Criteo S.A. — Q2 2023 Form 10-Q
Business context and reporting period. Criteo is a global commerce-media technology company serving marketers and media owners. This unaudited U.S. GAAP filing covers the quarter and six months ended June 30, 2023; comparisons are with the same 2022 periods. Amounts are in U.S. dollars.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $468.9m | $495.1m | $914.0m | $1,005.7m |
| Gross profit | $199.8m | $185.0m | $381.3m | $369.0m |
| Gross margin, rounded | 43% | 37% | 42% | 37% |
| Operating income (loss) | $1.0m | $(56.5)m | $(22.5)m | $(28.8)m |
| Net income (loss) | $(2.0)m | $(33.0)m | $(14.0)m | $(11.7)m |
| Adjusted EBITDA, non-GAAP | $56.0m | $50.0m | $94.7m | $112.8m |
| Operating cash flow | Not separately provided in the summarized cash-flow table | $43.3m | $88.9m |
Q2 Contribution ex-TAC, a non-GAAP measure, was $240.2m, up 12% reported (13% at constant currency); it was 51% of revenue versus 43%. For the first half it was $460.8m, up 7% reported (10% at constant currency), or 50% of revenue versus 43%.
At June 30, cash and cash equivalents were $223.2m, restricted cash $75.0m, and marketable securities $37.5m. Total assets were $2.13bn and current liabilities $949.0m. Financial liabilities were approximately $0.7m; operating lease liabilities totaled about $106.9m. The company reported access to a €407m revolving credit facility and stated that total liquidity, including cash, marketable securities and treasury shares, exceeded $747m. It reported no borrowings under the facility in the six-month cash-flow table.
Material changes versus the prior comparable periods
- Q2 revenue declined 5% reported and 4% at constant currency. First-half revenue fell 9% reported and 7% at constant currency.
- Marketing Solutions revenue fell 10% in Q2 and 14% for the first half (9% and 12% declines at constant currency). Management cited anticipated signal loss, softer retail trends and, for the first half, suspension of operations in Russia; travel was a partial offset.
- Retail Media revenue fell 18% in both periods, largely reflecting a shift to net revenue recognition as clients moved to Criteo’s platform. Management said this transition reduces reported revenue but does not affect Contribution ex-TAC; segment Contribution ex-TAC grew 19% in Q2 and 20% for the first half.
- Iponweb, acquired in August 2022, contributed $29.1m of Q2 revenue and $54.2m for the first half. It reported $6.7m of pretax income for the six-month period.
- Gross profit increased despite lower revenue, helped by lower traffic acquisition costs. Other cost of revenue rose, including hosting costs. First-half R&D and sales and operations expenses increased, while G&A declined substantially against the prior-year period, which included a large regulatory contingency charge.
- Cash and cash equivalents declined from $348.2m at year-end 2022 to $223.2m. Cash and restricted cash together fell by $150.0m, reflecting investing and financing outflows, partly offset by operating cash generation.
Outlook, commentary, risks and unusual items
- Management expects 2023 capital expenditures to remain around 5% of revenue, primarily for data-center capacity and software development. It believes existing cash balances will meet anticipated needs for at least 12 months and that liquidity plus expected 2023 cash generation provides flexibility. The filing gives no specific revenue or earnings guidance.
- First-half capital expenditures were $78.7m. Financing cash outflows included $74.9m of share repurchases and a $22.0m Iponweb earn-out payment. The repurchase authorization had been extended to $480m; $169.4m remained available at June 30.
- The CNIL issued a €40m ($44m) GDPR-related penalty in June, reduced from the previously proposed €60m. Criteo intends to appeal and expected to pay the sanction in Q3 2023. The charge was applied against a liability accrued in 2022; the filing does not report a subsequent payment as of its reporting date.
- The company recorded $19.9m of restructuring costs for the first half, with $12.3m still accrued at June 30. Share-based compensation expense was $52.3m for the first half, compared with $21.5m a year earlier.
- Key disclosed risks include privacy regulation and enforcement, signal loss and platform changes, ability to collect and use data, soft advertising and retail markets, competition, foreign-exchange movements, and dependence on publisher inventory and technology systems. Management identifies foreign exchange as its main market risk.
Most important facts for investors to verify
- Whether revenue trends improve, particularly in Marketing Solutions, and how signal loss and retail conditions affect performance.
- Whether Retail Media’s platform transition continues to depress reported revenue and whether segment Contribution ex-TAC growth is sustained.
- The timing and outcome of Criteo’s appeal of the CNIL penalty, and confirmation of any sanction payment.
- Whether operating cash flow can recover while capital expenditure, restructuring, share repurchases and acquisition-related payments continue.
- The composition and availability of management’s stated liquidity above $747m, including the undrawn credit facility and treasury shares.