Criteo S.A. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Criteo operates a digital advertising platform offering Marketing Solutions and Retail Media. Financial statements are unaudited and prepared under U.S. GAAP; amounts below are U.S. dollars.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $437.6M | $528.1M | $941.0M | $1,086.3M |
| Revenue ex-TAC, non-GAAP | $179.9M | $223.9M | $385.9M | $459.6M |
| Gross profit / margin | $146.0M / 33% | $194.9M / 37% | $318.2M / 34% | $404.5M / 37% |
| Operating income | $9.8M | $19.6M | $33.6M | $53.0M |
| Net income | $6.2M | $12.5M | $22.6M | $33.9M |
| Adjusted EBITDA, non-GAAP | $38.9M | $56.4M | $98.1M | $125.3M |
| Adjusted net income, non-GAAP | $16.7M | $30.7M | $48.7M | $70.4M |
| Diluted EPS | $0.09 | $0.16 | $0.34 | $0.45 |
Q2 revenue fell 17% reported and 16% at constant currency; first-half revenue fell 13% and 12%, respectively. Revenue ex-TAC declined 20% in Q2 and 16% in the first half as reported. Q2 revenue ex-TAC margin was 41%, versus 42% a year earlier. Traffic acquisition costs fell 15% in Q2, while other cost of revenue rose 17%; lower advertising-inventory prices were partly offset by higher impression volumes. Operating expenses declined year over year, including lower personnel, share-based compensation, and facilities costs.
Q2 revenue fell in every region: Americas 13%, EMEA 18%, and Asia-Pacific 23% reported. Management attributed the declines principally to COVID-19-related reduced or paused campaigns and lower average cost-per-click. The largest client generated 1.1% of revenue in the first half, compared with 1.4% a year earlier.
Cash, debt and liquidity
- Cash and cash equivalents were $578.2M at June 30, 2020, up from $418.8M at December 31, 2019. A further $22.4M was held in a non-current term deposit classified as marketable securities.
- First-half operating cash flow was $90.1M, compared with $120.2M in the prior-year period; investing cash outflow was $50.6M, versus $62.3M. Financing cash inflow was $120.1M, mainly due to the revolving credit facility draw, partly offset by share repurchases.
- Criteo drew €140M, reported as $156.8M, under its revolving credit facility in May. Total financial liabilities were $159.4M, versus $4.4M at year-end. The filing states another €210M was immediately available under the RCF; together with cash, management reported liquidity exceeding $830M.
- Total liabilities were $769.4M and total equity $1,035.0M. Operating lease liabilities totaled approximately $157.2M, including current and non-current portions.
- Net trade receivables were $330.0M, down from $481.7M at year-end. The credit-loss allowance rose to $33.3M from $16.1M; management cited the new expected-credit-loss standard and expected COVID-19 effects on collections.
Outlook, commentary and risks
- Management estimated COVID-19 reduced Q2 revenue by approximately $100M, or about 19 percentage points of year-over-year growth, and first-half revenue by approximately $125M. Travel, Classifieds, and brick-and-mortar retail customers were notably affected; management described Retail Media and midmarket activity as comparatively resilient. Criteo added 626 net clients year over year.
- Management said current liquidity and expected 2020 cash generation positioned the company to withstand multiple COVID-19 scenarios. It expected 2020 capital expenditures to remain at, or slightly above, 3% of revenue, chiefly for data-center capacity and infrastructure redundancy. It believed existing cash would cover anticipated requirements for at least 12 months. The filing provides no revenue or earnings guidance.
- COVID-19 creates uncertainty around customer demand, collections, credit-loss reserves, goodwill impairment estimates, and taxes. The filing reports no goodwill or intangible-asset impairment indicators during the quarter.
- The company is contesting an IRS adjustment related to 2014 that could result in an estimated maximum additional federal tax liability of approximately $15M, excluding fees, interest, and penalties. Criteo reported no legal proceedings expected to have a material adverse effect.
- A $30M share repurchase program began in May 2020; $14.9M remained authorized at June 30. The company repurchased 1.27M shares during Q2. Dave Anderson became interim CFO effective May 18; the prior CFO departed June 30.
Important facts for investors to verify
- Whether advertiser demand and campaign activity recovered after the Q2 COVID-19 disruption, particularly in Travel, Classifieds, and large-client Marketing Solutions.
- Subsequent changes in receivable collections, credit-loss reserves, and customer payment behavior.
- Facility draw terms, the availability and maturity of undrawn RCF capacity, and the effect of debt costs on liquidity.
- Whether capital spending, infrastructure investment, and share repurchases track management’s stated plans.
- Progress and potential exposure in the IRS dispute, and the effect of COVID-19 and foreign-exchange changes on future results.
Revenue ex-TAC, Adjusted EBITDA, and Adjusted Net Income are non-GAAP measures; the filing cautions that they should be considered alongside U.S. GAAP results.