.2 million, and total equity $1.151 billion. Trade receivables, net of allowances, were $439.5 million.
Outlook, management commentary and risks
- No specific revenue or earnings guidance is stated in the supplied filing text. Management expected 2021 capital expenditures to remain at or slightly above 3% of revenue, chiefly for data-center capacity, software development and infrastructure redundancy.
- Management said existing cash balances should cover anticipated requirements for at least 12 months. It also expects most legacy Retail Media clients to transition to RMP by the second half of 2022; reported revenue may decline during migration while revenue ex-TAC margin may increase.
- Management described healthy retail demand, continued growth from existing clients and client additions, alongside ongoing identity and privacy changes and softness from a large travel client. It cited currency movements as a factor in reported results.
- Key risks include privacy regulation and user-data practices, changes to industry platforms and technology, competition, advertising inventory access, foreign exchange, credit losses, and the effects of COVID-19 and broader economic conditions.
- The CNIL investigation into a GDPR complaint remained ongoing. Criteo said an unfavorable outcome was reasonably possible, but the potential loss could not be reasonably estimated and no loss contingency was accrued. Other recorded contingencies totaled $2.8 million, primarily employee-related litigation and other provisions.
- The company recorded $4.6 million in severance restructuring charges for the first nine months and acquired Mabaya for $9.9 million; its purchase-price allocation remained provisional. Q3 restructuring and transformation costs included a $1.8 million gain, mainly from office-footprint expense reversals.
Important facts for investors to verify
- Track RMP migration and distinguish reported revenue from revenue ex-TAC, especially in Retail Media.
- Review the basis and reconciliation of non-GAAP measures, including Adjusted EBITDA and Adjusted Net Income, against GAAP results.
- Monitor whether retail demand offsets privacy-related impacts and continued softness from the large travel client.
- Follow the CNIL investigation, any resulting claims or sanctions, and the status of the Mabaya purchase-price allocation.
- Check share repurchase activity, capital spending, cash conversion and availability of the undrawn revolving facility.