Criteo S.A. — Q3 2016 Form 10-Q
Business context and reporting period
Unaudited U.S. GAAP results for the quarter and nine months ended September 30, 2016. Criteo provides performance-based digital advertising using predictive software and consumer-intent data. Unless noted, amounts are U.S. dollars.
Financial and operating performance
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Revenue | $423.9M | $332.7M | $1,232.3M | $926.2M |
| Revenue growth, reported | 27.4% | 33.1% | ||
| Revenue growth, constant currency | 25.0% | 32.6% | ||
| Revenue ex-TAC (non-GAAP) | $176.6M | $133.7M | $505.3M | $374.1M |
| Gross profit / margin | $154.2M / 36.4% | $116.5M / 35.0% | $444.3M / 36.1% | $329.6M / 35.6% |
| Operating income | $22.9M | $17.8M | $68.5M | $42.5M |
| Net income | $14.7M | $5.8M | $46.6M | $23.3M |
| Adjusted EBITDA (non-GAAP) | $53.5M | $34.5M | $141.6M | $90.0M |
| Operating cash flow | $43.6M | $17.5M | $81.8M | $70.4M |
Q3 diluted EPS was $0.21, compared with $0.08; nine-month diluted EPS was $0.66, compared with $0.33. Revenue ex-TAC and Adjusted EBITDA are company-defined non-GAAP measures and should be considered alongside GAAP results.
Liquidity, debt and cash flow
Cash and cash equivalents were $407.2M at September 30, up $53.6M from year-end 2015. Total financial liabilities were $9.3M, including $8.3M of borrowings and $0.6M of derivative liabilities; management reported a positive net cash position. Current assets were $745.3M and current liabilities $364.3M. Nine-month investing cash outflow was $59.3M, including $54.4M of capital expenditures and $5.1M for the Monsieur Drive acquisition; financing provided $15.4M. Management said existing cash should meet anticipated requirements for at least 12 months.
Material changes, outlook and risks
- Growth reflected more impressions delivered, technology improvements, wider publisher inventory and client expansion. Q3 revenue growth included over 1,000 net new clients; reported client count was 12,882 versus 9,290 a year earlier.
- Regional Q3 revenue growth was strongest in Asia-Pacific at 47.2% reported (29.7% constant currency), followed by the Americas at 29.6% and EMEA at 15.1%. Foreign exchange increased reported Q3 revenue by $8.0M.
- Traffic acquisition costs rose 24.3% in Q3, slower than revenue growth; gross margin increased to 36.4% from 35.0%. For the first nine months, TAC rose 31.7%, while gross margin increased to 36.1% from 35.6%. Management prioritizes absolute Revenue ex-TAC growth over maximizing near-term gross margin.
- Operating expenses increased, particularly R&D and general and administrative costs, reflecting hiring, facilities and professional fees. Share-based compensation rose to $14.0M in Q3 from $4.6M.
- Trade receivables allowance reached $11.2M from $6.3M at year-end; the filing attributes the increase mainly to greater business with higher-credit-risk client categories. Receivables more than 90 days past due were $17.7M gross.
- In May, Criteo acquired Monsieur Drive for $5.1M; purchase-price allocation was preliminary. On October 3, after quarter-end, it agreed to acquire HookLogic for $250M, subject to adjustments and customary closing conditions, with closing expected in Q4 2016.
- Criteo and SteelHouse settled all claims and counterclaims on October 31, 2016; the filing says the proceeding had not materially adversely affected the company. Management reported no material changes to previously disclosed risk factors and stated the company was in compliance with the leverage ratio covenant.
- No quantified financial guidance was provided. Key stated uncertainties include competition, privacy and regulatory developments, access to advertising inventory and consumer data, technology/platform changes, system reliability, international operations, and execution and integration of acquisitions. Management cautions interim results may not indicate full-year results.
Important facts for investors to verify
- Whether revenue and Revenue ex-TAC growth, particularly in Asia-Pacific, persist after adjusting for currency effects and TAC.
- How higher credit-risk exposure and aged receivables affect collections, bad-debt expense and operating cash flow.
- The final HookLogic purchase price, closing status, funding and acquisition-related impact on leverage and results.
- Whether operating-expense growth, including share-based compensation, remains aligned with revenue growth and profitability.
- The outcome and any financial implications of the SteelHouse settlement, and the company’s ongoing compliance with credit-facility covenants.