Criteo S.A. — Q3 2020 Form 10-Q
Reporting period: Quarter ended September 30, 2020; comparisons are with Q3 2019 and the nine months ended September 30, 2019. Criteo provides a commerce media and digital advertising platform for marketers and retailers.
Financial performance
| Metric | Q3 2020 | Q3 2019 | First nine months 2020 | First nine months 2019 |
|---|---|---|---|---|
| Revenue | $470.3 million | $522.6 million | $1,411.3 million | $1,608.9 million |
| Revenue ex-TAC (non-GAAP) | $185.9 million | $220.7 million | $571.9 million | $680.3 million |
| Gross profit / gross margin | $151.3 million / 32% | $189.6 million / 36% | $469.5 million / 33% | $594.1 million / 37% |
| Operating income | $8.1 million | $29.4 million | $41.6 million | $82.3 million |
| Net income | $5.3 million | $20.6 million | $27.9 million | $54.5 million |
| Diluted EPS | $0.09 | $0.28 | $0.43 | $0.74 |
| Adjusted EBITDA (non-GAAP) | $49.5 million | $64.2 million | $147.6 million | $189.5 million |
- Q3 revenue fell 10% as reported and 11% at constant currency; nine-month revenue declined 12% on both bases. Revenue ex-TAC fell 16% in Q3 and for the nine-month period.
- Q3 operating margin was approximately 1.7%, versus 5.6% a year earlier; net margin was approximately 1.1%, versus 3.9%. For the nine months, operating margin was approximately 3.0% versus 5.1%, and net margin approximately 2.0% versus 3.4%.
- Cash from operations was $141.3 million for the first nine months, down from $163.5 million. Investing activities used $63.8 million; financing activities provided $111.8 million.
Financial position and liquidity
- At September 30, cash and cash equivalents were $626.7 million, up from $418.8 million at December 31, 2019. The balance sheet also included $23.4 million of non-current marketable securities.
- Financial liabilities were $167.1 million, largely reflecting a $163.9 million draw under the revolving credit facility (RCF). Operating lease liabilities, reported separately, totaled $139.3 million.
- Criteo reported $1,051.2 million of current assets and $668.4 million of current liabilities. It said it had access to a further €210 million under the RCF and total liquidity above $870 million.
- The company repurchased shares under its $30 million 2020 program, completed in July; nine-month treasury-share repurchases used $43.7 million of cash.
Material changes and management commentary
- Management estimated COVID-19 reduced Q3 revenue by approximately $80 million and first-nine-month revenue by approximately $205 million. Customers, particularly in Travel, Classifieds and brick-and-mortar Retail, paused or reduced campaigns. Retail and midmarket clients and Retail Media showed resilience, according to management.
- Management attributed the Q3 revenue decline to lower average cost-per-click, partly reflecting revenue mix, offset in part by more clicks and impressions. It added 594 net new clients year over year; existing-client revenue declined 6% at constant currency in Q3.
- Q3 regional revenue declined 4% in the Americas, 10% in EMEA and 20% in Asia-Pacific as reported. Management cited pandemic-related weakness, with Japan also affected by a weak macroeconomic climate.
- Operating expenses declined year over year, reflecting lower headcount-related costs, share-based compensation and discretionary spending. Research and development expenses also benefited from the 2019 closure of Palo Alto R&D operations.
- Q3 restructuring and transformation costs were $12.2 million; nine-month costs were $15.6 million. The company early-terminated its Palo Alto lease, incurring $4.6 million in broker fees and penalties, and recorded a $1.6 million impairment on certain right-of-use assets.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided in the supplied filing text. Management expected 2020 capital expenditures to remain at or slightly above 3% of revenue and said existing cash should meet anticipated requirements for at least 12 months.
- Management emphasized uncertainty from COVID-19, including customer demand, receivable collectability, impairment estimates and taxes. The allowance for credit losses rose to $38.3 million from $16.1 million at year-end; the company cited the expected-credit-loss accounting change and pandemic-related customer risks.
- The IRS audit of Criteo Corp. for 2014 was settled in August 2020, disallowing $9.2 million of net operating losses. Management reported no legal proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors.
- Foreign-exchange movements, advertising-market conditions, privacy and regulatory developments, competition, and dependence on customer and publisher relationships remain relevant risks. The filing reported disclosure controls were effective as of September 30, 2020.
Investor verification priorities
- Assess whether revenue and revenue ex-TAC recover as pandemic-related campaign reductions ease, especially in Travel, Classifieds and Asia-Pacific.
- Review the assumptions behind management’s estimated COVID-19 revenue impact and the elevated credit-loss allowance, including subsequent collections.
- Track profitability and margins alongside non-GAAP measures, and compare their reconciliations with GAAP results and the prior-year period.
- Confirm the RCF draw’s repayment or refinancing status, remaining facility availability, and cash needs for leases, capital spending and share-based compensation.
- Monitor restructuring and lease-termination cash costs, and whether expected savings from organizational and facilities changes are realized.