Criteo S.A. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited U.S. GAAP financial statements. Criteo provides performance-based digital advertising using predictive software and advertiser and consumer data.
Financial performance
| Metric | Q1 2015 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $294.2 million | $401.3 million | +36.4% reported; +39.2% constant currency |
| Revenue ex-TAC (non-GAAP) | $118.3 million | $162.5 million | +37% |
| Gross profit / gross margin | $105.3 million / 35.8% | $144.2 million / 35.9% | Margin +0.1 percentage point |
| Operating income / margin | $16.8 million / 5.7% | $27.8 million / 6.9% | Operating income +65% |
| Net income / margin | $13.6 million / 4.6% | $18.5 million / 4.6% | +36.1% |
| Diluted EPS | $0.20 | $0.26 | +30% |
| Adjusted EBITDA (non-GAAP) | $31.8 million | $48.8 million | +54% |
| Operating cash flow | $41.0 million | $18.9 million | Down $22.1 million |
Traffic acquisition costs rose 35.7% to $238.8 million; they were 59.5% of revenue in Q1 2016. Revenue ex-TAC was 40.5% of revenue. Adjusted net income, a non-GAAP measure, increased from $20.8 million to $28.1 million.
Financial position and liquidity
- At March 31, 2016, cash and cash equivalents were $386.1 million, versus $353.5 million at year-end 2015. Working capital was $352.9 million.
- Total financial liabilities were $9.4 million, down from $10.4 million at year-end; cash exceeded financial liabilities by approximately $376.7 million.
- Total assets were $893.7 million and total equity was $531.8 million. Net trade receivables were $262.5 million.
- Investing activities used $11.3 million, including $12.1 million of capital expenditures. Financing activities provided $4.7 million, including $5.5 million from option exercises, partly offset by $1.5 million of loan repayments.
- Management stated that existing cash was expected to cover anticipated requirements for at least the next 12 months. The company reported compliance with the leverage ratio in its €250 million revolving credit facility.
Material changes and management commentary
- Growth was attributed to technology improvements across devices, over 760 net new clients, broader publisher relationships, and increased spending by existing clients. The client count rose from 7,832 to 10,962.
- Revenue grew in every region: Americas +46.3% to $147.2 million; EMEA +20.6% to $159.4 million; Asia-Pacific +54.3% to $94.7 million. Foreign exchange reduced reported revenue by $8.3 million versus constant-currency results.
- Management emphasized growing Revenue ex-TAC in absolute terms, even at the expense of near-term gross margin, to build inventory access, data depth, and platform performance.
- Operating expenses increased: R&D +52.2%, sales and operations +21.5%, and general and administrative +41.0%, primarily reflecting hiring and associated costs. The filing cites 440 R&D, 1,190 sales and operations, and 340 G&A employees.
- Operating cash flow fell year over year, principally reflecting a $17.1 million working-capital cash outflow and $12.0 million of income taxes paid; working capital was a cash source in Q1 2015. Cash also benefited from a $20.3 million foreign-exchange impact.
- Financial income shifted from $3.9 million income to $1.3 million expense, chiefly due to foreign-exchange losses on Brazilian-real intercompany positions. The 2015 comparison included gains associated with translating and hedging IPO proceeds.
Outlook, risks, contingencies, and other items
- The filing provides no specific numerical revenue or earnings guidance. Management’s stated liquidity assessment is that cash should meet anticipated needs for at least 12 months.
- Forward-looking risks include privacy regulation and data use, access to advertising inventory, competition, changes in technology platforms, system reliability, international operations, acquisition integration, and attracting and retaining personnel.
- Management reported no material changes to the risk factors in the 2015 Form 10-K and no material legal proceedings. Provisions for contingencies totaled $0.7 million, mainly employee-related litigation and lease-restoration estimates.
- No significant period or subsequent events requiring specific disclosure were identified. Management reported effective disclosure controls as of March 31, 2016.
- Non-GAAP measures, including Revenue ex-TAC, Adjusted EBITDA, and adjusted net income, are company-defined and should be considered alongside GAAP results, not as substitutes.
Important facts for investors to verify
- Whether revenue and Revenue ex-TAC growth can be sustained, and how much depends on existing-client spending versus new-client additions.
- How rising impression volumes and CPMs affect TAC, Revenue ex-TAC growth, and gross margin.
- Whether working-capital movements, receivables aging, and tax payments continue to constrain operating cash conversion.
- The impact of currency movements, particularly Brazilian-real exposures, and the effectiveness of hedging.
- Potential dilution from share-based compensation and the comparability and reconciliation of non-GAAP measures.
- Compliance with the revolving-credit-facility covenants and the adequacy of liquidity if growth or investment needs change.