Criteo S.A. — Q1 2021 Form 10-Q
Business context and period. Criteo is a global advertising technology company operating across ecommerce, digital marketing and media monetization. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $541.1 million | $503.4 million | +7% reported; +4% at constant currency |
| Revenue ex-TAC (non-GAAP) | $213.4 million | $206.0 million | +4% reported; +0.5% at constant currency |
| Gross profit / gross margin | $178.7 million / 33% | $172.2 million / 34% | Margin down 1 percentage point |
| Operating income | $34.2 million | $23.8 million | Up about 44% |
| Net income | $23.5 million | $16.4 million | Up 43%; diluted EPS $0.35 vs. $0.25 |
| Adjusted EBITDA (non-GAAP) | $75.9 million | $59.2 million | Up 28% reported; +21% at constant currency |
| Operating cash flow | $77.4 million | $56.7 million | Cash from operations increased |
Cash and cash equivalents were $520.1 million at quarter-end, up from $488.0 million at December 31, 2020. Marketable securities totaled $45.9 million. Financial liabilities were $2.5 million; the company had not drawn on its €350 million revolving credit facility or its short-term credit facilities. Total liabilities were $638.9 million and total equity was $1.144 billion. Investing activities used $17.0 million and financing activities used $3.4 million. Foreign exchange movements reduced cash by $24.9 million.
Material changes and management commentary
- Retail Media revenue rose 72% reported (69% at constant currency) to $57.9 million; Marketing Solutions revenue rose 3% reported but was down 0.5% at constant currency to $483.2 million.
- Management estimated COVID-19 reduced Q1 2021 revenue by about $46 million, or approximately 9 percentage points of year-over-year growth. Travel and Classifieds remained weak; Retail and Retail Media were stronger.
- Revenue growth was supported by existing clients, whose revenue increased 8% at constant currency, and by 266 net new clients year over year. Management attributed 88% of constant-currency revenue growth to volume and 12% to pricing.
- Traffic acquisition costs increased 10% reported, faster than revenue, contributing to the decline in gross margin. Management said it prioritizes absolute Revenue ex-TAC growth over maximizing near-term gross margin.
- Research and development and sales and operations expenses declined year over year, while general and administrative expenses rose 29%, partly due to transformation-related third-party services and a favorable one-time comparison in Q1 2020.
- Q1 restructuring and transformation costs were $11.6 million, including $5.2 million of severance charges. The workforce restructuring plan announced in February is expected to be completed by year-end 2021.
Outlook, risks and other items
The filing does not provide specific revenue or earnings guidance. Management expected 2021 capital expenditures to remain at or slightly above 3% of revenue, reflecting investment in data-center capacity and infrastructure redundancy. It believed existing cash and expected 2021 cash generation would meet anticipated needs for at least the next 12 months; stated total liquidity, including the undrawn facility and other resources, exceeded $1.0 billion.
Management identified ongoing COVID-19 effects, privacy regulation and user-data availability, changes to major technology platforms including proposed Chrome changes, competition, advertising inventory access, foreign-exchange movements, and execution of international operations and acquisitions as risks. Retail Media platform adoption changes revenue presentation: platform arrangements are reported net, and Criteo cautioned that reported revenue may decline as clients transition from legacy solutions, while Revenue ex-TAC is not expected to be affected. The company reported no material changes to its previously disclosed risk factors, no material legal proceedings, and no significant subsequent events through issuance. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How much of reported growth reflects currency, and whether the weaker constant-currency trend in Revenue ex-TAC improves in subsequent quarters.
- Whether Retail Media growth and client transitions sustain contribution while changing reported revenue and traffic-acquisition-cost presentation.
- The duration and financial impact of COVID-19 weakness in Travel and Classifieds and the extent of any recovery in those client categories.
- Cash conversion and working-capital trends, including the contribution from lower trade receivables, and actual capital expenditures versus the stated 2021 expectation.
- Costs and completion of the restructuring and transformation plan, and the pace of share repurchases under the authorized $100 million program.
- Non-GAAP reconciliations and adjustments: Revenue ex-TAC, Adjusted EBITDA and Adjusted Net Income are company-defined measures and should be considered alongside GAAP results.